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North Korea was never serious about peace, and the regime’s recent execution proves it - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 07/13/2018 - 17:24

On April 25, 2018, 56-year-old Lieutenant General Hyon Ju Song stood trial at the House of Culture in Pyongyang, after which he was summarily executed by firing squad. His crime? Anti-Party acts in the form of making pronouncements of peace. The late general’s execution suggests at least one fact: There has been no strategic decision for peace by the North Korean regime.

North Korea’s leader Kim Jong Un listens to US President Donald Trump as they meet in a one-on-one bilateral session at the start of their summit at the Capella Hotel on the resort island of Sentosa, Singapore June 12, 2018. REUTERS/Jonathan Ernst

In a recent address, Hyon told the workers of the Sohae Satellite Launching Station that they would no longer “suffer and tighten [their] belts to make rockets or nuclear weapons.” This, apparently, remains a treasonous violation of Korean Workers’ Party beliefs. That alone might have jeopardized Hyon’s life, but he also violated the Ten Principles for the Establishment of the Party’s One Ideology System by sending food to these same workers and their families. In other words, by insinuating any sort of slowdown in military activity (never mind Kim Jong Un’s own declarations of freezing nuclear and missile testing), Hyon had become ideological poison to the regime.

Hyon’s execution is not simply abhorrent in its own right, it also reveals how deeply committed the Kim regime is to its weapons program, despite claims of the contrary. Indeed, North Korean ideology expressly calls for the ultimate reunification of North and South Korea, and the regime’s nuclear and missile programs are justified specifically for this purpose. If the regime was serious about denuclearization, Hyon’s comments would have been far from treasonous, and the rising lieutenant general might still be alive.

In its continued talks with North Korea, the US (and, by extension, its ally South Korea) must not forget that the regime’s singular purpose is to one day reunite with the South under the DPRK flag. One lone summit between two leaders does not erase decades of Juche ideology, notably North Korean founder Kim Il Sung’s Three Principles of Unification, a mainstay of North Korean political thought even today. While Dear Respected (the Little Rocket Man’s North Korean moniker) will continue to pay lip service to a narrative of peace, unity, and denuclearization, his true aim is to bide time, release his country from the shackles of sanctions, and strengthen his military.

If you need more convincing, just remember that in North Korea, saying otherwise will get you killed.

Olivia Schieber is the Program Manager for Foreign and Defense Policy Studies.

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Scarlett Johansson vs. political correctness - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 07/13/2018 - 15:58

A fascinating series of controversies erupted this week, and they had nothing to do with Donald Trump or Robert Mueller.

Business Insider ran a column defending actress Scarlett Johansson from fierce criticism for her decision to play a transgender man in a forthcoming film called “Rub and Tug.” The writer, Daniella Greenbaum, took the apparently outrageous position that actors can pretend to be people they are not. Or, as Greenbaum put it, “Scarlett Johansson is the latest target of the social-justice warrior mob. The actress is being chastised for, well, acting.”

Ironically, Greenbaum’s column rendered this claim outdated, because by writing that, Greenbaum herself became an even more recent victim of the social-justice-warrior mob. In response to complaints, internal and external, Business Insider pulled the column from its website and invented some new editorial standards to justify the decision.

So now we have three separate controversies: (1) Is it okay for non-transgender actors to play transgender people? (2) Is it okay for people to defend said actors? (3) Is it okay for publications to retroactively memory-hole said defenses?

Let’s look at them in order.

The answer to the first question is at once simple and complicated. As a matter of law and common sense alike, of course actors can pretend to be anyone. The law is clear-cut (for now at least), and common sense tells us that this is in fact what actors do for a living.

But to be fair to the other side of the argument: Such complaints are nothing new. Whenever some minority group fights its way into social acceptance — and into the sort of political and cultural power that comes with such acceptance — these controversies emerge. White actors playing African Americans is culturally taboo today, and rightly so. But one of the reasons such minstrel-show spectacles are in poor taste is that historically they were a form of racist mockery and disrespect.

That’s not applicable here. Trace Lysette, a transgender actress who plays a transgender character on the Amazon series “Transparent,” protested the casting of Johansson not because the character was an insult to the transgendered. Lysette was offended that Johansson was taking work from people like her.

Lysette complained on Twitter that “not only do you play us and steal our narrative and our opportunity but you pat yourselves on the back with trophies and accolades for mimicking what we have lived . . . so twisted. I’m so done.”

This strikes me as silly. Not long ago, simply calling attention to the existence of the transgendered was deemed a victory for their cause. In 1999, Hillary Swank received massive critical praise — and an Oscar — for playing a transgender woman in “Boys Don’t Cry” (a movie I despised). No one complained about stolen narratives then. (By the way, did anyone complain when Charlton Heston, an Episcopalian, stole the most famous Jewish narrative of all time by playing Moses?)

But we have passed the awareness-raising phase, and now the issue is about cultural clout. The transgendered are following in the footsteps of other identity-politics groups that want to use their cultural power to carve out more roles for their members. They’re free to do so, of course. But it’s worth noting that it is hardly outrageous for a movie studio to prefer an international movie star like Johansson over an obscure transgender actor.

Regardless, this cultural power play is the real issue, and it is the only relevant prism for questions two and three.

There’s nothing remotely beyond the pale about what Greenbaum wrote. Her sin was simply to point out the obvious, which is often considered a great offense without actually being offensive. That is why what she calls the “social-justice warrior mob” turned on her and Business Insider.

Again, no laws were broken. Greenbaum has a right to say what she believes to be true, and Business Insider has every right to publish (or unpublish) what it wants.

If Business Insider had simply opted to reject the piece at first, that would have been fine, and it would have spared itself a lot of embarrassment. Instead, its editors opted to cave to political pressure. Its surrender to the mob tells us a lot about the power of the social-justice-warrior mob and the weakness of Business Insider’s editors.

More evidence student borrowers prepay their loans - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 07/13/2018 - 13:29

A new game show aims to help student borrowers pay off their loans ahead of time. While the vast majority of former students will not be contestants, most borrowers will still fully pay off their loans before they are required to do so, according to a new report from the Consumer Financial Protection Bureau (CFPB).

Using a sample of borrowers who paid off a student loan between 2013 and 2017, the report finds that many borrowers pay their loans on a steady schedule, but then make one giant final payment to clear their balance months or years before the scheduled repayment term of the loan expires.

Source: CFPB

Among those who pay off their loans within five years of the scheduled payoff date, the median borrower makes consistent monthly payments of around $50 in the months leading up to the final payment. The final payment, however, is nearly $400 for the median borrower. Borrowers pay off almost all loans (94%) with a final payment larger than the scheduled monthly payments they are required to make.

A number of factors could explain this trend. A borrower may see her balance approaching a level at which she can pay it off all at once, which tempts her to clear the debt with a lump-sum payment. Similarly, a borrower whose financial circumstances suddenly improve—say, by transitioning to a higher-paying job—may use the windfall to pay off her student loan debt.

One of CFPB’s preferred explanations is that borrowers pay off their student loans in anticipation of buying a home, in order to appease mortgage lenders who might look askance at other large debts. This phenomenon is real but probably has limited power as an explanation for early, lump-sum student loan payoffs. Borrowers who made large final payments were just 0.7 percentage points more likely to have a mortgage a year after fully repaying their student loans, relative to a baseline.

The CFPB report is consistent with existing evidence showing high rates of prepayment on student loans. Around 70% of all borrowers clear their outstanding balances within ten years of entering repayment. Among borrowers with less than $10,000 in debt, the ten-year payoff rate jumps to more than 80%.

While there are certainly real problems in the world of student loans, including high default rates and a minority of borrowers with six-figure balances that will cause headaches for taxpayers, those problems should not obscure the reality that most student borrowers appear to be doing fine. Those who call on Congress to “do something” about student debt should remember this.

Straight up conversation: Nat Malkus on what’s next for teachers’ unions after Janus - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 07/13/2018 - 12:00

My friend and colleague Nat Malkus has been tracking the implications of the Janus v. AFSCME Supreme Court decision for quite a while. Given that, I was curious to hear his take on the case, what’s gotten missed amid the frenzied aftermath, and what comes next. Here’s what he had to say.

Rick Hess: Nat, the Janus case obviously has garnered a lot of attention, but, for those who may not have followed it closely, why was the case important?

