The Problem with the ‘Otherwise, People Will Die’ Argument for Big Government

Michael D. Tanner

It has become the go-to policy argument for many liberals and
the media: People will die. Repeal Obamacare … and people will
die. Cut any social-welfare program by so much as $1 … and people
will die. Reform unsustainable entitlement programs like Social
Security and Medicare, and, you guessed it, people will die.

While in some cases this argument is debatable and in others
it’s ridiculous, it is always politically potent. Who wants to
argue about economic incentives when lives are at stake?

The reality, born out by
hundreds, if not thousands, of years of experience, is that
economic growth does more to save lives than any government program
ever could.

In the bigger picture, though, it gets things exactly wrong. The
reality, born out by hundreds, if not thousands, of years of
experience, is that economic growth does more to save lives than
any government program ever could. After all, nothing, except maybe
war, kills like poverty. Yet poverty globally is at an all-time
low. And, as a result, life expectancies have soared. A century
ago, the average person could expect to live to around 54 years
old. A boy born today can expect to live to be 76, and a girl can
expect to live about five years longer than that.

Consider what daily life is like in this country today compared
to just just 100 years ago. By every measure we are better off.
Even the poor today have access to goods and services that were
undreamed of by the rich not so long ago. As recently as the 1960s,
for instance, nearly a third of poor households had no telephone.
Today, telephone ownership is nearly universal. Roughly half of
poor households own a computer, more than 98 percent have a
television, and two-thirds have two or more TVs. In 1970, less than
half of all poor people had a car; today, two-thirds do.

It is not government that has brought all this progress about,
but the economic growth that comes from free-market capitalism. As
the economist Deidre McClosky points out, if all the profits
generated by American businesses were immediately handed over to
“the workers,” those workers would be roughly 20 percent better off
than they are today. On the other hand, the rise in real wages
since, say, 1800, has made workers roughly 9,900 percent better
off.

Not only do we know the benefits of economic growth, but we also
know what leads to it: the rule of law, a stable currency, free
trade, liberal labor policies, and limited government intervention.
Policies — such as high taxes, out-of-control spending, and
excessive regulation — that slow economic growth may do far
more harm than good. One might even say that those policies mean
people will die, reductive though such an argument would be.

Too often, advocates of big government look only at one side of
the equation: They see the theoretical benefits of whatever program
they are proposing while ignoring the costs it will impose on the
economy.

Some 250 years ago, the French economist and philosopher
Frederic Bastiat referred to the example of a farmer who plans to
hire a worker to dig a ditch on his property, but is unable to do
so because the money he’d have used to pay the ditch-digger went
instead to pay taxes. A government bureaucrat is able to use those
taxes to spend on various projects. Of course, everyone can see the
results of that spending, which undoubtedly makes the bureaucrat
popular. But what goes unseen is the loss suffered by the poor
ditch digger.

In fact, he might even die.

Michael
Tanner
is a senior fellow at the Cato Institute and the author
of Going for Broke: Deficits, Debt, and the Entitlement
Crisis.

Cyberwar on Iran Won’t Work. Here’s Why.

John Glaser

The Iran nuclear deal is increasingly at risk,
with President Trump threatening to overrule his top national
security advisers and defy the assessment of international monitors
to declare Iran non-compliant with the agreement’s stipulations.
The problem for the administration, however, is that no viable
alternative is better than the Joint Comprehensive Plan of Action.
If Trump rips up the JCPOA, the U.S. would forfeit the stringent
limitations placed on Iran’s enrichment activities and the
international community would lose the unprecedented transparency
it now has on Iran’s nuclear program. Even more daunting, the
United States would become isolated in its approach to Iran,
opposed by Europe, Russia, China, and much of the rest of the
world.

Perhaps a more realistic concern is the prospect that the
administration will nominally uphold the deal, while engaging in
aggressive covert action against Iran. Increasingly, when
traditional military and diplomatic options appear too costly,
states turn to cyber warfare. But a stepped-up cyber offensive
against Iran is very unlikely to yield desirable results. Not only
is it unlikely to be effective in its immediate objectives, but it
risks antagonizing Iran into precisely the kinds of behavior the
hawks want to forestall.

Cyber-attacks fall into two basic categories: Computer Network
Exploitation and Computer Network Attack. CNE essentially equates
to espionage. It is simply the newest method of engaging in one of
the oldest activities of states: snooping on enemies. CNA, on the
other hand, is the practice of attacking foreign systems or
infrastructure in order to destroy or incapacitate enemy networks.

A renewed campaign of
covert network attacks is more likely to spur Tehran’s nuclear
efforts than hinder them.

When cyber weapons complement the use of conventional power, as
when Israel employed a CNA to incapacitate Syrian air defense
systems before it bombed a suspected nuclear enrichment facility in
2007, their tactical utility can be quite high.

However, cyber power is not very effective as an independent tool of
coercion. Successful coercion requires the targeted state to know
both the identity of the attacker and the attacker’s intended
message. This is often difficult in cyberspace because the identity
of the attacker is frequently obscured and because isolated
cyber-attacks don’t clearly communicate intended messages,
making the target’s compliance unlikely.

Other factors also undermine the utility of CNA operations.
Collateral damage and spillover effects are frequently unavoidable,
for example. Cyber weapons are also effectively single-use tools of
foreign policy because a targeted adversary can generally diagnose
and patch whatever vulnerability allowed the attack. As well, CNA
weapons carry a high probability of blowback. Targeted states can
reverse-engineer the malicious code, replicate it, and then use it
themselves. This only increases the likelihood that adversaries
will respond to a cyber-attack, not with capitulation, but with
defiance or counter-attack.

The Stuxnet virus is often held up as a fantastic success. As
part of a larger U.S.-Israeli effort to sabotage Iran’s
nuclear facilities, Stuxnet is probably the most sophisticated,
complex, and powerful cyber weapon ever used. According to
Wired magazine, Stuxnet “was unlike any other
virus or worm that came before. Rather than simply hijacking
targeted computers or stealing information from them, it escaped
the digital realm to wreak physical destruction on equipment the
computers controlled.”

