Category Archive: Politics & Policy

  1. The health care shell game: Why not leave health care policy to the states?

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    Recent arguments against cutting federal health care spending — and letting states handle insurance regulation — reveal just how unaffordable the Affordable Care Act (Obamacare) is.

    Law professor and Incidental Economist contributor Nicholas Bagley, reconstructing the arguments of the moderate Republican Tuesday Group, says that “it’s fine to give the states more authority to oversee their insurance markets,” but the states “don’t have the fiscal capacity to finance massive coverage expansions on their own.”

    They’re required to balance their budgets every year, so any commitment to covering the uninsured will throttle their budgets when the next downturn comes.…

    The states thus need federal money; it’s the lifeblood of health reform. And the real cleavage among Republicans is over how much money the federal government is willing to shell out. The Freedom Caucus wants to repeal the ACA’s taxes on industry and the wealthy, financing them with savage cuts to Medicaid and slightly less savage cuts to individual-market subsidies. The Tuesday Group likes the tax relief, but worries about the coverage losses associated with all the cuts.

    State Budget Requirements

    The case against letting the states fund Medicaid expansion on their own is that they have to run balanced budgets. But wait, I thought the Affordable Care Act actually reduced the deficit! That was, after all, the assertion of the Congressional Budget Office and the Joint Committee on Taxation in 2013.

    So if federal ACA spending were cut or even zeroed out, why couldn’t states that like the legislation simply reinstate the same taxes and spending that the federal government currently uses under the law? If the net budgetary impact of the health care law really is zero, there is no inconsistency with state balanced-budget requirements.

    What’s more, most states don’t have strong constitutional requirements that they actually run balanced budgets at the end of the fiscal year. More often, they just have statutory requirements that balanced budgets must be enacted — or even merely proposed — at the beginning of the fiscal year. Most states run balanced budgets because they want to, not because they are required to by law.

    Federal and State Spending Constraints

    Having the federal government pay states to run programs is just a complicated shell game — the states aren’t really winning if the federal government pays for the programs, because the federal government ultimately gets that money from taxpayers living in the states.

    Now, perhaps Bagley’s response would be something like this: The ACA generally reduces the deficit, but there might be some years when its taxes bring in less than expected, and states would be tempted to cut spending in those years. The federal government doesn’t face the same constraint.

    To this possible response, there are two counterarguments.

    First, the federal government faces a stricter constraint than the states in one crucial respect: its total debt burden is much larger. Federal debt is already greater than 100% of GDP, leading to higher interest costs and crowding out private investment. Expanding the debt even further would only exacerbate these serious problems.

    State and local debt is much lower, at about 16% of GDP. State and local governments are much more fiscally responsible than the federal government, and that’s precisely what gives them room to spend if there’s a good reason for it.

    Second, states have a ready mechanism to deal with economic downturns and sudden revenue shortfalls: rainy day funds. States accumulate surpluses in good years and then use the saved funds to smooth out spending in bad years. Spending out of a rainy day fund violates no balanced-budget rules.

    Desire vs. Ability

    In short, state balanced-budget rules provide no good reason why states couldn’t fund health care spending on their own. Perhaps ACA supporters truly worry that states wouldn’t want to fund massive health-care programs, because states want to keep taxes low. (Even Vermont realized that it didn’t really want single-payer health care when it recognized the price tag.)

    But isn’t this demand for hiding the costs of the ACA almost tantamount to admitting that the ACA isn’t good policy?

  2. US Economic History 3 — National Banks’ Rise and Fall

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    Does a national bank make the US economy more stable or more chaotic? Video created with the Bill of Rights Institute to help students ace their exams.

    This is the third video in a series of nine with Professor Brian Domitrovic, which aim to be a resource for students studying for US History exams and to provide a survey of different (and sometimes opposing) viewpoints on key episodes in U.S. economic history. How do you think we did?

  3. Highlights from our Reddit AMA with Professor Lauren Hall

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    If you missed the Reddit AMA with Professor Lauren Hall last week, fear not! We’ve taken the liberty of compiling some of the highlights for your viewing pleasure. You can check out the whole thing here.

    Dr. Hall is associate professor of political science at Rochester Institute of Technology.  She is the author of Family and the Politics of Moderation (Baylor University Press, 2014), regular contributor to the Learn Liberty Blog, and has appeared on Learn Liberty in Choice and Change: How to Close the Gender Gap and Bridging the Gender Gap: The Problems with Parental Leave


    Who is your favorite economist, and why?


    Probably Adam Smith. I think he was ahead of his time in a variety of important ways and his work The Theory of Moral Sentiments provides a wonderful bridge between economics, politics, and moral theory. Of course, few people actually read that one. His “invisible hand” forms the foundation for a lot of spontaneous order theory, though the idea didn’t really originate with him. But he was very influential on Darwin and others who wanted to understand how complex systems evolve.


    What was your first exposure to classical liberal thought, and when did you know that you wanted to focus your scholarship on those ideas?


    My father was a libertarian and made me read Hayek’s Use of Knowledge in Society in high school. I laughed it off and became a progressive activist. But when I ended up in graduate school I found myself drawn to classical liberal themes, particularly the idea of spontaneous orders. I had studied the biological side of this in undergrad when I studied under David Sloan Wilson and I was really intrigued by the social side of evolution. My advisor had libertarian leanings and I ended up taking courses on both Hayek and Adam Smith, among others.

    A really important moment though was attending a summer workshop on libertarian thought hosted by the Institute for Humane Studies when I was a young grad student. The alternative explanations and solutions they provided for social problems really struck me and I’ve been involved with them now as a faculty member for a while. I think they do great work with undergrads and grad students, providing those alternative explanations.


    Bryan Caplan in his book “Myth of the Rational Voter” said something like people who think the wisdom of crowds applies to politics have never taught an undergrad economics course.

    What do you find are the most common flawed beliefs that college students come to your course that are difficult for them to let go of?


    My students come in almost inevitably with the belief that if there is a problem, government is the answer. It is so so so hard to convince them that there are other more efficient, more just, less harmful ways to solve social problems. And it applies to conservatives as well as liberals. I spend a lot of time trying to undermine the belief that “politics” is what politicians do. It’s what all of us do every day. But government has taken on such a central role in most people’s lives that most of my students really struggle to look beyond it.


    For libertarianism to benefit society, it seems to me, the largest parts of the philosophy count on people behaving a certain way.

    What would you say to someone who doesn’t necessarily trust business owners to care a whit about their employees in the absence of the protections libertarians seem to think infringe on their personal freedoms? What would you say to someone, in defense of this ideology, who has watched business large and small step all over the little guy on their way to the top?

    How would you defend this ideology as being good for the whole, when we’re living in a society that has consistently engaged in exploitative business practices?


    A standard libertarian reply argues that freeing up companies to compete with each other for employees as well as in other ways would provide the freedom people need to escape exploitative employers. Obviously, some people who are really desperate will always end up in not great jobs, at least temporarily, but it’s unclear that government regulations end up much better. Last time I checked, public housing in NYC and other places was pretty awful. It’s also worth noting that part of the reason the poor are so much better off today than they were even 50 years ago is because of the innovation that the U.S. system has made possible. At any rate, I agree with you that if capitalism ends up really making people worse off overall, it’s not a defensible system. I just don’t think we see that pattern on the macro level.

