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AEI Economist Bruce Meyer’s Annual Report on Consumption and Income Based Poverty - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 11/06/2018 - 15:03

In their yearly assessment of poverty levels through consumption and income estimates, economists Bruce Meyer – a visiting scholar at the American Enterprise Institute who also teaches at the University of Chicago’s Harris School of Public Policy – and James X. Sullivan of the University of Notre Dame find that:

Using the 1980 standard of living of those at the poverty line, the consumption poverty rate fell from 13.0 percent in 1980 to 2.8 percent in 2017. While using the 2015 standard of living of those at the poverty line, the consumption poverty rate fell from 32.9 percent in 1980 to 12.1 percent in 2017. At the same time, the official poverty rate only fell by 0.7 percentage points during this period.

  • Three factors explain why the consumption poverty measure shows a long-term decline but the official poverty measure does not: 1) it is constructed using a bias-corrected measure of inflation; 2) it implicitly incorporates taxes and in-kind transfers in family resources by using consumption; and 3) it avoids the bias due to the under-reporting of certain types of income that are commonly received by those with low reported income.

Read the full report: Annual report on US consumption poverty: 2017

To arrange an interview with Bruce Meyer, please contact Victoria Bellucci at victoria.bellucci@aei.org or 202.862.7155. AEI’s 24/7 media contact is mediaservices@aei.org or 202.862.5829.

Discussing the midterm elections: Thiessen on Fox News’ ‘America’s Newsroom’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 11/06/2018 - 15:00
Resident Scholar Marc Thiessen discusses the midterm elections on Fox News' 'America's Newsroom.'

Ep. 118: Reihan Salam on US immigration policy — Political Economy with James Pethokoukis - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 11/06/2018 - 15:00

How permissive should US immigration policy be? What attributes should we require of the immigrants the United States does admit? And how does immigration affect those already living in the US, both native and foreign born? Reihan Salam answers all these questions and more in his new book, “Melting Pot or Civil War? A Son of Immigrants Makes the Case Against Open Borders,” which he joined the show to discuss with me.

Reihan Salam is executive editor of National Review and a National Review Institute fellow. He’s also a contributing editor at The Atlantic and National Affairs, and is the coauthor with Ross Douthat of “Grand New Party: How Conservatives Can Win the Working Class and Save the American Dream.” You can follow him on Twitter @Reihan.

You can download the episode by clicking the link above, and don’t forget to subscribe to my podcast on iTunes or Stitcher. Tell your friends, leave a review.

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Whatever the outcome of midterms, US-Russian relations will remain strained for years to come - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 11/06/2018 - 14:22

While pollsters are nervous about their predictions again being so wildly wrong, it looks increasingly like Democrats will retake the House of Representatives in the 5 November midterm elections. While unemployment is at record lows among Hispanics and African-Americans and growth continues to exceed expectations, history is not on President Trump’s side. In 1966, for example, two years after President Lyndon Johnson blew out Republican nominee Hubert Humphrey for the presidency, the economy was booming and yet Democrats lost 47 seats. President Donald Trump’s polarizing style, the disproportionate impact of trade wars in America’s rural heartland, and flat wages will likely lead to an electoral disaster for the Republicans.

President Donald Trump and Russia’s President Vladimir Putin talk during the family photo session at the APEC Summit in Danang, Vietnam November 11, 2017. Reuters

Still, Democratic control of the House of Representatives if not of the Senate will likely not lead to the dire political chaos that Republicans fear or, on the foreign policy front, to the substantive shift of current US attitudes or policy toward Russia.

For Democrats, talk of impeachment is tactically more effective than actual impeachment proceedings. While the House of Representatives must only pass by simple majority articles of impeachment, the likelihood of the president’s removal would remain miniscule not only in a Senate controlled by Republicans but also one controlled by a small majority of Democrats. The House leadership may despise Trump, but to impeach absent a chance of ouster would only make Trump into a martyr and better enable him to rally his base ahead of the 2020 presidential campaign. Likewise, behind their overheated rhetoric, most Democrats realize that Vice President Mike Pence, who would replace Trump as president should Trump be forced to step down, is both more conservative than Trump and bureaucratically more competent.

With regard to US-Russian relations and sanctions, there will be no relaxation of current US political antagonism toward Russia regardless of the outcome of the midterm elections and, frankly, for many future elections to come. Put aside debates about the veracity of the charges which US political leaders and some in the US intelligence community level against the Russian government or components parts; these can be addressed some other time or elsewhere. What is beyond dispute is a suspicious if not hostile attitude toward Russia has become one of the few issues on which there is broad bipartisan agreement. Outliers might exist in Congress, but the most vocal pro-Russian voices often have reputations for unrelated reasons which limit their influence or the seriousness with which the broader policy community take them.

For Russia, the problem is political. President George W. Bush sought rapprochement with Vladimir Putin but, by the end of Bush’s second term, relations were sour and distrust was high. The Obama administration blamed Bush for that and sought to “reset” relations. But, even if not all Democrats approached Russia suspiciously during the Obama years, many have embraced the narrative that it was Russian interference which cost Hillary Clinton the election. The reality is more complex, but perception and politics trump reality. The net result is that Democratic rhetoric has grown so extreme and the Democratic base so angry that any rapprochement with Russia will be difficult. Republicans and national security hawks, meanwhile, distrust Russia for broader strategic reasons. Some libertarians and realists are more open to rapprochement, but they do not have the political base to overcome mainstream Democratic or Republican distrust of Moscow. Trump, meanwhile, has been much more aggressive toward Russia in terms of sanctions and other elements of policy than his detractors realize.

What this means, in effect, is the chance for increasing sanctions remains high no matter what the outcome of the November elections. US-Russian relations will be strained for many years to come.

A troubling outlook for future defense spending - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 11/06/2018 - 14:03

In the final days of planning for the 2020 defense budget, the White House dropped a bomb on the Pentagon: a 33 billion dollar cut. This move captured the attention of defense observers, but once the Pentagon puts that trouble behind it, 2021 promises yet more trouble ahead. Trends both inside and outside of the defense spending debate point to a backlash against rising deficits on the horizon. And if even more significant defense cuts accompany the next round of deficit reduction, as they have in the recent past, Congress risks devastating the US military just as it rebuilds and retools for competition against other great powers.

A US Marine Corps MV-22B Osprey, attached to Marine Medium Tiltrotor Squadron (VMM) 365 (Reinforced), prepares to land on the flight deck of the Wasp-class amphibious assault ship USS Iwo Jima (LHD 7) Oct. 26, 2018, in the Norwegian Sea. Department of Defense | Flickr

The Pentagon is currently funded under a full-year defense appropriations act, thanks to topline spending levels set in the Bipartisan Budget Act of 2018. This is the third in a series of 2-year “fixes” to the 2011 Budget Control Act’s artificially low discretionary spending levels. Congress passed the first “fix” in 2013, and the 2018 deal represents the largest defense budget increase provided by Congress so far. These deals have spared the military from some of the worst damage, but Congress has only just begun to allow the rebuilding of military capacity, rather than plugging holes and filling gaps.

At the end of the current fiscal year in September, absent Congressional action, spending will revert to levels set a decade ago – slashing tens of billions of dollars just as the rebuild gets underway. If past patterns hold, after what many expect will be a short-term continuing resolution to start the fiscal year, Congress will eventually come to an agreement on budget numbers for FY20-21 that are not much higher than the current levels, but also not as low as those prescribed by the Budget Control Act.

No matter what the outcome is of next year’s (probable) deal, the Budget Control Act itself expires in the fall of 2021 – the first year of a new presidential term. While it’s impossible to forecast the outcome of the 2020 presidential election, some things are already clear. Most importantly, an impending return to deficit politics in Congress looks set to clash with the planned acquisition of key defense platforms and systems; a collision which could crater US defense capabilities just as the services are beginning to rebuild.