Nat Malkus: Sure thing, Rick. Janus was important because it brought to the Supreme Court a constitutional question—whether unions can charge agency fees, or partial dues, to non-members. It had all the ingredients for an interesting legal argument—a longstanding precedent, a constitutional claim, and a divided court—but the real buzz came because without agency fees, unions stand to lose a lot of members in the states where they are strongest.

RH: Can you explain the basics to someone who isn’t entirely clear on just what the constitutional issue is?

NM: State and local governments want to negotiate one contract for a group of employees—such as teachers—because one contract is simple and it saves time. So they bargain with a single “exclusive representative,” typically a union, through collective bargaining. Of course, employees aren’t forced to join the union, but in some states those who chose not to join were still required to pay agency fees. The Janus case focused on these agency fees, which are basically partial dues some states compel non-members to pay public-sector unions for contract representation. The Supreme Court’s 1977 Abood precedent allowed these fees—though they are not allowed to include political activities—to prevent employees from “free-riding,” or getting representation for nothing. Mark Janus argued that Abood was unconstitutional, and that mandatory agency fees forced him to subsidize a union that he disagrees with. More to the point, he argued that union bargaining itself was political speech, meaning agency fees violated non-members’ First Amendment rights of free speech and association.

RH: Given all that, is there anything that a lot folks may have missed in the fevered early coverage of the decision?

NM: In all the hype about the crippling blow to unions, it’s worth highlighting that this ruling will hit unions hard, but primarily in the 22 states that, until recently, allowed agency fees. These agency fees have kept union membership high in these states. For instance, about 45 percent of teachers work in agency-fee states, and the nation’s largest teachers’ union, the National Education Association, has almost 70 percent of its active members in these states. Janus will have a direct impact on these union stronghold states.

RH: You mentioned that 22 states had agency fees. What happens in the other 28?

NM: Janus won’t directly impact them, but its indirect effects could be significant. All state affiliates get grants from NEA headquarters, but grants to states without agency fees have been much larger—as much as 30 percent of some state affiliates’ budgets. Essentially, NEA grants take funds from strong, agency-fee states to prop up weaker ones. If Janus brings major cuts to stronger union states, grant support for weaker states will dry up quickly.

RH: What about individuals? What does Janus mean for them?

NM: For individuals, agency fees matter because they change the costs of union membership. Take a teacher in California, where California Teachers Association dues run about $1,000 a year, while agency fees were around $650. The real cost of membership was $350—the difference between full union dues and the agency fees they had to pay. With Janus doing away with the fees, the real cost of membership jumps to the full price of dues, $1,000 a year, instead of $350. New teachers face a much higher price to join, and existing teachers could save real money by leaving the union.

RH: Do you think the Supreme Court got this one right?

NM: You don’t have to be a constitutional scholar to see that agency fees were compelled. The question is whether you can separate unions’ bargaining from their political activity. Bargaining certainly involves political decision making, so I am sympathetic with the ruling that fees are compelled speech. I can see disagreement around the decision, but I think it was right. That doesn’t mean the result is balanced—it’s a major loss for unions.

RH: Are there any important wrinkles to the decision that a lot of people don’t necessarily yet appreciate or understand?

NM: Everyone was expecting this verdict, but there is an unexpected part of Justice Alito’s opinion that takes it further. The opinion requires that unions get affirmative consent before any fees are deducted from an employee’s paycheck. Now that unions have to get active assent, they are limited in what they can do to stem the bleeding moving forward. This opt-in provision supercharges the effects of Janus.

RH: What did you think of Justice Kagan’s dissent in Janus? Were there points that you found especially compelling, surprising, or less convincing?

NM: It was, like the majority opinion, mostly what I had expected, a vigorous dissent in favor of stare decisis—retaining precedent—and a focus on how disruptive the ruling would be. I was struck by how Kagan focused less on the First Amendment issues and more on the “large-scale consequences” of the ruling. The scale cannot be denied, but it seems like a weak rebuttal to a First Amendment argument. She also painted the majority as activist judges, saying that they are unilaterally overriding citizens’ choices. I found that ironic, given that individual choices to support unions or not remain fundamental to the majority opinion.

RH: Looking ahead, what’s your take on what the verdict is likely to mean for elections, debates over school choice, and other areas where unions have been influential?

NM: It weakens a key ally for Democrats, which is a liability in terms of reduced revenue and boots on the ground, but it also opens some flexibility for them to stray from union positions. In the long run, if unions face significant losses, it could be reflected in blue-state elections, but more so in the primary rather than general election phases. Teachers’ unions are particularly active and organized in blue states, and that means controlling who gets on the Democratic ticket. Where union influence recedes, Democrats who diverge from union priorities, education-related or not, may get more traction in the primaries, after which they face favorable odds in the general election. School choice may be too much of a hot-button identity issue to move quickly. In the short-run, I think today’s identity politics are linked firmly enough to school choice that the politics won’t shift dramatically.

RH: And what’s this mean for the unions themselves? How should we expect them to change, if at all?

NM: That’s the big question. They will shrink, substantially, which means they will have to do more to keep membership high, and do it with less revenue. Still, the reactions will vary with contexts. Some affiliates will double down on their traditional identities, appealing to their base and seeking protection from allied state legislatures. That track may resign them to losing their least-committed members—those who stayed only because of the fees. One alternative for unions may be to create a bigger tent by deemphasizing more remote political concerns and refocusing their message on local teachers’ priority issues. With the heightened price of membership, unions that can make a clear value proposition to teachers by being locked-in to local concerns—to be truly bottom-up organizations—may hold up better, particularly in purple states. In either case, affiliates that shrink could see a resurgence in membership if states and districts seek to pare down pay and benefits over time, giving unions salient issues to recruit around.

Any of those cases could be good for teachers because they need representatives that represent them well, and Janus could push unions to do that. Of course, some local unions will shrink to the point that they are unable to adequately represent teachers; where that happens, teachers and unions could be on the losing end of this decision.

RH: Last question: What do you think NEA and AFT membership will look like five years from now?

NM: It’s hard to say, but over the next two years, the NEA projected ten-percent losses and the United Federation of Teachers predicted 20- to 30-percent declines. Both predictions came before they knew the opt-out aspect of Janus. Five years out, I think nationwide declines will approach 40 percent, mainly from agency-fee states, but with a secondary effect on non-agency fee states that will lose headquarters’ support. But it’s anyone’s guess, and I am collecting them with a widget we set up at AEI.org, which can give us a wisdom-of-crowds estimate. We will not only record predictions, but email folks years down the line to tell them how close they were. I hope your readers will pitch in with their predictions and give us a group guess at the answer to that question.

This post originally appeared on Rick Hess Straight Up.

New CEA report highlights welfare’s disincentives, and suggests how to fix them - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 07/13/2018 - 11:00

The president’s Council of Economic Advisers (CEA) has a new report out on the relationship between large welfare programs and work, which echoes many of the themes I learned while administering such programs in New York City.

First, it identifies a fairly large group of non-disabled working age adults who receive various government benefits but do not work at all, though they could — and if they did, they would be significantly better off.

As the CEA report emphasizes, self-sufficiency is the goal, and work requirements help to get people there. Via Twenty20.

The number of such people in Medicaid, for instance, is about 9.1 million. What’s more, 55 percent of non-disabled Medicaid recipients ages 18–49 and without children do not work at all, a higher rate of non-work than for adults with a child between the ages of 1 and 5. Think about that for a moment — Medicaid recipients who are parents of children under 6 are working more than Medicaid recipients who are not parents at all. And if just half those 9.1 million people rejoined the labor force, the frustratingly low labor force participation rate would spike to 65 percent — our highest rate in eight years. (Every additional million people in the labor force would increase the rate by 0.4 percentage points.)

The numbers are just as stark when it comes to the Supplemental Nutrition Assistance Program (SNAP, or food stamps), which provides benefits to more than 10 million non-disabled working-age adults who do not work at all. A staggering 60 percent of SNAP recipients ages 18–49 with no children do not work, a rate 3 percent higher than the rate of non-work for SNAP recipients with infants.

These statistics mean that even in good economic times, with jobs available, millions of Americans have dropped out of the labor force and are being supported by a safety net which makes little effort to help them escape poverty by getting a job.

