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What pro-Trump votes in the House don’t tell us - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:00

Dean Phillips, the Democrat trying to oust Republican Erik Paulsen from his Minneapolis-area House seat, blasts the incumbent for having “voted 98 percent of the time with Donald Trump.” Jennifer Wexton makes an identical charge against Barbara Comstock in their northern Virginia race — she calls her “Barbara Trumpstock.” California Republican congressmen Mimi Walters, from Orange County, and David Valadao, from the San Joaquin Valley, have taken the same hit from their opponents. Ads against Peter Roskam have zinged him over his pro-Trump votes twice.

The data on how much each congressman has voted with Trump comes from the website FiveThirtyEight. What follows isn’t a criticism of the site’s employees for collecting and disseminating this data. Instead I offer four related reasons that voters should not read too much importance into the percentages.

First: Republicans don’t get high scores because they are slavish followers of Trump; he’s the one following them. They’re mostly voting according to the party’s longstanding preferences, and he, partly under their influence, has gone along. That’s why most Republicans have percentages in the 90s.

Second: Votes on fairly uncontroversial legislation boost the percentages for nearly everyone. The House vote on the Stop School Violence Act, a priority for the group Sandy Hook Promise, was 407-10. The scores went up for everyone in that majority, since Trump backed the bill.

Third: The scorecard has the potential to make bipartisanship on the part of Democrats look like weakness toward Trump. Forty-one House Democrats crossed the aisle to vote to let Obamacare’s tax credits be used to defray premium costs for Cobra coverage, and 50 voted to expand Medicaid funding for the treatment of cocaine- and opioid-use disorders. Probably none of them (or the Republicans) voted that way because of pressure from Trump, or to signal their friendliness toward him.

The policies at issue in those votes have nothing to do with the reasons Trump inspires strong emotions, pro and con. If either vote had gone the other way, it would have inflicted very little political damage on the administration. Yet the scorecard could leave the impression that the Democrats who voted no are better members of the “resistance” than the ones who voted yes.

Fourth: The vote percentages are an extremely imperfect proxy for which congressmen are most and least helpful to Trump. Kyrsten Sinema is a House Democrat who is running for Senate from Arizona. Walter Jones is a conservative Republican from North Carolina. According to the scorecard, she is significantly Trumpier than he is. I’d say their respective scores tell you something about those two people, but more about the limits of this measure.

Among Republicans, the relative moderates are more likely to have high Trump scores than harder-right conservatives. (Which helps explain why so many of the moderates have been hit by the scorecard ads: They have high scores, and they’re in swing districts where being seen as too tight with Trump hurts.)

The harder-right congressmen were more likely to vote against budget compromises and bipartisan initiatives. The 69 Republicans who voted against disaster relief for Puerto Rico all lowered their scores by doing so. In no important sense did their vote undermine their alliance with the president.

Representative Thomas Massie, a conservative Republican from northeastern Kentucky, has been much less critical of Trump than Barbara Comstock has. But his pro-Trump score is much lower than hers — in part because he voted against the Puerto Rico bill and budget agreements, opposed a bipartisan bill to combat opioid abuse, and was one of the 10 votes against the school-safety bill.

Trump himself does not seem to be too upset about many of the votes “against him.” Former GOP representative Ron DeSantis has fulsomely praised Trump and, in return, won the president’s endorsement in his race to be governor of Florida. But dozens of Republicans in the House had more “pro-Trump” records than he did. Likewise, Representative Matt Gaetz, another Floridian, regularly carries Trump’s water on television, but he has one of the lowest pro-Trump scores of Republicans (although it’s still 81.5 percent).

If you oppose Trump, you may reasonably wish to punish congressmen for being close allies of his. Put too much stock in these percentages, though, and you may punish the wrong things.

Bloomberg’s ‘bombshell’ (or dud) on Chinese espionage: Even if true, what’s new? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:00

We are now three weeks past the publication of Bloomberg Businessweek’s “bombshell” story that claimed that groups associated with the Chinese military had managed to introduce malicious server chips during the manufacturing process in China. According to Bloomberg, the tiny chip corrupted thousands of servers that were subsequently used by some 30 US companies, including Apple and Amazon.

Specifically, the report alleges that the chips had been inserted during assembly of server motherboards by the US company Supermicro, a major supplier for a number of high-tech companies. According to the Bloomberg reporters, Chinese intelligence officials had coerced or bribed at least four Chinese subcontractors for Supermicro to allow the introduction of the malicious chips. (The “backdoor” chips can either take control of the server, giving it secret directions, or just lie in wait for the opportunity to control other more valuable servers.)

Chinese President Xi Jinping and Gen. Fang Fenghui, chief of the general staff of the Chinese People’s Liberation Army, in Beijing, China August 17, 2017. via REUTERS

The Bloomberg team of reporters had worked on the story for over a year, and the actual espionage dated from 2014 to 2015. Bloomberg cited some 17 independent sources, almost all of whom were anonymous, in support of the veracity and accuracy of its claims.

Still, the story produced a storm of denials and even scorn. Both Apple and Amazon issued strong statements (as did Supermicro), asserting that they had searched their servers and had not found evidence of secret chips, neither earlier nor currently. They were joined by cautious statements by the UK cybersecurity agency (“no reason to doubt the detailed assessments made by . . . Apple”), the Department of Homeland Security, and the director of national intelligence. And in recent days, Apple and Amazon (and Supercmicro) have stepped up their campaign against the story, with demands now that Bloomberg publicly retract the story. Generally, with some exceptions, outside cybersecurity experts are also skeptical. But up to this point, Bloomberg is holding to its account, leaving a standoff.

Here are a few observations about the incident.

  • We may never know exact details, as US intelligence will be reluctant to disclose full details. Ironically, the one group we know has all the answers are Chinese intelligence officials, who no doubt have watched this saga unfold with amusement and — depending on the truth — satisfaction or wistful puzzlement.
  • Although cracking hardware for spying purposes is very difficult, it is now impossible. It is also true that the Snowden revelations some years ago produced evidence that US intelligence agencies used a variety of tools to glean information from the vast amounts of internet traffic that passed through the US, including by penetrating fiber-optic cables. The National Security Agency has also been successful in introducing malware into foreign (Chinese) equipment in carrying out its own intelligence mission — of just observing or potentially introducing misinformation.
  • Thus, one should be careful about the “bombshell” aspects of the Bloomberg story. US intelligence agencies, given their own capabilities and missions, cannot have been surprised that Chinese intelligence agencies would probe and even possibly penetrate some US supply chains.
  • Finally, whatever the truth of the Bloomberg assertions, the episode does represent a vital wake-up call. Digital supply chains are vulnerable, and both the US government and American high-tech companies will have to accept the necessity of ever-deeper defensive programs to detect and ferret out “secret chips,” malware, or other threats. It is simply not technically or economically feasible to pull back and produce all the myriad of advanced electronic parts and components in the US.