Initial estimates exaggerated the damage caused by Stuxnet,
claiming it set back the Iranian nuclear program by three to five
years. Later assessments said the computer worm damaged only about
980 centrifuges (at the time, one-fifth of the total at the Natanz
plant), and delayed Iran’s overall nuclear program by a
matter of months. The International Atomic Energy Agency (IAEA)
reported that, during Stuxnet’s attack window in
2009 to 2010, Iran actually increased the number of operating
centrifuges, and increased production of low-enriched uranium from
80 kilograms per month to 120 kilograms per month. This suggests
that Iran was spurred to boost production in the face of
cyber-attacks.

In the aftermath of Stuxnet, and indeed right up until the
November 2013 Joint Plan of Action interim agreement in which Iran
agreed to temporarily freeze portions of the nuclear program as
negotiations with the P5+1 continued, Iran’s number of
operating centrifuges and stockpile of enriched uranium continued
to grow. From 2008 to 2013, Iran’s stockpile of low-enriched
uranium grew from 839 kilograms to 8,271 kilograms, almost a
ten-fold increase.

“At best,” according to the University of Toronto’s
Jon Lindsay, “Stuxnet thus produced only a temporary
slow-down in the enrichment rate itself.” Other experts are
even more skeptical. Ivanka Barzashka, Research Associate at
King’s College London and a Fellow at Stanford, argues that “evidence of the worm’s
impact is circumstantial and inconclusive.” Brandon Valeriano
and Ryan Maness, in their book Cyber War Versus Cyber Realities
contend, “It is wholly unclear if the Stuxnet worm actually
had a significant impact on Iran.”

The broader diplomatic picture adds weight to these skeptical
analyses. To the extent that Stuxnet’s objective was to delay
enrichment production and coerce Iran to make more dramatic
concessions in diplomatic negotiations than it otherwise would
have, it seems to have failed. Indeed, Iran had demonstrated a
willingness to engage in pragmatic diplomacy with the United States
and make concessions on its nuclear program long before
Stuxnet.

In a secret diplomatic overture sent to the Bush
administration through the Swiss embassy in 2003, Iran offered to
open up the their nuclear program to intrusive international
inspections and to sign the Additional Protocol of the
Non-Proliferation Treaty in exchange for an end to America’s
hostile policy toward Iran. At the time, they had only 164 operating centrifuges, compared to the
5,060 they got under the JCPOA.

And again in 2010, after lower-level negotiations with the
United States on an interim agreement stalled, Iran, with help from
Turkish and Brazilian negotiators, agreed to the benchmarks of an Obama
administration proposal to ship out Iran’s low-enriched
uranium to a third-party country to satiate concerns about
weaponization. Though this coincided with the period of the Stuxnet
attack, the virus was not revealed as such until months later and there is no
indication the damaged centrifuges actually motivated Iran to agree
to the fuel swap.

Iran’s willingness to make concessions in return for
American accommodation makes the utility of Stuxnet seem dubious.
According to Trita Parsi, the president of the National
Iranian American Council who has interviewed Iranian officials on
the issue at length, Iran was deliberately doubling down on its
nuclear program in order to show the West that the coercive
approach would not work in the absence of diplomatic
concessions.

In addition to the meager, even counterproductive, impact of
Stuxnet on Iran’s nuclear program, the unprecedented
cyber-attack wrought other negative consequences. First, it had
notable spillover effects. Though the Stuxnet worm was designed not
to “propagate beyond Iranian nuclear centrifuges…it infected
over 100,000 computers worldwide before it could be stopped,”
according to West Point scholars Erica D.
Borghard and Shawn W. Lonergan.

Second, Stuxnet drew blowback: it motivated Iran to launch
multiple waves of cyber-attacks against American banks and Saudi
Arabia’s Aramco oil company. Then-Defense Secretary Leon
Panetta, in a hyperbole typical of official statements on cyber
security, said Iran’s retaliatory cyber-attacks
were “probably the most destructive attack the private sector
has seen to date.”

The Trump administration has limited options on its Iran policy
outside of the JCPOA. Whether or not the president makes good on
his threats to effectively abrogate the deal, one thing is for
sure: a renewed covert cyber war is unlikely to produce any
benefits worth the trouble. Such an approach will only antagonize
Iran and boost the regime’s motivation to once again pursue a
nuclear weapons capability in earnest.

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

No More Fair-Weather Federalism

Ilya Somin

The Republicans are supposed to be the party of state autonomy
and strict limits on federal power. But you would not know it based
on the first six months of the Trump administration. On a variety
of major issues involving immigration, law enforcement, and the
“war on drugs,” the administration’s policies exemplify the
phenomenon of “fair-weather federalism”: respecting limits on
federal power only when politically convenient.

Last week, the city of Chicago filed a lawsuit challenging the
constitutionality of Attorney General Jeff Sessions’s plan to
coerce “sanctuary cities” into helping enforce federal immigration
law. The Justice Department policy threatens to deny cities some
federal law-enforcement grants in order to compel obedience. The
plan blatantly violates the constitutional requirement that
conditions on federal grants must be clearly stated in advance by
Congress, so that state and local governments can make an informed
choice. They cannot be imposed after the fact by the executive.

In January, President Trump issued an executive order, much like
Sessions’s new policy, that unconstitutionally commandeers state
officials and imposes new conditions on federal grants —
conditions to which the cities never consented. Fortunately, the
order was invalidated by a federal court. Ideally, Sessions’s
policy will meet the same fate. But the struggle over these issues
is far from over.

The Left and the Right
can unite to increase state and local autonomy.

Should the administration prevail, it will set a dangerous
precedent that goes far beyond the specific issue of sanctuary
cities. If the president can unilaterally add new conditions to one
federal grant program, he can do the same thing with others.
Conservatives who may be cheering Sessions now are likely to regret
it when a future Democratic president uses similar tactics to force
states to increase gun control or adopt a “common core”
curriculum.

Sessions has also undermined federalism by reinstating a federal asset-forfeiture program.
Under this policy, known as “equitable sharing,” federal officials
work with state law-enforcement agencies to seize the property of
people, many of whom have never been charged or convicted of any
crime. Asset forfeiture disproportionately victimizes the poor,
racial minorities, and others who lack resources and political
clout.

