You are here

American Enterprise Institute

Subscribe to American Enterprise Institute feed
American Enterprise Institute: Freedom, Opportunity, Enterprise
Updated: 41 min 30 sec ago

Like Lincoln, Martin Luther King Jr. belongs to the ages - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 04/06/2018 - 10:30

One of the best things about the passage of historical time is how the partisanship of a given moment melts away. If you’ve seen the musical “Hamilton” (or paid attention in civics class) you’d know that long before George Washington left office, the Founding Fathers were bitterly divided into rival partisan camps, now largely forgotten.

There are many reasons why time wears away the hard edges of partisanship. Nostalgia alone carries a significant chunk of the load. Also, while hindsight is never really 20/20 — if it were, we’d never argue about the past — the passage of time allows us to see how once-polarizing figures fit in grander narratives. This is what Edwin Stanton meant when he proclaimed upon Abraham Lincoln’s death, “Now he belongs to the ages.”

@CueDaTruth via Twenty20

This week marked the 50th anniversary of the assassination of Martin Luther King Jr., and there is no modern figure who more richly deserves to be placed at the heart of the American story.

When King died in 1968, he was not the central figure in American politics he had been when he led the March on Washington in 1963. The victories he helped secure with the 1964 Civil Rights Act and the 1965 Voting Rights Act had sapped some of his political relevance, which is why he switched gears to issues of “economic justice.” The rise of black nationalism and the headline-grabbing style of would-be revolutionaries such as Stokely Carmichael and Malcolm X had made King seem a bit of a relic.

As so often happens, it was King’s tragically premature death that reminded so many of his historical stature. But even then, the riots and chaos of 1968 were not the ideal climate for sober appreciation of his contribution.

And, if you can forgive a bit of partisanship, the way some of his heirs — literal (the King family) and figurative (Jesse Jackson, Al Sharpton et al.) — tried to claim a monopoly on his legacy made that appreciation more difficult as well.

King’s views on economics and American foreign policy were also too bound up in his persona for some conservatives to forget or forgive. More importantly, the generation of conservatives (though not necessarily Republicans, who disproportionately voted for the Civil Rights Act) who wrongly opposed the civil-rights movement either out of misguided constitutionalism or simply out of archaic racism needed to die off before King’s contribution could be better appreciated across party lines.

So what was King’s contribution? Simply this: He forced America to fulfill its own best self.

It’s popular today, particularly in certain corners of the Left, to deride the hypocrisy of the Founding Fathers by pointing to the disconnect between the rhetoric of the founding and the reality on the ground. The Declaration of Independence states, “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness.” And yet America countenanced slavery, among other lesser but still abhorrent assaults on the ideal of equality.

But hypocrisy is only possible when it illuminates a violated ideal.

It was not until Lincoln delivered the Gettysburg Address that the ideal embedded in the Declaration fully became both the plot and theme of the American story. “Four score and seven years ago, our fathers brought forth, on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.”

That idea, always present in America’s self-conception, became the heart of the American creed. But it was not truly so until 100 years later, when King called upon Americans to live up to the best versions of themselves.

“When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir,” King proclaimed in the figurative shadow of the Great Emancipator at the Lincoln Memorial. “This note was the promise that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness.”

King was not demonizing “white America,” he was appealing to its conscience, asking his fellow Americans to live up to the ideals that they claimed defined our best selves. Rhetoric, literary critic Wayne Booth said, is “the art of probing what men believe they ought to believe.”

King’s rhetoric did exactly that, which is why he, like Lincoln, not only belongs to the ages now; he belongs to every American.

India’s government wages a phony war on fake news - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 04/05/2018 - 23:15

Can India overcome fake news when the ruling Bharatiya Janata Party is often complicit in peddling it? The question arises from the latest skirmishes between the Narendra Modi government and the media. On Monday the Ministry of Information and Broadcasting in Delhi announced guidelines that would allow it to suspend the official accreditation of print and broadcast journalists for creating or propagating “fake news in various mediums.” Faced with an outcry from journalists, the government withdrew the guidelines the next day.

The abortive clampdown comes amid a heightened media focus on politically well-connected fake-news sites. Last week police in the southern state of Karnataka arrested Mahesh Vikram Hegde, a co-founder of Postcard News. Mr. Hegde’s arrest was sparked by a tweet that showed a picture of a visibly bruised Jain monk with a caption claiming that the holy man was “attacked by Muslim youth.” The monk had in fact been involved in a minor traffic accident.

Those familiar with the site would not have been surprised. Postcard News once falsely—some would say laughably—suggested that prominent television journalist Barkha Dutt hitched a ride to an assignment on a Kashmiri terrorist’s motorcycle.

This content is available for Wall Street Journal subscribers here. It will be posted in full to on Monday, April 9. 

Banter #310: Yascha Mounk on populism and the future of liberal democracy - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 21:48

This week on Banter, Dr. Yascha Mounk joined the show to discuss his new book, “The People vs. Democracy: Why Our Freedom Is in Danger and How to Save It.” In his book, Mounk explains the rise of populism and its threats to liberal democracy, but also provides some practical solutions to turning that tide. Dr. Mounk is a lecturer on government at Harvard University, a senior fellow in the Political Reform program at New America, and executive director at the Tony Blair Institute for Global Change. His research focuses on political theory and comparative politics. He participated in a book event at AEI with AEI’s Jonah Goldberg, Norm Ornstein, and Stan Veuger. You can watch the full event video at the link below.

Learn More:

The people versus democracy (AEI Event Page)

The People vs. Democracy: Why Our Freedom Is in Danger and How to Save It | Yascha Mounk| Harvard University Press | March 2018

Subscribe to Banter

Discussing increased tariffs against China: Scissors on Fox Business’ ‘Risk & Reward’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 04/05/2018 - 21:00
Resident Scholar Derek Scissors discusses China's aggressive trade policy with the U.S. on Fox Business's 'Risk & Reward'.

Is the NCAA dam about to burst? - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 19:46

March Madness left many of us with busted brackets, but our pain is nothing compared to the legal body blow just suffered by the NCAA. Last week, US District Court Judge Claudia Wilken of the Northern District of California denied the NCAA’s motion for summary judgment in In Re: NCAA Athletic Grant-in-Aid Cap Antitrust Litigation. And key to that decision was the plaintiffs’ secret weapon — Stanford emeritus economics professor Roger Noll.

Villanova Wildcats guard Jalen Brunson hoists the national championship trophy after defeating the Michigan Wolverines. Mandatory Credit: Robert Deutsch-USA TODAY Sports via REUTERS

Noll is the economist who in the path-breaking O’Bannon case finally defined (and provided evidence) for an antitrust, relevant market for NCAA student athletes — Division I men’s football and basketball. In this newest litigation, plaintiffs are following in O’Bannon’s wake. The result? The NCAA is headed to court where it must defend itself against an antitrust claim. Score three points for the economists.

Specifically at issue is whether or not the NCAA regulations that limit student athlete compensation to grants-in-aid up to their full cost of attendance violate Section 1 of the Sherman Act. As might be expected, the plaintiffs are a class of former and current Division I football and basketball players who seek to abolish these rules (by requesting an injunction to stop their application).  These players hope that a free market for athletic labor might emerge so that schools could bid for top athletes without regard for the cost of attendance at any given institution.

To establish a violation of Section 1, the judge explained that plaintiffs must show “(1) that there was a contract, combination, or conspiracy; (2) that the agreement unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and (3) that the restraint affected interstate commerce.” But here is where it gets interesting. The judge basically said that plaintiffs have already established these elements, and now the NCAA must be ready to defend itself.

Taking a big step back, let me point out what a big deal that is.  Until very recently, the NCAA rarely lost on antitrust challenges to its restraints on student athletes. As I wrote in an essay and blogged about here, I have calculated the abysmal win-loss record for student athletes.

Collecting data from 1973 to 2015 there were thirty-seven (O’Bannon inclusive) antitrust challenges to NCAA restrictions. Of those thirty-seven, eighteen — or 48.6% — were brought by student-athletes. Breaking down the student-athlete cases, in six the plaintiffs “won” to the extent they at least survived motions to dismiss or won other pre-trial motions. Of those six, only one, O’Bannon, succeeded on at least part of the merits. That results in a substantive victory in one out of eighteen player cases (or 5.6%) and only one out of a total of thirty-seven antitrust cases (or 2.7%).

In part, the terrible win rate is because some courts have held that the NCAA’s compensation rules are not even subject to antitrust scrutiny. To that the O’Bannon courts (both the district and now the Ninth Circuit) responded “poppycock.” (The actual quote from the Ninth Circuit is “[w]e therefore conclude that the NCAA’s compensation rules are within the ambit of the Sherman Act” — more words, same legal effect.)

This judge is using the precedent in the 2015 O’Bannon case that was affirmed by the Ninth Circuit to jump-start the plaintiffs’ case. Thanks to Roger Noll, unlike O’Bannon, these plaintiffs do not have to start from scratch to prove that the NCAA operates in a relevant market that affects commerce. As in the case of O’Bannon, the relevant market will be the student athletic markets of Division I basketball and football. The alacrity by which the O’Bannon precedent has been incorporated should be of no surprise — Judge Wilken presided over that case too.

