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In 1989, Larry Hatfield fudged his employment records to get some extra money from the Railroad Retirement Board. He was caught and pled guilty to the federal crime of making a false statement, and was sentenced to a fine and (at the government’s recommendation) no prison time. Since then, Hatfield has lived his life without incident, incurring nary as much as a parking ticket. He doesn’t fight, do drugs, or cause problems. Hatfield has lived as a completely law-abiding citizen for decades.

Hatfield’s neighborhood, however, has changed for the worst, so he wants to own a firearm to defend himself in his home. But the intersection of an odd federal law—18 U.S.C. § 922(g)(1)—and the ever-expanding idea of what a “felony” is has seen his right to keep and bear arms stripped away. That old conviction for lying to the Retirement Board now restricts his right to armed self-defense. While his conduct in 1989 was not upstanding, permanently stripping Hatfield of his core Second Amendment right seems an excessive punishment—one that puts the government in the interesting position of having argued that Hatfield is both so non-dangerous so as to have been recommended zero days in prison, but so dangerous that he can never be trusted with a gun.

Hatfield sued in federal court and won. The district judge agreed that permanently banning all felons—whether violent or not—from owning firearms was unconstitutional. The government has appealed that ruling to the Chicago-based U.S. Court of Appeals for the Seventh Circuit. Because the Second Amendment applies, on its face, to all Americans, Cato has filed a brief supporting Hatfield. Across-the-board felon disarmament is not only unconstitutional as applied to Hatfield—a non-violent felon who served no prison time—but with respect to all non-violent felons.

There is no longstanding precedent supporting the government’s position. In fact, Congress enacted a provision restoring gun rights to felons that don’t pose a threat to public safety, indicating a tacit acceptance that “felon” as a category is excessively broad in relation to the government’s stated purpose of protecting the public. Section 922’s operation as a categorical elimination of rights for a broad class of people is both beyond what was historically acceptable and without a meaningful tie to public safety.

The excessive breadth of modern felonies—including things as irrelevant to public safety as improper packaging of lobsters—unconstitutionally removes many individuals’ rights to self-defense. These laws also hurt minorities and the poor, the people most likely to become victims of crime and receive the least police assistance.

In Hatfield v. Sessions, the Seventh Circuit should uphold the lower court’s ruling and find the permanent removal of Hatfield’s right to defend himself unconstitutional.

Saudi Arabia has a big problem on its hands this week. Despite funneling significant resources into lobbying efforts and U.S. congressional campaigns, the kingdom has found itself in a pickle that it cannot seem to easily extricate itself from: the disappearance of Jamal Khashoggi. 

For years, Saudi Arabia’s war in Yemen has drawn significant criticism for their strategy and tactics. The naval blockade has their smaller neighbor grappling with a devastating famine and a dearth of medical supplies and humanitarian aid. The Saudi’s air campaign has also proven deeply problematic—either from their poor aim or amoral choice of target. 

International critiques seemed to reach a crescendo last month after the Saudi’s mistakenly bombed a school bus full of children—killing 26 and injuring 19 Yemeni kids. European nations issued statements that they would halt weapons shipments to the kingdom for the foreseeable future due to the incident, but many of those nations (including Spain and Germany) did an abrupt U-turn later in the month and proceeded with the sales. 

Some American policymakers have also tried to halt weapons sales to the nation over the past two years. There have been two outright votes on the matter led by bipartisan, bicameral coalitions—both votes narrowly defeated. Saudi Arabia’s role in Jamal Khashoggi’s disappearance has created a pivotal moment for the effort led by some in Congress to untangle the United States from Saudi crimes. 

Make no mistake—this change is not out of the blue—it’s reaching critical mass. The champions of previous amendments, including Sen. Rand Paul, Sen. Bernie Sanders, Sen. Chris Murphy, and Sen. Mike Lee, now have powerful policymaker allies that had been previously opposed to their efforts.  

But it should never have taken the disappearance of a Washington Post journalist to reach critical mass. Saudi Arabia has a staggering history of involvement in human rights concerns in Yemen that should have been enough momentum to stop and question the current scope of defense exports flowing into the country. The evidence that, at the very least, selling weapons to the country was a risky endeavor has been clear for years.

On the Risk Assessment Index, a comprehensive measure meant to objectively measure the risks of negative consequences flowing from American arms sales to particular countries, Saudi Arabia scored a 12 on the scale of 5 (lowest risk) to 15 (highest risk). The overall measure was created from making one unique composite score for each nation from the Fragile State Index, Freedom House Index, U.S. State Department’s Political Terror Scale, Global Terrorism Index, and the UCDP/PRIO Armed Conflict Database. 

While President Trump may tout the economic benefits of weapons exports, Congress has a responsibility to also consider the foreign policy implications of continuing their support. As I wrote recently in the Wall Street Journal,

 

The U.S. makes arms-sales decisions under legislative restrictions Mr. Benard doesn’t address. The 1976 Arms Export Control Act creates a directive to ensure that American-made weapons don’t spark arms races, support terrorism, or enable human-rights violations abroad. These aren’t “worries” or “aversions.” It’s the law.

 

The signs have been clear for a while. The smartest move for policymakers would be to at least halt deliveries to the kingdom until Khashoggi’s disappearance can be thoroughly investigated, and to use that time to seriously evaluate the trade-offs that come from selling weapons to Saudi Arabia. 

Writing in Project Syndicate, Stephen Roach, former chief economist for Morgan Stanley, declares the U.S. economy’s foundations fundamentally unsound:

“America’s net national savings rate – the sum of saving by businesses, households and the government sector – stood at just 2.1% of [gross] national income in the third quarter of 2017.  That is only one third of the 6.3% of the average that prevailed in the final three decades of the twentieth century… America… is saving next to nothing.  Alas, the story doesn’t end there. To finance consumption and growth, the U.S. borrows surplus saving from abroad to compensate for the domestic shortfall.  All that borrowing implies a large balance of payments deficit with the rest of the world which spawns an equally large trade deficit.”   

This alleged “savings crisis” has popped up periodically since the 1980s when there’s a Republican in White House, such as 2006 when I wrote about it.

Roach believes it “important to think about saving in ‘net’ terms, which excludes the depreciation of obsolete or worn-out capacity in order to assess how much the economy is putting aside to fund the expansion of productive capacity.”  

Dividing net savings by gross national income subtracts a semi-arbitrary estimate of depreciation from the numerator but not from the denominator. Dividing net by gross shrinks the resulting savings/income ratio. For Roach to suggest that more net savings could in any sense pay for more “consumption and growth” is misleading at best.  Don’t expect a discount on a new car because you hope to pay with net savings, after subtracting estimated depreciation.

The amount of money needed for new plants and equipment is gross, not net. And it is the dollar gap between gross investment and gross saving that needs to be financed by attracting foreign investment.  Mr. Roach calls foreign investment in U.S. equity (stocks) or real property “borrowing,” but that’s not how we describe the same investments if made by a U.S. resident.

The blue line in the first graph shows gross savings as a percentage of gross national income (GNI). The red line shows gross private domestic investment as a percentage of GDP, which is quite similar to GNI (GDP excludes income of foreigners spent in the U.S. and remitted income of Americans living abroad).  

The dotted green line is net savings divided by gross income – the extraneous ratio that worries Mr. Roach.  The green line appears to fall much more than the blue line simply because estimated depreciation rose from 12.3% of national income in 1969 to 15.9% in 2017 – as the capital stock shifted from structures to rapidly-depreciating high-tech. Because rising depreciation estimates are subtracted from saving yet added to income, the downward tilt of the green line is exaggerated by the oddity of dividing net savings by gross income. 

A declining net savings rate since the mid-1960s did not thwart fixed investment, though recessions always do.  Real net domestic fixed investment nearly tripled from $379.9 billion in 1983 (in 2009 dollars) to over $1 trillion by 2005-2006, and has again been heading up since the 2008-09 recession.

In the second graph, the ups and downs in the net savings rate (green line) do not track or explain the movements in net exports (exports minus imports). The U.S. runs a capital surplus and current account deficit when the economy is growing briskly.  Trade deficits shrink just before, during and right after recessions.  

When previous “net savings” anxieties appeared, they were used as a rationale for raising taxes.  In accounting, unlike economics, it sounds simple to raise national savings by reducing the government’s negative savings (budget deficits).  If we carelessly assume that higher taxes have no bad effects on the economy or private savings, budget deficits would then fall with higher taxes and national saving (the sum of public and private saving) would rise.  In this simplistic bookkeeping, more taxes are defined as being identical to more savings.     

There are big problems with assuming a $100 million tax-financed cut in the deficit equals a $100 million increase in national savings.  One is that politicians’ favorite targets for new taxes are savers and savings – retained corporate profits, dividends, interest, capital gains and high incomes in general.  If successful firms and families pay more in taxes, they’ll have less to save.

But the biggest problem with assuming smaller budget deficits add to national savings is that it is rarely true.  Smaller deficits (particularly surpluses) are frequently offset by lower private savings.  

The last graph compares recent changes in government savings (red line) with changes in private saving (blue) in billions of 2009 dollars.  When the red line falls sharply (2000-2002 and 2006-2009), that indicates a rising budget deficit.  Each time the red line fell, however, the blue line rose nearly as much – leaving total national saving little changed. Conversely, when the deficit was greatly reduced from 2011 to 2014, private savings was greatly reduced too, with little net effect on total public and private saving.

This inverse relationship between public and private savings is not unique to the United States, nor to the last 30 years.  In “A Reconstruction of Macroeconomics” (1992), I displayed graphs for the U.K., Sweden, Norway, and Japan to show the household savings rates fell dramatically (sometimes into negative territory) when these countries moved from budget deficits to surpluses for a few years in the 1978-92 period.  This is consistent with Ricardian Equivalence (taxpayers regard more national debt as their own, so they save to pay more future taxes), but perhaps also consistent with simpler cyclical explanations (people save more in recessions to rebuild lost wealth, and do the opposite in boom times).