Specifically, as cybersecurity expert Nicholas Weaver has recommended:

Hardware manufacturers should aim to reduce the “trusted base,” the components that need to execute with integrity, to something far more manageable. Then, the goal should not be to remove China from supply chain — just to remove China from the trusted base. Manufacturers know how to design computers that don’t need to “trust” the motherboard. They should work to make that the standard design.

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CNB’s Jim Cramer eats crow for pushing Nucor, as Trump’s tariffs backfire even for US steelmakers - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 03:16

In the video above from tonight’s Mad Money Show on CNBC, host Jim Cramer breaks down why Trump’s steel tariffs aren’t working, even for US steelmakers like Nucor who were supposed to be the main beneficiaries of the artificially high steel prices.

Let me tell you what caught me by surprise. The steel tariffs aren’t working in the way we thought they would… for the steel industry. Remember the first major shot fired in this trade skirmish was the President’s 25% tariff on imported steel – something the steel industry had been aggressively pushing for. The idea here was that the steelmakers needed to be protected from government-subsidized Chinese competition that was flooding the global market. Sure everybody who buys steel would have to pay more, but our steelmakers, wouldn’t they be in better shape, that makes sense right? Or at least that was the theory.

In practice, the steel stocks have been slaughtered since the tariffs went into effect. Just look at the stock of Nucor, the best steelmaker in America, and the chief proponent of the 25% steel tariff on steel imports. Nucor is down by $10 since the tariffs were announced! Counterintuitive? How the heck is that possible? The whole point of this exercise was to help the US steelmakers by making foreign competition more expensive, and allowing companies like Nucor to raise their prices to levels where they could get a decent return.

And yet here we are. Wow! Last week Nucor reported an underwhelming quarter. Tepid guidance. And the stock is now at its lowest level since late last year. The tariffs aren’t helping the steel industry, in fact they might be hurting the steel industry. So how in the world did this happen? What’s going on here?

Before I get into the details I need to eat some crow myself. I recommended Nucor stock over and over again as the big beneficiary of Trump’s protectionism. The CEO John Ferriola has been pushing for the government to get involved for ages. He was very bullish about the positive impact of steel tariffs, and I believed him! In retrospect, I think Ferriola and I may have been mistaken. What can I say, mea culpa! I got it wrong. So what went wrong?

So why is Nucor suffering so badly instead of practically being able to print money due to the protective tariffs that insulate it from foreign competition? The “Mad Money” host floated three ideas, and they are all related to the steel tariffs, which were intended to raise prices on government-subsidized steel from other countries in order to revive business at U.S. steelmakers like Nucor.

“First of all, when the government slaps a 25% tax on imported steel — basically a federally-mandated price increase — that’s going to reduce demand,” Cramer said. “We just spoke to Barry Sternlicht, the CEO of Starwood Capital — a major real estate developer and lender — and he said the price of steel has gotten so excessive that it’s actually starting to limit demand.”

Second, the United States is now in the throes of a “genuine trade war with China,” and tariffs being passed back and forth between the two countries is “bad for business” in the near term.

“Unfortunately, the steelmakers are very economically sensitive,” Cramer said. “Which brings me to the final problem: all of these tariffs raise prices, and when the Federal Reserve sees prices going up, they get very worried about inflation. That’s one of the reasons the Fed’s gotten so aggressive about raising interest rates. And, look, you do not want to own the steelmakers when the Fed is tightening aggressively.”

MP: If this is the Protectionist-in-Chief’s idea of winning, when both domestic steelmakers like Nucor, and domestic steel-using firms like Ford, GM and Caterpillar are suffering from the steel tariffs, what exactly would losing look like?

How to fix America’s entitlements: A long-read Q&A with James Capretta - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 19:30

“The entitlement crisis is real, and it is worse than you think.” So argue James Capretta and Yuval Levin in a recent cover story in The Weekly Standard. As they write, the CBO projects that under plausible assumptions, the government’s cumulative debt will grow from 78 percent of GDP this year to 148 percent in 2038 and to 210 percent of GDP in 2048 — and even a total repeal of last year’s tax cuts won’t come close to mitigating that rise. To discuss how deleterious this debt load will be for the United States, and what steps can be taken to prevent it, I was joined by my AEI colleague James Capretta.

James is a resident fellow and holds the Milton Friedman Chair at AEI, where he studies health care, entitlements, and US budgetary policy. An associate director at the White House’s Office of Management and Budget from 2001 to 2004, he was responsible for all health care, Social Security, welfare, and labor and education issues. What follows is a lightly-edited transcript of our conversation. 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.

Let me start with a line from the essay: “The United States is likely to have more room for borrowing without facing the most dire consequences, but no one can know for sure just when its luck will run out. Once that invisible line is crossed interest rates can spike, raising borrowing costs even more, which can quickly spark a serious crisis.”

Whenever I go out and talk to folks about the economy, I always get this question. They hear these huge numbers that we are borrowing and the huge size of our debt and they ask, where is the tipping point? Are we close, or do we have a ways to go? How do you answer that question?

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Is Arizona getting away from Kyrsten Sinema? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 18:00

Is Arizona getting away from Kyrsten Sinema? That was the question on everyone’s mind after a series of bombshell videos leaked from earlier in Sinema’s career. Sinema’s enviable position in the polls is at least in part due to her recent history as a moderate “Blue Dog” Democrat in Congress. But before her election to Congress, she cut a more liberal profile.

The videos revealed her referring to her state as the “meth lab of Democracy.” She at one point seemed to intimate that she did not care whether someone left to join the Taliban, and called (in her telling, jokingly) stay-at-home Moms “leeches.” In a state that still leans Republican, this is a problematic turn of events, to say the least.

But so far, the polling suggests that Sinema’s standing hasn’t been affected much.  The New York Times, in conjunction with Siena College polling, released a poll that showed McSally up 48 to 46.  But this is consistent with polling this cycle, which has consistently showed Sinema pulling in 46 percent of the vote. It is also consistent with polls we saw in early September that showed Sinema up by a couple of points.

The more likely explanation is that Arizona is still a red state, albeit a reddish-purple one, and that undecided voters are breaking toward the Republicans. Ascribing causation is a tricky business, and it may be that these voters were ready to break away from Democrats and just needed some prompting. Or, it could just be statistical noise. Regardless, it does not seem to be consistent with a collapse in Sinema’s poll numbers that we might expect after news such as this.