The judge has left the NCAA little room to maneuver. To counter the plaintiffs’ demonstration that the NCAA regulations have an anticompetitive effect in a relevant market, they must show one of two things: (1) the current rules “serve the procompetitive purposes of integrating academics with athletics, or (2) preserve the popularity of the NCAA’s product by promoting its current understanding of amateurism.” Even if the NCAA is able to successful counter the anticompetitive charge, plaintiffs can show that these NCAA goals can be achieved by less restrictive means. For example, individual conferences could establish their own rules creating at least more competition among the various conferences.

It’s hard to see how this ends well for the NCAA. As I wrote back in 2015,

NCAA restrictions cap competitive vigor among universities competing for student talent. Past plaintiffs have been unsuccessful in defining the labor market at all or defining in it in such a way to highlight the commercial impact of the NCAA’s ‘noncommercial’ rules. . . . It is still too early to assess how great an impact the O’Bannon case will have on the student athletic market but it is a break in the NCAA dam — other challenges are bound to spill out.

This current challenge might bust the dam for good.

See also:

PRESS RELEASE: W. Bradford Wilcox discusses marriage in terms of society and government regulations - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 19:41

Although cohabitation (living together without being married) has become a normal and accepted practice in the United States in recent years, children in cohabiting families can experience greater levels of instability, emotional distress, and issues in school.

In his latest piece, AEI Visiting Scholar W. Bradford Wilcox analyzes the effects of cohabitation on families, explains why the cohabitation trend should be of concern, and suggests solutions to improve outcomes for children.


The problem:
1.  One-in-four children (23%) are born to cohabiting couples, and more than 40% of American children will spend time in a cohabiting household (either they were born to cohabiting parents, or one or both of their parents moved in with an unrelated partner after the original relationship broke up).

2.  Instability is a big problem, children born to cohabiting parents are:

  • almost twice as likely to see their parents break up by age 12.
  • four times more likely to experience serious emotional problems than a kid living at home with married parents.
  • twice as likely to get expelled, suspended, or struggle in school.
  • ten times more likely to be physically, sexually, or emotionally abused.

3. Poor and working-class Americans are less likely to appreciate how important marriage is for their kids, because many of these parents are having a tougher time finding decent-paying, stable jobs.

The solution:
1. Policymakers can help by removing regulations that penalize marriage. Federal and state governments should allow cohabiting couples to marry without losing their benefits. Four in ten families in America today receive means-tested government assistance including food stamps and Medicaid. At the moment, many of these couples receive more benefits if they are unmarried.

2. The culture must change. People with high visibility should set the right example. Schools, the media and Hollywood superstars should support the importance of a stable marriage.

Read the full piece here: Dwayne ‘The Rock’ Johnson should put a ring on it — for his kids’ sake

To arrange an interview with W. Bradford Wilcox, please contact AEI Media Services at or 202.862.5829.

Alternative take: The total volume of US trade reached a new record high in February, reflecting strength in the US economy - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 19:32

The BEA released its monthly report today for “U.S. International Trade in Goods and Services” for February. As usual, the main emphasis of the report is on the misunderstood and mostly meaningless “trade deficit,” here’s the very first sentence (italics added):

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $57.6 billion in February, up $0.9 billion from $56.7 billion in January.

As Timothy Taylor wrote back in 1999 for National Affairs (“Untangling the Trade Deficit“) and which was also featured yesterday on his always-excellent Conversable Economist blog (ht/Don Boudreaux):

The competition for most misunderstood economic statistic is hard-fought, but there is a clear winner: the trade deficit. No other number is interpreted so differently by professional economists and the general public. Common reactions to the U.S. trade deficit range from belligerence to dejectedness: It is thought that Americas trade deficit exists either because of the skullduggery and unfair trade practices of countries that shut out U.S. products, or because American companies are failing to compete against their global competitors. In either case, the preferred solution is often to get tough in trade negotiations for the sake of protecting U.S. jobs. But, according to most economists, cutting across partisan and ideological lines, such mainstream beliefs about cause, effect, and solution are wrong. Even more bothersome, these popular beliefs are wrong not simply because the evidence is against them—although it is—but because they reflect fundamental misunderstandings of what the trade deficit is and how it interacts with the rest of the economy.

Reporters also demonstrate a high level of misunderstanding in their almost descriptions of trade deficits that are almost universally negative, disparaging and pejorative. For example, the term “worsening trade deficit” was used in multiple media reports today by Reuters, CNBC, Euronews, StreetInsider, NewsMax, and MSN among others. Reuters and FOXBusiness used the term “shortfall with China” (aka a “stuff surplus” for the US, see CD post from yesterday).

As I have done in the past, I present an alternative measure of monthly international trade in the chart above, where instead of subtracting imports from exports to calculate the trade deficit, I add exports and imports together to measure the monthly dollar volume of total international trading activities. Because both exports ($204.4 billion) and imports ($262.0 billion) reached all-time record highs in February, the total trade volume also set a new monthly record high of $466.4 billion. It really doesn’t make sense to treat international transactions as a positive contribution to the US economy when an American company sells its goods overseas, but as a negative contribution when a US company buys foreign inputs for production or assembly in America factories. Both activities — American companies buying imports/inputs and selling exports/output — are important economic transactions and contribute to the total volume of trade each month and to the overall US economy. As I concluded in a CD post on this topic several months ago:

The continual focus by politicians and the media month-after-month on the “trade deficit” is misplaced, and the ubiquitous media reports that describe “trade deficits” disparagingly miss the bigger picture of international trade. Rising exports and rising imports are both signs of an expanding, healthy economy, and tracking the total monthly volume of international transactions (exports + imports) is, therefore, a better measure of the importance of international trade to our economy than tracking net exports (exports – imports).

The only person/group I know who regularly present this type of alternative report focusing on total trade rather than the net trade is economy Brian Wesbury and his colleagues at First Trust Advisors, here’s part of their report today on February trade (italics added):

When President Trump sees an increase in February’s trade deficit he’ll think it confirms the world is “killing” us on trade. But what really matters, and what President Trump and other policymakers should be focused on, is the total volume of trade – imports plus exports – that signals how much value consumers find in the global economy. Looking at it from this perspective, total trade boomed in February, growing by $7.9 billion. Although the trade deficit rose to near a nine and a half year high, the total volume of trade rose to a new record all-time high in February. Exports grew by $3.5 billion while imports increased by a larger $4.4 billion.

Some argue today’s trade deficits must be offset by future trade surpluses. We beg to differ. The US finances trade deficits with foreign capital inflows. The trade deficit must equal foreign investment and foreign investors have been willing to be paid a very low return on their US investments. So low, that Americans still earn more on their investments abroad than foreign investors earn on their US assets. As long as that continues, and we see no reason why it shouldn’t, the US can continue to run trade deficits.

Moreover, many of the policies President Trump has passed, including cutting tax rates and allowing for construction of more energy infrastructure, will make the US an even stronger magnet for capital from abroad. The protectionist talk coming from Washington, along with new tariffs on steel and aluminum, is worrisome. But we continue to believe this is just a negotiation tactic and the chances of a trade war are very small. We think what will ultimately come from all the chaos will be better trade agreements for the United States. We will continue to watch trade policy as it develops, but don’t see any reason yet to sound alarm bells, and look at the recent drop in the stock market as another buying opportunity.

MP: Kudos to Brian Wesbury, Robert Stein and Strider Elass at First Trust Advisors for delivering regular commentary and some much-needed clarity about the “most misunderstood economic statistic” — the trade deficit — and instead focusing on a much more important trade statistic – the total amount of trading activity that takes places every month as a much better measure of the contribution of international trade to the US economy.

Is Google endangering American national security? - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 18:44

What’s the next front in the political “techlash” against America’s tech giants? Well, I think you saw it if you were watching Fox News last night. In a “Tech Tyranny” segment — apparently part of a week-long series — program host Tucker Carlson basically called out Google for being a selfish Benedict Arnold company because it is opening an AI research center in China. (If you recall, Carlson previously called for Google to be somehow turned into a “public utility” because “to an unprecedented extent Google controls reality.”) Carlson:

All this week we’re airing special reports on tech tyranny, looking at how big tech companies are getting more and more power and endangering a lot of things that we think are important, like democracy and clear thinking. Here’s another example: China’s military is obsessed with artificial intelligence and is investing massive resources into developing an advantage over our military in artificial intelligence. Eric Schmidt chairs Alphabet, that’s the parent company of Google, and he’s admitted that China will soon be the world’s leader in AI and they’ll use it for military purposes. He’s right, maybe. Google is dramatically expanding its artificial intelligence research operations in China, which is bolstering an effort that could eventually impair the security of this country. . . .

