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No, Senator Graham, America is not an idea - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 20:37

President Donald Trump had just made his infamous, if contested, remarks about not desiring immigrants from certain countries when Senator Lindsey Graham expressed disagreement.

“America is an idea, not a race,” the South Carolina Republican said, adding that diversity is a strength and not a weakness. The senator reiterated these sentiments in a statement released as the controversy over the president’s words grew. “I’ve always believed that America is an idea, not defined by its people but by its ideals.”

Graham deserves credit for rebuking the president, however mildly, given that Trump is the head of Graham’s party and extremely popular among South Carolina Republicans. Trump’s remark was obnoxious, especially given his history on race. But while most of our attention was rightly focused on Trump’s part of this exchange, it is worth mentioning that Graham wasn’t quite right.

America isn’t a race. But it’s not an idea either. It is, rather, a nation. It is a nation whose identity is more bound up with political ideals than most nations: ideals such as equality before the law, self-government and freedom of religion. But those ideals are part of a national culture that is not reducible to them.

The ideological conception of American nationhood runs into several problems. First, many people who are not Americans can and do believe in American ideals. Second, many Americans historically have rejected some of those ideals, while others have not lived up to them. Even today, our occasional fellow citizen explicitly repudiates American ideals. We treat these people, be they Marxists or monarchists, as misguided eccentrics rather than traitors.

Third, disagreement about the application of those ideals persists. To define Americanness purely by those ideals is to make routine political disagreement a threat to the integrity of the nation. Political disagreement is hard enough for a society to handle without that. Fourth, if these ideals form the country’s very identity, it becomes difficult to resist a missionary foreign policy that requires us to export them, by force of arms if necessary.

It is no coincidence that Graham made his comments about the meaning of America during a discussion of immigration policy. Different conceptions of nationhood have different implications for immigration. If the American experience is reducible to American political ideals, then the only assimilation that should concern us is to those ideals: As long as new immigrants are no threat to freedom of speech and the rest, all is well.

If a common culture is important too, though, we will want immigrants to assimilate to it, even as they also change it. We will want natives and newcomers alike to see themselves as belonging, together, to it. And we might decide that we want a smaller influx of immigrants in order to encourage that kind of assimilation.

Graham is wrong, as well, to treat America’s ideals as superior to its people. What makes the ideals valuable, after all, is that they are conducive to the flourishing of those people. American nationalism, as Yuval Levin has written, is simultaneously abstract and concrete: “It is a devotion to a people devoted to a set of ideas.”

This sense of what holds America together does not currently have a political champion. President Trump is often described as a nationalist, but he is a deficient one, less inclined than most of his predecessors either to celebrate American ideals or to make it clear that his vision of the country includes all Americans.

Here is what Graham should have said to him: “Mr. President, people from all over the world, whatever their race or religion, have come here and joined our neighborhoods, our churches, our armed forces, and even our families. We can argue about how to change immigration policy so it better serves our country. But it shouldn’t matter where you came from as long as you’re willing to become an American.”

From the archives: When prophecy becomes reality - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 18:34


In recent weeks, The American Enterprise Institute, Freedom House, and the Center for American Progress joined together to mark the publication of Freedom House’s country-by-country survey of political rights and civil liberties: “Freedom in the World Report 2018.” The report concludes that 2017 was the 12th consecutive year of decline in global freedom.


In a thoughtful keynote address at the event on democracy’s prospects, Senator Ben Sasse recalled the wisdom of the late Michael Novak, a long-time scholar at AEI. Sasse quoted from Novak’s address on receiving the Templeton Prize, a prize honoring “entrepreneurs of the spirit,” of whom Novak was certainly one. Sasse described Novak’s 1994 words in his Templeton address as prophetic. Here is the excerpt referenced by Sen. Sasse:

During the past hundred years, the question for those who loved liberty was whether, relying on the virtues of our peoples, we could survive powerful assaults from without (as, in the Battle of Britain, this city nobly did). During the next hundred years, the question for those who love liberty is whether we can survive the most insidious and duplicitous attacks from within, from those who undermine the virtues of our people, doing in advance the work of the Father of Lies. “There is no such thing as truth,” they teach even the little ones. “Truth is bondage. Believe what seems right to you. There are as many truths as there are individuals. Follow your feelings. Do as you please. Get in touch with yourself. Do what feels comfortable.” Those who speak in this way prepare the jails of the twenty-first century. They do the work of tyrants.

Senator Sasse’s attention to the work of the late Michael Novak brings to mind another great thinker who recently spoke at an AEI event. Rabbi Lord Jonathan Sacks, who received AEI’s highest honor last year, joined Novak as a winner of the Templeton Prize in 2016. In his Irving Kristol Award speech, Rabbi Sacks also highlighted intellectual and moral blight, saying:

We have seen public discourse polluted by fake news and the manipulation of social media. Not by accident did the Oxford English Dictionary chooses its word that we would remember from 2016 as “post-truth.” . . . Instead of a culture of freedom and responsibility, we have a culture of grievances that are always someone else’s responsibility. Because we no longer share a moral code that allows us, in Isaiah’s words, to reason together, in its place has come something called emotivism, which says, I know I’m right because I feel it. And as for those who disagree, we will shout down or ban all those dissenting voices because we each have a right not to feel we’re wrong.

The very intellectual infection Novak warned about while accepting his Templeton Prize 24 years ago has become a reality. Luckily, society has intellectual leaders like Senator Sasse and Rabbi Lord Jonathan Sacks to recognize the affliction and present a remedy.

Incidentally, Jonathan Sacks gave the 1998 Institute of Economic Affairs Hayek Memorial Lecture on markets and morals which was later turned into a publication by AEI featuring commentary from leading economists and intellectuals. Michael Novak penned a commentary on Rabbi Sacks’ lecture in 1999. It can be read here.

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Sen. Ben Sasse (R-NE) on democracy in crisis - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 17:14

On this AEI Events Podcast, Senator Ben Sasse (R-NE) delivers a keynote address at a conference on discussing democracy in crisis. The event, co-hosted by AEI, Freedom House, and the Center for American Progress, marked the release of Freedom House’s report “Freedom in the World 2018.”