First, US deficit and debt numbers ($984 billion in the current fiscal year) will begin ticking back up above $1 trillion annually starting around 2021 and are projected to rise unsustainably from there. Why does this matter? Congress operates on a 10-year “budget window,” meaning that cost estimates and effects on the deficit for a given bill are projected from current law out over a decade. As the current deficit picture deteriorates significantly within that 10-year window, the effects of a ballooning deficit become “real” for Congress, by restricting the political space that Members have to propose increased spending. Given that, and given the high priority that fiscal hawks have attached to the accomplishments of the Budget Control Act in keeping a (partial) lid on discretionary spending this past decade, it’s impossible to imagine many conservatives letting it expire without fighting hard for a successor to address the rising deficit.

Second, as AEI’s Mackenzie Eaglen and others have pointed out, the Pentagon faces a procurement “bow wave” in the middle years of the 2020s, driving up costs for defense at the same time as Congress may look to cut the overall discretionary budget in reaction to rising deficits. Many of the big-ticket programs across the force — the B-21 strategic bomber, the Columbia class submarine program, and the nuclear missile enterprise, plus a larger Air Force and a 355-ship Navy, will demand larger shares of the defense budget pie in this timeframe. Looking at personnel and research and development portions of the defense budget (which make up more than one-third of the total), decisions of the past two years also look to “ripen” around 2021. This means that costs will also materialize in different portions of the defense budget, outside of what is spent on weapons procurement, that are not currently projected but which are evident in the assumptions of current decisions.

What it all means: after 2021, there is both motive and opportunity for a political reaction to rising deficits at a massively inopportune time for the Department of Defense. The motive is renewed interest in deficit reduction, spurred by the very real threat of rising deficits. The opportunity is the expiration of the Budget Control Act in the fall of 2021. The last time these factors came together, in 2011, massive cuts to defense were the result. That time around, tax rates and entitlements were protected, but what did the Defense Department get? Budget cuts, and the sequester. We saw again in late October that the White House does not plan to keep up the pace of investment necessary to rebuild the military. Absent a big change in the United States’ overall fiscal picture, or in the Pentagon’s plans to modernize for great power competition, defense observers should watch out for trouble coming down the tracks.

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The US and the digital future at the International Telecommunication Union - The US and the digital future at the International Telecommunication Union

Tue, 11/06/2018 - 11:00

On November 1, member states of the United Nations’ International Telecommunication Union (ITU) elected Doreen Bogdan-Martin to serve as director of the ITU’s Development Bureau beginning in January 2019. Bogdan-Martin will be the first woman to serve on the ITU as a top official, giving the US a “voice in ITU leadership for the first time in three decades.” While many players in the technology space see the ITU as an international policy body that is no longer necessary, there are still reasons the US government and technology industry should engage with it.

via Twenty20.

The ITU was created in 1865 to manage international telegraph networks, but as new technologies were invented, the management of international radio frequency spectrum, broadcast signals, maritime and aeronautical mobile communications, and geostationary orbit slots for communications satellites became part of its mandate. Today it consists of three sectors — development, radio communication, and telecommunications — which together create policies, standards, and regulations, and coordinate on global issues related to information and communication technologies (ICTs). Together the sectors manage the allocation of “global radio spectrum and satellite orbits, develop the technical standards that ensure networks and technologies seamlessly interconnect, and strive to improve access to ICTs to underserved communities worldwide.”

As the internet has become the key technology for global communications, how the ITU fits into the global communications standards process has become an interesting consideration. The internet is a network of networks designed to flow to the easiest point of transmission, and the geographic location of the hardware that provides connectivity and the accompanying geopolitical power of having internet data flow through certain geographical areas has become an area of interest for the ITU. It wants to use its initial mandate of helping the flow of communications across borders to bring internet transmissions under its umbrella as well.

While the value of the ITU beyond its narrow remit can be questioned given today’s technology, there are geopolitical reasons for the US to keep a seat at the table. With global interest increasing in issues such as the need for cybersecurity standards for the Internet of Things, increasing investment for international internet connectivity for infrastructure, and standards agreements for both wired and wireless communications, the election of Bogdan-Miller gives the US an important voice in ITU’s leadership and its decision-making process. As NTIA Assistant Secretary David Redl noted earlier this year, the government also wants to “re-elect the United States to the ITU Council . . . [It] serves the critical function of supervising the overall management and administration of the Union, and continued US representation will provide a vital mechanism for advancing US interests at the ITU.”

During the next two weeks at the ITU plenipotentiary meetings, more than 2,500 participants including heads of governments and communications ministries from 193 countries, as well as hundreds of private companies and academic institutions, will work together on shaping the global digital future. Their challenge will be finding the right paths for collaboration while reserving the rights of stakeholders to make decisions about implementation and development at the local level.

Harmonizing communications assets at the very basic level that can provide connectivity should be the main objective of the ITU’s efforts. ICTs are still distributed unevenly throughout the world for many cultural and commercial reasons. There are many areas of the world where the best connectivity opportunities have leaped-frogged from nothing to wireless satellite connections with all of their accompanying benefits, but this requires investment. The disparity in telecommunications service between rural and urban areas is a challenge for all countries, but having basic agreed-upon technical standards helps bring investors to the table.

There is a clear link between telecommunications investment and economic growth. Having access to communications assets means fostering investment at a local level, and enables economic expansion by giving individuals better access to information and the ability to create wealth through new applications and mobile connectivity. As major advances in technology create opportunities, countries will need interoperable networks to properly integrate technology in new locations.

As more people connect to the internet for activities such as mobile banking, health care, e-government, education, the Internet of Things, as well as applications related to artificial intelligence and automation, all can benefit from international cooperation and collaboration brought about by the ITU. The US is fortunate to have a seat at the table and has the opportunity to use the multinational capabilities of the ITU when it can to move global public policy for technology forward. At the same time, in areas that belong to sovereign states or private sector operators, the US should have the ability to keep engagement on these issues before the appropriate technical and policy development organizations.

The Internet Society put it well in a recent op-ed, saying that “we need new models of collaboration.” There will be plenty of opportunities to seek high-level collaboration where appropriate on digital issues at this plenipotentiary — to study the best practices for mitigating risk and taking advantage of the transformative nature of technology. The US has positioned itself well for cooperation across international boundaries when dictated by the technology, while managing the transformative frameworks for economic and social change through a democratic, global, and free-market process.

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Income-share agreements gain bipartisan support - The US and the digital future at the International Telecommunication Union

Tue, 11/06/2018 - 07:30

Americans go to the polls today to vote in one of the most contentious midterm elections in recent memory—but partisan divides aren’t everywhere. On Capitol Hill, Republicans and Democrats have joined forces to promote a new way to pay for college. Representative Luke Messer’s (R-IN) Investing in Student Achievement Act now has 19 sponsors, roughly evenly divided between the two parties.

Messer’s bill would make it easier for students to use income-share agreements (or ISAs) as an alternative to traditional student loans. Instead of promising to pay a set amount every month, students pledge to repay a share of their income for a set period of time, in exchange for an investor funding their education upfront. The upshot: students are always guaranteed an affordable payment, while those who go on to earn high salaries pay back more to compensate funders for losses on less fortunate students. The concept has gained popularity in recent years, as prominent universities such as Purdue have introduced ISA programs for their students.

But lawmakers need to develop better policy around ISAs before the idea can fully take off. The concept is new enough that it lacks any concrete regulation. Investors don’t know how ISAs should be treated for tax purposes, or how usury laws should apply to them. Many investors are keen on ISAs, but reluctant to fund them without definite answers to these questions. Without a clear regulatory framework, an overactive regulator or state attorney general could spell disaster for a fledgling ISA program.

