Share |

A New Handbook for Both Sides of the Aisle

David Boaz

Americans seem starkly split today on a wide range of issues. That’s in large measure because the federal government has grown so much in size, scope, cost, and intrusiveness that we battle fiercely over who will exercise that power. Conservatives spent eight years deploring the Obama administration’s use and abuse of executive power through executive orders, regulations, and even guidance letters from the depths of the bureaucracy. Now liberals are aghast at those awesome powers falling into the hands of the Trump administration.

That makes 2017 a perfect time for thoughtful Republicans and Democrats to come together on measures to restore constitutional balance and rein in executive power. The latest edition of the Cato Handbook for Policymakers, released this week, provides a roadmap that addresses these issues and more.

For example, many policymakers may worry about the danger that President Trump could embroil the U.S. in another war. They could start by reaffirming the constitutional requirement that Congress decides when Americans go to war. They should also debate a new authorization for military force in the Middle East—one that is not a blanket grant of power — and a new War Powers Act with real teeth.

Democrats and Republicans can surely agree that important decisions ought to be made by the people’s branch, not by any president alone.

Domestically, Congress should remind the executive branch of the very first words of the Constitution: “All legislative Powers herein granted shall be vested in a Congress of the United States.” Congress must stop writing grand, vague laws and leaving all the rulemaking to regulatory agencies.  Congress has just rediscovered the Congressional Review Act, under which it can repeal regulations issued by agencies. Now it should consider legislation such as the Regulations from the Executive in Need of Scrutiny (REINS) Act, which would require Congress to hold an up-or-down vote on all major regulations before final issuance.

Devolving power from Washington to states and local communities can also help to ease conflicts ranging from gun rights and school locker rooms to environmental protection. While Education Secretary Betsy DeVos may have stated the problem awkwardly, it’s true that the people of Manhattan and Montana have different attitudes and experiences regarding guns. Maybe they should be able to set different rules. In 2016 the Department of Justice and the Department of Education issued “guidance” to the 13,500 school districts across the United States on how they should manage access to locker rooms and bathrooms in 99,000 public schools. Instead of a rule issued by faceless bureaucrats in Washington, why not let the people of the 50 states and thousands of communities talk through that issue and come to their own evolving answers?

The issue that may have decided the 2016 election is the widespread sense that our economy is not working as well as it should. Even before the recession, Americans feared that their children might not live as well as they did. This slow growth matters most to those who are not yet well off.

Economic woes can generate misguided policy proposals, from repeated “stimulus” programs that add to the national debt to closing off trade and investment that create jobs. Before blocking imports and creating a backlash that will also block American exports, Congress should take a hard look at the ways current U.S. law may be limiting investment and job creation. As a first order of business, the new Congress should order a comprehensive audit of the regulatory, tax, and policy environments to identify redundancies, inefficiencies, and systemic problems that artificially raise the cost of doing business in the United States.

There ought to be bipartisan agreement on undoing what we might call “regressive regulation”—regulatory barriers to entry and competition that work to redistribute income and wealth upward. Such policies at the state and local level include restrictive zoning that raises the price of housing and occupational licensing laws that restrict entry into professions ranging from teeth-cleaning to cab-driving. At the federal level Congress should take a hard look at the over-extension and abuse of copyright and patent law, and at trade and immigration restrictions that raise costs for consumers and businesses.

Another area where solutions would help is in the healthcare reform debate, which has gone on for years. For 70 years, government has been assuming greater control over consumers’ health care dollars, either by giving workers’ earnings to employers or by spending that money itself. Government decides what kind of health insurance we get, where we get it, and how doctors will practice medicine—and more patients end up falling through the cracks. The Affordable Care Act didn’t do anything to take us off that path. We need to make healthcare higher quality, more affordable, and more secure by putting patients in charge of their health care dollars and decisions.

Sometimes the best thing Congress can do on an issue is nothing. But the 80 chapters and hundreds of recommendations – ranging from corporate taxation reform to surveillance restrictions to a more restrained foreign policy—in the Cato Handbook demonstrate that a determined Congress could significantly improve American governance. And Democrats and Republicans can surely agree that important decisions ought to be made by the people’s branch, not by any president alone.

David Boaz is executive vice president of the Cato Institute.

Share |

Trump’s New Currency Plan a Flimsy Attempt to Confront China

James A. Dorn

The White House would like to label China a “currency manipulator” but doing so would risk harming U.S.-China relations. So, the tone has softened and the tactics have changed. The newly established National Trade Council (NTC), operating out of the White House, is proposing that China not be singled out in the currency war.

Rather, any country found to be lowering the foreign exchange value of its currency to spur exports would be subject to penalties administered by the Commerce Department.

Currency manipulation would be considered an unfair subsidy and U.S. companies that claimed significant harm could petition for anti-subsidy remedies under the proposed change in U.S. trade law. The problem is that the World Trade Organization has never considered currency manipulation to be an actionable subsidy and is unlikely to change its stance.

A new exchange rate policy, if implemented, would cause confusion, promote protectionism, and flame nationalism.

But there are deeper problems. Anyone who has been following U.S.-China trade relations understands that the NTC’s proposal is really aimed at China. President Trump’s appointment of Peter Navarro — a rabid protectionist and author of the book “Death by China” — as head of the NTC should signal the real intent of the proposed change in tactics. If all countries are treated equally under the currency manipulation measure, then how can China complain?

The new measure would immediately be used against China even though the U.S. Treasury, in its semiannual report, has never labelled China a currency manipulator. Moreover, the IMF announced in May 2015 that China’s currency — the renminbi (RMB, also known as the yuan) — was no longer undervalued.

Eswar Prasad, former head of the IMF’s China Division and now a professor at Cornell University, argues that, at present, market forces are more likely moving the RMB-dollar exchange rate than government intervention designed to subsidize exports.

In his new book, “Gaining Currency: The Rise of the Renminbi,” Prasad criticizes the schizophrenic nature of U.S policy — we lecture China to have a more market-oriented exchange rate regime, but threaten to penalize China whenever the yuan falls relative to the dollar, no matter the reason.