In his keynote, Sen. Sasse emphasized that while freedom is not unique the United States, it is uniquely America’s advantage.

Democracy is in retreat globally and, some say, in the United States. Exacerbating the democratic backslide are authoritarian regimes such as Russia and China, which have increased both repression at home and efforts to export instability abroad. On the home front, indifference toward democratic principles is escalating, as America retreats from a historic commitment to democracy promotion.

This event took place on January 16, 2018.

To watch the video of the full event, click here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

Episode 18: Respect the haruspex - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 17:07

 

In the latest Remnant, Jonah surveys the public opinion landscape with pollster extraordinaire Kristen Soltis Anderson. They talk fecal craters and 2018 midterms, with a bonus aside about the #MeToo movement. Meanwhile, Jonah may have found his signoff phrase.

 You can subscribe to The Remnant with Jonah Goldberg on iTunesGoogle PlayStitcher, and TuneIn.  You can also download this episode here. This podcast was originally published by National Review.

A note on ‘Limited, Energetic Government’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 16:57

My colleague Mike Strain recently has argued forcefully in favor of a “limited, energetic government,” that is, a reorientation of the conservative policy agenda toward a set of policies challenging both the expansive government and confiscatory taxes favored by the Bernie Sanders left, and the fiscal myopia, protectionism, and other such manifestations of big-government “conservatism” favored by the Donald Trump right. Instead, a “limited, energetic government” would adopt a set of policies that strengthen the ability of individuals and families to improve their economic conditions — to facilitate economic flourishing by strengthening self-reliance — without the massive policy distortions of resource allocation and the other familiar perversities of traditional Beltway initiatives.

A limited, energetic government in principle would counter both the progressivism favored by most Democrats and the big government “conservatism” of the Trump-led GOP. But in practice, achieving this limited and energetic government will be difficult. REUTERS/Rick Wilking

So far so good. Mike truly is a solid economist, and because he is the General Secretary of the AEI economics group, I would say that even if I disbelieved it. But I genuinely do believe it; and so it is curious that nowhere in his interesting and carefully-written musings on this topic does he address the incentives inherent in the institutions of majoritarian democracy. Is a “limited, energetic government” reasonable not in principle but instead as a predicted outcome of political competition?

Read Michael Strain's full essay:

The beginning of wisdom on this issue is the recognition that the population groups intended as the beneficiaries of the economic flourishing engendered by “limited, energetic government” are very unlikely to be the median voters, that is, the marginal members of the majority, whether in Congress or in a hypothetical town-hall style popular vote. Accordingly, efforts to promote their wellbeing — their independence —  through policy have many of the characteristics of a classic collective good. In particular, the policies must yield benefits for many voters not affected directly, presumably through a “social insurance” impact (“there but for the grace of God go I”) or perhaps through a mutual “caring” effect in which the wellbeing of many is affected positively by the improved wellbeing of others.

Whatever the mechanism through which the collective nature of the “limited, energetic government” policies emerge, that collectiveness is likely to make the pursuit of those policies self-defeating. Consider a community (“polity”) in which the government produces one collective good — the aforementioned policies as a group — and a pure “private” good (say, transfer payments) that can benefit only the recipients.

The allocation of the budget is determined by a simple majority vote, which means that the median voter (along the spectrum of possible budget choices) determines the outcome.

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In a large polity, the majority is 50% of the voters plus one. (The objective of the majority is to transfer as much wealth as possible from the minority, and then to divide the spoils among as few as possible. I shunt aside here the problem of side payments and the conditions under which an equilibrium political outcome is possible.)

If we define units of the two goods in terms of dollars, and if we assume that there is a socially-optimal budget mix of the two goods, then — in econ jargon — the social tradeoff (“marginal rate of substitution”) between the two goods is 1:1.

But the median voter knows that by cutting spending on the collective good by $1 per voter, transfers to the majority can be increased by $2 per member of the majority. The actual budget outcome will be one in which policies to encourage self-reliance are cut and transfers to the majority coalition are increased.

In other words, I believe that Mike is arguing for a smart policy shift that flies in the face of the central political incentives shaping democratic outcomes. That the bargaining takes place in Congress rather than a popular vote, perhaps surprisingly, does not change the central dynamic. Just as in the standard textbook analysis the private sector is predicted to underprovide collective goods because of a free-rider incentive, it turns out that government too has incentives to underprovide collective goods. (However, see this recent paper by Cotton M. Lindsay and William R. Dougan on the private production of collective goods.)

And so the question raised by Mike’s thoughtful essay is fascinating: How can the goals of a “limited, energetic government” be realized under the institutions of representative democracy? My sense is that the answer lies in both old-fashioned tough-love charity and the institutions of federalism. But I have not done that analysis, which I believe will prove crucial as part of AEI’s goal of advancing human flourishing.

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Banter #299: Mike McShane on education reform in the Bush and Obama years - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 16:55

This week on Banter we’re joined by Mike McShane for a discussion on education reform in the Bush and Obama administrations. Dr. McShane is the director of national research at EdChoice and a former research fellow in education policy studies at AEI. He cohosted a public event on the history of education reform in the Bush and Obama years, which featured a keynote address from Secretary of Education Betsy DeVos. You can watch the full event video at the link below.

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Bush-Obama school reform: Lessons learned (AEI Event Page) 

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Boys will be boys - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 16:00

Of all the details in the story of the death of Tim Piazza—a Penn State sophomore who fell down a flight of stairs during a 2017 hazing incident at the Beta Theta Pi fraternity house and whose “brothers” waited 12 hours and then called 911 only when they determined he “looked f—ing dead”—none is more telling than the fact that the whole episode was caught on video. As Caitlin Flanagan documented in her article on the incident in the Atlantic, there were surveillance cameras in the house to protect the property from damage. The brothers knew about them. So up until the point when they realized Piazza was dead, they were perfectly happy to have a video recording of their actions that night. From this, one might reasonably conclude that their actions that night were not particularly out of the ordinary.

