Policy Institutes

The Departments of Homeland Security and Justice (DHS/DOJ) released a report this morning on the threat of international terrorism.  This report was required by President Donald Trump’s executive order that, among other things, originally established the infamous travel ban.  The new DHS/DOJ report produces little new information on immigration and terrorism and portrays some misleading and meaningless statistics as important findings.  Interestingly, the draft version of the report had more interesting and useful information that was mysteriously edited out of the final public version.  It’s remarkable that, given almost a year to produce such a report and with the vast resources of the federal government combined with reams of government information unavailable to the public, that they were able to produce a report of so little of value.     

The DHS/DOJ report found that about 73 percent of those convicted of international terrorism-related offenses from 9/11 through the end of 2016 were foreign-born.  That means that 27 percent of them were native-born Americans.  By focusing exclusively on international terrorism-related charges, this report intentionally ignores domestic terrorists unaffiliated with international terrorists.  Thus, the results of the DHS/DOJ report are, at best, a snapshot of the international subset of terrorism that ignores the purely domestic variety. 

The DHS/DOJ report ignores the most important statistic: how many people were actually killed by these terrorists on U.S. soil.  In our updated terrorism information that runs through the end of 2017, we found that a total of 155 people were killed on U.S. soil in terrorist attacks since January 1, 2002, 34 of them by foreign-born terrorists and 121 of them by domestic terrorists (going back to September 12, 2001 does not add any deaths by identifiable terrorists on U.S. soil but would diminish the chance of dying, so I excluded it from this blog post to bias the results against me).  Since the beginning of 2002, native-born Americans were responsible for 78 percent of all murders in terrorist attacks committed on U.S. soil while foreign-born terrorists only committed 22 percent.  Including the actual number of deaths caused by terrorists flips the DHS/DOJ statistics on its head.     

From the beginning of 2002 through 2017, about the period of time covered by the DHS/DOJ report, the chance of being murdered in a terrorist attack committed by a native-born American on U.S. soil was about one in 40.6 million per year.  During the same period, the chance of being murdered by a foreign-born terrorist was about 145 million per year.  The total chance was about one in 32 million a year.  To put that one in 32 million a year chance in perspective, the annual chance of being murdered in a non-terrorist homicide was about one in 19,325 per year or about 1,641 times as great as being killed in any terrorist attack since 9/11.  These numbers are based on updated and expanded data that we plan on publishing in the near future (available upon request). 

The DHS/DOJ report found that at least 549 people were convicted of international terrorism-related charges in federal court from 9/11 to the end of 2016.  These are fewer than the 627 convictions that the DOJ reported through the end of 2015.  What accounts for the 78 fewer convictions over a longer period?  The DHS/DOJ report does not attempt to reconcile their report here with what they have reported previously.  Furthermore, the DHS/DOJ report does not supply the relevant information about the numbers of convictions for terrorism-related offenses, their names, or the actual offenses they committed.  The DHS/DOJ report should have published this information just as the government has done in the past in request to FOIAs.

The DHS/DOJ relies on “terrorism-related convictions” as their important metric, a definition that encompasses numerous convictions that have nothing to do with terrorism.  There is no definition of “terrorism-related” as a crime in U.S. statutes.  The phrase “terrorism-related” appears mostly in reference to actions of government officials in response to terrorism such as a “terrorism-related travel advisory.”  The anti-terrorism Information Sharing Environment, which integrates information which the GAO, defines “terrorism-related” as relating to “terrorism, homeland security, and law enforcement, as well as other information.” That is a definition that so broad “terrorism-related” is not synonymous with “terrorism.” 

The DHS/DOJ report reveals that the DHS had 2,554 encounters with individuals on the terrorist watch list via the FBI’s Terrorists Screening Database (TSDB) in FY 2017.  That means that DHS could have had multiple encounters with the same individuals who were all counted as separate “encounters.”  The TSDB includes the identities of hundreds of thousands of known and suspected terrorists who are both native-born Americans, foreign-born travelers and immigrants to the United States, and foreigners who have not traveled here.  According to a DOJ audit of the TSDB, frontline officers conducted about 270 million checks against the TSDB every month in 2007 with a total of about 3.24 billion checks per year.  Assuming those numbers were unchanged for FY 2017, even though that number has likely increased, and that only 10 percent of them were conducted by DHS, means that about 0.0008 percent of all TSDB checks conducted by DHS resulted in a TSDB hit, or about one for about every 127,000 checks.  That does sound dangerous until you realize that people flagged by the TSDB are not necessarily terrorists.  Even U.S. Senators and Congressmen have been included on the TSDB list.  Getting one’s name on the TSDB list is easy but getting off is very difficult.  As the DOJ audit of the TSDB noted:

[O]ur file review found that the State Department and the DHS’s Customs and Border Protection did not revise encounter records in a screening database in a timely fashion to reflect modified or removed terrorist identities.

 

Thus, the DHS/DOJ reported TSDB encounters statistic is virtually meaningless.  It’s a count of people the government is concerned about without evidence or a clear way of being removed.  The DHS/DOJ report could have told us how many of these folks actually committed a terrorist attack, eventually did so over time, or were arrested for a terrorism offense but they missed that opportunity. 

The DHS/DOJ report on international terrorism reveals little new information on the international terrorist threat to Americans on U.S. soil.  Unusual for a government report on terrorism, it isn’t even capable of providing many scary-sounding statistics that could frighten people.  While that last point is an improvement, future reports on this topic should seek to provide information on this important topic that isn’t publicly known.  This report fails to do that.

As an optimist, and I hereby proclaim 2018 “Year of Federal Spending Cuts.” To kick-off the celebrations, Cato has published Downsizing Federal Government Spending.

The new book discusses federal spending cuts on agriculture, education, health care, infrastructure, welfare, and many other activities. The cuts would save money, boost growth, and increase freedom.

Congress needs to kick the deficit-spending habit, and the new book can help kick-start reforms. Do lawmakers really want to kick younger generations in the teeth by growing the debt? I hope not, but the way some of them spend, it’s as if they know they will kick the bucket before the bill comes due.

You will get a kick out of this book. The kicker? It’s just $9.99 from Amazon.com

The federal government owns 640 million acres of land—mainly in the West—which is 28 percent of land in the United States. For more than a century after the nation’s founding, the federal government aimed to sell or give away western lands to individuals, businesses, and state governments. But by the turn of the 20th century, federal policy came under the sway of progressives, who favored increased federal control.

Progressives had a misguided notion that federal ownership would be efficient and environmentally sound. Broadly speaking, they were wrong. Experience has shown that federal agencies mismanage land from both economic and environmental perspectives, as discussed here and here. The solution is to devolve ownership of most federal land to the states and private sector.

The Bureau of Land Management (BLM) owns about 250 million acres of land, of which about 160 million acres are used for livestock grazing. Cato scholar Steve Hanke championed BLM land privatization as an economist for President Ronald Reagan. He proposed that ranchers be allowed to buy the grazing land that they currently rent from the BLM.