In particular, the People’s Bank of China has undertaken policy changes to allow more flexibility in the exchange rate mechanism. In April 2012, the band around the central parity was widened to plus/minus 1 percent, and was further widened to 2 percent in March 2014.

The purpose of doing so was to prevent one-way speculation. From June 2005 to June 2014, the RMB had appreciated against the U.S. dollar, making it easy for speculators to bet on a further appreciation. Adding more flexibility to the RMB-dollar exchange rate would help stem such speculation.

Market forces, however, were at work to lower the foreign-exchange value of the RMB. Slower economic growth, expectation of higher U.S. interest rates and greater uncertainty about the future of China’s liberalization all combined to put downward pressure on the yuan.

Beijing recognized those forces and, on Aug. 11, 2015, unexpectedly devalued the RMB relative to the dollar by nearly 2 percent. The PBOC also gave the market more play in setting the so-called daily reference rate (i.e., the opening RMB-dollar exchange rate or “central parity”).

The sudden devaluation shook the markets as speculators began to sell yuan. The RMB continued to fall relative to the dollar (it declined by another 2 percent in the two days following the official devaluation), and the PBOC had to reverse course by intervening to prop up the yuan. Since then, China has burned through nearly $1 trillion of its foreign exchange reserves to defend the yuan.

During 2016, the yuan fell by 7 percent against the dollar. The expectation of further depreciation has led to large capital outflows as people and companies flee the RMB, even in the presence of tight capital controls.

There is no doubt that even though the depreciation of the yuan reflects market forces, the NTC would be inclined to label China a currency manipulator under the proposed rule change.

Special interest groups favoring protectionism would jump on the band wagon and demand remedies. China would no doubt point to the manipulation of interest rates by the Fed as a form of currency manipulation and turn to the WTO to resolve the dispute.

The politicization of exchange rate policy would continue to divert attention from China’s success in liberalizing trade since 1978, when only a few state-owned enterprises had trading rights and tariff and nontariff walls were high.

The difficulty of determining whether exchange rates are falling due to deliberate intervention to spur exports or because of market forces means the new policy, if implemented, would cause confusion, promote protectionism, and flame nationalism. It is a flimsy basis for confronting a major trading partner like China.

Instead of employing new tactics to improve U.S.-China relations by generalizing currency-manipulation policy to all countries, the U.S. should be thinking of how to encourage China to further liberalize its institutions and let markets be the primary force in setting the RMB-dollar exchange rate.  

James A. Dorn is Vice President for Monetary Studies and a Senior Fellow at the Cato Institute.

Share |

Serious va Reforms Will Make Our Veterans Healthier, Wealthier — and Fewer

Michael F. Cannon

By naming an insider, Obama appointee Dr. David Shulkin, to head the Department of Veterans AffairsPresident-elect Trump suggests he doesn’t realize yet how big an overhaul is needed to “Make the VA Great Again.”

Shulkin understands that veterans need more choice and more resources, but the added choice he’s promising them is small-bore stuff.

Offering veterans options outside the VA for obstetrics is great. But our veterans need and deserve a far more sweeping reform. And to fix the problems at the VA, Trump and Shulkin need to realize that the VA isn’t merely failing to help veterans—it’s actually endangering them.

Here’s the real VA scandal: The agency makes it easier for Congress and the president to start unnecessary wars. The VA thereby increases the likelihood that soldiers will end up dead, traumatized, or otherwise disabled in the first place.

To fix the problems at the VA, Trump and Shulkin need to realize that the VA isn’t merely failing to help veterans—it’s actually endangering them.

This isn’t a widely expressed view, but the basic facts here are not in dispute.

The VA is a $178 billion agency that provides life, health, disability, and other benefits to veterans. Shulkin currently runs the $70 billion Veterans Health Administration, a completely government-owned and operated health system covering 9 million veteran-enrollees. The VHA is the largest integrated health system in the United States, and its closest analogue is the British National Health Service.

Being its own Cabinet agency separate from the Department of Defense, the VA has its own budget and appropriations. So when we account for the price tag of a war, we ought to include the costs of veterans’ benefits, one of the largest financial costs of war. These costs typically peak around 40 years after a military conflict ends.

Yet Congress doesn’t fund veterans’ benefits until the bills come due, years or decades after the war that caused the health problems. The VA thus allows Congress to ignore one of the biggest costs of war when deciding whether to authorize or fund wars. If Congress had to pay those bills up front, the added expense might dissuade Congress from starting unnecessary wars.

Paying for veterans’ benefits up front could have prevented the Iraq war. In 2002, 77 U.S. senators including Hillary Clinton voted to authorize the U.S. invasion, a vote Clinton later called a mistake. “I thought I had acted in good faith and made the best decision I could with the information I had,” she later wrote. “I still got it wrong.”

The cost of providing benefits to veterans of a war in Iraq is one bit of information that could have been estimated at the time, and that Congress could have used. By 2014, the government had already spent $134 billion on medical and disability benefits for Iraq and Afghanistan veterans, with taxpayers on the hook for another $836 billion over the next four decades, according to estimates by Harvard scholar Linda Bilmes. Those cumulative costs are several times the annual budget of the VA.

There’s a way to fix this cost-hiding while also fulfilling Trump’s plan to “ensure every veteran has the choice to seek care at the VA or at a private service provider of their own choice”: Boost pay to active-duty personnel, so they can buy private life, disability and health insurance to cover service-related losses. Congress would, in effect, be paying the war bills up front. Pre-funding veterans benefits could thus save lives and improve U.S. foreign policy by making Congress more reluctant to use force.

Just as reforming the VA’s insurance functions would make active-duty personnel safer, reforming its healthcare delivery system would make veterans healthier and wealthier, and improve medical care for civilians.

If Congress converted the VHA’s 1,700 facilities into a shareholder-owned corporation and distributed shares to veterans, then veterans would literally own the VA. Transferring ownership of the VA to veterans would constitute a huge wealth transfer to the people the VA exists to serve. The nation’s largest integrated health system would be run for veterans, by veterans.

Doing so would improve the quality of care for both veterans and civilians. Current veterans would be free to continue using the VA under existing eligibility rules, but could also patronize private-sector providers, just as paying civilians could use the reformed VA system. Competition between the new VA and other private providers would force each to improve on dimensions of quality where it is weak.