I guess what I’m confused by is, so Google describes itself as a multinational company, really a kind of corporation of the world. But it was incubated here, and everything about Google fundamentally is American. it wouldn’t have been possible to start Google in China. And yet Google doesn’t seem to feel any obligation whatsoever to the US government or to the American people. So how does that work exactly? . . .

So American taxpayers subsidize the education of the people who founded Google and who work there and we create the regulatory and legal framework possible for it to start — again no other company like this has started in Europe, for example, and certainly not in Asia. So we make it possible and then they turn around and undermine the national security of the country. I know that people describe that as market capitalism but that seems immoral to me. . . .

Here’s another thing that confuses me, and since you’ve covered it maybe you’ve got the answer. So companies like Google are big on importing talent, and I understand why, and they argue that we just don’t have enough engineers for example and we need to bring them in on H-1B visas. Is there any thought by the billionaires who run these companies, “Hey, maybe we should take some of our billions and invest in American education. This country isn’t producing an adequate number of scientists, maybe we could help with that.” Or because they feel no obligation to the country only to their shareholders they don’t feel that? . . .

Because Andrew Carnegie put a library in every town in America once he got rich here. I don’t see any of these guys giving back really in any way to the country. They seem just to be taking from it. Call me left-wing.

The primary charge here is that Google is endangering national security by establishing the research center. (It’s probably a good thing Carlson seemed unaware that some Google employees are protesting the company’s AI work with the Pentagon.) And as you may know, China has a formal plan to be the dominant player in a number of emerging technologies, including AI, over the next decade or so.

So how should the United States react to that? Should it somehow try to isolate a nation of 1.4 billion people, one that’s already an economic superpower, and keep it a technological backwater — at least compared to the US? As they say on Twitter, that’s not how any of this works. In an internet-connected, globalized economy, national economies gain from each others’ advances. As Harvard’s Amar Bhide argues in “The Venturesome Economy” (a book I have written about before): “. . . the expansion of the global supply of cutting-edge research, regardless of where it originates, is a good thing.”

When Chinese researchers publish papers about AI, for instance, researchers in other nations benefit from that increase in the stock of shared knowledge. One reason to be optimistic that the future will see rising global living standards is that more human minds have access to all of humanity’s knowledge with greater ability to share insights. American companies need to be where the talent is. This is why Google also has research centers in Europe.

Sign up for The Ledger newsletter Expert analysis from AEI's Economic Policy scholars Also sign me up for AEI This Week, delivered every Saturday morning. Subscribe

That said, China isn’t Japan, the last Asian country we worried about as a competitive threat. China is more like 1980s Japan plus 1980s Soviet Russia. It is both an economic competitor and a military rival. The Soviets never had —  nor likely ever could have had —  world-class tech firms such as Alibaba, Baidu, and Tencent. There is good reason to closely monitor Chinese investment in US technology and telecommunications companies and finally push back against unfair trade practices such as IP theft and forced tech transfer. China is an authoritarian country that is rapidly becoming a surveillance state worthy of a dystopian sci-fi novel.

But Americans shouldn’t forget that we control our own destiny. And we start with a free-wheeling, entrepreneurial economy that gives us a huge advantage over China. Let’s not mess that up. But there is more we can do. Google’s Schmidt has been loudly sounding the alarm about China’s AI ambitions, recommending the US bulk up its investment in basic research. More must also be done when it comes to upgrading US education and making sure we can continue to attract the best and brightest immigrants. Both should be bold-faced, large-font national priorities.

And what else do American tech firms owe America? It used to be conservatives would answer that question by saying these companies already perform the highest public services by creating millions of high-paying jobs (and enriching shareholders). Should they build public libraries, too? Well, Google has already created the greatest free library one could imagine. Beyond that, it doesn’t take much Google searching to find all manner of philanthropic efforts. Really, it’s not hard at all, Team Tucker.

Learn more:

A bailout for nuclear power plants would be an economic explosion - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 16:09

The most ludicrous thing about a bailout for money-losing nuclear plants in Minnesota, which Xcel Energy is seeking under the guise of a reactor improvement program and which the state legislature is now considering, is that it purportedly relies on regulatory oversight and would be a good deal for electricity users and prevent the loss of jobs.

@askoldsb via Twenty20

To save financially-ailing nuclear plants, state legislatures in Illinois and New York last year approved subsidies to keep the plants operating after utilities made appeals about protecting consumers and jobs. But other proposed bailouts of nuclear plants have stalled in New Jersey, Connecticut, Massachusetts, Ohio and Pennsylvania. By doing the right thing – adhering to free-market principles – these states have managed to steer clear of similar bailouts.

What’s particularly remarkable about the situation in Minnesota is that it seems disconnected from the needs of the state’s economy and consumers. Under a bill that’s been sharply criticized by the Minnesota Chamber of Commerce and ratepayer advocates, Xcel would submit its nuclear plant improvement tab – an additional $1 billion to keep its 45-year-old Prairie Island nuclear plant running and at least $420 million for its even older Monticello nuclear plant – to the Minnesota Public Utilities Commission (PUC) for approval.

The tab would be for capital investments as well as operations and maintenance expenses over the next 17 years. Although it would be handled in the same way as a traditional rate case, the approval process would actually weaken PUC’s power by allowing Xcel to get approval up front for future expenses, in effect giving Xcel a blank check.

The cost of nuclear plant improvements would be added to electricity users’ bills. Xcel says that carbon-free nuclear power is needed to meet the company’s carbon-mitigation goal, which is to obtain 85% of its electricity from zero-carbon sources by 2030.

But the claim that using subsidies to keep financially-ailing nuclear plants on line would be good for consumers and the environment is questionable at best. Switching to clean natural gas, wind and solar power would be much cheaper.

The simple truth is that the nuclear improvement program – or bailout – is really an effort to protect the company from the cost of having to shut down two nuclear plants that can no longer compete in electricity markets with natural gas and renewables.

In this regard, the Prairie Island and Monticello plants are plagued by some of the same financial problems that are typical of many other nuclear plants around the country. While the cost of producing natural gas as well as wind and solar power has dropped dramatically, replacement costs for nuclear-plant components like turbines and steam generators has soared. Since 2013, five U.S. nuclear plants have closed and eight others are scheduled to shut down in the next few years. Experts say that many other nuclear plants are at risk of closing.

Subsidizing nuclear power is poor public policy. It is disconnected not only from the real interest of electricity users but also from the efficient and cost-effective operation of the electricity system itself. Natural gas can generate electricity more cost-effectively and also meet surge needs during extreme weather. This is why an effort to bail out the financially-troubled Prairie Island and Monticello nuclear plants in Minnesota is a bad idea. The nuclear industry knows that its days are numbered.

Related reading:

Mark J. Perry is a scholar at The American Enterprise Institute and professor of economics at the Flint campus of The University of Michigan.

Here’s how we can make Turkey’s president pay a price for his crackdown on journalists - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 16:02

Recep Tayyip Erdogan, Turkey’s ruler for 15 years, has established himself as Turkey’s most consequential leader since Mustafa Kemal Ataturk, the republic’s founder. But while Ataturk’s legacy was to orient Turkey toward the West and lay a foundation upon which successors could cultivate democracy, religious tolerance and a reasonably free press, Erdogan seeks the opposite: He has placed Turkey firmly in the Islamic bloc and increasingly prefers Russia over NATO. He fans the flames of religious incitement not only against Jews and Christians, but also against Muslims who reject his more conservative views.

Press freedom activists hold copies of the opposition newspaper Cumhuriyet during a demonstration in solidarity with the jailed members of the newspaper outside a courthouse, in Istanbul, Turkey, July 28, 2017. Reuters

It is time for the United States and its allies to show Erdogan that his crackdown, at home and abroad, comes at a cost. The West can start by using some of the same mechanisms it has applied to bad behavior from Russia — in particular, the 2012 Magnitsky Act, which imposed sanctions on individuals who could be shown to have committed serious violations of human rights.

We would be well-advised to start by looking at the president’s treatment of the press. Eviscerating free speech and press freedom have been central to Erdogan’s strategy. If the opposition has no platform, then Erdogan need not win arguments — he can simply impose them and eschew accountability for his policies. The warning signs were there from the start: In 2005, after Musa Kart, an editorial cartoonist for Cumhuriyet, lampooned Erdogan as a cat entangled in yarn, Erdogan successfully sued Kart for $3,500. When Kart again lampooned the president, he ended up in prison.

He was not alone. In 2012, Reporters Without Borders called Turkey “the world’s biggest prison for journalists.” Today, more than 70 Turkish journalists languish in prison. (Turkey has also targeted foreigners. In my case, it demanded Twitter close my account, issued a reward for my arrest and demanded an Interpol “red notice” against me, all because Erdogan dislikes my writing.)