The House bill resolves many of the question marks surrounding ISAs in federal policy. It stipulates that investors only owe taxes on profits earned from ISAs, and caps the share of income that a student might be compelled to repay through such an arrangement. It does not create a national ISA program or allocate any taxpayer money to the idea—the bill simply makes it possible for ISA arrangements to flourish in the private market.

When Messer introduced the bill in June 2017, it had just eight sponsors, six of them Republicans (including Messer). But in the sixteen months since then, it has quietly picked up support from both political parties, and now has ten Democrats and nine Republicans signed on. The most recent addition was Rep. Darren Soto (R-FL), who joined as a cosponsor on September 27.

Source: U.S. House of Representatives

ISAs as an idea have traditionally come from the right; market-oriented economist Milton Friedman proposed the concept in 1955. But the idea has appeal across many different ideologies. Many of the Democrats who have signed on to Messer’s bill are hardly moderates. Cosponsors include members of the Congressional Progressive Caucus, such as Representatives Sheila Jackson Lee (D-TX) and Jared Polis (D-CO). The House Freedom Caucus is represented as well, by Rep. Tom Garrett (R-VA).

Though the bill’s sponsors have wildly divergent ideas about how to reform American higher education more broadly, the bipartisan agreement on ISAs is encouraging. After all, both parties have complaints about student loans as they currently exist. While students wait for grander solutions to emerge from Congress (don’t hold your breath), giving them another option to finance their educations should be a no-brainer.

AEI Events Podcast: Nurse pactitioners and America’s primary care shortage - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 22:26

On this episode of the AEI Events Podcast, Peter Buerhaus presents on his new report “Nurse Practitioners: A Solution to America’s Primary Care Crisis” and how the shortage of primary care providers are likely to worsen in the coming years.

According to Dr. Buerhaus’ research, an estimated 84 million people in the United States do not have adequate access to primary care, and a disproportionate amount of these individuals live in rural areas. His research strongly suggests that reevaluating restrictions on nurse practitioners can help Americans gain greater access to primary care while easing the strain on public health insurance programs.

This event took place on October 15, 2018.

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.


Pakistan’s Imran Khan caves to Islamic fundamentalists — again - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 20:26

On October 31, the Supreme Court of Pakistan acquitted Asia Bibi, a 53-year-old Christian woman who had been on death row since 2010 for allegedly committing blasphemy against Islam. Thousands of protestors quickly took to the streets, shutting down Pakistan’s cities and calling for a general strike, the killing of justices, and an uprising against the army chief. At first, Prime Minister Imran Khan was defiant. He delivered a televised address in defense of the court and threatened to intervene against the protesters. Yet on Friday, Khan switched tack and submitted to their demands. In doing so, he has weakened Pakistan’s state and empowered its fundamentalists.

Pakistani Prime Minister Imran Khan attends talks with Chinese President Xi Jinping (not pictured) at the Great Hall of the People in Beijing, November 2, 2018. REUTERS/Thomas Peter/Pool

According to the agreement between the government and the protestors, Asia Bibi will be put on an exit control list preventing her from leaving Pakistan, and the government will allow an appeal against the court’s decision. This came just 30 hours after Khan’s party, the PTI, tweeted that the “Federal Government has no plan to put Asia Bibi’s name on ECL [exit control list] or appeal for a review against the court’s verdict.” It also follows the lauded address in which Khan denounced the protestors as “enemies of the state” and defended the court’s decision.

This backtracking is another unsurprising chapter in the saga of “Taliban Khan,” a nickname earned by Khan’s long history of pandering to extremists. During his campaign, Khan defended blasphemy laws while members of his party campaigned with known terrorists. In August, he pushed for international blasphemy restrictions in response to a prophet Mohammad drawing contest in the Netherlands. The contest was canceled after credible threats of violence.

The chief beneficiary of Khan’s capitulation is the TLP, an Islamist political party dedicated to protecting Pakistan’s strict blasphemy laws and organizer of the protests against Bibi’s acquittal. The TLP earned just 4 percent of the total votes in the last election and holds no seats in the national assembly. Yet, through a committed base of fundamentalists, it routinely strong-arms the government on political matters, including forcing the resignations of a law minister and a prominent economic adviser on religious grounds.

In this latest case, the TLP called for a rebellion against the state. It brought the country to a standstill and caused the closing of schools, highways, and the cellular network. The state’s quiescence proves that it has no appetite for conflict with the fundamentalists, handing them veto power over both the government and the courts. The TLP’s incitement against the army chief bodes poorly for the military as well.

Had Khan stood by his speech, he could have asserted the state’s writ over the fundamentalists and enabled the strengthening of rule of law that Pakistan so desperately needs. Instead, his party’s display of impotence has ceded whatever authority it may have had. Now, if Khan is to follow through on his promise of a “new Pakistan,” it will only be because the fundamentalists allow him to.

Max Frost is a Research Assistant in South Asian Studies at the American Enterprise Institute.

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Commentary on ‘Borrowed Time: Two Centuries of Booms, Busts, and Bailouts at Citi’ - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 18:51

Introduction: Paul Kupiec, Resident Scholar, AEI

In 1910, Frank Vanderlip, President of National City Bank, attended a secret meeting in Jekyll Island Georgia where, along with Henry Davidson of J.P Morgan, Paul Warburg of Kuhn, Loeb and Company, and Senator Nelson Aldrich of Rhode Island, he drafted a plan for a new US central bank. That plan would subsequently become the Federal Reserve Act of 1913.

The Wall Street bankers’ contribution to the design of the Federal Reserve System remained secret for years because the proposal would never have been passed into law if the public knew that the plan was drafted by the leaders of the biggest banks on Wall Street.

Just a few years prior, Frank Vanderlip was serving as an assistant secretary of the US Treasury. He was plucked from this job by Citibank’s then President, James Stillman, to acculturate and ultimately succeed Stillman as president of National City.

Fast forward 89 years.

Its 1999, and Secretary of the Treasury Robert Rubin is spearheading the passage of the Gramm Leach Bliley (GLB) Act through the US Congress. The bill repeals the 1933 Glass-Steagall prohibition against combining banking, securities underwriting and brokerage in a single entity. Rubin’s efforts succeed. The bill passes the Senate on May 6 and the House on July 1. It creates a new class of legal firm– a Financial Holding company—that is supervised by the Federal Reserve Board. These new legal entities can own a full suite of financial services businesses. The new law allows the 1998 mega-merger between Citibank and the Travelers Group to go forward without any of the financial business divestitures that would have been necessary if Glass-Steagall restrictions had not been repealed by Congress.

On July 2, 1999, the day after the House passed GLB, Robert Rubin leaves government service. Later that year, he joins Citigroup as a board member and a position concerned with “strategic managerial and operational matters of the Company, but … no line responsibilities”.[26] The Wall Street Journal characterized Robert Rubin’s Citigroup’s responsibilities as “murky”.

By the time Rubin leaves Citigroup in 2009, the company has racked up huge losses in the subprime financial crisis. For his time at Citigroup, Mr. Rubin, having had no specific operational responsibilities, collects over $100 million in compensation.

Within the decade another former senior Clinton administration official is recruited by CitiGroup. Jack Lew joined Citi as senior official in charge alternative investments (a.k.a. hedge funds) and Citi’s offshore special purpose entities—activities that played key roles in generating losses in subprime mortgage crisis.

Jack Lew’s time at Citi was short—he left CitiGroup in 2009 to join the incoming Obama administration, first as a State Department Official, then as Director of the Office of Management and Budget, and subsequently as White House chief of staff.

When he left Citi, he received a large severance bonus for taking a senior job in government. Lew’s $940,000 severance bonus was paid at the same time Citi was receiving billions of dollars in U.S. taxpayer support. Although Lew served as Chief Operating Officer of the very division that the government charged with hiding $39 billion of subprime debt off balance sheet in Structured Investment Vehicles (SIVs), in February 2013, Jack Lew was confirmed by the Senate 71-26 as Barrack Obama’s second Secretary of the Treasury.