We do not live in a closed economy, where new investment might have to be financed from flows of new domestic saving rather than from stocks of appreciated assets.  Global capital finds investment opportunities around the world, and foreign firms and investors find many of the best opportunities in the USA. More capital is better than less, and a dollar is a dollar.

Since the purpose of saving is to add to wealth, the best measure of saving is the addition to wealth.  In the first quarter of 2018, household net worth was a record 685% of disposable income according to the Federal Reserve – up from 548% six years earlier.   When the value of accumulated wealth rises that much, annual additions to the stockpile (saving) become far less urgent or significant.

Dire warnings of a looming savings crisis have been reported many, many times before, always in ways that are agitated, confused, mistaken and irrelevant.

The net savings rate does not explain or predict investment, trade deficits, interest rates, or anything else worthy of concern.  

More than 50 million Americans hold trillions of dollars in 401(k) accounts. The retirement accounts have been a big success. By eliminating the double-taxation of savings under the income tax, 401(k)s encourage individuals to build larger nest eggs.

However, many people needing near-term cash end up withdrawing funds from their accounts or borrowing against their balances. Retirement experts are concerned about such “leakage.” But the real problem is that the system imposes paperwork burdens and penalties on people for accessing their own money.

The solution is to create a savings vehicle that would allow withdrawals without a mess of rules, penalties, and paperwork. The solution is Universal Savings Accounts (USAs), as discussed in this Cato study.

USAs would be the first tier of savings for individuals, with the funds available for any near-term expenses that may arise. For individuals that didn’t end up needing the funds in the near-term, account balances would grow tax-free and help cover future retirement needs.

Because USAs would allow withdrawals free of hassles and penalties, they would encourage more savings. The simplicity and liquidity of USAs would make the accounts popular across all age and income groups, which is the experience with similar accounts in Britain and Canada.

The Wall Street Journal yesterday highlighted the 401(k) leakage issue:

Annual defaults on loans taken against investors’ 401(k)s threaten to reduce the wealth in U.S. retirement accounts by about $210 billion when the lost savings are compounded over employees’ careers, according to an analysis by Deloitte Consulting LLP.

The projected future loss amounts to about 2.7% of the $7.8 trillion currently in 401(k)-style retirement accounts.

The numbers highlight the problem of tapping 401(k) savings before retirement, known in the industry as leakage. Most leakage occurs because about 30% to 40% of people leaving jobs elect to cash out their accounts and pay taxes or penalties rather than leave the money or transfer it to another 401(k) or an individual retirement account.

But employees also take out loans, which about 90% of 401(k) plans offer. Workers can generally choose to borrow up to half of their 401(k) balance or $50,000, whichever is less.

About one-fifth of 401(k) participants with access to 401(k) loans take them, according to the Investment Company Institute, a mutual-fund industry trade group. While most 401(k) borrowers repay themselves with interest, about 10% default, or fail to repay their accounts, triggering taxes and often penalties, according to research by authors including Olivia Mitchell, an economist at the University of Pennsylvania’s Wharton School.

Failing to restore the funds typically occurs when employees with outstanding 401(k) loans leave companies before fully repaying their balances.

Money lost to 401(k) leakage, including loan defaults and cashouts, reduces the wealth in U.S. retirement accounts by an estimated 25% when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College’s Center for Retirement Research.

Even those who successfully repay 401(k) loans can end up with less at retirement than they would have had. One reason is that many borrowers reduce their 401(k) contributions while repaying their loans.

While 401(k) loan defaults currently amount to about $7.3 billion a year, the impact is far greater given that many borrowers in default withdraw additional money to cover the taxes and early-withdrawal penalties they owe on their outstanding balances, says Gursharan Jhuty, senior manager at Deloitte Consulting.

… Few employers are willing to eliminate 401(k) loans, in part because academic studies have shown that they encourage 401(k) plan participation.

The fact that leakage is so high reveals a household need for flexibility that is not being met with current accounts. Universal Savings Accounts would fill the need by allowing withdrawals at any time for any reason. 

Ryan Bourne and I discussed the advantages of USAs in this study last year, and policymakers followed through with legislation this year. Republicans included USA accounts in their recent Tax Reform 2.0 package that passed the House.

We shall see which way control of Congress goes, but helping Americans at all income levels increase their financial security with USAs should be a bipartisan goal.

The continued intransigence of the Trump Administration in blackballing the appointment of new judges to the highest tribunal of world trade compels the 163 other countries that are members of the World Trade Organization to unite by resolving their international disputes in a way that cannot be stopped by the United States. The other, practical way should be the alternative means of trade dispute resolution currently available under Article 25 of the dispute settlement rules that are part of the WTO treaty – WTO arbitration.

The US refusal to join in the consensus needed to appoint and reappoint members of the WTO Appellate Body has now reduced the appellate tribunal from its full complement of seven judges down to the minimum of three judges required by the WTO treaty to hear an appeal. WTO member countries have an automatic right to appeal the legal rulings of ad hoc WTO panels under the treaty. If there are not three judges to hear an appeal, then the right to appeal will be denied and the WTO will be unable to adopt and enforce panel rulings.

Recently, nearly 90 percent of all panel reports have been appealed. Left with no opportunity to appeal, surely every country that loses before a panel will nevertheless seek to exercise its right to an appeal to guarantee that the verdict against it will not be enforceable. The WTO dispute settlement system will then be paralyzed. Moreover, if the rules cannot be upheld and enforced, why bother to comply with them or try to improve them? The very existence of the WTO will then be put at even graver risk than it faces now due to the illegal actions of Trump and his trade enforcers on other fronts in world trade.

If this stalemate between the US and the rest of the WTO continues, come December 11, 2019, the final terms of two of the three remaining members of the Appellate Body will end, and the tribunal will be reduced to only one member. Unlike the US, the other 163 countries in the WTO profess to see this situation as urgent. They also seem to assume they have until December 10, 2019, to resolve it. But one of the three remaining judges could at any time become ill, encounter a legal conflict, or decide to resign for family or other unrelated reasons. This could happen tomorrow.

The 163 other WTO members have endured nearly two years of largely stoic stonewalling by the United States due mainly to the US distress that the Appellate Body has had the temerity to do its job by upholding treaty rules on the use of dumping and other trade remedies that the US played a leading role in writing but now indignantly opposes under pressure from protectionist interests domestically and from within the Trump Administration.

The time has come for the other WTO members to stand up to Trump’s bullying and isolate the United States by employing the alternative of arbitration that has previously been largely ignored but is clearly permitted under the WTO treaty. Under Article 25, any two WTO members can choose to use arbitration when they have a trade dispute. They can select their own arbitrators. They can decide on their own procedures. They do not need prior approval to do so. They cannot be prevented from doing so by any other country. The judgment they get in arbitration will be as binding and as enforceable as any other judgment in WTO dispute settlement.

“Arbitration” is not defined in Article 25. Thus, countries choosing it as an alternative to the regular dispute settlement proceedings are free to decide simply to duplicate those proceedings. They can photocopy the regular dispute settlement rules and adopt them as their form of arbitration. This would have the practical effect of establishing a parallel dispute settlement system in the WTO that is identical to the current one – but that excludes the United States.

Thus, “arbitration” in the WTO need not follow the practices of private arbitration throughout the world. WTO arbitration can mostly be the current form of WTO dispute settlement by another name – but with one important difference. The countries that choose to engage in WTO arbitration can fill the empty seats on the Appellate Body. They can decide to have the same seven appellate jurists resolve all arbitral appeals – to make certain that appellate rulings are consistent. And they can do so without the participation or approval of the United States.

There need not be any prior agreement by the 163 other WTO members before proceeding with this alternative. It would take only a mutual decision by two countries engaged in a trade dispute to get started. Before establishing a panel, those two countries could agree beforehand to use arbitration for the entirety of their dispute proceedings. Or, at some point before they knew the outcome of the panel proceedings, they could agree to use arbitration solely for purposes of an appeal. Other countries could then emulate the first two countries as this alternative approach proved its worth.

Obviously, the other 163 countries would be unable to use the option of arbitration in any of their disputes with the United States. Given the current standoff, the US would be unlikely to agree to an arbitration in which four new judges were appointed to hear an appeal. Disputes involving the US would still be at risk of not being resolved. The US might be content with such an outcome if it loses before a panel, but what of the nearly 90 percent of the cases that the US takes to the WTO and wins? (As happens so often, President Trump’s “facts” about the outcome of WTO disputes involving the US are not facts.)

When the US lost before a panel, it would doubtless be delighted that the country that prevailed would not be able to enforce its win. And, when the US won before a panel, it might sometimes be able to bully the country that lost into complying with the panel ruling. So far they seem to have gotten away with it, but can Trump and his team truly hope to achieve all their trade goals by bullying? At last count, the United States is a party to about 40 trade disputes in the WTO. A number of them involve billions of dollars in trade annually.

By engaging in WTO arbitration of their own disputes, other WTO members will significantly diminish the impact of the US blackballing, and may also generate some leverage to move the United States toward some common ground on the central issue of the survival of the Appellate Body as the independent and impartial custodian of the rule of law in world trade. As it is, the 163 other countries have no leverage and can only watch as Donald Trump destroys the rules-based world trading system.