Privatization would create benefits by securing property rights. Currently, ranchers are uncertain about their future access to the federal grazing lands they use, so they have incentives to overstock the lands and disincentives to make capital improvements. Privatization would allow ranchers to plan for the best economic and environmental rangeland management over the long term.

In a new Forbes article, Hanke discusses the privatization proposal he designed in the 1980s, a proposal that Reagan approved of. Hanke’s reform would be fair and efficient for both ranchers and the government. Here are some excerpts:

On Jan. 8, Judge Gloria M. Navarro of the Federal District Court in Las Vegas dismissed charges against Cliven Bundy and his sons Ammon and Ryan, as well as a supporter Ryan W. Payne. The case stemmed from a 2014 armed standoff at the Bundy ranch in Bunkerville, Nevada. The standoff arose over a dispute about government grazing fees, pitting the Bundys against federal officials.

The dispute would not have occurred if the proposal I developed for President Reagan when I served as Senior Economist on his Council of Economic Advisers had been implemented. The proposal was contained in the President’s Budget Message for 1983 fiscal year.

…Until the passage of the Taylor Grazing Act in 1934, the public domain was operated as a large commons. Since the Act, a more orderly method of utilization has been in effect. For the right to use public grazing lands, which cover approximately 155 million acres, ranchers must acquire grazing permits. To obtain these permits, ranchers must pay annual rents to the U.S. Government. By custom, the grazing permits, which number approximately 24,500, are attached to specific parcels of private land.

The linkage between public permits and private land has had a profound impact on the market for private land. The annual public grazing fees have been set below market-clearing levels. As a result, the grazing permit market has been cleared—supply has been equated with demand—not through the public grazing permit market itself, but through the market for the private lands that are linked to the public permits. So, the difference between the public grazing fees that are charged and those that would clear the market for grazing permits has been capitalized into the value of the private lands that permits are attached to.

The linkage, through the capitalization process, between the market for public permits and that for private land has important implications. With the exception of those who obtained the original permits, all ranchers have had to pay two prices for their public permits—a public price, in the form of an annual grazing fee, and a private price, in the form of a premium for their private land.

…To privatize public grazing lands and transfer public grazing permits (surface rights) to private ranchers on an equitable basis, a lump-sum amount should be charged to ranchers. This charge should be set so that it is equivalent, in present value terms, to the amount that the U.S. government would receive in grazing fees over time if the government retained title to the lands and continued to charge an annual grazing fee or rent. In effect, the government would be put in a position in which it is indifferent between receiving a lump-sum payment today or a stream of annual rents over time. Moreover, ranchers would be charged for only that portion of the permits’ value that had not already been paid for through premiums for private land.

…[W]hat would be the benefits associated with this privatization proposal?

First, the productivity of federal grazing lands would increase.

Second, federal revenues would be generated. Instead of receiving annual grazing fees, the federal government would receive an equivalent lump-sum payment.

Third, the annual federal costs…exceed the annual revenues generated from federal grazing lands. Therefore, privatization would eliminate negative cash flows for the federal government. This would obviously benefit all U.S. taxpayers, who must now pay taxes to support the federal government’s retention of public grazing lands.

Lastly, a state and local property tax base would be created. Western dependence on Washington, D.C. would be reduced and federalism would be enhanced.

Rachel Campos-Duffy, the wife of Rep. Sean Duffy (R-WI), cohosting “Outnumbered” on Fox News Friday, complained that Democrats “make our country look bad” by revealing what President Trump said in a meeting with members of Congress:

“I still have a problem with people in a private meeting going out and saying what the president said….It makes our country look bad. I think the Democrats, in this case, should have used some discretion. And even if he did say something like that, not repeat it for the benefit of the country.”

Her comments reminded me of one of my favorite parliamentary exchanges. 

Helen Suzman, the longtime leader of the parliamentary opposition to apartheid, rarely won any votes in the South African parliament. But she did use her position to advocate for human rights and to ask tough questions. 

In a famous exchange a certain minister shouted: “You put these questions just to embarrass South Africa overseas.” To which she coolly replied: “It is not my questions that embarrass South Africa – it is your answers.” 

Republicans who don’t want the country embarrassed by the president’s insult to dozens of countries and millions of Americans should encourage him not to issue such insults.

The Trump administration will release its long-waited infrastructure plan in coming weeks. The plan is expected to include $200 billion over 10 years of federal funding. Where will the money come from? The president has pondered raising the federal gas tax.

Revenues from the 18.4 cent-per-gallon federal gas tax go into the Highway Trust Fund, and then are dished out to the states. But 98 percent of U.S. streets and highways are owned by state and local governments, and the owners should do the funding. States that need to improve their highways can increase their own gas taxes, sales taxes, issue debt, add user charges, or pursue public-private partnerships.

There is no advantage in raising federal highway revenues rather than the states raising their own. The states can tackle their own infrastructure challenges, and about half of them have raised their transportation taxes in the past five years.

Supporters of a federal gas tax hike say that the tax has not been raised since 1993, and its real value has been eroded by inflation. That is true. But the federal gas tax rate more than quadrupled between 1983 and 1993 from 4 cents to 18.4 cents, as shown in the chart below. The 4-cent rate would be 9.8 cents in today’s dollars, so the real gas tax rate has risen substantially since the early 1980s.

The chart shows that the states have steadily raised their own gas taxes in recent years. API discusses state gas taxes here, and they emailed me data back to 1994. (I’ve interpolated a few missing years). The state average—currently 33 cents—includes both gasoline excise taxes and other taxes on gasoline.

I hope Trump does not go down the road of gas tax increases. Pumping more money through the federal bureaucracies would fuel more top-down planning and inefficiency. Funding for highways and other infrastructure should be handled by state and local governments and the private sector.  

More on infrastructure here and here

As the trade paparazzi speculate about whether and when Trump will impose trade sanctions on China and what those sanctions will be, a trade war is already widening right under their noses. For more than a decade, the United States and China have been quietly waging a trade war in the shadows of public policy.

China’s pursuit of technological know-how has included objectionable tactics, such as the implementation of discriminatory innovation policies, intellectual property theft, forced technology transfer, and cyber-espionage. The U.S. government’s response has included the informal decision to put the U.S. market off limits to China’s most successful technology companies and to make U.S. technology more difficult for Chinese companies to acquire. What that means is that globally successful information and communication technology (ICT) companies, such as Huawei Technologies, have been informally blacklisted from selling network gear to America’s telecommunications companies, and selling computers, smartphones, and other electronic devices to U.S. consumers. 

It also means that the Committee on Foreign Investment in the United States (CFIUS), through imminent legislative and regulatory changes, will soon complete its metamorphosis from a body that reviews proposed foreign acquisitions and helps the parties mitigate potential security risks associated with those deals into an insurmountable obstacle to any significant acquisitions of U.S. technology by Chinese companies.

I wrote about this metastasizing trade war and its adverse repercussions in Forbes the other day, but wanted to provide an update on the rapidly changing landscape.