The policy also enables state and local law enforcement to
profit from these seizures, even in the many states that have
banned such practices. The federal program allows law-enforcement
agencies to circumvent state restrictions by funneling the assets
through the federal government, which then disburses some of the
profits back to state and local cops. As a result,
law-enforcement agencies will have incentives to prioritize drug
cases that are likely to net them money. Curbing violent crime, and
other objectives that state governments might value more, will be a
lower priority. Control over the funding and priorities of state
and local law enforcement is a core element of state sovereignty.
Sessions’s asset-forfeiture policy is a frontal attack on it.

The administration also appears to be planning an extensive
federal crackdown on marijuana, even in the
many states that have legalized it. This too is an assault on state
autonomy.

Sadly, the Trump administration and the GOP are far from the
only fair-weather federalists in politics. Many of the liberal
Democrats currently relying on federalism principles to protect
sanctuary cities against Trump decried those very constraints in
the past, when they impeded progressive priorities.

Both the Left and the Right could benefit from a more principled
commitment to limiting federal power. In a large and diverse
nation, it is unlikely that we can find a workable, one-size-fits
all approach to numerous contentious policy issues involving law
enforcement, health care, and drug use, among others. This is
especially true in an era of deep partisan polarization, when
Democrats and Republicans are farther apart on most issues than
they have been in decades.

Decentralization of power can also help defuse the partisan
hatred that is poisoning our politics. If the federal government
had less control over our lives, both sides would have less to fear
from their opponents’ victories at the national level. Each group
could still pursue its preferred policies at the state and local
level. Competition and experimentation by states and localities
would offer more opportunities for people to better their lot by
voting with their feet and moving to new locales.

Some people understandably fear that restricting federal power
might open the door to oppressive state and local policies. The
federal government undoubtedly has a role to play in enforcing
constitutional rights and preventing unconstitutional
discrimination by state and local governments. But carrying out
those functions does not require anything approaching the sweeping
authority currently wielded by Washington. Robust federal
antidiscrimination efforts do not require virtually unlimited
federal power to regulate anything that might have some effect on
the economy, or nearly unconstrained federal authority to use
conditional grants to pressure states and localities to do their
bidding. As the sanctuary-cities litigation demonstrates, the
latter is likely to be a menace to vulnerable minority groups
rather than a benefit to them. Moreover, unlike in some previous
eras, many minority groups today often have greater clout at the
state and local level than in Washington.

Since the election of Trump, leading progressive scholars such
as National Constitution Center president Jeffrey Rosen and Yale
Law School dean Heather Gerken have urged the Left to take a more
favorable view of federalism. Left and Right are unlikely to come
to a complete consensus on federalism any time soon. But there is
considerable potential for agreement nonetheless. A new bipartisan
and cross-ideological appreciation for limits on federal power
could become one of the few beneficial developments of the Trump
era. Together, we might yet make federalism great again.

Ilya Somin is a
professor of law at George Mason University, an adjunct scholar at
the Cato Institute, and the author of Democracy and Political Ignorance: Why Smaller
Government is Smarter
.

NAFTA Needs Reforming — Just Not in the Way Trump Thinks

Simon Lester and Inu Manak

As the Nafta renegotiation opened this week, U.S. Trade
Representative Robert Lighthizer spared little time in setting a
tone that sharply contrasted with his Canadian and Mexican
counterparts.

Lighthizer reiterated Donald Trump’s familiar talking
point that “Nafta has fundamentally failed many, many
Americans, and needs major improvement,”
starting with
addressing US trade deficits.

By contrast, in their opening remarks, Canada’s Foreign
Affairs Minister, Chrystia Freeland, and Mexico’s Secretary
of Economy, Ildefonso Guajardo, struck a collegial note,
highlighting the benefits of Nafta to all three countries, and the
importance of modernizing the agreement.

Though these divergent views on the priorities for renegotiation
do not bode well for a quick deal, there are many points on which
Canada, Mexico and the United States could agree on.

First, everyone seems to agree that Nafta, which came into force
23 years ago, does not address many new issues that have developed
since then. For example, e-commerce was just beginning to develop
when Nafta was signed, and is now a central part of international
trade.

Those who appreciate the
benefits of free trade must save NAFTA from
protectionism.

Canada and Mexico have maintained strict restrictions on online
purchases from companies in other countries, allowing orders valued
at only $20 and $50, respectively, to qualify for
duty free entry
. The US, on the other hand, allows for
purchases of up to $800 to enter duty free, and has pushed for
Canada and Mexico to raise their thresholds. Including provisions
on e-commerce will be an important step forward for Nafta, and
borrowing from those developed in the Trans-Pacific Partnership
(TPP) would be a good place to start.

International trade barriers have also undergone a
transformation in the years since Nafta took effect. A 2016 study
by the National Board of Trade in Sweden found that non-tariff
barriers are increasingly used as a tool of protectionism.
Addressing some of these barriers through regulatory cooperation
efforts would be extremely valuable.

Canada’s recent trade agreement with the European Union
(CETA) is the first to include a regulatory cooperation chapter,
which provides a forum for discussing regulatory divergence. Canada
and the United States already have a mechanism for regulatory cooperation (outside
Nafta), which could be expanded on for this purpose.

Then there are the parts of Nafta that time has revealed to be
flawed, and badly in need of an update. For instance, the core
dispute settlement provision (Chapter 20), by governments can bring
complaints against each other for violating the agreement, has not
functioned well. In fact, some complaints have been dropped or
never seen the light of day simply because defending governments
have prevented the establishment of a panel to hear the dispute,
effectively blocking the process.

Other elements of dispute settlement could also be revised.
Rules on investor-state disputes (Chapter 11) and reviews of
antidumping and countervailing duties (Chapter 19) raise concerns
about special protections given to corporations and the role of
international courts in applying domestic law. The three
governments should conduct a review of these provisions and
consider amending them or dropping them entirely, as there is
little evidence to suggest these ad-hoc panels are more effective
than pursuing cases through existing domestic courts.

Third, there are longstanding trade frictions that have gone
unresolved. Facing domestic industry pressure, Canada’s
supply management system for dairy, poultry and eggs was excluded
from the original negotiations.

The liberalisation of services was also limited, and barriers to
telecommunications and broadcasting are prevalent in both Canada
and Mexico. The renegotiation could try to address these
protectionist barriers.

Though the softwood lumber dispute may not be resolved in the
course of negotiations, an effort to do so would be beneficial for
both sides. The United States should live up to both its Nafta and
WTO obligations, and open its market to Canadian lumber. If the US
continues to be unhappy with the result, it should consider filing
a dispute under the WTO’s subsidies agreement to settle the
issue.