Erdogan turned his fire not only upon reporters but also upon their editors and employers. After the newspaper Cumhuriyet published photographs showing Turkish trucks supplying weaponry to Islamist Syrian rebels, a Turkish court convicted its editor Can Dundar of “leaking secret information of the state.” Early in his tenure, Erdogan staffed Turkey’s tax and banking boards with political loyalists and used them to wield punishing tax bills against companies whose papers and television stations criticized him. In 2009, for example, he fined the Dogan Group, Turkey’s largest media company, $500 million after its various newspapers and television stations criticized his policies. The company appealed the fine and maintained its independent line — until it was hit, several months later, by a separate $2.5 billion penalty.

Dogan is now in the process of being sold off to a pro-government conglomerate. It will be just Erdogan’s latest media scalp. In 2007, Erdogan’s government seized Sabah-ATV, which included several newspapers, a TV station and a radio station. Multiple buyers expressed interest in bidding for the company, but with mafia-like persuasion, Erdogan persuaded all to drop out, allowing his son-in-law to grab the media group at a bargain basement price. In 2016, the high-circulation Zaman newspaper suffered a similar fate and was simply shut down.

The press-freedom chill in Turkey is no secret. Over the course of Erdogan’s rule, Turkey’s rank in Reporters Without Borders’ press freedom index fell from 115 to 155, putting it below even Russia, Pakistan and Burma. Freedom House now ranks Turkey “not free.”

What happens in Turkey does not stay in Turkey, however. Erdogan’s declaration that he seeks “to raise a religious generation” means in practice a promotion of radicalism rather than religiosity. In terms of incitement and export of radical preachers, Turkey is quickly becoming today what Saudi Arabia was in the 1980s. Erdogan’s regime has supported Hamas, Sudan’s genocidal regime and even al-Qaeda associates. Emails said to be from Erdogan’s own son-in-law have shown a willingness to profit off Islamic State oil. The press crackdown, however, has left many Turks blind to their leadership’s behavior.

If the State Department and Congress wanted, however, they could stand up for the free press and impose a cost on its repression. Just as the 2012 Magnitsky Act sanctioned human rights violators in Russia, the U.S. government could impose Magnitsky penalties not only on those who target free speech but also on those who profit from its suppression.

Turks reacted with shock when, in October 2017, the United States temporarily suspended issuing some visas to punish Turkey’s arrest of a consular employee. To ban visas for those who profit from Erdogan’s media seizures could be equally effective. Anyone who takes over a seized paper or replaces a journalist fired for independence should pay a price. So, too, should Erdogan press appointees who have — as is common knowledge among Turkish journalists — compromised professional ethics for the sake of multimillion-dollar payouts or posh homes along the Bosporus. Such actions won’t restore press freedom, but they will signal that profiting off its repression comes with a cost. It’s time to stand up for Turkey’s independent journalists, an endangered species, before they truly become extinct.

A longer response to George Will on paid leave - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 14:25

In his recent column in the Washington Post, George Will comes out against the idea of a federal paid leave policy. We responded to his column in the Washington Post here. Here is a longer response.

Will asks important questions in his column: Why can’t families pay for it themselves? How will businesses recover the costs? Will employees be worse off as a result of mandated paid leave policies?  What will be the impact on small businesses? And most importantly, in an era of ballooning government deficits, won’t a new spending program make everything just that much worse off?

Fortunately, much hard work and research has gone into answering these questions over the years.  Most recently, a joint collaboration between serious and respected scholars under the umbrella of the AEI-Brookings Paid Family Leave Working Group examined the empirical evidence on paid leave. A link to the report is here, and we discuss the main recommendations below.

But what was striking to us about the column in the Washington Post was how light it was on the benefits of paid leave policies, the details of paid leave access, and the benefits that such access can provide to American families. A fair reading of the data requires presenting not just the “cons” of the policy but the “pros” as well. This is true not just for paid leave, but also for other policies. Below is what we know about the costs and benefits of paid leave.

Who will benefit most from paid leave access?

Mainly low-wage workers. The problem with paid leave programs across the US today is that the most vulnerable workers are left out of them. Low-wage workers have the least access to benefits from their employers and often don’t participate in state paid leave programs for lack of job protection or a low wage replacement rate. These are the workers for whom having a baby represents perhaps the greatest financial strain and arguably would benefit from paid leave the most. If we continue with the status quo, these are the workers who will be the most hurt. In our report, we propose a 70% wage reimbursement rate that is capped at $600, making it more generous for the lowest-wage workers. We also think that job protection could help workers comfortable with taking time off. Job protected leave could be a burden for employers if it is for a long duration, but there is little empirical evidence that a short policy negatively impacts employers.

Why can’t families pay for it themselves?

Half of Americans do not have $400 they could spend in an emergency, according to the Federal Reserve, let alone go weeks without a paycheck. And it’s not just about the costs of having the baby. It is about the ability to take that time off to have a baby, to recuperate and to look after the needs of the child, and to have a job when they would like to go back to work. While that is obviously common sense, it is also obviously much harder for a poor family to save up enough resources for such occasions. A social insurance approach — such as that we recommended in our report — that allows such costs to be shared across families may be more sensible in this regard.

How will businesses recover the costs, and will they pass them on to employees?

Paid leave policies can be costly for businesses if they are mandated. For instance, if the federal government tells businesses that 12 weeks of leave has to be provided and the business has to pay for it, these are obviously costly for the business. And economics would suggest that employers would pass on this cost to employees in the form of lower wages or discriminate against employees who are more likely to use paid leave. This is precisely why, in our working group, we gave a lot of thought to the design of this policy.

One solution is to make employees pay for the benefit themselves rather than impose it as a new cost on businesses. While businesses would still have to face the cost of making up the work that the absent employee would be responsible for, they would be absolved of the cost of actually paying the employee who is on leave. Empirical evidence from businesses in California and other states suggests that businesses are not burdened by the introduction of paid leave policies and have little difficulty adjusting to such policies. Many employers, on their own, offer accommodations for such needs.

What about the deficit? And impact on spending?

Addressing the cost of paid leave policies is important. How do we recover the cost? How much does it add to the deficit? These are important questions and ones that we are attempting to answer through actual modeling in the second phase of the AEI-Brookings Paid Leave Working Group. It is correct that spending will go up as a result of this policy and we need spending offsets not targeted at lower income households, as discussed in our previous report.

However, it is also worth pointing out that the biggest drivers of spending are entitlement programs, and whether we add a new parental leave policy onto Social Security or elsewhere, the addition to costs is likely to be trivial. Costs will be higher if we include not just parental leave but also leave for own medical and family caregiving needs. But if all we are talking about is parental leave, this will hardly make a dent in the trajectory of government spending.

Like any new policy, paid family and medical leave has its advocates and its opponents. It also has costs and benefits. The only way to meaningfully advance the conversation is to recognize and give due consideration to both aspects.

Aparna Mathur is a resident scholar in economic policy studies at the American Enterprise Institute. Abby M. McCloskey, founder of McCloskey Policy LLC, is an economist and political commentator.

Learn more:

Sweden’s self-correcting pay-as-you-go pension system - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 13:47

Sweden has a reputation for providing expensive cradle-to-grave social welfare protection, but in 1998 the country put in place a public pension reform more conservative than most of the plans now sponsored throughout the industrialized West. The 1998 reform imposed a budget constraint on pension spending that is enforced automatically, without the need for further approval by the Swedish parliament. As a result, while other countries with advanced economies, including the U.S., are still grappling with large unfunded public pension liabilities associated with population aging, Sweden’s new system is projected to remain in balance permanently.

@iampatzs via Twenty20

Paul Samuelson showed that pay-as-you-go pensions like Social Security can provide real increases in benefits over time, consistent with demographic and economic trends. In rough terms, the generosity of the system can grow with the real growth rate of the system’s aggregate level of contributions, which is a function of growth in the size of the labor force and increases in worker productivity.

In 1958, when Samuelson’s insight was published in a famous article, it was assumed that Western democracies would continue to have high fertility rates and thus also steady growth in their labor forces. Politicians felt safe voting to increase the generosity of pay-as-you-go pensions because they were told that population growth would make it affordable.

That was a mistaken assumption. Fertility rates plummeted in the 1960s and have remained below the natural steady population replacement rate in most advanced economies ever since. Furthermore, many countries, including the U.S., severely underestimated how long their retirees would live and continue to draw benefits. Social Security and other pay-as-you-go pension systems are implicitly paying rates of return to retirees that exceed what is affordable given the relevant countries’ demographic profiles.

To safeguard against this fate, the architects of Sweden’s reform built their plan around strict adherence to a refined version of the natural rate of return that is affordable within a pay-as-you-go system. Under the new system, pension benefits are calculated based on a defined contribution philosophy.

Overall spending is constrained by a fixed contribution rate of 18.5 percent of covered wages. A portion of the contributions — 2.5 percent of wages — is devoted to a straightforward defined contribution pension. Workers get fully funded individual accounts, which are invested in privately managed investment funds and owned by the workers. These accounts resemble 401(k) plans and IRAs in the U.S.

The rest of workers’ pension contributions — 16 percent of wages — finances the pay-as-you-go system, but with a twist. Sweden is phasing out the old defined benefit formula used to calculate pensions and replacing it with “notional defined contribution” (NDC) accounts. Workers’ accounts build “balances” during their years in the labor force, which are then used to calculate their annuities when they retire.