On January 9, Rep. Mike Conaway (R, TX, 11th) introduced legislation that not only forbids U.S. government agencies from purchasing ICT equipment produced by Huawei, ZTE (another Chinese ICT company), or their subsidiaries and affiliates, but also forbids those agencies from doing business with any entity that uses equipment produced by those companies.

Should HR 4747, the “Defending U.S. Government Communications Act,” become law, it’s difficult to imagine that Beijing would remain welcoming of U.S. technology companies and products in China for much longer.

In my estimation, this is going to be the most explosive trade issue of 2018 and beyond.

 

 

President Trump is promoting comprehensive immigration legislation drafted by key House Republicans that touches on all aspects of the system. The bill would provide legal status to young immigrants, cut legal immigration, and provide for more border agents, but one provision should not be ignored: a biometric exit system. It’s a big waste of money, and Congress should resist efforts to fund it.

Biometric exit’s logistics are difficult

Current law requires the Department of Homeland Security (DHS) to collect a biometric identifier—in practice, fingerprints and digital photos—from foreign visitors entering and leaving the United States. In theory, this system would allow them to identify individuals who overstay their temporary visas. After 9/11, DHS implemented the entry half, but it still has not rolled out a system for those exiting.

The biometric entry system—known as US-VISIT—was relatively easy to implement because foreign visitors to the United States already underwent screening at ports of entry, and as a security tool, it made sense. It allows DHS to confirm that a person trying to enter is the same person who applied for a visa overseas, which undermined visa fraud and the use of aliases in the visa entry process.

The biometric exit system has no similarly easy path to implementation. Airports are not set up to screen travelers exiting the United States. As the Government Accountability Office (GAO) has found, “airports generally do not have designated and secure exit areas for conducting outbound immigration inspections, nor are there checkpoints for travelers to pass through where their departure is recorded by a U.S. immigration officer.”

At land ports of entry, the situation is even more hopeless. GAO found that “many land POEs do not have sufficient space to deploy equipment and staff.” Moreover, a biometric exit system would require motorists to stop and physically leave their vehicles. GAO notes that this “would cause extensive delays.” DHS did test biometric exit kiosks for pedestrian traffic, but these failed because agents had to spend too much time helping people and desert conditions damaged the equipment.

Biometric exit is an unnecessary expense

Nor does biometric exit have the same benefits. DHS already tracks most overstays using airline flight manifests. Airlines send DHS the names of anyone who has boarded an outbound flight, and DHS compares this information against US-VISIT entry information. In 2016, this flight manifest system identified 544,676 people as having overstayed and not left the country—1 percent of all air and sea entries.

While some share of these people—mainly Canadians and Mexicans—may have left through ports of entry, this system identifies a massive pool of people who DHS could target for removal operations, but they don’t. DHS spends only 2 percent of its time investigating overstays. Of the nearly 700,000 foreign visitors that DHS has identified as overstays from 2004 to 2012, it arrested only 9,000 (1.2 percent).

Expanding an exit system to land ports of entry would only add to the massive stack of uninvestigated visa overstays. Biometric exit without much more aggressive interior enforcement serves little purpose, while coming at a great cost. The Senate Judiciary Committee in 2013 obtained an estimate from DHS that full biometric exit would cost $25 billion—airports would cost $6.4 billion alone.

This only includes the cost to the government. It ignores costs to travelers and businesses who are delayed leaving the country. Delays entering the United States along the southern border already cost the U.S. economy billions—more than $6 billion in California alone. Congress should work first to reduce these delays that have serious negative impacts on the economy before imposing an expensive system with a dubious purpose.

Overstay crackdown isn’t worth it

Some might argue that the biometric exit would be valuable if DHS simply spent more time targeting overstays. But the department’s priorities make sense. Every visitor to the United States receives thorough vetting before entry, while people who cross the border do not. Thus, starting with border crossers is logical from a security perspective.

Overstay investigations are exceptionally labor intensive for low priority offenders. Consider that of the 44,500 overstay leads that DHS investigated from 2004 to 2012, it arrested just 9,000, mainly because nearly half ended up leaving the country or adjusting to a legal status before an apprehension was made. Another quarter were never located. This is a huge investment for few arrests.

By contrast, DHS currently apprehends illegal immigrants—including some overstays—mainly after states and localities arrest them for local crimes. Prioritizing overstays would mean passing on people who 1) are guaranteed arrests and 2) are alleged to have committed some other violation of law beyond immigration offense. To target both overstays and those arrested by local police would require far more resources than Congress currently spends on enforcement. Even then, it’s not clear that overstays would be DHS’s priority. There are criminal fugitives who could be tracked down.

Biometric exit is a costly enforcement hammer without any nails to strike. DHS is already well aware of many visa overstays, but prioritizing them would mean ignoring higher priority and easier arrests. Without dramatic reductions in the illegal population, a crackdown on visa overstays will never make much sense, making biometric exit almost entirely superfluous.

With school board elections approaching, Tammy Holland purchased ad space in her local paper to inform her neighbors about their available options when it came time to vote. For this brazen exercise of her free speech rights, Ms. Holland found herself forced to expend considerable time and resources to defend her actions in court, twice. You might wonder how this could happen in a “free” country that ostensibly enjoys the blessings of the First Amendment. Unfortunately, Colorado’s byzantine system of campaign and political finance regulations not only turn a blind eye to First Amendment concerns, but actively incentivizes politically motivated, retaliatory litigation. 

Colorado is unique in being the only state to effectively outsource enforcement of its campaign finance regulations by allowing “any person who believes” that campaign finance laws are being violated to “file a written complaint with the secretary of state.” Filing a complaint triggers a litigation process culminating in a court hearing before an Administrative Law Judge, much like a trial. After Ms. Holland was dragged into court on the whim of individuals who took issue with her speech, Campaign Integrity Watchdog (CIW)—an outside group that was not a party to the litigation—filed a motion requesting the court seal otherwise public records because they contain information related to campaign finance settlements. If the court grants CIW’s request, the public will never be able to access vital information about how these cases are resolved. In an effort to protect the public’s right to know, Cato has joined the Reason Foundation to file an objection to CIW’s motion.

Citizens should be able to access information about how their campaign finance laws are enforced. As the United States Supreme Court has long held, it is presumptively the right of the public to access and know the contents of court filings. Judges are obligated to avoid secret trials, which are anathema to a free society. And, in the context of Colorado’s campaign finance laws, which encourage individuals to function as an arm of the state by instructing them to “prosecute” perceived violations, it is doubly important that the public have access to relevant court filings and records. Denying CIW’s motion and allowing access remains faithful to the presumption that, in the criminal context, plea agreements should be open. Sealing the records would contravene the long-established common law right of access to judicial records and the local rules of the District Court of Colorado. In the interest of transparency, public access, and freedom from political prosecution, CIW’s motion to restrict should be denied.

Readers of this blog may recall Cato’s filing an amicus brief for an appeal in the Eighth Circuit supporting two Missouri women’s challenge to state requirements that they become licensed as cosmetologists or barbers before being allowed to work as African-style hair braiders. Obtaining the mandatory license from the Missouri Board of Cosmetology & Barber Examiners entailed undergoing a minimum of 1,000 hours of mostly irrelevant training and passing an exam with both written and “practical” (term used loosely) components. 