Article I, Section 10 of the Constitution provides that “[n]o State shall … pass any … Ex Post Facto law.” The Ex Post Facto Clause was incorporated into the Constitution to prohibit states from enacting retrospective legislation, which the Framers believed to be inherently unfair and contrary to the principles of limited, constitutional government. Despite the Framers’ clear aversion to retrospective lawmaking, the Supreme Court has since adopted the view that states are uninhibited from enacting retroactive civil penalties. So long as a retrospective law contains a discernable legislative purpose and a “civil” label, retroactive application will not run afoul of the Ex Post Facto Clause. Consequently, states have imposed increasingly burdensome retroactive penalties on convicted sex offenders under the guise of civil regulatory laws. Even after offenders have paid their debts to society, they continue to face excessive registration requirements and other onerous civil penalties. 

Back in 2004, 19-year-old Anthony Bethea was convicted of six counts of sexual activity arising from non-forcible, consensual intercourse with a 15-year-old girl. He pled guilty and agreed to be sentenced to up to 48 months of imprisonment, complete a sex offender treatment program, and register as a sex offender for 10 years. He successfully completed the treatment program in 2006 and his period of probation in 2007. Beginning in 2006, however, North Carolina drastically transformed its sex offender statute, adding a laundry list of additional burdens on previously convicted sex offenders. Today, Bethea is subject to numerous restrictions that did not exist at the time of his plea agreement, such as limitations on where he can go, where he can live, and what jobs he can hold. Perhaps worst of all, the new restrictions have prevented him from being a father to his children. Due to his continued registration, Bethea has been forced to miss his son’s graduation ceremonies, parent-teacher conferences, and school field trips. Bethea should have been off the registry four years ago, but North Carolina retroactively lengthened his registration period from 10 to 30 years.

In 2014, 10 years after he registered, Bethea petitioned the North Carolina courts to be removed from the registry. He argued that retroactively applying the statutory provisions enacted after Bethea’s conviction violated the Ex Post Facto Clause. Although the court found that Bethea was in no way a threat to public safety, his petition was denied. On appeal, the North Carolina Court of Appeals held that the state’s sex offender statute was civil, rather than punitive, and thus did not constitute a violation of the Ex Post Facto Clause. The North Carolina Supreme Court denied review and Bethea has asked the U.S. Supreme Court to take his case.

Cato has filed an amicus brief supporting that petition, arguing that the Court must return to an original understanding of the Ex Post Facto Clause guided by its twin historical aims: to prevent vindictive legislation targeted at unpopular groups and provide sufficient notice of the consequences in place. Without a principled foundation in original meaning and historic purpose, the Court’s multi-factor ex post facto analysis has come to rest on shaky ground, supplying unimpeded deference to legislative intent. The Court’s continued unwillingness to invalidate statutes for their retroactive punitive effect has given states a perverse incentive to enact increasingly burdensome civil penalties that alter the legal consequences of previously committed conduct without constitutional accountability.

The Supreme Court should take up Bethea v. North Carolina and eaffirm that the Constitution’s prohibition against ex post facto lawmaking forbids states from skirting constitutional scrutiny by simply labelling increasingly burdensome retrospective penalties as “civil” regulatory laws.

Some advocates and policymakers think government should be involved in providing a limited or modest paid leave benefit, just 12 weeks or less. Their support seems implicitly contingent on the expectation that a paid leave entitlement wouldn’t grow, or wouldn’t grow much. But is there any evidence of that?

If the trajectories of OECD paid leave entitlements are any indication of the path a new U.S. entitlement would take then the answer is no. All OECD countries except one increased the length of their paid leave benefits substantially over time (see chart).

For example, the average length of paid maternity, parental, and home care leave entitlements in the Eurozone increased from 17 weeks in 1970 to 57 weeks in 2016. That means that the average duration of paid leave entitlemenets more than tripled over the period. OECD countries at-large follow the same trend.

In fact, the only country that reduced the length of its paid leave entitlement is Hungary. Hungary began with one of the most lengthy paid leave entitlements of any country; 162 weeks in 1970. In subsequent years Hungary reduced the length of that benefit by 2 weeks, to 160 weeks, which isn’t much. 

 

 

Data source: http://www.oecd.org/els/family/database.htm  

In short, international programs demonstrate that paid leave benefits grow substantially over time, similar to other government entitlement programs. Supporters of government paid leave should be aware that current proposals aren’t likely to stay limited to 12 weeks or less in the longterm.

For more information on paid leave, see the new Cato report Parental Leave: Is There a Case for Government Action? or livestream today’s Capitol Hill event.

On Tuesday, the president renewed his earlier criticisms of the Federal Reserve’s interest rates hike—saying he was not happy with the fast pace of the Fed’s “normalization” plan.  This pattern has been reported as “breaking” with tradition and questioning the “independence” of the Fed.  Then yesterday afternoon, after a plunge in financial markets, Trump sharpened his critique saying “the Fed has gone crazy.”

While it is—at least among recent presidents—unusual for the president to opine on monetary policy, this has been a most unusual presidency from the start.  And while Trump’s criticisms of the Fed are good for generating headlines, they risk drawing attention away from more important matters at the central bank. To that end, I want to share two points to help put the president’s remarks in proper contexts—followed by two additional points to reorient the Fed discussion around what’s actually important.

One worry people have about Trump’s comments is that they call into question the Fed’s “independence.” But it is critical to remember that central bank independence is a somewhat amorphous term—with different speakers relying on different definitions. It is, however, a useful concept when independence refers to the Fed conducting monetary policy without regard to political considerations.  That is to say, the Fed is an independent institution insofar as it sets policy in reaction to changing macroeconomic conditions—not in reaction to changes in the legislative agenda or electoral prospects. What is not, or should not, be meant by central bank independence is that the Fed is fully divorced from all other public institutions.  Chair Powell often, and rightly, stresses that the Fed pursues goals given to it by Congress; in that respect, the Fed is certainly not independent from accountability to the public.

To the extent anyone is worrying that the Powell Fed will change policy based on Trump’s remarks, such concerns are unfounded.  

On the policy front, the president seemed to suggest the Fed should wait on raising interest rates until “inflation [comes] back.” What threshold Trump has in mind when he says “back” is anyone’s guess, but inflation has been increasing. While this morning’s CPI release had month-over-month inflation below expectations, the Fed’s preferred inflation metric has moved up to their 2% target in recent months. And the ten-year forecast, put out by the Cleveland Fed, shows long-run inflation expectations have also increased of late and are now slightly above the Fed’s 2% inflation target.

These inflation data have been moving up as the Fed has been increasing their policy rates, suggesting that monetary policy has not become overly restrictive. Scott Sumner, in a post reacting to yesterday’s stock market developments, points out that while monetary policy was too tight it has recently moved towards a more neutral and appropriate stance. Remember, looking at just interest rates is insufficient to judge the actual stance of monetary policy. Therefore, at least for now, the Fed is likely to continue the normalization plan it has been talking about for years.

Of course, the Fed should not stick to this plan irrespective of any and all changes in the macroeconomy; indeed, I have been critical of their defense of rates increases in the past. But daily stock market volatility and the president’s response to it are not developments that should immediately change the Fed’s longer-term strategy. 

For the astute people monitoring the Fed, the president’s comments ought to be largely ignored.  It is far more important to pay attention to two conversations occurring within the Fed. 

One conversation is about changing the Fed’s 2% inflation target. Several Fed officials have already endorsed their preferred strategies. Eric Rosengren, President of the Boston Fed, believes an inflation range, perhaps 1.5-3%, is best, while New York Fed President John Williams and Atlanta Fed President Raphael Bostic, want to adopt a new target altogether: a price level target. Ex-Fed officials have also joined the conversation, with former Fed Chair Ben Bernanke proposing a hybrid system that would move from an inflation target to a price level target when the policy interest rate got close to zero.  There are very good reasons for the Fed to begin reconsidering its monetary policy target, but for this conversation to be truly beneficial the Fed should include an NGDP level target on the list of alternatives. 

The second conversation, and one of more immediate concern, is about the Fed’s operating framework for executing monetary policy. The current framework—which pays banks an above market interest rate on their deposits held at the Federal Reserve in order to keep the effective federal funds rate within the Fed’s target range—was created during the financial crisis.  The Fed is still learning about this new framework for setting interest rate policy and has already needed to tweak the framework once. Chair Powell has signaled that the FOMC will be exploring it further throughout the fall.  For those interested in learning more about the potential issues embedded in the Fed’s new operating framework and why it is in need of reform, I would point you toward my colleague George Selgin’s summary of his forthcoming book Floored!.

There are important challenges facing the Fed and its conduct of monetary policy, and they deserve more attention than do the president’s rants.

The Founding Fathers crafted a system of government in which legislative, executive, and judicial authority were each entrusted to different entities. Their purpose in choosing this design was to prevent the consolidation of power in any one individual or group of individuals. The Framers anticipated—and attempted to guard against—a bureaucracy that could serve multiple governmental functions and remain unaccountable to the citizenry. In Federalist No. 47, James Madison recognized that when legislative, executive, and judicial power rest in one entity, individual liberty suffers. Likewise, Justice Anthony Kennedy declared in his concurrence in the 1998 case of Clinton v. New York, which struck down the presidential line-item veto, “Liberty is always at stake when one or more of the branches seek to transgress the separation of powers.” 

In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, however, Congress circumvented constitutional design and violated the separation of powers doctrine. Among its multifarious failings, Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), controlled by a single director who has the unilateral power to enact, enforce, and adjudicate regulations. The director is not accountable to any internal structure, is exempt from congressional oversight, and cannot be removed by the president for policy reasons. Since its inception, the CFPB has issued 19 federal consumer protection rules, affecting everything from student loans to banking practices, all without checks, balances, or accountability to voters. Essentially, Congress assigned a vast amount of authority to a bureau that answers to no one.