These are just a few examples where the history of Citibank is inextricably intertwined with domestic politics and legislation that shaped the US banking system. But Citi’s influence does not stop at the US border—Citi was a pioneer in international banking.

At different points in its history, Citi’s growth strategy was focused on expanding its international operations. Its international focus after WWII began under Walter Wristin. After Wristin became head of Citi’s overseas division, Citi officially adopted a new strategy, paraphrased as follows:

Citi goal is not to be merely a bank, but a financial services company that can perform every useful financial service, anywhere in the world, permitted by law, which can be expected to generate a profit for Citibank.

It turns out that many of Wristin’s favored international investments, especially those involving debt issued by less developed countries, while technically legal, ultimately generated losses that were criminal in magnitude.

Should they make Borrowed Time into a movie, the Citibank story will not be film noir. Citi has many bright spots in its rich history–like the time Citi saved the federal government with a desperately need loan, or the time it deliver the gold when other banks could not. Citi was a leader in credit cards, and the idea that a one-stop financial supermarket was the best way to provide consumers the services they needed.

Our author and guest tonight, James Freeman, will undoubtedly recount many more stories that highlight the influence of Citibank and its leaders on the development of domestic and international banking practices over the nearly 200 years of Citibank history. James Freeman and his co-author, Vern McKinley, have done a superb job, and I am sure you will want a copy of Borrowed Time for your library.

Commentary by Bert Ely, Ely and Company

Let me begin by encouraging you to buy, and better yet, read Borrowed Time. Not only is it a very useful study of the history of Citigroup and the banking world in which it and its competitors have operated but as banking books go, it is very readable and filled with interesting insights.

My brief remarks will focus on important points the book makes – intentionally or otherwise – and then I will discuss what I see as the book’s major drawback – how to prevent future busts and subsequent bailouts of large financial firms such as Citi.

The book’s numerous anecdotes about Citi CEOs and other personages, such as Donald Trump and former Treasury Secretary Tim Geithner, provide important insights into the bank’s twists and turns through it long history while adding vivid color to what otherwise might have been a boring tale. Several anecdotes are even mildly salacious – for example, that of James A. Stillman, who in nepotistic fashion became Citi’s president in June 1919, succeeding his late father, the bank’s long-time chairman.

Like other banks, Citi was slogging through the severe post-World War I recession, yet Stillman took time from his banking responsibilities to file for divorce from his wife, known as “Fifi,” claiming that his youngest son “was actually the result of an affair Mrs. Stillman had conducted with a Canadian outdoorsman, often referred to an as ‘Indian guide.’” Mrs. Stillman argued, in return, that “her husband had secretly fathered a child with a former Broadway dancer.” A more recent CEO, as the book reports, “divorced his first wife, with whom he had four children, and married a flight attendant from Citi’s corporate jet.”

What interesting lives Citi CEOs have led.

The book, in recounting, the bank’s various dealings with Donald Trump and his father, Fred, reinforced my long-held perception that the younger Trump was a lousy businessman, if not an outright con man. The authors did note, though, that “Donald Trump was just one of the distressed borrowers the bank was trying to help make great again.” Perhaps Citi succeeded too well.

Turning to the story of Citi itself, through its long history – the bank was chartered in 1812 – it has been buffeted by the country’s numerous wars, recessions, the Great Depression, and the recent Great Recession yet as the book documents, Citi has had a very mixed quality of CEOs and other senior executives over the years. Citi’s near failures, and subsequent bailouts, are therefore hardly a surprise, but why has it had so many leadership challenges, and failures, over 200-plus years?

The authors give a hint why, when they note that “most of the members of Citi’s board in 2003 were from fields outside of banking and finance, so the guidance they could offer had its limits” in selecting senior executives. I suspect this shortcoming at the board level existed long before 2003.
More specifically, my sense is that Citi’s directors over the years have been far too deferential to the outgoing CEO in permitting him to anoint his successor.

One recent example cited in the book – in 2003 Sandy Weill backed as his successor “his longtime legal expert Chuck Prince.” Prince was not an experienced banker and he lasted only until November 2007, the eve of the great financial crisis. Perhaps the greatest leadership tragedy at Citi occurred when Weill fired his “longtime lieutenant,” Jamie Dimon, just weeks after Citicorp merged with Weill’s Traveler’s Group in October of 1998.

As the authors note, the business relationship between the two men “went south” after Dimon “chose not to promote Weill’s daughter at the pace that she and her father believed she deserved.” This was yet another instance when nepotism trumped talent, at great cost to Citi, and to the economy.
Given Dimon’s later success at managing JPMorgan Chase, one can easily imagine how different Citi’s history would have been over the last two decades had he succeeded Weill as CEO. Perhaps, then, this book might never have been written and we wouldn’t be here today.

The issue of the selection and oversight of bank leadership by bank boards of directors has become an increasingly critical issue in the banking industry in recent years, as seen most notably at Wells Fargo.
Unresolved as a public-policy issue today is where to find a sufficient number of highly qualified directors of banks and other large financial institutions. Perhaps too much reliance is being placed on the boards of financial firms, and not on their CEOs, to steer those firms away from financial shoals.
As everyone knows, banking is a highly regulated business, so understandably the book gives considerable attention to the structure of the U.S. banking business and the effect of monetary policy on Citi.

From its beginnings, American banking was characterized by severe branching restrictions, with banks largely barred from having any branches or just a handful. Consequently, until recent decades the United States had thousands of small banks, almost all with no branches or just a few, which forced banks to engage in correspondent banking, with small and even medium-size banks placing substantial deposits with large money-center banks, such as Citi. That business was very profitable for Citi, but it was a source of systemic instability in the banking business.

Contrast that structure with Canada, with its handful of banks, each with hundreds of branches stretching from sea to sea, or at least across a major segment of the country. Canada, of course, has had a much more stable, and safer, banking system.

Consequently, when considering the “two centuries of booms, busts, and bailouts at Citi,” the book’s subtitle, one cannot ignore how the United States’ flawed banking structure and monetary system negatively impacted Citi, as well as most other banks during times of economic distress. The federal government’s hands are far from clean!

Within this structural context, the authors review the manner in which Citi has been regulated and supervised, specifically by the Comptroller of the Currency (OCC) and the Federal Reserve. Not surprisingly, they are not very complimentary of that supervision, specifically for not moving as fast and as aggressively as they should have during Citi’s several brushes with failure. If anything, the authors were too kind to Citi’s regulators.

The book’s final chapter, Save Citigroup at All Costs, presents a critical assessment of actions the federal government took in 2008 and thereafter to keep the financial system functioning, including providing substantial support of Citi, albeit at great risk to taxpayers. I believe the authors were too dismissive, though, of the costs and negative economic and political consequences of suddenly liquidating or dismembering a large, weak bank.

The authors state that “[p]reventing such moments from occurring was, of course, the job of the Federal Reserve and the [OCC] . . . [b]ut on-site examinations and off-site surveillance by teams of regulators had not succeeded in averting disaster.” The authors then observe that “[u]nfortunately, those seeking a safer regulatory system are regularly disappointed.”

Yes, that is true, but what would a safe regulatory system look like? Are Dodd-Frank’s failure-resolution provisions the answer? The authors do not say. Perhaps the authors will address this existential challenge in a subsequent book – someone needs to!

In closing, Borrowed Time is well-worth the time spent reading it, and contemplating the story it tells. Buy this book, and read it!

Commentary by Alex J. Pollock, distinguished senior fellow at the R Street Institute

This is a colorful book, full of great stories and forceful (if not always admirable) personalities, who deserve to be remembered. It gives us repeated lessons of how banking is a business always intertwined with the government, demonstrated in the long history of Citibank, a very important, very big, often quite creative, and sometimes very troubled bank. It reminds us of the theory of Charles Calomiris that every banking system should be thought of as a deal between the bankers and the politicians.

