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Cato @ Libertyhttps://www.cato.org/ The Cato Institute seeks to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets and peace. Toward that goal, the Institute strives to achieve greater involvement of the intelligent, concerned lay public in questions of policy and the proper role of government.enAn Infrastructure Package Is a Bad Ideahttps://www.cato.org/blog/infrastructure-package-bad-idea Chris Edwards House Democratic leaders suggested that a fourth COVID-19 relief bill should include infrastructure spending, and President Trump voiced his approval in a tweet a couple weeks ago: “It should be VERY BIG & BOLD, Two Trillion Dollars, and be

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Cato @ Libertyhttps://www.cato.org/ The Cato Institute seeks to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets and peace. Toward that goal, the Institute strives to achieve greater involvement of the intelligent, concerned lay public in questions of policy and the proper role of government.enAn Infrastructure Package Is a Bad Ideahttps://www.cato.org/blog/infrastructure-package-bad-idea <p><a href="https://www.cato.org/people/chris-edwards" hreflang="und">Chris Edwards</a></p> <p>House Democratic leaders suggested that a&nbsp;fourth COVID-19 relief bill should include infrastructure spending, and President Trump voiced his approval <a href="https://www.nytimes.com/reuters/2020/03/31/us/31reuters-health-coronavirus-usa-infrastructure.html">in a&nbsp;tweet</a> a&nbsp;couple weeks ago: “<span>It should be VERY BIG &amp;&nbsp;BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country!</span>” Both <a href="https://www.csis.org/analysis/donald-trump-right-we-need-big-bold-infrastructure-spending">liberal</a> and <a href="https://www.wsj.com/articles/after-the-cares-act-hospitals-and-businesses-need-sustained-support-11586112467">conservative</a> commentators support a&nbsp;federal infrastructure package.</p> <p>Fortunately, political leaders have put this misguided idea on the backburner for now, but it regularly sweeps through Washington in a&nbsp;cycle like a&nbsp;seasonal virus.</p> <p>The <a href="https://www.cato.org/sites/cato.org/files/pubs/pdf/tbb-78-updated.pdf">vast majority</a> of the nation’s non‐​defense infrastructure is owned by state and local governments and the private sector. It is more efficient if infrastructure owners make the funding and investment decisions rather than federal politicians. <a href="https://www.cato.org/sites/cato.org/files/pubs/pdf/pa868_2.pdf">This study</a> discusses 18 reasons why federal aid for state and local activities, including infrastructure, makes little sense.</p> <p>The COVID-19 outbreak has made federal infrastructure spending even more dubious because the demands for various types of infrastructure may substantially shift in coming years. Breaking ground on long‐​term government projects while consumer needs are in flux is too risky.</p> <p>The demand for urban bus and rail systems may be down for years to come. Even before the crisis, transit use had been falling in many cities due to the rise in Uber and Lyft and the growing unreliability of some systems, such as the Washington D.C. subway. With heightened fears of infectious diseases, transit demand may sink further, as Randal O’Toole <a href="https://ti.org/pdfs/APB47.pdf">explores</a>.</p> <p>State and local politicians have pumped billions of dollars into sports stadiums and convention centers over the years. Demand for these facilities will likely be down, so ending government subsidies makes more sense than ever.</p> <p>What about airports? Personal air travel will probably rebound strongly because there is no online substitute for a&nbsp;vacation in the Caribbean. But long‐​term demand for business air travel may shift down because video conferencing on Zoom and other services can substitute for in‐​person meetings. Such a&nbsp;shift in business meetings would also reduce Amtrak use.</p> <p>A CEO on television the other day noted that a&nbsp;share of business air travel stems from in‐​person meetings signaling to business partners the importance of a&nbsp;relationship. But that cultural cue may go by the wayside because every business leader now has extensive experience with video meetings. Furthermore, many businesses will be cash‐​strapped in coming months, and online meetings are a&nbsp;lot cheaper than flying.</p> <p>Meanwhile, automobiles are the safest travel mode in a&nbsp;world of infectiousness diseases, so highway demand will likely rebound. Automobiles are also the safest transportation mode in the face of terrorist threats and natural disasters, <a href="https://ti.org/pdfs/APB47.pdf">notes</a> O’Toole. States will need to build more highway capacity, but they can probably push back the timing of expansion because of the recession.</p> <p>A federal infrastructure package would probably cater to lobbyist demands, not market demands. It would likely include billions of dollars for transit, even though the ridership outlook is grim. As for the states, they should proceed with caution because the crisis will shake up many economic relationships, including infrastructure use.</p> <p># # #</p> <p>Here is further reading on <a href="https://www.downsizinggovernment.org/transportation/urban-transit">transit</a>, <a href="https://www.downsizinggovernment.org/transportation/federal-highway-policies">highways</a>, <a href="https://www.downsizinggovernment.org/privatizing-us-airports">airports</a>, <a href="https://www.downsizinggovernment.org/transportation/privatizing-amtrak">Amtrak</a>, <a href="https://www.downsizinggovernment.org/infrastructure-investment">infrastructure</a>, <a href="https://www.downsizinggovernment.org/transportation/atc">air traffic control</a>, and <a href="https://www.downsizinggovernment.org/fiscal-federalism">aid‐​to‐​states</a>.</p> Tue, 14 Apr 2020 11:56:34 -0400Chris Edwardshttps://www.cato.org/blog/infrastructure-package-bad-ideaAre Low Oil Prices Bad?https://www.cato.org/blog/are-low-oil-prices-bad <p><a href="https://www.cato.org/people/jeffrey-miron" hreflang="und">Jeffrey Miron</a> and <span class="text-semibold">Erin Partin</span></p> <p>A new <a href="https://www.wsj.com/articles/opec-allies-look-to-resolve-saudi-mexico-standoff-and-seal-broader-oil-deal-11586695794?mod=hp_lead_pos2">oil deal</a> led by the United States, Russia, and Saudi Arabia promises to withhold <a href="https://www.cnn.com/2020/04/12/energy/opec-deal-production-cut/index.html">9.7 million barrels</a> of crude oil a&nbsp;day from global markets – over 13 percent of the world’s daily supply. The deal is in response to cratering demand for <a href="https://www.axios.com/coronavirus-fuels-historic-drop-in-gasoline-demand-cde75e40-f70d-4cca-9a16-f27e00f2168b.html">gasoline</a> as millions stay home to prevent the spread of COVID-19&nbsp;and as businesses reduce their energy utilization.</p> <p>Limiting crude oil supply to inflate oil prices is a&nbsp;sharp reversal of previous U.S. policy. As recently as <a href="https://www.nytimes.com/2019/09/17/business/economy/oil-prices.html">last September</a> experts worried of the damage that <em>high</em> oil prices would cause the U.S.&nbsp;economy, and the U.S. has a&nbsp;<a href="https://energyeducation.ca/encyclopedia/Oil_crisis_of_the_1970s">historically antagonistic relationship</a> with OPEC. Current worry over <em>low </em>prices is, at a&nbsp;minimum, surprising.</p> <p>So why the change of heart? A&nbsp;glance at the <a href="https://www.barchart.com/stocks/quotes/$SREN/interactive-chart">S&amp;P 500 Energy Sector</a> tells part of the story. From January 1&nbsp;to March 18 the index dropped by 60 percent. Markets have rebounded somewhat since then but still remain at barely half their six‐​month high.</p> <p>The other part of the story is crony capitalism: after the oil sector lobbied for&nbsp;<a href="https://www.rollcall.com/2020/03/25/oil-purchase-to-fill-strategic-reserve-dropped-from-stimulus/">but failed to get</a>&nbsp;$3 billion in stimulus funding,&nbsp;<a href="https://www.npr.org/2020/03/14/815039722/trump-steps-in-to-help-oil-industry-facing-its-own-coronavirus-crisis">P</a><a href="https://www.cato.org/www.npr.org/2020/03/14/815039722/trump-steps-in-to-help-oil-industry-facing-its-own-coronavirus-crisis">resident Trump</a>&nbsp;directed the Department of Energy to make purchases to fill the strategic petroleum reserve anyway. More explicitly, <a href="https://www.voanews.com/economy-business/trump-expects-deal-oil-production-lift-prices-help-energy-industry">he said</a>, “[Russian President Vladimir Putin, Saudi Arabian King Salman, and I] had a&nbsp;big talk as to oil production and OPEC and making it so that our industry does well and the oil industry does better than it’s doing right now.” Later he directly acknowledged the change of heart, <a href="https://fortune.com/2020/04/14/trump-oil-deal-inside-story-saudi-arabia-russia-price-war-ended/">saying</a>, “I hated OPEC. You want to know the truth? I&nbsp;hated it — because it was a&nbsp;fix. But somewhere along the line that broke down.”</p> <p>Yet trying to raise oil prices is insane economic policy. Lower prices are bad for sellers but good for consumers and non‐​oil‐​producing businesses. Thus the dramatic drop in oil prices over the past two months is one of the few silver linings in the current economic situation.</p> <p>At best, the oil deal will temporarily prop up the struggling U.S. energy sector. At worst, it will enrich oil companies and their shareholders at the expense of struggling Americans. The U.S. has criticized OPEC’s manipulation of oil prices for decades, but now we are complicit.</p> Tue, 14 Apr 2020 10:59:21 -0400Jeffrey Miron, Erin Partinhttps://www.cato.org/blog/are-low-oil-prices-badU.S.-China Tech Battle Threatens Pandemic Containment and Morehttps://www.cato.org/blog/us-china-tech-battle-threatens-pandemic-containment-more <p><a href="https://www.cato.org/people/daniel-ikenson" hreflang="und">Daniel J. Ikenson</a> and <a href="https://www.cato.org/people/huan-zhu" hreflang="und">Huan Zhu</a></p> <p><em><a href="https://www.reuters.com/article/us-usa-china-technology-exclusive/exclusive-u-s-officials-agree-on-new-ways-to-control-high-tech-exports-to-china-sources-idUSKBN21K007">Reuters</a></em> reports that the Trump administration is planning to tighten export controls “to prevent China from obtaining advanced U.S. technology for commercial purposes and then diverting it to military use.” That sounds unobjectionable. After all, one purpose of U.S. export control laws is to ensure that dual‐​use items—articles that have both commercial and military applications—are exported for commercial use only, unless explicitly licensed for military use. But closer scrutiny of the fine print is needed to assess whether the expected national security benefits of these new rules will be significantly outweighed by their commercial, geopolitical, and human costs.</p> <p>The Export Control Reform Act of 2018 (“ECRA”) grants the administration broad jurisdiction over “the export, reexport, and in‐​country transfer” of dual‐​use items, such as “accelerometers,” which are devices that measure the movement of objects and are used in commercial aircraft navigation systems, as well as in missile guidance systems. The ECRA requires the secretary of commerce to establish and maintain a&nbsp;list of controlled items, and a&nbsp;list of foreign persons and end uses deemed threatening to national security.</p> <p>Under the law, licenses are required to export those items and to export to those persons, but exceptions apply under certain conditions. Some of those exceptions are on the chopping block. According to <a href="https://www.reuters.com/article/us-usa-china-technology-exclusive/exclusive-u-s-officials-agree-on-new-ways-to-control-high-tech-exports-to-china-sources-idUSKBN21K007"><em>Reuters</em></a>, three major changes are in store:</p> <blockquote><p><span>One change would do away with the civilian or “civ” exemption, which allows for the export of certain U.S. technology without a&nbsp;license, if it is for a&nbsp;non‐​military entity and use…</span> <span>Another change would stop China’s military from obtaining certain items without a&nbsp;license even if they were buying them for civilian use, such as scientific equipment like digital oscilloscopes, airplane engines and certain types of computers…A final change would force foreign companies shipping certain American goods to China to seek approval not only from their own governments but from the U.S. government as well.</span></p> </blockquote> <p>Forestalling the Chinese military’s access to advanced technology seems like a&nbsp;legitimate aim of U.S. policy, and the first two rule changes identified above might help achieve that outcome at an acceptable cost. It seems reasonable that U.S. exporters of certain advanced technology to non‐​military entities in China should require licenses so that elicit channels of technology transfer can be better monitored and shut down. Likewise, given Beijing’s own blurring of lines between military and civilian activities—President Xi speaks of a “civil‐​military” fusion in the area of technology adoption—why should that distinction be preserved under U.S. export control laws?