Join the AEI Election Watch team on November 8 for lunch to discuss what happened and what it means. Click here for details.

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S Africa’s labour market is in need of urgent reform - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 16:26

One has to welcome President Cyril Ramaphosa’s emphasis on the urgent need for South Africa to generate economic growth that will allow all of its citizens to reap the benefits of prosperity (“ South Africa must translate political freedom into prosperity”, October 24). However, it is regrettable that in proposing economic reforms, Mr Ramaphosa fails to so much as mention the desperate need for South Africa to reform its rigid labour market.

Highly centralised wage bargaining, coupled with minimum wage requirements and unwieldy labour market regulations, has reduced the attraction of the country as a place to do business, especially in a highly competitive global economy. It has also given rise to a serious insider-outsider problem as is reflected in an unemployment rate that still remains in excess of 25 per cent and in a labour participation rate below 55 per cent.

Reforming South Africa’s labour market will not be easy for Mr Ramaphosa’s ANC government, especially considering that it is highly dependent on the powerful Congress of South African Trade Unions for political support. However, if Mr Ramaphosa fails to rise to the challenge of fundamental labour market reform, the country should reconcile itself to many more years of lacklustre economic growth.

Banter #335: Lynn Fisher on affordable housing and US housing markets - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 16:10

This week on Banter, AEI Resident Scholar and Codirector of AEI’s Center on Housing Markets and Finance Lynn Fisher joined the show to discuss affordable housing and the current state of US housing markets. This week, Dr. Fisher and the center are hosting the seventh annual AEI-CRN conference on housing markets and finance. You can watch the full event video at the link below.

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Seventh annual AEI-CRN conference on housing markets and finance: Supply, demand, and pro-cyclical forces (AEI Event Page)

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Mario Draghi and the European Titanic - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 15:58

This morning’s sanguine steady-as-you-go press conference by European Central Bank (ECB) President Mario Draghi has to remind one of the apocryphal story about the Titanic’s captain. When asked why he did not swerve the ship to avoid the iceberg, the captain asked “What iceberg?”

Like the Titanic’s captain, Mr. Draghi sees no need for the ECB to change course from its earlier decision to withdraw monetary policy stimulus by ending its bond purchasing program as planned by year-end. He does so despite growing signs of real vulnerability in the European and global economies. In his view, the European economy is recovering at a satisfactory pace, inflation is rising, and the risks to the European economy remain balanced. This leads him to conclude that there is no need for the ECB to change policy course.

European Central Bank President Mario Draghi testifies before the European Parliament’s Economic and Monetary Affairs Committee in Brussels, Belgium September 24, 2018. REUTERS/Francois Lenoir

Surprisingly, it seems to have escaped Mr. Draghi’s notice that since the ECB’s last meeting dark storm clouds have gathered over Italy, the Eurozone’s third largest economy and the world’s third largest sovereign bond market. Indeed, over the past two months there have been the clearest of signs that Italy is on a dangerous collision course with its European partners that could have major implications for the European banking system.

Italy’s populist government is making it clear that it has no intention to accede to Italy’s European partners’ demand that it revise its expansive budget. That budget is in flagrant violation of the Eurozone’s rules and it threatens to put Italy’s public finances on an unsustainable path. Meanwhile, as underlined by an unprecedented letter of complaint that it sent to the Italian government earlier this week, Italy’s European partners are showing no signs of giving Italy a pass on the Eurozone’s rules for budget discipline.

While Mr. Draghi might be choosing to turn a blind eye to Italy’s escalating budget crisis, the markets are not. Already Italian bond spreads have risen to over 300 basis points and capital is flowing out of Italy at a rapid rate. This risks throwing the Italian economy into yet another recession that would only exacerbate its public debt and banking sector problems.

While Italy would seem to be the most serious risk to the European economic outlook, it is not the only major risk that has increased since the ECB’s last meeting. In the United Kingdom, Theresa May’s government is now preparing for the possibility that the UK might crash out of the Euro without an exit deal by the end of March 2019 when the two year Article 50 negotiation deadline expires. Meanwhile risks of a marked German economic slowdown have risen as a result of ongoing trade tensions with the United States and of the growing political difficulties for Angela Merkel and her coalition government.

If it does turn out that Mr. Draghi is now ignoring clear warning signs and the European economy does again succumb to a slump, he will not be the first central bank president to make an egregious policy error. After all in 2008, on the eve of the world’s worst economic and financial market crisis, Ben Bernanke dismissed the sub-prime crisis as a non-event. Meanwhile Jean Claude Trichet, Mr. Draghi’s predecessor at the helm of the ECB, went one step further by ill-advisedly raising interest rates in the months immediately preceding the September 2008 Lehman bankruptcy.

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Assessing the fallout of the Khashoggi crisis - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 15:52

This week, in a highly anticipated speech on the Khashoggi affair, Turkish President Erdogan promised a lot but said little; the “Davos in the Desert” conference opened in Riyadh with an appearance by the Saudi crown prince; and the United States continued to send mixed signals. Karen Young, resident scholar at the American Enterprise Institute, and Gonul Tol, director of MEI’s Turkey program, join host Paul Salem to discuss the latest developments.

The ticking nuclear budget time bomb - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 14:55
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In a little-noticed comment before his controversial July summit meeting with Vladimir Putin, President Donald Trump expressed a desire to talk to his Russian counterpart about their countries’ extensive nuclear modernization plans. Trump characterized his own government’s plan to spend hundreds of billions of dollars to upgrade the aging nuclear arsenal as “a very, very bad policy.” He to express some hope that the two countries, which together possess over 90 percent of the planet’s nuclear warheads, could chart a different path and avert a new arms race.

Still, it’s not clear Trump is actually interested in a different path. He said on Monday, in the context of his decision to withdraw the United States from the 1987 Intermediate-Range Nuclear Forces (INF) Treaty, that “We have far more money than anybody else by far. We’ll build [the U.S. nuclear arsenal] up until” other nuclear-armed states such as Russia and China “come to their senses.”

Since the dawn of the nuclear age, there has been heated debate about the appropriate role and number of nuclear weapons in U.S. policy. What has largely been above debate, however, has been the need for a strong and credible arsenal so long as nuclear weapons exist — a top policy and budgetary priority of recent administrations of both parties.