Not only is over 90 percent of the required training completely inapplicable to the practice of African-style hair braiding, but seven of the nine board members are barbers, cosmetologists, or cosmetology school owners with a direct financial incentive to limit competition.

None of that mattered to the three judges on the Eighth Circuit panel, who yesterday after a full year of foot-dragging issued a perfunctory opinion upholding the district court ruling in the board’s favor. Instead of finally providing two aspiring entrepreneurs their day in court before a neutral arbiter, this ruling continues the pattern of courts’ violating bedrock due-process principles by rubber-stamping occupational regulations under the flimsiest of rationales.

Beginning with a single footnote in the 1938 case United States v. Carolene Products Co., the Supreme Court has scrutinized rights violations differently depending on how it classifies the right in question and whether the violation harmed “discreet and insular minorities.” (Ironically, the plaintiffs in Niang are both women and African Americans—two classes traditionally protected under this principle.) For a law that infringes so-called “fundamental” rights, courts apply what is known as “strict scrutiny” and require governments to prove that the law is narrowly tailored toward achieving a compelling government interest. 

On the other end of the spectrum are economic rights that courts have decided are less important, with infringements only being reviewed under the much less rigorous “rational basis” standard. Under this lower standard, it is up to the person challenging the law to prove that it is not “rationally related” to a “legitimate” (real or imagined) government interest. 

In 1955, the Supreme Court extended this standard to new extremes in Williamson v. Lee Optical Co., upholding a law that allowed only optometrists and ophthalmologists (but not mere opticians) to fit or duplicate lenses for glasses. After conjuring a number of potential justifications, the Court dismissively ruled that it was “enough that there is an evil at hand for correction, and that it might be thought that the particular legislative measure was a rational way to correct it (emphasis added).” While the entire concept of tiered scrutiny is itself deeply flawed, the district and now Circuit courts in Niang failed to meaningfully apply even the over-deferential rational basis standard, choosing instead to parrot (and even surpass!) Lee Optical as a means of tipping the balance further in favor of the Board.

In its initial ruling upholding the challenged licensing scheme, the district court engaged in factually unsupported speculation and invented justifications that the board itself had failed to imagine, thus denying the challengers any way to challenge either the rationality of the government’s means or the legitimacy of its ends. Now, by reiterating that the district court was “not bound to consider only the stated purpose of a legislature,” the Eighth Circuit has blessed the practice of trial judges’ acting as the government’s de facto co-counsel. 

Even more outrageously, the opinion cited the absurd language from FCC v. Beach Communications (1993) holding that challengers must not only refute any justifications actually advanced by the state, but also negate “every conceivable basis which might support” the statute or regulation under review. What are the actual limits of this amorphous standard? Could a court rationalize requiring a hair braider to obtain a degree in economics to properly price her services? A medical degree with experience in pain management in order to protect the tender-headed? Mandatory viewing of 80’s hair metal videos in order to warn against the dangers of hair styling gone terribly wrong? 

Not only must such decidedly irrational rationales be addressed, but challengers apparently must also invent time travel in order to challenge judicial justifications that only appear after all briefing and argument has been completed!

In any event, this will be appealed to the Supreme Court, where the justices will have the opportunity to reevaluate both the proper level of scrutiny used to assess occupational licensing and how levels of scrutiny are to be applied by courts more broadly. And while the panel opinion is certainly troubling, legal scholar and Cato senior fellow Randy Barnett offered an important reminder:

Court of Appeals judges are limited by precedent. We need [Supreme Court] Justices who will reconsider this constitutional wrong turn. But decisions like this don’t tell us if they will if elevated. And sadly neither will confirmation hearings.

One further disturbing aspect of the ruling is thus that one of the panelists, Judge Steven Colloton, appears on President Trump’s list of potential Supreme Court nominees. By contrast, another member of the Trump shortlist, newly confirmed Fifth Circuit Judge Don Willett, wrote a concurrence while on the Texas Supreme Court that addressed this very issue of overly burdensome occupational licensing in a manner that properly considered plaintiffs’ right to earn an honest living in the face of arbitrary government regulations.

If nothing else, Niang should remind us all of the need for substantive debate at future judicial confirmation hearings, not frivolous demagoguery.

Our thanks to research assistant Anthony Gruzdis for his help with the post.

Donald Trump’s whiplash-inducing Twitter comments about the surveillance legislation his administration had just endorsed didn’t stop the House of Representatives from approving a bill to reauthorize the FISA Amendments Act for another six years, but if you watched the floor debate, you might come away thinking civil libertarians won at least a few concessions in the process. Defenders of the statute’s controversial Section 702, which authorizes warrantless survellance of foreigners’ communications, rejected a proposal to require FBI agents to seek a warrant before querying the vast 702 database for Americans’ communications—a practice critics have dubbed a “backdoor search”—but did accept a narrower warrant requirement for queries conducted for criminal investigations unrelated to national security. Is this, as the bill’s boosters repeatedly insistence, a “compromise” that should provide some small consolation to civil libertarians?

Alas, no. There’s a good reason you won’t find any privacy advocates cheering even a partial victory following Thursday’s vote.  First, as I noted back in October, such a narrow warrant requirement would do almost nothing to prevent abuses of the sort it’s most reasonable to worry about: historical abuses of spying power have nearly all been clothed in invocations of national security.  But it’s worse than that.  The limited warrant requirement in the House bill not only exempts a potpourri of ordinary crimes—among them any involving the risk of death or serious injury, cybersecurity, or offenses against minors—it applies only to what are known as “predicated” or “full” investigations.  

What this means, perversely, is that when FBI agents are conducting “preliminary” investigations—which are essentially inquiries into whether a crime worth investigating may have been committed—they are free to search for Americans’ intercepted communciations.  The requirement to obtain a warrant kicks in only when there is enough evidence of wrongdoing—a “factual predicate”—to open a full-blown criminal investigation.  In other words, Americans will actually enjoy greater privacy protections when the government has evidence they’re involved in criminal activity.  That should seem inherently rather backwards, but it also sets up some pretty terrible incentives.  In effect, it tells investigators: “You’d better go hunting for people’s private communications in the preliminary stages of an inquiry, when it’s less clear who or what actually merits scrutiny, because once you’ve developed actual evidence you won’t be able to do it without jumping through additional hoops.”  This inverts the normal progression of investigations, where more intrusive methods become available as evidence of criminal conduct accumulates.

This also incentivizes the unseemly practice of “parallel construction,” wherein information obtained by intelligence methods is passed along to ordinary law enforcement agencies, which then conceal its intelligence origins, often fabricating an alternative story of how that information was discovered before bringing a case to court. As a new report from the group Human Rights Watch details, the practice appears to be disturbingly routine, despite the serious and obvious due process questions it raises. Now Congress is poised to give explicity statutory blessing to the warrantless querying of intelligence intercepts for ordinary criminal investigative purposes.  A probable unintended consqeuence is to make parallel construction even more attractive: agents can develop preliminary leads without being burdened by court oversight, then offload the task of building a case to bring before a judge on state and local authorities (or other federal agencies, such as the Drug Enforcement Administration).  