Sweden’s reformed system creates a direct link between aggregate pension liabilities and contributions, which makes it much easier to keep the system in overall balance. The system incurs future liabilities in direct proportion to workers’ current contributions. The only uncertainty is the rate of return earned on those contributions.

With the notional accounts, there are no actual invested assets. Instead, the government applies a uniform, presumed rate of return to the accounts, tied in the first instance to the growth rate of per capita wages. To keep the system in balance, this default rate of return is subject to adjustment to correct for shifts in demographic and economic factors.

To assess the financial viability of the new system, Sweden measures its assets and liabilities annually. If assets exceed liabilities, then the system is in balance, and the notional accounts and the annuities paid to retirees are credited with the default rate of return. If liabilities exceed assets, then the system is out of balance, and the rate of return is reduced as needed to eliminate the deficit.

Liabilities in the system are clear enough. They are the balances in the notional accounts plus the present value of annuities payable to current retirees. Measuring assets is trickier because most of what is contributed by current workers goes to pay for the benefits of current retirees, and thus is not available to be invested.

Sweden created a way of gauging assets in a pay-as-you-go system by multiplying current year contributions by the weighted average difference in ages of current workers and retirees. The result of this calculation provides a measure of the amount of pension liabilities that can be financed in the future based on today’s contributions and the country’s demographic profile. If a country has a high fertility rate and a pattern of long working lives and late, short retirements, then measured “assets” would be relatively high, implying that the system could afford a high rate of return on contributions. On the other hand, a country with low fertility and earlier retirements would have low measured assets and thus also a lower sustainable real rate of return.

After the financial crash of 2008, Sweden’s reformed system fell out of balance. To eliminate the deficit, workers’ notional accounts were credited with a minus 1.4 percent rate of return in 2010 and minus 2.7 percent in 2011. Retirees received similarly large reductions in their monthly pensions. In subsequent years, measured assets exceeded liabilities, which allowed the accounts to grow faster than the default rate and thus make up for the reductions that were imposed in the immediate post-crash years. The Swedish government expects the system to fully catch up this year to where it would have been had it remained in balance continuously over the past decade.

Sweden’s reformed system also automatically adjusts for longer lifespans. When a worker retires, the Swedish government converts the balance in his notional account into an annuity using an estimate of average remaining life span for all workers born in the same birth year — the so-called “annuity divisor.” Annuity divisors are used to calibrate how much can be paid on a monthly basis such that the balances in the notional accounts are depleted during the average remaining lifespan of all retirees born in the same year. Because younger retirees are expected to live longer than their older counterparts, they have larger annuity divisors, which means they will get a smaller monthly annuity than older retirees if they retire at the same age with the same balances in their notional accounts. Of course, younger retirees tend to have higher lifetime earnings than their older counterparts, which would offset the effect of their longer lifespans. Workers can also choose to retire at older ages, which would also increase their monthly pension payments.

Sweden’s system establishes a permanent and enforceable budget constraint on public pension spending. The rate of return earned on contributions is tied directly to the country’s evolving demographic and economic profile. The system’s architects also developed a system that allows needed adjustments to occur automatically, without the need for further legislation. (The Swedish parliament has enacted minor revisions to the reformed system to smooth out adjustments when there are deficits over longer periods of time.)

Every country with unfunded pay-as-you-go liabilities, including the United States, faces problems similar to those Sweden faced in the 1990s. These countries need to acknowledge, as Sweden did, that pay-as-you-go pensions must, in the end, be responsive to demographic and economic realities.


Dwayne ‘The Rock’ Johnson should put a ring on it — for his kids’ sake - Banter #310: Yascha Mounk on populism and the future of liberal democracy - AEI

Thu, 04/05/2018 - 13:40

Dwayne “The Rock” Johnson and Lauren Hashian recently announced they’re expecting their second child this spring — outside of marriage. Although cohabiting Hollywood couples present an unusually glamorous and attractive model of unmarried family life, their path into family formation is not as unusual as it once would have been. A study examining U.S. births between 2006 and 2010 found that almost one-in-four children (23%) are born to cohabiting couples.

Actor Dwayne Johnson and Lauren Hashian pose at the world premiere of Walt Disney Animation Studios’ “Moana” as a part of AFI Fest in Hollywood, California, November 14, 2016. Reuters

But theirs is not an example that should be imitated. It’s true that cohabitation has become a normal and accepted practice in the United States in recent years. While cohabitation was frowned upon in the age of Leave It to Beaver, today most adults will cohabit at some point in their lives. But even though cohabitation is increasingly appealing to adults, that doesn’t mean it is good when children are involved.

Cohabitation is appealing to many adults because it offers more freedom, more flexibility and less commitment than marriage. And it’s not without its own benefits — for the adults. An Ohio State study finds that young adults — especially women — get about as much of an emotional boost from living with a partner as they do from marriage. But these benefits do not extend to the growing number of children who are spending time in a cohabiting family.

That’s because for kids “less commitment” between the two people heading up their family often spells trouble. Cohabiting families in America, partly because they are characterized by markedly lower levels of commitment, are also characterized by markedly higher levels of instability. In fact, children born to cohabiting parents in the United States are almost twice as likely to see their parents break up by age 12, according to my research.

That instability matters because children are more likely to flounder when they face a revolving cast of caretakers and unrelated adults in their lives, particularly when those unrelated adults are men. Yet today, more than 40% of American children will spend time in a cohabiting household, either because they were born to cohabiting parents or because one or both of their parents moved in with an unrelated partner after the relationship between their two parents broke down. Such children are more likely to struggle.

How? Let’s compare the outcomes of two hypothetical, yet representative, children: Sarah, a child living with her mom and a cohabiting boyfriend who is not her dad, and Amanda, whose parents are married. In grade school and middle school, Sarah will be more than four times more likely to experience serious emotional problems than Amanda, according to research by the Urban Institute. Sarah is also twice as likely to get expelled, suspended or struggle in school. And when it comes to the threat of abuse, a child like Sarah faces a much higher risk than a child like Amanda. Children living in cohabiting families with an unrelated adult are about 10 times more likely to be physically, sexually, or emotionally abused, according to a 2010 report from the U.S. Department of Health and Human Services.

What can be done to improve outcomes for kids?

Well, for starters, policymakers could change regulations that penalize marriage, especially for couples with children who are cohabiting. Today, more than four in 10 families in America receive some kind of means-tested government assistance, from Medicaid to food stamps. Many of these families are headed by couples who receive more benefits if they are unmarried and don’t report their joint income. Federal and state governments should allow such couples to marry without losing their benefits — a move Minnesota recently made regarding cash welfare in the state.

But the answer isn’t entirely about public policy. We also need to change the culture. Cultural icons like the Rock are outliers among successful Americans: Most people who “make it” don’t do so as actors, but in much less glamorous jobs. And most successful professionals know the best way to start a family is to get married before having children. Today, the vast majority of college-educated couples have their children in marriage and stay married. They know that stable marriage is best for their kids, and act accordingly.

But this marriage mentality has lost ground among poor and working-class Americans, who are less likely to appreciate how important marriage is for their kids, and more likely to have children in a cohabiting union. Marriage has partly lost ground among the poor and working-class because men in these communities are having a tougher time finding decent-paying, stable jobs. But marriage has also lost ground in these communities because the larger culture rarely stresses the importance of stable marriage and often spotlights stars — from the Rock to the Kardashians — who flout it. That’s why it’s high time for our schools, media outlets and, yes, even Hollywood superstars to come around on a norm that is timeless:

It’s best to get hitched before having children.

So here is to hoping that the Rock and Lauren Hashian will tie the knot before baby number two arrives later this spring.

Related reading:

Trump tried going big on DACA. Now he should go small. - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 04/05/2018 - 12:00

President Trump’s tweet promising “NO MORE DACA DEAL” was an Easter gift to Democrats, letting them off the hook for their failure to seriously negotiate an immigration agreement. Rather than pulling the plug on any Deferred Action for Childhood Arrivals talks, Trump should offer Democrats a simple deal: He would agree to codification of President Barack Obama’s DACA action in exchange for funding for the president’s border wall.

Earlier this year, Trump extended Democrats a remarkable offer: Instead of simply granting legal status to current DACA recipients, he would agree to a path to citizenship for nearly 2 million “dreamers” — those who were brought to the United States as children through no fault of their own — if Democrats would agree to fund his border wall, limit chain migration and get rid of the visa lottery system. It was a bold move, one that earned him scorn from many in his own base. Democrats should have seized this opportunity. Instead, they rejected it and refused to make a serious counteroffer. Their actions showed they care more about mobilizing voters in 2018 with faux outrage than they do about helping actual dreamers become American citizens.

Trump tried going big, and it didn’t work. Now he should go small.