According to text messages entered into evidence during the trial of 16 of the fraternity members, they were administering something called the “Shep Test” that night. Flanagan writes:

The Shep Test itself is little more than a quiz about Beta Theta Pi history, but it’s one part of a night of mind games and physical punishments. A former Beta told me that pledges were held down on a table as a red-hot poker was brought close to their bare feet and they were told they were going to be branded. With pillowcases over their heads, they were paddled, leaving bruises and, on at least one occasion, breaking the skin. They were forced to eat and drink disgusting things, denied sleep, and terrorized in a variety of other ways.

Like so many fraternity rituals these days, the “Shep Test” doesn’t officially exist. But it doesn’t take a lot of digging to realize how widespread, revolting, and dangerous these rituals are. John Hechinger’s new book, True Gentlemen: The Broken Promise of America’s Fraternities, offers as good an introduction as any to the history of these institutions and how our campuses continue to be burdened with such powerful and abusive clubs.

Click here to access the full piece at CommentaryMagazine.com 

PRESS RELEASE: This Way Up: New Thinking About Poverty and Economic Mobility - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 15:02

FOR IMMEDIATE RELEASE: Washington, DC (January 18, 2018) — In “This Way Up” — a new booklet of 16 short essays commissioned by Opportunity America in conjunction with AEI — policy experts and conservative thinkers explore how to ensure economic mobility for all Americans. This affects in particular the very poor, both urban and rural, and a neglected working class struggling to keep up with globalization. More than 50 years after the War on Poverty, fresh ideas about economic mobility are again percolating, including policies and proposals to show those involved how to go beyond government to harness the power of communities.

This Way Up” represents a vibrant new movement focused on addressing poverty and finding solutions to help more Americans move up the economic ladder. The essays fall into three broad categories: some contemplate the values and tenets underlying this new approach to poverty and opportunity, some outline specific policy proposals that promote choice and competition while reducing dependence, and others examine the challenges and opportunities facing policies and practices already being implemented on the ground.

Chapters as they appear in the booklet:

The Dignity Deficit: Arthur C. Brooks (AEI) on What the Poor Need Most

Conservative Economic Stewardship Will Help Janesville: Paul Ryan (Speaker, US House of Representatives) on What Ails the Working Class

The New Normal: Michael R. Strain (AEI) on Personal Responsibility

Minimum Income Is Not a Right: Robert Doar (AEI) on Federalism and Social Services

What Causes Poverty: Charles Murray (AEI) on Culture vs. Economics

Conservative Principles: Values to Guide a New Approach to Poverty and Mobility

Paycheck by Paycheck: Oren Cass (Manhattan Institute) on Wage Subsidies

Help and Hassle: Lawrence M. Mead (New York University) on Welfare Reform for Men

Leveling the Playing Field: Tamar Jacoby (Opportunity America) on Pell Grants for Workforce Training

Resisting the Federal Temptation: Andy Smarick (AEI) on Localism and School Choice

A Better Way to Repay:
Kevin James (Better Future Forward) on Income-Driven College Financing

Can We Put Humpty Dumpty Back Together Again? Kay S. Hymowitz (Manhattan Institute) on Marriage and Responsible Parenting

Better Than Government Work: Howard Husock (Manhattan Institute) on Civil Society

Our Best Tool? What’s Next for the Earned Income Tax Credit

Business Steps Up:
The Apprentice School

“I Want to Solve Poverty”:
Catholic Charities of Fort Worth

For interview requests, or for a copy of the book, please contact Madeline James at madeline.james@aei.org or 202.862.4870.

###

The American Enterprise Institute (AEI) is a public policy think tank dedicated to defending human dignity, expanding human potential, and building a freer and safer world.

Shockingly, China’s economy was stable in 2017 - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 14:30

The Chinese Communist Party very much loves stability. For 2016, China’s year-on-year quarterly GDP growth was (percent): 6.7, 6.7, 6.7, 6.8. For last year, it was wildly different: 6.9, 6.9, 6.8, 6.8. General Secretary Xi Jinping engineered exactly what he wanted as the Party held its once-in-five-years Congress. He’s a stability genius.

Chinese President and stability genius Xi Jinping pictured at the Great Hall of the People in Beijing, China. REUTERS/Mark Schiefelbei

But should the world believe it? The numbers are published by the National Bureau of Statistics (NBS). Certain irresponsible people consider the NBS to be first and foremost a propaganda tool. As PRC spokesmen say, over and over, such accusations are plainly groundless. I mean, does this read like propaganda to you?

In 2017, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping as the core, all regions and departments implemented the decisions and arrangements made by the CPC Central Committee and the State Council, adhered to the general working guideline of making progress while maintaining STABILITY, adopted the new development philosophy, focused on the supply-side structural reform and pushed forward structural optimization, shifting of driving forces and quality improvement. As a result, the national economy has maintained the momentum of STABLE and sound development and exceeded the expectation with the economic vitality, impetus and potential released and the STABILITY, coordination and sustainability strengthened. The economy has achieved STABLE and healthy development.

(Emphasis possibly added.)

GDP can be broken into investment, consumption, government purchases, and net exports. In 2015, fixed investment was said to grow about 10%, retail sales 11%, the fiscal deficit doubled (a positive in GDP), and the goods and services trade surplus rose 60%. In 2017, fixed investment grew about 7%, retail sales 10%, the fiscal deficit rose less than 10% through November, and the trade surplus fell 15%. In both years, GDP grew 6.9%.

In another country, this might seem a bit odd. But the explanation is simple: What Beijing publishes for fixed investment and so on aren’t the correct numbers for calculating GDP. They just happen to be published together. No reason.

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Better numbers for calculating GDP appear later because they are hard to measure for such a huge population in less than three weeks after a quarter ends. GDP is easy because growth is so smooth that one almost knows the result in advance. Crazy as that sounds. And China can later revise GDP using the better numbers (China has never revised growth down more than one-tenth of a point).

A fair-minded person would therefore drop the subject, if they know what’s good for them. But irrational trouble-makers recall that, in 2015, electricity consumption rose 1% while rail freight fell 14%. This indicated a move from heavy industry to services, definitely not economic contraction. Last year, electricity consumption grew almost 6% and rail freight expanded almost 15%. This of course indicates fast economic expansion.