When a challenge to Congress’s unconstitutional delegation went before the U.S. Court of Appeals for the D.C. Circuit, the court refused to consider the impact that the CFPB’s actions have on individual liberty. However, the Supreme Court, in Commodity Futures Trading Commission v. Schor (1986), reminded us that the separation of powers protects “primarily personal, rather than structural, interests.” In other words, substantive freedom, rather than simply procedural rights, is most at risk when checks and balances fail. And so the CFPB, going far beyond simply contravening checks and balances, regulates areas such as home finance and credit cards. These sectors are essential to individual economic activity, so the D.C. Circuit was wrong to hold that the CFPB’s infringements upon these liberties were irrelevant.

The State National Bank of Big Spring, based in west Texas, filed a petition asking the Supreme Court to review the D.C. Circuit’s erroneous decision. Cato has joined the Southeastern Legal Foundation and National Federation of Independent Business on a brief supporting this petition. We argue that the separation of powers, as our Founding Fathers correctly recognized, is a bulwark of our individual liberties. If we allow Congress to delegate authority in a blatantly unconstitutional fashion, our republican system of government will be eroded by powerful bureaucracies with unchecked authority.

The Supreme Court will decide whether to take up State National Bank of Big Spring v. Mnuchin later this fall.

On Monday, President Trump told a gathering of police chiefs that cities faced with serious crime problems should return to the policing practice known as stop-and-frisk. “Stop-and-frisk works and it was meant for problems like Chicago.” This is an old theme for Trump, one he shares with former New York City Mayor Michael Bloomberg, whose rumored 2020 presidential candidacy raises the possibility of a contest between two stop-and-frisk enthusiasts. In Terry v. Ohio (1968) the Supreme Court found the tactic constitutional, but judges since then have sometimes ruled, as in a high-profile case against New York City, that the tactic was being employed in unconstitutional ways. (Despite predictions from some quarters that crime would soar in New York City following that ruling, no such thing happened.)

Cato has had a lot to say about stop-and-frisk over the years. A sampling:

  • “How did we the people of New York City allow this long-term disgrace to continue?” – the late Nat Hentoff, 2010.
  • “A ‘stop’ is an involuntary citizen-police encounter… [Stop-and-frisk] can be a degrading and humiliating event to endure.” - Tim Lynch, 2012.
  • “Statistics do not answer whether it is okay for an ostensibly free society to gratuitously stop-and-frisk its citizens.” – Trevor Burrus, 2013
  • Even after the curtailment of the New York City program, “for too many Americans, the basic liberty to move freely in society has been debased and degraded by police fighting the drug war” - Jonathan Blanks, 2018.

For another dimension, see Cato’s 2016 survey report by Emily Ekins on public attitudes toward Policing in America [attitudes toward authority / views on effectivenesswho should be searched?]  

 

Neither the government nor a private party may compel you to speak; nor may a private party masquerading as a government entity compel you to speak, even when it’s supposedly for your own good. In Delano Farms v. California Table Grape Commission, Cato, joined by the Reason Foundation, Institute for Justice, and DKT Liberty Project, is continuing to support a farm business’s challenge to a California state-established commission that compels grape growers to contribute money for government-endorsed advertisements. We had previously filed in the California Supreme Court, which was a losing battle, and are now asking the U.S. Supreme Court to take the case.

Now, governments are allowed to disseminate their own messages and can use tax revenue to do it under what’s called, simply enough, the “government-speech doctrine.” They can also tax industries specifically and earmark those funds to promote those particular industries; the Supreme Court has upheld several industry-advertising programs, including national campaigns for beef. In many of these targeted tax-and-advertise programs, the government requires taxes or “fees” from anyone doing business in the industry. One justification for these fees is that all producers benefit from such a “group advertisement.” If some were able to get the marketing benefit without paying, the system would suffer from “free riders.” For such a program to actually constitute government speech and thus avoid First Amendment problems, however, it is the government itself that must be speaking.

The California Table Grapes Commission has claimed that it is part of the government and that its speech is thus “government speech.” But the commission isn’t the government; it’s a commercial entity or trade group that uses compelled subsidies to fund speech. The commission’s generic advertisements for California grapes don’t really benefit the entire industry. Instead, they benefit some members of the industry by making it seem that all products are equally good. Furthermore the commission can’t be considered part of the government because it, unlike the actual government, can be disbanded based on a vote of the table grape producers.

Put another way, no person employed by the California government has ever written, produced, or even reviewed the speech the commission compels. In all other cases where the government programs were held constitutional, the government took direct control of the message and maintained oversight of a regulatory entity. None of that is true here. The commission here is a private entity, with the power to exact fees from members who have no choice but to pay for whatever message it ends up promoting.

In our brief, we argue that the Supreme Court should take this case and treat forced subsidies for generic advertising the same way it treats other such subsidies: as violations of the First Amendment freedoms of speech and association. The California courts relied on a decision recently overturned in the Supreme Court’s Janus holding this past June, in which compelled association and speech in union representation was deemed a violation of the First Amendment. The Court should continue with this line of reasoning here: no one should be compelled to support a non-government message. 

I’ll be a participant in an immigration conference in Michigan organized by Shikha Dalmia of the Reason Foundation later this week.  As part of the conference, Dalmia asked the participants to write essays on specific immigration subtopics that she will later assemble in a book (if I recall correctly).  Dalmia asked me to write an essay on Singapore’s immigration policy – a challenging assignment as I only had the vaguest impressions of their immigration policy from a few readings over the years and a lunch meeting with Singaporean officials from the Ministry of Manpower five years ago. 

Singapore’s immigration system has two main tiers.  The first tier is for highly paid professionals and their families who are encouraged to become permanent residents and eventually citizens.  The second tier is for skilled and semi-skilled temporary migrant workers who will eventually return to their home countries and cannot become Singaporean citizens.  I ended my essay with recommendations for marginal improvements to Singapore’s immigration system that would maintain the two-tier system while increasing the benefits to Singaporeans and foreign workers. 

Singapore is a city-state in Southeast Asia with the fourth highest GDP per capita (PPP adjusted) in the world. Singapore gained its independence in 1965 and developed rapidly since then.  From 1965 to 2017, Singapore’s average annual rate of GDP growth was 7.5 percent, averaging 9.1 percent prior to 1998.  Immigrants and temporary migrant workers have been important components of Singapore’s economic growth since the nineteenth century.  In 1965, 28 percent of the resident population of Singapore was foreign-born.  In 2017, about 47 percent of Singapore’s residents were foreign-born – a figure that dwarfs the 13.7 foreign-born percentage in the United States.  To give a comparison of how liberal Singapore’s immigration policy is, none of the top ten largest American cities had an immigrant percentage of their respective populations above 40 percent. 

The United States can learn much from Singapore’s immigration system, but I will focus on one lesson below: The United States should create a visa for domestic workers based on Singapore’s Foreign Domestic Worker (FDW) visa.

The FDW visa is Singapore’s most interesting and distinct second tier visa for workers who labor in the home providing domestic services, elderly care, childcare.  FDWs are tightly regulated under Singaporean law.  Among other requirements, they must be female, 23-50 years of age, be from an approved country of origin in South or East Asia, and have a minimum of 8 years of education.  Once in Singapore, the FDW cannot start a business or change employers.  The employers of FDWs must also meet stringent regulatory requirements.  For instance, the FDW must work at the employer’s home address, cannot be related to the employer, the employer must put up a $5,000 security bond, pay for medical exams, and cover most other costs of living – with fewer restrictions on FDWs from Malaysia.  According to government surveys, FDWs have high levels of job satisfaction and most intend to apply again for work as an FDW (Ministry of Manpower 2016, 5; Ministry of Manpower 2017).

The United States should adopt a visa like the FDW for at least three reasons.

First, the FDW likely increased the native Singaporean skilled female labor force participation rate (LFPR).  From 1990-2017, Singapore’s female LFPR rose from 48.8 to 59.8 percent while the male LFPR dropped from 77.5 to 76 percent.  Some portion of that increase in the female LFPR can be attributed to FDWs because they specialize in domestic production which allows Singaporean women to enter the workforce.  There is some evidence in the United States that additional lower-skilled immigrants slightly increased female time in the workplace but that is in the highly regulated and expensive childcare market in the United States.  Although some more research is needed to analyze how FDWs affected female LFPR in Singapore, it’s likely than an FDW visa in the United States would allow more women with children to work if they want to.

Second, an FDW visa would put downward price pressure on childcare providers by reducing demand for their services.  If an FDW visa was available in the United States, many American households would take their children out of daycares and other childcare arrangements and hire FDWs instead.  High-earning American households would especially be interested in the FDW as they are also the ones most likely to employ ­au pairs on the poorly-designed J-1 visa.  Taking many high-earning American households out of the daycare and childcare market would initially lower prices, thus allowing Americans with lower incomes to afford those services for the first time.  Americans who would continue with daycare and childcare services would also gain in the form of lower prices. 

Third, a large and robust FDW visa program could increase the fertility rate of highly-skilled native-born American women.  Over time, there is a strong negative correlation between female LFPR and fertility, but that relationship has weakened substantially in the United States.  Economists Delia Furtado and Heinrich Hock found that that weakening relationship is partly explained by low-skilled immigrants lowering the cost of childcare, resulting in an 8.6 percent increase in fertility and a 2.3 percent increase in female LFPR (for native-born skilled women in cities in prime birth years).  Although I do not support fertility subsidies in the United States, the FDW is a wise policy that would improve the livelihood of Americans and achieve the same end much cheaper than an expanded child tax creditreformicons should love it. 

Singapore’s FDW visa has many problems than an American version should avoid.  For instance, an American FDW visa should allow FDWs to live on their own if they want, move between FDW employers without legal penalty or ex ante government permission, be open to both sexes, have a wider age-range, and allow FDWs to sign longer-term labor contracts.  Such a visa would help many American households, migrants, and increase the range of choices open to American women who want to work and become mothers.   

