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How education philanthropy can accidentally promote groupthink and bandwagonism - The Femsplainers Podcast Ep. 9: Has Porn Ruined Sex? - AEI

Tue, 07/03/2018 - 12:00

One of the nice things about summer is that it’s a good time for reflection. One thing I found myself thinking about is the role philanthropy plays in the work we do, especially in the aftermath of RAND’s harsh evaluation of Gates’ Effective Teacher Initiative. This brought back memories from a couple decades ago, when I was at the University of Virginia studying how school systems in Milwaukee, Cleveland, and Edgewood, Texas, responded to school vouchers. This research was possible because a foundation generously provided funds to cover air travel, rental cars, motel rooms, loads of fast food, transcription, and research assistants. Given my generally positive view of school choice, the foundation’s staff hoped and expected that I’d find that choice was driving systemic improvement.

Via Twenty20 @EA_Photography

After two years of analysis and hundreds of interviews, I wrote a book concluding that the story was much more complicated than that. (If you’re curious, the book is Revolution at the Margins.) Because this take was at odds with the funder’s vision, it was a real loser for me. Don’t get me wrong: They never threatened me or tried to tell me what to find, and I’d hoped they might find my take to be instructive. But they judged the work a disappointment, with the less said about it the better.

I eventually learned that foundations operate a lot like Santa Claus, with goodies to give away and an attentive eye as to who’s been naughty and who’s been nice. I wound up on the naughty list, I fear, and never heard from that foundation again. On one level, that’s no big deal. It’s their money and they have every right to fund whomever and whatever they like. On another level, though, it illustrates how well-meaning philanthropy can encourage groupthink and faddish bandwagonism—even when nobody intends it to.

As I observed last year in Letters to a Young Education Reformer, the knowledge that certain stances and sentiments will prompt wallets to open and that others will cause them to close, makes it easy to reflexively trim one’s sails, soften one’s words, and get with the program. Over time, we’ve seen this play out all over the place in education, from school choice to pre-K, from teacher evaluation to social and emotional learning.

It’s funny how foundation officials simultaneously manage to acknowledge and dismiss concerns about all this. They tell you that they know people are sucking up to them and, to demonstrate that they get it, they all tell the same self-deprecating jokes. (The most famous of these is, “When I took this job, X told me, ‘You’ll never again have a bad meal or a bad idea.’ And X was right!”)

Of course, because the funder telling the joke might be giving away big chunks of cash, we all roar as if it’s the funniest thing we’ve ever heard—even as we hear it for the twenty-fifth time. And that’s a big part of the problem. Foundation staff get loads of TLC; everywhere they’d like to go, they’re always welcome. Everyone nods in appreciation when they speak. Even their dumbest statements are greeted with, “That’s really insightful and important. Let me just add . . .” Smart, accomplished people jump through hoops to meet with them or respond to their requests. When they fail to honor commitments or promises, hardly anyone calls them on it.

Insulated by that cocoon of niceness, funders fall into some unfortunate habits (no matter how many self-deprecating jokes they tell). They steer conversations toward their current strategy, because that’s what’s relevant and useful. When conversation strays too far from their agenda, their eyes glaze over and they tune out things they ought to hear.

Most foundation staff spend a lot of time talking to people they fund, people they might fund, or people trying to woo them. They spend every day talking about their vision and mission, how to refine it, and how to execute it, and they do this mostly with people who want their money. Given all that, it’s easy to wind up in a self-assured, mission-driven bubble. After enough of this, almost any unsolicited critique can seem misinformed, unfair, and as proof that the critic “just doesn’t get it.”

If it sounds like I’m being hard on foundation staff, I don’t mean it that way. Their roles can be exhausting and rife with personal politics: They need to stay in tune with colleagues, the foundation’s strategy, and the preferences of the donor or the board. At any large foundation, they need to keep pushing large sums out the door just to comply with tax regulations. They have to spend long days traveling, sitting in meetings, and writing and reading reports about their grantees. They have to speak cautiously, as off-hand remarks might be taken as official statements of foundation policy. I think of the friend who told me, “I always thought foundation jobs were a pretty sweet deal. Then I took this one. It’s frustrating, it’s tedious, and it’s kicking my [butt].”

And most funders do take self-appraisal seriously. They evaluate grants, interview grantees, and convene groups to offer feedback. This is all swell, up until they feel like they’ve heard all the arguments and sorted through all the options. The thing is: They haven’t. Even the toughest-minded friend tends to tread gently when they know they may be saying something that a funder doesn’t want to hear. The result is an amiable conspiracy of silence.

That’s why prickly scrutiny is so healthy. Skeptics can raise the unpleasant issues and ask the annoying questions that friends typically won’t. But most of the critics tend to be nasty, conspiratorial, and ad hominem—which doesn’t do much to promote serious discourse. Instead, it makes funders defensive, which further irritates critics—leading some to turn increasingly nasty, prompting funders to tune them out even more firmly. And around and around we go.

I wish I knew what to do about any of this. But I don’t.

So, I’ll just observe that critics have a point when they complain about the lack of accountability for funders and staff. When ambitious foundation efforts go south in ways that cause headaches and problems for the rest of us, it can be hard to tell if anyone is ever held accountable. This feels especially off to observers who routinely hear funders talk about the importance of holding schools and educators accountable for their performance.

It takes money to do things. Programs, staff, research, advocacy, and pretty much everything else that happens in school reform requires funding. This gives funders oceans of influence. Yet this influence is accompanied by a sea of quirks that rarely get the examination or attention they merit. After all, it seems like we should expect foundations be at least as answerable for their actions as they’d like educators to be.

This post originally appeared on Rick Hess Straight Up.

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The future of corporate taxation in a digital world - The Femsplainers Podcast Ep. 9: Has Porn Ruined Sex? - AEI

Tue, 07/03/2018 - 10:32

On this episode of the AEI Events Podcast, tax policy experts gathered to discuss the European Commission’s proposed plan to tax digital commerce. The commission has set forth both an interim plan and a longer-term solution, which will require unanimous consent of the member states to become law.

First, European Finance Commissioner Pierre Moscovici outlined the goals and major objectives of both plans. The interim plan consists of a 3 percent tax on various types of digitally facilitated commerce that meet the commission’s new “significant digital presence” standard. The long-term solution would entail harmonizing corporate tax policies among the member states to establish a uniform formula for digital taxation. Each plan rests on the principal that users are creating value and the states they reside in should be able to tax that value. AEI’s Stan Veuger then discussed the proposal with Mr. Moscovici, focusing on the goals, taxation principals, and political obstacles of the plans.

Later, Itai Grinberg from the Georgetown Law Center, William Morris from PricewaterhouseCoopers, Stephen Quest from the European Commission, and Joann Martens Weiner from George Washington University joined Dr. Veuger on a panel to further discuss the digital corporate tax.

This event took place on April 19, 2018.

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

GDPR: Privacy as Europe’s tariff by other means? - The Femsplainers Podcast Ep. 9: Has Porn Ruined Sex? - AEI

Tue, 07/03/2018 - 10:00

Yesterday the European Commission issued a hard-hitting paper criticizing President Trump’s threat to tariff cars imported from the European Union (EU). Trump has touted tariffs as a (misguided) attempt to prop up American manufacturing and reduce the trade deficit. But while America has a $101 billion overall trade deficit with the European Union, it maintains a $70 billion trade surplus in digitally-deliverable services. And in that vein, the EU’s new privacy law, the General Data Protection Regulation (GDPR), may have the same effect for the European tech sector that Trump hopes tariffs will have for American manufacturers: making space for domestic production by raising costs on foreign businesses.


The effect of the GDPR

The GDPR sets guidelines for collecting and processing the personal information of EU residents. Companies must engage in data protection by design and by default, requiring greater privacy protections than most other legal regimes, and are generally prohibited from using that data without informed consent. Importantly, the law applies not only to companies within the EU, but to any company that collects data about an EU resident. And the penalties for noncompliance are steep: Companies in violation can be sanctioned up to 4 percent of global revenue.

The costs of implementing such GDPR initiatives as tracking individual consent, storing data pseudonymously, hiring a data protection officer, implementing a right to erasure, and the like are significant. Forbes estimates that American Fortune 500 companies will collectively spend $7.8 billion on GDPR compliance. Facebook noted that it assembled “the largest cross-functional team” in the company’s history to meet the EU’s new demands.