Humor aside, the situation is much less disturbing than two years ago. At the end of 2015, the NBS naturally said all is well, then money poured out of the country. There is no such panic now. Nominal GDP was clearly and credibly faster in 2017 than 2015.

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But all is still not well. Borrowing from banks again far outstripped nominal GDP, with loans adding 13.5 trillion yuan in 2017 while GDP added 8.4 trillion. The much-discussed deleveraging has arguably yet to begin.

The path is arduous. According to the Bank of International Settlements, from the third quarter of 2008 to the third quarter of 2017, China’s total credit to the non-financial sector rose more than twice as fast as GDP. In 2008, the US was far more heavily leveraged, but China has now edged “ahead.”

While some foreign observers paint China as the world’s top economy, the government reports per capita disposable income of 26,000 yuan, or $4,000. For 2008, this figure was approximately 10,000 yuan, an impressive 160% increase since. But it’s only an additional $2,500. The closest US personal income equivalent is $44,600 for 2017. It has risen 25% since 2008, an additional $9,000. China is much too poor to already be so indebted.

A final caution to those promoting both Chinese data and the importance of GDP (looking at you, Wall Street): Official Chinese GDP was boosted by $276 billion taken from the US through the trade imbalance. It’s hard to claim GDP is a sound measure and the US gains from economic relations with China. It’s easier to argue against both.

In particular, whether Chinese GDP is believable is a question many ask. Given what lies underneath all the stability, how much Chinese GDP matters should be questioned more.

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Populism is a package deal - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 14:20

In a recent column for Project Syndicate, Dani Rodrik decries authoritarian populism – which “stifles political pluralism and undermines liberal democratic norms” – as a menace to be avoided at all costs. But he goes on to argue that economic populism is “occasionally necessary.” He is right about the first point, but badly mistaken on the second.

Rodrik, one of the most original and perceptive economists of our time, claims that while restraints on the power of the executive, abhorred by authoritarian populists, need to be defended, similar obstacles in the area of economic policy – in the form of “autonomous regulatory agencies, independent central banks, or global trade rules” – have gone too far and become hijacked by special interests, fostering an anti-establishment, populist backlash. It follows that a dose of economic populism might be exactly what Western societies need to get out of their current political crisis.

What this argument misses is that the separation between the two varieties of populists is rarely neat. One does not need to fully subscribe to the views expressed by the economist Friedrich von Hayek in his 1944 book, The Road to Serfdom, who argued that economic interventionism leads to tyranny, to recognize that the dismantling of constraints on economic policy-making and the weakening of independent judiciary, free media, and political competition are mutually reinforcing. Populism, in other words, is a package deal.

After all, Viktor Orbán’s rise to power in Hungary was facilitated by his populist moves catering to domestic economic interests. These include the retroactive retail surtax introduced in December 2010, based on turnover and disproportionately hitting foreign-owned businesses; the creation of a state tobacco monopoly with the purpose of distributing retail licenses to party supporters, and the nationalization of private pension fund assets to plug a hole in the country’s public finances.

A woman holds Poland’s Constitution during a protest next to the Law and Justice party headquarters in Warsaw, Poland, July 24, 2017. REUTERS/Kacper Pempel

The Polish experience has been similar. There, the seizure of pension fund assets in 2014 predates the arrival of the Law and Justice Party (PiS) in power, yet helped to push the Overton window in a populist direction. By now, the PiS government has renationalised large portions of the banking industry, introduced a new entitlement scheme, Family 500+, adding to the country’s structural deficit, and lowered the retirement age.

Given Poland’s economic challenges – a declining population, sluggish productivity growth, and low savings and investment rates – such measures are going to be costly in the long term. Meanwhile, the state-led consumption boost has helped to coalesce support for the PiS government as it tightens its grip over the country’s judiciary, weakens the oversight of elections, and purges public broadcasting of any dissenting voices.

And it isn’t just the Right: Syriza’s left-wing economic populism in Greece has gone hand in hand with attempts to shut down opposition TV channels and weaken judicial review. A similar pattern has been observed in countries of Latin America, a continent that has more experience than any other with economic populism. There, populist governments are associated with declines in performance on various metrics of institutional quality, government accountability, and the rule of law, such as the World Bank’s Worldwide Governance Indicators. Venezuela is the most extreme example.

If you were looking for evidence to the contrary, you could point to Brazil and Ecuador, where periods of populist economic governance did not lead to a distinct drift towards authoritarianism. However, policies cannot be judged solely by their performance when countries get lucky, but also by the outcomes they generate under less-than-ideal scenarios. More often than not, the lack of restraint in economic policy-making has been entangled with an overall authoritarian penchant of populists.

There is another problem with Rodrik’s defense of economic populism: it is a solution in search of a problem. To be sure, that is not to say that the constraints imposed on economic policy-making through delegation, trade treaties, and formulation of explicit rules to bound political discretion are beyond reproach, especially in areas where we have seen regulatory capture, such as intellectual property and financial regulation.

However, a significant part of the Eurosceptic backlash seen in the eurozone was fueled by the perceptions that existing rules – particularly the no-bailout policy embedded in European treaties – were being openly violated. The founding of Alternative for Germany and its initial surge in the polls were a direct response to emergency measures that were seen letting profligate governments on the Eurozone’s periphery and their lenders off the hook. The initial momentum for the Tea Party movement in the United States too came from the perception that bailouts to the financial industry were violating the legal and constitutional constraints on what the federal government is allowed to do.

To be sure, the EU’s democratic deficit, namely the fact that the bloc lacks transparent, accountable mechanisms to make consequential, politically charged decisions is itself an important part of the problem. But that problem is not going to be remedied by cheering on politicians to do whatever seems popular at the moment, regardless of long-term consequences. Instead, it will require institutional reform – devolution of some of the EU’s powers, a strengthening of its political accountability, as well as more credible rules guiding the EU’s single market, public deficits and management of financial risk.

Just as in the 1930s the political fallout from the Great Depression was not neutralized by the reversal to protectionism and economic short-termism, the flaws plaguing the EU and the global economy are not going to be fixed by encouraging politicians to pursue harmful economic policies. It is singularly irresponsible to suggest otherwise.