These reforms would protect taxpayers while making our veterans healthier, wealthier, and most importantly, fewer.

Michael F. Cannon is the director of health policy studies at the Cato Institute.

Share |

How Trump Is Empowering the Saudi Destruction of Yemen

John Glaser

The Trump administration seems to have abandoned the possibility of a diplomatic resolution to the Saudi-led destruction of Yemen. In his first few weeks in office Trump approved a disastrous Navy SEAL raid in the interior, parked a guided missile destroyer with history in Yemen off its coast, and now might approve major arms shipments to Arab Gulf states currently under scrutiny for war crimes in the country.

Five days after being sworn in, Trump approved a Navy SEAL operation over an intimate dinner with aides that would later rain bullets down on a rural Yemeni town. Although the White House promoted the operation as a “success,” it looks more like a very public, very tragic failure.

Not only was the primary al-Qaeda target not there, but a chaotic shootout unfolded that reportedly ended up killing 25 civilians, including nine children under the age of 13. One of the SEALs, Chief Petty Officer William Owens, was also killed. On top of that, the Yemeni government responded by withdrawing permission for future counterterrorism operations.

The New York Times reported that Yemen issued an outright ban on U.S. commando operations, a report that was later watered down by the Washington Post. It nonetheless signaled that the new administration needs to tread carefully in the future, lest they jeopardize regional counterterrorism objectives.

With an inexperienced hot-head at the Resolute Desk relying on an aide who believes we’re overdue for another global war, it’s hard to be optimistic about their commitment to diplomacy.

But not all of Trump’s decisions on Yemen have such a clear-cut counterterrorism focus. Saudi Arabia and its Gulf Cooperation Council coalition partners have waged war on Houthi rebels with nebulous ties to Iran for almost two years-and Trump now seems eager to assist them.

In his last months in office, President Obama took steps to reduce U.S. involvement following international criticism of Saudi Arabia’s indiscriminate bombing practices. The Saudis and their coalition partners have steadily racked up a high civilian death toll that was beginning to tarnish the reputation of their Western patrons. Trump, however, appears eager to cozy back up to America’s reckless Gulf clients.

Following a Houthi attack on a Saudi frigate, the U.S. Navy deployed a guided missile destroyer to the Gulf of Aden off the Yemeni coast in a misguided signal of solidarity with the Saudi cause. The Navy didn’t send just any guided missile destroyer-they sent the USS Cole. Al Qaeda targeted the Cole in an attack of the coast of Yemen in 2000 that killed 17 sailors. The Navy avoided deploying the ship to the Middle East ever since. Until now, that is, when they’ve parked it back on Yemen’s doorstep.

By taking such an assertive stance, Trump gave hope to the Gulf state coalition that he may increase American assistance in the coming months. According to the Washington Times, quoting “sources close to the government in Riyadh,” the Saudi Foreign Minister in particular is “very, very up” about the developments and the prospect of American support. It seems the foreign minister’s optimism is warranted, with the White House also possibly approving an arms shipment of precision-guided munitions that Obama blocked in December. The precision-guidance kits in question would upgrade the bombs that Saudi Arabia and its friends are using to target Yemeni schools and hospitals.

A Trump administration official told the Washington Times last week, “If they’re going to drop stuff, it should be precision-guided rather than dumb.” Sources close to the Saudi government say the Kingdom would also “appreciate an increased supply of precision munitions and much broader sharing of intelligence…” I’m sure they would. That doesn’t make it a good idea.

While other Western nations debate cutting Saudi Arabia off completely from their arms exports in an effort to mitigate wanton destruction, it seems that Washington is just happy they’re buying American.

With an inexperienced hot-head at the Resolute Desk relying on an aide who believes we’re overdue for another global war, it’s hard to be optimistic about their commitment to diplomacy. We can only hope that somehow Trump’s love of a good deal will steer his administration towards more diplomatic action and less of a “shoot first, spin later” mentality.

John Glaser is associate director of foreign policy studies at the Cato Institute.

Share |

Reform to Protect Religious Liberty

Doug Bandow

President Donald Trump set off yet another political firestorm when he promised to “totally destroy” the Johnson Amendment, which bars ministers from endorsing candidates from the pulpit. Doing so risks their churches’ tax exemption.

The provision was advanced by Sen. (and later President) Lyndon Johnson and applies to all 501(c)(3) organizations. Many ministers have long objected to what they view as a violation of their religious liberty. In fact, many African-American churches, for historical and cultural reasons, are more politically active and often ignore the restrictions with little consequence.

Both opponents and supporters tend to overstate the measure’s importance. Religious activists from left to right have lost few opportunities for participating in the political process despite the law’s requirements. And dropping the restrictions would not set off a wave of church-funded political campaigns.

The expansion of the state into once private areas of life requires broader protection of religious freedom.

In general, government shouldn’t micro-manage political speech, especially of those exercising their religious faith under the First Amendment. Many Americans believe that their spiritual beliefs have political implications. They have every right to bring their viewpoints into the public square.

Of course, people don’t have a right to a tax exemption, and since 1954 the Johnson Amendment has made religious people pay a price for essentially accepting Caesar’s coin. That should offer a sober warning over the potential harmful impact on faith organizations of accepting government funding, even for social services. With money naturally come strings.

As government has expanded, taking more resources from religious people, fairness suggests allowing those monies to be expended to religious organizations pursuing secular ends. But there is a prudential case against faith groups risking their religious mission in exchange for a few extra bucks.

Nevertheless, the Johnson Amendment should be changed. The proper approach is not to “totally destroy” the amendment, as promised by the president, but to adjust the restrictions to avoid unnecessary censorship of political views which are inextricably tied to a church’s religious teachings and activities.

For instance, Republican Sen. James Lankford and Rep. Jody Hice have introduced legislation which would allow political speech made “in the ordinary course of the organization’s regular and customary activities.” Thus, if a church is just being a church, the IRS would have no cause for concern. The proposed legislation would apply the same standard to other 501(c)(3) organizations.