The CEA report points out a shortcoming of work subsidies like the earned income tax credit, which are frequently cited as useful tools to draw people back into the labor force. The problem is that by only providing subsidies or rewards for work through the EITC — and not requiring work in other programs – we don’t really reduce the disincentive to join the labor force or work more hours. Increases to such programs have led healthy adults to “become increasingly reliant on welfare” while experiencing “stalled employment growth, in part because of the disincentives welfare programs impose on increasing one’s own income.”

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High marginal tax rates formed by the combination of safety net program benefits and wage subsidies may be keeping people from taking a job or working more hours. Work requirements would provide the necessary nudge to help people leap across the gap between what benefits provide and what can be earned through work.

The report makes clear that when we did try work requirements, in the wake of the 1996 welfare reform law, the results were positive. Welfare reform “provides evidence that applying work requirements to existing welfare programs can increase employment and reduce dependency,” and the report notes that TANF’s work requirements produced more work (a 10 percent increase in the employment rate of single mothers), less poverty (a 20 percent decline), and better outcomes for children, while not increasing the extent of deep or severe poverty.

But the best aspect of the report is that it shows how work requirements need to be applied to a subset of those on Medicaid, SNAP, and housing assistance — adults who are not disabled, not caring for a child under 6, and not working at all. To leave this group trying to survive without either income from earnings or the dignity that comes from employment is not compassionate: It does more harm than the benefit provided by a health insurance card or a debit card for food. What would do the most good is consistent work for wages — but it can be difficult to make the leap off assistance programs and into self-sufficiency. As the CEA emphasizes, self-sufficiency is the goal — and work requirements help to get people there.

The report is clear: Our welfare system has made tremendous strides in the fight against material hardship, but has discouraged self-sufficiency in the process. As a former administrator of welfare programs, it’s encouraging to hear that others share my belief that government agencies can do the equivalent of walking and chewing gum: They can both provide financial aid and help people get to work.

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Intensifying partisanship is aiding the authoritarian threat - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 07/12/2018 - 21:01

The authoritarian threat is real and growing. Whether it is hard power, global interference operations, or the subversion of elections, the evidence is clear from Australia, Ukraine, the United States, and elsewhere — democracy is under siege.

What are we, the West — those lovers of liberty, democracy, freedom, whatever one wants to call it — going to do about it? Increasingly, the evidence says nothing. That evidence is not some sophisticated dataset or experimental polling design; it is the (frankly) grotesque political polarization of free societies.

The decade-long deepening of partisanship and societal divisions in America have severely reduced the credibility of US foreign policy decisions. Sputnik/Mikhail Klimentyev/Kremlin via Reuters

Even if President Trump chose to condemn Putin’s authoritarianism and anti-Americanism in Helsinki, it wouldn’t make much of a difference. The decade-long deepening of partisanship and societal divisions in America have severely reduced the credibility of US foreign policy decisions.

A long line of political science research on foreign policy signaling connects domestic politics — like extreme partisan polarization — to the credibility of foreign policy decisions. The thinking goes that when a democracy (in this case, the US) expresses a foreign policy preference to a dictatorship (Russia), the dictatorship first determines how credible that signal is. In other words, will the US follow through with its stated policies, whatever they may be? If it does, what are the chances the US will reverse its policy? In the US’s current political environment, the odds of enforcing coherent, long-term policies that require any authority beyond that of the White House’s increasingly eccentric occupant (and aspiring occupants) seem slim.

If Trump makes any promises in Helsinki, the first thing Putin will observe is a US government facing uncertain elections in November. The results of the US election will be forecasted and broadcasted to the world from now to November 2nd — because that’s what a free and fair election looks like. Next, Putin will examine American society because, in democratic societies, popular support will be necessary for the government to act decisively. Information on Americans’ opinions is easily available to anyone.

Polarized, democratic societies stuck in an increasingly crass navel-gaze, like the US, have little resolve to follow through. Dictators can easily detect this. Observing America’s deep divisions, Putin will deem an American response to a plausibly deniable provocation, such as interference in free elections (or further irredentism), as highly unlikely and will call the US’s bluff (assuming there is a threatened response in the first place).

This logic applies to all international relations between dictatorships and democracies, and it is partly why China, Russia, North Korea, and Iran are getting away with murder. They have the tactical advantage of an artificial monopoly on political power. Their governments force political consensus at the barrel of a gun.

The strategic advantage of democracy is that opposing sides can agree to disagree and work together in innovative, flexible, and unifying ways that the artificiality of authoritarian foreign policy cannot defeat. But in these polarized times, the freedom to disagree is also a soft spot.

American thought leaders, politicians, and everyday families should reflect on their partisanship in this context. Turn off the cable television, take a break from social media, and have some tough, constructive conversations about how to fix things with those whom we adamantly disagree. Putin and his ilk will be taking note.

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It’s time for Republicans to end Trump’s trade war - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 07/12/2018 - 19:56

America’s protectionist president has chosen escalation. And now so should the Republican-controlled Congress.

President Trump’s foolish trade war could easily send America’s accelerating economy into the ditch. But Trump, against all evidence, doesn’t seem worried. That leaves it up to his party to take action against its leader and for its supposed free-market principles.

If you’re a super-optimist, the GOP pushback has already begun. On Wednesday, a day after the Trump administration’s announcement that it plans to hit China with 10 percent tariffs on a further $200 billion in Chinese goods, the Senate voted 88-11 in favor of a GOP-authored provision that would give Congress a role when the president tries to levy tariffs on national security grounds under Section 232 of the Trade Expansion Act of 1962. That’s the section the Trump administration has cited as legal rationale to levy 25 percent tariffs on steel imports and 10 percent tariffs on aluminum imports.

Free traders should keep their expectations low, however. The provision was non-binding, and it wouldn’t have passed without Democratic votes. Only 39 Republicans voted for it, and at least one GOP senator, Thom Tillis of North Carolina, said he would not actually vote for the resolution if it had the force of law; he just wanted to support a non-binding signal.

But it is long past time for signals and symbolic measures. After all, Trump was barely in office when he yanked America from the Trans-Pacific Partnership. And while the 2017 Trump agenda centered on health care and tax cuts, 2018 has been dominated by Trump’s trade conflict with, well, pretty much everybody. This is exactly what candidate Trump promised, although too many in Washington and Wall Street bet that Trump’s 40-year hostility to free and open trade was really just empty rhetoric. How wrong they were.

If the GOP is really the pro-growth party of free markets, it must go beyond its squishy, cowering opposition to Trump’s trade war and start pushing actually binding legislation requiring congressional approval before levying tariffs using that national security justification. Congress should begin to reclaim the trade authority it has spent decades giving away to the executive branch. Such legislation has been introduced in the House and Senate by Republicans. But its chances look dicey at best. House Speaker Paul Ryan told reporters Wednesday that while he opposes tariffs, he doesn’t want “to hamstring the president’s negotiating tactics.”

What negotiation? According to Kevin Brady, the GOP chairman of the powerful House Ways and Means Committee, “Despite the serious economic consequences of ever-increasing tariffs, today there are no serious trade discussions occurring between the U.S. and China, no plans for trade negotiations anytime soon, and seemingly little action toward a solution.”

Moreover, what does Ryan think Trump’s endgame is? It certainly seems reasonable that what Trump and his trade hawk advisers are trying to accomplish — and the president’s hostile and disruptive behavior at the NATO summit is more proof of this — is the dismantling of the post-WWII economic and security structure that continues to help ensure global peace and prosperity. To be replaced by what? Oh yeah, a slogan: America First.

Maybe only further escalation and the resulting economic damage — from growth to jobs to the stock market — is what will get the GOP to finally take action against Trump. And that might happen, unfortunately. A new analysis by consultancy Capital Economics estimates that a full-blown global trade war could eventually reduce world GDP by 2–3 percent and U.S. GDP by around 1 percent. And “the hit to profits of U.S. multinational firms would be more severe.” Even worse, all this could potentially hit just as the fiscal stimulus from tax cuts and spending increases fades, slowing growth.

But it shouldn’t take an economic slowdown or recession for Republicans, raised on Reaganomics, to do what most surely know is the right thing.

Turkish bankers try to drag Erdogan toward monetary sanity to no avail - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 07/12/2018 - 19:11

According to an old proverb, whom the gods want to destroy they first make mad. Evidently, Recep Tayyip Erdogan, Turkey’s president, is blissfully unaware of this old warning.