Obama’s executive action on DACA was far more limited than what Trump proposed for dreamers, offering no path to citizenship or even permanent legal residency. It simply shielded the dreamers from deportation, allowing them to remain in the United States to work and study. But Obama’s action was arguably unlawful because it bypassed Congress — the same reason the Deferred Action for Parents of Americans and Lawful Permanent Residents, or DAPA, program was declared unlawful by the courts. Codifying the order would indefinitely remove the threat of deportation for DACA recipients. It would get Trump the wall funding he so desperately wants. And it would save making a deal to provide a path to citizenship in exchange for reforms to our legal immigration system for another day.

Senate Republican Conference Chairman John Thune (S.D.) has legislation to do just that. Thune’s bill is a simple trade: It would extend the DACA program indefinitely, in exchange for $25 billion in border-security funding. This should be a no-brainer for Democrats. If they were to refuse, they would have to explain to dreamers why stopping Trump from building a wall is more important than protecting their ability to stay in the United States.

Historically, Democrats and Republicans have agreed that a nation-state needs to control its own borders. It is a national-security imperative, a law enforcement imperative and a fiscal imperative. Only in the age of Trump have Democrats taken opposition to border security to such an absurd extreme. They shouldn’t sacrifice the well-being of real people (DACA recipients) over their opposition to a symbol (the wall).

If Democrats rejected such an offer, it would expose the crass way they are holding the DACA recipients hostage for political gain. And if, by some miracle, Democrats did agree to such a deal, it would be a confidence-building step that might make further bipartisan action on immigration possible.

This should be a no-brainer for the president as well. Polls have shown that nearly 9 in 10 Americans want DACA recipients to stay, and Trump himself has repeatedly said he wants to find a way for them to remain in the country. So why would Trump choose to take responsibility for the failure to reach a DACA deal that would let them stay, rather than keeping the blame right where it belongs — with Democrats?

After Trump’s “no deal” tweet, Democrats were quick to blame Trump. Sen. Kamala D. Harris (D-Calif.) responded on Twitter by declaring “this Administration doesn’t want a solution for Dreamers. They want red meat for their base.” It’s ironic, but that is precisely the Democrats’ immigration strategy. Trump should call them on it, by making them an offer they can’t refuse.

$15 an hour for Mexican workers? ‘Export protectionism’ lives! - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 04/05/2018 - 11:00

Not content with earlier poison pills in the North American Free Trade Agreement negotiations (withdrawal votes every 5 years and “voluntary” dispute settlement), the Trump administration has blundered further into populism with a union-endorsed proposal to tie NAFTA rules of origin (ROOs) provisions to wage rates in Mexico of up to $15 per hour. (ROOs govern the percentage of content required to qualify for NAFTA tariff breaks.) Using trade agreements to dictate increased wages and stricter labor regulations has been a goal of congressional Democrats since the 1990s.

Indeed, some years ago Jagdish Bhagwati, the dean of US trade economists, coined a label for such proposals: “export protectionism.” As Bhagwati explained to the New York Times:

One type of protectionism is “import protection”: [where] you see competition growing from abroad, and you put up your barriers. But an alternative, if you did not want to appear to be protectionist, is to say foreign competitors don’t have “adequate standards” of all kinds. Or, as in the debate about the North American Free Trade Agreement in 1994, critics used to say, “Mexico’s democracy was not good enough.” All these are ways of saying, “This is all unfair trade, and therefore they have to raise their standards or we won’t trade with them.” The expectation of people who argue that way is that if we raise the standards, it will increase the cost of production, and accomplish the same result as high tariffs.

My AEI colleagues Michael Strain and Mark Perry have analyzed the unintended and deleterious consequences of mandated $15 minimum wages in the US. Just imagine how magnified these negative consequences would be in the Mexican economy where average wages are $3–4 per hour. We also have another stark lesson from Germany, where years of economic ruin ensued when West Germany mandated equal pay for East Germany after reunification — even though East German productivity was about one-third of that of West Germany. Mexican political leaders and well-trained economists are well aware of these examples, and will see this as an up-to-date example of the “export protectionism” that Bhagwati warned about.

Whatever its social and economic problems, Mexico has emerged as a robust, free-wheeling democracy — where the presidency has changed political hands repeatedly since NAFTA was ratified in 1994. While there are imperfections in its labor markets, all of the current candidates for the presidency this year have vowed to institute labor rights reform. (This will certainly be accomplished if Andres Manuel Lopez Obrador, the current leftist frontrunner, by 18 points, is the ultimate victor.) It’s strange (indeed hypocritical) for an administration that touts the inviolability of US sovereignty to so casually seek to dictate domestic wages in another sovereign country.

Finally, on the US side, President Trump seems to think he can win Democratic support for this bit of cynical populism. Republican presidents have tried this before — in 2007 the Bush administration gave in to Democratic congressional demands to “compromise” on labor rights in trade agreements. The result: the Democrats pocketed the cave-in and then refused to pass the pending free trade agreements. Be warned, Mr. President and US Trade Representative.

Learn more:

Implications of the CLOUD Act for the future of data - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 04/05/2018 - 10:00

Cloud computing allows information to be processed and stored via the internet from remote locations. The ability to use cloud computing has transformed how businesses and everyday users use computers and access data. But it has also created challenges for governments, law enforcement, and the international legal system. Because data can be stored on a cloud server physically located in a different place than where the end user is located, jurisdictional problems can arise when law enforcement seeks access to data located in a different country for investigations. However, a law recently passed by Congress should help resolve some of the challenges brought about by cross-border data flows.

Via Twenty20

Perhaps the most high-profile case concerning government access to overseas data is the “Microsoft Ireland” case that recently made its way to the Supreme Court. It was a dispute between Microsoft and the US Department of Justice (DOJ) “over how US prosecutors seek access to data held on overseas computer servers owned by American companies. The case involved Microsoft’s challenge to a domestic warrant issued by a US judge for emails stored on a Microsoft server in Dublin relating to a drug-trafficking investigation.” While Microsoft argued that US law enforcement should work with Ireland using the Mutual Legal Assistance Treaty (MLAT) between the countries, the DOJ argued that the US warrant had international reach “because the actions required for Microsoft to obtain the data could take place within the United States . . . [and] copying or moving the subject’s emails stored in Ireland isn’t search and seizure.”

Until recently, to gain access to data stored overseas, US law enforcement had to make a legal request in coordination with authorities in the other country using an MLAT, which spells out exactly how a legal investigation is conducted between two governments without the final individual agreement in each case needing to be approved by a judge. If the evidence resided in a country that doesn’t have an MLAT agreement with the US, a formal request would have to be made in court. But US law enforcement wanted to access information it needed without using an MLAT process that had proven to be complex and time consuming, taking months (or years) in the US and in other countries. Foreign governments have also had increasing concerns “regarding their inability to access data regarding their own citizens in the investigation of local crimes.”

See also:

The Clarifying Lawful Overseas Use of Data (CLOUD) Act, which was passed as part of the recent omnibus spending bill, is designed to help find solutions to the challenges of cross-border data collection by foreign governments and law enforcement. It updates the 1986 Stored Communications Act, giving executive branch agencies the ability to enter into “executive agreements” with foreign governments (if they meet a detailed list of requirements) to facilitate cross-border access to data for criminal investigations. As a result, Microsoft and the DOJ have both said that their Supreme Court fight is now moot, since the law says that a provider of electronic communication service shall comply with a court order for data “regardless of whether such communication, record or other information is located within or outside of the United States.”

The CLOUD Act helps answer content and country of jurisdiction questions by allowing data to be transmitted in both directions when such an agreement is reached. Law enforcement in both the US and other countries gain more efficient access to e-mails and other electronic communications (foreign governments can request information on non-US persons, but have to use the MLAT process for US citizens or residents).

The language from these corporate terms of service show how much variation there had been under the prior legal structure. The CLOUD Act will help bring parity to this process.

  • Facebook: “We disclose account records solely in accordance with our terms of service and applicable law. A Mutual Legal Assistance Treaty request or letter rogatory may be required to compel the disclosure of the contents of an account.”
  • Google: “On a voluntary basis, we may provide user data in response to valid legal process from non-U.S. government agencies, if those requests are consistent with international norms, U.S. law, Google’s policies and the law of the requesting country.”
  • Twitter: “U.S. law authorizes Twitter to respond to requests for user information from foreign law enforcement agencies that are issued via U.S. court either by way of a mutual legal assistance treaty or a letter rogatory. It is our policy to respond to such U.S. court ordered requests when properly served.”
  • LinkedIn: “Except in limited emergency situations, law enforcement agents seeking information about member accounts must be made through formal U.S. legal procedures, such as subpoenas, court orders, and search warrants. … Data requests from outside of the United States generally must be made through an official Mutual Legal Assistance Treaty (MLAT), letter rogatory, or through Irish legal process and procedures.”
  • Dropbox: “Dropbox currently requires data requests to go through the U.S. judicial system”.

Civil society continues to have long-standing concerns about protecting the privacy and rights to due process of citizens whose data is involved in these searches. But consider that under the prior rules, all requests for data made to a US company had to be managed by DOJ, and all data was reviewed by DOJ, even if they were not the intended end user of the data. Blanket requests for data could also be made, rather than requests for targeted information.