Finally, it’s worth noting a tension in the arguments offered by 702’s defenders that came out with unusual clarity in Thursday’s floor debate.  One representative after another insisted that civil liberties concerns about 702 were misplaced since, after all, it was focused on “targeting” only foreigners on foreign soil.  Yet again and again, the very same representatives insisted that the intelligence value of 702 would be “crippled” if the government could not routinely query the database of intercepted communications for information about Americans.  It does not take advanced training in logic to see that those claims cannot both be true. 

The Wall Street Journal had a flattering piece about Governor Jerry Brown’s budgeting today:

California Gov. Jerry Brown appears poised to exit office next year with a top political priority in hand: free from the massive budget deficits that had weighed on his predecessors.

… Mr. Brown has been preaching frugality for years—he kicked off one past budget talk with Aesop’s fable about the thrifty ant and the lazy grasshopper.

Mr. Brown took office in 2011 with a $27 billion deficit and drastically slashed spending. In 2012, he staked his governorship on a tax increase that voters approved that year and reauthorized in 2016.

Brown might have been “preaching frugality,” but his high-speed rail boondoggle is about as spendthrift as you can get.

As for state deficits, they generally arise when states project high future spending growth even when revenues are stagnating. They have more to do with excessively optimistic forecasts than they do with real gaps between current spending and revenues.  

California general fund spending increases have been substantial under Brown, as shown in the chart below using the latest state data.

Spending fell 6 percent Brown’s first year, but then bounced back strongly, rising 46 percent from 2012 to the enacted level for 2018.

During the whole period, 2011 to 2018, general fund spending rose 38 percent in California, compared to an average 27 percent in the other 49 states, per NASBO data.

Total California spending (general and nongeneral funds) has risen 44 percent under Brown, 2011-2018. Perhaps Brown did too much preaching, and not enough actual cutting.

In the Cato 2016 Governors Report Card, I assigned Brown an “F.” Look for another Report Card this October.

Two months of drama in the House of Representatives over the soon-to-expire FISA Section 702 mass surveillance program came to an end this morning, with a bipartisan group of House members first defeating a FISA reform amendment (USA RIGHTS Act) offered by Rep. Justin Amash (R-MI), then passing the GOP House leadership bill. The key votes in support of the GOP House leadership effort came from Democrats, including Minority Leader Nancy Pelosi (D-CA) and House Intelligence Committee Ranking Member Adam Schiff (D-CA).

The progressive activist group Demand Progress, which spearheaded the campaign on the political left for meaningful surveillance reforms, issued a blistering statement after the vote, the key paragraph of which follows:

Demand Progress has opposed the FISA Amendments Reauthorization Act from the start and has instead urged the House to pass strong reform legislation, like the USA RIGHTS Act, which was offered as an amendment but defeated 183-233, despite strong support from members of both parties. 55 Democrats voted against the amendment, where a swing of 26 votes would have meant its adoption and the protection of Americans’ privacy. The USA RIGHTS amendment would have enacted meaningful reforms to Section 702, which are imperative given the government’s historical abuse of surveillance authorities and the danger posed by future abuses.

Amash garnered 58 GOP votes for his amendment (offered with several other Democratic and Republican House members), by far his best showing since his first attempt to rein in federal mass surveillance programs in the summer of 2013, in the wake of Edward Snowden’s revelations. 

The FISA Amendments Act was first passed in 2008, when Pelosi was Speaker. In her floor speech in support of the FISA Amendments Act on June 20, 2008, Pelosi made this claim:

Some in the press have said that under this legislation, this bill would allow warrantless surveillance of Americans. That is not true. This bill does not allow warrantless surveillance of Americans. I just think we have to stipulate to some set of facts.

In fact, as Demand Progress noted in their 2017 report on Section 702, the FISA Court itself found the federal government had done exactly that in a number of cases. But as is so often the case in politics, it is emotion and perception, not facts and reason, that dominate debate on Capitol Hill. Today was another one of those days.

 

A surprising Politico story this morning laid out the contours of a rough deal to legalize the DACA recipients.  There are several welcome developments.  First, it would be a wider DREAM Act that goes beyond the DACA recipients.  In exchange, it would restrict the legalized DREAMers from sponsoring their parents (essentially duplicating current law), but it does allow the parents 3-year renewable legal status.  This is a fine compromise.  Second, it would not eliminate any of the family-sponsored green card categories, a wonderful development.  Third, it would use the 50,000 annual diversity green cards, also known as the visa lottery, to legalize Salvadorans here on Temporary Protected Status (TPS) who just had their status canceled (this status will expire in 18 months).  This third point is the most potentially troubling depending on what happens to those green card numbers after the 200,000 or so Salvadorans are legalized.

If the green cards from the diversity visa that are allocated to legalize those on TPS are canceled after the Salvadorans are legalized, then this would be a bad move.  Green cards are rare and valuable commodities that are beneficial to the United States and to the immigrants themselves.  The Salvadorans should be legalized, but not at the cost of reducing legal immigrants by substantially more.

 

I propose three ways of dealing with the diversity green cards after the Salvadoran TPS holders are legalized:

 

  1. The 50,000 diversity green cards are recaptured and allocated to a new lawful permanent residency program based on the RAISE Act proposed by Senators Tom Cotton (R-AR) and David Perdue (R-GA).  This new green card category would allocate 50,000 green cards a year to applicants living overseas who have the greatest number of points according to the RAISE Act’s proposed system.  This is a great way to co-opt a portion of the RAISE Act for a positive purpose while making the United States immigration system more merit-based – one of the stated goals of the RAISE Act.  Crucially, creating a new merit-based category does not cut legal immigration like the RAISE Act would nor would it destroy the current employment-based green card system.  It would also make sure that the recipients of this merit-based category continue to come from abroad, just like most of the recipients of the diversity green card lottery currently do.  The diversity visa program won’t last forever, so this is a less harmful way for it to end
  2. The diversity visa starts up again after all of the TPS workers are legalized without any other changes.  This would probably satisfy the Congressional Black and Hispanic Caucuses. 
  3. Congress auctions the 50,000 green cards every year to the highest bidders who are non-excludable under current law.  An annual auction of 50,000 green cards could raise substantial revenue for the federal government.  The median wage gain for immigrants from developing nations to the United States is about four-fold.  Estimates of the annual wage premiums for earning a green card are between $11,860 and $20,000 for adjustments of status, meaning that such an auction could command a very high price.  Some American firms have even offered to pay $10,000 to $15,000 for an H-1B visa or a green card.  Nobel Prize-winning economist Gary Becker thought the government could sell a green card for $50,000 back in 2011.  Based on those statements, an auction of 50,000 green cards would raise $500 million to $2.5 billion per year and, potentially, far more.  This extra revenue could sweeten the pot.  Additionally, this new auction category would attract richer and more educated immigrants who think they have a promising economic future in the United States – a decent measure of merit.        