</p> <p>It’s prudent to require U.S. exporters of dual‐​use items to the Chinese military to have a&nbsp;license—even when those items are designated for civilian use. Of course, those changes would make exporting to China more burdensome. But most of the added costs would be borne by the parties to the transaction—U.S. exporters and Chinese importers—and would probably justify the national security benefit obtained.</p> <p>The last measure (or set of measures) under consideration, however, is problematic because it is less surgical than the others and threatens collateral damage to the technology ecosystem, U.S. commercial interests, broader relations with China and other countries, and international efforts to contain and defeat a&nbsp;global pandemic.</p> <p>U.S. export controls apply directly to products made in the United States, but also extra‐​territorially to products made in third countries with “controlled” U.S. equipment, which contain a&nbsp;certain minimum percentage of controlled U.S. content. Exporters of these products from third countries require U.S. approval. The new rule would lower (and maybe eliminate) the content threshold so that licenses would be required by more&nbsp;producers&nbsp;in third countries, including all foreign companies producing semiconductors with U.S. chip‐​making equipment that are sold to China’s Huawei Technologies.</p> <p>Sales of U.S.-made goods to Huawei have been restricted since last May, when the company was put on a&nbsp;Commerce Department <a href="https://www.cato.org/publications/commentary/blacklisting-huawei-could-cost-trillions-so-lets-look-we-leap">blacklist</a> for reasons of national security. But up until now, foreign suppliers of U.S. technology to Huawei have been beyond the full reach of U.S. authorities. The new rule would extend that reach, giving the U.S. government veto power over sales of even basic commodity semiconductors to Huawei from producers in Taiwan, South Korea, and elsewhere, wreaking havoc, in the near term, on Huawei’s capacity to plan, produce, and profit.</p> <p>It isn’t hard to believe these new rules are intended primarily to thwart Huawei’s success—an objective many policymakers in Washington seem to support. But before pulling the pin, the administration should solicit stakeholder feedback and conduct an honest analysis of the likely costs and broader impact of the rule changes on the technology ecosystem, which includes industries up and down the supply chain from companies doing research to commercial innovation to semiconductor manufacturing to the production of everything called information and communications technology.</p> <p>What might they learn? The following, if this U.S. technology industry <a href="https://www.semiconductors.org/wp-content/uploads/2020/04/April-6-Multi-Assn-Letter.pdf">coalition letter</a> is a&nbsp;guide:</p> <blockquote><p>Abrupt changes to the export controls regulations for semiconductors will create uncertainty for the entire technology industry. Semiconductors are the foundation of modern electronics, information technology, cloud services, critical infrastructure and the defense industrial base. In addition to playing a&nbsp;critical role in sectors throughout the economy, semiconductors play an essential role addressing the COVID-19 public health emergency. Semiconductors drive the functionality in advanced medical equipment used by health professionals to treat the public, and they enable the products and services that allow telework, remote learning, telemedicine, and other aspects of our economy and daily life. Semiconductors will also play a&nbsp;pivotal role in driving the industries of the future and the economic recovery once the public health emergency is defeated.</p> </blockquote> <blockquote><p>Changes to the export control regulations under consideration have the potential to result in significant impacts on the semiconductor industry, its global supply chain, and the broader technology sector that relies on predictable access to semiconductors. Given the importance of this industry – and in light of the unprecedented public health crisis and economic disruption – it is imperative that any regulatory changes be narrowly tailored and minimize damage to industry. Subjecting such regulatory changes to public comment would help ensure that Commerce benefits from the industry’s views and avoids unintentionally exacerbating an already difficult economic situation.</p> </blockquote> <p>A letter to President Trump by the president of SEMI, an association representing&nbsp;the semiconductor and electronics manufacturing supply chain, warned that the new rules would “serve as a&nbsp;disincentive for further investments and innovation in the U.S. and lead to the design‐​out of U.S. technology and components.” Indeed, companies such as Taiwan Semiconductor Manufacturing Corporation, a&nbsp;long‐​time consumer of U.S. chip‐​making equipment and the world’s largest producer of commercial chips, which obtains 17 percent of its revenue from sales in China, will look to other countries for their capital equipment needs.</p> <p>Likewise, the move would encourage China to expedite&nbsp;development of its own chip‐​making capacity and to source more semiconductors from South Korea, which would&nbsp;hasten a&nbsp;decline in revenues and market shares&nbsp;of&nbsp;U.S. chip&nbsp;and chip‐​making equipment firms.&nbsp;The damage to U.S. commercial interests would go beyond the semiconductor supply chain, as Beijing looked to deploy retaliatory measures to frustrate the efforts of&nbsp;U.S. businesses in China and elsewhere.&nbsp;Ultimately,&nbsp;disruptions in semiconductor supply chains could impede&nbsp;production and increase the costs of various kinds of smart medical equipment and devices relied upon by health professionals in the battle against COVID-19&nbsp;and other diseases.&nbsp;</p> <p>Controlling exports of cutting‐​edge technologies that have military or intelligence applications is probably a&nbsp;prudent aim of policy. But the new export controls go beyond that and seem unnecessarily provocative, especially during a&nbsp;time when U.S.-China cooperation&nbsp;is sorely needed. Most concerning is&nbsp;that the accumulated&nbsp;weight of the measures and countermeasures that have burdened relations&nbsp;for several years may soon prove too hard to bear, resulting in a&nbsp;total collapse in the bilateral relationship. The specter of the world’s two largest economies refusing to cooperate to contain the pandemic and repair the global economy is a&nbsp;worry to take very seriously.</p> Mon, 13 Apr 2020 19:16:30 -0400Daniel J. Ikenson, Huan Zhuhttps://www.cato.org/blog/us-china-tech-battle-threatens-pandemic-containment-moreSenators Harris and Warren’s Price Is Wronghttps://www.cato.org/blog/senators-harris-warrens-price-wrong <p><a href="https://www.cato.org/people/ryan-bourne" hreflang="und">Ryan Bourne</a></p> <p><span>Plenty of evidence suggests Americans have gotten worse at correctly estimating market prices over the past five decades. Reviewing the history of the one‐​bid “Contestant’s Row” game on The Price Is Right since 1972, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3469008">economist Jonathan Hartley found</a> that contestants’ underestimates of prices have gotten larger over time. One potential cause, Hartley mused, was that new technologies, such as price comparison websites, mean people have less need to track closely nowadays. So we pay less attention to prices and how they change.</span></p> <p><span>Which is curious, because, as this pandemic rolls on, lots of the public and politicians suddenly find themselves not just experts in what market prices are, but also what they should be. <a href="https://twitter.com/johnforva/status/1249692890181382145?s=20">By all accounts</a>, the Virginia Attorney General’s office has received more than 400 complaints about “price‐​gouging” during the pandemic – that is, instances where prices for “necessary goods and services” have been deemed by members of the public to be much higher than prior to the emergency. Twitter is full of complaints about prices being charged for hand sanitizer and masks, but also entertainment goods, with anger at Nintendo Switches being sold for as much as $900.</span></p> <p><span>Lots of states already have anti‐​price gouging laws for emergency situations. But with stories about packets of Purrell Hand Sanitizers, usually around $10–12, selling for as much $350, national politicians are now keen to step in. Congressman Jerrold Nadler (D-NY) and colleagues in the House want <a href="https://judiciary.house.gov/news/documentsingle.aspx?DocumentID=2909">a&nbsp;nationwide anti‐​price gouging law</a> giving the Federal Trade Commission powers to punish companies if their product price today “grossly exceeds” either the price at the end of last year, their competitors’ prices, or a&nbsp;price sufficient to account for any increased costs the business faces. Democratic Senators Kamala Harris and Elizabeth Warren, meanwhile, want <a href="https://www.cnbc.com/2020/04/10/coronavirus-price-gouging-bill-from-warren-fights-price-gouging.html">a&nbsp;national law</a> that bans price increases of more than 10 percent during national emergencies.</span></p> <p><span>The implicit message of such proposed laws is clear: market prices set prior to emergencies are good, fair and reasonable; market‐​set prices after the onset of one are bad, unfair and unreasonable. At least, that is, if they go up significantly. When prices plunge, as they have for flights, restaurant food, and clothing during this crisis, nobody seems to believe that consumers are gouging or swindling companies. Our politicians have very asymmetric thinking.</span></p> <p><span>It is as if lawmakers such as Warren and Harris believe supply and demand cease to play a&nbsp;role in determining prices once a&nbsp;government emergency is declared. That changes in prices after that point cannot possibly reflect major changes in the availability or want and need for the goods but are completely determined by greedy companies or hoarders fixing prices in pursuit of a&nbsp;quick buck or to account for changing costs. That assumption shows a&nbsp;fundamental misunderstanding about what prices are and why they change. </span></p> <p><span>Such thinking is especially misguided during COVID-19, of course, because shutdowns and changed consumer behaviors have seen dramatic shifts in supply and demand across many sectors. In some states, for example, governors have banned the sale of “nonessential” items, such as seeds for growing plants, within supermarkets. More importantly, in light of the virus itself, consumers want (or in some cases need) more masks and hand sanitizers to protect themselves. This surge in demand is the primary cause of apparent near‐​term “shortages” in stores, but also the reason why some sellers are able to charge much higher prices online.</span></p> <p><span>Ordinarily, market prices would rise in light of such increased demand. This would discourage some purchasers from overbuying and encourage sellers or hoarders to bring more supply to serve the market. Overall sales would rise but, importantly, over time, the greater profitability from selling, say, face masks, would encourage other potential new suppliers to enter the market and ramp up production too. The higher prices, in other words, would encourage more face masks than there otherwise would be, at least after a&nbsp;while. This could be particularly important if this crisis rolls on for months and months.</span></p> <p><span>Now, in reality, some major retailers <a href="https://www.cato.org/blog/coronavirus-anti-price-gouging-madness">do not like the reputational damage</a> that comes with seeing prices of important goods rise in the middle of a&nbsp;pandemic. So, they keep them artificially low, sometimes even discounting the products. Hence why shelves lay empty in major stores and why, increasingly, we see small sellers able to charge extremely high prices to people who really value the products in the online market. Warren and Harris may wish this away, but these prices reflect the new reality of supply and demand – remember, to charge a&nbsp;high price, you have to have willing buyers.