The new rules require that all surveillance orders must be for a specific individual for a fixed, limited duration that “last no longer than is reasonably necessary to accomplish its purpose” to limit any foreign governments’ access period as part of the agreement. Others have written in far greater detail on the privacy protections in the CLOUD Act, and it also requires countries entering into executive agreements with the US to adhere to international human rights obligations and commitments. These countries must pass a certification process that includes rigorous statutory criteria before they can be certified to request digital evidence.

The CLOUD Act allows governments to develop a clear framework to manage digital evidence investigative demands while removing conflicts of law and privacy standards. This law is a first step toward harmonizing privacy laws that can be applied across borders that incentivize clear and accountable privacy, civil liberties, and human rights protections. As we move toward upcoming legal challenges on privacy guidance with other countries, the CLOUD Act can show us how to migrate toward bilateral agreements that ensure a customer’s privacy rights are protected while abiding with local laws. Governments need to be incentivized to find a privacy framework that can work across borders and ensure customers that their privacy rights are protected.

Learn more:

The ‘mercantilist-in-chief’ still suffers from upside-down thinking about imports, exports, and trade deficits (‘stuff surpluses’) - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 04/04/2018 - 19:26

We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!

— Donald J. Trump (@realDonaldTrump) April 4, 2018

When you’re already $500 Billion DOWN, you can’t lose!

— Donald J. Trump (@realDonaldTrump) April 4, 2018

We’ve heard for years now from Donald Trump about how China has perpetrated one of the “greatest thefts in the history of the world” when it comes to trade with the U.S. His latest Tweets today (above) claim that: a)”We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S” and b) “When you’re already $500 Billion DOWN, you can’t lose!” Once again, the “mercantilist-in-chief” demonstrates his uninformed and “upside-down” thinking about trade and trade deficits.

As Milton Friedman explained back in the 1970s (italics added):

In the international trade area, the language is almost always about how we must export, and what’s really good is an industry that produces exports, and if we buy from abroad and import, that’s bad. But surely that’s upside-down. What we send abroad, we can’t eat, we can’t wear, we can’t use for our houses. The goods and services we send abroad, are goods and services not available to us. On the other hand, the goods and services we import, they provide us with TV sets we can watch, with automobiles we can drive, with all sorts of nice things for us to use.

The gain from foreign trade is what we import. What we export is a cost of getting those imports. And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.

This carries over to the terminology we use. When people talk about a favorable balance of trade, what is that term taken to mean? It’s taken to mean that we export more than we import. But from the point of our well-being, that’s an unfavorable balance. That means we’re sending out more goods and getting fewer in. Each of you in your private household would know better than that. You don’t regard it as a favorable balance when you have to send out more goods to get fewer coming in. It’s favorable when you can get more by sending out less.

As Don Boudreaux and Daniel Klein explain (bold added):

President Trump promises Americans “good trade deals.” But isn’t it a good trade deal for Americans to get stuff from abroad, to use and enjoy, in an amount larger than the value of the stuff that Americans give up? That is an in-kind surplus! But Trump and others prefer to call it a trade deficit.

“Trade deficit” is one of those language traps that we’ve sadly fallen into. It is defective language that spawns deficient thinking. Only by recognizing the defectiveness of the term “trade deficit” can we hope to reduce the damage.

As I explained last summer (revised to focus specifically on China):

It’s an important point to realize that if you think about America’s “trade deficit” and look carefully at “who, on net, ends up with the most stuff (goods)” you’d conclude that what is typically and pejoratively called a “trade deficit” by Trump and others is actually a “stuff surplus.” That is, if you look at who ends up with the most stuff from international trade on net, America’s so-called “trade deficit” with China last year of $375 billion was actually, and perhaps more accurately, a $375 billion net inflow of goods or a “goods surplus” (see chart above). Specifically, American companies purchased $506 billion worth of merchandise from Chinese producers, and Chinese firms purchased $130.4 billion worth of goods and services from American producers, leading to a $375.6 billion “goods or merchandise surplus” (or an “in-kind surplus” according to Don and Dan’s terminology above) for the US when measured by who actually ends up with (and enjoying) the stuff.

If anybody is getting “killed,” “raped,” “crushed” or “hosed” by America’s trade with China, our largest goods trading partner, you could make a stronger case that China is the one getting “killed” much more than Americans. After all, China uses its scarce resources and labor to build washing machines, smartphones, TVs, computers, automobiles, furniture, sporting goods, footwear and clothing, but it’s Americans who got to enjoy a $375 billion net inflow of those goods last year that weren’t enjoyed by consumers in China. Over the last decade, we’ve enjoyed a cumulative “stuff surplus” with China of more than $3 trillion, and yet hear Trump incessantly describe America’s accumulation and enjoyment of trillions of dollars in net merchandise from China as “theft”?

Bottom Line: If you correct Trump’s “upside-down thinking” and apply Friedman’s insight that the gain from trade with China is what we import (not export), America enjoyed a large $375 billion annual “stuff surplus” or net inflow of goods from China last year. That is an outcome that should be celebrated, not condemned! Contrary to Trump’s upside-down thinking about trade and speaking in his distorted language, it’s actually the US that has perpetrated the “greatest theft of merchandise in the history of the world” – totaling to more than $3 trillion in accumulated “stuff surpluses” over the last decade representing the amount of goods the US has “stolen” from the Chinese people since 2008!


Analytics of wealth redistribution through fuel-economy regulation - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 04/04/2018 - 19:00

The Environmental Protection Agency announced on Monday that it and the National Highway Traffic Safety Administration would reinstitute the mid-term evaluation of the greenhouse gas (GHG) emission standards — the fuel-economy rules — for model-year 2022-2025 light-duty vehicles.

That mid-term review was truncated by the Obama administration a few days before leaving office. Amid the tiresome manifestations of environmentalist grief that have followed, one central truth has been ignored: Every analytic argument in favor of the fuel-economy rules is fatally flawed.

Reductions in GHG emissions:

Proponents of the Obama fuel-economy standards claim that the rules will reduce GHG emissions by 6 billion metric tons. That figure actually is for vehicle model years 2012-2025, but never mind. Annual worldwide GHG emissions are about 49 billion metric tons; using the EPA climate model, the temperature effect of that cut in GHG emissions would yield a temperature reduction in 2100 of 17 one-thousandths of a degree. (The standard deviation of the surface temperature record is about 11 one-hundredths of a degree.) How much is that worth?

Reduced dependence on foreign oil:

Put aside the massive change in U.S. fossil-fuel import/export trends attendant upon the recent increase in domestic fracking operations. That the use of imported oil somehow is “bad” is a Beltway perennial, driven by an assumption that fewer imports yield a reduction in exposure to the effects of international supply disruptions, or perhaps to embargoes.

However popular, that argument is silly. There can be only one price in the world market for oil (abstracting from differences in transportation costs and other such minor complications). A supply disruption — the continuing decline in Venezuelan production is a good current example — yields the same price effects globally, regardless of whether a given economy imports all or none of its oil; merely consider those price effects in Japan and the UK, respectively.

Many believe that it was the 1973 Arab OPEC oil “embargo” that created the sharp price increases that year, along with the gasoline lines and other market dislocations. Nope.

It was the production cutback by Arab OPEC that raised international prices; and it was the U.S. system of price and allocation controls that created the queues and other market distortions. Note that there was no embargo in 1979, but there was a production cutback in the wake of the Iranian revolution, and the U.S. again imposed price and allocation regulations. And, once again, there were queues and market distortions. The “reduced dependence” argument in support of fuel-economy rules is wholly incorrect.

The stupidity of consumers:

The Obama EPA/NHTSA claimed (Table III-8) that the fuel-economy standards will cost vehicle consumers $1800 up front, but will save $5700 in fuel costs (in present value terms), yielding a net benefit of $3400. At a narrow level, that conclusion is inconsistent with standard economic analysis, as it assumes a growth path for gasoline prices ($3.87 in 2025) that rises at a rate faster than the market rate of interest. (Respectively: 5.5 percent and about 3.85 percent.)

Since changes in gasoline prices are driven almost entirely by the price of crude oil, except in the very short run in the face of unexpected refinery outages and the like, that assumption about the price path implies less oil production now in favor of more several years down the road, so as to take advantage of that higher rate of return to holding oil. Why did the Obama EPA/NHTSA fail to ask whether that was happening?

More generally, why is it that the proponents of the fuel-economy standards assume that market forces somehow are incapable of seeing the higher future fuel prices that the bureaucrats predict? Are consumers and producers stupid? Is it really the case that markets are more myopic than politicians driven by the imperatives of the looming election cycle? Merely peruse the history of U.S. government projections for the price of oil to see whether it is the bureaucracy or market futures prices that are to be trusted. More generally: Why should we believe that bureaucrats and politicians are so smart?