But perhaps more significant than these direct costs is the GDPR’s indirect cost: the potential loss of services to European consumers. Behnam Dayanim, a partner at the law firm Paul Hastings who handles GDPR compliance, explained that American companies have “to think very hard about whether they really want to do business with EU data subjects.” When the GDPR came into effect in May, some US-based websites (most notably, news sites such as the Los Angeles Times and Chicago Tribune) became temporarily inaccessible for EU residents due to concerns that imperfect implementation would trigger liability. Many smaller American companies chose simply to block European users and withdraw from the EU market completely, including Washington-based online gaming company Uber Entertainment, mobile marketing company Verve, and many others.

The chilling effect on digital products available to European consumers could be significant. Even if companies are not actively marketing to European residents, they may have European visitors interacting with their webpage, taking advantage of marketing offers, or subscribing to newsletters. If these interactions result in retention of personally identifiable information, the company is subject to the GDPR. The ease with which a company may find itself bound, coupled with the cost of compliance and potentially draconian penalties for violation, creates strong incentives for companies to withdraw — aggressively — from European markets.

Making Europe great again?

Under the cynical logic of protectionism, tariffs increase foreign companies’ costs of doing business, which reduces their market share and makes room for domestic producers to compete. One could argue that by encouraging smaller American companies to withdraw from Europe and increasing the cost for larger companies to do business there, the GDPR similarly provides some assistance to native European tech companies that have thus far failed to get traction in internet markets. US Secretary of Commerce Wilbur Ross alluded to this, noting that the “GDPR’s implementation could significantly interrupt transatlantic co-operation and create unnecessary barriers to trade, not only for the US, but for everyone outside the EU.”

Although this has not been an explicit argument by GDPR supporters, the European Commission’s rhetoric has at times taken a somewhat nationalistic tone. On the eve of implementation, European Commissioner for Justice, Consumers and Gender Equality Věra Jourová  stated in a press release that “personal data is the gold of the 21st century,” and that through the GDPR, “Europe asserts its digital sovereignty.” The European Commission’s Twitter account similarly celebrated that the GDPR “put[s] the Europeans back in control of their data,” implying perhaps that this control needed to be wrestled away from the mostly non-European companies that dominate the digital world.

This implication fits a broader narrative that some tell about enforcement of EU law in digital markets. Apple, Facebook, Uber, and Google have all faced significant penalties in recent years for running afoul of various EU laws. When Google received a record $2.7 billion fine for violating EU competition law with its search result algorithm, some American commentators asserted anti-American bias. The rhetoric was heated enough that the EU’s top antitrust official, Margrethe Vestager, issued a statement disclaiming any bias against American companies. (For the record, I have no reason to doubt her.)

Of course, it is important not to overstate the connection to tariffs. GDPR compliance differs from Trump’s protectionism in one important respect: that domestic European firms must incur the same costs as American firms. But as Forbes notes, the cost of GDPR compliance is falling disproportionately on American firms because many European companies in the space already have measures in place due to pre-GDPR EU law. As an aside, I also recognize there are legitimate, non-protectionist reasons to support greater privacy rights, which are popular among European consumers.

But regardless of intent, the GDPR may have an effect on European consumers akin to the effects that Trump’s tariffs will have on Americans: It may reduce the percentage of foreign commerce in the domestic market, denying consumers some choice and raising prices to pursue a different policy objective. The European Commission was right that tariffs could weaken the US economy, and the GDPR might similarly harm the EU.

Urban-rural divide isn’t what it seems - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 07/03/2018 - 05:00

As America’s culture wars continue to rage, a common narrative reports widening ideological and political gaps between urban and rural Americans and a middle America in deep economic decline. Many argue that big-city dwellers simply have different priorities, and different views about the world and their role in it, than those living in small, rural communities.

In “The Left Behind,” Princeton sociologist Robert Wuthnow makes the case that rural Americans, when they think of problems facing the nation, focus more on issues of morality and governance in Washington than on economic considerations. But, despite media perceptions and Wuthnow’s thousands of interviews of rural Americans, the argument that urban and rural areas have diverged in terms of their priorities does not hold up when we look at decades of survey work.

I compiled national samples of New York Times survey data from 2006 through 2016 — the same time frame used by Wuthnow. These surveys regularly asked thousands of Americans: “What do you think is the most important problem facing the country today?” I then broke down the data by urban areas, with suburbs included, and found no geographic differences whatsoever. Rural Americans and city dwellers exhibited practically the same priorities over time.

More specifically, I coded the responses into a number of distinct groups, including: 1) economic considerations, 2) education, 3) values and morals including religious values and questions of community and family, 4) concerns related to leadership and governmental dysfunction, and 5) cultural considerations — that is, items that tend to be hot button culture war items such as immigration, gun control, race relations, global warming, and poverty. This list is not exhaustive and excludes defense, national security, terrorism, and international relations. However, these five groupings accounted for about two-thirds to a half of the total responses examined over the decade.

While the relative importance of the five categories changes as priorities fluctuate, at no point does the survey data show that economic concerns are any less important to rural Americans than to urban dwellers — or that moral, family, or religious values are more important to the people living in small towns than they are to those living in big cities.

From June 2015 through the start of 2016 — the period of Trump’s rise and of a notable increase in partisan incivility — 25 percent of urban and suburban residents cited economic concerns as the most important issue facing the nation compared to 22 percent of rural dwellers. Eleven percent of city dwellers cited concerns about leadership in the government compared to 16 percent of rural Americans. Cultural questions, including on immigration, gun control, race relations, and poverty, were more salient in urban areas at 21 percent compared to 16 percent in rural areas. Not a significant difference. Finally, while moral considerations were highest in rural areas at 7 percent compared to 4 percent in urban areas including the suburbs, this is, again, a minor difference.

In fact, moral considerations hovered collectively around 5 percent and remained flat between 2006 and 2010 for suburban, urban, and rural residents. Issues of education — long-standing drivers of engagement in American communities — barely moved above the 3 percent range for all areas. In contrast, concerns about the economy and jobs were as high as 70 percent in the beginning of 2010 but dropped down to the mid-20 percent range by the start of 2016. During the Obama administration, cultural considerations jumped from the single digits to the mid-20 percent range across all geographic areas, with urban areas being a few points higher than rural areas.

These data tell a different story than the “culture wars” narrative suggests. The differences in reaction to the issues between urban and rural Americans are slight. While hot button culture war items such as immigration, gun control, race relations, global warming, and poverty have become more salient over time and are now regularly cited as being as important as economic considerations, concerns about community, values, and morality have been in the single digits for the past decade. They may surface in lengthy interviews, but they aren’t of concern in relatively quick surveys where Americans offer an immediate response about what they take to be the most significant problem facing the nation.

Wuthnow is absolutely correct both that there are urban and rural differences such as stated ideological leanings and that the political system is polarized. But he is wrong about priorities. Questions of morality are low priority issues for almost all Americans. Economic considerations ebb and flow, and urban and rural Americans do not diverge. We cannot ignore thousands of Americans who offer survey responses which reveal consistent patterns of unity over a decade.

As we head into the July 4th holiday, we might take solace in the empirical record, which suggests Americans may not be as divided as many studies and articles suggest.

Samuel J. Abrams is professor of politics at Sarah Lawrence College and a visiting fellow at the American Enterprise Institute.

Carpe Diem quiz on the Declaration of Independence - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 19:38

To help celebrate Independence Day this week, test your knowledge of the Declaration of Independence Day with this new 14-question CD quiz. You need six correct answers to pass!

You’ll find the correct answers and more facts here, here, here and here.

Loading Carpe Diem Declaration of Independence Quiz, July 2018

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Study: ‘Much of the political debate about immigration takes place in a world of misinformation’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 19:11

“Ain’t it like most people? I’m no different/We love to talk on things we don’t know about” is one of my favorite Avett Brothers lyrics from one of my favorite Avett Brothers songs. Strong opinions may not necessarily be informed ones. Those lyrics popped into my head as I was perusing the new NBER working paper “Immigration and Redistribution”
by Alberto Alesina, Armando Miano, and Stefanie Stantcheva. The research designed and ran survey of 22,500 respondents from six countries (France, Germany, Italy, Sweden, the UK, and the U.S).