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But a reckoning is coming, the result of a massive disconnect between budgetary expectations and fiscal reality. Despite claims that nuclear weapons “don’t actually cost that much,” the simple fact is that unless the administration and its successors find a pot of gold at the end of the rainbow, spending to maintain the current arsenal — to say nothing of a buildup — will pose a significant affordability problem. Trying to recapitalize nearly the entire arsenal at roughly the same time means less money is likely to be spent on each individual modernization program, thereby increasing the time and cost required to complete each one. The absence of reasonable planning will also result in more suboptimal choices when hard decisions become inevitable. The current path is an irrational and costly recipe for sucking funding from other defense programs and/or buying fewer new nuclear delivery systems and reducing the size of the arsenal. The longer military and political leaders continue to deny this reality, the worse off America’s nuclear deterrent and armed forces will be.

The caravan’s advocates are destroying immigration and humanitarian law - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 13:55

This a column about the Central American immigration caravan, but bear with me for one Middle East anecdote.

When I first went to Iraqi Kurdistan more than 18 years ago to teach in its universities, Kurdistan was a very different place. Saddam Hussein’s shadow hung over the region, and there was widespread fear that he could reinvade the territory he had struck with chemical munitions just over a decade previously. Iraqi Kurdistan was also struggling under a dual embargo: As part of Iraq, it was subject to international sanctions and, because the United Nations agreed to channel aid through Saddam’s government, it faced continued efforts by the genocidal Iraqi leader to starve it into submission. Perhaps it was not surprising, therefore, that so many Kurds were willing to pay people smugglers to escape to Europe and a better life. Some went by land, but others tried sea. Kurds often talked about a small group smuggled on board a ship carrying scrap metal. Halfway through the ship’s voyage, ownership switched and so did the ship’s destination. Rather than come to port in France, the ship ended up in Mozambique. The Kurds, discharged onto the beach but thinking they were safely in Europe, immediately declared themselves refugees and claimed asylum. And hence the Kurdish community of Mozambique was born because when asylum is sought, the right to travel beyond ends. Refugees do not have unlimited right to travel; by tradition and law, they stay in the countries in which they land until receiving legal permission to move onward.

Central American migrants, part of a second wave of migrants heading to the gather to hitchhike a on a trailer truck to continue their journey to the Mexican border, in Zacapa, Guatemala October 24, 2018. Reuters

The same is actually true with Europe. The 1985 Schengen Agreement eliminated the need for visas and allowed freedom of movement among its European signatories, but the treaty was predicated on the fact that those countries on Europe’s periphery and first port of entry airports would conduct security and checks on behalf of all. Refugees who reach Europe and seek asylum may win protections based on acceptance of their refugee status, but they do not have the right to enjoy the same visa-free travel as European citizens and Schengen visa holders. Those arriving on Italy’s shores from North Africa, for example, do not have any right to transit to Germany or Scandinavia but, according to law and tradition, should remain in Italy until they receive advance permission or a visa to settle elsewhere. Put another way, it may be ungenerous, but it is perfectly legal for the Austrian or Hungarian governments to build fences and push migrants by force away from their border. After all, if refugees are truly fleeing political violence instead of migrating for economic reasons, they are safe as soon as they reach European shores. They may want to settle in Denmark, but they are safe when they land in Greece.

Admittedly, what every policymaker and immigration advocate knows is that safety is not the chief goal of many refugees seeking a new life in Europe. It is no coincidence that the European Union accounts for 7 percent of the world’s population, 25 percent of the world’s economy, and 50 percent of the world’s social service spending. Put another way, a Syrian would much rather relocate to Europe than Bangladesh or Ethiopia.

Not everyone is so permissive. Many immigration activists speak longingly of a multipolar world. The irony is, of course, their perspective alternate poles — China and Russia, for example — would shoot migrants on sight if they tried to cross their borders illegally. That is not an American option, but neither should be a right to remain.

This brings us to the so-called migrant caravan from Central and South America. Many journalists highlight humanitarian reasons for refugees deciding to pull up stakes to make the long and, at times, hazardous journey northward to the United States. These stories may be true, even if they are cherry-picked. Too many journalists subordinate the neutrality of the craft to political enabling. They are more likely to convey a compelling story that advances their own political agenda than report the case of a migrant who admits he or she just wants to make more money or to enjoy a more generous social safety net.

Regardless, even if the entirety of the caravan do not feel safe in their homelands, a family fearing political reprisals in Nicaragua are safe when they reach Honduras or Guatemala. Mothers fleeing gang violence in El Salvador are out of immediate danger when they reach Mexico. If the United Nations High Commissioner for Refugees and various non-governmental organizations truly cared about refugees or international law, they would seek to process them across the borders from their countries of origin. Venezuelan refugees might end up in Colombia or Brazil, Hondurans might end up in Guatemala, and Guatemalans in fear for their lives might seek refuge in Mexico. Those are the countries in which the refugee camps should be built. After all, proximity is a virtue, as the goal of refugee relief is to remove people from harm’s way but then seek a return once danger recedes.

Economic migrants, of course, are a different story. Rather than march across Mexico, they could simply line up in front of embassies willing to grant visas and a chance at a better life. That certainly is the model in other parts of the world: South Asians and residents of poorer Middle East countries, for example, come to the United Arab Emirates, Qatar, or Kuwait with visas and work papers in hand, rather than try their luck on rickety boats. They may toil in crowded conditions for two, five, or even ten years but, when they return, they have acquired more capital than they could have hoped for had they stayed in their home countries.

When it comes to the migrant caravan making its way through Mexico, the ramifications of the arguments made by immigration activists and an increasingly large chunk of the Democratic Party are as serious as they are absurd. Put aside the notion of nationalism and the meaning of citizenship itself.

If every migrant or refugee has the right to come to the United States, what is the point of visas? If illegal immigration is embraced, what is the benefit for adhering to the laws and regulations which govern legal immigration? President Trump has sought to reduce the State Department’s budget. Would immigration activists propose that Trump slash most if not all consular positions? After all, if visas are beside the point, why maintain a staff to issue them? And if the visa process is arbitrary, what does that mean for all the background and security checks worked into the system? Proponents of the Obama administration’s efforts to welcome Syrian refugees, for example, sought to assure the public that each would go through multiple background checks before ever stepping foot on American soil. If those checks served any purpose, why should every other potential migrant not meet the same standard of vetting before reaching the United States?

Immigration is a virtue, but so is a nation of laws, rules, principles, and regulations. Normally, there should be no contradiction between the two. But what activists now advocate not only prioritizes the former above the latter, but they also threaten to shred decades of immigration and humanitarian legal precedent.

Fentanyl causes the vast majority of overdose deaths in Pennsylvania - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 13:15

A fascinating article in the Philadelphia Inquirer shows the rise of fentanyl in overdose deaths. My field research covers the lower right hand corner of the graphics in the Inquirer piece (the Southeastern part of Pennsylvania).