    If you have a more specific example of what your concerns are I might be able to address it better. But generally, the answer is “free markets make everyone better off.” This is definitely true in the long term, but may not be true in the short term, which is where I think we need to have some ideas for helping people out when they are struggling. Not necessarily government, but someone has to be willing to lend a hand. (This got a bit rambling toward the end, but hopefully you make sense of some of it.)


    Why do you think there are so few female libertarians? My wife asked me this question and there doesn’t seem to be an obvious answer to me. The best estimates for a ratio of men to women was about 60/40 although the (unfair) perception by a lot of people is that it is much worse.

    Questions: Why do you think this is and what if anything can be done to make women feel more welcome among libertarians?


    This is a tough one and I don’t have a good answer. I do think that a lot of it is that the Democratic party has been successful (recently) in branding themselves the party of women and families. That wasn’t always the case, but it seems to be now.

    I also think there’s a tendency in women, whether it’s the result of socialization or biology (probably both), that tends to focus on group well-being over individual well-being. That communitarian focus comes out in my work, since I focus on what I call “social individualism”. The hardcore individualists like Rand and Rothbard are going to have a hard time convincing many women that their theories make a lot of sense, since I think women are rooted in a more communal worldview. Many men I know who are fathers or caretakers of older relatives express the same frustration with that kind of atomistic approach. (There are a lot of caveats in here, obviously)

    The other half of it is probably some frustration with the behavior of some libertarian men. Forums online can get really ugly really quickly, which turns a lot of women off. But IRL I’ve never had any problems being a libertarian woman, so I’m not sure how much of the nastiness online is just a function of online anonymity instead of being unique to libertarians.


    Pure speculation but I think many women feel like they didn’t have full rights until women made the government enforce their rights, and don’t want to go back to before their rights and autonomy were enforced.


    I think that’s a big part of it too. I’ve written a few blogs for Learn Liberty that make the point that just because the government was on women’s side once or twice does not mean we can ignore the 8000 other times the government has treated women like objects or children. Government policies have harmed women immeasurably and I think women do themselves a serious disservice when they think somehow government will “protect” them from injustice with one hand while it doles out injustice with the other.


    What do you think are some broad tactics that might be effective at swaying more women towards a more classical liberal perspective? Do you think that such an aim is becoming increasingly unrealistic with modern feminism becoming increasingly radical and socialistic?


    A lot of things that people are already doing, honestly. There’s been a burst of energy from libertarian feminists in recent years, particularly in the blogosphere, but also in mainstream think tanks. Getting the message out there that markets can be powerful tools for female empowerment and that government policies more often harm women than help is also helpful.

    I don’t actually think modern feminism is becoming increasingly radical, though I think identity politics is hitting some kind of extreme point from which it has to come back. But the vast majority of my students who call themselves feminists aren’t radicals in any sense of the term. Many of them are a lot more like first wave feminists in that they see differences between men and women and they’re ok with those differences, but they don’t want those differences codified legally. So I have a lot of hope that feminism can be moderated and that most forms of it are certainly compatible with libertarian thought, though feminists would have to get over their love affair with government policies.


    What do you think are the biggest problems facing women today?


    I think one of the biggest ones is that women are still much more economically vulnerable than men are. Some of this has to do with single-parenthood, which still by and large affects women much more than it does men. Government policies like occupational licensure and the second earner tax make this problem more acute. But despite gains in education and a variety of other areas, women, particularly the elderly and those with children, are much more likely to be in poverty than men are. So that’s a big problem.


    I have heard some people suggest that instead of using the word “feminist” to describe themselves, they’ve been using words like “egalitarian”. I know that some libertarian women have been replacing “feminist” with other words that they feel better convey the value of gender equality and equal gender representation. Some would argue that any label inherently leaves room for oversimplification and misunderstanding, but what are your personal thoughts on using words like “feminist” or “egalitarian”? Do you think there should be a change in labelling? Especially when it comes to university courses, do you think it matters whether classes are called “gender studies” or “women’s studies” or “feminist studies”?


    I do think “feminism” has an implied association with other kinds of radical ideologies. I wish we could get away from some of that. When I teach Women in Politics (a pretty banal title) I always get at least one student who is pleasantly surprised that it’s not a traditional gender studies course. I think there’s a hunger out there for real and frank discussions of gender that don’t come from a radical lens. Unfortunately, I see that radical lens in a lot of my students and my colleagues and they can’t take it off even when they might need to.

    I’m not sure though what labels would work better. I can understand the move toward “gender studies” in some ways, since a lot of modern issues in gender relate to both men and women as well as LGBTQ populations. But “gender studies” of course carries with it that same kind of radical social justice lens. We’ve really struggled with this problem in what to call our courses. I would like to do a broader course on the politics of gender, but it’s hard to know what to call a course that discusses men’s issues, women’s issues, and LGBTQ issues, without immediately getting pigeonholed. I try to just develop a reputation among my own students as someone who looks at a diversity of sides on these issues, but that doesn’t help your broader question about labelling.


    Thank you for your response! I’ve recently started distinguishing between the social movement and the philosophy. For instance, there are a lot of aspects of the second wave that I disagree with, including some of the content in The Feminine Mystique. But of course even spreading out the social movements into three waves is also tricky and runs into the same problems with oversimplification. Do you think that making these kinds of distinctions will lead to a more frank discussion of gender, or do you think that these kinds of details make the topic less accessible, more tedious, and push people away?


    Honestly, I think they push people away. I do a cursory introduction to the various waves of feminism when I teach Women in Politics, but I try to underscore that these waves obscure a lot of variation. The other thing I do is try to avoid jargon, which is sometimes tough. But I do think helping people think through the kind of equality that matters to them — political equality, economic equality, social equality, total androgyny, etc. — can help illuminate some of these patterns.


    Where do you see yourself in 10 years work wise?


    My goal after this book on medicalization is to get back to theory. I’d like to do more work on Burke and his understanding of rights. I want to tie in the work I’ve done on the family and social individualism to his particular understanding of the intergenerational compact. That’s probably a five year plan.

    I don’t see myself transitioning out of academia any time soon. I’ve debating running for public office, and may do so in the future, but my kids are really little and it’s not the right time for any of us. But I think that will be a much later development, if it ever happens.


    Will politics in America ever calm down again? Or is populism the way of the future.


    I hope so. I’m heartened by the fact that there are now people openly defending cosmopolitan values out in the streets, rather than just in academia. I’m not sure where we’re going from here, because the electorate is more fractured than ever before. A big question mark centers around what direction the Republican party will end up taking. If they’re forced down an even more populist path we may end up there for a while. I don’t think it’s sustainable long term, but it can make things very uncomfortable for the next couple decades.