Otherwise he would not be allowing his illusions of grandeur to lead him down the path of misguided economic policy decisions that could prove to be both the Turkish economy’s and his own ruin.

More than 10 years in power and with some economic success to his credit, Erdogan now seems to entertain the dangerous delusion that somehow Turkey is immune from the usual laws of economics.

One clear instance of Erdogan’s loss of touch with economic reality is his eccentric view on interest rates and inflation. He now entertains no doubt that high interest rates are the cause and not the consequence of high inflation.

Never mind that practically every central banker and every trained economist around the world would think that such a view is akin to a doctor saying that chemotherapy is the cause rather than the consequence of cancer.

Another instance of Erdogan’s irrational behavior is his making very ill-advised decisions at a time of economic crisis that any sane person would see as likely to seriously add fuel to the crisis.

At a time that both domestic and foreign investors would like to be assured that Turkey will address its serious inflation and external imbalance problems, Erdogan chose Berat Albayrak to be the country’s new minister of finance. He did so even though it seems that Albayrak’s only qualification for the job is that he is the president’s son-in-law.

It also would not seem to help matters that at a time that markets are concerned about the erosion of the central bank’s independence, Erdogan chose to do everything to confirm the market’s worst fears. He’s done so by announcing that he will now have the power to appoint the governor of Turkey’s central bank and of hundreds of other senior officials.

Erdogan’s idiosyncratic approach to economic policy would not bode well for the Turkish economy in the best of times. However, these are hardly the best of economic times for his country’s economy.

Turkey is already in the grips of a currency crisis that has seen the Turkish lira lose more than 20 percent of its value since the start of the year, giving it the dubious distinction of being the world’s worst performing currency this year.

It is also occurring at a time that the Turkish central bank has been forced to hike interest rates to 17.5 percent to help support the currency, despite Erdogan’s kicking and screaming.

It should come as no surprise that the Turkish currency is receiving the harshest of treatments from the markets considering that, even before the current international oil price shock, Turkey has been running one of the world’s largest external current account deficits and is suffering under a large burden of short-term external debt.

In addition, Erdogan would seem to be making a major mistake in his misreading of the global credit cycle.

In particular, he seems to be overlooking the fact that after many years of extraordinarily easy monetary policy by the world’s major central banks that made the global economy flush with liquidity, the Federal Reserve is now raising interest rates and reducing the size of its bloated balance sheet.

He also seems to be overlooking the fact that an expansive U.S. fiscal policy at this late stage of the economic cycle is all too likely to force U.S. interest rates and the U.S. dollar ever higher.

In a less-benign global liquidity environment, one must expect that foreign investors will continue to repatriate capital from the emerging markets in general and from countries with weak economic fundamentals like Turkey in particular.

With U.S. Treasury yields now approaching 3 percent and with the dollar appreciating, foreign investors will no longer be willing to turn a blind eye to Turkey’s many economic weaknesses when they can get a good return on a safe U.S. asset.

Turkey is of course no stranger to currency crises resulting from a sudden stop in international capital flows. This strengthens one’s reason to think that Erdogan’s current actions fueling Turkey’s currency crisis and thereby raising the risk of a deep economic recession is the clearest indication that the gods wish to destroy him by first making him mad.

Banter #322: Jay Cost on Hamilton, Madison, and balancing republicanism and nationalism - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 07/12/2018 - 15:00

This week on Banter, AEI Visiting Fellow Jay Cost joins the show to discuss his new book “The Price of Greatness: Alexander Hamilton, James Madison, and the Creation of American Oligarchy.” The book describes the fractious relationship between Alexander Hamilton and James Madison. After working together to advocate for the ratification of the Constitution, Hamilton and Madison became bitter rivals with Hamilton emphasizing economic growth and Madison the importance of republican principles. The book has important lessons for how we balance nationalism and republicanism today. Dr. Cost hosted a release event for the book at AEI. You can watch the full event video and read Jay’s recent National Affairs piece at the links below.

Learn More:

The Price of Greatness: Madison, Hamilton, and the struggle to create a national republic | Jay Cost | AEI public event video | July 10, 2018

The Return of Civic Republicanism | Jay Cost | National Affairs | Summer 2018

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Will Imran Khan turn Pakistan into an Islamic welfare state? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 07/12/2018 - 13:59

More than two decades after he joined politics, Imran Khan is tantalizingly close to becoming Pakistan’s prime minister. In parliamentary elections later this month, his Pakistan Tehreek-e-Insaf may well emerge as the single largest party.

Even his admirers would concede that Mr. Khan owes much to friends in high places. Bluntly put, he is playing a fixed match. Pakistan’s military-dominated establishment virtually railroaded Mr. Khan’s main rival, former Prime Minister Nawaz Sharif, out of the contest.

Fans of Mr. Khan, a former cricket player, hail him as an incorruptible outsider who will cleanse politics. But his knee-jerk anti-Americanism, record of pandering to fundamentalist clerics, and promise to create an “Islamic welfare state” bode ill for Pakistan. With a stuttering economy and a reputation for fostering jihad against its neighbors, the troubled nation needs a dose of introspection. Mr. Khan represents a doubling down on denial.

This content is available for Wall Street Journal subscribers here. It will be posted in full to aei.org on Monday, July 16.

Ep. 105: What’s old is new again, international trade edition - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 13:51

In April 2016, when dinosaurs roamed the earth and Donald Trump was still just one among several contenders for the GOP nomination, I talked with AEI trade expert Claude Barfield about trade deficits, the WTO, US-China relations, and more. Two years later, our conversation may be even more relevant now than it was then.

Claude Barfield is a resident scholar in international trade policy, science, and technology at the American Enterprise Institute. Before coming to AEI, he was on the faculties of Yale and the University of Munich, and worked at the National Journal; in the Department of Housing and Urban Development; the Senate Governmental Affairs Committee; and as a consultant to the office of the US Trade Representative.

You can also subscribe to my podcast on iTunes or Stitcher.

Learn more:

Episode 1: Family & Friends - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 13:50

How do we navigate substantive disagreements – political or otherwise – with those closest to us? And how do we hold a discourse without sweeping differences under the rug or burning bridges? This episode unpacks ways of dealing with those differences of opinion in personal relationships: a primer for dealing with conflict at the next family gathering, and an inspiring story of two friends whose relationship survived their politics.

References and further reading:

How our friendship survives our opposing politics | Caitlin Quattromani and Lauran Arledge | TEDx

Identity and epistemic emotions during knowledge revision: A potential account for the backfire effect | Gregory J. Trevors

Stress in America: The state of our nation | American Psychological Association

Sign up for Arthur’s bi-weekly newsletter.


You can subscribe on iTunes, Google Play, Stitcher, Spotify, TuneIn, and ART19. The Arthur Brooks Show is published by The Vox Media Podcast Network.

Powell discounting external risks - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 13:01

Speaking in June at the annual European Central Bank forum in Portugal, Federal Reserve Chair Jay Powell stuck to his mantra that risks to the US economy are balanced and that US financial vulnerabilities remain moderate. He did so despite clearly gathering storm clouds in the global economy.

In assessing risks to the US economy, Powell should be asking two questions: how much damage would the US economy take if any of the external risks were to materialise, and how great is the probability that those risks will materialise?

Had Powell asked those two questions, he might not have remained as sanguine as he appears to be. Instead, he might have focused on the following three external risks and the threat they pose to the US and global economies.

The first is the deteriorating economic and political situation in Italy, the euro area’s third largest economy and the world’s third largest sovereign debt market. After the formation of an unstable populist government in Rome, whose policy agenda places it on a clear collision course with its European partners, the chances of an Italian crisis within the next six months have risen appreciably.

The new government is highly unlikely to adopt policies that would put the country on a faster growth path. Such measures are necessary to address Italy’s serious public debt and banking sector problems. These troubles are compounded by the winding down of the ECB’s asset purchase programme and signs of an overall European economic slowdown.

It would be an understatement to say that an Italian collapse would constitute a seismic shock to the US and global economies. The euro would not survive in its present form if Italy was forced to exit the arrangement. It is also difficult to imagine that an Italian default on its $2.5tn public debt would not set off a full-blown European banking crisis. That, in turn, would send shock waves throughout the global economy.