It shows how last year fentanyl was the leading cause of overdose deaths in all the relevant counties, whereas in previous years it had been heroin. Perhaps the most disturbing part of the wider story is how even addicts that do not want fentanyl can’t seem to source anything else. It is cheaper and more potent than any other products and provides the best value for dealers. The sellers are driving the market and it is toward more suicides.

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Cuba’s (un)diplomatic behavior cannot go unpunished - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 12:55

Last week, a routine session of the United Nations Social and Economic Council devolved into pandemonium. As US Ambassador Kelley E. Currie introduced a new human rights campaign called “Jailed for What?,” serving to highlight the over 100 political prisoners currently in Cuba, diplomats from the Cuban delegation heckled her and drowned out her voice by pounding on their desks, turning their backs, and shouting mentirosa! (“liar!”) and slogans about the trade embargo.

The scene was surreal, as if a no-platforming campaign on a college campus had been transplanted by the regime in Havana to the esteemed chambers of the United Nations. The only difference? The speaker was not a controversial political candidate, but a diplomat of the United States.

Cuban diplomats protest the launch of a US campaign on Cuban political prisoners at the United Nations in New York, US, October 16, 2018. REUTERS/Shannon Stapleton

The irony here was thick. Cuban behavior proved the US point forcefully. Just as Currie spoke of denunciations, preventive detentions, and Cuba’s unshakeable resort to dictatorship and repression of free speech, the Cuban diplomats ramped up their efforts to silence her. “I think we may be seeing this right now,” she noted dryly.

The continued stifling of dissent in Cuba is an issue worthy of continued focus by the United States. Though the figures are down somewhat this year, through August of 2018, there have already been over 1,600 arbitrary detentions, lasting various lengths of time, to silence regime critics. Cuban political prisoners “are an explicit sign of the repressive nature of the regime and represent a blatant affront to the fundamental freedoms that the United States and many other democratic governments support,” the State Department said in its statement.

Cuba’s continued crushing of internal dissent is a hemispheric security threat to Cubans and foreigners alike. Beyond the island, the Cubans are embedded throughout the security apparatus of Venezuelan dictator, Nicolás Maduro, helping him to weed out and punish regime opponents. They advise and support Daniel Ortega’s increasingly repressive government in Nicaragua. And they find common cause with other strongmen in the region, like President Evo Morales of Bolivia.

US Secretary of State, Mike Pompeo, rightly called the event a “childish temper tantrum.” Now that Pompeo and UN Secretary General, Antonio Guterres, met yesterday about Cuba’s disruptive actions, it is important that this unprecedented behavior be remediated sharply and immediately. Beyond a stern denouncement by Guterres and platitudes about the need for civility, there isn’t much the United States can push for in a multilateral forum like the United Nations. Bilaterally, however, it’s a different story. The time to punish this behavior is now, especially given its ability to shape the future calculations of Cuba’s new president, Miguel Díaz Canel. The bizarre microwave incident at our embassy in Havana, as well as this circus at the United Nations, both warrant a diplomatic response from the United States.

Should United Nations-accredited Cuban diplomats — some of whom likely have ties to the intelligence services, and by dint of their position, have the right to attend any open meeting at the UN they wish — be permitted to escape any repercussions for shouting down their fellow diplomats delivering inconvenient truths, it would pose a grave threat to American efforts to roll back the influence of dictators and authoritarian governments the world over. Without repercussions, Cuba will have demonstrated to its authoritarian ilk a successful model for stifling free speech in the halls of diplomacy.

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The A12 chip: Estimating innovation with iPhone prices - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 10:00

With the introduction of the iPhone XS, Apple also revealed details of its new A12 processor that will power both the smartphone and future iPads. The chip is the first smartphone processor built in a seven-nanometer (nm) process, which describes the infinitesimal distance between the chip’s individual components. Samsung, Intel, and other foundries will deliver 7 nm chips in the coming months, but Taiwan Semiconductor (TSMC), which manufactures the chips for Apple, got there first.

Tim Cook, CEO of Apple, speaks about the iPhone XS at an Apple Inc product launch in Cupertino, California September 12, 2018. via REUTERS

The A12 is a huge system on a chip, with 6.9 billion transistors, or “on-off” switches. (For reference, in 1971 Intel’s first microprocessor, called the 4004, had 2,400.) The A12 includes six CPU cores for general processing, four GPU cores for graphics, and an eight-core “neural engine” for machine learning tasks. Apple says the neural engine can execute five trillion operations per second.

I cite these details because I think measuring the pace of advance in the digital world is both tricky and important. As noted in my recent blog about this year’s Nobel Prize winners, William Nordhaus thought that official data often underestimate price drops (or performance gains) in leading-edge technologies. The A12 chip might provide a good excuse to revisit the question.

Several years ago I took up this cause by roughly estimating what it would have cost to build an iPhone 5S back in the early 1990s. I updated that estimate a few years later with the iPhone 7 and now do so again, this time with the new iPhone XS.

In my past analyses, I first estimated what the three key building blocks of the small computers we call smartphones would have cost in 1991. Those basic components are data storage, computational speed, and communications bandwidth.

Data storage is by far the easiest to measure over time. We have fairly good records of digital memory prices over time, and each smartphone contains a particular amount of flash memory. Back in 1991, nonvolatile memory was wildly expensive — something like $45,000 per gigabyte (GB). Well, today, the midrange iPhone XS has 256 GB of storage, which would have cost $11.5 million in 1991.

Computation and bandwidth are tougher to measure both in the moment and over time. There is no single measurement of computational speed. There are million instructions per second (MIPS), millions of operations per second (MOPS), and floating-point operations per second (FLOPS). Increasingly, we want processors to do more varied and specialized tasks than they did in the past and especially for smartphones, to do so with power consumption in mind.

Because the term MIPS is now so old-fashioned and doesn’t easily describe the performance of today’s highly complex chips, which execute a wide variety of tasks, we’ve switched our metric for computation. Using the Geekbench benchmark for the “A” series of chips, we see that the new A12 is about twice as fast as the A10 from our previous blog. That means the processing power in the iPhone XS would have cost around $7 million back in 1991.

Bandwidth is difficult, too. Data transmission speeds vary over geographies and improve rapidly with network upgrades, although they may do so in fits and starts. We also use wireless cellular networks and Wi-Fi, sometimes separately and sometimes interchangeably. The new iPhone XS, moreover, can exploit a new technology called LTE-Licensed Assisted Access (LTE-LAA) that combines both licensed and unlicensed spectrum. There is no single number to compare over time, so we do our best to estimate a reasonable bandwidth figure.