A young boy holds an American flag in front of the U.S. Government Federal building during protest against U.S. President Donald Trump’s immigration policies in New York City, U.S., June 26, 2018. REUTERS/Brendan Mcdermid

They think that there are many more immigrants than there actually are. They also have incorrect views about the origins of immigrants: they overestimate the share of immigrants from the Middle East, North Africa, and the share of Muslim immigrants, and they sharply underestimate the share of Christian immigrants. Natives also believe that immigrants are poorer, more reliant on the host country’s welfare state, more unemployed, and less educated than they actually are. All these misperceptions contribute to making natives more averse to redistribution, as they perceive that immigrants are culturally and religiously more distinct from them and that they benefit disproportionately from the generosity of the welfare state.
Respondents who know an immigrant personally have more accurate perceptions; the opposite holds for respondents who live in high immigration areas, although both of these margins are endogenous. Misperceptions about immigrants, and the subsequent lack of support for immigration and redistribution, are starkest among three groups of respondents: the non-college educated, the low-skilled working in immigration intensive sectors, and right-wing respondents. … Given the very negative priors that people have of immigrants, our randomized order treatment that prompts respondents to think about immigration and immigrants’ characteristics generates a significant negative effect on support for redistribution. Respondents who are prompted to think that at least some immigrants are very hard-working become significantly more favorable to redistribution. However, if respondents are also first prompted to think in detail about immigrants’ number and composition, then none of the favorable information treatments is able to compensate for the negative priors that resurface and that lower support for redistribution.

These results suggest that much of the political debate about immigration takes place in a world of misinformation. Citizens and voters have distorted views about the number, the origin, and the characteristics of immigrants. The amount and nature of information that citizens receive is endogenous. Anti-immigration parties have an incentive to maintain and even foster the extent of misinformation. Because information is endogenous, a vicious cycle of disinformation may arise. The more natives are misinformed, the more they become averse to immigrants and redistribution, and the more they may look for confirmation of their views in the media. As a result, the media has an incentive to offer information supporting these views. For instance, immigrants who commit crimes or who free-ride on the welfare system may receive more media coverage than a non-immigrant doing the same. In addition, anti-redistribution parties, even those not averse to immigration per se, can play the immigration card to generate backlash against redistribution.

The bit I boldfaced is pretty incredible. Making people think about immigration sort of makes them impervious to favorable information about them. Again from the paper:

To sum up, asking respondents about a series of characteristics of and attitudes towards immigrants before asking them about redistribution makes them significantly less favorable to redistributive policies. Presumably, this is due to the very negative baseline views they hold about immigrants, which are made salient as they go through our detailed questions. Providing some piece of reassuring information about immigrants on top of this – whether their actual number, their actual origins, or their hard work – does not manage to counteract the negative effect on support for redistribution.

“Immigration and Redistribution by Alberto Alesina, Armando Miano, and Stefanie Stantcheva

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The media’s coverage of retirement saving really is terrible - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 18:46

Americans worry about retirement, and understandably so. Not because there’s an actual retirement crisis in the making, but because Americans are everywhere told that there is. A recent lengthy Wall Street Journal treatment of Americans’ retirement savings – titled “A Generation of Americans Is Entering Old Age the Least Prepared in Decades” – is one of the most depressing examples I have seen recently, and I’ve seen many. The Journal’s coverage of Americans’ retirement prospects serves up flawed data tied to touching but unrepresentative personal case studies, all the while ignoring clear indications that retirement savings and retirement incomes have never been higher.

Saving for retirement, in simplest terms, is about being able to maintain your pre-retirement standard of living once you cease working. So how are we doing? It depends on who you ask. There is an entire cottage industry, an odd alliance between progressives who wish to expand Social Security and financial industry executives who want you to buy more of their saving products, who argue that most Americans are saving well short of what they need to provide a decent lifestyle in retirement.

The Journal’s exposition wholeheartedly embraces this viewpoint, while lacking even the basic journalistic responsibility to double-check their facts. As a result, the Journal’s narrative is brutally undercut when accurate data are presented.

A central claim of the Journal article is that retirees’ “median incomes including Social Security and retirement-fund receipts haven’t risen in years…” If retirees’ incomes truly haven’t risen since 2000, as the Journal claims, this would be a problem: for retirees to maintain their pre-retirement standards of living, their retirement incomes should rise at roughly the same rate as the earnings of workers in the economy.

And yet, the Journal’s claim of stagnant retirement incomes is simply and unequivocally false. In reality, retirement incomes – for rich and poor alike – have risen substantially faster than the wages and salaries that retirement benefits must replace once individuals stop working.

The Journal produced their depressing retirement incomes figures by relying on a government dataset – the Current Population Survey (CPS) – which has been proven to dramatically undercount the income retirees’ receive from private retirement plans, measuring less than half of total private pension payouts. A recent Census Bureau study which compared CPS figures to internal IRS tax return data found that the CPS understates the median retiree’s true income by a massive 30%.

The data cited by the Journal also understates the growth of retirement incomes: in contrast, the Census Bureau study found that the median retiree’s income rose by 32% above inflation from 1990 through 2012, a period during which SSA data show that real median wages for workers rose by only about 11%. When retirement incomes grow faster than worker earnings, retirees will generally have a greater ability to maintain their pre-retirement standard of living.

And incomes did not grow only at the median: over that same 1990-2012 period, incomes for lower-income retirees rose by 31% and the poverty rate among Americans 65 and older dropped from 9.7% to 6.7%, reflecting rising incomes even for poorest retirees.

Likewise, incomes increased more for younger retirees, aged 65 to 74, than for the oldest retirees aged 85 and over. This is the opposite of what you would expect if the gradual shift from traditional defined benefit pensions to 401(k)s was, as the Journal reporters claim, undermining retirement income adequacy.

Much of this increase in retirement incomes is due to rising benefits paid from private retirement plans. For instance, publicly-available IRS data show that from 1996 through 2016, total payouts from private retirement plans increased by 136% above inflation, versus an 80% real increase in total Social Security retirement benefit payments. When other sources of retirement income grow faster than Social Security benefits, this implies that retirees are becoming less dependent on Social Security to get by in retirement.

Private pension benefits are also being more broadly shared. Again from 1996 to 2016, the number of Social Security retirement beneficiaries rose by 32%; over that same period, the number of individuals receiving taxable pension/annuity payments rose by 46% and the number of individuals receiving taxable payouts from retirement accounts such as IRAs and 401(k)s rose by 140%.

Hard data show that more Americans are collecting higher private retirement plan benefits and becoming less dependent on Social Security. And yet, the Journal tells us, “Americans are reaching retirement age in worse financial shape than the prior generation.”

The Journal also hits on health costs in retirement, which are, to be sure, a matter of concern. But rising health costs are a matter of much bigger concern to the states and federal governments, which foot most of the bill for Medicare and Medicaid, than for retirees themselves.

Yes, examples of extraordinary health costs can easily be found; we’re a country of 300 million people with a highly-flawed healthcare system, so you’re going to see some very difficult individual cases. But again, there is no broad crisis. Data from the Consumer Expenditure Survey show that out-of-pocket health costs are about the same percentage of retirees’ incomes today as during the 1980s. While health costs have risen, retirees’ incomes have risen at least as fast. And, like the CPS, the Consumer Expenditure Survey tends to underestimate retiree’s incomes, so it is likely that true health costs have declined as a percentage of retirement incomes over the past several decades.

Other research on long-term care costs from economists at the RAND Corporation finds that – in good part to due to Medicaid and Medicare footing the bill – the average retiree household spends only $7,300 on long-term care over its entire retirement. Ninety-five percent of households spend less than $47,000 on total long-term care costs throughout retirement. Long-term care insurance makes sense for many retirees, but the fact that bankruptcies are lower among retirees than among working-age households tells us that truly catastrophic health costs are relatively rate.

The Journal is right to highlight the increase in households entering retirement with debt, which in part is a function of government efforts to encourage home and education lending. But again, context is needed. The Federal Reserve’s Survey of Consumer Finances shows that, even including debt payments, most retirees do not even consume their entire incomes. Likewise, for many households net worth inclusive of debt increases as they grow older.

One reason for the financial security of today’s retirees is that retirement savings have been rising rapidly. Federal Reserve data show that in 1975, the height of traditional pension participation, total retirement plan assets were equal to just 50% of the wages and salaries those assets would replace in retirement. By 2015, total retirement savings topped 300% of total wages, a six-fold increase. Likewise, Department of Labor data show that contributions to private retirement plans rose from an average of about 6% of employee wages in the 1970s to over 8% today, a shift that results in a roughly 25% increase in savings available to fund retirement incomes.