The second major external risk that Powell is downplaying is Sino-US trade tensions. President Donald Trump’s administration has ratcheted up import tariffs on China, prompting a novel response from Beijing. Rather than imposing retaliatory tariffs against US companies, China is offering greater market access to their competitors in other parts of the world, portraying itself as a champion of trade openness and subverting Trumpian protectionism.

Circumstances are not helped by the dimming prospects of a successful conclusion to North American Free Trade Agreement negotiations. There besides, Trump is threatening Europe’s car sector with punitive tariffs, and global financial markets continue to be riled by the risk of a global trade war amid a return to beggar-thy-neighbour policies.

The third risk is the possibility of an abrupt slowing of the Chinese economy, as well as of those of other large emerging markets. These countries are trying to operate in a less open global economy while also struggling with the consequences of US monetary policy normalisation. Emerging markets now constitute more than half of the global economy, according to the International Monetary Fund, and their debt levels are higher than they were on the eve of the 2008 Lehman Brothers bankruptcy. Moreover, the currencies of many emerging markets are weakening as capital flows dwindle in response to higher US interest rates.

In setting US monetary policy, Powell should of course focus on fulfilling the Fed’s dual mandate of high employment and low inflation. However, by choosing to downplay external risks that have a reasonable chance of materialising and disrupting the US economy, he reduces the chances of the Fed delivering on its domestic mandate.

Madison, Hamilton, and the struggle to create a national republic - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 12:23

On this episode of the AEI Events Podcast, AEI’s Jay Cost discusses his new book “The Price of Greatness: Alexander Hamilton, James Madison, and the Creation of American Oligarchy” (Basic Books, 2018) with Stephen Knott of the United States Naval War College and Luke Thompson of Applecart.

Cost argues that Madison’s and Hamilton’s rivaling republicanism and nationalism can inform our understanding of today’s politics. Madison was for too long written off as Jefferson’s lieutenant. He and Hamilton have only recently come into public focus, and, for Dr. Cost, their unique relationship — first allies, then political enemies — warranted investigation into their rivaling ideologies in the US liberal constitutional regime.

Knott discusses early nationalism’s continental education of parochial early Americans. Thompson furthered Knott’s points by relating Hamilton’s theories to Madison’s extended republic solution to the problem of faction. Cost critiques Hamilton’s thought, noting that his strong economics were politically limited by his patrician focus on and faith in the wealthy. He reviews Madison’s valuable critiques of Hamilton’s prescient vision, arguing for shared legitimacy rather than a right-or-wrong approach.

NATO’s strategic problem - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 12:18

For much of the post-World War II era, the United States believed it required a military capable of fighting and winning two major conflicts at once. In no small measure this was a legacy of the war just fought, with major action in the Pacific against Imperial Japan and in Europe against Nazi Germany. But it was also a product of the nature of the threat posed by Soviet-led communism, which seemed determined to dominate the Eurasian landmass on both its eastern and western ends, and where possible to expand its sway in the Middle East. The two-war standard also had the advantage of giving the United States a built-in surge capacity for any unexpected war that went over and above its deterrence posture in Asia and Europe—something that came into good use, for example, in the First Gulf War when driving Saddam Hussein’s forces out of Kuwait.

President Donald Trump looks back at British Prime Minister Theresa May during a dinner at the Art and History Museum at the Parc du Cinquantenaire during the NATO Summit in Brussels, Belgium July 11, 2018. Reuters

Of course, it wasn’t always clear that the United States actually had sufficient forces to fight and win two major conflicts at once. And indeed, by early 2012, when the Obama administration issued its Defense Policy Guidance, it was clear that, at best, the U.S. military had the capacity to succeed in only one major conflict, while holding off, not necessarily defeating, an adversary in another region. Having reduced its active duty forces by nearly a quarter from 1991 to 2011 and severely cut military platforms such as tanks, submarines, and combat aircraft during the same period, while at the same time facing a more aggressive “rising power” in China, it was the Obama team’s strategic calculus that the time had come to “pivot” to Asia, declare European security a completed project, and draw down from the conflicts in the Middle East and Afghanistan. The United States would still be the preeminent military in the world, but it would no longer pretend to have the capacity to play the larger global role.

This reduction in the American strategic horizon was bipartisan in nature. President Obama’s vision for America’s role in the world, when it came to military affairs in particular, was consistently “less is more.” Less global policing and fewer mistakes would be made—or, as he famously put it: “Don’t do stupid shit.” At the same time, Democrats and Republicans in Congress were playing budgetary chicken and passed, with the president’s approval, the Budget Control Act of 2011. The BCA mandated a decade-long squeeze on all discretionary spending, including defense, if a congressional “super committee” on deficit reduction could not reach an agreement on reducing the federal deficit—which it couldn’t. The result was locking in a military force structure that U.S. strategists knew was sized for one major war but little more.

Whether consciously or not, Russia, China, Iran, and ISIS have taken advantage of that fact and pressed their advantage in Europe, East Asia, and the Middle East. So Washington now faces security threats in three theaters and does so with limited capacities. Toss in continuing conflict in Afghanistan and North Korea’s expanded ballistic and nuclear arsenal, and it is no surprise that the American military believes it is spread thin and uses the vanilla-sounding phrase “accepting greater risk” in its official statements to signal the gap between what it is being asked to do and what it can do.

It would be nice if this past year’s increases to the defense budget for 2018 and 2019 had fixed this problem, but the increases only bring the Pentagon in line with defense spending projected before the Budget Control Act and sequestration took effect. In short, it no doubt helps. But the current budget only sustains the one major war capacity that Obama’s Defense Policy Guidance originally laid out, with much of today’s increase going to fix problems in readiness and obvious shortfalls in manning and capabilities of the current force. And since the Trump administration’s own budget plans call for flat-lining defense spending starting in 2020, there is little reason for optimism about growing the active duty force to a size commensurate with the global tasks it faces.

It’s with this background that the debate about allies “stepping up” their defense contributions should be seen. As significant as the drawdown has been for the American military since 1991, the cut to key European allied forces—France, U.K. and Germany—has been even more striking. France has reduced its active duty force by more than 50 percent, eliminated more than 1,100 tanks out of a force of 1,350, and cut 600 combat aircraft from a fleet of 950. A similar story can be told about British and German forces, with the latter especially burdened in recent years with whole categories of platforms (tanks, transport planes, and submarines) largely unavailable for use.

Some of this drawdown in the U.S. and allied forces made sense in light of both the collapse of the Soviet Union and the need to restructure militaries for deployments for missions abroad. But when, in Wales in 2014, NATO members agreed to set a 2 percent of GDP minimum for defense expenditures, it did so realizing the atrophy of its militaries had gone too far and needed to be addressed. It’s true of course that the specific 2 percent target is an arbitrary figure. Yet given the state of many allied militaries and the immediate and long-term shortfalls they face, it’s not unreasonable to have set such a goal. If nothing else, the goal of spending 2 percent of GDP on defense has provided a target readily understood by publics and elites alike and has helped keep most allies feet to the fire when it comes to budgets. Indeed, defense spending across the alliance has increased.

The U.S. and its NATO allies have upped their game in Europe: moving four battalions into the Baltic states and Poland, developing a rapid reaction force of 5,000 troops, rotating a U.S. Army armor brigade into Poland every nine months, creating new commands to bolster logistical support in theater and to secure sea lanes across the Atlantic and, with the Brussels summit, deciding to create by 2020 a multilateral force of 30 mechanized battalions and 30 air squadrons to be deployable within 30 days. Impressive—except none of these measures is sufficient to address the fact that, according to the results of RAND’s war games, Russian troops could possibly overrun the Baltic States in 60 hours, absent a much larger and more lethal NATO force in place.

Right now, the only national force capable of filling this gap is the American military. But to do so, the Pentagon must rob Peter to pay Paul. Every dedicated unit or squad that goes into Europe is one that can’t be deployed to cover existing shortfalls in the Middle East, Afghanistan, and East Asia. Army planners, for example, have to worry that doubling down in Eastern Europe comes with the risk that a conflict on the Korean Peninsula leaves them substantially short of what is required to fight and win that conflict. The U.S. Army will have an authorized force of approximately 485,000 in 2019. Most estimates of what it would need to carry out the existing national security strategy with assurance runs anywhere from 540,000 to a high of 600,000.