If, however, a church incurred “more than de minimis incremental expenses,” the speech would cease to be “in the ordinary course” of the church’s activities. Thus, a religious organization could not become a front for a political action committee. And contributions to candidates or campaigns would remain verboten.

Reforming the Johnson Amendment should be part of a larger rethinking of the limits of religious liberty. The expansion of the state into once private areas of life requires broader protection of religious freedom.

For instance, Christians are to be salt and light in their larger communities. However, by taking over education, welfare and most recently health care, government, especially in Washington, has excluded many people’s most fundamental values from important areas of their lives.

Best would be to roll back government’s over-reach. If that proves impossible, however, then people should be allowed to more fully exercise their faiths when confronting such programs. The tightest restrictions on religious practices should apply to core government responsibilities, with fewer restrictions on government activities “of choice,” so to speak.

Protecting religious liberty requires a delicate balance. The Johnson Amendment’s absolute prohibition on political speech cannot be justified. It’s time to limit the measure’s reach.

Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.

Share |

Trump’s Deplorable Travel Ban

Alex Nowrasteh

On January 27, U.S. President Donald Trump signed an executive order temporarily banning migrants from seven Muslim countries — Iran, Iraq, Libya, Somalia, Syria, Sudan, and Yemen — and permanently halving the number of refugees admitted to the United States. A February 9 decision by the U.S. Court of Appeals for the Ninth Circuit  blocked its implementation pending a decision from the Supreme Court. But although the legality of the order is important, so too is the question of whether it will achieve its goal to “protect the American people from terrorist attacks by foreign nationals admitted to the United States.” The answer is a resounding “No.” A thorough look at terrorist attacks by foreigners on U.S. soil demonstrates that Trump’s order will do almost nothing to improve national security but will impose a great cost on Americans.

A SENSE OF PROPORTION

Last September, I analyzed the risk of terrorism by foreign-born perpetrators in the United States from 1975 until the end of 2015. Over that period, a total of 154 foreign-born terrorists murdered 3,024 people in 15 domestic terrorist attacks. That means the annual chance of dying in an attack by foreign-born terrorists on U.S. soil was one in 3.6 million. The risk varies tremendously based on the type of visa used to enter the country. Foreigners who entered on the tourist B visa, including 18 of the 19 hijackers on 9/11, were the deadliest, killing 2,834 people over that 41-year period. Terrorists who came in on the Visa Waiver Program, which applies to nationals from developed nations, killed zero people, although they did make a few attempts.

The chance of being murdered in a terrorist attack by a refugee on U.S. soil is only one in 3.64 billion per year.

Trump’s executive order didn’t look at the most dangerous visa categories in recent history but rather singled out all migrants from seven Muslim countries for a temporary 90-day ban and focused the administration’s greatest scrutiny on the refugee program. But despite all of the attention paid to refugees, the chance of being murdered in a terrorist attack by a refugee on U.S. soil is only one in 3.64 billion per year. Only three such murders have ever occurred — all three instances were in the 1970s, and the attackers all came from Cuba.

For a sense of proportion, the chance of being murdered in a normal homicide in the United States during the same 1975–2015 time frame was one in 14,219 per year, which is an astronomical 255,906 times greater than the chance of dying in a terrorist attack by a refugee on U.S. soil. But those sobering comparisons didn’t stop Trump from temporarily suspending the refugee program for 120 days, slashing its annual cap from 85,000 admissions in 2016 to only 50,000 in 2017, and barring all Syrians. The United States allowed in an average of 79,329 refugees per year from 1975 through the end of 2015. The new cap of 50,000 represents a 37 percent cut in that annual refugee intake.

Migrants from the seven banned countries have also killed zero Americans in terrorist attacks on U.S. soil. However, 17 nationals from those countries did commit or were convicted of attempting an attack here. This list includes a goofy plot hatched by five students at Mankato State University to kidnap Minnesota Governor Al Quie in the winter of 1979.

The administration’s recent bizarre claim that terrorist attacks are underreported could be prompted by the public’s extreme fear of personally being harmed in a terrorist attack. A shocking survey by the Public Religion Research Institute found that 47 percent of Americans are “somewhat worried” or “very worried” that they or someone in their family will be a victim of terrorism. This degree of fear, far out of proportion to the actual threat, can be partially blamed on a universal mental shortcut called the “availability heuristic.” Our minds use recent or dramatic events to understand ideas or concepts, which leads us to form false explanations by biasing us toward newer or more sensational information. With regard to terrorism, it is easy to immediately remember 9/11, recent attacks in Europe, or the Orlando nightclub shooting. All the attacks that didn’t happen do not register as prominently, nor does the fact that few people know someone personally who was killed by terrorists. Thus, terrorism seems much more dangerous than it really is.

WHAT IS TO BE DONE?

Regardless of the scale of the real or imagined foreign-born terrorist threat, the U.S. government has an important role in screening out terrorists who attempt to enter the United States. But a rational terrorist screening should be based on a few facts.

First, policymakers should recognize that the United States already successfully screens out terrorists, which is why so few Americans have been killed on U.S. soil in terror attacks. Another possibility is that the low numbers of attacks here are the result of a much smaller foreign terrorist threat than most policymakers imagine. For instance, it is hard to take seriously pronouncements by officials such as South Carolina Senator Lindsey Graham, who said that Islamic State (also known as ISIS) terrorists are an “existential threat to the homeland,” when only 22 Americans have been killed by foreign-born terrorists on U.S. soil since ISIS became active in 2013. Every one of those deaths is a tragedy, but they do not amount to an existential threat. It makes no sense to argue, as Trump has, that the foreign terrorist threat is huge andthat there is “no system to vet them,” unless the entire value of the vetting is deterrence.

Second, no security procedures are going to be completely effective at stopping terrorists. Steven Camarota, director of research at the Center for Immigration Studies, correctly noted that “in a nation as large as the United States, it is impossible to prevent terrorists from entering the country 100 percent of the time.” A committed terrorist or foreigner who decides to become a terrorist after arriving can be only partly defended against. Regardless of any actions taken today, there will be another day when an American will die in a terrorist attack on U.S. soil committed by a foreigner. And terrorist attacks committed by the U.S.-born children of immigrants, such as the 2016 murder of 49 people by Omar Mateen at the Pulse nightclub in Orlando, are dramatic but rare. American Muslims are well assimilated and have opinions very close to those held by the American mainstream, especially when compared with their coreligionists in Europe.