All of these facts help explain why 78% of current retirees tell Gallup they have sufficient money to live comfortably, versus only about 63% of working age households. Polls show that Americans worry about retirement, but once they reach it many of those worries go away. There simply is not an income crisis among today’s retirees. The great majority of current retirees are doing fine.

Oh, but it’s not about today’s retirees, I sometimes hear. It’s about future retirees. I can hear Little Orphan Annie singing, tomorrow is always a day a way. Yet it’s not clear why the crisis should be waiting for tomorrow. Participation in traditional defined benefit pensions – the decline of which the Journal calls “the biggest reason… many Americans [are] facing a less secure retirement than their parents” – peaked in 1975 at less than 40% of the workforce. By the Journal’s logic we surely should have a retirement crisis already. Instead, retirement incomes are rising and poverty in old age is dropping.

If we’re interested in tomorrow’s retirees, why not consult with groups like the Social Security Administration and the Urban Institute, who have constructed the most sophisticated computer forecasts of retirement saving? Maybe it’s because these models don’t project a retirement crisis either. For instance, the Urban Institute’s Dynasim model estimates that the median retiree in 2015 had income sources and assets sufficient to support a total annual income of $37,887. By 2025 real median incomes are projected to rise to $40,880, and to $42,165 by 2035. The Urban Institute model also projects that poverty rates in old age will fall, a reflection of high real incomes among the poor.

The Journal gets around this by instead citing the Center for Retirement Research’s (CRR) “National Retirement Risk Index,” which claims to show that 44% of Americans aged 55 to 59 have insufficient savings to maintain their pre-retirement standard of living. I like and respect the researchers at the CRR, but I just don’t buy these figures. For one, their model hasn’t been peer-reviewed and isn’t documented in enough detail for other researchers to replicate or disprove their results. Reporters are happy to simply be given a number, so long as that number supports their story’s conclusions, but researchers want to know how that number was generated. I’ve elsewhere raised a number of methodological concerns about the Retirement Risk model, most of which would bias it toward projection too many households at risk of undersaving. Regardless, there are other studies, which are replicable and which have been peer-reviewed, which find that most households are prepared for retirement and retirement saving shortfalls, where they exist, tend to be modest. Why not cite them all so readers at least know there’s a controversy?

The individual profiles the Journal includes aren’t much better. I understand that even a newspaper like the Wall Street Journal needs to highlight real-world stories rather than merely dry statistics. But, in a responsibly-written article, individual examples are chosen to illustrate trends found in the data. At least one example included by the Journal is precisely the opposite.

The Journal highlights Arthur Smith, age 61, who after 31 years of contributing to a 401(k) ended up with only $45,000 in savings, half of which he withdrew to pay for a house in his late 50s. Smith attributes his low balance to his 401(k) plan, which allowed him to invest in individual stocks rather than limiting him to diversified mutual funds. Investing in several high-risk stocks cost Smith half his savings.

All this is presumably true. And yet, only a miniscule percentage of employees participate in self-directed 401(k)s that allow them to purchase individual stocks. According to Vanguard, less than one-third of 401(k) plans allow for individual stock purchases and only 1% of employees offered a self-directed 401(k) use that option. So the Journal’s supposed illustration of today’s retirement crisis in fact represents an uncommonly bad outcome among less than one half of one percent of 401(k) participants. And of that tiny group, only a tiny proportion invest most of their 401(k) using that brokerage option; most keep the majority of their accounts in ordinary investments. In reality, it is far more common for employees to take precisely the opposite approach: Vanguard reports that 58% of its 401(k) participants hold their savings entirely in target-date funds, which are broadly diversified low-cost mutual funds that automatically shift from stocks to bonds as the worker approaches retirement. Others supplement target-date funds with additional mutual funds. Instead of day-trading, most retirement saving is becoming highly automated. The Journal’s case-study, however tragic, is a black swan, not a trend.

Should the Journal’s reporters have known about all this? Sure, particularly had they read their own newspaper, in which I’ve publicized many of these findings over the years, including in a 2017 Wall Street Journal debate on retirement saving curated by one of the authors of the recent Journal piece. Even if they hadn’t seen any of this work, good journalism involves seeking out opposing opinions.

The Journal’s isn’t the first long-form piece on retirement savings adequacy I’ve had to take to task, and it surely won’t be the last. Retirement is an extremely important issue, both to individuals making financial planning decisions and to policymakers deciding how to fix Social Security and set tax incentives for retirement saving. A yet a great deal of media coverage on retirement saving is biased, financially illiterate or simply lazy. In short, much of the media’s coverage of retirement saving issues just stinks. That’s a great disservice to the public the media ostensibly exists to serve.

National Housing Market Indicators release for Q1 2018 - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 18:13

Key-takeaways for this National Housing Market Indicators briefing include:

  • The national home purchase market remained strong in 2018: Q1.
    • For the four quarters ending in 2018:Q1, 6.35 million sales transactions were reported.
    • Sales transactions increased 0.5 percent in the first quarter compared to a year ago, marking the 14th consecutive quarter of such increases.
  • This came despite a 7.3% year-over-year jump in FHFA’s national house price index during the first quarter of 2018.
  • The current house price boom is about 6 years old.
    • This boom is driven by too much money (demand) chasing too few properties (supply).
    • When the market is supply constricted (a seller’s market), credit easing is likely to become capitalized in price.
  • While FHA, Fannie, Freddie, and the VA are all been pro-cyclically supporting the boom through credit easing, Fannie’s recent credit easing efforts have been breathtaking.
  • Historically, higher debt-to-income ratios (DTIs) have enabled and extended housing booms. The same is happening again today.

Please find data and additional materials from our monthly call below. If you would like to receive invitations to our monthly update calls, please email Neil.Filosa@aei.org.

Presentation materials:


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How iPhones might be causing us to underestimate economic growth - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 17:59

It would be easier for America’s Two Percent Economy to become a Three Percent Economy if it were, you know, already a Three Percent Economy. And maybe that’s the case (not even including any possible recent fiscal stimulus-driven acceleration). A new Goldman Sachs report revisits the issue of whether government statisticians are mismeasuring productivity growth and thus overall economic growth.

A attendee uses a new iPhone X during a presentation for the media in Beijing, China October 31, 2017. REUTERS/Thomas Peter

Perhaps the more accurate term is “under-measuring.” Here’s the issue: Productivity growth has slumped since the mid-1990s through mid-2000s productivity boom, with the weakness beginning before the Great Recession and Global Financial Crisis. As GS notes, “At 1.3% year-over-year in Q1, the current pace [of productivity growth]  remains well below the 20-year average of 2.0% and only moderately above the ¾% post-crisis trend.” And again, faster productivity growth is critical given how demographics are weighing on economic growth.

The good news is that there is some reason to be optimistic about a productivity rebound. Moreover, maybe things are better that the statistic suggest, as I have written previously (such as here, here, and here, for instance). A big challenge is measuring the economic value associated with new products, especially free digital goods and services. One recent study looks at how much compensation consumers would require to give up Google and Facebook. Losing access to search, email, and maps suggests consumers value them at nearly $30,000 annually. Goldman: “We note that applying these estimates to the number of US households would suggest a combined value of $3.5 trillion of annual consumption! This would represent an eye-popping 0.7pp contribution to annual economic growth if applied over the past 25 years, and in our view, the truth is probably somewhere in between.”

In the report, GS tries to get at this under-measurement issue by analyzing the secondary market for iPhones, noting that prices fall sharply when a new model is released. The brief version: Using eBay-listed unused phones that are still functional on today’s cellular networks, the bank’s economics team compared compared the prices of iPhones sold in 2018 with their original prices. It found “the annualized price changes of the various models average -14% and range from -6% to -23%. This compares to telephone hardware CPI inflation of -7% since 2010.”

What’s more, the GS economist also “believe that a sizeable share of nominal smartphone consumption is misclassified in the national accounts … as either an intermediate input (which would be omitted in the GDP and PCE calculations) or as telecom services revenues (which would also understate consumption, because quality-adjusted prices are falling more rapidly for telecom hardware than for telecom services). … Taken together, we believe the combined ‘missing growth’ from smartphones is on the order of 0.1-0.2pp for annual real consumption growth (and as much as 0.15pp per year on a GDP basis).