</span></p> <p><span>By imposing anti‐​price gouging laws then, Warren and Harris aim to quash this escape valve through the force of law. The result will be greater shortages and sustained empty shelves in situations where new demand would have pushed market prices up by more than 10 percent. Instead, goods will be allocated not by willingness to pay, but to those in the right place at the right time. Hoarding will be encouraged. And most worryingly: fewer new entrepreneurs will serve the market or think about developing systems for&nbsp;</span><span><a href="https://marginalrevolution.com/marginalrevolution/2012/10/price-gouging-and-the-elasticity-of-supply.html">“option ready supply”</a> ahead of any similar future crisis. </span></p> <p><span>In the Price is Right game, of course, contestants win if they make the closest guess to the real price, without going a&nbsp;cent over. Warren and Harris, in effect, want to tell us that anything up to 10 percent above a&nbsp;pre‐​crisis price is a “real” price and anything above that during a&nbsp;crisis is illegitimate. This arbitrary approach has <a href="http://www.igmchicago.org/surveys/price-gouging/">no basis in economics</a> and could do real harm to the ongoing availability of highly demanded goods.</span></p> Mon, 13 Apr 2020 16:51:04 -0400Ryan Bournehttps://www.cato.org/blog/senators-harris-warrens-price-wrongRegulation after COVID-19https://www.cato.org/blog/regulation-after-covid-19 <p><a href="https://www.cato.org/people/thomas-firey" hreflang="und">Thomas A. Firey</a></p> <p>One of the better policy responses to the COVID-19 emergency has been federal and state governments suspending regulations that impede the market from responding to consumer demand. Many of these suspensions concern health care specifically, from loosening regulations on <a href="https://www.statnews.com/pharmalot/2020/03/16/fda-coronavirus-labcorp-hologic-covid19/">medical testing</a> to permitting certified health care workers to <a href="https://www.phe.gov/emergency/news/healthactions/section1135/Pages/covid19-13March20.aspx">work across state lines</a>, to permitting <a href="https://www.politico.com/news/2020/03/13/4-things-to-know-about-trumps-emergency-plan-on-coronavirus-128963">telemedicine</a>. Others help the economy generally, like easing limits on <a href="https://www.businessinsider.com/coronavirus-trucking-truck-driver-hours-of-service-suspended-2020-3">freight trucking</a>.</p> <p>A lot more can be done—and will need to be done if the United States is to ease <a href="https://thebulwark.com/its-the-supply-shock-stupid/">the coming supply shock</a> from the disease. Here at Cato, we have plenty of recommendations: Peter Van Doren and I&nbsp;offer some <a href="https://www.cato.org/blog/coronavirus-regulation">here</a>, Jeff Singer does <a href="https://www.cato.org/blog/epidemic-red-tape">here</a>, and Chris Edwards does <a href="https://www.cato.org/blog/slashing-regulations-combat-coronavirus">here</a>. Plenty more come from other Cato departments like <a href="https://www.cato.org/blog/protectionism-kills">trade</a> and <a href="https://www.cato.org/blog/immigrants-aid-america-during-covid-19-crisis">immigration</a>.</p> <p>Many of these regulations have no sound public justification whether in or outside of an emergency. Rather, they are sops to various special interests, often to protect industries from competition. Our friends at the Competitive Enterprise Institute have created a&nbsp;jazzy hashtag for these regulations: <a href="https://twitter.com/search?q=%23NeverNeeded&amp;src=typeahead_click&amp;f=live">#neverneeded</a>.</p> <p>So, after the COVID-19 emergency eases, what will become of the suspensions? If they help people in an emergency, why not keep them suspended and help people generally?</p> <p>A Congress member’s office&nbsp;recently reached out to Cato for some thoughts on this. The temptation is to draft legislation saying that all regulations temporarily suspended for the COVID-19 emergency should become permanently suspended. However, there are some problems with that idea, including: (1) such a “shotgun” approach probably isn’t politically viable, (2) the suspensions are, in some cases, highly complex, and making them permanent will have unintended consequences, and (3) such a&nbsp;proposal might discourage policymakers from adopting further suspensions. Besides, some decisions that are wise in a&nbsp;crisis are foolish in more ordinary times.</p> <p>We suggested that, instead of a&nbsp;blanket suspension, the federal government borrow some of the regulatory review policies used by states, including creating sunset review committees that must examine and re‐​approve the suspended regulations before they can continue. We recommended two recent <em>Regulation</em> articles on these review policies, <a href="https://www.cato.org/regulation/spring-2020/nondelegation-delegators">this one</a> that discusses sunset commissions specifically, and <a href="https://www.cato.org/sites/cato.org/files/serials/files/regulation/2016/4/regulation-v39n1-7.pdf">this one</a> on broader regulatory review mechanisms.</p> <p>I’ve been working in regulatory policy for 20&nbsp;years now, and almost every day I&nbsp;learn something new that amuses, amazes or angers me. As dry as regulatory policy may sound, it is an amazing repository of history, politics, and economics. If you’d like a&nbsp;crash‐​course in regulatory policy, Peter has assembled <a href="https://www.cato.org/research/regulatory-studies/rl-regulatory-studies.html">a&nbsp;terrific reading list</a> that opens with a&nbsp;few overview articles and then dives into specific policy areas. You can become a&nbsp;regulatory expert!</p> Mon, 13 Apr 2020 16:46:15 -0400Thomas A. Fireyhttps://www.cato.org/blog/regulation-after-covid-19Charity Rises to the Occasion amid the Pandemichttps://www.cato.org/blog/charity-rises-occasion-amid-pandemic <p><a href="https://www.cato.org/people/chelsea-follett" hreflang="und">Chelsea Follett</a></p> <p>If you need a&nbsp;ray of sunlight in these dark times, consider the magnitude of the human capacity for charity and voluntary action as we help one another through a&nbsp;time of crisis. Individuals, private organizations and businesses across the United States have stepped forward to offer assistance to those in need amid the novel coronavirus emergency. Voluntary cooperation and compassion are proving to be some of the most potent weapons we have in tackling the pandemic.</p> <p>Technology and social media have allowed for better coordination of charitable efforts and volunteer work. Across America, online groups have popped up to help people exchange needed supplies, information related to the virus and to arrange volunteer work. For example, in my own local area, the “<a href="https://www.facebook.com/groups/DMVCOVID19GroceryGetters" target="_blank">DC‐​Area COVID-19 Grocery Getters</a>” Facebook group helps to coordinate volunteers to deliver groceries for elderly or immuno‐​compromised individuals.</p> <p>Similar groups offer free online tutoring to help students learn remotely or arrange for volunteers to <a href="https://wbng.com/2020/04/03/hospital-heroes-volunteers-deliver-meals-to-hospital-staff-amid-covid-19/" target="_blank">deliver</a> meals, which are donated by restaurants, to hospital workers. One innovative online group <a href="https://www.cnn.com/2020/04/01/us/coronavirus-rvs-4-mds-healthcare-isolate-trnd/index.html" target="_blank">matches</a> owners of RV trailers that are sitting idle with healthcare workers who need a&nbsp;place to self‐​isolate after long hospital shifts so they don’t infect vulnerable family members. And hundreds of thousands of volunteers are <a href="https://www.sciencenews.org/article/coronavirus-covid-19-proteins-super-computer-fight-pandemic" target="_blank">donating</a> their computers’ spare power toward virus research through projects like “Folding at Home.”</p> <p>Many individuals have donated face masks and other supplies to medical workers while volunteer groups have also emerged to coordinate the making of new masks for donation by using 3D printers or by sewing. Such generosity is not limited to individuals. Organizations ranging from the Washington National Cathedral operated by the Episcopal Church to the financial services company Goldman Sachs have <a href="https://www.nytimes.com/2020/03/26/us/national-cathedral-masks-donation-coronavirus.html" target="_blank">donated</a> troves of N95 masks from their own supply closets to help address the shortage of such masks among medical professionals.</p> <p>Before many locales issued stay‐​at‐​home orders, various organizations and businesses were already encouraging social distancing. Many places of worship had already ceased in‐​person services out of an abundance of caution and moved their services online. Similarly, many employers were already encouraging their employees to work remotely.</p> <p>Many businesses are stepping up to help not just their employees, but the most vulnerable among us. They do so on a&nbsp;voluntary basis. The U.S. Federal Emergency Management Agency administrator Pete Gaynor <a href="https://twitter.com/CNNPolitics/status/1241717028731453441" target="_blank">noted</a> that it has not been necessary to fully enforce the Defense Production Act because companies have been voluntarily manufacturing masks, ventilators and other critical supplies for donation.</p> <p>National Public Radio reported that even before the Trump administration encouraged non‐​medical companies to produce medical supplies, the latter <a href="https://www.npr.org/sections/coronavirus-live-updates/2020/03/22/819831024/trump-urges-car-companies-to-make-ventilators-without-imposing-defense-productio" target="_blank">already</a> had partnerships with medical companies lined up. Businesses ranging from the automotive maker <a href="https://www.wsj.com/livecoverage/coronavirus/card/aJOn83OOfEMFmqMmMmFS" target="_blank">Ford</a> to the clothing company <a href="https://www.nationalreview.com/news/brooks-brothers-repurposes-factories-to-produce-150000-masks-daily/" target="_blank">Brooks Brothers</a> are now making medical supplies. Tesla CEO Elon Musk has <a href="https://www.yahoo.com/news/tesla-ceo-elon-musk-york-044151071.html" target="_blank">vowed</a> to manufacture ventilators, <a href="https://qz.com/1828743/virgin-orbit-will-build-ventilators-to-fight-coronavirus/" target="_blank">as will</a> Richard Branson’s Virgin Orbit, a&nbsp;company that normally makes rockets.</p> <p>Many non‐​manufacturing businesses are also <a href="https://amp.usatoday.com/amp/2882861001" target="_blank">doing their part</a> amid the pandemic, for example by helping students. Zoom has given schools free versions of its teleconferencing software to aid remote learning, while AT&amp;T, Verizon and Comcast are offering free Wi‐​Fi to students who lack internet access so that their studies won’t be interrupted. Online education platform Coursera made its courses free to universities, and Scholastic has launched a “Learn at Home” website with many free tools for new homeschoolers.</p> <p>Most major grocery stores have instituted seniors‐​only shopping hours for the elderly, who are among the groups most vulnerable to COVID-19, to reduce the seniors’ exposure risk. Numerous restaurants <a href="https://www.theguardian.com/commentisfree/2020/mar/22/restaurants-coronavirus-deliveries-discounts-self-isolation" target="_blank">have</a> created discounts or waived delivery fees to serve those in quarantine at home.</p> <p>Philanthropists have also been generous in providing funding for efforts to combat the novel coronavirus. Billionaires such as Bill Gates, Jack Ma, Jeff Bezos, Mark Zuckerberg, Ralph Lauren, Giorgio Armani&nbsp;and Oprah Winfrey are <a href="https://www.barrons.com/articles/business-executives-offer-large-donations-to-fight-covid-19-01585776936" target="_blank">pouring</a> their fortunes into research on COVID-19 treatment and prevention, heightened medical center capacity, and long‐​term pandemic preparedness. The George Mason University economist Tyler Cowen’s $1 million <a href="https://marginalrevolution.com/marginalrevolution/2020/03/1-million-plus-in-emergent-ventures-prizes-for-coronavirus-work.html" target="_blank">prize</a>, which rewards various breakthrough developments in combatting COVID-19, provides another example of increased philanthropic efforts in the face of the pandemic.</p> <p>In some cases, the human inclination toward charity is unfortunately hampered by over‐​regulation. While the government has, fortunately, recently <a href="https://www.nbcnews.com/feature/nbc-out/fda-reduces-restrictions-gay-blood-donors-amid-urgent-need-n1175141" target="_blank">loosened</a> outdated restrictions on who can donate blood, some other charity‐​hampering laws still remain in place.</p> <p>Food banks, for example, are <a href="https://www.washingtonpost.com/politics/food-banks-sought-relaxed-federal-rules-to-minimize-contact-the-usda-has-stalled-those-requests-officials-say/2020/03/31/0239a26e-733b-11ea-a9bd-9f8b593300d0_story.html" target="_blank">pleading</a> with the government to relax certain regulations that prevent them from operating with safe social distancing. Under the current rules, volunteers giving out emergency food supplies are legally required to collect information from the supplies’ recipients through extensive interviews that are difficult to conduct from the recommended distance of six feet away. Despite such unfortunate red tape, people continue to find ways to help one another.