 

The Senate appears poised to vote soon on a Congressional Review Act resolution sponsored by Sen. Tammy Baldwin (D-WI) that would rescind the Trump administration’s final rule on “short-term limited duration insurance.” Nearly every Senate Democrat has cosponsored the Baldwin resolution because they believe it would protect consumers. It would do exactly the opposite. 

The Baldwin resolution…

  • …would increase the number of uninsured. Various scholars have estimated that by making health insurance more affordable, the Trump short-term plans rule would reduce the number of uninsured Americans by up to 2 million. The Baldwin resolution would rescind that rule, thereby denying health insurance to up to 2 million Americans.
  • …would reduce protections for the sick. The Baldwin resolution would reduce consumer protections in short-term plans and expose sick patients to higher premiums, denied coverage, bankruptcy, and denied care. It would revert to the Obama administration’s 2016 short-term plans rule, which limited short-term plans to 3 months and banned renewals. As state insurance regulators noted at the time, “[There are] no data to support the premise that a three-month limit would protect consumers or markets. In fact, state regulators believe the arbitrary limit proposed in the rule could harm some consumers. For example, if an individual misses the [ACA] open-enrollment period and applies for short-term, limited duration coverage in February, a 3-month policy would not provide coverage until the next policy year (which will start on January 1). The only option would be to buy another short-term policy at the end of the three months, but since the short-term health plans nearly always exclude pre-existing conditions, if the person develops a new condition while covered under the first policy, the condition would be denied as a preexisting condition under the next short-term policy.” The Trump rule allows consumers to purchase coverage that lasts until the next ObamaCare open-enrollment period. The Baldwin resolution would result in that patient being re-underwritten and denied coverage and care for up to nine months.
  • …would not reduce ObamaCare premiums and could increase them. The Trump rule allows consumers to couple short-term plans with standalone renewal guarantees, which allow enrollees who develop expensive illnesses to keep paying healthy-person premiums. Since it gives expensive patients a lower-cost alternative to ObamaCare coverage, the Trump rule can reduce ObamaCare premiums by keeping expensive patients out of those risk pools. In contrast, the Baldwin resolution would force those expensive patients into ObamaCare plans, increasing the cost of ObamaCare coverage to both enrollees and taxpayers. In 2016, state insurance commissioners again explained the fundamental flaw of Baldwin’s approach: “If the concern is that healthy individuals will stay out of the general pool by buying short-term, limited duration coverage, there is nothing in this proposal that would stop that. If consumers are healthy they can continue buying a new policy every three months. Only those who become unhealthy will be unable to afford [short-term plans], and that is not good for the [ACA] risk pools in the long run.”
  • …would make short-term plans less comprehensive. The Baldwin resolution would not protect consumers from inadequate coverage. It would re-create the bad old days when excessive regulation blocked consumers from purchasing more-comprehensive short-term plans. The Congressional Budget Office writes that under the Trump rule only “a small percentage of [short-term] plans would resemble current STLDI plans, which do not meet CBO’s definition of health insurance coverage.” Instead, most short-term plans would “resemble[e] nongroup insurance products sold before the implementation of the Affordable Care Act” that offer “financial protection against high-cost, low-probability medical events.” In other words, the Trump rule allows the sort of health plans consumers want. The Baldwin resolution would make those products disappear again.
  • …would gut conscience protections. The Trump rule protects conscience rights by improving the market for short-term plans, which are exempt from ObamaCare’s contraceptives mandate. The Baldwin resolution would strip away those conscience protections.
  • …would not protect people with preexisting conditions. The Washington Post’s Paige Winfield Cunningham reports it “doesn’t exactly make sense” for Democrats to claim that restricting short-term plans helps patients with preexisting conditions. “Even with the expansion of these short-term plans, the marketplace plans guaranteeing preexisting protections will still be available to those who need them… So expanding the availability of short-term plans…doesn’t mean people with preexisting conditions would lose access to crucial coverage protections.”
  • …is pure symbolism. The Baldwin resolution has zero chance of becoming law. To rescind a final agency rule, Congressional Review Act resolutions must pass both chambers of Congress and receive the president’s signature. The House is unlikely to pass the Baldwin resolution. Even if it did, there is zero chance President Trump would sign a resolution nullifying a rule he himself asked his administration to produce.
  • is terrible politics. Or at least it could be, if opponents expose it as subjecting patients with expensive illnesses to higher premiums, cancelled coverage, medical bankruptcy, and denied care—all to serve supporters’ ideological goal of destroying a free-market alternative to ObamaCare.

From the beginning, there is one embarrassing and evident fact that Professor White has to cope with: that “free” Scottish banks suspended specie payment when England did, in 1797, and, like England, maintained that suspension until 1821. Free banks are not supposed to be able to, or want to, suspend specie payment, thereby violating the property rights of their depositors and noteholders, while they themselves are permitted to continue in business and force payment upon their debtors. …White correctly notes that the suspension was illegal under Scottish law, adding that it was ‘curious’ that their actions were not challenged in court. Not so curious, if we realize that the suspension obviously had the British government’s tacit consent.
–Murray Rothbard, “The Myth of Free Banking in Scotland

Back in April, while Bob Murphy and I were debating whether fractional reserve banking poses a threat to market stability, Bob asked whether it was the case that, despite not having had Parliament’s permission to do so, the Scottish banks joined the Bank of England in restricting specie payments between 1797 and 1821. The answer, I said, was that they had indeed done so. I also pointed out that, although the Scottish banks’ decision was presumably illegal, the Scottish public appeared to go along with it.

In this and a subsequent post, I plan to delve more deeply into the story of the Scottish bank suspension, so as to offer more complete and accurate answers to Bob’s questions, and to answer as well other important questions that the restriction episode raises. If the British government didn’t authorize a Scottish suspension of payments, did it otherwise alter the rights of holders of claims against the Scottish banks? If those banks refused to pay their notes in specie despite being obliged to do so, why was no Scottish bank ever taken to court? To what extent, and in what fashion, were Scottish bank creditors harmed by the Scottish bankers’ actions? Should those actions prevent us from regarding the pre-1845 Scottish banking system as an informative case study of free banking? Does the Scottish suspension suggest that fractional reserve banking is, inconsistent with genuine freedom in banking, including the consistent honoring of bank customers’ property rights?

In this post, I’ll first review the events leading to the passage of the Bank Restriction Act. Then I’ll discuss how that act altered the legal rights of Scottish bank creditors. Finally I’ll propose an explanation for the fact that no Scottish banks were sued for suspending payment. In Part 2 I’ll consider the adverse effects of the Scottish suspension on the Scottish public. The restriction’s main victims, I plan to argue, were tradespeople and others whose livelihood depended upon ready access to small change. But their plight, far from enduring throughout the full period of the restriction, was confined to its opening months. Finally, in Part 3, I’ll argue that the Scottish restriction does not, after all, warrant any major revision of claims that Larry White and I and other members of the “modern free banking school” have made regarding the implications of  unrestricted freedom in banking. On the contrary: to the extent that Scottish bankers were guilty of “violating the property rights of their depositors and note holders,” the fault lay mainly, not with freedom banking, but with provisions of the 1765 Scottish Bank Notes Act that placed unwise and unwarranted limits upon that freedom.

The Bank Restriction

The vast sums the Bank of England had been compelled to advance to the government from the outset of the Napoleonic Wars, together with persistent fears of a French invasion, had been draining it of reserves for some time when, in late February, 1797, news that a French fleet had landed in Wales threatened to carry it across the brink. Upon being so notified by the Bank’s Directors, William Pitt prevailed upon the King to hold a meeting of the Privy Council, the result of which was an Order of Council prohibiting the Bank from issuing any more specie in exchange for its notes “until the sense of Parliament could be taken and measures adopted for maintaining the means of circulation.” Parliament’s “sense” was in turn taken and eventually embodied in legislation, known as the Bank Restriction Act, passed on May 3, 1797, exempting the Bank of England from the obligation to pay its notes in specie. Shortly afterwards a similar exemption was granted to the Bank of Ireland. These initial exemptions were to be repeatedly renewed throughout the courts of the Napoleonic wars, and for several years afterwards, until the two banks were at long last compelled to fully renew specie payments in 1821.

Because the Restriction Acts applied only to the Bank of England and the Bank of Ireland, they did not expressly contravene the obligation of other banks in the United Kingdom to pay their notes in specie. Nor did either law make Bank of England notes a legal tender. It’s therefore tempting to suppose, as most commentators have done, that the Acts did not in any way relieve other banks, including those in Scotland, of their obligation to pay their own liabilities, and their circulating notes especially, in specie. But the truth isn’t quite so simple.

As Frank Fetter explains in his very good 1950 article on the subject, although in drafting the English Restriction Act Parliament recoiled at the prospect of declaring Bank of England notes legal tender, it did provide that they “shall be deemed payments in cash if made and accepted as such.” What’s more, the act declared that anyone tendering such notes in payment, bankers included, “was to be protected from arrest for debt.” Instead, “The creditor had the option of refusing to accept the notes and then taking legal action against the debtor to compel payment in legal tender.” In other words, the creditor of a bank other than the Bank of England or Bank of Ireland might insist upon payment of a note in specie, but would in that case be obliged, as Pitt explained in justifying the clause in question to Parliament, to wait for the “process of law [to] take its course to the attainment of judgement.”

No More Summary Diligence

So far as Scottish bank creditors were concerned, the effect of the Bank Restriction Act was to deprive them of the right to “summary diligence,” a procedure in Scots law “whereby certain constituted obligations can be enforced without the need to apply to a court.” Because the act also made the act of receiving Bank of England notes in lieu of specie tantamount to the extinction of the debt for which the notes were paid, it confronted anyone seeking to redeem a Scottish banknote with a relatively stark choice: either accept Bank of England notes in lieu of specie, or refuse payment and initiate a legal process that might at very least mean a considerable delay in payment. However, Parliament did not otherwise alter Scottish banks’ legal obligations. That is, it did not supply any grounds for their clients to suppose that, if a suit were brought, it would only result in a verdict in the bankers’ favor.