The bottom, bottom line here is that given the 68% consumption share of GDP, and the GS view that business investment is also understated  by as much as 0.3 ppt annually, “we arrive at a combined mismeasurement of US GDP growth of between ⅔pp and ¾pp per year, up from around ¼pp two decades ago. While all of these numbers are quite uncertain, this analysis and the recent developments in the literature increase our conviction that the current pace of productivity growth is meaningfully higher than it appears.” It also worth noting that GS not only thinks there is a significant gap, it thinks it has gotten worse over time — another contentious issue in the economics world.

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After action report: How military veterans did in the June 26th primaries - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 16:39

Another round of candidates across the US have met their first major electoral test and are one vital step closer to serving their state at home or in Congress in January 2019. Five additional states—Utah, Oklahoma, Colorado, Maryland, and New York hosted primary elections on June 26th. Leading up to the election, 54 veterans within these states were running for office; 26 will continue on to November. The majority unsurprisingly was running as Democrats or Republicans, though seven candidates filed as a Libertarian, Independent, American Constitution (Colorado), Green (Maryland and New York), or Reform (New York) party candidate.

People vote at a polling place at the Canterbury Town Hall polling station in Canterbury, New Hampshire February 9, 2016. REUTERS/Shannon Stapleton

Despite being a Red, western state with several military installations, three characteristics that are often assumed to correlate with higher levels of politically active military veterans, Utah has elected relatively few veterans to public office. In 2016, the last year a state-by-state analysis was done, Utah had the fewest veterans out of all 50 states in its state legislature (5). Around 150,000 veterans call Utah home, 61,544 of which are “current conflict” veterans. Utah’s defense industry contributes around $8.3 billion to the state’s GDP, and is equivalent to the state’s construction industry in providing jobs. Hill Air Force Base alone, which is north of Salt Lake City, contributes some $4.5 billion to the state’s economy.

Nevertheless, outside of Libertarian Craig Bowden (Marine Corps) running for Senator and Independent Greg Duerden (Air Force) running in District 3, only one Republican and one Democratic candidate were veterans. In District 1, the electoral race did not go in Democratic candidate Kurt Weiland’s (Army) favor, though he did earn 43.5% of the vote. Republican Chris Steward (Air force) fared better in District 2, but as the current incumbent who faced no challengers, he had some advantage there.

A little over 10% of Oklahoma’s adult population are veterans, with the majority of the 304,035 Oklahoma veterans having served during the Vietnam War era. Three Air Force bases and two Army installations are located in the state, which contribute around 7% of the local economy.

Nine veterans were running in gubernatorial, congressional, and state attorney general races on June 26th. With current Governor Mary Fallin term limited, the office had Liberterian Chris Powell (unclear branch of service), Republican Eric Foutch (Air Force) and Democratic Drew Edmondson (Navy) contending for it. Edmondson will remain on the ballet for November, but Foutch will not. Republican Gentner Drummond (Air Force) is in a runoff contest with incumbent Mike Hunter for the position of state attorney general. In District 2 and 4, Democratic candidates Clay Padgett (Army) and Fred Gipson (Army) respectively are also headed to runoff elections. Fellow Democrat Elysabeth Britt (Marine Corps) was not successful in District 5. Incumbent Congressman Steve Russell (Army) in District 5 was the only successful Republican candidate coming out of the primary—neither Andy Coleman (Air Force) in District 1 nor Jarrin Jackson (District 2) was successful.

Both the Air Force and the Army have instillations in Colorado, which is home to the US Air Force Academy in Colorado Springs. Out of a total state population of 5.4 million, around 395,000 are veterans. The Colorado median age is 32.6 years old, which fits generally with the age cohort of veterans running for office there—in general, they are Post-9/11 veterans.

Running for governor were Republican Greg Lopez (Air Force) and American Constitution Party George Cantrell (Navy). Lopez lost his primary bid. Republican George Brauchler (Army Reserve/Army National Guard) won his bid to appear on November ballots for state attorney general. Among the congressional candidates, one Democrat out of three and one Republican out of two was successful. Incumbent Republican Congressman Mike Coffman (Marine Corps) in District 6 had an uncontested race. He’ll face fellow veteran, Democrat Jason Crow (Army) in the general election. The other veterans who lost their primaries were running in Districts 2, 5, and 5.

With its proximity to Washington, DC, there’s little surprise that Maryland is home to some 380,000 veterans according to the Department of Veteran Affairs, the majority of whom live in the counties and congressional districts closest to DC. Maryland is also home to the Naval Academy in Annapolis. Gulf War I and II era veterans make up 42% of the state’s veteran population—nearly all of the 20 Maryland veterans who ran in this year’s primary are from these cohorts, being predominantly Post-9/11 veterans.

Two of the Democratic senatorial challengers are veterans, and both did quite poorly—the notorious Chelsea Manning (Army) only earning 1.4% of the votes. Four of the Republican challengers are veterans, with Tony Campbell (Army) winning the nomination. Mia Mason (Navy, Army, Army National Guard) is also running, on the Green Party ticket. One Libertarian, Dave Bishop (Marine Corps) is running in District 4. Eight Democratic and three Republican veterans were running for a congressional nomination—two Democrats won: Incumbent Anthony Brown (Army) ran uncontested in District 4, while Jesse Colvin (Army) won in District 1. Republican incumbent Andy Harris (Navy) also won his primary in District 1, against a challenge from Army veteran Martin Elborn. Other veterans running in Districts 2, 3, 5, and 6 lost their bids. Republican Craig Wolf (Army), however, had an easier go of it, with an uncontested bid for state attorney general.

New York
The Empire State is home to perhaps the most political diverse set of veterans pursing “second service.” Among the 14 veterans pursuing electoral bids this primary season are Green and Reform Party, and Libertarian, candidates, along with Democrats and Republicans. Green Party Candidate Howie Hawkins (Marine Corps) and Libertarian Larry Sharpe (Marine Corps) are both making gubernatorial bids. The Reform Party held its first primary in New York this year, and Mike Diederich, Jr. (Army Reserves) emerged from that as the Reform candidate for state attorney general.

Seven Democratic and four Republican veterans made congressional bids, in Districts 1,2, 3, 5, 11, 15, 19, and 23. Among Democrats, incumbent Jose Serrano (Army) in District 15 will be on the November ballot, as will newcomer Max Rose (Army, National Guard) in District 11 and newcomer Max Della Pia (Air Force) in District 23. Among Republicans, incumbents Lee Zeldin (Army) in District 1 and Peter King (Army) in District 2 ran unopposed. They will be joined by Huntington Republican Committeeman Dan Debono (Navy SEAL) in District 3, who also ran unopposed.

According to US Census data, close to a million veterans call New York State home, with a significant portion of these being among the older Vietnam Era or peacetime cohorts. However, veterans running for political office are more likely to be younger veterans, either from the Post-9/11 or Gulf War I era cohorts. This likely has some connection to the contentious presence and long absence of ROTC and similar programs in the state’s highly populated urban areas and prestigious college campuses since Vietnam, which has only recently begun to be reversed.

A note about the Mississippi and South Carolina runoffs:
Mississippi and South Carolina are among ten states that mandate runoff elections in instances where no candidate in a particular race achieves a certain percentage of votes. Mississippi’s runoff on June 26th produced no new veteran candidates nor eliminated any either. In South Carolina, incumbent Republican Governor Henry McMaster (Army, Vietnam Era) prevailed against challenger John Warren (Marine Corps, Post 9/11 Era). Fellow Republican and incumbent state attorney general Alan Wilson (Army, Post-9/11 Era) also prevailed. In District 2, Democratic candidate Sean Carrigan (Army, Gulf War Era I & II/Post-9/11) also successfully defended his candidacy and will proceed to the November election. For how these election outcomes may or may not change the overall picture in their respective states, read the earlier entry here and here.

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NATO summit 2018 | In 60 seconds - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 15:12

Despite calling NATO obsolete during his presidential campaign, President Trump seems to be doubling back on his words. AEI’s Dalibor Rohac offers insight into how Trump will approach discussions with Europe at the upcoming 2018 NATO summit.

Nuclear power’s demise can’t be stopped - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 14:45

As the use of natural gas for electricity production increases, consumers are in for a shock. Electricity prices could skyrocket if an explosion in a major interstate natural gas pipeline leads to a cascading blackout. This inflammatory and unprovoked warning surfaces in a study done for the Nuclear Energy Institute on the risk of growing dependence on natural gas due to continued nuclear plant retirements.