Third, the benefits of additional security should be weighed against the costs of that security. There is a point at which additional security to screen out foreign terrorists will actually result in more deaths, as every dollar spent on screening refugees is a dollar that could have been spent elsewhere on reducing an even greaterrisk, such as homicide or domestic terrorism. The government has limited security resources, so it should spend them in ways that minimize violent deaths of all kinds — not just those caused by foreign terrorists.

These statistics should inform U.S. policy on terrorism. Government regulators frequently estimate how much it will cost to save a single life — often referred to as a “statistical life” — under new safety rules that they propose. The key insight behind that estimate is that human life is certainly very precious, but not infinitely so. Indeed, everything people do that slightly increases their chances of dying, such as driving a car, would be unthinkable if they placed an infinite value on their own lives.

The tricky part is figuring out how much that statistical life is actually worth. Many security experts place a high cost of $15 million on each statistical life. Using this estimate, a new terrorism prevention rule would be rational if the value of statistical lives saved by the rule were at least as high as the cost it imposed. If Trump’s refugee restrictions reduce the already low chance of dying in a refugee terrorist attack by a further 50 percent, to about one in 5.5 billion per year, then it would cost Americans about $525.5 million per life saved in lost economic output that would have accrued to U.S. natives—about 35 times as great as the benefit. But the larger cost would be the 510,000 fewer refugees resettled in the United States than would have been without the restrictions. Those tremendous costs would buy the United States one fewer murder committed by a refugee-terrorist over the next 17 years.

These calculations aside, however, not a single life would have been saved had Trump’s executive order been put in place 41 years ago. Just 17 terrorists from the seven Muslim countries included in Trump’s travel ban have been convicted of planning or carrying out terrorist attacks on U.S. soil from 1975 to the end of 2015, and none resulted in fatalities. Likewise, refugees are less likely to kill Americans in terrorist attacks than are foreign-born terrorists who entered on most other types of visas. Trump’s executive order is not a rational response to the actual threat of foreign-born terrorism on U.S. soil. It provides almost no benefit to national security, yet it comes at tremendous cost.

Alex Nowrasteh s immigration policy analyst at the Cato Institute.

Share |

Au Contraire, Mr. President: Trade Deficit Is Not a Big Deal

Daniel R. Pearson

The Department of Commerce announced on Feb. 7 that the 2016 U.S. trade deficit in goods and services had increased slightly. It rose by $1.9 billion (0.4 percent) to $502.3 billion, up from $500.4 billion in 2015.

Because the U.S. economy has continued to grow, the trade deficit declined a bit in relative terms. It dipped from 2.8 percent of Gross Domestic Product (GDP) in 2015 to 2.7 percent last year.

That’s hardly news, though. In the context of an $18 trillion U.S. economy, the trade deficit isn’t a big deal.

The Alliance for American Manufacturing (AAM), a trade association skeptical of imports, issued a statement that said, in part: “We urge the White House and Congress to stop the unbalanced wave of imports through tax, trade, currency, infrastructure, and other policies that will restore some factory jobs.”

What many people don’t realize is that the “unbalanced wave of imports” already is counterbalanced by the substantial amount of foreign capital entering the United States.

If countries sell us fewer goods, they will have less money with which to buy U.S. exports.

This is explained by the balance of payments, which covers all of a country’s international transactions. On one side of the balance is the current account, which consists mainly of trade in goods and services. It also includes smaller items, such as foreign remittances and income earned on foreign investments.

On the other side of the balance is the financial account. It is comprised of assets purchased in one country by people in another country.

In a nutshell, people in other countries invested enough money in the United States last year (a financial account surplus) to neatly offset America’s current account deficit. As a matter of definition, the balance of payments has to balance.

But why does the United States have a current account deficit? It’s not because of unwise trade policies, although some of them leave much to be desired. Rather, it’s because America saves less money than it invests. Or, when expressed as an equation: current account = savings – investment.

There are many attractive investment opportunities in this country. The U.S. economy is performing better than those of most other developed nations. Stocks, bonds, commodities, and real estate all can be purchased freely in hopes of earning future returns.

Some of those investments are made by people from overseas. Those include equities and debt instruments, but also factories built in the United States by foreign firms.

On the other hand, Americans don’t save as much of their income as people in many other countries do. U.S. gross domestic savings amount to about 17 percent of GDP. In China, the figure is quite high — close to 50 percent.

The relatively low U.S. savings rate can be explained in part by the tax code. Interest income earned on deposits is subject to taxation, which tends to discourage people from saving.

On the other hand, interest is tax deductible when paid by individuals on home mortgages. The tax code is setup to punish saving and to reward borrowing.

In addition, the federal government itself is a huge borrower. The Congressional Budget Office is projecting a budget deficit of $559 billion in fiscal year 2017 — a figure larger than the trade deficit.

Since the budget deficit represents federal expenditures that exceed tax receipts, it is funded entirely by borrowing. The budget deficit exacerbates the trade deficit by attracting a large flow of funds from other countries.

Counter to the views of those who believe imports damage the United States, most economists believe the trade deficit simply isn’t a problem. Even if it was, imposing a tariff to restrict imports would do little to change it.

If countries sell us fewer goods, they will have less money with which to buy U.S. exports. A bigger concern is that half of all imports are used as inputs by U.S. manufacturers. Policy changes that reduce imports stand to harm the manufacturing sector by making it less competitive relative to firms in other countries.

However, all is not lost. The government could take two major steps that would reduce or eliminate the trade deficit. One would be to reform the tax code to eliminate its bias toward borrowing instead of saving.

The second would be to balance the federal budget, which would curtail the huge amount of investment currently needed to fund annual deficits.

Those steps may have less visceral appeal than restricting imports, especially ones that are “unfair.” Yet curtailing imports not only will hurt the U.S. economy, but also divert attention from needed tax and budget changes that actually could make a difference.