    What do you get on your garbage plate? me personally, im a baked beans, home fry, 2 cheeseburgers with all the toppings kind of guy


    I’m definitely a double cheeseburger, home fries, mac salad, onions and hot sauce kind of girl. The baked beans are too sweet for me, but I see the allure.


    I’m just not a mayo person. Who has the best plate?


    Well, the “correct” answer to that is Nick Tahoe’s, but we live in Pittsford now and I’m not going all the way into the city for a garbage plate. I like Hungry’s Grill for my local GP. DogTown on Monroe Ave also has some fun combinations. I know some people swear by the various “hots” outlets, but I rarely get to those.

  4. Quietly creating freedom: Private communities and special economic zones

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    For the last several centuries, nation-states have dominated the political landscape, and set all the rules for everyone inside them.

    But now two kinds of special jurisdictions — private communities and “Special Economic Zones” — are quietly taking over functions and providing options that traditional polities cannot or will not. This gentle revolution has already brought comparative wealth and better living to millions of people — perhaps including you.

    Special Economic Zones

    In a Special Economic Zone (SEZ), a government creates exceptions to its own rules — a select haven from the status quo that prevails elsewhere in the national territory. The goal, says the World Bank, is to create a “business environment that is intended to be more liberal from a policy perspective and more effective from an administrative perspective than that of the national territory.”

    Learn More: New anti-Airbnb law protects hotels from competition (and violates private property and freedom of exchange)

    Modern SEZs come in many types and sizes. One might offer nothing more than duty-free warehousing of goods in transit, while another might provide an alternative governance regime for an entire metropolitan area.

    Though not SEZs in the modern sense, zones governed by special rules have existed almost as long as government itself. These special jurisdictions have coevolved with the nation-state, usually cooperating, but sometimes competing with it. Although they were pushed into decline for centuries, special jurisdictions never died out, and in recent decades they have enjoyed renewed vigor.

    The antecedents of modern SEZs date from 166 BCE, when Roman authorities made the island of Delos a free port, exempting traders from the usual taxes in order to stimulate local commerce. The Hanseatic League, a confederation of trading cities chartered and loosely governed by the Holy Roman Empire, effectively ruled northern Europe from around 1200 to 1600 CE, hunting down pirates and defeating kings in battle. These proto-SEZs, like primitive mammals, had real bite.

    Early types of special economic zones next appeared among many various and far-flung European colonial outposts, formed as quasi-sovereign sub-governments and typically granted unique trading privileges. Examples include Macau (founded in 1557), Hong Kong (1842), and over 80 treaty ports established throughout China from the mid-1800s onward.

    After the Enlightenment-era explosion of these special jurisdictions, the nation-state began its rise. From the Napoleonic Empire, through two world wars, to the collapse of the communist regimes, it ruled the globe.

    Pushed to the margins, SEZs reached their nadir somewhere around 1900, when the world had only about 11 free ports. SEZs seemed headed for extinction.

    Why SEZs Came Back

    What brought SEZs back from the brink? The United States should get some of the credit.

    Its Foreign Trade Zone (FTZ) program, launched in 1934, offered special exemptions from federal excise taxes and duties. This proved convenient for those who, legally speaking, wanted to be within the jurisdiction of the United States while remaining outside its customs territory. The United States boosted SEZs again in 1948, when Operation Bootstrap made Puerto Rico a free trade zone for U.S. companies engaged not just in trade, the traditional focus of FTZs, but also production.

    Despite those precedents, most commentators date the modern SEZ movement from the industrial free zone established in Shannon, Ireland, in 1959. That early example certainly did seem to set off a wave of similar innovations. Since about the mid-1980s, “the number of newly established zones has grown rapidly in almost all regions, with dramatic growth in developing countries.” Today’s most populous nation-state, China, has proved especially prolific, going from 0 special jurisdictions in 1980 to at least 295 today. About 75% of the world’s countries now host SEZs, which number at least 4,000 and perhaps (if you count all the many single-factory zones) nearly 10,000.

    Private Communities

    The sorts of special jurisdictions closest to everyday people — common interest developments — have become increasingly popular both in the United States and worldwide. In the United States, these take the forms of homeowners’ associations, condominium associations, and cooperative residential communities. Residents have flocked to these private “common interest communities” in recent decades.

    The popularity of common interest communities appears not only in the number of people living in them, as graphed above, but also in their growing size and sophistication. Many common interest developments have grown to the size of small cities.

    Their residents entrust these private communities to provide nearly every service otherwise available from a traditional political municipality. The largest cooperative residential corporation in the United States, Bronx’s Co-Op City, houses more than 50,000 shareholder-tenants. Their mutually owned private corporation provides them with utilities, roads, stores, offices, schools, parks, security, and more.

    Highland Ranch, Colorado, evidently the largest homeowner association (HOA) in the United States, boasts of almost 100,000 residents and 31,000 households on 22,000 acres. Highland Ranch also hosts nearly 1,000 businesses, which employ more than 6,800 people; 19 elementary schools, 4 middle schools, 5 high schools, and numerous daycare facilities; several medical facilities; places of worship serving a variety of faiths; and 70 miles of paved and natural trails, 20 parks, two 18-hole golf courses, and an 8,200-acre backcountry wilderness area. In everything but origin and legal status, these resemble conventional mid-sized cities.

    The success of private communities shows the popular support enjoyed by this very local kind of special jurisdiction.

    Pragmatic Advancements

    Further up, so to speak, at the level of SEZs, official support and encouragement become more common. Even when they reach to the highest level of government, though, the roots of special jurisdictions reach back down to the real world.

    Devotion to theory has not characterized the development of special jurisdictions, which governments have instead adopted largely ad hoc. Extemporizing and learning from experience has driven the largest and arguably most successful field test of special jurisdictions: China during the last several decades.

    Learning from the success of the Crown Colony of Hong Kong, itself a historical accident, the Chinese government began in the 1980s to try (or at least allow) a wild profusion of SEZs. Officials did so not pursuant to theory but (silently) in spite of it, and described their policy as “crossing the river by groping for stones.” This intensely pragmatic, theory-free approach seems to have worked in China. Hundreds of millions of people have escaped poverty in Chinese SEZs.

    It also bears noting that, thanks to the spread of privately developed and managed special jurisdictions, SEZs increasingly escape the charge that they can thrive only thanks to top-down subsidies. These days, special jurisdictions happen only if and when private investors fund them. That sort of objective oversight helps to ensure that special jurisdictions, far from floating on clouds of theory, have a solid grounding in the real world.

    The astonishing growth in SEZs qualifies as a revolution of sorts, but not the usual, political kind. Instead of being imposed by domestic or foreign enemies, this revolution has come from within, allowed or even encouraged by existing authorities.

    Instead of descending from the rarified theories of armchair radicals like Karl Marx, it rises from the bottom up, expressed in the everyday choices of everyday people. The same effect appears at smaller scales, in the proprietary communities that increasingly supplant politically-run municipalities. Instead of merely plugging a few new politicians into the same old offices, SEZs, private communities, and other special jurisdictions have the power to quietly and gently transform governments across the globe.