An electrical substation is pictured in West Lake, Louisiana, U.S., June 12, 2018. REUTERS/Jonathan Bachman

What’s remarkable about the salvo fired against natural gas is that it comes from an energy sector with its own history of getting targeted for being unsafe: the nuclear industry. Since the Three Mile Island accident in 1979, many reasonable people have entertained reasonable doubts about nuclear power. By contrast, natural gas has a reputation for efficiency, economy, public health, and safety.

The study, by ICF International, focuses mainly on the mid-Atlantic electric grid known as the PJM Interconnection, which extends across 13 states from the Atlantic coast to the Midwest. It maintains that a “significant gas infrastructure event” could cause blackouts in the region for multiple days if the existing nuclear power is retired. The study said this sort of gas system disruption, the result of an explosion or cyberattack, could cut off 27,000 megawatts of gas-fired power in a region that has come to depend more heavily on natural gas because gas is cheaper and has greater public acceptance than either nuclear power or coal.

The NEI-sponsored study, while acknowledging that the interstate gas pipeline system is “robust and highly interconnected,” pointed to an April 2016 rupture on Texas Eastern Transmission LP’s Penn-Jersey system that affected multiple pipelines and necessitated monthslong repair work, along with a June 2013 instance of leaking failed wells that affected flows on ANR Pipeline Co.’s Southeast Mainline. Neither incident led to blackouts, but the study noted that the Texas Eastern incident disrupted flows of resources that were not being used especially heavily at the time.

Natural gas pipelines are robust and resilient. The Department of Transportation says that pipelines are the most efficient and reliable way to transport natural gas.

There has been a dramatic increase in domestic gas production. Since 2010, an abundance of shale gas produced with the use of new revolutionary technologies (a combination of hydraulic fracturing and horizontal drilling) has helped buoy the nation’s economy, reduce consumer costs for gas and electricity, while bringing on a manufacturing resurgence, creating thousands of jobs, and enabling utilities to switch from coal to natural gas for electricity generation. This has improved air quality and led to a dramatic decline in greenhouse-gas emissions.

On the other hand, the coal and nuclear industries are lobbying the Trump administration to save financially distressed coal and nuclear plants in order to maintain electricity reliability, but the Federal Energy Regulatory Commission says that reliability is not at risk. Thanks to the shale revolution, America’s electricity needs are now being met primarily with natural gas.

The idea that natural gas could become the No. 1 source of electricity production seemed improbable at one time. But it no longer is. Natural gas eclipsed nuclear power as an energy source for electricity generation in 2006 and coal in 2016 to become the nation’s largest source of electricity. Unlike nuclear power, natural gas has played a significant role in the renaissance of lower energy prices.

There is no turning back the clock. Despite the nuclear industry’s guile, there is a good chance that natural gas, along with solar and wind energy, will outperform nuclear power and eventually replace it in the production of America’s electricity.

Related reading:

Waiting for Trump to shrink the trade deficit? Don’t hold your breath - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 14:01

The Trump administration’s trade policy suffers from the most basic of contradictions that dooms it to failure.

Purportedly, the administration wants to impose increased import restrictions on our trade partners to help eliminate the US trade deficit. Yet, the administration follows policies that will both increase the U.S. budget deficit and that will have the unintended consequence of strengthening the U.S. dollar.

President Donald Trump holds a meeting on trade with members of Congress at the White House in Washington, US, February 13, 2018. Reuters

That combination of an increased budget deficit and a stronger dollar is bound to cause the U.S. trade deficit to widen rather than to narrow.

As the International Monetary Fund will be the first to tell you, any country that wishes to eliminate its trade deficit while still maintaining full employment logically needs to do two things:

First, it needs to reduce the level of the country’s domestic expenditure to make room for the increase in exports and the reduction in imports needed to reduce the trade deficit. Second, it needs to weaken its currency so that exporters are incentivized to export, and importers are discouraged from importing.

Seemingly oblivious to that logic, the Trump administration is pursuing policies exactly the opposite of those necessary to reduce the trade deficit.

For a start, rather than attempting to reduce the country’s domestic expenditures and to raise its savings level, it is choosing to pursue an expansive fiscal policy at this very late stage in the economic cycle that is sure to increase the budget deficit.

This policy has included the introduction of the unfunded Trump tax cut that will increase the U.S. public debt by around $1.5 trillion over the next decade. It has also included going along with a $300 billion congressional increase in public spending over the next two years.

At the same time, it is pursuing a reckless fiscal policy, the administration is also following policies that are bound to cause a strengthening rather than a weakening in the U.S. dollar.

By pursuing an expansive fiscal policy at this late stage in the economic cycle, the administration is forcing the Federal Reserve to be more aggressive in raising U.S. interest rates to avert inflation than would otherwise be the case.

The administration is forcing the Fed to do so at a time that both the European Central Bank and the Bank of Japan are still engaged in quantitative easing and in maintaining ultra-low interest rates.

With the Federal Reserve in a monetary policy tightening mode and with Europe and Japan still in a loosening mode, it is little wonder that the dollar has strengthened by around 5 percent over the past three months.

Further putting upward pressure on the U.S. dollar are President Trump’s threats to intensify import protection against China and Europe. Those economies are very much more export-dependent than the United States and are likely to be more damaged than the United States by a trade war.

Those economies also are having to cope with uncertainty from Italy in the case of Europe and the deflating of a credit bubble in the case of China. At such a time of domestic economic vulnerability, the threat of further import tariffs on these economies is bound to cause these economies to weaken.

That in turn will require monetary policy responses from those economies that will further weaken their currencies against the dollar by making those countries’ monetary policies even more out of phase with that of the United States.

All of this raises the risk that when the U.S. trade deficit does not get eliminated but rather widens, the Trump administration will double down on its policy of intensifying import restrictions.

More troublingly yet, for both the U.S. and the global economies, that in turn would heighten the risk of a full-scale trade war as the U.S. trade partners felt obliged to retaliate to increased U.S. protectionism.

Hopefully, these fears will prove to be ill founded, and the Trump administration will come up with a more coherent policy approach to remedying the country’s trade deficit. However, with all the clues pointing in the opposite direction, I am not holding my breath for this to happen.

The weekly trade merry-go-round: Trump wants to withdraw from the WTO - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 13:00

It’s Monday before July 4th, and the president wants to celebrate early with another trade policy shock. As reported by Axios on Friday, and then picked up widely by other press sources, Trump has “repeatedly,” and quite recently, threatened to withdraw the US from the World Trade Organization (WTO). He admonished his staff: “The WTO is designed by the rest of the world to screw the United States.” And in an interview with NBC’s Chuck Todd, the president had asserted: The WTO is a disaster” and “we are going to renegotiate (the WTO agreement) or we are going to pull out.”

U.S. President Donald Trump speaks during a visit to Foxconn in Mount Pleasant, Wisconsin. via REUTERS.

Once again, as I have previously noted regarding Larry Kudlow, Trump’s beleaguered staff is left to sweep up the streets after the president’s carriage has passed by. In this case, Treasury Secretary Steve Mnuchin issued a classic Washington “non-denial denial.” He called the report “fake news” but only actually claimed that it was an “exaggeration.” He then conceded: “The president has been clear… that he has concerns about the WTO,[that] he thinks there’s aspects that are not fair, he thinks that China and others have used it to their own advantage, but we are focused on free trade.” (Later on Air Force One Friday, the president told reporters that he wasn’t “pulling out” of the WTO “at this point,” but again blasted the organization as “unfair” to the US.)

This has set off another legal debate, foreshadowed earlier with similar withdrawal threats regarding NAFTA and the US-Korea free trade agreement. Trade scholars are divided as to whether a president can unilaterally, and independently, withdraw from trade agreements, with some holding that the executive’s broad authority over foreign affairs gives the office sweeping authority. Others hold that, given the fact that the US Constitution gives final authority over interstate and foreign commerce definitely to Congress, that Congress must be part of any withdrawal process. In any case, only Congress could change implementing legislation associated with a trade agreement.

In a fundamental sense, the legal arguments may be irrelevant. The Trump administration is already gravely undermining the legitimacy of the WTO by the president’s expression of contempt for the body, and by specific actions that have stymied further multilateral progress.  Here the well-honed skills of US Trade Representative Robert Lighthizer have been a crucial factor. Lighthizer is steeped in WTO law and practice, and he has overseen a series of US stands to undermine the working of the organization: from refusing to allow the appointment of new judges, to recently advancing a novel (and spurious) claim that decisions are invalid if the Appellate Body went beyond the allotted time for a judgment. The US also refused to seriously discuss plans for new WTO trade negotiations at a meeting last year in Argentina.