While some common ground or compromise may be found in these
three overarching categories of potential reforms, there remain a
number of sticking points that could derail the modernisation of
the agreement altogether. For instance, if Ambassador Lighthizer
devotes a great deal of effort to “fixing” the trade
deficit, much energy will be wasted on what most economists agree is a
non-issue.

Making rules of origin more restrictive would also be a major
distraction, as Nafta already has the most stringent rules of origin
of any trade agreement in the world.

At present, Nafta rules require cars to have 62.5 per cent North
American content; increasing this figure, or requiring a greater
portion of it to be US value added, could push companies to forgo
Nafta preferential treatment entirely, and source more parts
outside of North America because of this preference loss.

Finally, altering government procurement rules to increase the
ability to use Buy America provisions would also be unwise, only
serving to increase market distorting practices.

As Freeland recently noted, local content
requirements “for major government contracts are political
junk-food, superficially appetising, but unhealthy in the long
run.” This statement reflects the consensus between Canada
and Mexico more broadly, that the Nafta renegotiations should not
roll back liberalisation, but rather be used as an opportunity to
deepen and strengthen the deal.

It remains to be seen whether the Trump administration’s
first big trade negotiation can be successful. Some of their
rhetoric suggests they are looking for changes that US trading
partners and Congress will not agree to. But hopefully they will
recognise the political and economic realities, and take a
constructive approach to the renegotiation.

If the United States, Canada, and Mexico use these negotiations
to improve and modernise Nafta, they can enhance North American
competitiveness, set a template for modern trade agreements, and
perhaps, restore the lost momentum for trade liberalisation in the
rest of the world.

Simon Lester
is a Trade Policy Analyst at the Cato Institute. Inu Manak is a
Visiting Scholar at the Cato Institute.

Congress Should Fund Obamacare Subsidies — or Trump Must Stop Them Read

Josh Blackman

The headlines were predictable: If
President Trump halts Obamacare subsidies for insurance companies,
the Congressional Budget Office predicts, premiums for
“Silver” plans will skyrocket by 20 percent next year. Buried
halfway through the CBO’s report, however, was an important
qualification: The executive branch could stop the payments “of its
own volition or in response to a court order.”

You see, terminating the “BAILOUTS for insurance companies,” as
President Trump has threatened to do, would not be an act of
sabotage but rather a welcome step toward promoting the rule of
law. Congress has never appropriated the funding for the subsidies,
and every penny paid to the insurers is unlawful. For two years
congressional Republicans argued the payments were illegal, and
they even sued the Obama administration to halt them. Last year, a
federal judge agreed, ruling that the payments were
unconstitutional.

Yet, remarkably, for the first seven months of the Trump
administration, the payments have continued without disruption.
Even more remarkably, Speaker Paul Ryan — who commenced the
initial investigation into the payments — is content to allow
the administration to keep breaking the law.

These payments are
illegal. Republicans used to say as much

Congress’s only true option is to follow the Constitution and
appropriate the funds. Otherwise, members can only look the other
way while the separation of powers is being violated.

The Affordable Care Act employed two strategies to make health
insurance more affordable. Section 1401 of the law provides for the
payment of subsidies to consumers to reduce premiums. Section 1402
provides payments to insurers to offset cost-sharing reductions
(CSRs) for lower-income enrollees, such as reduced deductibles and
co-pays. But while the ACA funds the subsidies under Section 1401
with a permanent appropriation, to date, Congress has not provided
an annual appropriation for the cost-sharing subsidies under
Section 1402.

>Last year, a federal court ruled that Congress did not
“squeeze the elephant of Section 1402 reimbursements into the
mousehole of Section 1401.” Mr. Obama’s policy “violates the
Constitution,” the court concluded. “Congress is the only source
for such an appropriation, and no public money can be spent without
one.” And Congress is the only branch with the power to authorize
these expenditures.

After the election, I expected the Trump administration would
halt the payments. I was wrong. There has been no change in course.
In April, the Department of Health and Human Services admitted that
“there has been no policy change in the current administration.”
Within the administration there seems to be some dispute, as
President Trump has flirted with the idea of stopping the illegal
subsides yet has never pulled the trigger.

Even more surprising has been the reversal by House Speaker Paul
Ryan. In February 2015, as chair of the Ways and Means Committee,
Ryan launched the investigation into the legality of
the CSR payments. In a letter to the Obama administration, Ryan
demanded that the Obama administration explain the legal
justification for making the payments. (See page 90.) “The Treasury Department has made
and continues to make these payments,” Ryan charged, “even though
no funds are lawfully available to do so.” After a thorough
oversight investigation, the House concluded that the “Administration has spent an
estimated $13 billion on CSR payments without a lawful
congressional appropriation.” Throughout the entire process, Ryan
backed the investigation and the litigation. Yet, after the
election, he began to sing a different tune.

In April, the speaker confirmed that he would not
include funding for the CSR payments in the budget. “Obviously,
we’re not doing that,” he said. “That’s not in an appropriation
bill. That’s something separate that the administration does.” In
other words, Ryan was content to let the Trump administration
continue making the same payments that he’d previously sued Obama
for making. Talk about chutzpah.

Fortunately, many other Republicans are standing on principle.
Representative Kevin Brady of Texas, who now chairs the House
Ways and Means Committee, explains that Congress should act within
its “constitutional authority now to temporarily and legally fund
cost-sharing reduction payments as we move away from Obamacare.”
Doing so, Brady explained, would “help stabilize the insurance
market and help lower premiums for Americans trapped in
Obamacare.”

Likewise, Representative Greg Walden of Oregon, who chairs the Energy
and Commerce Committee, insisted that Congress should fund the
subsidies. “I will do everything I can to make sure that the
cost-sharing reduction payments get made,” he said. Making those
payments, Walden added, is “an obligation we have not only to the
insurers” but also to consumers, and “we cannot leave them high and
dry.”

Brady and Walden are exactly right. Their proposals are both
constitutionally necessary and economically proper. Creating an
appropriation for these payments will strengthen the separation of
powers and fortify the insurance marketplaces. It will promote the
rule of law and reduce premiums. It is a win-win situation all
around.