    For more about the revolution quietly transforming governments bottom-up, inside-out, worldwide, look for Professor Bell’s forthcoming book, “Your Next Government? From the Nation State to Stateless Nations” (Cambridge University Press).

  5. Are Americans getting too much healthcare?

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    During policy debates on healthcare most people assume that more healthcare leads to better outcomes. What if that assumption is false?

    In a 2010 essay in the Atlantic, Myth Diagnosis, Megan McArdle cites research by Richard Kronick of the Department of Family and Preventive Medicine at the University of California at San Diego. Kronick found that even when a “disease was particularly amenable to early intervention” there was no “significantly elevated risk of death among the uninsured.”

    Dr. Atul Gawande writes in his essay “The Cost Conundrum,” “Americans like to believe that, as with most things, more is better. But research suggests that where medicine is concerned, more may actually be worse.” Among other things, Dr. Gawande summarizes findings of Dartmouth’s Institute for Health Policy and Clinical Practice, which examined “regional patterns in Medicare payment data.”

    Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be.

    Another Dartmouth team … examined the treatment received by a million elderly Americans diagnosed with colon or rectal cancer, a hip fracture, or a heart attack. They found that patients in higher-spending regions received sixty per cent more care than elsewhere … Yet they did no better than other patients, whether this was measured in terms of survival, their ability to function, or satisfaction with the care they received. If anything, they seemed to do worse.

    Consider one specific procedure: the common heart catheterization. According to Shannon Brownlee’s book Overtreated, there are more than 2 million heart catheterization procedures performed in the United States each year. Well over 50% are elective procedures; the patient has symptoms but is not in immediate danger of dying. Brownlee writes that the research suggests “the vast majority of elective cardiac procedures are no more effective at preventing heart attacks and death than medical management, which involves giving patients drugs and counseling.”

    A stent is often placed during catheterizations. Dr. David L. Brown, a professor of cardiology at Washington University’s School of Medicine in St. Louis, is unequivocal about the value of a stent: “Nobody that’s not having a heart attack needs a stent.” Brown is the coauthor of a journal article that examined “every randomized clinical trial that compared stent implantation with more conservative forms of treatment.” The paper found “that stents for stable patients prevent zero heart attacks and extend the lives of patients a grand total of not at all.”

    How can that be? Well, the cardiovascular system is more complicated than unblocking a clogged sink. Dietary changes, exercise programs, and medication can be more effective than stent surgery. Yet, doctors often resist taking these routes to treatment.

    Examining the efficacy of other procedures too, David Epstein and Propublica observe that despite the wonders of modern medicine, “it is distressingly ordinary for patients to get treatments that research has shown are ineffective or even dangerous.”

    Why does overtreatment systemically occur?

    Milton Friedman was a long-time critic of the distortions caused by the tax exemption for employer-provided medical insurance. In his 2001 essay “How to Cure Health Care” Friedman explained succinctly one reason why there can be both excessive spending on medical care and dissatisfaction with the results: “Nobody spends somebody else’s money as wisely or as frugally as he spends his own.”

    When we utilize healthcare, most of us are spending someone else’s money: the insurance company’s, the taxpayer’s, or our employer’s. In all, as the Cato Institute’s Daniel Mitchell points out, “Consumers are now paying only 10.5 percent of health care costs.” Under these circumstances, Friedman observes, “The patient — the recipient of the medical care — has little or no incentive to be concerned about the cost.”

    Would you be more concerned about the efficacy of a treatment if you were spending your own money? Would you think twice about undergoing an expensive test? Would you be more interested in prevention in the form of dietary and lifestyle changes?

    Imagine that employers provided tax exempt automobile maintenance insurance as a job benefit. Further imagine, as with many health insurance policies, the auto “insurance” benefit covered both routine expenditures like oil changes, and large unexpected expenditures like body repair after a crash. We can be certain that the automobile maintenance markets would be radically different.

    With someone else paying, the incentive for car owners to take responsibility for auto maintenance is reduced. Would car owners learn basic automobile maintenance if expenses caused by ignorance were covered by insurance? If automobile insurance paid for new tires, how often would car owners rotate their tires? Suppose an engine seized up because of lack of oil and the insurance simply paid for a new engine. How often would car owners check and change oil?

    With reduced consumer responsibility, automobile expenditures would explode. All well and good, if you are a provider of tires, engines, and automobiles. — but not so good for the rest of the economy.

    Health insurance operates unlike other insurances. As Friedman points out, “We generally rely on insurance to protect us against events that are highly unlikely to occur but that involve large losses if they do occur — major catastrophes, not minor, regularly recurring expenses.”

    “We have become so accustomed to employer-provided medical care,” writes Friedman, “that we regard it as part of the natural order.” Friedman asks pointedly:

    Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer? Why not return to the much-reviled company store when workers were in effect paid in kind rather than in cash?

    In 2016 the healthcare industry spent over $3 billion dollars lobbying. Given the rewards under the current system of heavy government involvement in healthcare, we can understand why the healthcare industry spends far more on lobbying than any other industry. Their interests are not the consumers’ interests.

    If healthcare was financed by the consumer directly, the problem of overtreatment would diminish greatly. Healthcare expenditures and prices for healthcare would likely fall. Would the nation’s health improve too?

  6. Don’t raise Uncle Sam’s credit limit

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    Once again, the United States government is rapidly approaching a fiscal debt ceiling. After March 16, 2017, Uncle Sam is not legally allowed to borrow any more money to cover its budget deficits, unless Congress votes to raise the debt limit like it has every time in the past.

    Uncle Sam’s debt has been growing at a frightening rate over the last several decades. It took almost two hundred years, from around 1790, when the government of the United States was established, to 1980 for the federal government to accumulate $1 trillion of debt through deficit spending.

    In the twenty-year period, 1980 to 2000, that national debt grew to $5 trillion. Then during the eight years of George W. Bush’s Republican Administration from 2001 to 2009, the debt doubled to around $10 trillion. And over the eight years of Barack Obama’s Democratic Administration, the national debt doubled, once more, to just short of $20 trillion.

    The Taxpayer Cost of the National Debt

    United States Gross Domestic Product – the market value of all final goods and services produced during a year –is estimated to have been about $18.6 trillion in 2016. That means if the American people were to devote last year’s entire national income to paying off the federal government’s accumulated debt, it would still fall short by nearly $1.5 trillion dollars!

    With an estimated population of around 325 million people at the end of 2016, the per capita financial burden of the national debt comes to around $61,550 per person in the United States. About half of the U.S. population submits and pays some amount of tax to the federal government. This means that the per capita burden of the national debt for those submitting and paying federal taxes is almost $123,500 per taxpayer.

    Of course, in reality, many pay no or little net taxes to the federal government, while others pay far more. But this number at least gives a sense of what it would cost each of us, on average, if we were to try to pay off the national debt in one lump payment.

    The Debt Limit and Short-Term Fiscal Tricks

    The Congressional Budget Office (CBO) recently issued a report on “Federal Debt and the Statutory Limit, March 2017.” The report reminds us that Congress passed the Bipartisan Budget Act of 2015 that temporarily lifted any limit on how much the federal government could borrow and add to the national debt until March 15, 2017, which is, now, just around the corner.