It is far from irrelevant to note that in the context of the eternal quest by government to expand its power at the expense of individual freedom, the presumption of market rationality is closely analogous to the presumption of innocence for those accused of crimes, not because we believe it to be true in any given case, but because the opposite presumption leads toward a system of totalitarianism.

The arguments offered in support of the fuel-economy standards are so weak that it is easy to conclude that there is a deeper political agenda underlying the leftist rage at the decision to reinstitute the mid-term review.

Notice that the regulatory system allows auto manufacturers failing to meet the fleet average requirements to buy credits from others. In 2016, for example, Fiat Chrysler purchased 21.9 million credits, while Honda sold 20.7 million. This system means that purchasers of SUVs and trucks subsidize buyers of small autos and electric cars; that is, urban consumers receive a transfer from rural and suburban drivers. Is it an accident that this transfer subsidizes blue-state constituencies at the expense of red-state ones? Would the left support the fuel-economy standards if the reverse were true?

That subsidy would grow as the fuel-economy requirements tighten. That is all one needs to know to understand why California politicians are vociferous in their demand that the EPA continue to give that state a waiver to impose rules stricter than the federal ones, so as to force that stricter standard upon the entire nation. This is despite the fact that GHG emissions have nothing to do with the ground ozone problem afflicting California, and despite the preemption under the Environmental Policy and Conservation Act of state regulations “related to” fuel economy.

The Trump administration is to be commended loudly for beginning the process of depoliticizing energy and environmental policy.

President should heed market warning on trade war - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 04/04/2018 - 18:47

Everyone knows that people in glass houses shouldn’t throw stones. Now it seems that we are about to learn the hard way that people living in bubble economies in both the United States and China should not engage in trade wars.

This is especially the case when there is the all-too-real risk that the whiff of a trade war could trigger the bursting of those bubbles both at home and abroad. Were that to occur, it almost certainly would have untoward consequences for the U.S. and global economic recoveries.

President Donald Trump, flanked by Vice President Mike Pence, listens to remarks by Commerce Secretary Wilbur Ross before signing a memorandum on intellectual property tariffs on high-tech goods from China, at the White House in Washington, March 22, 2018. Reuters

Contrary to President Trump’s assertion that trade wars can be easily won, the experience in the 1930s with such wars would suggest otherwise.

Indeed, there is an overwhelming consensus among economists that the trade war initiated by the U.S. with the 1930 Smoot-Hawley Act contributed significantly to the deepening of the global economic depression. That experience turned out to be a negative sum game for all countries with no economy spared from its ravages.

The timing of President Trump’s initiation of a trade war now, by slapping import tariffs on steel and aluminum as well as by taking specific trade measures against China, would seem to be particularly unfortunate.

It is occurring at the very time that the world economy is experiencing a massive asset and credit price bubble wrought by years of ultra-easy monetary policy by the world’s major central banks.

It is not only that global equity valuations still remain at lofty levels experienced only three times in the last 100 years; or that housing bubbles characterize many important economies, including Australia, Canada, China, the United Kingdom and parts of the United States.

It is also that global sovereign bonds still have historically low yields and credit is being mispriced in many markets. Examples of such credit mispricing are the U.S. high-yield market and the emerging market corporate debt market where very low interest rates do not nearly reflect default risk.

Before taking further action that might ramp up the risk of an all-out trade war, President Trump might want to reflect on the more than 10-percent decline in the U.S. equity market that has occurred since the idea of steel and aluminum tariffs were first seriously broached at the end of January.

That decline has wiped out $3 trillion in wealth, which is the equivalent of around 15 percent of GDP. It is difficult to imagine that even Peter Navarro, the administration’s biggest trade hawk, can possibly think that the advantages to the U.S. from import tariffs can remotely approach such a magnitude.

Before the Chinese government takes pleasure in the damage that President Trump’s tariffs might have inflicted on the U.S. economy, it might want to reflect on the strong likelihood that China will be among the largest potential losers of any trade war.

This is partly because being a relatively open and export-dependent economy, China’s economic health depends very much on a prosperous U.S. and world economy.

More importantly, it is also because the Chinese economy is in the midst of a massive credit and housing price bubble of its own. Indeed, over the past eight years, Chinese credit to the non-government sector has increased by more than 90 percent of GDP.

This is an amount that well exceeds the pace of credit increase preceding Japan’s lost decade in the 1990s and the U.S. housing bust in 2007. One would think that the last thing that China needs as it copes with the bursting of this bubble is an unfriendly global trade environment that would constrain its exports.

A glimmer of hope is that if the U.S. and Chinese governments might be minimizing the cost of a global trade war, global financial markets are not, as underlined by the market’s recent swoon.

One has to hope that President Trump heeds the market’s loud message and somehow finds a way to defuse the trade tensions that presently characterize U.S.-Chinese trade relations.

However, judging by his economic advisors and the many errors of economic judgment that the president has made this past year, I am not holding my breath.

Still not serious about China trade - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 04/04/2018 - 17:50

Is the Trump administration more competent than Wall Street traders? In August, the administration announced an investigation of Chinese attempts to buy, coerce, and steal foreign technology. The actions it has taken so far are inadequate and China says it will mirror some of them. The stock market has reacted as if all this is a shock. The administration, if it’s serious, better be prepared for much more.

US President Donald Trump, flanked by Commerce Secretary Wilbur Ross and US Trade Representative Robert Lighthizer, delivers remarks before signing a memorandum on intellectual property tariffs on high-tech goods from China, at the White House. REUTERS/Jonathan Ernst

Steps up to now should not have surprised anyone because where we are is clear. Subsidies-driven industrial policy and theft of US technology have been cornerstones of Chinese economic strategy since “opening up” began in 1979. Ending them completely might require a real war, not a “trade war.” Just blunting them requires sustained American counter-measures far stronger than what has been offered.

The US has listed 25% tariffs on $50 billion in imports from the PRC. It has filed a WTO complaint with regard to Chinese IP practices and pledged to more thoroughly vet Chinese investment. As the Trump administration claims, this is more than its predecessors ever did.

But Chinese investment in the US plunged on its own last year. The administration is absolutely right that the WTO has been ineffective in checking Chinese behavior. If American tariffs somehow wiped $50 billion off the bilateral trade deficit (they will do no such thing), the deficit would still be larger than it was in 2011. No one should expect any meaningful change in Chinese behavior due to what the Trump administration has announced to date.

A different, effective US action would have to be sustained for years. Just as an illustration, a 25% tariff on $50 billion in imports does not automatically halt the full $50 billion even in the long term. In the short term, buyers have an incentive to stick with known suppliers while they seek better alternatives, especially if talks to halt the tariffs are in play. Even a sustained, 100% tariff on $50 billion covers less than one-tenth of 2017 goods and services imports from China.

Against that, the PRC has been committed to heavy-handed industrial policy for decades, through the Asian and global financial crises. Cover your ears, S&P 500: the administration needs to have much more up its sleeve.

Sign up for The Ledger newsletter Expert analysis from AEI's Economic Policy scholars Also sign me up for AEI This Week, delivered every Saturday morning. Subscribe

If it is more serious than it has shown so far, the administration does have options. One is (too) simple: change $50 billion in imports hit by tariffs to $250 billion. Beijing can’t retaliate against $250 billion in American goods and services because total US exports to the PRC are less than $200 billion. Such a step would be driven more by the president’s focus on the trade deficit than the practices cited by the Section 301 inquiry.

A policy which creates the incentive for different Chinese behavior follows the logic in yesterday’s announcement by the US Trade Representative: “Trade analysts from several US Government agencies identified products that benefit from Chinese industrial policies, including Made in China 2025.” The list was then whittled down to minimize impact on our economy.

If you aim for a better Chinese omelette, you’re going to break a lot of eggs. Don’t whittle down the original list of benefiting products, include all of them. Tariffs on the full range of products connected to Made in China 2025 could cause the PRC to narrow its scope, while retaining what it considers most critical.

Better than targeting (many) more products would be directly targeting companies benefiting from subsidies and IP coercion/theft, while at the same time opening the door to moving them off the sanctions list when they no longer receive such benefits. This makes for clearer incentives for firms and might induce them to lobby the central government.

The biggest downsides of such an action are provoking greater PRC retaliation and putting good American partners in the crossfire due to diversion of tariffed goods to other markets as well as their roles in trans-Pacific supply chains. This would terrify global investors, but the administration could have announced such a strategy already (without immediately implementing it) and gives no indication of doing so.

What’s therefore more likely than a serious trade conflict is US-South Korea redux. Recall that President Trump threatened to withdraw from KORUS outright, a much bigger blow than the sanctions so far promised against China. Yet the US settled for comparatively minor concessions, the correct course of action with an ally.

The PRC is certainly not an ally but this kind of approach will work again, for better or worse. Xi Jinping will agree to throw the US a few bones, President Trump can say he got a better deal than Presidents Obama or Bush, the stock market will happily forget all about this, and the PRC will continue nearly all of its industrial policies including IP coercion and theft. Yay.

Learn more:


Theme by Danetsoft and Danang Probo Sayekti inspired by Maksimer