</p> <p>The COVID-19 outbreak has many people feeling hopeless, and so it is more important than ever to draw attention to the ways in which individuals and organizations are tackling the crisis through volunteering, donations and other forms of kindness and solidarity.</p> <p><em>This was <a href="https://humanprogress.org/article.php?p=2593">cross‐​posted</a> on Human​Progress​.org.</em></p> Mon, 13 Apr 2020 16:39:20 -0400Chelsea Folletthttps://www.cato.org/blog/charity-rises-occasion-amid-pandemicNo Relationship Between Notifiable Diseases and Immigrant Populationshttps://www.cato.org/blog/no-relationship-between-notifiable-diseases-immigrant-populations <p><a href="https://www.cato.org/people/alex-nowrasteh" hreflang="und">Alex Nowrasteh</a> and <a href="https://www.cato.org/people/andrew-forrester" hreflang="und">Andrew C. Forrester</a></p> <p>The international spread of the SARS‐​CoV‐​2 virus that causes the disease COVID-19 has prompted many governments to close their borders. Immigration policy plays an important role in limiting the international spread of contagious diseases.</p> <p>Prior to the COVID-19 crisis, <a href="https://www.snopes.com/fact-check/immigrants-measles/">several commentators</a> were concerned that immigrants – especially illegal immigrants – were spreading serious diseases in the United States. This blog post is the first in a series to answer the question of whether immigrants spread serious notifiable diseases other than COVID-19 in the United States. This post focuses on all pooled notifiable diseases for which there are vaccination requirements to enter the United States.</p> <p><strong>Methods</strong></p> <p>This post tests the correlation between the incidence of <a href="https://www.cdc.gov/mmwr/mmwr_nd/">notifiable diseases</a> and immigrant population shares on the state level for the 2010–2018 period. We use annual, state‐​level data on notifiable disease cases from the CDC’s <a href="https://wwwn.cdc.gov/nndss/">National Notifiable Diseases Surveillance System</a> (NNDSS), which reports the number of nationally notifiable infectious diseases and conditions by state and year. A notifiable disease is one where the CDC <a href="https://www.sciencedirect.com/topics/social-sciences/communicable-disease">states</a> that “regular, frequent, and timely information regarding individual cases is considered necessary for the prevention and control of the disease.”</p> <p>Numerous diseases are reported to the CDC, but this post focuses on diseases that the <a href="https://www.uscis.gov/policy-manual/volume-8-part-b-chapter-9">U.S. Citizenship and Immigration Services</a> (USCIS) and CDC require vaccination for prior to immigration. USCIS requires vaccination for mumps, measles, rubella, polio, tetanus, diphtheria toxoids, pertussis, haemophilius influenza type B, and hepatitis B. The CDC requires vaccination for hepatitis B, varicella, seasonal influenza, pneumococcal pneumonia, rotavirus, hepatitis A, and meningococcal disease.<br /><br /> Data for the foreign‐​born population on the state‐​level comes from the American Community Survey (ACS) provided by <a href="https://usa.ipums.org/usa/">IPUMS</a>. From the raw ACS microdata, we can identify immigrants by their nativity, citizenship status, and year of arrival. A further strength of the ACS microdata is that we can apply statistical techniques to identify likely illegal immigrants from observed characteristics in the data. Specifically, we use the residual technique of <a href="https://academic.oup.com/oep/advance-article-abstract/doi/10.1093/oep/gpz057/5572162?redirectedFrom=fulltext">Christian Gunadi</a> to identify illegal immigrants.</p> <p><strong>Results</strong></p> <p>To test whether states with higher immigrant shares experience higher rates of notifiable disease, we run a two‐​way fixed effects regression to estimate the correlation between the rate of disease per 100,000 population and the share of immigrants in a state. The regressions use state and year fixed effects and the standard errors are clustered at the state level.</p> <p>Table 1 shows the results of the regressions. They are all statistically insignificant except a 1 percent increase in the share of a state’s legal immigrant population is correlated with 4.2 fewer cases of disease per 100,000 state residents, which is significant at the 5 percent level. There is no relationship between the share of a state’s population that is foreign‐​born and the rate of disease per 100,000 residents. There is also no relationship between the illegal immigrant share of a state’s population and the rate of disease per 100,000 residents.</p> <p>Figure 1 shows the lack of a relationship between the immigrant share of the population and the incidence of these diseases on the state level. Figure 2 shows no relationship between the illegal immigrant share of state populations and the incidence of these reportable diseases.</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="a4465c16-740a-4a67-b424-971aa337e651" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="2e181361-1b43-4080-b381-458a9b322f8f" data-type="interactive" data-title="Figure 1: Disease Rates and All Immigrants"></div> </div> </div> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="f40df532-0442-41fa-ac95-cbd7cb2a5000" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="e807be2b-7219-455d-ae48-229e91d70dd5" data-type="interactive" data-title="Figure 2: Disease Rate and Illegal Immigrants"></div> </div> </div> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="d7a4ac59-8f5b-45fd-b84b-bc66edea1cd2" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="51543289-431c-45ae-b125-9b549731168d" data-type="interactive" data-title="Table 1: Immigration and Disease: Main Diseases"></div> </div> </div> </p> Mon, 13 Apr 2020 14:56:19 -0400Alex Nowrasteh, Andrew C. Forresterhttps://www.cato.org/blog/no-relationship-between-notifiable-diseases-immigrant-populationsPrivate Schools Face an Existential Threathttps://www.cato.org/blog/private-schools-face-existential-threat <p><a href="https://www.cato.org/people/neal-mccluskey" hreflang="und">Neal McCluskey</a></p> <p><span>Even in terrific economic times, we hear the drumbeat that public schools are <a href="https://www.educationdive.com/news/schools-increasingly-underfunded-as-state-funding-demand-grows-study-finds/560757/">underfunded</a>. When there are downturns it gets even louder – in the Great Recession we heard a lot about “<a href="https://fordhaminstitute.org/national/commentary/cutting-bone-how-economic-crisis-affects-schools">cutting to the bone</a>.” But public schools do not tend to face the harshest consequences of bad economic times. Private schools do.</span></p> <p><span>Private schools start behind the eight ball no matter what the economic conditions because they are competing against public institutions that get massive subsidies from taxpayers and are free from the perspective of consumers. </span></p> <p><span>It is, of course, extremely difficult to compete against “free” because you have to not only be worth the price you charge, but also roughly the amount of spending going to the “free” option. With public schools on average spending <a href="https://nces.ed.gov/programs/digest/d19/tables/dt19_236.55.asp?current=yes">$15,424 per student</a> as of the 2016–17 school year (the latest with available federal data) that is tough.</span></p> <p><span>That competition becomes even more daunting when economic times are hard and families have less money for everything. During such times public schools see reductions in their funding—in the 2008-09 academic year public schools spent $15,377 in 2018 dollars, which dropped to $14,077 in 2012–13—but they rarely face extinction. Not so private schools.</span></p> <p><span>How have <a href="https://www.investopedia.com/articles/economics/08/past-recessions.asp">recent</a> <a href="https://www.investopedia.com/terms/g/great-recession.asp">recessions</a> looked?</span></p> <p><span>July 1990 to March 1991 saw the Gulf War Recession, which was relatively mild—a 1.5% GDP decline—and as seen below, private school enrollment dipped between 1993 and 1995, maybe as an after effect of the recession, maybe not. In the chart below that, you can see the private share of enrollment fell during the recession. Unfortunately, we have poor data on school closures for that period because the federal government changed how it counts private schools after 1990.</span></p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="982786c3-8b0c-408e-a3a6-18fc0e7900f6" class="align-center embedded-entity" data-langcode="en"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-04/Pvt%20Enroll%20Recessions_0.png?itok=KAJX2J_g 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-04/Pvt%20Enroll%20Recessions_0.png?itok=TJlSzauv 1.5x" width="700" height="507" src="/sites/cato.org/files/styles/pubs/public/2020-04/Pvt%20Enroll%20Recessions_0.png?itok=KAJX2J_g" alt="Private school enrollment 1990-2016" typeof="Image" class="component-image" /></div> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="13cccb09-df8e-4762-80ee-5fb6a7e9f618" class="align-center embedded-entity" data-langcode="en"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-04/Pvt%20Share%20Recessions_1.png?itok=OdUsflXJ 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-04/Pvt%20Share%20Recessions_1.png?itok=SfiSrRI5 1.5x" width="700" height="507" src="/sites/cato.org/files/styles/pubs/public/2020-04/Pvt%20Share%20Recessions_1.png?itok=OdUsflXJ" alt="Private school enrollment share 1990-2016" typeof="Image" class="component-image" /></div> <p><span>From March 2001 to November 2001, we experienced the 9/11 Recession, though it perhaps had more to do with problems such as the bursting of the <a href="https://www.investopedia.com/terms/d/dotcom-bubble.asp">Dotcom bubble</a> than the 9/11 attacks. It, too, was mild, with a 0.3% GDP decline. But a very long period of falling private school enrollment began in 2001.</span></p> <p><span>That decline did not cease until 2011 and includes the Great Recession, which saw a 3.1% drop in GDP between December 2007 and June 2009. Between 2001 and 2011 private school enrollment fell from 6,320,000 to 5,268,000, a 17 percent drop, with an especially deep spill coinciding with the Great Recession. It also coincided with a <a href="https://nces.ed.gov/fastfacts/display.asp?id=84">major drop in private schools</a>, from 35,054 in 2005-06, to 30,861 in 2011-12, or a 12 percent loss. </span></p> <p><span>Public school enrollment changes over time, too. Was declining private enrollment between 2001 and 2011 just a function of drops in the overall school‐​aged population? No. The private share of K-12 students fell from a 2001 peak of 11.7 percent to just 9.6 percent in 2011 – a big drop. The private share has only clawed back over the 10 percent mark in very recent years.</span></p> <p><span>Of course, other things have happened since 2001, including the Catholic clergy abuse scandal. And the loss of students has been most visible in Catholic schools. But that is not the only private segment to lose students—it happened <a href="https://nces.ed.gov/programs/digest/d19/tables/dt19_205.20.asp?current=yes">across private school types</a> between 2001 and 2011.</span></p> <p><span>If the COVID-19 recession is as bad as some fear—possibly even a <a href="https://www.vox.com/2020/3/23/21188900/coronavirus-stock-market-recession-depression-trump-jobs-unemployment">depression</a>—it could spell doom for thousands of private schools, institutions that furnish a crucial form of education: something <em>different</em> from what public schools provide. It can be different pedagogy. Different rules. Religious education. If we lose private schools, we lose the schooling sector that furnishes the education most important for a diverse—and truly equal—society: education serving people who lack the political power to make government schools teach what <em>they</em> want.</span></p> <p><span>Recognizing the threat to pluralistic education posed by the economic destruction of COVID-19, education analyst <a href="https://www.the74million.org/article/bradford-13b-in-stimulus-money-for-k-12-schools-is-a-good-start-but-all-types-of-schools-will-need-more-help-from-the-feds-in-order-to-reopen/">Derrell Bradford recently called for</a> all schools—traditional public, charter, and private—to be included equally in any government relief that may be coming down the pike. While the specifics of such relief will need to be heavily scrutinized, the general principle is spot‐​on: relief should <em>in no way be restricted to public schools</em>, since <a href="https://thejournal.com/articles/2020/03/17/list-of-states-shutting-down-all-their-schools-grows-to-36.aspx">all schools have been ordered closed</a> and all will suffer the consequences of an economic downturn. </span></p> <p><span>In addition to government aid—and maybe primarily—hopefully philanthropists and charitable organizations will look to help private schools. Many such schools serve far‐​from‐​rich students—21 percent of private schoolers are from <a href="https://nces.ed.gov/programs/schoolchoice/ind_04.asp">“poor” or “near poor” families</a>—and they often furnish important social capital <a href="https://ace.nd.edu/pages/lost-classroom-lost-community-nicole-garnett-margaret-brinig">to their communities</a>. It is natural to worry about public schools because they enroll the large majority of kids, but a basic reason they have such a huge share is the same reason they may not need as much philanthropic help: they get taxpayer funding no matter what.