The point is: why endure the political blowback from a full-scale withdrawal when you can achieve the same result through clever attrition?

POSTSCRIPT: In another scoop over the weekend, Axios’ Jonathan Swan revealed that some months ago, President Trump had ordered legislation drafted that would “blow up” the WTO. The bill would violate one of the WTO’s founding principles: the “most-favored-nation” provision that mandates that WTO members set the same tariff rates for all other WTO members. Under the proposed legislation, the US would be free to vary tariffs among its trading partners (known in trade jargon as “conditional most-favored-nation”).

White House trade aide Peter Navarro constructed the bill, and it was described to the president, though he was never formally briefed on its exact contents. Oher White House aides — specifically Legislative Affairs Director Marc Short —told Navarro that it was “dead on arrival,” in that Republicans in Congress would never agree to giving the president such a free, unilateral hand. Still, as demonstrated on Friday, the president himself keeps coming back to alleged “unfair” shortcomings of the WTO.

And in an interview with CNBC today, Commerce Secretary Wilbur Ross, after also blasting the WTO, would only say that “it’s a little premature to think about simply withdrawing.” So stay tuned…

Is hyperloop the future of transportation? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 07/02/2018 - 10:26

On this episode of the AEI Events Podcast, AEI cohosts a discussion with the Hyperloop Advanced Research Partnership (HARP) on the role of hyperloop in the future of transportation. The event commenced with remarks from Pete Rahn, the Maryland transportation secretary and the chairman of the Maryland Transportation Authority, who believes that Maryland has a congestion problem and that they must be open to any concept of innovative transportation that can help them better move people and things.

Following Mr. Rahn’s remarks, Dane Egli, the president and cofounder of HARP, introduced a panel of hyperloop experts to give their opinions on what the future of transportation holds. Sebastien Gendron, the CEO and cofounder of TransPod Hyperloop, believes that regulation is the key for commercialization, and his company’s objective is to develop hyperloop in the US.

Pete Stockton, managing director for Sonecon LLC, spoke of the need to include security considerations in the design process for hyperloop because if it becomes part of the foundation for American economic growth, adversaries will target it. Bibop Gresta, cofounder and chairman of Hyperloop Transportation Technologies Inc., spoke of his company’s success in actually building the first hyperloop. He believes that many exciting advances are coming soon for the industry.

This event took place on April 11, 2018.

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

How to get students to finish college – Part 2 - How to get students to finish college - Part 2 - AEI

Sun, 07/01/2018 - 10:22

This episode of the AEI Events Podacst is the second of two episodes featuring a bipartisan research symposium on college completion hosted by Frederick M. Hess of AEI and Lanae Erickson Hatalsky of Third Way. The event marked the public release of five new reports in the AEI–Third Way collaborative project “Elevating College Completion.”

The final panel features an impressive group of policy experts who discussed ways that the federal and state governments can help colleges focus on completion, without spurring unintended consequences.

The first two panels are available on the podcast here.

This event took place on May 31, 2018.

Watch the full event and access the reports discussed here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

Don Boudreaux: Protectionists as intellectual toddlers and Team Trump’s trade war on Americans - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 06/30/2018 - 14:48

Some words of wisdom on protectionism and trade wars from Don Boudreaux’s posts on the Cafe Hayek blog. From the post “A Protectionist is Someone Who…

The protectionist believes that people as producers possess an entitlement – a right – to the incomes of people as consumers.

The protectionist is someone who judges the success of a country’s economy by how well a subset of today’s producers in that country – producers who currently exist and who are today especially visible – currently are prospering.

The protectionist ignores the welfare of people as consumers, and ignores also the welfare of future producers in that country as well the welfare of currently existing yet less visible, or less politically potent, producers.

The protectionist believes that consumers exist to serve existing, visible producers. He denies that producers exist – that production is justified – only to serve consumers.

The protectionist has all of the economic sophistication of a three-year-old. But unlike a three-year-old, the protectionist too seldom matures into a creature able to improve his understanding of the world. The typical protectionist remains an intellectual toddler well into his dotage and usually into his grave. He repeats, ad nauseam, the same worn slogans, debunked myths, and laughable fallacies – just as one generation of toddlers repeats the same ridiculous and irritating temper tantrums of every previous generation of toddlers.

From the post “Let’s Lose this Trade War“:

The ultimate reason we will not win this trade war is that Mr. Trump is waging it against us. Mr. Trump’s tariffs are designed to make goods and services — including inputs for U.S. factories — not only artificially scarcer for us today but also scarcer for us into the indefinite future. The guiding philosophy of this administration’s trade policy is unalloyed mercantilism, which has among its core goals the maximization of exports and the minimization of imports. And so what Trump regards as a “victorious” outcome of his trade belligerence — his objective in waging this insane “war” — is a global trading system in which Americans, year after year after year, export more and import less. Foreigners will get more of what we produce, and we will get less of what they produce. An American “victory,” therefore, will result in non-Americans being artificially enriched at our expense. This war is one that we Americans should fervently hope to “lose.”

Amen, Brother Boudreaux.

How to get students to finish college – Part 1 - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 06/30/2018 - 10:14

This episode of the AEI Events Podacst is the first of two episodes featuring a bipartisan research symposium on college completion hosted by Frederick M. Hess of AEI and Lanae Erickson Hatalsky of Third Way. The event marked the public release of five new reports in the AEI–Third Way collaborative project “Elevating College Completion.”

On the first panel, the Urban Institute’s Matthew M. Chingos and the University of Virginia’s Sarah Turner discussed the landscape of college completion. Dr. Turner reviewed recent policy efforts aimed at addressing America’s completion problem, and Dr. Chingos highlighted academic preparation in high school as the key predictor for a student’s future success in college.

On the second panel, Kim Clark of Education Writers Association and Mesmin Destin of Northwestern University discussed best practices from colleges and universities to improve college completion rates. Ms. Clark’s research calls out several university-level programs that have proven to be particularly effective at raising completion, and Dr. Destin highlighted how various psychological factors — including motives and mindsets — also play a role in improving a student’s chance at completing college.

Part 2 will be published on Sunday, July 1.

This event took place on May 31, 2018.

Watch the full event and access the reports discussed here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

Happy 88th birthday (June 30) to economist Thomas Sowell, one of the greatest living economists - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 06/30/2018 - 04:10

One of my all-time most favorite economists — Thomas Sowell — turns 88 today, he was born on June 30, 1930. Here is Thomas Sowell’s webpage and here is his Wikipedia entry. Milton Friedman once said, “The word ‘genius’ is thrown around so much that it’s becoming meaningless, but nevertheless I think Tom Sowell is close to being one.”

In my opinion, there is no economist alive today who has done more to eloquently, articulately, and persuasively advance the principles of economic freedom, limited government, individual liberty, and a free society than Thomas Sowell. In terms of both his quantity of work (at least 45 books and several thousand newspaper columns) and the consistently excellent and crystal-clear quality of his writing, I don’t think any living free-market economist even comes close to matching Sowell’s prolific record of writing about economics. And as I’ve mentioned previously on CD, as a wrtier Thomas Sowell is truly the “Master of Idea Density” – he has the amazing talent of being able to consistently pack more ideas, insight, and wisdom into a single sentence or paragraph than what typically takes an entire essay or book for even the best writer!

Even in his 80s, Thomas Sowell has remained active and was writing two syndicated newspaper columns almost every week for the last 25 years until he “retired” from those weekly deadlines at the end of 2016 (see CD post here). At the age of 87, Thomas Sowell released his 45th book in March of this year Discrimination and Disparities — which amazingly was his 1oth book in the last decade and 22nd book since 2002! To honor Thomas Sowell’s 88th birthday tomorrow, I present below 15 of my favorite quotations from Dr. Thomas Sowell and a bonus video of the great economist:

1. Knowledge. “The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today.”

2. Obamacare. “If we cannot afford to pay for doctors, hospitals, and pharmaceutical drugs now, how can we afford to pay for doctors, hospitals, and pharmaceutical drugs, in addition to a new federal bureaucracy to administer a government-run medical system?”