It’s a reality that our allies don’t appear either to be fully aware of or, more likely, simply don’t want to hear about. But it’s this reality—not Trump’s argument about what the allies “owe” the United States—that drives American strategists to push aggressively for NATO’s leading powers (U.K., Germany and France) to do even more.

Europe’s peace and stability remain a vital interest to the United States. However, America’s strategic predicament is that it faces multiple threats and adversaries spread across the globe. It’s a strategic predicament that Europe shares because the United States is no longer in a position to be the unequivocal guarantor of the continent’s security.

Related reading:

This article was originally published on The Weekly Standard. You can read it here

Vulnerable Democrats should hope for GOP unity on Kavanaugh - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 12:00

It is difficult to imagine any Republican senator opposing President Trump’s nomination to the Supreme Court of Brett M. Kavanaugh, a judge with impeccable credentials, strong intellect and sterling character. If Republicans stay united, Kavanaugh’s confirmation as the next associate justice is assured. And no one is praying harder for Republican unity than the three Democratic senators — Joe Manchin III (W.Va.), Heidi Heitkamp (N.D.) and Joe Donnelly (Ind.) — who voted to confirm Justice Neil M. Gorsuch and who are up for reelection this fall in states Donald Trump won by double digits.

With the Supreme Court building in the background, Supreme Court nominee judge Brett Kavanaugh arrives prior to meeting with Senate Majority Leader Mitch McConnell on Capitol Hill in Washington, July 10, 2018. Reuters.

A Supreme Court fight is already a nightmare for these vulnerable Democrats. The left understands that Kavanaugh’s nomination is an existential threat to its activist judicial agenda, so it is going to throw everything it has at him in a multimillion-dollar sliming. The confirmation hearings are going to make the infamous Robert H. Bork hearings seem like a kumbaya session by comparison.

Caught in the crossfire are Manchin, Heitkamp and Donnelly, all of whom were hoping to steer a steady course down the middle to reelection but will now have to spend the next couple of months getting pushed and pulled by both sides. The Democrats’ left-wing base will demand that they vote “no” on Kavanaugh, while the trio’s pro-Trump constituents will demand they vote “yes.” And the confirmation fight will dominate the final months of their campaigns.

That’s a nightmare. But so long as Republicans are united, Manchin, Heitkamp and Donnelly more or less get a free vote. They won’t pay much of a price if they end up as the 51st, 52nd and 53rd votes confirming Trump’s nominee, adding a bipartisan veneer to the final vote. But if any Republicans defect, the nightmare becomes a disaster, because each of these red-state Democrats suddenly becomes the deciding vote. That is the last thing they want.

Normally, it is the job of a party’s Senate leadership to protect vulnerable incumbents by giving them political cover to do what they need to do to win reelection. But in this case, the Democratic leadership seems to be throwing these three senators under the bus. Sen. Richard J. Durbin (Ill.), the No. 2 Democrat in the Senate, suggested on NBC’s “Meet the Press” this past weekend that these vulnerable red-state Democrats should sacrifice their reelection to stop Trump’s nominee. “They understand it’s a historic decision,” he said. “It’s about more than the next election.”

That is unprecedented. Durbin just told these Democrats to commit political suicide. It is shocking that one of its own leaders just gave the left-wing base license to demand that these senators vote in such a way that will virtually guarantee the loss of their seats. Don’t expect these senators to forget it if they are still in office for the next leadership election.

Red-state Democrats want to get this vote over with as quickly as possible. A delayed vote could backfire terribly. Right now, Democrats enjoy a significant enthusiasm advantage in the 2018 midterm elections. In a Wall Street Journal-NBC News poll last month, 63 percent of Democrats rate their interest level as a “9 or 10” on a 10-pointscale, while only 47 percent of Republicans do the same. Any delay in Kavanaugh’s confirmation can only help Republicans close that enthusiasm gap. According to The Post, 26 percent of all Trump voters said the Supreme Court was most important factor in their vote, compared with just 18 percent among Hillary Clinton’s voters. The Supreme Court motivates the right more than the left. The best way Democrats can guarantee a strong GOP turnout in key Senate races is to make the Supreme Court an election issue this November.

So, conservatives are hoping that Republicans stay united. But deep in their hearts, red-state Democrats are praying for GOP unity as well.

Related reading:

Society’s tech addiction can be a force for good - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 10:00

On Monday, the House Energy and Commerce Committee sent letters to “Apple CEO Tim Cook and Alphabet CEO Larry Page to probe the companies’ representation of third-party access to consumer data, and the collection and use of audio recording data as well as location information via iPhone and Android devices.” The two companies are the latest Big Tech firms under the Congressional spotlight, but while Congress has the attention of these executives, it might be useful to ask them if we can turn today’s internet attention sucking devices, apps, and social media feeds into a power for personal and social good.

Via Twenty20

In 2007, a research and design class was offered at Stanford that became known as “the Facebook class.” It was a great success: Students created applications for Facebook that after 10 weeks had 16 million users and generated $1 million dollars in advertising revenue. The class, using a model of human behavior change created by “its instructor, BJ Fogg, became Silicon Valley legends. Graduates went on to work and design products at Uber, Facebook, and Google. Some even started companies with their classmates.”

Fogg directs the Persuasive Tech Lab at Stanford, which aims to “create insight into how computing products — from websites to mobile phone software — can be designed to change people’s beliefs and behaviors. [Its] major projects include technology for creating health habits, mobile persuasion, and the psychology of Facebook.” But as Wired notes, Fogg and his behavior model are in the “crosshairs of our society-wide conversation about phone addition.” Critics say tech companies have leveraged psychological principles to capture human attention as they try to keep users “coming back.”

See also:

The power of internet technologies and apps as well as their social and behavioral (and electoral) impacts have been well documented. Could society make better use of these technologies to do things such as improve education and create healthier citizens? Health and education apps are a growing business, but none have the reported “stickiness” that keeps users engaged in the same way as social media apps. While it is focusing on the tech industry, Congress could discuss how the smart devices and apps that generate such tremendous profits for Silicon Valley can be used for more than just creating advertising revenue.

A company called Boundless Mind has received attention for using the same persuasive tools and machine learning as Big Tech firms — the rewards, points, and “likes” — to keep consumers clicking, but for education, health, and social welfare purposes. In a Time magazine piece, the company’s founders describe a habit-forming loop that is exploited by computer engineers:

[When the brain] gets some sort of external cue, like the ding of a Facebook notification, that often precedes a reward, the basal ganglia receive a burst of dopamine, a powerful neurotransmitter linked to the anticipation of pleasure . . . computer engineers can draw on different kinds of positive feedback, like social approval or a sense of progress, to build on that loop.

We’ve already gone through this habit-forming exercise with social media, but could this psychology be leveraged in a way that encourages healthy habits, reduces health care costs, or makes education programs more engaging?

It’s worth exploring — if people are going to be glued to their screens anyway — and in the case of research funded by the Department of Health and Human Services, the answer is yes. Researchers found SMS-text interventions had statistically net-positive effects on disease prevention and self-management of chronic conditions. In the study, “behavioral outcomes were statistically significant for treatment of weight loss, smoking, physical activity, and medication adherence.” And these were just text messages, not specifically designed apps! Behavioral scientists know that certain human behaviors such as scrolling become habits. This influence could be used to deliberately encourage more healthy behaviors or teach social studies to eighth graders.

There’s no returning to the pre-tech era, so government should consider leveraging the science behind what Silicon Valley calls “brain hacking” to create, capture, and cultivate audiences. Persuasive technology is a huge business, so why not consider public-private partnerships similar to what government has done in the past with Ad Council campaigns on topics such as vehicle safety, food waste, littering, and opioid abuse? Other public sector opportunities come to mind: Why not animate Teddy Roosevelt to pop-up virtually while driving through National Parks, similar to the Pokémon Go creatures that participate in community day efforts in city parks?

If innovators create the right tools, the same triggers that currently reward consumers for their behavior on their smartphones could help people make better decisions and reach their goals. It’s time to ask questions about how we can harness the abilities of today’s dynamic technologies to better human and public policy outcomes.