Daniel Pearson is a senior fellow at Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

Share |

Housing’s Drag on the Economy

Ike Brannon

Nearly every household in the country spends a sizable proportion of its income on housing. The median household allots over one-third of its income to keeping a roof over its head, and the annual expenditure of the median earner’s income on housing has increased by 35 percent since 2000.

People for the most part aren’t spending more on housing because they are buying bigger or nicer houses, although some of that obviously has taken place. But most of this growth has been driven by an increase in cost. Housing prices have grown steadily in recent decades and are nearly twice as high today as they were 25 years ago, on average—a pace that far exceeds gains in income for the average household. After a sizable retrenchment in 2008-2010, prices have nearly returned to pre-recession highs, although some regions of the country are languishing.

When demand for a good increases, it normally triggers an increase in the supply, but this has not been happening all that much: New housing starts fell almost 80 percent from the pre-recession peak to the 2009 trough, and today are at only 60 percent of those heady pre-recession numbers. So things have bounced back over the last seven years, but home-building is still well below historical norms.

A return to a healthy housing market would create an enormous boost in the employment of blue-collar men, a cohort that was hit particularly hard by the Great Recession and remains in a funk.

The sustained, profound decline in housing starts cannot merely be explained as a hangover from the housing bubble. Nine fallow years of homebuilding have left us with a housing shortage. We can glimpse this in part by looking at rates of ownership, which have fallen from 69 percent to 63 percent in the last decade. Home ownership has fallen even more among young adults, declining from a peak of nearly 50 percent in 2004 to under 42 percent today.

The housing market’s biggest constraint at the moment is tight credit standards. Most mortgages are purchased and bundled into securities that are essentially guaranteed by the federal government in one way or another. However, in order to prevent the sorts of excesses that created and exacerbated the Great Recession, the government retains the right to put the housing risk back onto the bank if it finds any problems with the mortgage. As a result of this, banks are understandably more cautious in making loans. More prudence is not an altogether bad thing, but there are families who have good credit and a decent income who are finding it difficult to purchase an affordable home.

The regulators are also putting more pressure on banks to rein in “unusual” housing loans. When I approached my hometown bank in central Illinois, where I have banked all my life and whose president I have known almost as long, about getting a nonconforming mortgage for a house in Washington, he told me he would rather not do it—not because it would be a risky bet for him (our down payment would be 50 percent) but because he and his lending team would find themselves burdened with paperwork to justify to their regulator a loan that would be anomalous in their portfolio, regardless of its surety.

What’s more, federal regulations requiring new houses to be more energy efficient and environmentally friendly have greatly added to the cost of residential construction in the last eight years. A home builder from central Illinois told me recently that his construction costs for a new home have increased by one-third in the last eight years, making the purchase of an existing home much more affordable than building a new one. While energy-efficiency should be worth a premium to buyers, modern heating and air conditioning and the like save homeowners money, but only in the long run. Research indicates that most consumers completely discount savings like this that go beyond three years.

Developers in many communities also face substantial bureaucratic inertia. In the wealthy neighborhoods in Washington (and other large cities), every new development invariably faces substantial opposition from local neighborhood committees, city councilors, zoning boards, and a surfeit of activists worried more about, say, their free on-street parking than housing costs for their less-well-off brethren. These constraints on new housing help make middle-class housing even more unaffordable.

The dearth of new homes has had a significant impact on the economy. An analysis by Moody’s Analytics suggested home construction boosted GDP by 1 percentage point at its peak in the mid 2000s, and in 2009-2012 its dearth reduced growth by 1.5 percentage points per annum.

The impact that sluggish home construction has had on the broader economy is substantial. A report by the NFIB estimated that the construction of a new home creates, on average, three new full-time jobs. By that metric the 2016 data showing we had one million fewer housing starts than before the Great Recession translates to three million fewer jobs.

A return to a healthy housing market would create an enormous boost in the employment of blue-collar men, a cohort that was hit particularly hard by the Great Recession and remains in a funk. There are currently seven million men between the ages of 25 and 54 without a job—fully 12 percent of this population, which a generation ago economists referred to as the “hard-core employed” for their invariant—and low—unemployment rates.

There are myriad reasons for this seismic change, of course—that most women remain in the labor force after having children means that there is less urgency for married men to work, and fewer of these men support a family these days for that matter.

But a major source of blue-collar jobs has always been home construction, and a large number of those jobs have vanished with the decline in housing. President Trump’s proposal to drastically increase infrastructure spending may help this group, but building roads and bridges is not terribly labor intensive. While such investment would be welcomed by this group, the level of job creation from it would be dwarfed by the effect of a more vibrant housing market.

The potential economic gains from a rebound in housing could be significant, at least in the short run. If the construction of new homes merely returned to the long-run average of the 1970s and 1980s that would mean a million more homes being built each year. If we returned to the per-capita rate of new home construction experienced in those decades, it would amount to another two million homes constructed per year.

Home-building at that pace would add another $300-$600 billion a year to GDP, which exceeds 3 percent of GDP. The mythical 4 percent growth rate goal that so many derided as unrealistic during the 2016 presidential campaign could actually be within reach, at least until real labor shortages would start to constrain the economy. Given the number of discouraged workers in the economy that could take some time to occur.

We make numerous mistakes in housing policy: Myriad regulatory restrictions depress the construction of new homes, and the mortgage interest deduction sacrifices tens of billions of dollars to encourage the wealthy to spend more on housing while doing little to nothing to help middle-class buyers afford homes.

While changing either of those factors may be difficult, there are other means to boost home construction. Fannie Mae and Freddie Mac have operated under the equivalent of a yellow flag since Treasury put them into conservatorship in 2007, and the Obama administration’s issuance of its Third Amendment to the conservatorship in 2012, sweeping their entire net wealth into Treasury’s coffers each quarter, amounted to a red flag. Removing Fannie and Freddie from their current limbo and recapitalizing them one way or another could boost financing for housing construction. This would doubly benefit blue-collar workers, not only creating jobs but also providing more affordable homes as well.

While constructing more housing is by no means a panacea for the cohort of blue-collar men who have been buffeted most severely by the economic dislocations of the last twenty years, it would represent a tangible step towards improving their lot.