Because no Scottish banker was actually sued for refusing payment in specie during the course of the Bank Restriction, we don’t know what verdict a Scottish court would have reached in the event of such a suit. However, in 1801 a suit was brought, by one Mr. Grigby, against an English country bank, Oakes and Co., and that suit resulted in a verdict for the plaintiff. As it plainly illustrates the court’s refusal to bend the law in a bank’s favor, by second-guessing the preferences of the British government or otherwise, the opinion in that case, as rendered by Chief Justice Lord Alvanley, at the Court of Common Pleas, with which all the other justices concurred, is worth quoting at length — and all the more so given Alvanley’s evident lack of sympathy for the plaintiff:

Are we then to say [Alvanley asks], that the Legislature has enacted that which the provisions of the [Restriction] act do not warrant? If we were at liberty to refer to our own private knowledge of the language that was held in Parliament while this act was pending, no doubt could be entertained upon the subject. We know that it was very much canvassed by many persons at that time, whether or not the Legislature ought to go the length of declaring bank notes a good legal tender? If therefore it had been intended by the Legislature so to make them, that intention would have been expressed in such clear terms that no question could have arisen upon the subject. Indeed, it is expressly provided in the 2d section of the act, that if the Governor and Company of the Bank of England, shall be sued on any of their notes, or for any sum of money, payment of which in their notes the party suing refuses to accept, they [the Bank] may apply to the Court in which such proceedings are instituted to stay proceedings during such time as they are restricted from paying in cash. But with respect to individuals it was not intended to prevent any creditor who should be so disposed from captiously demanding a payment in money, though such a creditor is deprived of the benefit of arresting his debtor. Thank God few such creditors as the present Plaintiff have been found since the passing of the act! But yet whatever inconveniences may arise, and to whatever length they may go, Parliament, and not this Court, must be applied to for a remedy.[1]

If the British Government could not prevent England’s Court of Common Pleas from rendering such a verdict, it’s hardly likely to have held greater sway in any Scottish court. There seems to be no basis, therefore, for Rothbard’s claim that the lack of legal actions in response to Scottish banks’ suspension of specie payments was a reflection of creditors’ belief that the suspension enjoyed “the British government’s tacit consent.” On the contrary: in refusing to make Bank of England notes legal tender, while explicitly absolving only the Bank of England and the Bank of Ireland from any obligation to pay their notes in specie, Parliament knowingly left all other British banks in the lurch. Their creditors had to sue for their gold and silver; but had any bank actually been sued, it would have found itself with no clear legal grounds by which to defend itself.

Why No Lawsuits?

If a Scottish bank might have been successfully sued for failing to pay its notes in specie, why were there no such suits? William Cobbett, a virulent critic of paper money generally, and of the Scottish banking system in particular, insisted that the Scottish public simply had no choice. Although the people of Scotland may not have been “compelled by law” to accept Bank of England notes, he wrote, they were “compelled by circumstances … as powerful as if by law itself; and, in a way exactly similar as if the whole mass of paper-money had been made a legal tender ever since the year 1797.”[2]

But what, precisely, were those “circumstances”? The trouble and delays that suing involved may well have deterred many. But it can’t explain why some relatively well-heeled creditor didn’t bother to press a claim, and especially so once gold commanded a substantial premium over paper, as it did after 1808.

I believe that the explanation stems from the fact that many Scottish bank creditors were also debtors to their banks: although they held bank notes and deposit balances, they also depended on “cash credits” granted to them by their bankers — lines of credit, with interest charged only upon sums actually drawn. Most outstanding Scottish bank notes and deposit balances were the by-products of the banks’ practice of granting such credits, so that almost all Scottish bank obligations to the money-holding public had as their counterpart like obligations of that public to the Scottish banks. Perhaps owing to his penchant for confusing banks with warehouses, Rothbard, in claiming that, by suspending specie payments, Scottish bankers systematically violated their patrons’ property rights “while they themselves are permitted to continue in business and force payment upon their debtors,” overlooks the fact that those patrons were as likely to be in debt to their bankers as vice versa, as well as the fact that the Scottish banks had always allowed those patrons to settle debts with them in either Scottish or Bank of England paper rather than gold or silver.

That so many Scottish citizens, including the vast majority of ordinary merchants and traders, relied upon cash credits, and that their banks could not possibly have continued to grant such credits were they systematically called upon to pay their notes in specie, gave the Scottish public a powerful motive for refraining from insisting upon such payments, and for otherwise accepting the Scottish banks’ decision to suspend specie payments in good stride. For besides allowing the bankers to settle claims against them in Bank of England notes, it allowed them to settle their own debts to the banks with banknotes rather than gold. In short, Scotland’s decision to join other parts of Great Britain in switching to a paper (Bank of England note) standard, instead of having simply been imposed upon the Scottish public against its will, is better understood as a cooperative solution to a problem — the absolute lack of specie — facing bankers and their creditors alike.

The suspension’s cooperative nature was, indeed, made explicit shortly after the bankers announced their plans, when many of Edinburgh’s prominent citizens gathered at a meeting convened by that city’s  Lord Provost and attended by many other officials, including the Lord President of the Court of Session, the Lord Chief Baron of Exchequer, the Lord Advocate, and the Sheriff of Edinburgh. Those present “unanimously resolved to accept the notes of the Scotch banks as hitherto and to support their credit.” Notice of this resolution was afterwards “inserted in all the newspapers and circulated throughout the country.”[3]

That there was widespread support for the Scottish bank suspension did not, however, mean that the suspension left the Scottish public unscathed. Just how it harmed people, and whether its having done so constitutes a black mark either against the Scottish system or against fractional reserve banking, are questions I’ll answer in the follow-ups.

______________________

[1] See Grigby v. Oakes et al., November 19th, 1801. In Reports of Cases Argued and Determined in the Courts of Common Pleas etc., Volume 2, pp. 526ff.

[2] Cobbett, it bears noting, is hardly an entirely objective observer. He had it in for all forms of paper money. “Ever since that hellish compound word, Paper-money was understood by me,” he wrote, “I have wished for the destruction of the accursed thing; I have applauded every measure that tended to produce its destruction, and censured every measure having a tendency to preserve it.” What’s more he despised the Scottish banking system, observing that “There never was a thing under the sun to which a greater number of God’s curses directly apply,” that system having harbored “oppression, tyranny, fraud, monopoly, and every cursed art by which the avaricious take from the food and the raiment of the needy.” See Cobbett’s Political Register, June 14, 1828, p. 764.

[3] [Henry Dunning MacLeod], “History of Banking in Scotland,” The Bankers’ Magazine 37 (1) (January 1877), pp. 33-4. For further details see Sir William Forbes, Memoirs of a Banking House (London and Edinburgh: William and Robert Chambers, 1860), p. 83.

[Cross-posted from Alt-M.org]

The Economist reports on an interesting new study undertaken on differences in gender pay:

According to data for 8.7m employees worldwide gathered by Korn Ferry, a consultancy, women in Britain make just 1% less than men who have the same function and level at the same employer. In most European countries, the discrepancy is similarly small. These numbers do not show that the labour market is free of sex discrimination. However, they do suggest that the main problem today is not unequal pay for equal work, but whatever it is that leads women to be in lower-ranking jobs at lower-paying organisations.

The figures for Britain in the study break down as follows. The “raw” gender pay gap between all men and women is 28.6 percent. This falls to 9.3 percent once one controls for people being in the same level job. This falls further to 2.6 percent for the same level job at the same company, and to just 0.8 percent for the same level job at the same company with the same function. In other words, as free market economists have long explained, there is little to no evidence of overt company discrimination once one controls for observable factors (and beyond those here, things such as educational attainment, or years of continuous work experience).

Confronted with studies such as these, some commentators, and even some libertarians, pivot. They suggest that this kind of research attacks a straw man. Few people think it’s overt wage discrimination at an employer level that’s the problem, they say. The aggregate statistics though, which show women on average earn 82 percent of men’s median hourly earnings, are said to reflect other types of structural societal discrimination – in the subjects that young women are encouraged to study, hiring processes at firms, the nature of wage negotiation and much else besides.

The starting point that we would expect an aggregated pay gap of zero even in a world in which no overt or covert societal pressures exist is questionable. When free to choose, it’s unlikely gendered populations will make equal choices. And to the extent these commentators are right, it is unclear what the policy implications should be.

Nevertheless, most evidence suggests this is explicitly not what the public hear when they see talk about the gender pay gap. A recent YouGov survey in the U.K. asked the public what they thought when they heard of the term. Just 30 percent said that they thought it was about women, on aggregate, being paid less than men. A whopping 64 percent thought that it was about women being paid less than men for the same job. To be clear: the latter is not what the commonly cited aggregated statistics on the gender pay gap are about.

Politicians appear to misunderstand this too, and it leads to bad policy. After all, in developed countries one policy that they have pushed for is company-level disclosures– something that makes little sense if you are worried about society level structural problems.

It’s little surprise that the public interpret the term in this way then. Though in pure language terms both definitions might be acceptable, pay gap stories of the aggregate variety reported in the media regularly include irresponsible lines implying discrimination, such as “from this day onward, women work for free” or describe companies that have the largest gaps as “the worst offenders.”

In this environment of misinformation, it is important and worthwhile to continuously highlight what the pay gap shows, and what it doesn’t. The structuralists might have a point about broader drivers, but it’s not one helped by a raw measure that is used misleadingly and to advance policy positions which do not make sense according to the structuralist concern.