Learn more:

Low-Income Students at Selective Colleges: Disappearing or Holding Steady? - Ep. 105: What's old is new again, international trade edition - AEI

Thu, 07/12/2018 - 08:00

Key Points

  • Contrary to popular perception, the share of students at the 200 most selective public and private colleges who are from low-income households did not decline over the past 16 years. However, the share of students at these institutions who are from middle-income families has steadily declined.
  • Despite large increases in college costs at selective institutions, net tuition prices for low-income students at the 200 most selective colleges increased only $1,358 since 1999–2000, after adjusting for inflation. Large increases in aid and tuition discounting for these students offset rising costs over that time.
  • At public flagship universities, the share of low-income students has not declined. There was also a statistically significant increase in high-income students’ enrollment share at flagship universities between 1999–2000 and 2007–08.

Read the full PDF.

Executive Summary

Alarming stories about increasing economic stratification at America’s selective colleges frequently appear in the news media. But this genre of education journalism comes with several caveats. Much of the research on economic stratification at selective colleges relies on data with limitations that tend to restrict how comprehensively or accurately studies can assess the incomes of students enrolled at selective universities, particularly over time. Studies that use quality data tend to find that the share of students at selective colleges who are low income has remained remarkably stable since the turn of the century. But even these often suffer from a narrow scope, such as outlier universities or the Ivy League.

In this report, we set out to address some of the limitations in the literature on enrollment at selective universities and test the popular narratives related to this topic. We use a data set that few researchers have enlisted for this type of analysis, the National Postsecondary Student Aid Study, and we define selective colleges as the 200 most selective public and private institutions nationally. We also conduct a separate analysis for public flagship universities.

We do not find evidence that the share of students enrolled at these 200 institutions who are from the lowest income quartile declined during the years covered in our study. Students from high-income families were a growing share of enrollment at these institutions in the mid-2000s. Meanwhile, the share of students at selective colleges who are from middle-income families has steadily declined over time, particularly students from the third income quartile.

@lira_n4 via Twenty20


Alarming stories about economic stratification at America’s selective colleges are everywhere. The Jack Kent Cooke Foundation ran a headline on its website in 2017 stating, “Report finds flagship universities becoming instruments of social stratification.”1 In earlier research, the Education Trust concluded that elite public universities were becoming “engines of inequality” because they were enrolling fewer students from low-income families.2 A recent study by the Pell Institute for the Study of Opportunity in Higher Education “adds to the growing body of evidence that our nation’s higher education system is becoming increasingly stratified,” according to one reporter.3 When the New York Times covered this issue in 2017, the headline read, “Some [private] colleges have more students from the top 1 percent than the bottom 60.”4

Most of these reports and articles focus on trends that the authors say contribute to declining access at selective colleges for students from low-income families. They implicitly link cuts in per-student funding for public universities,5 increasing merit-based financial aid,6 rising tuition prices, more competitive admissions standards, and a boost in out-of-state students to conclude that the share of students at selective schools who are from low-income families must be in decline.7

It is logical to assume that such trends would work against low-income students’ representation at America’s most elite colleges. And it is easy to believe reports that find increasing economic stratification at selective universities given that the total cost of attendance has increased rapidly. Admission rates have also declined at some of these institutions, suggesting that they have grown only more competitive.

But narratives surrounding low-income students’ representation at selective schools often rely on incomplete evidence. Data limitations tend to restrict how comprehensively or accurately studies can assess the incomes of students enrolled at selective colleges and universities, particularly over time.8 Even when data are available, reports and research often focus on outlier examples or a small number of institutions, such as the Ivy League.

Some studies do take a comprehensive approach, however, and generally find that the share of students at selective colleges who are from low-income families has changed little since the early 2000s. We review the existing literature on the income distribution of students at selective colleges in a later section.

In this report, we set out to address some of the limitations in the literature on enrollment at selective colleges and universities. We also aim to test the popular narratives, such as whether students from low-income families are in fact less represented at selective colleges than in the past; whether public flagship universities are shutting out low-income students to enroll more high-income, out-of-state students; and whether rising prices have made selective colleges less affordable for low-income students after factoring in financial aid.

We use a data set that few researchers have enlisted for this type of analysis: the National Postsecondary Student Aid Study (NPSAS). The NPSAS is a nationally representative data set of undergraduate college students maintained by the US Department of Education.9 An advantage of the NPSAS is that we can more directly observe the family incomes of students instead of using proxies such as whether students received Pell Grants. The NPSAS allows us to cover a long time period, the 1999–2000 to the 2015–16 academic years. We focus our analysis on the students who attended the 200 most selective public and private colleges and universities in the country by admission rates and test scores.10

We find that, contrary to popular perceptions, the share of students at the 200 most selective colleges who are from low-income families did not decline over the period we studied. Also at odds with popular perceptions, the share of low-income students at public flagship universities has not declined since 1999–2000. This suggests that the trends that many argue have pushed low-income students out of selective colleges, such as rising prices and increases in out-of-state enrollment, have not had that effect on a national level.

We also find that, after factoring in grant and scholarship aid, annual net tuition prices at selective colleges have increased by only $1,358 for low-income students since 1999–2000, after adjusting for inflation. For high-income students, the increase was $8,162.

Consistent with the popular narrative, we find evidence that the share of students who are from high-income families increased at both selective institutions and public flagship universities during the mid-2000s. However, due to data limitations, it is unclear whether these trends continued or reversed in later years.

The strongest trend in the data is a decline in the share of students in the middle two income quartiles. In other words, the enrollment gains of high-income students in the mid-2000s came at the expense of middle-income students. This trend has received relatively little attention from the education community and the national media. It suggests that the narrative regarding income stratification at selective colleges is only half right. Enrollment at selective colleges has changed over time, but it is middle-income students, not low-income students, who are becoming less represented on these campuses.

Read the full report.


  1. Jack Kent Cooke Foundation, “Report Finds Flagship Universities Becoming Instruments of Social Stratification,” press release, June 13, 2017, www.jkcf.org/report-finds-flagship-universities-becoming-instruments-of-social-stratification/.
  2. Kati Haycock, Mary Lynch, and Jennifer Engle, Opportunity Adrift: Our Flagship Universities Are Straying from Their Public Mission, Education Trust, January 2010, https://1k9gl1yevnfp2lpq1dhrqe17-wpengine.netdna-ssl.com/wp-content/uploads/2013/10/Opportunity-Adrift_0.pdf.
  3. Jillian Berman, “Selective Colleges Are Less Likely to Enroll High Levels of Low-Income Students,” MarketWatch, April 25, 2017, www.marketwatch.com/story/selective-colleges-are-less-likely-to-enroll-high-levels-of-low-income-students-2017-04-25; and Margaret Cahalan et al., Indicators of Higher Education Equity in the United States: 2017 Historical Trend Report, Pell Institute for the Study of Opportunity in Education and Alliance for Higher Education and Democracy, University of Pennsylvania, 2017, http://pellinstitute.org/indicators/reports_2017.shtml.
  4. Gregor Aisch et al., “Some Colleges Have More Students from the Top 1 Percent Than the Bottom 60. Find Yours.,” New York Times, January 18, 2017, www.nytimes.com/interactive/2017/01/18/upshot/some-colleges-have-more-students-from-the-top-1-percent-than-the-bottom-60.html.
  5. Josh Freedman, “Why American Colleges Are Becoming a Force for Inequality,” Atlantic, May 16, 2013, www.theatlantic.com/business/archive/2013/05/why-american-colleges-are-becoming-a-force-for-inequality/275923/.
  6. Doug Lederman, “The Rapid Rise of Merit Aid,” Insider Higher Ed, October 19, 2011, www.insidehighered.com/news/2011/10/19/rapid-rise-merit-aid.
  7. Laura McKenna, “The Allure of the Out-of-State Student,” Atlantic, October 15, 2015, www.theatlantic.com/education/archive/2015/10/the-allure-of-the-out-of-state-student/410656/; Paul Fain, “Poverty and Merit,” Inside Higher Ed, January 12, 2016, www.insidehighered.com/news/2016/01/12/high-achieving-low-income-students-remain-rare-most-selective-colleges; Berman, “Selective Colleges Are Less Likely to Enroll High Levels of Low-Income Students”; and Jon Marcus and Holly K. Hacker, “The Rich-Poor Divide on America’s College Campuses Is Getting Wider, Fast,” Hechinger Report, December 17, 2015, http://hechingerreport.org/thesocioeconomic-divide-on-americas-college-campuses-is-getting-wider-fast/.
  8. Jason D. Delisle, “The Pell Grant Proxy: A Ubiquitous but Flawed Measure of Low-Income Student Enrollment,” Brookings Institution, October 12, 2017, www.brookings.edu/research/the-pell-grant-proxy-a-ubiquitous-but-flawed-measure-of-low-income-studentenrollment/; and National Center for Education Statistics, “IPEDS: Integrated Postsecondary Education Data System,” https://nces.ed.gov/ipeds/. Integrated Postsecondary Education Data System (IPEDS) data records the number of undergraduate students in each of five income bins. However, these data only go back to 2008, and income bin cutoffs are not adjusted for inflation over time. In addition, the data only include students who are (1) enrolled full time, (2) in their first year of higher education, (3) awarded Title IV federal financial aid, (4) enrolled in the fall, (5) seeking a degree or certificate, (6) attending an institution with a standard calendar system, and (7) paying the in-state or in-district tuition rate, if attending a public institution. At the University of Maryland, for example, only 5 percent of undergraduate students meet these qualifications.
  9. National Center for Education Statistics, “National Postsecondary Student Aid Study (NPSAS),” https://nces.ed.gov/surveys/npsas/.
  10. As the NPSAS is a sample, not all 200 of these institutions are represented in each iteration of the survey.