    After that date, whatever has been added to the national debt up to that time becomes the new legal debt ceiling, which will be at or very close to that $20 trillion mark. Anything beyond this amount will require Congressional approval with a new, higher ceiling on government borrowing.

    The CBO also points out that, as with earlier administrations that have reached that lawful limit without an immediate Congressional approval of a higher number, the Secretary of the Treasury has a variety of short-run smoke-and-mirror tricks to keep spending by playing games with several internal government financial accounts. In other words, the Treasury Department can “juggle the books,” adding to the net debt through ledger book subterfuge and then make good on what has been manipulated out of the higher debt ceiling passed by Congress.

    The Congressional Budget Office suggests that the available leeway to get away with this could allow the federal government to keep spending beyond taxes collected for several months before a real hard limit would be reached, after which there would no more room for such financial games unless the Congress increases the debt limit.

    Uncle Sam’s Future Red Ink Has No End

    Government and its spending are out of control. In its January 2017 long-run “Budget and Economic Outlook” report covering the next ten years, the CBO estimates that continuing, and indeed, rising annual budget deficits between 2017 and 2027 will likely bring the federal government’s overall debt to at least a total of $30 trillion, or a 50 percent increase in the national debt in ten years or less. Those $1 trillion-a-year deficits experienced in the early years of Obama’s presidency, the CBO projects, will be back starting in 2023 and thereafter.

    This, of course, presumes that the estimates for government revenues and expenditures made by the CBO for the next decade turn out to be correct. But if anything has a relatively high degree of certainty, it is that government ends up spending more than originally projected and planned. So the deficits and debt estimates can easily turn out to be on the low side by the time we reach 2027.

    Uncle Sam’s budgetary excesses are being fed, more than by anything else, by the “entitlement” programs, especially Social Security and Medicare spending. According to the Office of Management and Budget, in the current federal budget for fiscal year 2017 (that runs from October 1, 2016 to September 30, 2017), Social Security and related programs will consume 36 percent of federal expenditures; Medicare and other health programs will eat up an additional 28 percent; and net interest on the federal debt will absorb 7 percent.

    These two general redistributive categories make up over two-thirds of all federal government spending. And when net interest on the national debt is added, this comes to over 70 percent of all federal expenditures. The Social Security Administration spending in the current fiscal year will be around $908 billion, while expenditures by the Department of Health and Human Resources will come in at over $1 trillion.

    Classical liberals and libertarians may well consider that the United States government spends too much on defense and its military interventions in various parts of the world, spending that many friends of freedom may view as unnecessary and misplaced, but the Defense Department’s planned $516 billion spending in the current fiscal year, nonetheless, makes up only approximately 15 percent of overall federal budget. A lot of wasted money, no doubt, but right now it is not defense spending, per se, that is driving this growth in the size and scope of government.

    Yet, the new Trump Administration, like virtually all other administrations before it, has insisted that Social Security and Medicare and related expenditures remain sacrosanct – untouchable by any budget cutter’s pen. Plus, the Republican majority leadership in Congress, already unwilling to repeal ObamaCare without putting in its place the GOP’s “moderate-conservative” variation on the national health insurance theme, clearly has no intention of challenging two of the core programs of the American welfare state. (See my article, “For Healthcare the Best Government Plan is No Plan.”)

    If the President and the Treasury keep asking for increases in the national debt limit, and if Congress, in turn, after handwringing and gnashing of teeth about fiscal irresponsibility, continues to raise that debt limit there will clearly be no end to deficit spending.

    A Frozen Debt Limit Means a Balanced Budget

    But there is a simple and straightforward way to bring the fiscal hemorrhaging to an end. Don’t raise the debt limit. In one legislative act, in this case, a non-action, the federal government will have to operate within the confines of a balanced budget.

    With no increase in the debt limit, the Federal government will be legally restrained to spend only what it takes in in taxes and other revenue sources. This, in itself, makes the case for not increasing the debt limit very appealing.

    Of course, this would mean that the government could not cover a part of those expenditures that it has contracted or legislatively committed itself to in previous years. This is what normally generates most of the outcry about needing to raise the debt limit.

    The Congressional Budget Office estimates that in the federal government’s fiscal year, 2017, Uncle Sam will spend a total of nearly $3.96 trillion and collect in taxes about $3.4 trillion, leaving a budget deficit in the neighborhood of $560 billion.

    To stay within the current statutory budget limit during this fiscal year, all that the federal government would need to do is to cut spending across the board by about 14 percent. Given the mismanagement and waste that virtually everyone admits goes in every bureau, agency, and department run by the federal government, a 14 percent “trimming” does not threaten (some might say, unfortunately) any of that “cutting to the bone” that the budget busters among both Democrats and Republicans constantly warn about.

    Either You Spend Your Money or Government Does

    But we should also realize that if the government is prevented from any more borrowing, it would become crystal clear that the government does not possess an unlimited financial horn-of-plenty from which to satisfy every conceivable ideological and special interest demand for which an appeal is made to Washington.

    If any of these demands for government spending above what can be covered by current government revenues were to be satisfied, it would then compel politicians and bureaucrats to tell the American public that which they avoid admitting like the plague: there is an inescapable trade-off between the people spending their own money and government taxing it away and spending it instead.

    In other words, no longer could there be the illusion of a “free lunch,” in which the federal government makes it seem that something can be had for nothing, or at less than its real full cost. Every additional dollar of higher government spending above what is currently collected in taxes would require one less dollar left in the hands of private citizens who had produced and earned it because that extra dollar of government spending would require an extra dollar of taxes taken out of the taxpayer’s pocket. (See my article, “Why Government Deficits and Debt Do Matter.”)

    This would require the citizens and the taxpayers of the United States to ask themselves exactly what it is they want the government to spend money on, and for which they will have to make the hard choice to have less money in their own pockets to pay for it.

    In other words, the American people would be reminded that there is a thing called “scarcity,” that the resources and financial means to obtain all that we would like to have is limited and insufficient relative to our wants and demands for things.

    Balancing the Budget Means Accepting Trade-Offs

    We each make such trade-offs and hard choices in our own personal, daily lives. Out of our take-home pay we decide whether we are willing to sacrifice going on that desirable but more expensive vacation so to put more money in our savings account to have the means to repair the roof on our home or to have more money put aside to pay for our child’s education when they are ready to go off to college.

    Or if we put that new flat-screen television on our credit card, we know it may mean planning to go out to dinner less frequently for a while, since our monthly payment will be higher while we are paying it off, including more interest on that borrowed money.

    A balanced budget for the government means having to prioritize what it can afford to spend, and on what – just like you and me.

    Would the burden of cuts have to fall on “discretionary” government spending – including defense – if “entitlements” remain off the table? Yes, but that in itself would impose hard thinking on the American people as to whether they are willing to face the fact that it is the entitlement programs like Social Security, Medicare, and whatever may replace ObamaCare that are sucking up the greatest amount of what the government takes in as taxes now and will be even more so in the future.