Congress has only one choice: appropriate the funds. If the
House and Senate do not act, President Trump has no option but to
halt the payments.

Josh
Blackman
is a constitutional-law professor at the South Texas
College of Law in Houston, an adjunct scholar at the Cato
Institute, and the author of Unraveled: Obamacare, Religious Liberty, and
Executive Power
.

A Newer NAFTA

Simon Lester and Inu Manak

President Donald Trump’s biggest trade initiative so far, the
North American Free Trade Agreement renegotiation, begins this
week. The administration’s objectives are vague, and the outcome is
uncertain, both in terms of timing and content.

Nonetheless, despite some very aggressive anti-trade rhetoric
during the campaign (Trump called NAFTA “the worst trade deal in history”), this
renegotiation has the potential to improve NAFTA, which lacks the
innovations of more recent trade agreements.

The NAFTA renegotiation will not simply be a presidential wish
list. Free traders, rather than cowering in fear, should use the
renegotiation to modernize NAFTA and try to extend the
liberalization process it began 23 years ago.

Three ways President
Trump can modernize the trade agreement.

In doing so, we must keep in mind that NAFTA has brought great
benefits to all three countries — the United States, Mexico
and Canada — and these achievements should not be rolled
back. Currently, Canada and Mexico are the destination for 34
percent
of all U.S. exports, and the U.S. remains the largest
single source of foreign direct investment into both countries.
Despite what its critics claim about job losses, a 2016 report by the U.S. International Trade Commission
stated that NAFTA has had “a small increase in U.S. welfare” and
“little to no change in U.S. aggregate employment.”

There are three main ways that NAFTA can be improved. First,
NAFTA came into force when Facebook CEO Mark Zuckerberg was nine
years old, and does not address many of the e-commerce issues that
are now central to international trade. Over the years, the United
States has developed increasingly sophisticated provisions on
e-commerce in other free trade agreements, culminating in the
Trans-Pacific Partnership (from which Trump withdrew). As part of
the NAFTA renegotiation, e-commerce provisions can be further
updated to make NAFTA cutting-edge in this area.

Second, over the past couple of decades as NAFTA has been
implemented, some flaws have been exposed. For example, the core
dispute provision (Chapter 20), which lets governments bring
complaints when they believe another government is violating the
rules, has not functioned. Defending governments have sometimes
been able to prevent complaints against them, as in a 2000 case brought by Mexico against U.S.
barriers to sugar, which never made it to the panel stage after the
U.S. blocked the process. New rules are needed in this area to
ensure that complaints are heard.

Two other specialized dispute procedures on investment rules
(Chapter 11) and review of anti-dumping countervailing duties
(Chapter 19), could use another look as well, and possibly some
amendments, as these provisions have raised concerns about the
proper role of international courts and the balance between
international and domestic power. The three governments should
conduct a review of these provisions to see whether they are the
most effective means for achieving their stated objectives, as
conditions have changed over the years.

Third, NAFTA got rid of tariffs on most goods, but there were a
few exceptions. One of the most notorious is Canada’s supply
management system for dairy, poultry and eggs, which was excluded
from the original negotiations because of pressure from domestic
industry. The renegotiation effort could and should address these
protectionist barriers. In addition, services markets were barely
touched in NAFTA, and there is now an opportunity to tackle
longstanding barriers in telecommunications and broadcasting, and
open up additional sectors that NAFTA could not anticipate at the
time, including those in which online trade is now possible, such
as education or health.

At the same time, we must be wary of someone injecting the
poison pill of protectionism into the new NAFTA. For instance,
there has been talk by some people in the Trump
administration of a trade deficit renegotiation “trigger,” under
which NAFTA could be reopened if a government saw its trade deficit
increase after signing. This is a dangerous idea. Most economists
agree that the causes of trade deficits are complex, and generally
reflect macroeconomic factors rather than trade agreement
provisions. U.S. trading partners are unlikely to agree to such a
provision, and the U.S. Congress should reject it as well.

Furthermore, other proposals, such as changing government
procurement rules to allow the expanded use of “Buy America”
provisions would also be a step backwards for liberalization. “Buy
America” policies may strike an emotional chord with some voters,
but are nothing but a traditional protectionist market distortion,
limiting competition and raising costs for these projects, and
leading to our trading partners adopting similar policies that harm
U.S. goods and services providers.

The administration has also mentioned strengthening rules of
origin, which are the requirements that determine whether a product
qualifies for duty free entry. NAFTA rules of origin are known to
already be the most stringent of any trade agreement in the
world
. Strengthening them denies the reality of international
trade today, where things are not just “made in” one place. In
fact, 15 percent of U.S. exports contain foreign
content
, and this figure has been increasing over time

This week, the Trump administration has the chance to begin a
constructive renegotiation that would enhance North American
liberalization and competitiveness, by tackling the remaining
barriers to trade and investment on this continent. They should not
waste this great opportunity.

Simon Lester
is a trade policy analyst at the Cato Institute. Inu Manak is a
visiting fellow at the Cato Institute.

No to Coal Subsidies, No to Corporate Welfare

Michael D. Tanner

Conservatives have long been among the biggest critics of
welfare programs for poor and low-income Americans, mostly with
just cause. But such criticism would probably be received better if
there was even half as much outrage directed at welfare for
corporations.

The latest outrageous example of corporate welfare comes from
West Virginia, where Republican-turned-Democrat-turned-Republican
governor Jim Justice is asking for $4-5 billion in subsidies for
coal-powered utility plants. The Trump administration is reported
to be favorably inclined to the idea.

Trump, of course, made support for the coal industry a key part
of his campaign, and that was undoubtedly a major reason he carried
West Virginia by 45 percentage points. But Justice now admits that,
even after Trump’s efforts at deregulation, the West Virginia coal
industry is in trouble, challenged not just by alternative fuels
but by bigger and cheaper sources of coal from Indiana and
Wyoming.

Far from draining the
swamp, Donald Trump simply wants to feed his alligators rather than
Democratic ones.

Like corporate welfare queens everywhere, Justice pitches his
plea for taxpayer bailouts in terms of jobs. Yet Governor Justice’s
proposal, for example, would simply prolong the dying of an
industry that has been declining for years, because West Virginia
coal is increasingly expensive and difficult to mine, in the face
of national and international competition. Just over 12,000 West
Virginians still work in the coal industry.