Read more on the gender pay gap here, here, and here.

There are indications now that the Saudi Arabian government may have murdered a prominent Saudi journalist who advocated domestic reforms and opposed Crown Prince Mohammed bin Salman. A Turkish investigation concluded that a 15-member “preplanned murder team” killed Jamal Khashoggi when he was visiting the Saudi consulate in Istanbul. Not surprisingly, Riyadh has flatly denied Turkey’s allegation, but that denial seems to have even less credibility than most Saudi statements. Khashoggi has contributed articles to the Washington Post and numerous other prominent Western news outlets, and he has an abundance of influential friends in such circles. They do not seem inclined to let this incident fade away.

Khashoggi’s disappearance and apparent murder—as appalling as it may be–should be overshadowed, though, by Saudi Arabia’s far more extensive human-rights abuses and outright war crimes. That is especially true regarding the way it has conducted the war in Yemen. There is abundant evidence of multiple atrocities that Riyadh and its United Arab Emirates (UAE) junior partner have committed and continue to commit. The coalition’s war strategy has created a famine as well as a cholera epidemic. Among the many deliberate attacks on innocent Yemeni civilians was an August incident in which coalition aircraft attacked a school bus, killing 40 children.

Yet, incredibly, just weeks later, Secretary of State Mike Pompeo certified that Saudi and UAE forces were making a reasonable attempt to avoid inflicting harm on civilians. Pompeo’s certification was necessary to meet the requirements of a congressional statute barring aid, especially military aid, to countries that do not take appropriate precautions. The latest certification preserves the fiction that Saudi and UAE forces are not guilty of war crimes and that the United States is not a willing accomplice in such crimes.

As I describe in a recent National Interest Online article, such brazenly false certifications are nothing new. Both the Trump administration and its predecessors have displayed that sickening cynicism with respect to numerous countries and their “friendly” dictatorial regimes, most notably Egypt and Pakistan. Indeed, similar phony certifications were routine fare in the 1980s, when Washington repeatedly whitewashed massive human rights abuses on the part of foreign allies. Some of the worst offenders were in our own hemisphere, including Guatemala, El Salvador, Honduras, and Colombia. More recently, the worst offenders are concentrated among Washington’s Middle East allies.

The pervasive dishonesty of U.S. officials should be a matter of national shame. Pompeo has carried on a long and dishonorable tradition. Congress may have intended that a requirement certifying that U.S. aid recipients are complying with human-rights standards would pressure those regimes to avoid egregious abuses. If that truly was the intent, and not just empty congressional posturing, then that strategy has failed.

If Congress intends to get serious about enforcement, the country with which to start is Saudi Arabia—especially regarding its conduct in Yemen. Congress needs to cut-off all military assistance to Riyadh and the UAE immediately. Beyond that issue, the legislative branch must insist that human-rights certifications accurately reflect reality. Even leaving aside the Saudi regime’s possible murder of a dissenting journalist, Riyadh does not come close to meeting the most basic human-rights standards for receiving U.S. aid. Americans have endured more than enough whitewash episodes from administrations over the decades regarding Saudi Arabia.   

Susana Martinez of New Mexico has gained the highest score on the “Fiscal Report Card on America’s Governors 2018.” She is the first woman to achieve the distinction since Cato began producing the reports in 1992.

Over eight years in office, Governor Martinez has restrained state spending, cut taxes, and vetoed tax hikes. She also scored well on Cato reports in 2014 and 2016.

The governors report assigns grades based on a calculated score between 0 and 100. Higher scores indicate more focus on cutting taxes and restraining spending. Cato has used the same methodology since 2008.

Martinez’s achievement stands out because men governors score slightly higher, on average, than women governors. Since 2008 the Cato reports have assigned 276 scores—6 reports and an average 46 governors per report. There were 242 men and 34 women. The average score for the men was 51 and for the women 49. Interestingly, the men’s scores tended to be more extreme low and high, while the women were more bunched toward the middle score of 50.

The chart shows that party is a more important factor in determining fiscal conservatism than gender. Both men and women Republican governors averaged substantially higher scores than Democratic governors. Martinez received a score of 73.

The Cato Institute has released its 14th biennial fiscal report card on the governors.

The report uses statistical data to grade the governors on their taxing and spending records since 2016. Governors who have cut taxes and spending the most receive the highest grades, whereas those who have increased taxes and spending the most receive the lowest grades.

Five governors were awarded an A: Susana Martinez of New Mexico, Henry McMaster of South Carolina, Doug Burgum of North Dakota, Paul LePage of Maine, and Greg Abbott of Texas.

Eight governors were awarded an F: Roy Cooper of North Carolina, John Bel Edwards of Louisiana, Tom Wolf of Pennsylvania, Jim Justice of West Virginia, Dennis Daugaard of South Dakota, David Ige of Hawaii, Kate Brown of Oregon, and Jay Inslee of Washington.

Susana Martinez received the highest score this year. She is in her eighth year in office and scored quite well on previous Cato reports. One achievement has been vetoing all tax hikes that have come to her desk. Last year, she vetoed $350 million in tax hikes.

Many Republican governors have entered office promising not to raise taxes but then capitulate to the spending lobbies. Brian Sandoval of Nevada and Charlie Baker of Massachusetts are good examples. Both governors made epic U-turns in approving major new taxes after being elected on no-tax-hike pledges.

So bravo to Governor Martinez for standing firm against tax increases and for restraining New Mexico’s budget during her two terms in office.

In addition to examining the tax and spending actions of each governor, the Cato report looks at recent changes in the state fiscal environment.

The Tax Cuts and Jobs Act of 2017 has shaken up state tax policy. The act changed the federal income tax base, which in turn changed state tax bases. The act also capped the federal tax deduction for state and local taxes. That reform increased the bite of state and local taxes for millions of households and may prompt higher out-migration from high-tax states.

Recent Supreme Court decisions regarding online sales taxes and public-sector labor unions have also affected the state fiscal environment. Lastly, the legalization of recreational marijuana has created a new source of revenue for some states.

The Fiscal Policy Report Card on America’s Governors 2018 is here.

Prior report cards are here.

The 2018 report was completed with the help of David Kemp.

The text of the new “United States-Mexico-Canada Agreement” was released last Sunday night, a few hours after I had spoken at an event in Birmingham, England about the virtues of “The Ideal U.S.-U.K. Free Trade Agreement.” To borrow from the late Sen. Lloyd Bentsen: I know the ideal free trade agreement; USCMA, you’re no ideal free trade agreement.

The ideal free trade agreement is one which accomplishes maximum market barrier reduction, enables maximum market integration, forecloses governments’ access to discriminatory protectionism, and obligates the parties to refrain from backsliding.

As explained in the paper:

The ideal free trade agreement provides for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible. It should limit the use of so-called trade remedy or trade defense measures. It should open all government procurement markets to goods and services providers from the other party. It should open all sectors of the economy to investment from businesses and individuals in the other party. It should open all services markets without exception to competition from providers of the other party. It should ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations…

…[T]he ideal FTA must also include rules governing e-commerce. Digital trade — data flows that are essential components in the provision of goods and services in the 21st century — must remain untaxed and protected from misuse and abuse. Rules that prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services should be included, and obligations should be imposed on entities to ensure data privacy, consistent with the requirement that data flow as smoothly as possible.

When border barriers come down, the potentially protectionist aspects of regulation and regulatory regimes become more evident. Certainly, when businesses have to comply with two sets of regulations to sell in two different markets, it limits their capacity to realize economies of scale and reduces their capacity to pass on cost savings in the form of lower prices or reinvestment.

If those regulations are comparable when it comes to achieving the same social outcomes — consumer safety, product reliability, worker safety, environmental friendliness — there may be scope to require businesses to comply with only one set. A regulatory cooperation mechanism to promote mutual recognition would be a useful innovation, as a means to reducing business costs (provided no deep cultural aversion or science-based reason exists for considering one regulation better than the other and worth the greater cost).

Finally, the rules of the ideal FTA must be enforceable. What’s the point of a trade agreement if its terms are just suggestions? To make sure governments keep their promises, trade agreements should have a binding and enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Here’s how the USMCA stacks up to the ideal free trade agreement, which:

  • Would provide for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible.

In USMCA, most goods trade will continue to be tariff-free (the NAFTA status quo) under the new agreement, and barriers to certain agricultural products will be reduced as well. Moreover, the value thresholds for importing goods without having to pay any duties have been raised in Mexico and Canada, which will benefit small businesses, disproportionately, as they tend to conduct a larger share of transactions online.

(Conclusion: Criterion is almost met).

  • Would limit the use of so-called trade remedy or trade defense measures.

Trade remedy laws give domestic industries recourse to trade restrictions when they can demonstrate injury caused by “dumped,” subsidized, or substantially increasing imports. These laws are prone to misuse and abuse and become loopholes through which the benefits of trade barrier reduction achieved in the agreement can be quickly rescinded.  

In USMCA, no restrictions on the use of antidumping, countervailing duty, or safeguard measures are made. Rather, the long arm of the Safeguard law extends further under the revised deal by making it more difficult for Canadian and Mexican exporters to be excused from prospective safeguard tariffs. Moreover, the failure of the United States agreeing to blanket exemptions for Canada and Mexico from prospective tariffs on imported automobiles under Section 232 of the Trade Expansion Act of 1962 and the failure of the United States to remove the existing Section 232 tariffs on Canadian and Mexican aluminum and steel—thereby enshrining the view of Canada and Mexico as threats to U.S. national security—is in extremely poor taste, violates the spirit of a trade agreement, and reflects an absence of understanding of the meaning of being a good trade partner. 

(Conclusion: Criterion worse than unmet.)