</span></p> <p><span>Recessions are not kind to anyone, and it is easy to forget about America’s relatively small private K-12 sector. But that sector is essential to American pluralism, and already suffers from a serious handicap: having to compete against a “free” government monopoly. Private schooling must not be allowed to die.</span></p> Mon, 13 Apr 2020 12:31:31 -0400Neal McCluskeyhttps://www.cato.org/blog/private-schools-face-existential-threatThe Constitutional Case for the Fed’s Treasury Backstopshttps://www.cato.org/blog/constitutional-case-feds-treasury-backstops <p><a href="https://www.cato.org/people/george-selgin" hreflang="und">George Selgin</a></p> <p>One of the more controversial provisions of the CARES Act consists of<span> </span><a href="http://bostonreview.net/class-inequality-politics/andrew-elrod-mark-engler-meet-bailouts-new-slush-fund" rel="nofollow external noopener noreferrer" target="_blank">the $454 billion it allows the U.S. Treasury to devote to "backstopping"</a> (that is, to supply partial funding for) the Federal Reserve's emergency lending.</p> <p><a href="https://www.cato.org/blog/holding-line-maintaining-fiscal-monetary-policy-boundaries-midst-crisis" rel="nofollow noopener noreferrer" target="_blank">In a previous post</a>, I argued that these Treasury backstops help to preserve the "boundary line" separating fiscal from monetary policy. I've since engaged in<span> </span><a href="https://twitter.com/GeorgeSelgin/status/1246129523051180033?s=20" rel="nofollow external noopener noreferrer" target="_blank">a spirited Twitter exchange</a><span> </span>with Peter Conti-Brown, Dan Awrey, and Kate Judge—all legal scholars specializing in monetary policy. That exchange inspires me to offer this more complete, but qualified, defense of the Treasury's backstopping of risky Fed lending programs.</p> <h4>Leverage, Smeverage</h4> <p>Before I take up the legal case for Treasury backstopping, I want to clear the air of a distracting pseudo-economic rationale for it: the "leverage" argument. <span> </span><a href="https://som.yale.edu/blog/cares-act-454-billion-emergency-fund-could-add-up-to-much-more-for-businesses-states-and-municipalities" rel="nofollow external noopener noreferrer" target="_blank">According to Secretary of the Treasury Mnuchin</a>, with the help of $454 billion in CARES Act funds, the Fed can "lever up" its emergency lending<span> </span><a href="https://www.cnbc.com/2020/03/22/mnuchin-financing-efforts-from-fed-and-treasury-could-be-4-trillion.html" rel="nofollow external noopener noreferrer" target="_blank">by some $4 trillion</a>. Jay Powell has also appealed to the leveraging rationale, saying that every dollar of additional Fed loss-absorption capacity is worth<span> </span><a href="https://www.nbcnews.com/business/markets/we-may-well-be-recession-says-fed-chairman-jerome-powell-n1169291" rel="nofollow external noopener noreferrer" target="_blank">another $10 in Fed emergency lending.</a></p> <p>Were the Fed an ordinary bank, this "leveraging" argument might make sense. Ordinary banks can't operate without capital, which allows them to take risks by absorbing unanticipated losses, from bad loans or otherwise. Both economic incentives and legal requirements compel such banks, not only to stay solvent (that is, to not exhaust their capital), but to limit their lending to a finite multiple of their capital. Once it's fully levered-up, an ordinary bank can't lend more unless more capital comes its way.</p> <p>But the Fed isn't an ordinary bank. It's a fiat money-issuing central bank acting on the federal government's behalf; and such a bank<span> </span><a href="https://www.moneyandbanking.com/commentary/2015/5/26/do-central-banks-need-capital" rel="nofollow external noopener noreferrer" target="_blank">can technically function with no capital at all, and even with negative capital</a>. Unlike an ordinary bank's liabilities, the Fed's "liabilities" are (in<span> </span><a href="https://en.wikipedia.org/wiki/John_Exter" rel="nofollow external noopener noreferrer" target="_blank">John Exter's</a><span> </span>immortal words), "IOU nothings." The Fed never has to redeem them, except by replacing worn notes with new ones and that sort of thing. If its earnings fall short of its expenses, it can just "print" the difference. It follows that it might remain a going concern even if most of its assets weren't worth diddley. Nor, as<span> </span><a href="https://nathantankus.substack.com/p/a-quarter-of-the-2-trillion-dollar" rel="nofollow external noopener noreferrer" target="_blank">Nathan Tankus points out</a>, is there a "statute, court case or any other binding legal constraint… that requires the Federal Reserve to have a positive net worth."</p> <p>In short, and speaking generally, the Fed can "lever-up" all it likes without a Treasury backstop. The sole caveat is that, if its losses are so great that the present discounted value of its future net earnings is itself negative, it can lose control of inflation. That could happen were the Fed to disburse "helicopter money" on a grand enough scale, or were it forced by the U.S. Treasury to accept a deposit of several trillion-dollar<span> </span><a href="https://www.alt-m.org/2020/03/24/that-darn-coin-again/" rel="nofollow noopener noreferrer" target="_blank">platinum coins</a>. But it's unlikely to happen otherwise.</p> <p>Finally, from a consolidated government balance sheet perspective, there is little practical difference between $1 trillion in lending financed entirely by Congress and $1 trillion in lending financed mostly or entirely by the Fed. In one case the Treasury issues more debt to finance the lending; in the other, the Fed's liabilities, including bank reserves on which it pays interest, increase. The necessary amounts are borrowed either way, with the Treasury ultimately bearing the interest burden. The only real difference is that, when the Treasury's own liabilities increase, so does the federal debt, whereas when the Fed's liabilities increase, the federal debt stays the same. In other words, to the extent that it isn't backstopped, Fed-funded lending is<span> </span><a href="https://www.heritage.org/budget-and-spending/report/putting-budget-federal-spending-back-the-books" rel="nofollow external noopener noreferrer" target="_blank">"off budget."</a></p> <h4>Dodd-Frank and Fed Risk Taking</h4> <p>Though no law calls for the Fed to be in the black, or otherwise limits its total lending capacity in any direct fashion, the Fed's lending, and its Section 13(3) lending in particular, is subject to important legal limits. The most obvious of these are to be fund in Section 13(3) itself, as amended by the Dodd-Frank Act.</p> <p>In answering the question, "Is Treasury investment in the Fed's emergency lending necessary?," Peter Conti-Brown observes<span> </span><a href="https://www.brookings.edu/research/explaining-the-new-fed-treasury-emergency-fund/" rel="nofollow external noopener noreferrer" target="_blank">in a Brookings article </a><span> </span>that "Nowhere in any part of the Federal Reserve Act does Fed lending require Treasury participation, nor did Congress prevent the Fed from taking losses in its emergency lending. " The first part of this statement is true, so far as it goes. But the second is at best only a half truth. In defending it Peter notes that, although the law calls for the Fed's 13(3) lending to be "indorsed or otherwise secured" to the lending Fed bank's satisfaction, this falls short of dictating that "the Fed avoid taking first losses in an emergency lending facility." But he overlooks another Section 13(3) clause—13(3)(b)(i)—according to which the Fed must see to it "that the security for emergency loans is sufficient to protect taxpayers from losses." "It seems to me," I said in our Twitter exchange, "that this can be taken to mean that the Fed isn't supposed to lose money."</p> <p>Congress, on the other hand, is mostly free to dispose of taxpayers' money as it sees fit. That includes appropriating funds for the specific purpose of covering losses from insufficiently secured Fed loans. The Fed can, in other words, lose money to the extent that Congress has appropriated money for it to lose, but not otherwise. Treasury backstops sanctioned by Congress are nothing other than such appropriations.</p> <p>That, I submit, is the real rationale for Treasury backstopping of risky Fed lending. But to defend this view, I must trace that rationale's roots beyond the Federal Reserve Act, to their underpinnings in the U.S. Constitution.</p> <h4>Constitutional Underpinnings</h4> <p>Because those underpinnings are very clearly explained in<span> </span><a href="https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=7151&amp;context=ylj" rel="nofollow external noopener noreferrer" target="_blank">"Congress' Power of the Purse,</a>" a 1988 Y<em>ale Law Review</em> article by Kate Stith, I need only summarize them here. Stith's lengthy article is loaded with supporting evidence and arguments.</p> <p>By stipulating that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law," the Constitution, Stith observes, "places the power of the purse in Congress." That assignment of power, she adds, "is at the foundation of our constitutional order," for it's by controlling the things on which public monies are spent that Congress "defines the contours of the federal government."</p> <p>Congress' power of the purse has as corollaries two "governing principles." The first, which Stith calls the "Principle of the Public Fisc," "assert[s] that all monies received from whatever source by any part of the government are public funds." The other is a "Principle of Appropriations Control" that "prohibit[s] expenditure of any public money without legislative authorization." Together these principles imply that "Agencies and officials of the federal government may not spend monies from any source, private or public, without legislative permission to do so." Congress, on the other hand, has not only the power but the duty to exercise legislative control over federal expenditures. "If Congress permits the Executive access to the public fisc without effective appropriations control [it] abdicates, rather than exercises, its power of the purse."</p> <p>Furthermore, Stith claims,</p> <blockquote><p>it is not enough for Congress to direct federal agencies to produce a better world. …Congress must affirmatively authorize the funds to do the job. …Even where the President believes that Congress has transgressed the Constitution by failing to [fund some] activity, the President has no constitutional authority to draw funds from the Treasury to finance the activity. Spending in the absence of appropriations is ultra vires.</p> </blockquote> <p>Finally, and crucially,</p> <blockquote><p>Where Congress thus denies appropriations, the denial is not merely a determination that the public fisc cannot afford spending any money on that activity. By such appropriations legislation, Congress decides that, under our constitutional scheme, for the duration of the appropriations denial, the specific activity is no longer within the realm of authorized government actions.</p> </blockquote> <h4>Fitting the Fed In</h4> <p>What has this to do with the Federal Reserve System? Were the Fed just another government agency, the answer would be easy, for in that case it would be obliged to surrender to the Treasury, for disposal by Congress, any funds it acquired from any source, including the Reserve Banks' earnings. It could not fritter away part of those funds unless it had Congress' express permission to do so, in the shape of a corresponding appropriation.</p> <p>Alas, things aren't quite so simple. Although the Board of Governors<span> </span><em>is</em><span> </span>an independent government agency, the Federal Reserve Banks are so many private corporations. Because the System's earnings come entirely from those Reserve Banks, this arrangement raises doubts concerning whether those earnings qualify as "public funds." Until 2016, those doubts were reinforced by the fact Reserve Banks' surplus revenues—meaning their revenues after deducting the System's operating costs, dividends on member bank stock, and funds sufficient to keep the banks' surplus capital equal to their paid-in capital—were remitted to the Treasury,<span> </span><a href="https://www.brookings.edu/opinions/would-congress-care-if-the-federal-reserve-lost-money-a-lesson-from-history/" rel="nofollow external noopener noreferrer" target="_blank">not as a matter of law, but only in accordance with Board policy</a>.