This Way Up: New Thinking About Poverty and Economic Mobility - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/18/2018 - 05:01

Key Points

  • The challenge of ensuring economic mobility is more pressing than ever. Too many poor people are trapped in safety-net programs that relieve material hardship but do nothing to help them escape from poverty, while a neglected working class struggles to keep up with globalization.
  • More than 50 years after the War on Poverty, a wealth of new conservative thinking is percolating in Washington and beyond, including fresh ideas about policy and proposals that look beyond government to harness the power of communities.
  • This booklet of short essays commissioned by Opportunity America in conjunction with AEI showcases some of the best of this new thinking — proposals for welfare reform, wage subsidies, workforce training, school choice, and restoring the norms of marriage and responsible parenting, among other topics.

Read the full PDF.

Preface

More than 50 years after the War on Poverty, 20 years after welfare reform, 15 years since President George W. Bush created a federal office to coordinate faith-based efforts to fight poverty, the challenge is more pressing than ever: how to ensure economic mobility for all Americans—the very poor, both urban and rural, and a neglected working class struggling to keep up with globalization.

Past efforts have taught us many lessons, but our current approach is not enough. We need new, better solutions that help more Ameri­cans move up the economic ladder.

This booklet offers a compendium of new thinking about how to accomplish this essential goal. Contributors include some of the best conservative thinkers and researchers working in the field today. They draw on what has come before—chastened by the limits of the War on Poverty, inspired by Ronald Reagan, schooled by welfare reform and George W. Bush’s faith-based initiative, among other efforts. The new center-right thinkers build on all of that, learning from what worked and jettisoning what hasn’t. But what’s emerging—today’s conserva­tive approach to poverty and mobility—is new: There’s a new deter­mination, new ideas, a new sense of responsibility for the problem and the solutions.

What follows are some of the best new ideas. Some address pol­icy, state and federal. But most look beyond government to harness the power of communities—solutions driven by choice, competition, faith, public-private partnerships, and empowering individuals to make the most of their opportunities.

Many of these ideas were generated at a conference in Washing­ton, DC, in December 2016. The booklet includes some excerpts from those sessions, including a speech by House Speaker Paul Ryan, and some compilations of excerpted remarks, grouped thematically. But many of the essays are fresh: deeper reflections and honed policy pro­posals that have grown over the months since from seeds planted at the conference.

The essays fall into three categories. Some are broad, general think­ing about the principles and values that lie behind, or should lie behind, a conservative approach to poverty and mobility. Others are policy pro­posals: focused, specific, ready to enact today. Still others look at policy and practices already being implemented on the ground, by the gov­ernment, a nonprofit organization, and a leading American company.

Together, we believe, they offer a window on an exciting new center-right movement. Not all adherents agree on all issues. There is robust debate in the pages that follow. But we see this contention as a sign of strength. Where there is no questioning or discussion, there is no life. What follows is a snapshot of a vibrant, evolving movement, fermenting new ideas, developing fresh approaches, and ever searching for new, better ways to address poverty and economic mobility in America.

Tamar Jacoby, Opportunity America

Read the full PDF.

The jury is still out on Trumponomics - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 01/17/2018 - 20:16

In 1972, almost 200 years after the French Revolution, Chinese Premier Zhou Enlai is supposed to have said that it was still too early to draw definitive conclusions about that revolution. One has to wonder whether the same might not be said about an economic assessment of Donald Trump’s first year in office.

While the short-term results of his administration’s economic policies certainly appear to have been positive, it remains to be seen what the longer run economic consequences of those policies will be.

Supporters of President Trump’s economic policies argue that the successful passage of the recent tax cuts, together with the substantial rolling back of burdensome economic regulations, have already got the U.S. economy onto a better track. In particular, they note that since Trump assumed the presidency, the stock market has appreciated by 25 percent, unemployment has declined to a decade-long low, and the pace of U.S. economic growth has picked up to around 3 percent.

In trumpeting these gains as evidence of Trump’s sound economic stewardship, Trump supporters choose to ignore the fact that in President Barack Obama’s first year in office the stock market rebounded by 35 percent while in his eight years in office, the stock market approximately tripled. Nor do they acknowledge that the rate of job growth during Trump’s first year as president has been no faster than the average rate of job growth during the Obama years.

U.S. President Donald Trump speaks during an interview with Reuters at the White House in Washington, U.S., January 17, 2018. REUTERS/Kevin Lamarque

Similarly, Trump supporters turn a blind eye to the fact that during Trump’s first year in the presidency, the European and Japanese stock markets and economies did as well as if not better than did those of the United States. They also choose to downplay the fact that over the past year the U.S. dollar has managed to lose almost 10 percent of its value. These facts suggest that the impressive U.S. stock market and economic performance in 2017 might have had more to do with ultra-easy monetary policies of the world’s major central banks rather than with the change of U.S. administration.

A more troubling reason to question how good Trump’s economic stewardship has been relates to his unfunded tax cut, which has been his main economic policy initiative to date. According to the bipartisan Congressional Budget Office, over the next 10 years this tax cut is likely to add $1.5 trillion to the U.S. public debt. It is also estimated that the bulk of the gains from this tax cut are to be enjoyed by those in the highest income tax brackets.

Leaving aside the socially and politically important questions of equity that the tax cut raises, one has to ask how much sense an unfunded tax cut makes at this stage in the U.S. economic cycle. The basic principles of sound public finance dictate that in the good economic times, when the economy is humming along well and unemployment is low, one should make every effort to reduce the public deficit.

One does so in order to leave room for increasing the budget deficit in the bad times when the economy might need a fiscal boost. With U.S. unemployment already down to 4 percent and the economy growing at a healthy rate, does the economy really need a fiscal boost that will limit the future room for fiscal policy maneuverability?

There are also reasons to fear that by complicating the Federal Reserve’s task of normalizing interest rates, the tax cut could seriously affect U.S. economic performance in the year immediately ahead and contribute to a widening in the U.S. trade deficit. With frothy global asset price markets, the last thing that the Fed needs is a fiscal boost that might force the Fed to raise interest rates at a faster pace than it otherwise might have done in order to avoid inflation.