    Deciding on the Role of Government in Society

    The American citizenry would be forced to look at themselves in the mirror, and ask whether they are willing to pay the higher taxes to cover these rising entitlement costs, or whether they are finally going to accept the fact that real entitlement reform must be undertaken – including ending government responsibility and involvement in people’s retirement and health care costs altogether through full privatization and real free market alternatives. (See my article, “There is No Social Security Santa Claus,” on the coming fall of Social Security under current legislation, and a market-based policy for its full repeal.)

    These are tough choices, given the increasingly embedded psychology of paternalistic government dependency, and the politics of trying to live at other people’s tax expense for things we want the government to do for us.

    But either we face this reality and reevaluate the role of government in society or we go on “busting the budget” with continuing deficit spending, growing the national debt, and inviting potential financial ruin for ourselves and our posterity.

    The inescapable choice is ours.

  7. Bryan Caplan: Is immigration a basic human right?

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    Editors Note: On March 16th George Mason University Professor of Economics Bryan Caplan debated Washington University Professor of Philosophy Christopher Wellman on the topic, “Is Immigration a Basic Human Right?” Below is Professor Caplan’s opening statement.

    There are many complaints about governments, but the harshest is, “This government grossly violates human rights.”  The background assumption is that human beings have rights that everyone – including governments – is morally obliged to respect.  When looking at the grossest violators – Nazi Germany, the Soviet Union, Maoist China – almost no one denies the validity of the idea of human rights.  But then you have to wonder: Do the governments we know, accept, and even love have clean hands?  Or do they violate human rights, too?

    To answer, we normally apply a simple test: If an individual treated other people the same way the government does, would he clearly be a horrible criminal?  If an individual deliberately kills innocent people, he’s a murderer; if an individual imprisons innocent people, he’s a kidnapper.  A government that does the same violates basic human rights – and it can’t justify its actions by calling innocent people “criminals.”  If someone is peacefully living his life, he’s innocent – whatever the government says.

    What does this have to do with immigration?  Lots.  Since we’re in San Diego, we’ve seen illegal immigrants.  What are the vast majority of them doing?  Working for willing employers.  Renting apartments from willing landlords.  Buying stuff from willing merchants.  Sending money home to their families.  Maybe even sitting next to you in class.  They sure look innocent – even admirable.  But the U.S. government can and does forcibly arrest and exile them to the Third World. Why can’t they all just come legally?  Because exile is the default; they’re all exiled unless the U.S. government makes a rare exception.  This is far less bad than killing or imprisoning them, but it sure looks like a severe human rights violation.  If the U.S. government forbade you to live and work here, wouldn’t that be a severe violation of your human rights?

    You could reasonably object that human rights are not absolute.  While there’s a strong moral presumption against killing, imprisoning, or exiling innocent people, it’s okay to do so if the overall consequences of respecting human rights are clearly awful.  The main problem with this objection is that when social scientists measure the overall consequences of immigration, they’re not clearly awful.  In fact, the overall consequences look totally awesome.  Most notably, standard economic estimates say that letting all the world’s talent flow to wherever it’s most productive would roughly DOUBLE global prosperity.  That’s an extra $75 TRILLION of extra wealth per year.  How is this possible?  Because even the world’s lowest-skill workers produce far more in the First World than they do at home.  Even if all other fears about immigration were bulletproof – which they aren’t – they’re dwarfed by this gargantuan economic gain.  This isn’t trickle-down economics; it’s Niagara Falls economics.

    To effectively defend immigration restrictions, then, saying “Human rights are not absolute” is insufficient.  You need to flatly deny that immigration is a human right – to say that while the illegal immigrants you meet on the street may look innocent, they’re actually guilty as hell.  The most popular argument analogizes illegal immigrants to trespassers.  No one has any right to be here without government permission; it’s our country, so we set the rules.

    The obvious problem with this position is that it justifies a vast range of blatant human rights abuses.  If it’s our country and we set the rules, why can’t we exile citizens, too?  Why can’t we imprison people for saying the wrong thing, practicing the wrong religion, or having kids without government permission?  Saying, “That won’t happen,” dodges the question: If the U.S. government did this to you, would it be violating your human rights or not?

    Prof. Wellman offers a more sophisticated version of this story.  He defends immigration restrictions for “legitimate states” only, on the grounds that immigration restrictions are vital for “freedom of association.”  Unfortunately, we have two conflicting freedoms of association.  I want to be free to associate with foreigners; lots of foreigners want to associate with me.  Immigration restrictions deny us this freedom in the name of all the Americans who don’t want my associates breathing American air.

    Who should prevail?  In his work, Wellman concedes a crucial premise, freely admitting that the popular notion that we all consent to government is a “fiction,” and that “the coercion states invariably employ is nonconsensual and, as such, is extremely difficult to justify.”  We don’t really face a choice between two freedoms of association, but between freedom for real associations we choose to join and freedom for fictional “associations” we’re forced to join.  Unless the overall consequences are clearly awful, the fictional ones should lose.  Freedom of association is only for free associations.

    My critics often tease me, “Should everyone on Earth be free to immigrate into Bryan’s house?”  Their point: Treating immigration as a human right is utopian nonsense.  My reply: There are three competing moral positions on immigration.

    1. Foreigners should be free to live in my house even if I don’t consent – a view held by almost no one.
    2. Foreigners should be free to live in my house if I consent – my view.
    3. Foreigners shouldn’t be free to live in my house even if I do consent – the standard view I’m criticizing.

    Far from being utopian, saying “Immigration is a human right” is just the moderate, common-sense position that when natives and foreigners voluntarily interact, strangers are morally obliged to leave them alone unless the overall consequences are clearly awful.  Even if the stranger happens to be the government – and the government happens to be popular.

    This was originally published at Econlog.

  8. Women work for equality — but these 3 policy ideas don’t

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    As we wrap up Women’s History Month, it’s worthwhile discussing some of the major policy proposals intended to help women enter and stay in the workforce on levels equal to men.

    Many of these proposals are meant to address (1) the wage gap between men and women, (2) the lack of mandated maternity leave, and (3) the high cost of child care. All three of these issues can operate together to make it more financially sensible for women to stay at home after they give birth.

    But these supposedly woman-friendly policy proposals misunderstand women’s working lives and women’s choices. And some of these policies, while they may help middle-class women, are likely to hurt the most vulnerable women in the workforce — those who work low-skilled, low wage jobs.

    1. The Wage Gap

    Let’s start with equal pay. There’s been a lot of good libertarian work on the wage gap, so I’ll just link to some of that rather than laying it all out here. Suffice it to say, the actual gap itself is much smaller than the figure of 77 cents for every dollar that is often thrown around in the media.

    Moreover, the causes of the actual gap are complicated. Some of it may very well be due to discriminatory policies or unconscious bias on the part of employers. But studies have shown that some of it has to do with women being less likely to ask for raises, as well as what they ask for when they do.