The iPhone XS supports Gigabit LTE, the set of technologies that will evolve into full-blown 5G. At full blast, Gigabit LTE will support peak download speeds of up to 1.2 gigabits per second and upload speeds of up to 150 megabits per second. Already, a new network of small cells here in downtown Indianapolis is delivering download speeds of nearly 800 megabits per second, using LTE-LAA, the variant that combines both licensed and unlicensed spectrum. Depending on the network upgrade cycle in your location, speeds will vary substantially. But at my own office, where service is good but not at the bleeding edge and nowhere near the Gigabit LTE that’s coming soon, I’m getting download speeds of 50 megabits per second and amazing upload speeds of 11.9 megabits per second.

We tend to take our wireless communications capabilities for granted or even curse them in frustration, but these numbers are mind-blowing. Think back to just a few years ago, when this kind of performance would have far surpassed even the best wired residential broadband links. For our purposes today, I’m using a 100 Mbps download speed as the comparison because the iPhone XS supports Gigabit LTE, which should be coming to many places soon.

Summing up, we see that it might have cost around $28 million to purchase the basic building blocks of today’s iPhone XS back in 1991.

But as we’ve noted in past editions of this series,

That’s just for the three components that are easiest to measure and compare across time. This estimate doesn’t include the camera, display, random access memory (RAM), MEMS gyroscope and accelerometer, the huge value of the smartphone’s software, or any of the other amazing parts and features packed into an impossibly compact package.

How much would it have cost to build an iPhone in 1991? cost in 1991 iPhone 5s (2013) iPhone 7 (2016) iPhone Xs (2018) Data storage (nonvol. memory) 32 GB 128 GB 256 GB $45,000 per GB $1.44 million $5.76 million $11.52 million Computation (main processor)* A7: 2,144* (20 nm, 1.2 B transistors) A10: 5,726* (16 nm, 3.3 B trans.) A12: 11,219* (7 nm, 6.9 B trans.) $30 per MIPS $.620 million $3.6 million $7.1 million Bandwidth LTE, 15 Mbps, 1 Mbps upstream LTE, 33 Mbps, 3 Mbps upstream Gigabit LTE(U-LAA), ~100 Mbps, 12 Mbps upstream $100 per Kbps $1.5 million $3.3 million $10 million Total $3.56 million $12.66 million $28.62 million

* Previous versions of this table used the MIPS metric to describe estimated computational power. Because of the difficulty of estimating MIPS of today’s complex chips, which perform a wide variety of tasks, the table above uses a performance benchmark created by Geekbench. We then extrapolate from our previous estimates, which used MIPS. It is imprecise but captures the rough magnitudes.

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RELEASE: AEI’s Noriega: How to stop more Central American caravans - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 10/24/2018 - 19:07

Former Assistant Secretary of State for Western Hemisphere Affairs, now AEI scholar, Roger Noriega, who was also US Ambassador to the OAS, explains that the caravan of 7,000 people making its way through southern Mexico to the US border is a symptom of the real problems plaguing Central America. He emphasizes that until these problems are addressed, migrants continue trying to cross the border into the United States.

Noriega notes:

US aid and trade can help restore economic growth and job creation, like we witnessed in Central America a decade ago. The caravan has made that job tougher. President Trump has said he will cut US aid to Central American countries because of their governments’ failure to turn back the growing march.

[We need] steady, hard work of fighting rampant corruption, organized crime, drug trafficking, and people smuggling and priming the pump of economic growth through trade and investment. Without progress on these fronts, the migrants will keep coming. And if US aid is cut, governments will be less capable and might be less willing to help fight illegal drugs and illegal migration.

Read the full piece: The migrant caravan is a symptom of nagging challenges in Central America

To arrange an interview with Roger Noriega, please contact Phoebe Keller at phoebe.keller@aei.org or 202.419.5216. AEI’s 24/7 media contact is mediaservices@aei.org or 202.862.5829.

Embracing socialism? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 10/24/2018 - 18:51

In an article in USA Today on October 10, Donald Trump wrote “If Democrats win control of Congress this November, we will come dangerously closer to socialism in America.” The President was criticizing the Democrats’ “Medicare for All,” proposal which he said has the support of 123 House Democrats and 15 Senate Democrats. His broader point was that a number of Democratic proposals would pull the country away from capitalism and toward socialism.

Democratic Congressional candidate and self-professed Socialist Alexandria Ocasio-Cortez gestures as she speaks at a really against Supreme Court nominee Brett Kavanaugh outside an expected speech by Representative Jeff Flake (R-AZ) in Boston, October 1, 2018. Reuters

Are Americans embracing socialism? What do the polls tell us? Fortunately, two pollsters (Gallup and Fox News) updated their trends on views of socialism this summer, and NBC News/Wall Street Journal and YouGov asked some new questions in recent surveys.

In Gallup’s question from 2010, 36% had a positive image of socialism and 58% a negative one. The question has been asked four times, and the results have been stable. In their latest question from August, the responses were virtually identical to what they were in 2010: 37% viewed socialism positively and 58% negatively.

The wording of Fox’s question mentions both capitalism and socialism, and while the overall impression is similar to Gallup’s, Fox shows a change since 2010. In the new poll, 36% of registered voters said it would be a “good thing for the United States to move away from capitalism and move toward socialism” up from 23% who gave that response in 2010. Fifty-one percent said it would be a bad thing (down from 65% in 2010).

In its September poll, NBC News and the Wall Street Journal found that 19% of registered voters had a positive feeling about socialism, 26% a neutral one, and 52% a negative impression. In the YouGov online poll, 26% had a favorable opinion, 42% had an unfavorable one, and 3 in 10 weren’t sure. In each of these new polls, Democrats were more positive about socialism than Republicans, and young people were more so than older ones.

Seven percent in the YouGov poll said they would be enthusiastic about a socialist candidate for president, 22% comfortable, while 33% would have reservations, and 38% would be very uncomfortable. Once again, Democrats were more enthusiastic or comfortable than Republicans or independents, and young people were more so than older ones. In 2015 when Gallup asked about willingness to vote for 11 different kinds of generally well-qualified candidates if nominated by one’s own party, a socialist candidate was the least popular. Forty-seven percent said they would be willing to vote for a candidate who happened to be a socialist, but half would not. As a point of comparison, more than 90% said they would vote for a generally well-qualified Catholic, woman, a black, Hispanic, or Jew.

Gallup also has a trend about capitalism, and in each of the four iterations, positive views have moved in a narrow range with around 6 in 10 having a positive view. In the latest poll, 18- to 29-year-olds had more positive views of socialism (51% positive) than capitalism (45% positive). So, too, did Democrats, with 57% positive toward socialism compared to 47% toward capitalism.