 

It’s wonderful that Congress is moving away from some of the more radical cuts in lawful immigration that have been discussed over the last year.  However, the future of the green cards currently allocated under the diversity visa is important to resolve.  There should not be any net-cut in the number of green cards issued.  If the diversity visa program is going to end then those green cards so be reallocated to more valuable uses rather than extinguished entirely.

Over at The National Interest, I review some recent articles (e.g. here, here and here) claiming that President Donald Trump has completely reoriented U.S. foreign policy in the span of one year. If true, that would be a pretty mean feat. After all, Barack Obama claimed to have tried to do the same thing, and he essentially admitted to being rolled by what Obama adviser Ben Rhodes labeled “the blob.”

But, it turns out, it isn’t true. Trump hasn’t, for example, restructured U.S. alliances.

On the contrary, he allowed Montenegro’s admission to NATO to go forward, the first new member in ten years. Last month, he backed the sale of weapons to Ukraine’s government as it struggles to put down a Russia-backed insurgency. He increased the number of U.S. troops in Europe. None of these decisions advance U.S. security—arguably, they undermine it—so it is hardly consistent with what most Americans think of when they hear “America First.”

Aside from his running feud with North Korea’s Kim Jong Un, the U.S. presence in Asia remains largely unchanged.

The U.S. Navy continues to operate extensively throughout the Asia-Pacific. There are still tens of thousands of troops in Korea and Japan, and the Trump administration has shown no signs of reducing that permanent presence, despite the president’s stated misgivings, and the dubious connection between such a presence and U.S. safety.

And, in the Greater Middle East, Trump’s approach isn’t so different from Obama and Bush 43, except for the fact that many more civilians are being killed. And Trump’s decision to continue the war in Afghanistan indefinitely provides the most obvious evidence that the foreign policy establishment is winning.

“To be sure,” I observe:

Donald Trump has pushed through a number of changes to U.S. foreign policy that neither Obama nor Clinton would have (e.g. withdrawal from the Paris climate accord; reversal on better relations with Cuba; threats to undo the Iran nuclear deal; calls for recognizing Jerusalem as Israel’s capital). Indeed, if there is a single theme connecting his disparate actions it seems to be “If Obama did it, it must be wrong.” But, on matters of substance, and particularly with respect to the U.S. global military posture, Donald Trump hasn’t changed that much.

So, why all the fuss? Because Trump is different. Words matter, and Trump’s Twitter rants and ill-considered off-hand comments have not made us, or the world, safer.

Unsurprisingly, European leaders, from Angela Merkel to Emmanuel Macron to Theresa May, have pushed back against Trump–but also, more broadly, against U.S. leadership. “We Europeans must really take our destiny into our own hands,” Merkel said in May. “The times in which we can fully count on others—they are somewhat over.”

She’s not alone. “Germany can no longer simply react to U.S. policy but must establish its own position,” German Foreign Minister Sigmar Gabriel explained in early December, “even after Trump leaves the White House, relations with the U.S. will never be the same.”

To be honest, I think we should be encouraged that the leaders of other countries, appropriately unsettled by Trump’s unpredictability, now question the wisdom of basing their security on the wishes and whims of an American president–even if future chief executives aren’t as mercurial as Donald J. Trump. Whether they act on those concerns, however, remains to be seen. A lot will depend not on what Trump says, but on what he actually does.

In the meantime, I conclude:

We should be disappointed…that concerns about Trump and Trumpism haven’t prompted a more serious debate over the future of U.S. foreign policy. Instead we get lamentations that all is lost, followed by a forlorn hope to go back to the way it was before.

You can read the whole thing here.

Many commentators have compared Bitcoin to gold as an investment asset. “Can Bitcoin Be Gold 2.0?,” asks a portfolio analyst. “Bitcoin is increasingly set to replace gold as a hedge against uncertainty,” suggests a Cointelegraph reporter.

Economists, by contrast, are more interested in considering how a monetary system based on Bitcoin compares to a gold-standard monetary system. In a noteworthy journal article published in 2015, George Selgin characterized Bitcoin as a “synthetic commodity money.” Monetary historian Warren Weber in 2016 released an interesting Bank of Canada working paper entitled “A Bitcoin Standard: Lessons from the Gold Standard,” which analyzes a hypothetical international Bitcoin-based monetary system on the supposition that “the Bitcoin standard would closely resemble the gold standard” of the pre-WWI era. More recently, University of Chicago economist John Cochrane in a blog post has characterized Bitcoin as “an electronic version of gold.”

In what important respects are the Bitcoin system and a gold standard similar? In what other important respects are they different?

Bitcoin is similar to a gold standard in at least two ways. (1) Both Bitcoin and gold are stateless, so they either provide an international base money that is not the creature of any national central bank or finance ministry. (2) Both provide a base money that is reliably limited in quantity (this is the grounding for Selgin’s characterization), unlike a fiat money that a central bank can create in any quantity it likes, “out of thin air.”

Bitcoin and the gold standard are obviously different in other ways. Gold is a tangible physical commodity; bitcoin is a purely digital asset. This difference is not important for the customer’s experience in paying them out, as ownership of (or a claim to) either asset can be transferred online, or in person by phone app or card. The “front ends” of payments are basically the same nowadays. The “back ends” can be different. Gold payments can go peer to peer without third-party involvement only when a physical coin or bar is handed over. Electronic gold payments require a trusted vault-keeping intermediary. Bitcoin payments operate on a distributed ledger and can go peer-to-peer electronically without the help of a financial institution. In practice, however, many Bitcoin transactions use the services of commercial storage and exchange providers like Coinbase.

The most important difference between Bitcoin and gold lies in their contrasting supply and demand mechanisms, which give them very different degrees of purchasing power stability. The stock of gold above ground is slowly augmented each year by gold mines around the world, at a rate that responds to, and stabilizes, the purchasing power of gold. Commodity (non-monetary) demands also respond to the price of gold and dampen movements in its value. The rate of Bitcoin creation, by contrast, is entirely programmed. It does not respond to its purchasing power, and there are no commodity demands.

Let’s consider supply in more detail. Secularly, annual production of gold has been a small percentage (typically 1% to 4%) of the existing stock but not zero. Because the absorption of gold by non-monetary uses from which it is not recoverable (like tooth fillings that will go into graves and stay there, but unlike jewelry) is small, the total stock of gold grows over time. Historically this has produced a near-zero secular rate of inflation in gold standard countries. The number of BTC in circulation was programmed to expand at 4.0 percent in 2017, but the expansion rate is programmed to fall progressively in the future and to reach zero in 2140. At that point, assuming that real demand to hold BTC grows merely at the same rate as real GDP, Bitcoin would exhibit mild secular growth in its purchasing power, or equivalently we would see mild deflation in BTC-denominated prices of goods and services. (Warren Weber’s paper similarly derives this result.) This kind of growth-driven deflation is benign, but the difference is small in real economic welfare consequences between a money stock that steadily grows 3% per year and one that grows 0%.