    Women frequently choose to focus on other things in their negotiations with employers, including more flex time, the ability to work from home, and better benefits. Finally, the biggest reason for the gap in earnings between men and women has to do with larger decisions about what kinds of fields they enter (women are more likely to enter human services fields, which pay less than STEM fields, where women are more rare) as well as how much they work when they get there. Women are more likely to work part time, particularly when children are young.

    Put together, the wage gap seems less the result of deliberate discrimination by employers and more a case of women as competent economic thinkers who are trying to balance work, life, and family. That more women make these tradeoffs than men is significant, but may also be changing as more men choose to stay home and take care of children.

    Given that women’s share of higher education has been growing dramatically and that they are poised to take over large areas of law, medicine, and other professional fields, we may well see a similar shift in male negotiating tactics in the future.

    2. Mandatory Maternity Leave

    Another major policy being floated is mandated maternity leave. The problem with this solution is not, as in the case of the wage gap, that it doesn’t solve a real problem. In fact, lack of maternity leave affects breastfeeding rates, postpartum depression rates, and infant outcomes.

    Instead, the problem with mandating maternity leave is that maternity leave itself leads to other kinds of unintended consequences for women. Research from Pew shows that countries with the most generous maternity leave policies also have the largest wage gaps between men and women. Taking 10 months to a year off at a time does not place one in the best position for promotions or raises, after all.

    But perhaps most damaging is that mandated maternity leave harms the very women who have the most to lose — unskilled workers. Companies who hire highly trained and skilled women may see generous maternity leave policies as a way to attract highly qualified women who will stick around much longer than their leave, more than making up for their temporary absence.

    Unskilled workers do not have those same benefits to offer. Their work is largely interchangeable, characterized by high turnover, and employers do not compete for such workers the way they compete for skilled laborers. Mandatory maternity leave means, not better options for low-skilled women, but rather an increase in discrimination and bias against women, particularly low-skilled women, in their childbearing years. Employers will simply shift their focus to men and older women, who they won’t have to risk paying while on leave or training replacements.

    3. Subsidized Child Care

    A final piece of the agenda for working women is lowering child-care costs by providing state-sponsored subsidies to allow both parents to work outside the home. Child care costs have been soaring of late, and most families, particularly those with one partner who earns a lower wage, may find that the most sensible financial plan is for the lower-wage partner to stay home with children. Since the lower-wage earner is still more likely to be female, many women choose to stay home for economic reasons, even when they would rather be working.

    The problem with subsidizing child care with government money is that it fails to pay attention to why child care is so expensive in the first place. Research by the economists Diana Weinert Thomas and Devon Gorry found that as much as 20% of child care costs could be linked to regulations that add neither safety nor quality to child care. These regulations included the requirement for child care workers to have high school or college degrees, which is shown to add considerably to costs but does not contribute at all to either safety or quality of care. Yet encouraging more college graduates to choose employment at child care facilities is part of Senator Gillibrand’s agenda for working mothers.

    Such a plan would provide tax credits to college graduates who go into child care work. The result would actually increase the cost of care overall, rather than helping families afford child care. Instead of encouraging people with costly undergraduate educations to take jobs as daycare workers, why not take a hard look at the regulations daycares face and eliminate the ones that don’t help anyone except the regulators?

    It’s a trap!

    This Women’s History Month, let’s avoid the trap of looking at women’s equality as a problem that only politicians can solve. Let’s look instead at women’s issues as the result of a complex series of choices women and men make, choices that are dynamic and where incentives are changing even as I write.

    There are, of course, very real barriers to women’s equality out there, but let’s not forget how often these take the form of government policies like higher tax rates on second earners and restrictive occupational licensing laws that prevent women from entering the workforce.

    Before we start adding more government policies on top of other problematic government policies, let’s take a hard look at how government restricts women’s choices. Whatever we do, let’s not pass laws and policies that help middle and upper class women out at the expense of the most vulnerable women. To do that is to place the biggest burden of inequality on those who are the least able to shoulder it.

  9. Entitlements driving Washington to trillion-dollar deficits

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    The Congressional Budget Office (CBO) recently released the “The Budget and Economic Outlook: 2017 to 2027.” This annual report provides the federal government’s most comprehensive analysis of the current state of federal spending, taxes, and debt. It also provides a framework within which to analyze the President’s budget proposal and upcoming Congressional legislation.  The news is not good.

    CBO projects that tax revenues over the next decade – 18.1 percent of the gross domestic product (GDP) – will exceed all other ten-year periods in American history outside of the 1990s. Yet spending will surge to 23.4 percent of GDP in a decade, resulting in a 2027 deficit of $1.4 trillion.

    A decade from now, rising entitlement spending and interest on the national debt will consume 99 percent of tax revenues – forcing virtually the entire discretionary spending budget to be financed on the nation’s credit card.

    Over the next decade, the national debt is projected to rise from $20 trillion to $30 trillion, and reach 107 percent of GDP for the first time since World War II.

    Between 2009 and 2015, the deficit declined due to sequestration cuts, a modest economic recovery, and tax hikes. The deficit began increasing again last year, and – driven by entitlements and net interest costs – is projected to reach $1 trillion by 2023.

    Washington will spend $31,154 per household this year. Federal spending is projected to jump another $5,800 per household over the next decade (adjusted for inflation).

    Social Security, health entitlements, and net interest costs are responsible for $2.1 trillion of the $2.6 trillion growth in projected federal spending over the next decade. These items comprise 57 percent of current spending, yet will account for 82 percent of all new spending over the next decade.

    Net interest costs – $241 billion in 2016 – are projected to reach $768 billion by 2027. And even that assumes interest rates remain far below historic norms. Rising interest rates would push budget deficits over $2 trillion within a decade.

    Individual income tax revenues are projected to reach 9.7 percent of GDP in 2027 – the highest level in American history outside of bubble-inflated 2000.

    The budget deficit predictably fell from its 2009 peak because the recession ended, taxes were increased, discretionary spending was capped, and low interest rates limited the net interest costs on new debt. However, over the next decade, sharply rising Social Security and heath care spending, higher interest rates on the national debt, and sluggish economic growth are projected to bring back trillion-dollar deficits. Lawmakers will face difficult decisions to rein in this spending and debt, and to ensure economic prosperity.

    For full report click here

    Brian Riedl is a senior fellow at the Manhattan Institute. Follow him on twitter @Brian_Riedl.

    This piece was originally published at Economics21.

  10. Supposed FBI investigations into refugees shouldn’t scare you

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    This past Monday, President Trump released a new executive order shutting down the refugee program for 120 days and banning immigration from six majority-Muslim countries for 90 days. President Trump attempted to justify these changes by stating in part that:

    The Attorney General has reported to me that more than 300 persons who entered the United States as refugees are currently the subjects of counterterrorism investigations by the Federal Bureau of Investigation.

    The government has refused to provide any additional details about these cases, but an investigation should not be seen as implying guilt. Almost all FBI terrorism investigations do not end with a terrorism conviction. Indeed, the numbers predict that of these 300 refugee investigations, only 1 will turn into a terrorism conviction and that conviction will not be for planning an attack against the United States. This claim about the FBI investigating refugees has turned out to be a groundless smear in the past, and history has shown that refugees have been less likely than others to commit acts of terrorism against the United States.