Conservatives were justifiably outraged when the Obama
administration poured billions of dollars in subsidies into
companies like Solyndra and other “green energy” programs. They
correctly made the point that if alternative-energy technologies
were economically viable, they should take their place in the
market and succeed or fail on their merits. Bailouts don’t become
free-market policies just because the industry being bailed out is
one you like.

We should know by now that President Trump has little interest
in free-market capitalism. From trade policy to the Import-Export
Bank to his support for ethanol subsidies, Trump has made it clear
that his idea of “making America great again” involves government
picking winners and losers, largely based on the president’s whims
and whether the workers who would benefit voted for him. Far from
draining the swamp, Donald Trump simply wants to feed his
alligators rather than Democratic ones.

The Cato Institute estimates that corporate welfare costs
American taxpayers more than $100 billion annually. And worse than
the direct cost is the way in which such subsidies distort the
economic decision-making process and limit the creative destruction
that drives innovation and economic growth. The beneficiaries of
corporate welfare are seldom entrepreneurs and innovators —
or even workers — but rather those crony capitalists who have
the right connections or who know how to work the system. This sort
of crony capitalism encourages businesses to invest in lobbying and
cozying up to politicians rather than invest in serving their
customers or developing new products.

That’s a terrible way to run an economy. In fact, studies show
that economies dominated by crony capitalism grow more slowly than
free-market economies. By upending market efficiencies, corporate
welfare makes us all worse off.

Let’s be clear. I have long been critical of most social-welfare
programs. In the long run, they do more harm than good. Still, it
would be nice, for once, if conservatives fought as hard against a
bailout for some company as they do against, say, an increase in
food stamps.

After all, welfare is welfare.

Michael
Tanner
is a senior fellow at the Cato Institute and the author
of Going for Broke: Deficits, Debt, and the Entitlement
Crisis.

Trashing the Conventional Wisdom on North Korea

Doug Bandow

Nuclear weapons have become the great international equalizer.
During the Cold War, the U.S. and Soviet Union couldn’t
afford to risk a conventional war. If one side started losing, the
temptation to escalate would be enormous. The results would be
ruinous even for the nominal winner.

Since then, China probably has edged into the deterrence club,
even though its nuclear arsenal is far inferior to that of America.
And maybe India. No one expects New Delhi to attack the U.S., but
some Indians noted its value as a means to deter any attempt by
Washington at coercion.

Now North Korea is knocking on the club door. Pyongyang is a
good example of the aphorism that even paranoids have enemies. The
Democratic People’s Republic of Korea has fallen dramatically
behind the South, which enjoys roughly 40 times the economic
strength and twice the population, plus a host of other advantages.
Add in Seoul’s ally, the U.S., and the DPRK has no chance in
any conventional conflict.

Three steps toward
solving the current crisis.

It’s hard to judge how much Pyongyang fears attack, but
South Korean presidents from Syngman Rhee to Chun Doo-hwan talked
about targeting the North (the former to reunite the peninsula, the
latter to retaliate for the Rangoon bombing). Lee Myung-bak
indicated his readiness to strike back in 2010 after North Korea
sank a South Korean naval vessel and bombarded an island. Moreover,
the U.S. defended the Republic of Korea in 1950, considered use of
nuclear weapons in that conflict, initiated a security treaty
afterwards, stationed ample forces on the peninsula and nearby, and
in recent years ousted the leaders of Afghanistan, Iraq, and Libya,
and dismantled Serbia.

The president responsible for the first two of those wars termed
the DPRK a member of “the axis of evil” and said he
“loathed” its leader, Kim Jong-il. In Libya, Washington
took out the dictator after he gave up his nuclear weapons and
missiles. Now President Donald Trump has talked about sending an
“armada” off of the North’s coast and drenching
North Korea in “fire and fury.” He surely has offered
Pyongyang retrospective justification for developing a nuclear
deterrent. Who would want to face the current administration
without one?

Acquiring both nukes and ICBMs is a game-changer, but not
because Supreme Leader Kim Jong-un plans a surprise attack on
America. He is evil, not suicidal. All indications are that he
wants his virgins in this world, not the next. Rather, he wants to
deter U.S. military involvement and attack. If Washington
wasn’t bothering him, he wouldn’t likely want
long-range missiles, which would inevitably attract America’s
attention. But since he’s in the U.S. military’s
gunsights, he needs the ability to strike back. With that,
Washington will have to rethink whether it is willing to intervene
even in another conventional conflict. If the DPRK again was on the
brink of defeat, as in 1950, but without hope of Chinese or Russian
rescue, then Kim would have little reason not to use his nuclear
weapons. How many Americans want to risk Los Angeles and Seattle in
order to defend Seoul and Pusan?

Current attempts to eliminate the North’s nuclear program
seem doomed to failure. The North has repeatedly said it
won’t voluntarily yield its nuclear program. When I visited
Pyongyang in June, officials blamed Washington’s
“hostile policy” and promised to match America nuke for
nuke.

Ever tighter sanctions would hurt the DPRK, but the regime
survived at least a half million starvation deaths in the late
1990s. And without full Chinese support, unlikely as long as
Washington doesn’t demand that Beijing hand over its sole
East Asian ally, the impact of unilateral penalties will be
limited. Secondary sanctions would wound Chinese banks and firms,
but such an approach would more likely engender resistance than
acquiescence from Beijing.

Military action would risk triggering the Second Korean War. The
Kim regime is likely to take any attack as a prelude to regime
change. Reportedly the lesson learned by the Korean People’s
Army from recent U.S. military operations is not to cede the
initiative to America. While the U.S. (and Republic of Korea)
forces would prevail in any war, the cost could be horrific,
especially to South Koreans, whose land would be the primary
battlefield, at least initially.

So Washington needs to take a different direction. Business as
usual won’t work. What to do?

Drop the “Mutual” Defense Treaty and
withdraw U.S. forces from South Korea.
The alliance is
outmoded. The ROK could construct whatever armed forces are
necessary to deter the North and defeat it in any war. No doubt,
South Koreans prefer to be defended by the global superpower. But
protecting other states should be a matter of security, not
charity.