The key difference in the supply mechanisms is in the induced variation in the rate of production of monetary gold in response to its purchasing power, by contrast to the non-variation in BTC. A rise in the purchasing power of BTC does not provoke any change in the quantity of BTC in the short run or in the long run. In Econ 101 language, the supply curve for BTC is always vertical. (The supply curve is, however, programmed to shift to the right over time, ever more slowly, until it stops at 21 million units). By contrast, a non-transitory rise in the purchasing power of gold brings about some small increase in the quantity of monetary gold in the short run by incentivizing owners of non-monetary gold items (jewelry and candlesticks) to melt some of them down and monetize them (assuming open mints) in response to the rising opportunity cost of holding them and to the owners’ increased wealth. The short-run supply curve is not vertical. Still more importantly, the rise will bring about a much larger increase in the longer run by incentivizing owners of gold mines to increase their output. The “long-run stock supply curve” for monetary gold is fairly flat. (I walk through the stock-flow supply dynamics in greater detail in chapter 2 of my monetary theory text.) The purchasing power of gold is mean-reverting over the long run, a pattern seen clearly in the historical record.

Because its quantity is pre-programmed, the stock of BTC is free from supply shocks, unlike that of monetary gold. Supply shocks from gold discoveries under the gold standard were historically small, however. The largest on record was the joint impact of the California and Australian gold rushes, which (according to Hugh Rockoff) together created only 6.39 percent annual growth in the world stock of gold during the decade 1849-59, resulting in less than 1.5 percent annual inflation in gold-standard countries over that decade. For reference, the average of decade-averaged annual growth rates over 1839-1919 was about 2.9 percent.

As a result of the long-run price-elasticity of gold supply combined with the smallness and infrequency of supply shocks, the purchasing power of gold under the classical gold standard was more predictable, especially over 10+ year horizons, than the purchasing power of the post-WWII fiat dollar has been under the Federal Reserve. As I have written previously: “Under a gold standard, the price level can be trusted not to wander far over the next 30 years because it is constrained by impersonal market forces. Any sizable price level increase (fall in the purchasing power of gold) caused by a reduced demand to hold gold would reduce the quantity of gold mined, thereby reversing the price level movement. Conversely, any sizable price level decrease (rise in the purchasing power of gold) caused by an increased demand to hold gold would increase the quantity mined, thereby reversing that price level movement.” Bitcoin lacks any such supply response. There is no mean-reversion to be expected in the purchasing power of BTC, and thus its purchasing power is much harder to predict at any horizon.

Describing gold supply, Warren Weber writes: “Changes in the world stock of gold were determined by gold discoveries and the invention of new techniques for extracting gold from gold-bearing ores.” This is not well put. Changes in the world stock of monetary gold come about every year from normal mining. Gold strikes and technical improvements in extraction brought about changes in the growth rate (not the level) of the stock. Historically, the changes in the growth rate were not dramatic by comparison to changes in the postwar growth rates of fiat monies. As often as not, the changes in gold stock growth rates were equilibrating, speeding the return of the purchasing power of gold to trend from above trend. As Rockoff noted, some important gold strikes (like the Klondike in the 1890s) and some important technical breakthroughs (like the cyanide process of 1887) were induced by the high purchasing power of gold at the time, which gave added incentive for prospecting and research.

The phrase from John Cochrane quoted above is part of a sentence that reads in its entirety: “It’s an electronic version of gold, and the price variation should be a warning to economists who long for a return to gold.” From the consideration of the mean reverting character of the purchasing power of gold, by contrast to Bitcoin’s lack of such a character, we can see that the second half of Cochrane’s statement is incorrect. The inelastic supply mechanism that produces price variation in Bitcoin should give pause to those who predict that Bitcoin will become a commonly accepted medium of exchange. It says nothing about the purchasing power of gold under a gold standard.

[Cross-posted from Alt-M.org]

Last night, the Office of Management and Budget (OMB) issued a Statement of Administration Policy (SAP) opposing the FISA Amendments Act Section 702 reform amendment offered by House members Ted Poe (R-TX), Zoe Lofgren (D-CA), Justin Amash (R-MI), Thomas Massie (R-KY) and several dozen others. Around the same, time GOP House Whip Steve Scalise’s office circulated an email to all GOP members that included a falsehood-laden attack on bipartisan FISA reform amendment authored by House Intelligence Committee chairman Devin Nunes (R-CA):

In fact, the Poe/Lofgren/Amash/Massie substitute creates no such “barriers”–it would require federal authorities to get a probable cause-based warrant to search the stored communications of Americans acquired under Section 702. Exactly as the Fourth Amendment requires.

This morning, President Trump tweeted what appears to be opposition to the reauthorization of Section 702:

The House convenes at 9am today. The vote on the House GOP FISA Section 702 reauthorization bill and the Poe/Lofgren/Amash/Massie alternative will likely take place sometime between 10:30 and 11am. A live feed of the debate is available on the House Clerk website.

Imagine yourself waking up on November 8, 2016, and preparing to head to the polls for the culmination of nearly two years of presidential campaigning. You feel passionate about your favored candidate and so put on your “I’m With Her” t-shirt or your “Make America Great Again” hat, to show pride in your selection and solidarity with the cause. You stop off at your local polling place on the way to work and walk into the building, ready to pull the lever, like millions of other Americans taking part in the same collective ritual.

We regret to inform you that, if you live in the state of Minnesota, you just broke the law. Minnesota prohibits any insignia deemed to be “political”—as determined solely at the discretion of the on-site election judges—from being worn into a polling place. When Minnesotans go to the polls, they may not convey to their fellow citizens that they are Republicans, or Democrats, or any “group with recognizable political views.”

There’s no requirement that the insignia encourage voting one way or another, or even relate to any candidate or issue on the ballot. Voters violate the law by wearing a hat or shirt bearing nothing more than the words “Occupy” or “Tea Party,” a picture of a blue donkey or red elephant, or a button explaining that they are a member of their union local—or that they “Like Ike.”

It’s hard to imagine a law more offensive to the First Amendment than a blanket ban on political expression by voters exercising their franchise—not speech by way of campaigning or soliciting or otherwise distracting or confusing voters, mind you, but just by wearing. Citizens are entitled to express their support for the causes they value by means of the press, and the soapbox, and their wallets, and, if they choose, their attire. Sartorial symbolism possesses a long pedigree in American discourse, be it black armbands to protest foreign wars, a gloved fist raised in defiance of racism, or a jacket vulgarly denouncing conscription.

But a polling place, Minnesota contends, is different, and the U.S. Court of Appeals for the Eighth Circuit agreed, holding that polling locations are a speech-free zone—a “non-public forum” in constitutional legalese—where the state may broadly prohibit anything as long as it doesn’t discriminate as to viewpoint. The Minnesota Voters Alliance disagrees, and the Supreme Court agreed to hear their case.

Cato, joined by the Rutherford Institute, Reason Foundation, and Individual Rights Foundation, filed a brief supporting the voters’ group, as we did at the petition stage. Our brief makes the point that what is referred to as “forum analysis”—a convoluted doctrine that treats a speech restriction differently depending on whether the courts deem it a “traditional public forum,” a “designated public forum,” a “limited public forum,” or a “nonpublic forum”—is irrelevant here.