    These 300 represent less than 0.009 percent of all refugees admitted since 1975. As the Cato Institute’s recent report found, only 20 refugees from 1975 to 2015 have attempted, planned, or carried out a terrorist attack inside the United States. Only 3 carried out a deadly terrorist attack, and all of those were before 1980. During the 40 years from 1975 to 2015, the annual risk of death by a refugee terrorist to a U.S. resident was 1 in 3.64 billion. This makes them about 1,000 times less likely to kill a U.S. resident in a terrorist attack than other foreign-born people.

    Unfortunately, this type of baseless fearmongering about FBI investigations into refugees is not new. The FBI told ABC News in 2013 that it was investigating “dozens” of refugees as terrorists. In the 26 months after the FBI made the claim, the agency arrested and convicted 31 individuals for “terrorism-related” offenses. Of these, a majority were U.S.-born citizens. Another 4 convictions were not even for terrorism offenses. In the end, the Bureau only arrested and put away for terrorism offenses 9 foreign-born residents total after it claimed “dozens” of open cases against refugees specifically. None of these individuals were planning attacks inside the United States.

    So how often do FBI national security investigations actually turn into convictions?

    According to the New York Times in 2016, the Bureau has averaged “7,000 to 10,000 preliminary or full investigations involving international terrorism annually in recent years.” This appears to contrast with Reuters, which reported this week that the 300 refugee investigations were part of 1,000 “counterterrorism investigations” into persons tied to “Islamic State or individuals inspired by the militant group.” Similarly, FBI Director James Comey said in May 2016 that there were “north of a thousand cases” that they were investigating of U.S. residents radicalized by the Islamic State online.

    The best explanation that I see for this difference is that the Comey/Reuters number refers to a narrower subset of investigations involving the Islamic State and, more importantly, only reflects a snapshot in time. At any particular moment, there may be 1,000 or so investigations open, but there are between 7,000 and 10,000 investigations for the entire year.

    This means that very few FBI investigations end in a terrorism conviction. In the 5 years from 2010 to 2014, the entire United States government averaged just 27 terrorism convictions per year. Taking the middle of the 7,000 to 10,000 range for the number of new FBI investigations (8,500) would mean that only about 0.3 percent of all terrorism investigations end in terrorism convictions.*

    If these individuals are involved with terrorism, it is very unlikely that they are attempting to harm the United States as opposed to supporting terror groups abroad. Less than 5 people per year were convicted of terrorism offenses in which they were targeting the United States in the five years from 2010 to 2014. This appears to be true today as well. Director Comey said in May 2016 that his main concern was people seeking to join the Islamic State overseas. This means that only 0.05 percent of all investigations end in the conviction of a person who was attempting terrorism in the United States.

    Based on these percentages, we can predict that only 1 in 300 of these investigations will turn into a terrorism conviction and that it will not involve a domestic terror plot.

    The FBI should continue to investigate people who it has reason to believe are involved in terrorism, but it is incorrect to assume that an investigation means that the person is guilty of a crime or even likely to be guilty of a crime. It is even more incorrect to jump to the conclusion that they pose a threat to anyone in the United States. The fact remains that refugees are less likely than others to commit acts of terrorism, and these new investigations do not change that fact.

    *In the less likely scenario where the FBI opens only 1,000 terrorism investigations annually, 2.7 percent would end in terrorism convictions and 0.5 percent would end with convictions for an offense targeting the U.S. These numbers would predict that of these 300 refugees, only 8 will be convicted of a terrorism offense. Of these, only 1 will have planned an attack targeting people inside the United States.

    This piece was originally published at Cato at Liberty.

  11. Want to help women? Lower marginal tax rates

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    This year April 17 is Tax Day.  Those who pay little tax count themselves as lucky winners.  Some of the biggest losers will be married, working women, who are being discouraged from working by high rates of tax.

    Higher marginal tax rates discourage married women from working.  When single women work and are considering marriage, higher rates discourage marriage.  Sometimes high tax rates result in women quitting the workforce altogether.

    Working women are disproportionately represented in the top fifth of the income distribution, where federal and state income tax rates can reach over 50 percent.  Frequently it is their work that pushes the family into the top brackets. After adding up costs of transportation, child care, and professional clothing, there is not much left.

    Taxes discourage married women not just from working, but also from striving for promotions, from pursuing upwardly-mobile careers.

    Mothers are more affected by the marriage penalty than other women because they are more likely to move out of the labor force to look after newborn children and toddlers, and then to return to work when their children are in school.

    On average, households in the top fifth of the income distribution have two earners.  In the middle fifth, it is 1.3 earners.  In the bottom fifth, it is half an earner.  That second earner pushes families into the top brackets.

    Census data show that men and women living alone are most likely to be poor. Over 70 percent of women and 60 percent of men living alone are in the bottom two fifths of the income distribution.

    Lowering the top individual income tax rate to 33 percent, as both House Speaker Ryan and President Trump have proposed, can reduce the marriage penalty.

    Many economists have shown that lowering individual and corporate income taxes is the key to increasing incentives for Americans to work and for businesses to invest.

    Nobel Prize winning economist Edward Prescott found that in the 1970s the labor supply of France, Germany, and the United Kingdom exceeded that of the United States. In the 1990s, Americans worked much more than Europeans. Controlling for other factors, he concluded that when tax rates of European countries and the United States were comparable, their labor supplies were comparable as well. Prescott concluded that the difference in the marginal tax rate accounts for the predominance of the differences at points in time and the large change in relative labor supply over time.

    Similarly, Professors William Gentry of Williams College and Glenn Hubbard of Columbia University found that higher marginal tax rates discourage entrepreneurship. Entrepreneurship involves risk-taking, and people are less willing to take risks when the rewards will be taxed away. A five-percentage-point reduction in tax progressivity would increase the entry rate by 25 percent.

    The increase in taxes in America in 1993, they found, lowered the probability of people becoming self-employed by 20 percent.  The ensuing period of high growth and low unemployment could have been even better.

    Professors Christina and David Romer, in a 2010 article in the American Economic Review, concluded that “a tax increase of 1 percent of GDP reduces output over the next three years by nearly three percent.” Romer and Romer say the effect is highly statistically significant. Furthermore, the effect is larger and more significant than if they had examined all legislated tax changes rather than just the ones they determined to be legitimate. The effect on output was smaller after 1980 than prior. The maximum output decline from 1950-1980 was 4.3 percent after seven quarters, compared to a 3.1 percent decline after eight quarters in 1980-2007.

    The majority of Americans are women. The majority of voters are women. Yet despite their political power, the federal government all too often ignores, or even worse, militates against the interests of women. This is particularly true of the economic interests of women. Especially in the details of tax codes, the economic interests of women are neglected.

    With high marginal tax rates, American women are shunted into higher tax brackets, discouraged from working, and given every incentive not to pursue advancement.  Let’s hope that things will be different in 2018 after President Trump and Congress modernize the tax code.

    This piece was originally published at Economics21.