That was the case when the threat was “only” a
conventional fight, likely to be ferocious and costly. The prospect
of a war going nuclear raises the question: does the U.S. really
want to risk a nuclear attack on the homeland to continue
protecting a nation well able to take over responsibility for its
own defense? Washington officials should put the interests of
Americans first, which means exiting one of the least stable
standoffs on earth. Doing so would eliminate the most likely
trigger for U.S. involvement in another Korean conflict.

Encourage South Korea to replace America’s
“nuclear umbrella” with its own nuclear
deterrent.
Nonproliferation is a worthy objective, but in
Northeast Asia the policy has acted a bit like domestic gun
control. As a result, only the bad guys have guns. In this case,
the nuclear powers are Russia, China, and North Korea. Which leaves
Japan, South Korea, Australia, and others vulnerable to nuclear
intimidation.

Does America forever want to risk Los Angeles and
Seattle—and maybe Chicago and New York City as well—to
protect Seoul, Tokyo, Canberra, and other cities in the region?
Would an American president really follow through on the promises
of previous leaders and risk mass destruction of the American
homeland in defense of another nation, especially one not essential
to America’s defense?

Propose a neutral reunited Korea to increase Chinese
pressure on the North.
Contrary to the seeming assumption
of most U.S. policymakers, Beijing is not irrational in tolerating
the DPRK’s confrontational behavior. The two countries are at
best frenemies, with Pyongyang ever dismissive of Chinese advice.
Moreover, the People’s Republic of China doesn’t want a
failed state, perhaps enveloped in factional conflict, on its
border, with potentially millions of refugees flooding north.
Finally, the PRC does not desire a reunited Korea allied with
America hosting U.S. troops, strengthening the system of
containment being constructed by Washington.

So the Trump administration should sit down with the Chinese
leadership and propose and old-fashioned geopolitical deal. Beijing
backs up a comprehensive denuclearization program with tough
sanctions. If the DPRK agrees, it survives and tensions ebb. If
not, it collapses and the peninsula is reunited. But American
troops come home and the new, enlarged Republic of Korea stays out
of any U.S.-Chinese crossfire. The PRC sacrifices a nominal ally
but gains a larger, more prosperous friend. Washington loses a real
ally but maintains a good friend. More importantly, Washington ends
the threat of involvement in a horrid conventional war and an even
more dangerous risk of nuclear attack.

North Korea has ended the era in which Americans imagined they
could engage in immaculate intervention, striking militarily at
will and without consequence. President Trump can match Supreme
Leader Kim insult for insult, but he dare not launch an attack lest
he trigger the conventional war Washington has sought to prevent
for 64 years. If the DPRK gains nuclear-tipped missiles capable of
targeting cities and bases in the continental U.S., no rational
president would consider fighting a war of choice against the
North.

Yet present policy appears headed down this path. Only if the
Trump administration rethinks conventional wisdom does Washington
have a chance of getting out of the policy cul-de-sac in which if
finds itself. For once U.S. leaders should put the defense of
America before that of assorted allies and friends.

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

US Toppled Suharto but Learned Little

Steve H. Hanke

Nearly 20 years after the US and the IMF toppled President
Suharto of Indonesia during the Asian financial crisis, important
lessons have still not been learned.

On 14 August 1997, just after the collapse of the Thai baht,
Indonesia floated the rupiah, partly in response to turbulence in
the currency markets. The move was welcomed by Stanley Fischer,
then deputy managing director of the International Monetary Fund
and now vice-chair of the US Federal Reserve. He said: ‘The
floating of the rupiah, in combination with Indonesia’s strong
fundamentals, supported by prudent fiscal and monetary policies,
will allow its economy to continue its impressive performance of
the last several years.’

But, caught up in the Asian financial crisis, the rupiah did not
flourish. By 1998 it had plunged to nearly Rp16,000 per dollar from
Rp2,700. To help find a solution, in February 1998 Suharto
appointed me to advise Indonesia’s economic and monetary resilience
council. I proposed the establishment of an orthodox currency board
– the rupiah would be fully convertible into, and backed by, the
dollar at a fixed exchange rate. Currency board systems had been
widely used and had an excellent track record. On the day the news
was announced, the rupiah soared by 28% against the dollar on both
the spot and one-year forward markets.

These developments infuriated the US government and the IMF.
Ruthless attacks on the currency board idea ensued. Suharto was
firmly told by both Bill Clinton, the US president, and Michel
Camdessus, the managing director of the IMF – under the sway of the
White House – that he would have to drop the idea or forgo $43bn in
foreign assistance.

Regime change never works
as intended.

Economists jumped on the bandwagon, finding every imaginable
half-truth and non-truth against the currency board idea. Yet the
plan had the support of four Nobel prize-winning economists: Gary
Becker, Milton Friedman, Merton Miller and Robert Mundell.

Miller later said that the Clinton administration’s objection to
the currency board was ‘not that it wouldn’t work, but that it
would, and if it worked, they would be stuck with Suharto’. The
late US Secretary of State Lawrence Eagleburger recalled: ‘We were
fairly clever in that we supported the IMF as it overthrew
[Suharto]. Whether that was a wise way to proceed is another
question.’ Even Camdessus did not dispute these assessments. On his
retirement, he acknowledged: ‘We created the conditions that
obliged President Suharto to leave his job.’

The Asian crisis presented a golden opportunity to the
neoconservative regime changers led by Paul Wolfowitz, a former US
Ambassador to Indonesia and subsequently deputy secretary of
defence, who pushed for the invasion of Iraq and the overthrow of
Saddam Hussein. Their agenda was for the US to control the greater
Middle East, from Indonesia to Morocco.

To depose Suharto, the IMF had to establish a public position of
open hostility to currency boards. This deception was required to
convince Suharto that he was acting heretically, and that, if he
continued, it would be costly. The IMF’s hostility required a quick
about-face: less than a year earlier, Bulgaria as well as Bosnia
and Herzegovina had installed currency boards with the endorsement
of the IMF. In both cases I had had an advisory role. Shortly after
Suharto departed, Camdessus announced that the IMF would support
Russia if it chose to adopt a currency board.

Another deception involved the widely circulated story that I
had proposed to set the rupiah’s exchange rate at an overvalued
level so that Suharto and his cronies could loot the central bank’s
reserves at a favourable exchange rate. This fabrication was
intended to ‘confirm’ Suharto’s devious intentions and rally
international political support against the currency board idea so
that Suharto could be ousted. The story was at the heart of the
Clinton administration’s campaign to dump Suharto, and continues to
be repeated today.