</p> <p>The passage of<span> </span><a href="https://www.congress.gov/bill/114th-congress/house-bill/22/text" rel="nofollow external noopener noreferrer" target="_blank">the 2015 FAST Act</a><span> </span>has, however, eliminated much of this ambiguity. That measure capped the Federal Reserve System's surplus capital at $10 billion, while requiring that any surplus funds beyond those needed to maintain that amount be surrendered to the Treasury. The 2018 Economic Growth Act subsequently lowered the Fed's surplus capital limit to $6.825 billion. These changes make it impossible to continue to regard the Fed's Treasury remittances as voluntary contributions of "private" funds. Congress has instead asserted its right to such remittances.</p> <p>By so doing, Congress asserts its right to determine the how the Reserve Banks' earnings are employed, albeit with one important exception. That exception is provided for by<span> </span><a href="https://www.law.cornell.edu/uscode/text/12/244" rel="nofollow external noopener noreferrer" target="_blank">Federal Reserve Act's stipulation</a><span> </span>that any "assessments levied" by the Board upon the Reserve Banks "to defray its [that is, the Board's] estimated expenses and the salaries of its members and employees… shall not be construed to be Government funds or appropriated moneys." Funds so employed are considered private funds. Congress is thus denied the power to deprive the Board of an operating budget, even though that Board is a government agency. This is the (admittedly slim) legal substance of the Fed's vaunted budgetary autonomy.*</p> <p>While Congress can't deprive the Board of its sustenance, and while it may take a generous view of what that sustenance costs, the law doesn't seem to supply grounds by which the Board can dispose of other Reserve Bank earnings without Congress' express permission. Seen in this light, the Dodd-Frank requirement "that the security for emergency loans is sufficient to protect taxpayers from losses," far from being nugatory, supplies additional clarity, by specifically preventing the Board from treating such losses as a component of its ordinary expenditures and, therefore, as funds to which it's entitled without Congress' express permission.</p> <h4>Not so Novel</h4> <p>It remains for me to address Peter Conti-Brown's claim that, far from being an application of long-standing Constitutional principles, the Treasury's backstopping of the Fed's recent emergency lending initiatives is<span> </span><em>sui generis</em>. Peter makes this claim both in<span> </span><a href="https://www.brookings.edu/research/explaining-the-new-fed-treasury-emergency-fund/" rel="nofollow external noopener noreferrer" target="_blank">his previously-linked Brookings article</a><span> </span>and in a subsequent<span> </span><a href="https://www.mercatus.org/bridge/podcasts/04062020/peter-conti-brown-cares-act-and-expanding-fed-treasury-relationship" rel="nofollow external noopener noreferrer" target="_blank"><em>Macro Musings</em><span> </span>interview</a>. In the last he says that backstops are something</p> <blockquote><p>we've never seen before in the United States, in the history of the relationship between the Fed and Treasury and the Fed and Congress. …$454 billion, not trivial money, is appropriated to one part of the government for the exclusive purpose of investing in another part of the government, this is, these are Treasury funds that can only be used as loans, loan guarantees or investments in Fed programs or facilities.</p> </blockquote> <p>In his Brookings piece, Peter adds that backstops were not even a feature of "the vast experimentation in emergency lending that we saw in the 2008 financial crisis."</p> <p>Such claims appear to pose a serious challenge to my understanding of backstops as a Constitutionally-required accompaniment to risky Fed lending. After all, if they're so necessary, why haven't we seen them before?</p> <p>However, a closer look at history reveals that the challenge isn't as daunting as it seems. This is true in part because until recently the Fed simply didn't make many risky loans. Until 2008, the Fed hardly used its 13(3) lending powers at all. The only exceptions were 123 mostly very small loans it made between 1932 and 1936, all of which were well secured.</p> <p>The Fed did make potentially risky 13(3) loans during the 2007-8 crisis. But then as now it relied on either Treasury or other backstops to cover the risks it took. The TALF, for instance, involved a $20 billion Treasury backstop. JP Morgan Chase and certain AIG affiliates<span> </span><a href="https://www.federalreserve.gov/monetarypolicy/clbs_appendixA_201003.htm" rel="nofollow external noopener noreferrer" target="_blank">backstopped the Fed's Maiden Lane loans</a>. The government rescues of Citigroup and Bank of America, to which the Fed contributed, were also structured so that the Fed was unlikely to bear any losses. In those instances both the Treasury and the FDIC stood to lose money before it did. In fact, the Fed lost no money at all from any of its 2008-era 13(3) loans. It did incur losses on its outright agency MBS purchases, but those purchases were authorized not by Section 13(3) but by Section 14(b) of the Federal Reserve Act.</p> <p>Although the Fed made no risky 13(3) loans before 2008, it made other risky loans before then, using a<span> </span><a href="https://www.alt-m.org/2020/03/30/when-the-fed-tried-to-save-main-street/" rel="nofollow noopener noreferrer" target="_blank">separate 13(b) authority</a><span> </span>granted it between 1934 and 1958. 13(b) loans were aimed not at banks or "systemically important" nonbank firms, but at smaller businesses, and as such could be secured by any sort of collateral. In practice, this meant that many were hardly secured at all, and were therefore very risky—so risky, indeed, that by 1940 the Fed's 13(b) lending had yielded it a return of<span> </span><em>minus</em><span> </span>3 percent.</p> <p>If Peter's view of things were correct, the Fed should have been allowed to lose that money without Congress' express permission, in the shape of a Treasury backstop or otherwise. If, on the other hand, I'm right in thinking that the Constitution requires such permission, Congress would have had to appropriate funds to cover any such losses.</p> <p>The Fed's 13(b) loans were, in fact, backstopped by $140 million in Treasury-supplied funds, and limited to a total of $280 million, which was equal to the sum of the Treasury's contribution and the Reserve Banks' own surplus capital at the start of the program. The Fed might, in other words, have lent to the full limit of its 13(b) authority, and lost every nickel, without going broke. That's taking Congress' power of the purse very seriously indeed! For comparison, the Fed's recently-unveiled Main Street New Loan Facility has a backstop equal to just<span> </span><em>one-twelfth</em><span> </span>of that facility's potential lending capacity. In short, by New Deal standards Congress today is playing relatively fast and loose with its "duty to exercise legislative control over federal expenditures."</p> <h4>Backstop or Back to Basics?</h4> <p>I said that I would offer a "qualified" defense of the Treasury's backstopping of risky Fed lending programs. My argument is that such backstopping is justified in so far as it respects Congress' "power of the purse," whereas any risky lending the Fed does without such backstopping would contravene that power. When Jay Powell said<span> </span><a href="https://www.youtube.com/watch?v=WjCAoPYefQ4" rel="nofollow external noopener noreferrer" target="_blank">on TODAY</a><span> </span>that the Fed lending was limited by its ability to take losses, whether he knew it or not, he was appealing to these Constitutional principles, not making stuff up.</p> <p>BUT, Treasury backstops are only one way for the Fed to abide by both the Constitution and the specific requirements of the Federal Reserve Act. The other, more straightforward way is by renouncing altogether its authority to make loans for which adequate security is lacking. That is the course William McChesney Martin chose to take in the 1950s when, having first opposed legislation that would have strengthened the Fed's 13(b) lending powers, he then encouraged Congress to deprive the Fed of those powers altogether, and to instead leave the task of risky emergency lending to the<span> </span><a href="https://eh.net/encyclopedia/reconstruction-finance-corporation/" rel="nofollow external noopener noreferrer" target="_blank">Reconstruction Finance Corporation</a><span> </span>and the recently established SBA. The Fed,<span> </span><a href="https://www.minneapolisfed.org/article/2002/lender-of-more-than-last-resort" rel="nofollow external noopener noreferrer" target="_blank">Martin testified</a>,</p> <blockquote><p>would favor neither the financing of such institutions by the Federal Reserve by purchase of stock or otherwise, nor the exercise by the System of any proprietary functions. …Basically, our concern stems from the belief that it is good government as well as good central banking for the Federal Reserve to devote itself primarily to objectives set for it by the Congress, namely, guiding monetary policy and credit policy so as to exert its influence toward maintaining the value of the dollar and fostering orderly economic growth.</p> </blockquote> <p>Were the Fed to take a similar stand today, Congress would in turn have to establish an alternative, strictly fiscal emergency lending facility—<a href="https://www.newyorker.com/news/our-columnists/its-time-to-establish-a-new-reconstruction-finance-corporation" rel="nofollow external noopener noreferrer" target="_blank">a new RFC, perhaps.</a><span> </span>It would also have to pluck-up the courage whenever necessary to fund that facility to whatever extent it considered sufficient to avert a crisis.</p> <p>Compromises between such a strictly fiscal risky lending arrangement and the current set-up might also be considered. One such compromise has been proposed by<span> </span><a href="https://www.philadelphiafed.org/-/media/research-and-data/publications/business-review/2012/q2/brq212_time-consistency-and-credible-monetary-policy-after-the-crisis.pdf?la=en" rel="nofollow external noopener noreferrer" target="_blank">James Nason and Charles Plosser</a>, who suggest a new Fed-Treasury "accord" by which the Treasury would agree to trade its own securities for any non-Treasury securities the Fed acquires during an emergency after a set period of time. Congress would then have to authorize and fund the Treasury's commitment. "With such an accord," they say, "fiscal policy remains outside the province of the Fed, but policy has the flexibility to respond to a crisis in the short run." A stricter version of this proposal would call for the Treasury to purchase, not only any non-Treasury securities the Fed acquires, but all of its less than fully secured 13(3) loans. As the late Marvin Goodfriend<span> </span><a href="https://books.googleusercontent.com/books/content?req=AKW5Qaeh4QuVxefjJ0V6WMCetdPm3u9qo1RdCpKmDQQgfRtQYpqfXWDLh99rG4gz1nm3431m8Rqqy2w3HLV09PfJZkEFYmHIwsRxTkTMO-N_Dnd1yI4QjgVzphbYWsgI0NGZVrKPM0UhSrw861dnuAR8dzBF_KFYYNdY3dR8IfVrMe0axCYax8lOhNT2hBWDWBWDLijTq0hfPm3aaitLbUN9JD-GSGaL3HBf9ZE_qs52C97WtoqqPVSuN6MvWh4dpfvCYRQ5wf5a" rel="nofollow external noopener noreferrer" target="_blank">testified in 2013</a>, emergency Fed lending, like emergency Fed asset purchases, "should be authorized before the fact by Congress in its oversight role, but only as a 'bridge loan' and accompanied by a 'take out' arranged and guaranteed by Congress."</p> <p>It is of course unfair to blame the Fed for not drawing a line in the sand in the middle of an unprecedented crisis. Back in 2008, Goodfriend says, the Fed found itself</p> <blockquote><p>in a no-win situation. Given its wide powers to lend, the Fed could disappoint expectations of accommodation and risk financial collapse or take on expansive, underpriced credit risk… with the implied promise of similar actions in times of future turmoil.</p> </blockquote> <p>Today it may likewise be said that the Fed had little choice but to take on risks and responsibilities that a pusillanimous and small-minded Congress wouldn't take on itself.<span> </span><a href="http://www.fedfin.com/blog/3233-karen-petrou-the-fed-becomes-the-fall-guy" rel="nofollow external noopener noreferrer" target="_blank">Karen Petrou</a><span> </span>is nevertheless right to fear that it will end up regretting its further entanglement in the nation's fiscal affairs. "Congress and the Administration," she says, "now get to stand back, taking credit if the economy recovers and knowing where 20<sup>th</sup><span> </span>and Constitution Avenue is if it doesn't."