We can—and have in the past—gone too far in singing the praises of home ownership, and overenthusiastic boosting of home construction led to a financial disaster. But the decade-long retrenchment has now led to significant problems for the economy as well. Maybe there’s a happy medium.

Ike Brannon is a visiting fellow at the Cato Institute and president of Capital Policy Analytics.

Share |

Trump-Abe Meeting Portends Potential Trade Deal with Japan

Simon Lester

Japanese Prime Minister Shinzo Abe will meet with President Trump Friday in Washington, D.C., and a possible trade deal is near the top of their agenda.

Japan and the U.S. thought they had such a deal already, as part of the broader Trans-Pacific Partnership (TPP) negotiations.  But Trump withdrew from the TPP before it could come into force.

The question now is whether Japan and the U.S. can salvage the hard negotiating they did as part of the TPP and work out a bilateral replacement.

With all the economic nationalist rhetoric coming from Trump and some of his advisers, new trade negotiations might seem unlikely at this point. How can the U.S. manage to free up trade in an atmosphere in which foreign companies and governments are constantly bashed as cheaters?

But if you parse the statements coming from the Trump folks carefully, what you find is criticism of many existing trade arrangements but positive statements about bilateral trade deals that are done properly.

How can the U.S. manage to free up trade in an atmosphere in which foreign companies and governments are constantly bashed as cheaters?

Much of their criticism is actually directed at U.S. trade negotiators, not at trade deals, per se. In their view, it seems, a team of tough negotiators, in the mold of Trump, could devise a good trade deal that the president could sign off on.

In this context, what are the prospects for a U.S.-Japan free trade agreement? For many years, Japan was the United States’ biggest trade rival, and tensions were high. The situation has changed significantly, however, and the Japan-U.S. relationship is mostly positive these days for a number of reasons.

Japan’s economy has stagnated in recent years, and it seems like less of a threat. Japanese companies have invested heavily in the United States and are seen as good corporate citizens. Moreover, China’s rise has made it the focus of trade critics, letting Japan off the hook a bit.

In Congress, representatives of farm-heavy states see Japan as a lucrative export market. They have pushed hard for the United States to negotiate freer trade with Japan.

Finally, as noted, many of the key terms of a trade agreement between Japan and the United States have already been worked out in the context of the TPP. There, the U.S. was able to achieve substantial lowering of Japanese tariff barriers on U.S. exports, such as beef, pork, poultry and dairy.

Special provisions were signed to help deal with non-tariff barriers to selling U.S. cars in Japan. As a starting point for a U.S.-Japan trade agreement, these provisions could be separated out from the TPP and used as the basis for a bilateral deal.

All of this bodes well for a trade deal between the two nations. But Trump will want to make his mark and negotiate his own deal. 

He is unlikely to simply accept what was done before he took office. On the campaign trail, Trump complained about high Japanese tariffs on beef. As noted, the TPP already made progress on this issue.

All Trump can do, if he wants to claim credit for a better deal, is fight to bring those tariffs down even further. U.S. trade negotiators worked very hard on the TPP, but perhaps they spent too much political capital on other issues.

If Trump wants to emphasize particular barriers, such as beef tariffs, it is possible he can achieve more.

While Trump would no doubt like to be negotiating from a position of strength, he should be aware that U.S. producers are already at a disadvantage. Japan has been negotiating free-trade agreements with other countries, including Australia, with whom U.S. producers compete for the lucrative Japanese agricultural market.

 As a result, there is pressure on U.S. negotiators to come up with an agreement soon so U.S. companies are not handicapped in their trade with Japan.

In theory, a Japan-U.S. deal can be hammered out quickly from the remains of the TPP, but modern trade deals are complicated. They include provisions dealing with a wide range of issues, such as intellectual property, labor rights, and e-commerce.

Before negotiations even begin, the Trump trade policy team will need to work out what exactly it wants in a trade agreement. It should be noted that this team is not fully in place yet.

As a result, what we can probably expect from the Abe-Trump meeting this week is some positive talk about the prospects of a trade agreement, but actual negotiations might not start for several months, at least.

Nonetheless, a trade deal with Japan appears to be at the front of the queue for the Trump administration, and it is likely to be one of the first trade negotiations to get going.

As such, it could provide an early test for Trump’s trade policy, to see whether he can deliver on some of his most prominent campaign promises.

Simon Lester is a trade policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

Share |

How Trump Can Keep His Pledge to Undo Obamacare Shenanigans

Michael F. Cannon

During the presidential campaign, candidate Donald J. Trump pledged, “On the first day of my term of office, my administration will … cancel every unconstitutional executive action, memorandum and order issued by President Obama.” Obama’s unconstitutional actions include several he took to rescue Obamacare.

On his first day in office, Trump violated that pledge.

Instead, he issued an executive order that merely declares, “It is the policy of my Administration to seek the prompt repeal” of Obamacare, and that his administration “shall exercise all authority and discretion available … to waive, defer, grant exemptions from, or delay the implementation of” the burdens it imposes on citizens, health-care providers, and states.

In fairness, it should be noted that it may have been impossible to undo any, much less all of President Obama’s unconstitutional executive actions in one day. Perhaps Trump intends to make good on his pledge and is just working up to it.

In that spirit, here are 14 ways Trump-administration officials can restore the Constitution’s limits on executive power, provide relief to Americans suffering under Obamacare, and hasten repeal.

Fourteen ways to hasten repeal of the burdensome health-care act and help Americans in the meantime.

1. End Congress’s illegal Obamacare exemption.
Obamacare threw members of Congress and congressional staff out of their health plans and in effect cut their pay by up to $12,000 per year. Obama ignored the law and made illegal payments to private insurance companies on behalf of members of Congress and their staff for six years — all to prevent Congress from reopening the law.

Trump should announce that he will end those illegal payments immediately, and that he will veto any bill restoring the pay cut that Obamacare dealt Congress, until Congress earns that money by repealing and replacing the law. Congress shouldn’t get an exemption from Obamacare until the American people do. Democrats who actually voted for Obamacare especially should have to live under it.