Twenty years on, it seems that the US has not learned its
lesson. Regime change never works as intended. In Asia, China has
filled the vacuum created by the discredited efforts of the US and
the IMF. As for the neoconservatives who embrace regime change and
the dream of a US-controlled greater Middle East – in spite of many
failures, they continue to embrace their doctrine.

Steve Hanke is Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Member of the OMFIF Advisory Board.

Racist Policies Need to Go

Jonathan Blanks

Like Vida B. Johnson, I was outraged at the t-shirt worn by a Metropolitan
Police Department officer
that glorified the use of
“jump-out cars” and contained a common white
supremacist symbol. Police and political leadership should actively
identify and root out white supremacists from police departments
throughout the country. At the same time, community leaders should
examine policies that have disparate racial impacts in communities
of color, even though those policies are facially color-blind or
race neutral. Even without the taint of explicit white supremacy on
the MPD officer’s t-shirt, the policy that produces jump-out
cars in D.C. is racially problematic by itself. Although not
publicly discussed as “jump outs,” the D.C.
Metropolitan Police has been taken to court over the heavy-handed
tactics associated with its Gun Recovery Unit (GRU).

The GRU stops and searches individuals—usually
young black men in Southeast D.C.—to look for weapons. (In
D.C., with very few exceptions, it is illegal to carry a concealed
firearm outside of the home, so the possession of a weapon
concealed on a person is presumptively criminal).[1] Under Terry v. Ohio (1968), an
officer must have an articulable suspicion a crime is ongoing or
about to be committed before he can stop, question, and pat an
individual down to check for weapons or, alternatively, the officer
may search a person if he gains consent from the individual to be
searched. Judge Janice Rogers Brown of the D.C. Circuit Court of
Appeals questioned the legitimacy of that framework in practice,
placing the GRU’s standard operating procedure not in the
poorer, mostly black neighborhoods of Southeast D.C., but in a
posh, predominantly white
residential and shopping district
:

[T]ry to imagine this scene in Georgetown. Would residents of
that neighborhood maintain there was no pressure to comply, if the
District’s police officers patrolled Prospect Street in
tactical gear, questioning each person they encountered about
whether they were carrying an illegal firearm? Nothing about the
Gun Recovery Unit’s modus operandi is designed to
convey a message that compliance is not required.

With the guise of voluntary consent stripped away, the reality
of the District’s regime is revealed. It is a rolling
roadblock that sweeps citizens up at random and subjects them to
undesired police interactions culminating in a search of their
persons and effects.[2]

Although Judge Brown did not mention race at all in
her concurring opinion, the de facto racial segregation
that separates the two places is clear to anyone familiar with D.C.
neighborhoods. If this were tried in a white neighborhood, she
implies, the practice would be abandoned and the department might
even be sued.

And while the defenders of the practice would argue
that Georgetown does not face the homicide and violent crimes
affecting Southeast, it’s too easy to justify separate and
unequal policing under the guise of solving a legitimate policy
problem. While it is entirely fair to say that more crime justifies
a greater police presence in a segment of a city, that crime does
not—or, rather, should not obviate the
constitutional rights of the people who live in that area. If
statistics showed there were more child pornography producers and
distributors in white neighborhoods, the police would not be
justified going door to door to intimidate presumptively innocent
residents to get consent to search their computers to combat child
pornography. Residents would be outraged to be treated as criminal
suspects and intimidated to surrender their rights. Yet the GRU
eviscerates Fourth Amendment protections for young black men
walking down the street as policy, irrespective of any racial
prejudice by the officers.

This sort of practice is not just a D.C. problem.
Investigatory traffic stops are used across the country in order to
find contraband and cash in cars travelling on American roads.
Although traffic stops are a regular occurrence, research indicates
there are two different types of stops and the difference between
those stops has broad racial implications. In their book, Pulled Over, Charles R.
Epp, Steven Maynard-Moody, and Donald Haider-Markel use data to
show that black motorists in Kansas are more likely to be stopped
by police for pretextual causes—minor infractions with little
or no public safety implications, like a burned-out license plate
light—with the ultimate goal of being searched for
contraband.

The focus on explicit
racism threatens to overshadow racially biased policies that can
erode the fabric of the communities police are trying to
protect.

The respondents who were pulled over and subjected to
the searches reported that, for the most part, the officers were
polite and professional throughout the stops. The professionalism
that has been stressed to officers in recent years to decrease
hostility in police encounters does not overcome the drivers’
perceived illegitimacy of the stop. Thus, focusing on individual
officers and possible bias misses the broader impact of the policy
on local minority communities. Findings imply that these pretextual
investigatory stops of minorities have negative effects on minority
communities such as reducing respect for police and civic
institutions as well as undermining the drivers’ sense of
equal place in society, regardless of how polite the officers were.
Sometimes the policies themselves should be examined and
discontinued.

While it is crucially important that racist officers
are found out and dismissed from their police departments, some of
the more pervasive problems affecting minority communities are the
policies officers are asked to carry out. Dubbing today’s
criminal justice system “The New Jim Crow” may be a
helpful comparison to understand the scale of the damage done to
African-American communities by mass incarceration, but I fear of
over-reliance on the narrative of an intentional suppression of
black people by malicious police and profiteers. The focus on
explicit racism threatens to overshadow racially biased policies
that can erode the fabric of the communities police are trying to
protect. Too often in law enforcement, and government generally,
the damage done to marginalized communities stem not from malice,
but the unintended consequences of well-intended policies.

Notes:

[1] A recent decision in the U.S. Court of
Appeals for the D.C. Circuit
allowed the District to start
issuing concealed carry permits to all qualified applicants, but
this is likely to be stayed and held over until an appeals court
hearing and decision en banc or on appeal to the U.S. Supreme
Court. For the purposes of this post and as a matter of reality for
District residents and police, the presumptive criminality of
concealed possession is accurate.

[2] United States v. Gross, 784 F.3d 784
(D.C. Cir. 2015) (Brown, J. concurring at 790-791).

Jonathan
Blanks
is a Research Associate in the Cato Institute’s Project
on Criminal Justice and Managing Editor of PoliceMisconduct.net.