  • Would open all government procurement markets to goods and services providers from the other party.

Buy American” and “Buy Local” requirements, in general, restrict access to bidding on and performing government procurement projects to U.S. firms using U.S. goods and providing U.S. services. However, pursuant to terms of the Trade Agreements Act of 1979, free trade agreement partners, as well as signatories to the World Trade Organization’s Agreement on Government Procurement (GPA), are granted waivers from these “Buy” provisions so that their firms can compete for U.S. procurement work tendered by a defined list of agencies. 

In the USMCA, no new access to U.S. procurement markets is granted to Canadian bidders relative to the original NAFTA. In fact the chapter makes no mention of Canada, presumably because Canada is a signatory to the GPA, which provides for slightly greater access to U.S. procurement projects anyway. The chapter does include provisions for Mexico, but doesn’t appear to afford new access to Mexican bidders either, so relative to the terms of access in effect today, the USCMA provides no discernible change.

That’s a huge missed opportunity because large portions of the estimated $1.7 trillion annual U.S. federal and state government procurement markets remain off limits to competition. This, of course, drives up the cost of every government project and ensures that taxpayers get the smallest bang for their buck. Given talk that President Trump is interested in advancing a major infrastructure bill—maybe in the neighborhood of $1 trillion—in the next Congress, this is a problem that should concern us all.

(Conclusion: Criterion unmet.)

  • Would open all sectors of the economy to investment from businesses and individuals in the other party.

The U.S. market is generally pretty open to foreign investment already, but investment restrictions continue to exist in certain industries, including financial services, commercial air services, communications, and mining. It doesn’t appear that USMCA provides any significant new access for foreign investors in the United States.

(Conclusion: Criterion unmet.)

  • Would open all services markets without exception to competition from providers of the other party.

The USMCA fails pretty miserably in this area. The chapter on cross-border trade in services reaffirms bans on foreign competition in maritime shipping, dredging, commercial air services, and trucking services. The absence of foreign competition in shipping raises transportation costs, which are among the most significant supply chain costs reflected in the prices Americans pay for goods purchased on Amazon and at brick and mortar establishments.

Commercial air travel is a significant cost of doing business for companies across all industries, and it accounts for an important share of consumer spending. Rules based on dubious national security arguments that preclude foreign carriers from flying routes between U.S. cities reduce supply, lower quality, lessen accountability, and raise the cost of airfare.

Instead of opening domestic trucking services to foreign competition, the USMCA makes available, for the first time ever in the services sector, access to a “safeguard” mechanism (which could result in new restrictions) for U.S. companies deemed to be “harmed” or threatened with harm by competition in the long-haul, cross-border trucking sector.

U.S. demand for dredging services is on the rise for a variety of reasons, including the need to deepen U.S. ports. A large majority of the 44 Atlantic and Gulf Coast ports are too shallow to accommodate the larger, higher capacity, more cost-efficient, post-Panamax container ships that necessitated widening of the Panama Canal. If President Trump gets his infrastructure funding, there is likely to be a huge increase in demand for dredging services. This market should be opened fully, but USMCA ignores this looming matter, taxpayer be damned.

(Conclusion: Criterion unmet.)

  • Would ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations.

The so-called rules of origin in USMCA, especially concerning automobile production and assembly (but apparel and other products, too), have been among the most discussed provisions in the agreement. Rules of origin are the content and value-added terms that must be met for a product to be conferred as originating in the region (North America), entitling them to the preferential terms of access.

For both autos and apparel, the regional content threshold (minimum value of components from and labor performed in the three countries) was effectively increased in the USMCA. The reduced capacity for incorporating inputs from countries outside of North America is likely to make regional producers less competitive relative to producers in countries where there are fewer restrictions on sourcing. The changes will lead to higher regional production costs, which will encourage automakers, garment markets, and other producers to forego the more costly compliance with the qualification rules in favor of using non-qualifying inputs or producing outside the region, altogether, and paying the non-preferential tariff rates upon entry into the United States.

(Conclusion: Criterion unmet.)

  • Would include rules that prohibit digital trade — data flows that are essential components in the provision of goods and services in the 21st century — from being taxed and unprotected from misuse and abuse.

The USMCA sets out reasonable rules in its Digital Trade chapter. (Conclusion: Criterion met.)

  • Would prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services.

The USMCA sets out reasonable rules in its Digital Trade chapter. (Conclusion: Criterion met.)

  • Would require businesses to comply with only one of the Party’s regulations if the regulations are comparable in their objectives and outcomes — consumer safety, product reliability, worker safety, environmental friendliness — in order to reduce the costs of complying with two sets of regulations to sell in two different markets, and a regulatory cooperation mechanism to promote mutual recognition of regulatory compliance.

There is growing receptivity to adopting mutual recognition and other forms of regulatory coherence that would ensure the same safety/social outcomes, while reducing regulatory compliance costs. But such provisions are not in the USMCA and remain rare in practice. However, the USMCA does include a chapter called “Good Regulatory Practices,” which establishes mechanisms and protocols for establishing broader compatibility, transparency, and predictability to regulation and regulatory processes. It is not novel but builds on a similar version established in the Trans-Pacific Partnership and operating under a separate U.S.-Canada Regulatory Cooperation Commission.

(Conclusion: Criterion almost met.)

  • Would include an enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Although the agreement includes a chapter called “Dispute Settlement,” problems that afflict dispute settlement under the original NAFTA seem to remain unresolved by the language in USMCA.  While there are pretty straightforward rules for how disputes should be settled and what parameters Parties should consider if and when needing to threaten or resort to retaliation, the text remains unclear as to the protocol for naming and seating panelists to adjudicate the issues.

Disagreements over these matters essentially made state-to-state dispute settlement inutile under NAFTA, leaving the terms of the agreement almost voluntary. The fact that this problem remains isn’t too surprising, given USTR Robert Lighthizer’s distaste for binding dispute settlement—a position that contributes to the WTO Appellate Body crisis, which imperils that institution presently.

(Conclusion: Criterion unmet.)

By the 10 standards identified as essential to an ideal free trade agreement, USMCA falls way short. Four criteria are “met” or “almost met.”  Six criteria are “unmet” or “worse than unmet.” Realistically, “ideal” is probably too exacting a standard for our politically constrained trade negotiators. But then again, an agreement pursued with trade deficit reduction and supply chain repatriation as its main objectives was never going to be an exemplar of trade liberalization.

Grading on a Scale

What would be a more reasonable benchmark for assessing the USMCA? The terms of the TPP (which was President Obama’s renegotiation of NAFTA from which President Trump withdrew the United States)? The existing NAFTA? U.S. withdrawal from NAFTA without a replacement?

Relative to the TPP, the USMCA is a disaster. Yes, there’s a little more liberalization in USMCA’s Digital Trade chapter, better access for U.S. dairy farmers and wine exporters to Canadian markets, a higher threshold for the value of exports not subject to customs duties in Canada and Mexico, and other marginal improvements (such as rules for “Good Regulatory Practices” and the retirement of traditional investor-state provisions). But there are considerably more provisions that are protectionist relative to the terms of TPP. 

The far stricter rules of origin—especially concerning automobiles and clothing—give regional firms fewer options to compete with producers from outside the region and virtually guarantee higher prices for North American consumers. The USMCA includes unnecessarily stronger patent, copyright, and data protection provisions, which are—by definition—protectionism.  It includes the first-ever trade agreement chapter with rules aimed at disciplining currency manipulation, which has a subjective definition, eludes any consensus about how to measure, and has potential to cloak garden variety protectionism in a veneer of legitimacy.

NAFTA 2.0 is certainly better in some regards.  But even if its provisions could be demonstrated to be, on net, more liberalizing than the TPP’s (to be sure, they cannot!), there is still the major shortcoming that TPP offered liberalization with nearly 300 million more people in nine more countries accounting for a combined GDP of $7.5 trillion. Canada and Mexico account for an aggregate $2.8 trillion. So, yeah.

Relative to the existing NAFTA, there are also pros and cons to the USMCA. Though there is greater liberalization in goods trade, it is marginally to imperceptibly so. Taking into consideration the negative changes, especially to the rules of origin, it’s not obvious that USMCA is liberalizes much from NAFTA. But it’s possible—even probable—that some of the less directly liberalizing, technical and procedural provisions, such as those governing “Digital Trade,” “Customs and Trade Facilitation,” “State-Owned Enterprises,” and others, utilized in ways not completely apparent now, could lead to lower trade costs.

The only certainty is that the USMCA is better than a U.S. withdrawal from NAFTA without a replacement agreement. That bullet appears to have been dodged. Beyond that, the best that can be said of the USMCA is that the negotiations – especially the animating theatrics, insults, and tantrums that came with the talks – are finished and the dark clouds of uncertainty hanging over the region should begin to dissipate…only to be replaced by darker clouds over the descent of U.S. relations with China and the WTO.

Congratulations to Judge Brett Kavanaugh, whose nomination to the Supreme Court was confirmed by the Senate today by a vote of 50 to 48. This evening at the Supreme Court, Chief Justice John Roberts administered the constitutional oath and retired Justice Anthony Kennedy, for whom Judge Kavanaugh clerked, administered the judicial oath. Now-Justice Kavanaugh will take his seat when the Court sits again on Tuesday. 

Judge Kavanaugh survived one of the most acrimonious judicial confirmation processes in the Senate Judiciary Committee’s history. The reasons for that are many, as I wrote in an op-ed in TIME magazine last week. But in one way or another, the divisions that so divide us today all come down to fundamental misunderstandings of the Constitution and, accordingly, to an expectation among so many Americans that the Court will solve the many problems that today afflict the nation. The Court, now back to full strength, may make a dent in those problems, but their roots are much deeper. Still, the Senate’s vote today is a start.

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