</p> <p>As for the rest of us, we must ask what point there is in giving Congress the power of the purse, if instead of defining "the contours of the federal government" itself, it gives a free hand to a coterie of unelected officials.</p> <p>_____________________</p> <p>*The provision designating as private funds the Board's assessments covering its operating expenses dates from the Banking Act of 1933. Revealingly, as Peter Conti-Brown notes in his 2015 article<span> </span><a href="https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1412&amp;context=yjreg" rel="nofollow external noopener noreferrer" target="_blank">"The Institutions of Federal Reserve Independence"</a> (p. 280n102), a decade earlier the U.S. Comptroller General had instead expressly designated those same assessed amounts as public funds "subject to various restrictions and impositions."</p> <p>In this same article Peter appears to argue that the provision allowing the Board to fund its expenses by assessments against the Reserve Banks does not allow it to employ the System's interest earnings from its SOMA portfolio for that purpose. Assuming that I've understood him correctly, I confess that I'm unable to grasp his reason for taking this view. The proceeds from the Fed's open-market operations are part of the Reserve Banks earnings, the remainder of which consists mainly of fees they collect from member banks. The Board's assessments are made, not against Reserve Bank fee income only, but against the fungible sum of all Reserve Bank income; and the appropriations exception appears to hinge, not on the ultimate source of funds employed by the Board, but on the way in which it employs them.</p> <p>[<a href="https://www.alt-m.org/2020/04/13/the-constitutional-case-for-the-feds-treasury-backstops/">Cross-posted from Alt-M.org</a>]</p> <p></p> Mon, 13 Apr 2020 12:12:56 -0400George Selginhttps://www.cato.org/blog/constitutional-case-feds-treasury-backstopsState Rainy Day Fundshttps://www.cato.org/blog/state-rainy-day-funds <p><a href="https://www.cato.org/people/chris-edwards" hreflang="und">Chris Edwards</a></p> <p>The COVID-19 crisis and resulting recession will strain state government budgets. Unlike the federal government, the states are required to balance their general fund budgets each year. As the economy shrinks, state income and sales tax revenues will fall and budget gaps will rise.</p> <p>One way to fill budget gaps is to use state rainy day funds, which are also called budget stabilization funds. All states have such funds, but the mechanisms vary. The rules for fund deposits, withdrawals, and maximum fund sizes differ between the states. Some funds are constitutional and others are statutory. Reports by <a href="https://www.ncsl.org/Portals/1/Documents/fiscal/RDF_2018_Report.pdf">NCSL</a>, <a href="https://taxfoundation.org/state-rainy-day-funds-covid-19/">Tax Foundation</a>, and <a href="https://www.pewtrusts.org/-/media/assets/2017/05/statesfiscalhealth_creditratingsreport.pdf">Pew</a> provide details.</p> <p>After the deep recession a decade ago, many states learned the lesson and have since grown their rainy day funds. <a href="https://www.nasbo.org/reports-data/fiscal-survey-of-states">NASBO reported</a> in December that rainy day funds were projected to be an average 8.4 percent of annual general fund spending for fiscal year 2020, which compares to 4.8 percent going into the last recession in 2008. Today’s larger rainy funds will help the states weather the COVID-19 storm.</p> <p>However, the size of state rainy day funds varies widely. The chart below shows NASBO data for projected fund sizes in 2020 before the crisis hit. News reports indicate that some states are already tapping these funds.</p> <p>The chart indicates that some states have been such spendthrifts that, after a decade of economic growth, they have saved little or nothing. Illinois and Kansas have completely empty cupboards, while Pennsylvania and New Jersey have rainy day funds of just 1 percent of their budgets. The largest funds are in energy producing states, which build war chests to handle the strong cyclical ups and downs in their economies.</p> <p>State leaders and economists did not foresee the COVID-19 crisis of 2020, nor they did not foresee the deep recession of a decade ago. That is why rainy day funds make a lot of sense. It is also why state governments should pay down debt during strong growth years, because downturns eventually arrive. Of course, the same is true of the federal government.</p> <p>When growth resumes after the current crisis, the states should spend the next few years beefing up their rainy day funds to high levels. A few states—such as Illinois—need a radical overhaul of their budgeting processes because they can’t seem to save any money, even after years of growth. Aside from helping states weather storms, large rainy day funds make states less reliant on federal bailouts, they <a href="https://www.pewtrusts.org/-/media/assets/2017/05/statesfiscalhealth_creditratingsreport.pdf">improve</a> state credit ratings, and they strengthen the overall U.S. macroeconomy.</p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="1d3b5631-8174-4f39-b10c-0e5847feafee" data-langcode="en" class="embedded-entity"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-04/rainy%20day.png?itok=xH9Zl2YH 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-04/rainy%20day.png?itok=PL8M7u5T 1.5x" width="515" height="886" src="/sites/cato.org/files/styles/pubs/public/2020-04/rainy%20day.png?itok=xH9Zl2YH" alt="ab" typeof="Image" class="component-image" /></div> <p>Notes: Data for 2020 was not available from NASBO for Georgia, Michigan, North Carolina, Oklahoma, and Wisconsin, so earlier data was used. I capped the chart at 30 percent. North Dakota was 30 percent, Alaska was 53 percent, and Wyoming was 109 percent.</p> <p><em>Sarah Rapier assisted with this blog</em>.</p> Mon, 13 Apr 2020 10:06:35 -0400Chris Edwardshttps://www.cato.org/blog/state-rainy-day-fundsPandemics and Presidential Power Grabshttps://www.cato.org/blog/pandemics-presidential-power-grabs <p><a href="https://www.cato.org/people/gene-healy" hreflang="und">Gene Healy</a></p> <p>War is the health of the state, Randolph Bourne famously said, and President Trump is <a href="https://www.theguardian.com/world/2020/mar/19/coronavirus-new-york-cuomo-healthcare-overwhelmed-please">hardly alone</a> in describing the fight against COVID-19 as a “war.” However inapposite that metaphor might be, public officials at all levels of government are now exercising <a href="https://email.cato.org/live-webcast-coronavirus-and-the-constitution-friday-at-100pm-edt?ecid=ACsprvvTgof1DjsK4Zk5xhb9vw-Gw_SvveYVvrZ6kJdZVmzOUvlpchenhbh4DTlQLDXOABxLE8lN&amp;utm_source=hs_email&amp;utm_medium=email&amp;utm_content=86064383&amp;_hsenc=p2ANqtz-8SFj7zwwuvjiivHPrTRseUqtW2vMBFK0VIhk8lr5PeBR8D06nhwp_6TcJNcsg-OhThbl8pVFukUpsiDStLtjPh3xRbyw&amp;_hsmi=86064383">emergency powers</a> rarely seen outside the context of total war.</p> <p>Wars—metaphorical and literal—have also been the health of the presidency. In his <a href="https://avalon.law.yale.edu/20th_century/froos1.asp">first inaugural</a>, along with the famous lines about “fear itself,” FDR announced his desire for “broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.” Given a serious enough crisis, that gambit usually works. </p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="03c12b03-3561-4dbb-b4c6-7401cd55e48b" class="align-right embedded-entity" data-langcode="en"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-04/B246128C-63CB-4D18-A145-5D972283DCE3.jpeg?itok=J6PKOog1 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-04/B246128C-63CB-4D18-A145-5D972283DCE3.jpeg?itok=WSAM56wt 1.5x" width="700" height="467" src="/sites/cato.org/files/styles/pubs/public/2020-04/B246128C-63CB-4D18-A145-5D972283DCE3.jpeg?itok=J6PKOog1" alt="Power Move" typeof="Image" class="component-image" /></div> <p>What’s surprising—and I should probably type this with my fingers crossed—is that so far, the COVID-19 crisis hasn’t yet led to massive new presidential power grabs. Trump’s performance has been appalling in myriad other ways—from his just‐​the‐​flu <a href="https://twitter.com/realdonaldtrump/status/1237027356314869761?s=21">denialism</a> of a month ago to the <a href="https://www.nytimes.com/2012/05/06/magazine/hugo-chavezs-totally-bizarre-talk-show.html?referringSource=articleShare">Chavezian, “Hello President!”</a> tenor of his daily Coronavirus briefings. But in terms of exploiting the pandemic to radically expand executive power—again, <em>so far</em>—Trump has been a piker next to FDR, George W. Bush, or even <a href="https://www.washingtonexaminer.com/news/rahm-emanuel-reprises-never-let-a-crisis-go-to-waste-catchphrase-amid-coronavirus-pandemic">Barack Obama</a>.</p> <p>Harvard Law’s Noah Feldman recently had a provocative piece in Bloomberg making that case: <a href="https://www.bloombergquint.com/gadfly/coronavirus-response-shows-trump-isn-t-a-dictator">“Coronavirus Response Shows Trump Isn’t a Dictator.”</a> Feldman, you may recall, was a key <a href="https://www.pbs.org/newshour/politics/read-noah-feldmans-full-opening-statement-in-the-trump-impeachment-hearing">Democratic witness</a> making the constitutional case for Trump’s impeachment: he’s emphatically not a fan of this president. Still, Feldman argues, during the COVID-19 outbreak, Trump has “pretty consistently done the opposite” of what the would‐​be autocrat’s playbook would call for in terms of amassing power.</p> <p>There’s something to this: as Feldman points out, Trump has dragged his heels about making more than nominal use of the staggering powers delegated to the president by the Defense Production Act. (It is somewhat strange to hear <em>Democrats</em> urge this president to wield “semi‐​dictatorial powers.”)</p> <p>And, despite Trump’s flagrant abuses of national emergency powers earlier in his presidency, it’s hard to get too worked up about the Coronavirus emergency <a href="https://www.whitehouse.gov/presidential-actions/proclamation-declaring-national-emergency-concerning-novel-coronavirus-disease-covid-19-outbreak/">declaration</a> he issued on March 13th. For one thing—unlike, say, Mexican‐​Border crossing—a once‐​a‐​century global pandemic can fairly be described as a “national emergency.” For another, the statutory powers unlocked by the decree were <a href="https://www.justsecurity.org/69190/explainer-national-emergency-declarations-and-covid-19/">hardly terrifying</a>; some, like the loosening of federal restrictions on telemedicine and in‐​state medical licensing, were entirely sensible.</p> <p>Still, I think Feldman lets the president off too easy when it comes to Trump’s abortive proposal for a Tristate lockdown, in the form of an <a href="https://slate.com/news-and-politics/2020/03/coronavirus-trump-considering-quarantine-new-york-new-jersey-connecticut.html">“enforceable quarantine”</a> surrounding New York, New Jersey, and Connecticut. Since CDC doesn’t have a police force capable of erecting a cordon sanitaire around some 30 million Americans, an “enforceable quarantine” would require <a href="https://www.cato.org/blog/trumps-tristate-travel-ban">US military “boots on the ground”</a> and guns turned on American citizens. It’s good that Trump quickly abandoned the idea, but maybe he shouldn’t float his dystopian brainwaves over Twitter in the first place.</p> <p>And we need to add a major qualifier to Feldman’s assessment that Trump’s “fairly consistent choice thus far in the Covid‐​19 crisis [has been] to reject the impulse to grab power.” It’s true Trump hasn’t pushed for major expansions of presidential power to fight the virus; but he has used the crisis as cover for a power‐​grab of a different sort.</p> <p>Where past presidents have pushed against constitutional limits in service of policy goals or ideological commitment to the strong presidency, Trump’s interest in executive power has always been <a href="https://www.theatlantic.com/politics/archive/2018/06/the-strangest-thing-about-trumps-approach-to-presidential-power/562271/">overwhelmingly personal</a>. He believes in his “absolute right” to wield it as a weapon for settling scores, <a href="https://www.realclearpolitics.com/lists/irs-scandal/nixon_enemies_list.html">“screw[ing] his political enemies,”</a> and shielding himself and his allies from unwelcome scrutiny.</p> <p>That probably explains his boldest presidential‐​power move since the COVID-19 pandemic began: what even the Trump‐​friendly NY Post’s editorial board <a href="https://nypost.com/2020/04/07/trump-needs-to-call-off-his-war-on-inspectors-general/">calls</a> a “war” on inspectors general.