3. Economics vs. Politics I. “Economics and politics confront the same fundamental problem: What everyone wants adds up to more than there is. Market economies deal with this problem by confronting individuals with the costs of producing what they want and letting those individuals make their own trade-offs when presented with prices that convey those costs. That leads to self-rationing, in the light of each individual’s own circumstances and preferences.”

4. Economics vs. Politics II. “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

Politics deals with the same problem by making promises that cannot be kept, or which can be kept only by creating other problems that cannot be acknowledged when the promises are made.”

5. Predicting the Future. “Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do– and nothing is more unpredictable.”

6. Politicians as Santa Claus. “The big question that seldom— if ever— gets asked in the mainstream media is whether these are a net increase in jobs. Since the only resources that the government has are the resources it takes from the private sector, using those resources to create jobs means reducing the resources available to create jobs in the private sector.

So long as most people do not look beyond superficial appearances, politicians can get away with playing Santa Claus on all sorts of issues, while leaving havoc in their wake— such as growing unemployment, despite all the jobs being ‘created.'”

7. Health Insurance. “Whatever position people take on health care reform, there seems to be a bipartisan consensus— usually a sign of mushy thinking— that it is a good idea for the government to force insurance companies to insure people whom politicians want them to insure, and to insure them for things that politicians think should be insured. Contrary to what politicians expect us to do, let’s stop and think.

Why aren’t insurance companies already insuring the people and the conditions that they are now going to be forced to cover? Because that means additional costs— and because the insurance companies don’t think their customers are willing to pay those particular costs for those particular coverages.

It costs politicians nothing to mandate more insurance coverage for more people. But that doesn’t mean that the costs vanish into thin air. It simply means that both buyers and sellers of insurance are forced to pay costs that neither of them wants to pay. But, because political rhetoric leaves out such grubby things as costs, it sounds like a great deal.”

8. Diversity. “If there is any place in the Guinness Book of World Records for words repeated the most often, over the most years, without one speck of evidence, “diversity” should be a prime candidate. Is diversity our strength? Or anybody’s strength, anywhere in the world? Does Japan’s homogeneous population cause the Japanese to suffer? Have the Balkans been blessed by their heterogeneity — or does the very word “Balkanization” remind us of centuries of strife, bloodshed and unspeakable atrocities, extending into our own times? Has Europe become a safer place after importing vast numbers of people from the Middle East, with cultures hostile to the fundamental values of Western civilization?

“When in Rome do as the Romans do” was once a common saying. Today, after generations in the West have been indoctrinated with the rhetoric of multiculturalism, the borders of Western nations on both sides of the Atlantic have been thrown open to people who think it is their prerogative to come as refugees and tell the Romans what to do — and to assault those who don’t knuckle under to foreign religious standards.

It has not been our diversity, but our ability to overcome the problems inherent in diversity, and to act together as Americans, that has been our strength.”

9. Greed. “Someone pointed out that blaming economic crises on “greed” is like blaming plane crashes on gravity. Certainly, planes wouldn’t crash if it wasn’t for gravity. But when thousands of planes fly millions of miles every day without crashing, explaining why a particular plane crashed because of gravity gets you nowhere. Neither does talking about “greed,” which is constant like gravity.”

10. The Anointed Ones. “In their haste to be wiser and nobler than others, the anointed have misconceived two basic issues. They seem to assume: 1) that they have more knowledge than the average member of the benighted, and 2) that this is the relevant comparison. The real comparison, however, is not between the knowledge possessed by the average member of the educated elite versus the average member of the general public, but rather the total direct knowledge brought to bear through social processes (the competition of the marketplace, social sorting, etc.), involving millions of people, versus the secondhand knowledge of generalities possessed by a smaller elite group.

The vision of the anointed is one in which ills as poverty, irresponsible sex and crime derive primarily from ‘society,’ rather than from individual choices and behavior. To believe in personal responsibility would be to destroy the whole special role of the anointed, whose vision casts them in the role of rescuers of people treated unfairly by ‘society.'”

11. There’s No Free Red Tape/Obamacare. “Do you seriously believe that millions more people can be given medical care and vast new bureaucracies created to administer payment for it, with no additional costs?

Just as there is no free lunch, there is no free red tape. Bureaucrats have to eat, just like everyone else, and they need a place to live and some other amenities. How do you suppose the price of medical care can go down when the costs of new government bureaucracies are added to the costs of the medical treatment itself?

And where are the extra doctors going to come from, to treat the millions of additional patients? Training more people to become doctors is not free. Politicians may ignore costs but ignoring those costs will not make them go away. With bureaucratically controlled medical care, you are going to need more doctors, just to treat a given number of patients, because time that is spent filling out government forms is time that is not spent treating patients. And doctors have the same 24 hours in the day as everybody else.

When you add more patients to more paperwork per patient, you are talking about still more costs. How can that lower medical costs? But although that may be impossible, politics is the art of the impossible. All it takes is rhetoric and a public that does not think beyond the rhetoric they hear.”

12. Helping the Poor. “It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader.

Those who have helped the poor the most have not been those who have gone around loudly expressing “compassion” for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about.”

13. Income Mobility. “Only by focusing on the income brackets, instead of the actual people moving between those brackets, have the intelligentsia been able to verbally create a “problem” for which a “solution” is necessary. They have created a powerful vision of “classes” with “disparities” and “inequities” in income, caused by “barriers” created by “society.” But the routine rise of millions of people out of the lowest quintile over time makes a mockery of the “barriers” assumed by many, if not most, of the intelligentsia.”

14. Giving Back. “All the high-flown talk about how people who are successful in business should “give back” to the community that created the things that facilitated their success is, again, something that sounds plausible to people who do not stop and think through what is being said. After years of dumbed-down education, that apparently includes a lot of people.

Take Obama’s example of the business that benefits from being able to ship their products on roads that the government built. How does that create a need to “give back”? Did the taxpayers, including business taxpayers, not pay for that road when it was built? Why should they have to pay for it twice?

What about the workers that businesses hire, whose education is usually created in government-financed schools? The government doesn’t have any wealth of its own, except what it takes from taxpayers, whether individuals or businesses. They have already paid for that education. It is not a gift that they have to “give back” by letting politicians take more of their money and freedom.

When businesses hire highly educated people, such as chemists or engineers, competition in the labor market forces them to pay higher salaries for people with longer years of valuable education. That education is not a government gift to the employers. It is paid for while it is being created in schools and universities, and it is paid for in higher salaries when highly educated people are hired.

One of the tricks of professional magicians is to distract the audience’s attention from what they are doing while they are creating an illusion of magic. Pious talk about “giving back” distracts our attention from the cold fact that politicians are taking away more and more of our money and our freedom.”

15. Government Assistance. “Do people who advocate special government programs for blacks realize that the federal government has had special programs for American Indians, including affirmative action, since the early 19th century — and that American Indians remain one of the few groups worse off than blacks?”

Bonus: In the video below from 2009, Thomas Sowell discusses Obama’s proposed (at that time) health care reform:


A Survey of AEI’s Work on the Middle East - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 06/30/2018 - 02:00

In connection with an assessment of AEI’s work on the Middle East over the past two decades, I drafted the following survey. The arc of our scholarship in this critical region is fascinating and illuminates the continuity and evolution of the challenges the United States faces in the Middle East. What is ultimately clear is that in the region both the challenge of destructive ideas and the fostering of better ones will shape outcomes.

Read the PDF.


In 1999, anti-Americanism in Arab politics seemed at the forefront of US challenges in the Middle East. After all, even in Egypt and Jordan (major beneficiaries of US assistance), a palpable anti-American bias was evident in government, the press, and the public. That anti-Americanism was wrapped up in the never-ending “ism” romance of the Middle East: fascism, socialism, modernism, authoritarianism, militarism, and, yes, Islamism. But as they did with so much else, the events of 9/11 upended our calculus about the region, and they upended how the US government, policy­makers, and thought leaders looked at the Arab world. Suddenly, Arab anti-Americanism was neither the prime narrative nor the best tool for understanding the threats emanating from the region; at best, it was a symptom of the larger problem. Indeed, there is a narrative arc from AEI’s interest in the question of anti-Americanism in 1999 to the current focus on issues relating to drivers of conflict and social unrest in the Middle East, on Shi’ite and Sunni sources of extremism, on the nature of Salafi-jihadi extremism, and on the mechanics of winning in places like Iraq and Syria.

Read the full report.