Yet another cloud hanging over the longer-run U.S. and global economic outlooks is the president’s adherence to his America First trade policy and his seeming disdain for international economic policy cooperation. Not only has the president pulled the United States out of the Trans-Pacific Partnership and refused to sign up to the G-20 pledge to avoid increased protectionist policies but he is also now threatening to pull the United States out of the North Atlantic Free Trade Association and he appears to be gearing up for a trade war with China. There is every reason to think that such action could prove to be economically very disruptive.

It is hoped this time will be different and unsound economic policies will not spell trouble for the longer-run U.S. and global economic outlooks. However, I will not be holding my breath since all the clues from previous episodes of economic mismanagement would seem to point in the opposite direction.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a Deputy Director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.

 

Risks in financial markets are building the next crisis - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 01/17/2018 - 20:07

The late Hyman Minsky, the renowned American credit cycle scholar, must be rolling in his grave. At the very time when the global credit market is characterized by complacency and frothiness seldom seen before, the Trump administration is in the process of dismantling those bank regulations put in place in the aftermath of the 2008-2009 Lehman crisis to curb excessive risk taking.

Had Minsky been alive today, he surely would have been warning us that many years of highly unorthodox monetary policy by the world’s major central banks has led to excesses in global asset market prices and the gross mispricing of credit risk around the world. He also would have been reminding us that extended periods of financial market complacency are generally followed by painful economic and financial market crises.

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New state-level estimates of the economic burden of the opioid epidemic - New state-level estimates of the economic burden of the opioid epidemic - AEI

Wed, 01/17/2018 - 19:16

The opioid epidemic continues to be a growing problem in our country, both from a treatment and an economic standpoint. When analyzing the economic burdens of the opioid epidemic, researchers generally focus on the economic impact of the crisis in the aggregate, at the US level. Less known, but equally important to policymakers, is how these costs are distributed from state to state.

Resident Fellow Alex Brill gives a preview of his new analysis, to be released next month, where he estimates the costs of the opioid epidemic at the state level and finds substantial variation across the country.

Among his key findings:

  • My analysis shows that the nonfatal per-capita economic burden of the opioid crisis is highest in the District of Columbia ($352 per resident) and lowest in South Dakota ($162 per resident).

  • Adding fatalities, as CEA did, gives West Virginia the highest per-capita burden ($4,793 per resident) and Nebraska the lowest ($465 per resident).

Furthermore, as Resident Scholar and practicing psychiatrist Sally Satel argues, it is at the local levels that progress will be made in fighting the opioid epidemic. In a National Affairs piece, Satel explains that: 

  • The federal government’s role is funding: The action is local. Different cities and counties will have different needs. They require the freedom and financial support to respond.

  • Be realistic. This is not just a medical or public health problem. Too many communities are demoralized and economically devastated. Opioids will appeal until economic prospects improve.

To arrange an interview with Alex Brill or Sally Satel, please contact AEI Media Services at mediaservices@aei.org or 202-862-5829.

US support for UNRWA has gone on long enough - New state-level estimates of the economic burden of the opioid epidemic - AEI

Wed, 01/17/2018 - 18:28

The United States has slashed its contribution to the UN Relief and Works Agency for Palestinian refugees by more than $65 million, but still gave the agency $60 million. That’s $60 million too much. UNRWA has become the poster child for U.N. bureaucratic bloat, mission creep, and twisted morality.

UNRWA was founded in 1949 to help Palestinian refugees displaced by Israel’s war of independence. Even that decision was questionable. After all, putting Israel’s creation aside, in the 1940s alone, wars created more than 40 million refugees. There was World War II, of course, but the 1947 partition of India also displaced 14 million persons and created millions of refugees. In the wake of Israel’s creation, Arab states expelled hundreds of thousands of their Jews. This is why the U.N. created the United Nations High Commissioner for Refugees to be the permanent agency charged with refugee assistance and protection.

Individual Palestinian Arab families suffered dislocation and tragedy, but they were hardly alone. They were alone, however, in having a U.N. agency created to cater specifically to them. Still, when the U.N. created UNRWA, it was meant to be a temporary agency to address a temporary problem. Once it resettled Palestinian refugees, its job was done and it was to shut its doors forever and dissolve.

In a 1951 report to the UN General Assembly, UNRWA reported, “There must be a firm goal of terminating relief operations. Sustained relief operations inevitably contain the germ of human deterioration.” It was right, but Arab state rejectionism got in the way. Arab states like Egypt, Syria, and Iraq quickly concluded that they could use UNRWA to perpetuate the problem, to undercut normalization with Israel, and to transform an aid agency into a weapon against Israel.

The rest is history. Both current UNRWA Commissioner General Pierre Krahenbuhl and UNRWA spokesman Chris Gunness were born years after UNRWA was meant to dissolve.

Nor does UNRWA’s track record make it worth saving. While UNHCR has resettled refugees and allowed them to get on with their lives, UNRWA has actively undercut settlement. It has embraced a unique definition of refugee that differs with UNHCR and that is used everywhere else in the world. Consider: If India and Pakistan used the same definition of refugee from their partition that UNRWA embraces, there would be more than 100 million refugees in South Asia today. UNRWA has helped make the Palestinians the largest per capita recipient of aid on earth, but has the least to show for it.

The problem isn’t just waste of money, however. Almost a quarter-century after the Palestinian Authority began, UNRWA has eroded rather than supported the foundations of good governance. After all, if UNRWA promises to take care of housing, education, and support, why shouldn’t both the Palestinian Authority and their sometime-partner Hamas spend money on terror pensions, terror tunnels, and an arsenal of rockets?

Add into the mix UNRWA incompetence: schools used as arsenals, school books teaching incitement, UNRWA employees moonlighting as bomb makers, and terror recruitment in UNRWA high schools and the problem is even worse. UNRWA denials of complicity in such activities, if taken at face value, are just acknowledgment of its own poor oversight.