According to then-Treasury Secretary Henry Paulson’s instructive memoir of our most recent financial crisis, on November 19, 2008:
“Just one week after I had delivered a speech meant to reassure the markets, I headed to the Oval Office to tell the president that yet another major U.S. financial institution, Citigroup, was teetering on the brink of failure.
‘I thought the programs we put in place had stabilized the banks,’ he said, visibly shocked.
‘I did, too, Mr. President.’”

This exchange led to the instructions from the President which appear on page 1 of Borrowed Time:

“Don’t let Citi fail.”

At this point, as the book tells us, “The Office of the Comptroller of the Currency and Citigroup guessed that Citibank would be unable to pay obligations or meet expected deposit outflows over the ensuing week. Citigroup’s own internal analysis projected that ‘the firm will be insolvent by Wednesday, November 26.”

“As ever,” the authors add, “the latest crisis in the banking sector caught many regulators by surprise.”

Now, if Citibank had failed and defaulted on its obligations, what would have happened? Nobody wanted to find out. Then-New York Federal Reserve President Tim Geithner forecast that it would be a “catastrophe,” the book relates, and quotes the then-head of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair: “We were all fearful.”

In their place would you, ladies and gentlemen, have been fearful, too?
Yes, you would have been.

Would you have decided on a bailout of Citibank, as they did?

Yes, you would have.

The FDIC had a special and very pointed reason to be fearful: a failure of Citibank would have busted the FDIC, too—this government insurance fund would itself have needed a taxpayer bailout. As we learn from the book: “The FDIC staff did a seat-of-the-pants calculation and estimated the agency’s potential exposure to Citibank to be in the range of $60 billion to $120 billion. Even at the low end of that estimated range, losses would ‘exhaust the $34 billion or so in the [Deposit Insurance Fund].’”

So the FDIC would have been broke—just like the Federal Savings and Loan Insurance Corporation was twenty years before. In short, the bailout of Citibank was an indirect bailout of the FDIC. This insightful lesson is not made explicit in the book, but is a clear conclusion to draw from its account.

Going back in history to 147 years before these events of 2008, we find the situation interestingly reversed. In 1861, at the beginning of the Civil War, City Bank—at that point spelled with a sensible “y” and not the marketing “i” of much later times—was helping save the government, as the U.S. Treasury scrambled to raise money for the army.

We learn from the book that Moses Taylor, then the head of City Bank, “played a leading role in gathering private and municipal funds to equip and sustain Union troops and also in managing the issuance of federal debt to pay for the war.”

In the summer of 1861, “Secretary of the Treasury Salmon Chase visited a group of New York bankers and told them he needed $50 million ‘at once.’ The bankers huddled, and the Tylor, speaking for the group, announced, ‘Mr. Secretary, we have decided to subscribe for fifty millions of the United States government’s securities that you offer, and to place the amount at your disposal immediately.’”

We can imagine how relieved and happy that must have made the Treasury Secretary.

As the Civil War dragged on and became vastly more expensive, one of the ways to finance it was the creation of the national banking system to monetize the government debt. City Bank then became a national bank, as it still is.

However, the limitations of the national bank charter made it hard to be in the securities business. How City Bank got around this in the boom of the 1920s makes interesting reading, including how it actively financed the stock market bubble of the decade.

Then came, of course, the collapse and the disaster of the 1930s, and that brought government investment in the preferred stock of City Bank by the Reconstruction Finance Corporation. “The debate is over whether City really needed Washington’s money,” the book tells us, “or was persuaded to participate in a broader program intended to show that the government was shoring up the nation’s banking system.” It continues, “Just as in 2008”—note how financial ideas as well as events repeat themselves—“federal officials in the 1930s wanted healthy banks to accept government investment so that the weak banks that really needed it would not be stigmatized.” But which category was City Bank in?

The authors conclude that “it seems likely that City really did need the money.”

Citibank was and is a very international bank. This has its advantages, but also its problems. In the 1930s, City was in trouble from its international loans to, as the book relates, Chile, Cuba, Hungary, Greece and most importantly, Germany.

Germany had boomed in the 1920s and was the second largest economy in the world. It had financed its boom with heavy international borrowing, especially from the United States. By the 1930s, it was obvious that this had not been a good idea from the lenders’ point of view.

In the natural course of events, the costly 1930s experience became “ancient history,” and in the 1970s, Citi (now spelled with an “i”) was the vanguard of a great charge into international lending, in which a lot of other banks followed.

The leader and chief proponent of the charge was Walter Wriston, Citi’s CEO and the most innovative and best known banker of his day. Says the book: “Wriston’s most remarkable achievement at Citibank was persuading Washington that lending money to governments in developing countries was nearly risk-free.”

But the government was already cheering for these loans. “There had for years been a tendency among many government officials to look with favor on loans to less-developed countries [LDCs].”

About these loans, Wriston notoriously said, “They’re the best loans I have. Sovereign nations don’t go bankrupt.”

No, they don’t. But they do default on their loans—and quite often, historically speaking. And default many foreign governments did, starting in 1982.

At that point, the Chairman of the Federal Reserve was the famous Paul Volcker. As the book discusses, his solution to the possibility the U.S. banking system had become insolvent was to mandate that the LDC loans not be called the bad loans they were, that no loan losses would be booked against them, and that the banks would indeed have to make new loans to keep the Ponzi scheme going. In other words, the solution was to cook the books.

With this big gamble, as it turned out, things did keep going. When LDC loans were finally charged off in the late 1980s, there was a new boom on: financing commercial real estate. This boom in turn collapsed in the early 1990s. We might say there is a theme and variations involved.

In 1981, just before the Wriston-led charge into LDC debt went over the cliff, the biggest ten banks in the United States, in order, were:

Bank of America (the one in San Francisco, long since sold)
Chase Manhattan
Manufacturers Hanover
Morgan Guaranty
Chemical Bank
Bankers Trust
Continental Illinois
First National Bank of Chicago
Security Pacific

Consider this: of the ten, only two still exist as independent companies. Eight of the ten are gone. To people not in the financial trade, or even to younger ones in it, these once-important names are probably unknown. As a song written by one of my old banking friends goes:

“You were a big bank,
Blink and now you’re gone!”

But Citibank, the subject of the eventful history related by Borrowed Time, is not gone—it is still here.

Which is the only other survivor of the former top ten? Maybe you would like to guess? (The answer is Chemical Bank, although it has changed its name to JPMorgan.)

In short, if you have a taste for the adventures and evolving ideas, the ups and downs, the growth and reverses, and the innovations and blunders of banking over the years, you will enjoy this history of a most remarkable institution.

Yes, pressure works on Iran - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 18:46

The basis of President Trump’s strategy on Iran is to coerce change through economic warfare. There are reasons to agree or disagree with Trump’s pull-out from the Iran nuclear deal, but to argue either that Tehran is impervious to pressure or that trade with Iran provides the best path to moderation are both false.

Firstly, pressure: Twice in the nearly 40 years since the Islamic Revolution, the Iranian government staked out extreme positions only to reverse course under pressure. The first example would be the 52 U.S. hostages, seized 39 years ago Sunday. Ayatollah Ruhollah Khomeini ruled out their release until the U.S. fulfilled a host of demands including confessions, apologies, the Shah’s return (he would die of cancer in the interim), and compensation. These were impossible conditions to fulfill and yet, the day former President Ronald Reagan took office, Iran released the American captives.

What happened? Carter administration aides later said it was the persistence of former President Jimmy Carter’s diplomacy. Gary Sick, a White House National Security Council aide, spun the wild “October Surprise” conspiracy theory later discredited by congressional investigation. A late aide to former Secretary of State Henry Kissinger, Peter Rodman, however, observed that the only thing that had changed for Iran between Khomeini’s initial demands and the hostage release was Iraq’s invasion. Simply put, the isolation that the hostage situation precipitated had, in the new circumstances, become too great for Iran to bear.