Instead of applying that judge-made doctrine rigidly, courts should always consider the underlying speech interests at stake. A complete ban on political expression should be met with the most searching judicial inquiry, regardless of the setting. While the Supreme Court has upheld limits on campaigning near polling stations, justified by the desire to ensure voters are not intimidated or bamboozled, these interests aren’t served by punishing any voter who shows up with a “Feel The Bern” button on their lapel.

The Court, which hears argument in Minnesota Voters Alliance v. Mansky on February 28, should reaffirm that the First Amendment isn’t defined by real estate and that other values matter beyond location, location, location.

Basic economic logic still applies to rent control. Earlier this week, the National Bureau of Economic Research (NBER) published a study that provides strong evidence of rent control’s damaging effects.

The study’s findings should be unremarkable to students of basic economics. As students learn in the first days of class, when regulation limits prices, product supply decreases and demand increases. The resulting mismatch creates a shortage.

San Francisco is a veritable poster-child for housing shortages, and the NBER study focuses on the city’s rent control policy, which exacerbates housing shortages and associated housing affordability problems there.

San Francisco’s rent control policy caps rents for units built in 1979 or earlier. It remains in effect today and “covers most rental property,” according to the San Francisco Tenants’ Union.

The NBER study finds damaging impacts for this feel-good policy. The authors find rent control “reduced rental housing supply by 15 percent,” which consequently raised rents by more than 5 percent city-wide.

The study also estimates that 42 percent of rent losses were “paid by future residents,” while current residents bore the other 58 percent of losses. But because current residents also benefited from rent control, the losses were offset for them “at the great expense of welfare losses from future inhabitants.”

The adverse effects of San Francisco’s policy don’t stop there. Rent control also “increased renters’ probabilities of staying at their addresses by nearly 20 percent.” This is arguably undesirable, given geographic mobility’s recent decline and critical importance in a healthy economy.

Although the direction of the results are predictable given a rudimentary understanding of economic principles, rent control’s effects are clearly not widely understood enough. For example, Illinois, Oregon, and California are “considering repealing laws that limit cities’ ability to pass or expand rent control.” Legislators in these states would probably think twice if they were better acquainted with basic economics.

The Pentagon is on track for its first-ever agency-wide audit, but will the audit hold any surprises? In case you missed it, Christopher Preble, vice president for defense and foreign policy studies, and Caroline Dorminey, research assistant, had an op-ed in Defense One this week, discussing the audit and what it may uncover. 

Beyond the obvious accounting of assets—an estimated $2.4 trillion worth, including everything from infrastructure to personnel to weapon systems—an audit will create opportunities for careful consideration about the best use of military dollars.

Why has it taken this long for the Pentagon to be audited? Preble and Dorminey discuss common criticisms that have stood in the way of reviewing the military’s books. Some argue that an audit might expose sensitive information, yet Congress regularly debates the defense budget out in the open. The only thing missing from the public eye is knowledge of how dollars are actually spent and whether they deliver a return on investment. Others argue that the armed forces are too busy safeguarding liberty, and shouldn’t have to be subject to rigorous examinations of fiscal responsibility. Yet if all other government agencies are subject to audits, there’s no reason the Pentagon should be exempt. 

Preble and Dorminey argue that there will likely be few surprises:

Some of the Pentagon’s worst examples of wastefulness are already common knowledge. A $125 billion bureaucratic waste report (albeit with questionable methodology) made headlines this time last year. The General Accounting Office regularly reports on the Pentagon’s struggle to produce weapons systems in a timely fashion. One of the largest single line items in the budget, the F-35 Joint Strike Fighter program, has been plagued by everything from software struggles to production delays to cost overruns. Some muse that the entire enterprise might be a $1 trillion mistake. Similarly, the Littoral Combat Ship program has long been associated with inefficiency. Its new acquisition strategy doesn’t seem to be making things better. The worst of the worst in the DOD’s gargantuan budget will likely be the things that policymakers and the public already know about.

More importantly, they make a case that the audit is an opporunity for us to rethink the roles our armed forces play, and to decide what sort of resources are best used in furthering those missions.

You can read the full op-ed, “What to Expect from the Pentagon’s First-Ever Audit,” here

President Trump has reportedly expressed reservations about public-private partnerships, but White House economic advisor Gary Cohn is still enthusiastic about building the administration’s fabled infrastructure plan around them. Not everyone realizes, however, that there are two very distinct kinds of public-private partnerships, which I call the good kind and the bad kind. I’d like to believe that it is the bad kind that worries Trump while it is the good kind that encourages Cohn.

The good kind of public-private partnership is more formally known as a demand risk partnership. In this case, the public partner essentially gives the private partner a franchise to build a road or some other infrastructure. The private partner is allowed to collect tolls or other revenues from the infrastructure for a fixed period of time, usually three or four decades, after which ownership and management of the infrastructure is turned over to the public partner (who may contract it out again). The key is that private partner accepts all of the risk that the revenues may not cover the costs. The I-495 Capital Beltway express lanes are a demand risk partnership.

The bad kind of public-private partnership is more formally known as an availability payment partnership. As with the good kind, the public partner designs the project and the private partner builds and, usually, operates it. Unlike the good kind, the private partner takes no risk that the project might not pay its way. Instead, the public partner contracts to pay the private partner enough money over several decades to completely repay the private partner’s costs regardless of whether anyone is actually using the infrastructure.

Availability payment partnerships might make sense in the case of infrastructure that no one expects to earn user fees, such as common schools. But in most cases, such partnerships are formed mainly to allow the public partner to sidestep legal debt limits. For example, euro nations are supposed to limit their debts to a fixed percentage of GDP. Some nations, such as Italy, have built high-speed rail and other infrastructure using availability payment partnerships so that the debts appear on the books of the private partners, not the government.

For the same reason, Denver’s Regional Transit District (RTD) formed a public-private partnership to build a billion-dollar rail line to the airport. Voters had approved a sales tax increase for the rail line but set a debt limit. When cost overruns made it impossible to build the line without exceeding the debt limit, RTD entered into an availability payment partnership so the debt wouldn’t appear on its books. Of course, it was still contracturally obligated to pay the private partner enough to repay its debt.

Demand risk partnerships are good because the need to cover costs out of user fees creates a discipline that insures that projects are worthwhile and costs do not get out of control. User-fee funded projects are also better maintained because managers know users will stop paying if the project becomes dangerous or unreliable. 

Availability payment partnerships are bad because they offer little incentive to insure that projects are worthwhile or to control costs. Denver’s airport rail line was originally projected to cost $315 million and ended up costing over a billion dollars. Nor did that billion dollars buy a quality product: more than a year after it opened, the builder still has not got the automatic grade crossing gates working, a technological problem that the private railroads solved more than 80 years ago.

Until the Trump administration releases its infrastructure plan, we won’t know if it will make a distinction between demand risk and availability payment partnerships. But it should favor the former over the latter to protect taxpayers and insure that the infrastructure we build is both worth having and well maintained.

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