It’s long past time to cut off UNRWA and ask UNHCR to take over. The Palestinians deserve an apolitical agency rather than an amplifier for radicalism and waste. UNRWA has become a cancer not only for those who seek peace and reconciliation, but also for the entire UN system.

UNRWA in 1951 was right. Permanence is not a virtue; it’s an impediment.

Does Speaking up for Iranians Advance Democracy? - New state-level estimates of the economic burden of the opioid epidemic - AEI

Wed, 01/17/2018 - 18:19

The contrast couldn’t have been sharper: In 2009, as Iranians took to the street, they chanted, “Obama, Obama, either you’re with us or against us,” but President Barack Obama remained silent.

Eight years later, as Iranians again took to the streets, President Donald Trump tweeted up a storm. “Oppressive regimes cannot endure forever,” he tweeted. “The great Iranian people have been repressed for many years TIME FOR CHANGE!” Whose strategy was right?

The answer is clear: Trump’s. The United States should never apologize for standing up for freedom and liberty. True, the protests were neither caused by nor about America but that does not mean Washington should be silent.

The political disagreements on the issue today result from a combination of anger about Trump’s ill-character and historical ignorance.

The United States has long both opposed tyranny and sacrificed to provide moral support for those suffering under it.

During the Cold War, American trade unions opposed communism and spoke out for democracy. Vice President Nixon’s 1959 “Kitchen Debate” with Khrushchev resonated because he so clearly identified communism’s failures.

At the height of the Cold War, President Ronald Reagan shocked Western leaders and diplomats when he called the Soviet Union an “Evil Empire.”

His aides tried repeatedly to strike “Mr. Gorbachev, tear down this wall” from his speech at Berlin’s Brandenburg Gate. Only after the Soviet Union’s collapse were those suffering under its tyranny able to testify how his words were like a shot of adrenaline in a dark hour.

True, in some circles, the practicalities of diplomacy trump broader principle.

Both Democrats and Republicans mocked President George H.W. Bush for initial opposition to Ukrainian independence because he prioritized preserving non-proliferation agreements struck with Moscow over support for freedom, no matter that the regime on the verge of collapse had held the world hostage for almost a half century.

Democrats also pilloried Bush for trying to engage Beijing just two years after Chinese troops brutally suppressed protests in Tiananmen Square. Then Sen. Joe Biden declared that China “is a regime marked by brutality at home and irresponsibility abroad; and it is a regime the United States should now cease to court and must no longer appease.”

Bush’s opposition to the Ukraine and his willingness to sweep Tiananmen under the rug remain black marks on his legacy.

Back to Iran: The Islamic Republic is neither the natural apex of Iranian political evolution nor necessarily permanent. It was an accident of history born of short-sighted animosity toward a cancer-stricken autocrat and the naiveté of those who believed revolutionary leader Ayatollah Khomeini when he said he wanted democracy and had no interest in personal power.

The belief that trade or support for reformers can bring meaningful change to Iran is nonsense.

European trade with Iran almost tripled between 1998 and 2005 during Iranian President Mohammad Khatami’s “Dialogue of Civilizations.”

The price of oil quintupled during the same period. The Iranian leadership used that hard currency to invest in ballistic missiles and a covert nuclear program.

The problem is that the Islamic Revolutionary Guard Corps dominates Iran’s economy. Trade simply pumps money to Iran’s oppressors. This is why working class Iranians turned so quickly on Iran’s security forces during the most recent protests.

Change in Iran, however, is inevitable. Protests have shaken the regime in 1999, 2001, 2009, and today. Supreme Leader Ali Khamenei’s ill-health mean the Revolutionary Guard will soon have no one around which to rally.

True, rhetoric alone won’t change Iran; Iranians will. But, solidarity is sustenance.

In the early 20th century, Iranians briefly had constitutional democracy. They had as much a legacy of democracy as Eastern Europeans did. Trump or no Trump, why not stand on the right side of history?

Interest rates fall when stocks crash - New state-level estimates of the economic burden of the opioid epidemic - AEI

Wed, 01/17/2018 - 18:19

How quickly Martin Feldstein seems to forget the post-2008 Lehman crisis financial market experience. Today, in a Wall Street Journal op-ed titled “Stocks are headed for a fall,” he argues that when interest rates rise back to normal levels, share prices are also likely to revert to previous norms. He makes this assertion despite the fact that following the 2008 stock market crash, interest rates quickly declined to close to their zero bound and remained there for more than seven years.

Contra Martin Feldstein’s recent op-ed, it seems logically inconsistent to expect both stock market prices and interest rates to simultaneously return to more normal levels. Credit: Reuters.

It is difficult to take issue with Professor Feldstein’s basic view that at some point US stock prices are in for a major fall. As he correctly notes, the price/earnings ratio for the S&P 500 is now 26.8, which is higher than at any time in the 100 years before 1998 and 70% above its historical average. This would suggest that when stock price valuations eventually do return to more normal levels, there will certainly be a big stock market price decline. However, as to precisely when that major decline will occur is another matter.

It is also difficult to take issue with Professor Feldstein’s assertion that if there were to be a big stock market correction, the US economy would take a major hit. On the basis of the consensus economist view that for every dollar decline in stock prices there would be a 4 cent drop in household consumption, he estimates that a $10 trillion decline in US equity valuations would lead to a hit to the US economy of as much as 2% of GDP.

Where one must part company with Professor Feldstein is when he seemingly maintains that we could have a situation where both stock prices and interest rates simultaneously return to more normal levels. One would think that if interest rates were to begin to rise to anywhere near their normal level, US stock prices would rapidly revert toward their more normal level. However, if stock prices were indeed to crash, the economy would seriously falter and inflation would again decline. In those circumstances, one must expect that the Federal Reserve would again ease monetary policy and again keep interest rates at extraordinarily low levels for a prolonged time period.

A more plausible scenario than that suggested by Professor Feldstein would be for a temporary increase in interest rates to precipitate a major stock market correction. This could occur as early as this year, since the Federal Reserve could be forced to restrain the economy from overheating as a result of the combined effect of a 25% increase in stock prices and a 10% decline in the dollar over the past year. However, once a major correction in the stock market occurred, it is more than likely that interest rates would again decline and stay very low for a prolonged time.