The second time Iran reversed course was with regard to the Iran-Iraq War. Iran had largely pushed out the Iraqi invaders in 1982. Khomeini briefly considered a cease-fire then, but the Islamic Revolutionary Guard Corps convinced him to continue fighting until they had liberated not Baghdad, but Jerusalem. There followed six more years of stalemate and at least a half-million more deaths. Finally, Iran could take no more. Khomeini got on the radio and accepted a cease-fire, likening it to drinking a chalice of poison but saying it was necessary for the Islamic republic to survive. Facing tremendous costs, Khomeini caved.

What about the opposite? German Foreign Minister Klaus Kinkel in 1993 suggested that if Europe increased its trade with Iran, Iran would moderate and Western diplomats could simultaneously tackle the hard questions confronting relations.

This is an argument made more recently by Washington Post columnist Jason Rezaian. But Rezaian cherry-picked and ignored the history. Between 1998 and 2005, European Union trade with Iran almost tripled, and the price of oil quintupled. Iran took 70 percent of that hard-currency windfall and invested it in its then-covert nuclear and ballistic missile programs.

Increasing trade doesn’t work. Today, the Islamic Revolutionary Guard Corps controls up to 40 percent of Iran’s economy. Increasing trade with Iran doesn’t moderate the regime — it finances it.

The point of this? There is much to debate about Trump and Secretary of State Mike Pompeo’s approach to Iran. It is not clear if they can find the unity to coerce Iran to the degree necessary to make change. The number of waivers that the Trump administration has granted hardly equates to Khomeini’s proverbial “chalice of poison.”

But when it comes to the basic fundamentals of their approach: Yes, pressure can change Iran’s behavior.

Related reading:

What is a wave election, anyway? - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 18:45

Democrats look poised to have a good showing on Tuesday. They are almost certain to gain seats in the House, and may break even in a Senate cycle where they have to defend 10 seats in states Donald Trump won. They’ll also add a number of governorships to their tally, along with a slew of state legislative seats.

But will it be a wave election? This concept is something that analysts refer to routinely, but there’s no generally accepted definition of it. We know that it is a really bad election for one party, but sometimes the lines become difficult to trace. Everyone agrees, for example, that 2010 and 1938 represent wave elections, however that is defined. But what about years like 2006 or 1982, where the shifts were less dramatic, or even internally contradictory (in 1982, Republicans gained Senate seats despite losses in the House).

In a way, the concept of a wave is irrelevant.  Years like 1954, where Democrats barely gained seats but still flipped the House, are probably more consequential than a major wave year like 1922, where Democrats gained over 70 seats but failed to capture the chamber.  Whether 1982 is a wave election is irrelevant, as Democrats gained enough House seats to stop Ronald Reagan’s domestic agenda.

Yet waves still capture our imagination, in part because we tend to interpret them as nullifying a presidential mandate.  So the 1994 GOP wave forced Bill Clinton to declare that the era of big government was over (however temporarily) while the wave of 1966 stalled the Great Society.  In a presidential year, waves can be seen as inaugurating new eras, such as Barack Obama’s win in 2008 or Ronald Reagan’s in 1980.

So, we start with a definition: A wave election represents a sharp, unusually large shift in the national balance of power, across multiple levels of government.  To measure this, I turn to a metric devised by David Byler and me, which measures the power that a party has in the government at a particular point in time.  It’s a combination of the party’s share of the presidential popular vote, Electoral College, the House popular vote and seats in Congress, the makeup of the Senate, the makeup of governorships and the makeup of state legislatures.

What I’ve done is tracked the shift in this index going back to 1856. In other words, I’ve tracked how the index moves from election to election. The idea is that in wave elections, you should get unusually large swings in partisan power across multiple levels of government, and hence large swings in the index. As a technical side note, the average shift is 0.44, with 33 percent of the observations within one standard deviation of the mean and 5 percent of the observations within two standard deviations. This is consistent with the frequently expressed view among political scientists that elections are fundamentally random and don’t favor one party or the other over time.

In any event, the question then becomes: How do we decide whether a shift is a “large” shift? A common statistical tool is the standard deviation, which is basically a measure of how spread out a data set is. For example, the average American male is about 70 inches tall (5 feet 10 inches). But that doesn’t tell us that much about whether someone is unusually tall or short. It only tells us whether someone is above average or below average. The standard deviation helps us with that calculation. One standard deviation from the average can be thought of as unusually tall, and two standard deviations from the average can be thought of as very unusually tall.

As it turns out, the standard deviation for height is three inches. So, using our rule of thumb for standard deviations, we might say: A man who is 6-1 is tall, and a man who is 6-4 is unusually tall, while a man who is 6-7 is extremely tall. On the other side, 5-7 is short, 5-4 is very short, and 5-1 is extremely short. We can quibble about the cutoffs, but this seems about right.

Applying that rule of thumb to our data, there is only one election that is three standard deviations out from the average: 1932. Indeed, this is the granddaddy of all elections, where a deep, durable Republican majority was swept away.

Loosening our requirement to include elections that are two standard deviations out, we add three others as waves: 1860, 1894, and 1874. These represent two canonical realigning elections, plus one that probably should be in that bucket (1874). They also represent extreme events in American history: The 1860 election saw the demolition of the Democratic Party outside the South on the eve of the Civil War. The 1874 election saw the rebirth of the Democratic Party, which gained 94 House seats at the onset of the so-called Long Depression. The 1894 election saw Democrats lose an astonishing 127 House seats, as the aftermath of the Panic of 1893 continued to roil the nation. All of these elections had ramifications far down the ballot as well.

We might be tempted to stop here, and say that a wave election should just be an election that is two standard deviations out from the average (the equivalent of a 6-4 male) and that our discourse to the contrary is misplaced. But this doesn’t really get us to what most observers are really talking about with wave elections. After all, according to this approach we haven’t had a wave election since 1932, and none of us talks about wave elections that way.

So perhaps we should go with 1.5 standard deviations. This is the equivalent of making our cutoff for a very tall man be about 6-2 ½. If we do this, we don’t seem to lose anything in explanatory power, as most of what is added falls cleanly in our definition of a wave: We add 1920, 1938, 1994, 1922, 1912 and 2010. We’ve added only elections that people talk about as waves, without adding anything that isn’t a wave.

If we take the next step of one standard deviation from our average, we add a lot of elections. The first few are pretty clearly wave elections, but after that it gets iffy. We add (in descending order): 1958, 1948, 1966, 1974, 1930, 1870, 1890, 1910, 1980, 1856, 1968, 1942, 1882, 1964, 1862, 1954, and 1946. I’m content to leave the definition at 1.5 standard deviations from our average, but reasonable minds can vary: We might want to include midterm elections just outside of that range since presidential elections can vary a bit more than midterms do.

In any event, note that two widely discussed wave elections, 2006 and 1982, do not fall within our definition, nor does an arguable wave election, 2014. In fact, all three just miss a one standard deviation cutoff. In this case, we might just say that the commentariat got it wrong (especially 1982, where half of Republicans’ losses can be chalked up to redistricting), unless people are also willing to accept 1942 and 1954 as wave elections.

I might say, however, that this is only part of the story. There might also be elections that don’t shift things much, but that maintain an unusually strong showing for a party. For example, 1934 did not shift the national balance of power much, but it was still an unusual outcome, historically speaking for Democrats. For this, we turn back to the initial index. Rather than measuring the change in the index, let’s look at elections that result in unusually strong showings for parties, regardless of what their previous showing was.