2. End Obamacare’s unconstitutional cost-sharing subsidies.
In House v. Burwell, a federal judge ruled that the Obama administration “violate[d] the Constitution” by paying billions of dollars in “cost-sharing” subsidies to private insurance companies without a congressional appropriation.

Trump should immediately drop the Obama administration’s appeal of that decision, stop the unconstitutional payments, and prevent insurers from canceling Obamacare plans until 2018.

3. End Obamacare’s illegal “reinsurance” payments.
The Government Accountability Office found that the Obama administration illegally diverted additional billions of dollars in “reinsurance” payments from the Treasury to private insurance companies.

Trump should immediately stop the diversion of those funds and demand that insurers repay the more than $3 billion in unlawful payments they have received.

4. Block Big Insurance’s “risk-corridor” raid on the Treasury.
The Obama administration tried to circumvent a statutory cap on “risk-corridor” payments to private insurance companies by offering to settle lawsuits filed by the insurers.

Trump should immediately announce that his administration will not settle but will instead vigorously defend taxpayers’ interests in all such lawsuits.

5. Investigate the Obama administration’s illegal spending.
Federal law provides penalties for officials who spend taxpayer funds without authorization from Congress.

Trump should direct the Department of Justice’s Public Integrity Section to determine whether the officials who implemented the above policies violated the Anti-Deficiency Act, the False Statements Act, the False Claims Act, or other federal laws.

6. Allow freedom of conscience and choice in contraceptives coverage.
The Obama administration expanded the definition of “preventive care” services for which all must purchase insurance coverage to include forms of contraception that violate the consciences and religious practices of many Americans.

Trump should eliminate all requirements that consumers purchase preventive-care coverage that are not explicitly specified in statute.

7. Illustrate how Americans can avoid Obamacare penalties.
There are many ways that taxpayers who choose not to purchase Obamacare’s overpriced insurance can avoid paying a penalty. If they adjust their withholding so they owe money to the IRS at tax time, for example, all the IRS can do is send them nasty letters.

Trump should direct the IRS and the Department of Health and Human Services to publish “how to” guides that explain, with specifics, how taxpayers and employers may lawfully avoid paying Obamacare penalties.

8. Illustrate how Obamacare makes it easier than ever for people to wait until they are sick to purchase coverage.
Before Obamacare, insurers charged higher premiums to people who waited until they were sick to purchase coverage. This practice encouraged people to buy insurance while healthy, so their premium dollars would help defray medical bills for others who were in need. Obamacare eliminated this practice, making it easier than ever for people to wait until they are sick to purchase coverage. (Even Nobel Prize–winning economist and Obamacare supporter Paul Krugman agrees.)

Trump should direct HHS to publish and send to all Obamacare enrollees a “how to” guide that illustrates all the ways the law enables this and other irresponsible behaviors.

9. Publish Obamacare’s vital signs.
The Obama administration notoriously guarded and sidestepped bad news about Obamacare. The Trump administration should shine a light on both Obamacare and the Obama administration’s conduct.

Trump should direct HHS to publish and send letters to Obamacare enrollees with all information produced by or available to the federal government on: the number of consumers who lost their health plans in each year since Obamacare took effect; the dwindling number of choices available to exchange enrollees; the growth in health-insurance premiums; the erosion of coverage in exchange plans; the unlawful activities the Obama administration undertook, including illegal subsidies to private insurers, to prop up this failing system; the risks to which those illegal activities exposed Americans, including the risk that a court ruling could result in millions’ losing coverage; how the Obama administration took steps to protect private health-insurance companies, but not enrollees, from the consequences of its unlawful actions; the actual costs and enrollment in Obamacare’s Medicaid expansion, compared with projections; and other information pertinent to improving the public’s understanding of the law.

10. Release the documents.
The Obama administration shrouded its implementation of Obamacarein secrecy.

Trump should release all unpublished reports, cost estimates, evaluations, and legal memoranda regarding the ACA left by the Obama administration, including: any cost estimates on the affordability of health insurance and the number of uninsured before, during, and after the ACA; any materials bearing on the administrative decisions challenged in King v. Burwell and House v. Burwell; other unlawful activities mentioned above; the delay of the employer mandate; and the Obama administration’s decisions not to enforce parts of Obamacare, including various regulations.

11. Praise states that refused to implement Obamacare.
Two-thirds of the states refused to implement an Obamacare exchange. Nineteen refused to implement Obamacare’s Medicaid expansion. These states did the right thing under a withering assault from Big Insurance, Big Pharma, and other special interests that wanted the subsidies — legal and illegal — that the Obama administration had promised them.

Trump should praise the states that recognized Obamacare as an unworkable and temporary program and direct the Office of Management and Budget to quantify how much those states have saved taxpayers and reduced federal deficits to date, and project how much they will continue to do so over the next decade.

12. Direct states to prepare for Obamacare repeal.
When Congress repeals Obamacare, states will have to change their laws.

President Trump should send letters to governors and state legislatures informing them that they should start preparing conforming legislation for when they resume control of their insurance markets after Congress repeals Obamacare.

Trump should emphasize, as he did in his executive order, that states should create “a free and open market in interstate commerce for the offering of health-care services and health insurance.”

13. Renounce IPAB.
Obamacare’s Independent Payment Advisory Board is an unconstitutional super-legislature with the power to make laws — including the power to impose taxes — without political or judicial accountability.

Trump should affirm that his oath to uphold the U.S. Constitution forbids him to use the powers that Obamacare purports to invest in IPAB.

14. Let seniors opt out of Medicare without losing Social Security benefits.
The Social Security Administration, without any authorization from Congress, decreed that Medicare-eligible individuals must enroll in the program or forfeit all Social Security benefits, past and future. The rule antedates the Obama administration, though the administration defended it in court.

This rule lacks any legal authority. Trump should direct HHS and the Social Security Administration to rescind it, which would save taxpayers money by freeing more seniors to opt out of Medicare.

***

Trump administration officials have a lot of work ahead of them, but also a tremendous opportunity to make history. Returning the executive branch to its proper role under the Constitution will also spur Congress to enact reforms that make health care better, more affordable, and more secure.

Michael F. Cannon is director of health-policy studies at the libertarian Cato Institute.