In short, one can either have stock prices or interest rates returning to more normal levels. However, it seems logically inconsistent to expect that both stock market prices and interest rates simultaneously return to more normal levels.

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Regulatory Stress Tests and the Blind Scales of Justice - New state-level estimates of the economic burden of the opioid epidemic - AEI

Wed, 01/17/2018 - 17:07

Key Points

  • One of the newest fads in banking regulation is the use of econometric models to simulate a bank’s performance over a hypothetical multiyear economic stress scenario and then using the “stress test” results to calibrate the bank’s minimum regulatory capital requirement.
  • This regulatory approach for setting capital requirements has become popular in the US and Europe, yet there is no evidence that regulators’ econometric stress test models generate accurate forecasts of bank performance under stress scenario conditions.
  • Regulators keep the specific details of their stress test models confidential, inhibiting independent verification of their models’ accuracy.
  • These and other features of regulatory stress tests raise important legal issues and create the potential for costly misallocations of banking resources.

Read the PDF.

Introduction

Around 1750 BC, Babylonian king Hammurabi codified a single set of laws to replace the patchwork of tribal laws across his kingdom. Hammurabi’s laws, inscribed on stone tablets, set legal standards for tort, inheritance, contract, and family law that established principles that are still relevant today. For example, when you read one of Hammurabi’s laws, you immediately understand how to comply with the law. Citizens were presumed innocent until proven guilty, and false accusations carried penalties. If Hammurabi were still alive today, he would be shocked that his basic principles of jurisprudence are ignored in the modern legislation that mandates regulatory stress tests.

The success of the 2009 Federal Reserve Super­visory Capital Assessment Program (SCAP) in the US spawned a new paradigm of bank regulation built around econometric forecasts of bank perfor­mance under stressful conditions. Since the SCAP stress tests, banking regulators in the US and Europe have adopted dynamic stress testing as an important component of their large financial institution supervision process. In the US, the 2010 Dodd-Frank Act requires the Federal Reserve Board (FRB) to perform annual stress tests. In Europe, Article 23 of European Union Regulation No. 1095/2010 requires the European Banking Authority (EBA) to develop “an adequate stress testing regime.”

Hammurabi would be deeply disappointed if he read either the US or EU law mandating regulatory stress tests. Neither directive explains what is required for institutions to pass an annual stress test. Indeed, these directives never define what comprises a “stress test.” Instead, legislators delegated the definition and design of the stress testing requirement to banking regulators who are free to specify the terms and conditions that banks must meet to fully comply with the law. Unlike a Hammurabi law, it is impossible for a banker to read either directive mandating regulatory stress tests and have any idea how to comply with it.

While specific details differ, bank regulators have interpreted these stress testing directives to mean the use of econometric methods to assess a bank’s compliance with minimum regulatory capital standards over one or more severe multiyear economic stress scenarios. Banks are required to use their own models to project their performance under specified economic conditions, and regulators evaluate the banks’ estimates by comparing bank forecasts to projections from their own supervisory stress test models.

If the stress testing exercise indicates that a bank would suffer losses that deplete the institu­tion’s capital, the supervisor is required to impose remedies. For example, in the US, if an institution fails its stress test, the FRB may require the bank to raise capital by prohibiting dividend payments and capital repurchases. The FRB may also require the bank to improve its stress test modeling practices if, in the regulator’s judgment, the bank stress test model projections are inferior compared with an unspecified minimally acceptable standard. The acceptability of a bank’s proprietary model is likely determined by comparison with the structure and output of the regulator’s own confidential stress test model.

This practice raises fundamentally important and unexplored issues. Why should there be a presumption that the regulator’s stress test model produces an accurate forecast of a bank’s perfor­mance under stressful conditions? There is ample evidence in the daily news that forecasting eco­nomic series such as GDP growth, the inflation rate, new job additions, and other economic series is a challenge, even under normal economic con­ditions. Central bankers and business economists rarely hit the mark on their short-term forecasts of these aggregate series, let alone on their longer-term forecasts. Why then have so many so quickly accepted the implicit assumption that a regulator can accurately forecast individual banks’ perfor­mance over a multiyear horizon under economic conditions that mimic a recession of epic proportions?

Read the full report.

Ep. 89: Our stagnant labor market - New state-level estimates of the economic burden of the opioid epidemic - AEI

Wed, 01/17/2018 - 16:29

Americans are no longer moving. And that’s a problem for the economy, adversely affecting everything from productivity growth, to income inequality, to monetary policy. At least, that’s the argument of law professor David Schleicher, author of the recent Yale Law Journal article, “Stuck! The Law and Economics of Residential Stagnation,” an insightful study of how state and local governments are hindering labor market mobility, why that’s a problem, and what can be done about it.

Professor Schleicher is an expert in election law, land use, local government law, and urban development, among other fields, and he writes frequently for both academic journals and more popular outlets such as The Atlantic and Slate.

You can subscribe to this podcast on iTunes or Stitcher, or download the podcast on Ricochet.

What’s so ‘cruel’ about Medicaid work requirements? - New state-level estimates of the economic burden of the opioid epidemic - AEI

Wed, 01/17/2018 - 16:10

My latest column argues in support of the Trump administration’s decision to allow work requirements as a condition of eligibility for the Medicaid program.

At its core, this is a debate over the purpose of the social safety net. Among healthy, working-age adults who aren’t the primary caregiver for a dependent, public policy should be designed to combat idleness, to increase community attachment, and to increase work rates. Medicaid work requirements aren’t punitive. Instead, they reflect proper social expectations. They send a message that if you can contribute to society, then you should. That message matters.

I argue that the requirements are sufficiently targeted and that “work” is appropriately defined broadly.

First, the work requirements are targeted for able-bodied adults of working age. They do not apply to the elderly, to pregnant women or to the disabled. In addition, “work” is construed broadly to include community service, education, job training, volunteer service and treatment for substance abuse, among other potential forms of community engagement or self-betterment.

In addition, I discuss some practical concerns with actually implementing the policy.

You can read the entire column here. Your comments are welcome.

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