If we do this, 1936, 1866, 1934, 1868, and 1864 show up as two-standard-deviation wave elections. This makes sense, as the 1860s were a time of generally significant Republican strength, while the early 1930s were a time of generally significant Democratic strength. Expanding to 1.5 standard deviations would cover a few wave elections above, but also add 1964, 1976, and 1862 as “maintaining” elections. Once again, at a single deviation, we add some things that seem to fit our “common” talk, but also exclude a bunch of elections that don’t seem to fit: 1872, 1974, 1958, 1870, 1960, 1912, 1978, 1904, 1940, 1962, 1928 and 1992.

Anyway, using both definitions, the 1.5 standard deviation cutoff seems to best encapsulate what we mean when we talk about a wave election, and if we add some wiggle room to that we’ve done a really good job – because it suggests that our public dialogue about elections is really on to something. The only elections I think are clearly missing are the 2006/2008 pairing, which can really be seen as a two-cycle wave election.

Regardless, this is the definition I will be using for the next week.

Discussing US-China relations: Scissors on Bloomberg’s ‘Newsroom’ - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 18:30
Resident Scholar Derek Scissors recommends that the US impose targeted sanctions on Chinese companies on Bloomberg's 'Newsroom.'

Planet earth to Luigi Di Maio - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 16:55

One has to wonder on which planet Luigi Di Maio, the leader of the Italian Five-Star Movement, is living.

At a time when Italian bond spreads are rising in response to a budget stand-off with Brussels, and at a time when the Italian economy again appears to be on the cusp of an economic recession, Mr. Di Maio shows no sign of backing down from his conviction that Italian public spending needs to be increased to boost the economy.

Italian Deputy PM Luigi Di Maio speaks at the 5-Star Movement party’s open-air rally at Circo Massimo in Rome, Italy, October 21, 2018. REUTERS/Max Rossi

Indeed, he is now suggesting in an interview with the Financial Times that Italy’s more expansive public spending plans and its corresponding flouting of EU budget rules could be a model for the rest of Europe, whose economy in his view has been hampered by years of budget austerity.

The basic point that Mr. Di Maio refuses to understand is that rising Italian interest rates occasioned by an expansive fiscal policy can more than offset any support the Italian economy might receive from increased public spending. This is particularly the case in the Italian context where Italian government bonds constitute around 10 percent of the banking systems’ balance sheet. It is also the case given the Italian public debt-to-GDP ratio already exceeds 130 percent of GDP.

As Italian bond prices rise and their prices fall, as investors become increasingly concerned about the country’s budget deficit and its public debt sustainability, the capital base of the Italian banks decline. This means that not only do Italian companies and households have to pay higher interest rates as Italian government bond yields rise, they also run the risk of facing a full blown credit crunch as the Italian banking system becomes increasingly capital-constrained.

In not backing down on his calls for higher public spending, it seems to have escaped Mr. Di Maio’s notice that over the past few months Italian government bond yields have approximately doubled to their present level of 3.3 percent. They have seemingly done so in direct response to Rome’s stand-off with Brussels over a budget deficit that now looks set to increase to more than 3 percent of GDP.

It also seems to have escaped Mr. Di Maio’s notice that rising Italian interest rates, together with increased investor uncertainty occasioned by Rome’s budget stand-off with Brussels, led to the virtual stagnation of the Italian economy in the third quarter of 2018. This now puts the country on the cusp of yet another economic recession that will only deepen the country’s banking sector and public debt problems.

Hopefully, Mr. Di Maio will soon see reason and understand the risks to which his expansive budget policies are subjecting the Italian economy. If not, Italy and Europe should brace themselves for his very costly economic tutorial.

Learn more:

Bradley Lecture Series Podcast: The Betrayal of Liberty on America’s Campuses with Alan Kors - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 16:44

In this episode of the Bradley Lecture Series Podcast, we’re revisiting “The Betrayal of Liberty on America’s Campus” by Alan Kors of the University of Pennsylvania, originally given at AEI’s headquarters in October of 1998.

Professor Kors’ lecture provides valuable insight into the history of this problem. While there is plenty of blame to go around, Professor Kors makes the case that those whose roles we see least may have the strongest effect. In particular, he discusses the influence of mid-level college administrators who have been given ever broader authority over students’ lives, speech, and consciences from the time the students set foot on campus for orientation to the time they leave.

The stakes involved are high, and Professor Kors calls on his listeners to be men and women for all seasons to resolve the crisis in higher education.

This lecture was originally given on October 5, 1998. Full details can be found on the original event page here.

To view a full list of the Bradley Lectures, see the Bradley Lectures page on the AEI website.

PRESS RELEASE: Matt Weidinger has joined AEI as a resident fellow - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 16:33


Washington, DC (November 5, 2018) — Michael R. Strain, the Director of Economic Policy Studies at the American Enterprise Institute (AEI) announced today that Matt Weidinger — who served most recently as the deputy staff director of the House Committee on Ways and Means — has joined AEI as a resident fellow in poverty studies. At AEI, he will focus his work on poverty, safety-net programs, welfare, and unemployment insurance.

Mr. Weidinger began his career on Capitol Hill in the 1990s and was the longtime staff director of the Ways and Means Subcommittee on Human Resources, which has jurisdiction over safety-net programs. He has been the principal editor of several editions of the House Committee on Ways and Means “Green Book,” a multi-chapter volume providing background materials and data on tax, health insurance, Social Security, welfare, trade policies, and statistics. He was also a primary staff author of the landmark 1996 welfare reform law (The Personal Responsibility and Work Opportunity Act).

“We are thrilled that Matt Weidinger has joined AEI,” said Michael Strain. “His breadth of knowledge and political experience regarding safety-net programs and other measures to alleviate poverty in America will be invaluable to the Institute’s work.” Rep. Kevin Brady (R-TX), the Chairman of the Ways and Means Committee, in his remarks on the departure of Mr. Weidinger from the Committee staff, said that “for over 25 years, Matt has played an important role in the major accomplishments of [the] Committee. His name and reputation are nearly synonymous with the Ways and Means Committee.” Added Strain, “The Committee’s loss is the Institute’s gain.”

For interview requests or other media inquiries, please contact AEI Media Services at mediaservices@aei.org or 202.862.5829.


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.

Do field trips have educational value? | In 60 Seconds - AEI Events Podcast: Nurse pactitioners and America's primary care shortage - AEI

Mon, 11/05/2018 - 15:45

Amidst the focus on reading and math scores in schooling, activities like field trips have been pushed to the side. But do they actually offer educational value? AEI scholar Frederick M. Hess breaks down some new education research suggesting that they do.

Related reading:

Who should antitrust protect? The case of Diapers.com - Who should antitrust protect? The case of Diapers.com

Mon, 11/05/2018 - 11:00

Preparing for an informal session with some UK antitrust regulators last week, I had the opportunity to finally read Lina Khan’s widely-cited contribution to hipster antitrust, “Amazon’s Antitrust Paradox.” It’s quite a piece.


Before discussing the article’s shortcomings — which are many and profound — let’s highlight some areas of general agreement. First, economies of scale and scope in network industries sometimes result in very big companies with high market shares (somehow defined). Second, such companies sometimes have both the incentive and ability to engage in exclusionary conduct that harms both competition and consumers, and they sometimes do.  Third, while antitrust enforcement is often effective in identifying and deterring such conduct — Microsoft comes to mind — it is far from perfect. We need to continue improving our understanding of competition in digital markets and refining antitrust doctrine and practice.

The antitrust hipsters take a much darker view. In their eyes, antitrust as currently practiced — a fusion of the Chicago School revolution of the 1950s-1980s and the post-Chicago counter-revolution of the 1990s-2000s — is woefully inadequate to address the problems caused by today’s “internet giants.” Such firms, they say, engage in a multitude of anticompetitive practices, like slanting search results to disadvantage competitors, monopolizing “big data” to gain an “unfair” advantage over competitors, and buying out potential competitors in “killer acquisitions,” all of which current antitrust laws have failed to prevent. For some hipsters, the solution is to ditch the economics-based consumer welfare standard at the core of the current consensus in favor of a “non-discrimination” rule; others say nothing short of “breaking them up” will do.