What does socialism mean to Americans? Gallup recently updated a question the organization first asked in 1949. In the new question, the top responses were some form of equality, followed by government control of business and the economy. In 1949, the top responses were government control, followed by some form of equality. In 1949, 38% had no opinion of what it was; in 2018, 23% gave that response. When pollsters ask today about Medicare for All or single payer health care systems, Americans like the idea in the abstract. But if you attach a price tag or suggest that the government would run health care, Americans are more skeptical.

Today, several political candidates proudly wear the democratic socialist label. While most Americans aren’t embracing socialism, more of them than in the past — at least in the Fox News poll — appear to believe that moving away from capitalism and toward socialism would be a good thing. But they are still a minority.

AEI Events Podcast: A conversation with Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 10/24/2018 - 18:14

On this episode of the AEI Events Podcast, JPMorgan Chase & Co. Chairman and CEO Jamie Dimon joins AEI President Arthur C. Brooks for a wide-ranging conversation about public policy, barriers to growth, and the lessons he has learned running one of the largest companies in the world.

Mr. Dimon and Dr. Brooks assess modern public policy challenges, including the economic and cultural value of immigration, corporate taxation, infrastructure investment, and skills and technical education. They also touch on the dignity that comes from meaningful work, the unintended consequences of a “college for all” mentality, and the many small — but easily fixable — problems that collectively act as a drag on growth.

This event took place on October 2, 2018. 

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

 

A Whole Foods blue wave? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 10/24/2018 - 18:00

When I grew up in Michigan and first started noticing politics in the late 1950s and early 1960s, it was taken as holy rite that affluent people voted heavily Republican and working class people voted heavily Democratic. This stereotype was valid: Michigan, with its Big Three auto companies and the surging United Auto Workers, had about the closest thing to economic class warfare politics in American history. It was said that Republicans were urged not to put bumper stickers on their Cadillacs: it would tell ordinary people that they were the party of the rich.

Things are different today. The Democrats, it can be argued, have become the party of the affluent and the party of big money. Partly this is the work of Donald Trump, who repelled many white college graduates who used to vote Republican and attracted many white non-college graduates who used to vote Democratic. The numbers in both cases were not huge, but turned out to be decisive in 2016, and one consequence is that in 2018 Democratic voters, in the aggregate, are higher income than they used to be, and Republican voters less so.

Senatorial candidate Beto O’Rourke speaks to supporters and the media at an event in Laredo, Texas, on September 22, 2018. REUTERS/Sergio Flores

But it’s also a matter of motivation. Liberals used to depict the Republicans as the party of big contributors — the stereotype of the rich guy in Monopoly — but they were also, starting in the 1980s if not before, the party with more small contributors, people with comfortable or modest incomes who sent in contributions in response to direct mail campaigns. Now it is Democrats who have been raising such money (as well as large contributions), and with the annoying pitches coming via email or the internet rather than in the US mail.

Nate Silver of FiveThirtyEight.com reports that Democrats have raised 65 percent of the money raised for House races, and that’s despite the fact that there are more incumbent Republicans than Democrats running. That’s way in excess of the 57 percent that’s been the highest percentage of money raised for House races by either party in the ten congressional cycles running from 1998 to 2016. And it’s not counting candidates who lost in primaries. Since Democrats seem to have had more primary candidates than Republicans, the percentage if they’re included almost certainly is above 65 percent. Similarly, the New York Times reports that Democrats have raised $252 million in tight House races as of October 16, compared to $172 million for Republicans. That’s 60 percent of funding going to Democrats, lower than Silver’s 65 percent, but still a very substantial advantage.

That sounds to me like the money advantage Democrats said Republicans in Michigan enjoyed back in the late 1950s and early 1960s.

Republicans didn’t win all the elections there back then, and Democrats are not going to win 65 percent of House races this year (that would be a gain of 96 seats over 2016, something I haven’t seen anyone suggest is possible). But it does give Democrats a better chance of gaining the 23 seats they currently need for a majority in the House. And it’s a reflection of the enthusiasm gap that Democrats have enjoyed through most of the 2018 campaign cycle. That enthusiasm — notably hatred of Donald Trump and all he (currently) stands for — generated many more serious Democratic candidacies than hardheaded political calculation might have done, and in turn it generated much more in the way of money for those candidacies. If opinion is turning toward Republicans — and there are some signs it is — the fact that they are defending about 70 of their House seats makes it hard for them to hold their net losses down to 23.

Of course some of that Democratic money, maybe a whole bunch of it, may turn out to be wasted. The most prominent example of that, in my view, is not in a House race but in the Texas Senate contest, where the charismatic Democrat Beto O’Rourke has raised some $61 million, $38 million of it in July, August, and September. If, as most hardheaded analysts expect, O’Rourke loses to incumbent Ted Cruz, that money is pretty much down the drain. It might increase Democratic turnout and help Democrats in three of four House races in Texas, but it won’t help less charismatic Senate candidates in seriously contested races, each of whose votes on the Senate floor would count the same as O’Rourke.

Join the AEI Election Watch team on November 8 for lunch to discuss what happened and what it means. Click here for details.

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The US needs to put its values back at the center of its foreign policy - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 10/24/2018 - 16:10

Why do murders like those of Jamal Khashoggi and Farzad Barzoft, or disappearances like those of Pakistani blogger Samar Abbas and Chinese professor Sun Wenguang happen? Simple. Because anti-democratic regimes believe they can get away with it. And because the United States and its allies have failed since the end of the Cold War to embrace a national-security strategy founded on values, rather than naked geopolitical interests, these regimes will largely be right.

Saudi Arabia may be at the center of attention right now, but it’s only one of a growing number of authoritarian regimes. Nations like North Korea, China, Vietnam, and Cuba crush dissent. States that at one time showed democratic hope—Russia, Venezuela, and Turkey—have now joined their ranks. And respect for civil liberties in democracies like South Africa, Poland, and Hungary is rapidly eroding.

Policymakers know autocratic stability is illusionary, and that dictatorships pose a threat to their own people, and often to the United States and its allies as well. But, Washington has neither the resources nor the skill to effect democratic global magic. It is one thing to recognize our limitations in rolling back dictatorships, though, and quite another to dismiss moral sense as the guidepost of our national-security strategy.

The questions of how the United States might help build a better world has confounded American leaders since the nation’s founding. Thomas Jefferson sensed early a special role for America, writing “it is impossible not to be sensible that we are acting for all Mankind,” even as his compatriot John Quincy Adams, who would also become president, inveighed against going abroad “in search of monsters.” Indeed, there have always been those on both the left and right in American politics who believe that aspirations for democratic transformation abroad are neither the business nor interest of the United States.