Washing machine tariffs started Trump’s trade war. Result? Largest-ever 3-month increase in washing machine prices - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 07/11/2018 - 23:20

If you’re unfortunate enough to be shopping for a new washing machine, you can thank the Trump tariffs on imported washing machines, washing machine parts, steel and aluminum for the largest three-month price increase — 16.4% from February to May this year — in the 40-year history of the BLS series for Major Appliances: Laundry Equipment that started in January 1978 (see chart above). In the May CPI report (see Table 2), the one-month increase in the CPI for Laundry Equipment of 7.4% in May followed a 9.6% increase in April, and in both months was the largest monthly price increase of any of the 300 individual CPI categories or sub-categories. For the month of May, the 7.4% increase in the washing machine series was twice the increase of the next highest increase of 3.7% for educational books and supplies (mostly college textbooks).

Background: The Trump tariffs on imported washing machines were announced in late January 2018, took effect the next month in February and are scheduled to continue for the next three years. In the first year, there is a 20% tariff on the first 1.2 million imported washing machines with an increase to 50% subsequent machines. Imported washing machine parts are also subject to a 50% tariff, which will likely drive costs higher for domestic appliance manufacturers like Whirlpool as well. In addition to the tariffs on washing machines and parts, Team Trump also imposed tariffs on 25% on steel imports and 10% on aluminum imports that took effect in late March. Those tariffs on key inputs for washing machine production are also likely at least partly responsible for the 16.4% price increase for the final product at the retail level.

Interestingly, Goldman Sachs analyst Samuel Eisner forecast back in January following the start of the Trump Trade War that was initiated with the tariffs on imported washing machines that US consumers could expect price increases for new washing machines of between 8% and 20%, depending on how much of the tariff gets passed on to consumers. According to this CNBC report from January:

The Trump administration announced Monday it will impose a 20% tariff on the first 1.2 million imported large residential washing machines in the first year and a 50% tariff on machines above that number. For his part, Sachs analyst Eisner expects the same level of imports in 2018 as in years past, around 3.4 million washing machines. His assumption implies an effective tariff rate of roughly 40%, and if international suppliers pass along half the cost of the tariff, Americans could wind up shelling out a premium.

Backfire Economics: As simple economics tells us, the Trump tariffs on washing machines aren’t imposed on foreign appliance producers like Samsung and LG as much as they are imposed on Americans in the form of higher prices for consumers. Likewise, Trump’s ill-advised trade war, which started in January when he approved the tariffs on imported washing machines, is really largely a war on Americans. The February-May 16.4% increase in the CPI for washing machines is just the first of many price increases on US consumers and firms from Trump’s trade war that are guaranteed to lead to net job losses and impoverish, not enrich Americans.

AMLO and Trump — The odd couple that could oddly narrow the US-Mexico gap - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 07/11/2018 - 21:17

Will NAFTA survive? Last week, by a very large margin, Mexicans elected as president longtime NAFTA critic Andres Manuel Lopez Obrador (universally known as AMLO). He promptly had a cordial telephone conversation with longtime NAFTA critic President Trump, who remains U.S. president for at least the next 30 months and, if re-elected, for all of AMLO’s six-year term.

The cordiality may just have been a ritual. Not since the 1920s have Mexico and the U.S. had presidents as critical of the other’s country as they will upon AMLO’s inauguration Dec. 1.

It’s unclear whether the ongoing renegotiations of NAFTA with Mexico and Canada will result in abrogation of the treaty or just modifications, perhaps overdue after 25 years. But NAFTA is not just an economic agreement, even though it was sold to bipartisan majorities in Congress as that in 1993. For the boundary between the U.S. and Mexico, negotiated after the U.S. won the Mexican-American War in 1848, has not just been the world border separating the two most economically unequal neighboring nations. It has also been the line separating two profoundly different cultures.

The U.S. has an almost entirely European culture, leavened by other influences, whereas Mexico partakes heavily of its pre-Columbian Mesoamerican culture. We have been “distant neighbors,” as the journalist Alan Riding entitled his 1985 book on Mexico. “I celebrate myself!” proclaimed the brash, exuberant nineteenth century American poet Walt Whitman. Mexicans in contrast inhabit “a labyrinth of solitude,” wrote the introverted, fatalistic 20th century Mexican poet and diplomat Octavio Paz.

The architects of NAFTA had personal exposure to the sharpness of the border and a desire to meld together the two dissimilar peoples — to make Mexico economically more like America, mostly, but also to make Mexico’s political and economic culture more like America’s.

NAFTA was a project of two Republican presidents who settled and made their fortunes less than 100 miles north of the border — Ronald Reagan in Southern California in the 1930s and George H. W. Bush in Midland, Texas, in the 1950s. Its chief Democratic advocate was Lloyd Bentsen, chairman of the Senate Finance Committee during the Reagan and Bush presidencies and Treasury secretary in Bill Clinton’s, who was born and raised in the Lower Rio Grande Valley, less than five miles north of Mexico. And the Mexican president who pushed NAFTA through was Carlos Salinez de Gortari, who grew up in Monterrey, three hours to the south.

Their combined efforts have changed Mexico’s political culture. From 1929 to 1999, one party won every national election. Outgoing presidents hand-picked their successors at the end of their six-year terms, then disappeared from public life and became scapegoats for lingering problems. It was a sort of Aztec system, with elaborate ceremony, calendrical regularity, and an element of human sacrifice.

That ended with the election of Vicente Fox in 2000, followed by a close election that AMLO narrowly lost in 2006, and a victory for the older ruling party in 2012. Competitive and rigorously honest elections, rotation in office — Mexico has developed something like a conventional Western political culture. AMLO’s victory Sunday, which came after he moderated his radical rhetoric, is more evidence of that.

Another such change is the abrupt end of outmigration. Like Japan and China 100 years before, Mexico was exporting millions of low-wage workers in the period between 1982 and 2007. That largely stopped when the U.S. housing bubble burst, and now Mexico is a transit point for Central American illegal immigrants — perhaps a negotiable issue between AMLO and Trump.

More disturbing is the gang violence raging in Mexico and threatening the U.S. Drug cartels have murdered some 113 election candidates since September, and have taken over previously uncorrupted governments in running up toward the U.S. border. Even northern Mexican cities like Guanajuato and Queretaro, whose modern infrastructure and clean local government attracted much post-NAFTA foreign investment, have suffered murder waves.

You might argue this is no more dangerous than the organized crime and violence in heavy-immigration zones in the U.S. a century ago — unnerving for some years but eventually a manageable problem.

And there’s endemic corruption in government and law enforcement — mostly invisible for years, the distinguished Mexican historian Enrique Krauze argues in the New York Times, but now out in the open.

In his just-published book Vanishing Frontiers, the Migration Policy Institute’s Andrew Selee argues that NAFTA has reduced the economic and cultural gap between the U.S. and Mexico. Will it be reduced further by the odd couple of AMLO and President Trump, or will it widen instead?