This is obviously a complex debate, but at its heart is a simple question: Who exactly should antitrust be trying to protect? Under the Chicago/post-Chicago synthesis, the answer is consumers: Mergers and business practices that make consumers worse off should be stopped or deterred, otherwise enforcers should stand aside. The hipsters take a different view: They seek to protect businesses, specifically smaller firms that might someday pose a competitive threat to current incumbents, even in the absence of evidence consumers would benefit.

To understand why this is a bad idea, consider the saga of Diapers.com, which plays a central role in Khan’s critique of Amazon. Diapers.com was started in 2005 by two New Jersey entrepreneurs, and within a few years had emerged as a successful online marketer of diapers and other baby products, even branching out into soaps (Soap.com) and beauty products (Beautybar.com). In 2009, Amazon expressed interest in buying the company, which had been renamed Quidsi. When its offer was rebuffed, Amazon proceeded to cut prices — predatory pricing, in Khan’s view. Quidsi proceeded to put itself up for sale and — despite receiving a higher offer from Walmart — ultimately accepted a bid from Amazon. (Khan says the owners accepted the lower Amazon offer “largely out of fear,” though she does not say what they were afraid of.) The deal was approved by the Federal Trade Commission (FTC). Khan says that was a mistake.

Indeed, Khan views the Diapers.com story as a classic combination of predatory pricing combined with a killer acquisition, casting Jeff Bezos as a modern-day John D. Rockefeller.  But from the perspective of consumers, it is hard to see a downside here, for two main reasons. First, Amazon’s conduct did not result in a diaper retailing monopoly. Far from it.  According to Khan, Amazon had about 43 percent of online sales in 2016, compared with Walmart at 23 percent and Target with 18 percent  — and since many people still buy diapers at the grocery store, real shares are far lower. (The diaper manufacturing market is far more concentrated: Kimberly Clark and Procter and Gamble together account for 80 percent of output.) Second, there is no evidence that Quidsi represented a meaningful threat to Amazon’s online dominance. The notion that Amazon bought Quidsi to shut down a disruptive competitor is farfetched at best — or so the Obama FTC apparently concluded.

In the end, Quidsi proved to be a bad investment for Amazon: After spending $545 million to buy the firm and operating it as a standalone business for more than six years, it announced in April 2017 it was shutting down all of Quidsi’s operations, Diapers.com included. In the meantime, Quidsi’s founders poured the proceeds of the Amazon sale into a new online retailer — Jet.com — which was purchased by Walmart in 2016 for $3.3 billion. Jet co-founder Marc Lore now runs Walmart’s e-commerce operations, and has said publicly that his goal is to surpass Amazon as the top online retailer. One recent report described the rivalry between the firms as “embittered” and noted that it “is reshaping how we’ll buy everything in the future.”

Far from demonstrating the shortcomings of current antitrust doctrine, the Diapers.com saga shows why focusing on protecting consumers rather than competitors remains the right approach. Consumers benefited twice: first because they were allowed to reap the benefit of Diapers.com’s entry, including lower prices from Amazon; second because Quidsi’s founders were rewarded for their entrepreneurship by the Amazon buy-out, which ultimately enabled them to create the platform that is now driving real competition in the online retailing space:  Jet, aka Walmart. And yes, they do sell diapers.

Learn more:

Relax, people: We survived Nixon. We’ll survive Trump. - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/02/2018 - 22:30

Next week marks the 50th anniversary of the election of President Richard M. Nixon. It is a chance for some perspective. While many seem convinced that the United States will never recover from the Donald Trump presidency, the truth is conservatism, the Republican Party and our nation survived Nixon — and we will survive Trump.

Many conservatives are dismayed with Trump’s failure to condemn the racist alt-right. But let’s not forget that Nixon came to power based on the “Southern Strategy,” winning over disaffected white voters who left the Democrats because of civil rights and the dismantling of Jim Crow.

Many were appalled by Trump’s Helsinki news conference and embrace of Russian President Vladimir Putin. But it was Nixon who gave us détente with Moscow, invited Leonid Brezhnev to the White House, and signed the disastrous Anti-Ballistic Missile Treaty which restricted U.S. missile defense for decades.

Many are concerned with Trump’s outreach to North Korea and his willingness to hold a summit with its brutal dictator, Kim Jong Un. But it was Nixon who led the opening to Communist China, and sat down with its murderous founder, Mao Zedong — a man responsible for the death of an estimated 65 million people.

Many are disheartened by Trump’s tariffs and trade wars. Well, Nixon gave us anti-free market economic policies such as wage and price controls.

Many are worried about Trump’s attacks on the media as the “enemy of the American people.” But it was Nixon who sent Vice President Spiro Agnew out to attack the media as a “tiny, enclosed fraternity of privileged men elected by no one” and actually attempted to stop the publication of the Pentagon Papers.

Many are disturbed about a possible criminal conspiracy with Russia to steal and publish Democratic Party emails. But, of course, it was Nixon who gave us the coverup of the break-in to the Democratic Party headquarters at the Watergate Hotel.

And, if you think Trump’s Twitter feed is bad, listen to the Nixon tapes and imagine what he would have been like on Twitter.

So, in many ways the Trump presidency is like déjà vu all over again. Except that Trump is, at least for conservatives, arguably a much better president than was Nixon. While Nixon had a mixed record in Supreme Court appointments, Trump has, so far, given us two of the strongest conservative justices in modern history. While the chairman of Nixon’s Council of Economic Advisers, Herb Stein, bragged that, under Nixon, “probably more new regulation was imposed on the economy than in any other presidency since the New Deal,” Trump has given us a historic regulatory rollback. While Nixon boasted over dramatic cuts in defense spending, Trump has enacted historic increases. While Nixon’s 1969 tax reform increased taxes, Trump’s reforms have cut them. While Nixon withdrew U.S. troops from Vietnam, Trump has unleashed our forces against the Islamic State and has halted the withdrawal from Afghanistan begun during the Obama administration.

Nixon also showed us that our constitutional system of checks and balances works, and that if the president crosses a constitutional line, the rule of law will prevail. And while Nixon resigned over Watergate, we still don’t know how the Russia inquiry will turn out. It may well be that there was no criminal conspiracy with Russia. Even knowing what we know about Watergate, the United States would not have been better off with George McGovern as president, just as we would not be better off today with Hillary Clinton in the White House.

As bad as things got for Republicans, six years after Nixon’s resignation we elected Ronald Reagan and, just like that, it was Morning in America. Those of us fortunate enough to have lived through the Reagan Revolution have great expectations for the presidency. We want to not just support the policies, but admire the person who occupies the Oval Office. So our disappointment in Trump’s moral failures is profound. But the truth is, if you look back at U.S. history, there have been few Reagans. Most presidents are mediocre, and some are downright awful. But the idea that Trump has ushered in an end to the hopeful, optimistic vision for conservatism is absurd. All conservatism needs to recover is for one great, hopeful, optimistic leader to emerge.

Until then — to paraphrase the man who implemented Nixon’s wage and price controls, Donald H. Rumsfeld — we go to war with the president we have.

AEI Events Podcast: Must the Federal Reserve crimp the recovery to normalize interest rates? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/02/2018 - 21:57

Tight labor markets, low real interest rates, and large federal budget deficits are a textbook recipe for inflation, and yet, inflationary expectations remain contained. Is there a monetary policy that will simultaneously engender robust economic growth and “normalize” interest rates? Can the Fed push interest rates to levels that, when the next recession hits, allow the Fed to stimulate growth by lowering rates, or will the required rate hikes stifle growth?

On this episode of the AEI Events Podcast, join AEI’s Paul Kupiec and a panel of experts to discuss the governing principles behind the Fed’s monetary policies, their treatment of economic growth, and other important issues.

This event took place on October 5, 2018.

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.