Yet especially during the Cold War, and again in the immediate aftermath of 9/11, there was a constituency for what George W. Bush called the “freedom agenda.” In the chaotic aftermath first of the Iraq War and then the so-called Arab Spring, the idea once again fell into discredit. Barack Obama explicitly rejected a pro-democracy policy during his presidency, demonstrated both by his aloofness from more liberal forces in places like Syria and Libya, and his deliberate defunding of democracy programs in Washington. Donald Trump, for his part, has shown no inclination to disagree with Obama.

With Khashoggi’s murder, questions about the cost and wisdom of partnering with dictatorships are again at the center of public debate, even if some critics are motivated more by reflexive opposition to Trump’s stance than by principled commitment to democratization. Nonetheless, the confluence of Trump, anti-Trumpism, and the Khashoggi tragedy may provide an opportunity to restore the moral foundation of American national-security strategy and foreign policy.

Any reconsideration of a “freedom agenda” must start with an unflinching look at the failings of past endeavors. The problems are not limited to Iraq. Efforts to advance democratic norms elsewhere have also had a mixed record. Not only do myriad cultural, political, and economic headwinds stall transitions to democratic capitalism, too often the United States favors symbolism over substance, acquiescing to elections in places like Iraq, Afghanistan, and the Palestinian territories before institutions are built and their populations truly embrace democracy.

How might US policy makers revitalize the freedom agenda? The most important element of any such effort is an overt commitment to the moral principles of democratic capitalism: Free people and free markets, and all that entails. Like the Helsinki Accords of the 1970s that elevated human rights to the forefront of relations with the Soviet Union, that commitment will raise the priority of democratic transformation in all America’s foreign relations. Foreign dictators may appreciate the marriages of convenience with the United States that a larger battle against Iran or China affords them, but they would not mistake the ultimate goal of our foreign policy. To put it more crudely, deals over oil, trade, or counterterrorism will not grant carte blanche to jail, kidnap, or murder. Cooperation need not mean a pass on accountability.

Naysayers will point out that there are often cultural barriers to democracy, and that freer political systems can yield unsought outcomes, like the elevation of Islamists to political power. Their cautions are fair. But a commitment to democratic transformation should not mean a headlong rush to early elections, let alone revolution. First and foremost, incorporating a moral element to American global leadership can end dictators’ confusion about how to deal with the Khashoggis of the world. Dissidents should be able to look to Washington and know they have a patron, not for their every idea, but for their human rights. Only when dictators are unsure if freedom is an American priority do they come to believe they can murder with impunity.

The right way to repeal and replace the Trump tax cuts - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 10/24/2018 - 15:49

Bad news for shopaholics already looking forward to having some extra cash for Black Friday: There is a zero percent chance President Trump will cut middle-class taxes by 10 percent after the November elections. And if you just read the preceding sentence, then you’ve probably given the idea about as much thought as Trump did before blurting out that $2 trillion promise.

Congressional Republicans were sure surprised — maybe because there are no plans on Capitol Hill to make Trump’s middle-class tax pledge happen. Trump Tax Cut 2.0 is in no way a serious policy proposal. It’s total vaporware.

US President Donald Trump gives remarks during the White House State Leadership Day Conference for local officials of Alaska, Hawaii and California at the White House in Washington, US, October 23, 2018. REUTERS/Leah Millis

Even so, it’s meant to address a serious political problem: Republicans aren’t getting much electoral oomph from the centerpiece of Trumponomics. And they know it. A recent survey commissioned by the Republican National Committee and obtained by Bloomberg News found that by a margin of 61 percent to 30 percent, respondents said the 2017 tax law benefits “large corporations and rich Americans” over “middle-class families.” That finding helps explain why Trump emphasized that this new tax cut idea of his was for “middle-income people … not for business.”

But there’s a problem. While such a tax cut might not be for businesses, it probably wouldn’t be just for the middle class, either. Cutting middle-income tax rates means that all the income earned at those levels is subject to lower rates — even income earned by millionaires and billionaires. Recall that Trump’s Tax Cut and Jobs Act slashes all tax rates, including those at the top. And it’s those cuts — along with the business tax cuts — that have apparently helped persuade most voters that they’re not benefitting much or really at all. (That, even though all income groups are getting tax cuts this year — assuming gains aren’t offset by the import tax hikes of the Trump tariffs.) Meanwhile, Democrats are taking advantage of this voter perception by promising to repeal Trump’s tax cuts and replace them with cash payouts for the poor and working class. And since the GOP didn’t much care that its tax cuts would worsen federal debt and deficits, Democrats aren’t too concerned that their spending plan could do the same.

All this was easily predictable and avoidable for Republicans. Ideally they should have proposed a tax cut that did three things: boost business investment, obviously increase worker take-home pay, and pay for itself. Sure, that would have meant making some hard choices, such as not cutting top income tax rates for the wealthiest Americans in a time of rising debt and increased inequality. Indeed, those personal tax cuts are the ones that do the least for long-term economic growth while also generating the most red ink.

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Things could have been different. For instance: A better way to provide middle-class tax relief would have been through a cut in the payroll taxes used to fund Social Security and Medicare. Some two-thirds of U.S. households with annual incomes below $100,000 pay more in payroll taxes than income taxes. A two percentage point reduction in total payroll taxes would have increased the after-tax income of a household with $50,000 in earned income by $1,000. That’s a nice chunk of change. And a payroll tax cut could have been paid for by limiting it to middle-class households and curbing tax breaks that mostly help wealthier Americans. Moreover, lost revenue from the deep cut in corporate taxes — to 21 percent from 35 percent — could have been offset by higher capital gains taxes. Or perhaps Republicans could have chosen less severe corporate rate cuts in favor of permanent full expensing of new capital investment.

To be clear: Cutting the uncompetitive corporate tax rate was a good idea. Not paying for the rate reduction certainly wasn’t.

Like I said, hard choices. But that’s what serious governments do when their debt levels have doubled over the past decade and are on track to continue ballooning. Of course, the Trump tax cuts are hardly the final word on tax reform. The personal rate cuts are due to expire in 2025, while the temporary expensing provision begins to phase out at the end of 2022. At the same time, budget deficits will continue to worsen, due in part to the original Trump tax cuts. A new forecast from Goldman Sachs predicts the federal budget gap to reach $1 trillion (4.7 percent of GDP) in 2019, $1.1 trillion (5.1 percent) in 2020, and nearly $1.3 trillion in 2021 (5.5 percent).

Maybe it’s time for Republicans to think about repealing and replacing the Trump tax cuts.

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