</p> <p>A week ago, Trump fired Michael Atkinson, the Intelligence Community’s Inspector General, in a transparent act of payback for his role in the events that led to Trump’s impeachment (Atkinson, as he was legally bound to do, notified Congress of the whistleblower complaint about his July 25 call with the president of Ukraine). On Tuesday, Trump ousted the Pentagon IG appointed as head watchdog over the disbursement of more than $2 trillion of pandemic relief funds. (For good measure, the same day, he slammed a third IG, HHS’s Christi Grimm, for issuing an accurate report on COVID-19 test shortages and lack of protective equipment for front‐​line health care workers: <a href="https://thehill.com/homenews/administration/491561-trump-decries-ig-report-on-hospital-shortages-as-another-fake-dossier">“Another Fake Dossier!”</a>)</p> <p>The war on IGs isn’t a presidential power grab in the usual sense of torturing noncompliant laws into submission. The <a href="https://www.law.cornell.edu/uscode/text/50/3033">relevant statutes</a> give the president the power to fire the officials in question. But the governing expectation <a href="https://www.politico.com/news/2020/04/08/senate-trump-inspector-general-176407">has always been</a> that it would be shameful and inappropriate to remove an IG for exposing misbehavior, corruption, and incompetence. Trump’s attack on that norm, in the midst of a crisis, will likely succeed, making it easier for future presidents to get away with similar moves. That prospect isn’t as immediately alarming as military lockdowns or dictatorial economic powers. Even so, while we’re planning for the eventual return to “normalcy,” we should take care that the new normal doesn’t include an executive branch even more susceptible to corruption and abuse of power.</p> Fri, 10 Apr 2020 16:58:03 -0400Gene Healyhttps://www.cato.org/blog/pandemics-presidential-power-grabsThe COVID-19 Data We Have May Not Be The Data We Needhttps://www.cato.org/blog/covid-19-data-we-have-may-not-be-data-we-need <p><a href="https://www.cato.org/people/alan-reynolds" hreflang="und">Alan Reynolds</a></p> <p>COVID-19 statistics that are easiest for reporters to find and explain are often the ones we keep hearing about in daily news reports. A perennial favorite is the <a href="https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6">John Hopkins University</a> graphical database which is constantly updated to add up the cumulative number of “confirmed” cases, deaths and recoveries since January 21 for separate countries and the world.</p> <p>To switch the focus from these familiar multi‐​month totals to what is happening now, however, I built this simple graph of daily new deaths and daily new confirmed cases. It does suggest recent flattening, though professional optimism about reaching a peak is partly based on <a href="https://apps.npr.org/dailygraphics/graphics/covid-state-deaths-20200407/">key states</a> rather than national totals.</p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="111f115d-7ec8-42c6-bc0c-f6b778c07be4" class="align-center embedded-entity" data-langcode="en"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-04/NEW%20U.S.%20COVID%2019%20CASES%20AND%20DEATHS%20.jpg?itok=8bf1HBIt 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-04/NEW%20U.S.%20COVID%2019%20CASES%20AND%20DEATHS%20.jpg?itok=z1IHMdxb 1.5x" width="700" height="415" src="/sites/cato.org/files/styles/pubs/public/2020-04/NEW%20U.S.%20COVID%2019%20CASES%20AND%20DEATHS%20.jpg?itok=8bf1HBIt" alt="new cases and deaths" typeof="Image" class="component-image" /></div> <p>The cumulative data we see repeatedly in the daily news is not always the data we need. “Confirmed cases” in the John Hopkins data means cases that were tested. This makes it sensitive to the intensity of testing and also limits the count to those sick enough to be tested. It also exaggerates the apparent death rate by excluding the majority of COVID-19 infections, those having mild or no symptoms.</p> <p>The “number recovered” would ultimately add up to 99% of infections if 1% died. Yet the number recovered seen in the John Hopkins site always remains very low. That is because states don’t keep track of what happened to every sick person, and nobody knows about the vast majority who recover at home.</p> <p>As these cumulative multi‐​month totals go, the most relevant one is missing. That would be “active” cases – all those infected minus those who recovered or died. But the published numbers don’t tell us how many Americans are now or ever have been infected, nor how many recovered. Compared with confirmed cases and recovered cases, death numbers are more meaningful and solid (despite ambiguity about <a href="https://www.cdc.gov/nchs/data/nvss/coronavirus/Alert-2-New-ICD-code-introduced-for-COVID-19-deaths.pdf?fbclid=IwAR0PGhCEPqdxb0vWlUR8MQLcgUm-lGKcCdPXf6gxne7KyFWB86fG8xLtNao">attributing death</a> to COVID-19 despite underlying conditions).</p> <p>Cumulative totals include old history. The numbers we need would tell us whether or not the rate of change is slowing for <a href="https://apps.npr.org/dailygraphics/graphics/covid-state-deaths-20200407/">new deaths</a>. New deaths are a good proxy for new cases (as the graph shows), and also for new <a href="https://www.npr.org/sections/health-shots/2020/03/31/824665834/are-hospitals-seeing-a-surge-of-coronavirus-patients-some-officials-arent-saying">hospitalizations</a> with a lag. But death figures are clearer and easier to track.</p> <p>The <a href="https://www.cato.org/blog/tracking-white-houses-favorite-epidemic-curve">Murray Model</a> I discussed on April 6 updates a model‐​built epidemic curve with actual daily deaths by state. It has already reduced mid‐​range estimates COVID-19 total deaths from about 81,000 to 61,000. But the model’s highest estimates more than double that figure, and even the mid‐​range curve (which fits best so far) can rise or fall with new data. The main point is that I do believe the model’s focus on real‐​time death data is the best single indicator we have right now or will have later without a lot more testing, including random samples and testing for immunity.</p> Fri, 10 Apr 2020 15:26:02 -0400Alan Reynoldshttps://www.cato.org/blog/covid-19-data-we-have-may-not-be-data-we-needBusinesses Combat COVID-19https://www.cato.org/blog/businesses-combat-covid-19 <p><a href="https://www.cato.org/people/chris-edwards" hreflang="und">Chris Edwards</a></p> <p>The economics news is dismal with reports every day of shutdowns, layoffs, and furloughs. More than 16 million Americans have been thrown out of work so far, and we have entered the worst downturn since the Great Depression of the 1930s.</p> <p>Yet amid the gloom there are frequent reports of businesses and entrepreneurs making advances in the battle against Covid‐​19. The private sector is racing to produce vaccines, treatments, tests, and medical supplies to defeat the pandemic.</p> <p>Here are some recent developments:</p> <ul><li>Formlabs is <a href="https://www.marketwatch.com/story/my-3-d-printing-company-is-making-thousands-of-coronavirus-test-swabs-a-day-heres-how-we-did-it-2020-04-07?mod=nextup_bomw">churning out</a> COVID-19 test swabs with 3-D printing, going from prototype to production in weeks. Meanwhile, Prisma Health and Johnson &amp; Johnson are using 3-D printing <a href="https://www.prnewswire.com/news-releases/prisma-health-collaborates-with-ethicon-inc-part-of-the-johnson--johnson-medical-devices-companies-to-manufacture-and-distribute-the-vesper-ventilator-expansion-splitter-device-that-is-authorized-for-emergency-use-only-during-301035945.html">to produce</a> ventilator splitters, allowing one machine to be used by two patients.</li> <li>Walgreens is expanding <a href="https://www.cnbc.com/2020/04/07/walgreens-to-open-15-drive-thru-coronavirus-testing-sites-across-7-states.html">drive‐​thru virus testing</a> in seven states this week.</li> <li>Abbott Labs invented a COVID-19 test kit that produces results in 5 to 13 minutes. The company <a href="https://bangordailynews.com/2020/04/08/business/maine-receives-far-fewer-abbott-rapid-coronavirus-tests-than-expected/">has shipped</a> 190,000 kits so far. Cepheid and Mesa Biotech <a href="https://www.chicagobusiness.com/health-care/experts-debate-whether-abbotts-covid-19-tests-can-help-flatten-curve">have</a> also developed tests that produce fairly rapid results.</li> <li>Robotics companies <a href="https://www.wsj.com/articles/reporting-for-coronavirus-duty-robots-that-go-where-humans-fear-to-tread-11585972801">have created</a> machines that drive around hospitals and other facilities spraying ultraviolet light (UVC) to kill viruses in the air and on surfaces.</li> <li>Gilead Sciences has <a href="https://www.wsj.com/articles/gilead-accelerates-production-of-experimental-coronavirus-drug-11586049635">increased production</a> of its experimental coronavirus drug remdesivir, and currently has 1.5 million doses that it is providing free of charge.</li> <li>Brooks Brothers <a href="https://thehill.com/blogs/blog-briefing-room/news/490329-brooks-brothers-making-masks-for-medical-professionals">is making</a> surgical masks and ramping up production to 150,000 masks per day from factories in three states.</li> <li>Georgia Tech <a href="https://www.fox5atlanta.com/news/coca-cola-company-georgia-tech-team-up-to-produce-50000-plastic-surgical-shields">has teamed</a> with Coca Cola and other companies to produce more than 50,000 plastic face shields.</li> <li>Eli Lilly has teamed with AbCellera to <a href="https://endpts.com/eli-lilly-teams-with-nih-antibody-upstart-abcellera-in-coronavirus-hunt/">isolate antibodies</a> from COVID-19 survivors and develop a therapy.</li> <li>Regeneron Pharmaceuticals <a href="https://newsroom.regeneron.com/news-releases/news-release-details/regeneron-announces-important-advances-novel-covid-19-antibody">is developing</a> an antibody cocktail to treat COVID-19.</li> <li>Johnson &amp; Johnson is <a href="https://www.cnn.com/2020/03/30/health/coronavirus-vaccine-johnson-and-johnson-clinical-trial/index.html">planning to start</a> clinical trials for a possible vaccine by September.</li> <li>Moderna <a href="https://mitsloan.mit.edu/ideas-made-to-matter/how-moderna-racing-to-a-coronavirus-vaccine">began human trials</a> in March and is hoping to develop a vaccine based on its cutting edge messenger RNA methodology.</li> <li>Entos Pharmaceuticals <a href="https://edmontonjournal.com/news/local-news/covid-19-edmonton-company-developing-dna-based-vaccine/">is working</a> to develop a DNA‐​based vaccine. Such a vaccine would be cheaper and easier to scale than typical vaccines.</li> <li>OyaGen <a href="https://www.biospace.com/article/releases/oyagen-inc-announces-a-compound-in-development-with-broad-antiviral-activity-against-coronaviruses-including-sars-cov-2/">is conducting studies</a> on the safety and efficacy of an antiviral drug that may be effective against COVID-19.</li> <li>Airways Therapeutics, a startup specializing in lung diseases, <a href="https://www.forbes.com/sites/lizengel/2020/03/14/cincinnati-startup-could-have-therapeutic-option-for-covid-19/#781ada837d27">is working</a> to repurpose a therapy that reduces lung inflammation to treat COVID-19.</li> <li>General Motors <a href="https://www.cnbc.com/2020/04/08/gm-to-build-30000-ventilators-for-us-for-489point4-million.html">is building</a> 30,000 ventilators, while Tesla and Ford are also <a href="https://www.cnbc.com/2020/04/06/video-tesla-building-ventilators-for-covid-19-patients-from-car-parts.html">aiming to produce</a> the machines.</li> <li>Rice University students <a href="https://www.click2houston.com/news/local/2020/04/05/rice-university-students-design-a-device-that-helps-provide-relief-as-coronavirus-patients-wait-on-ventilators/">developed</a> a ventilator alternative to help patients when regular ventilators are unavailable. The devices are cheap to build and the plans are free online.</li> <li>Telemedicine <a href="https://www.wsj.com/articles/telemedicine-once-a-hard-sell-cant-keep-up-with-demand-11585734425">is booming</a> in recent weeks after government deregulation. Stand‐​alone companies, such as Teladoc and Doctor on Demand, are adding doctors, and big technology firms, such as Apple, Google, and Microsoft, are entering the business. Hospitals, urgent care centers, and health networks <a href="https://www.vox.com/recode/2020/4/8/21212432/telemedicine-how-to-video-chat-doctors">have moved</a> quickly into telemedicine. Mental health providers <a href="https://www.politico.com/news/2020/04/09/mental-health-online-coronavirus-177499">are</a> going online. AT&amp;T is partnering with VitalCare to <a href="https://www.telecompetitor.com/att-offers-free-telehealth-service-during-covid-19/">offer free telemedicine</a> to hospitals.</li> </ul><p>I discuss other business advances against COVID-19 <a href="https://www.cato.org/blog/american-businesses-tackle-coronavirus">here</a>. Business Roundtable lists ways that its members are contributing <a href="https://www.businessroundtable.org/covid-19">here</a>. BIO discusses medicines that its members are developing <a href="https://www.bio.org/policy/human-health/vaccines-biodefense/coronavirus">here</a>. The Chamber of Commerce describes small business efforts to combat the virus <a href="https://www.uschamber.com/series/above-the-fold/how-10-small-businesses-are-fighting-coronavirus-creative-ways">here</a>. PhRMA tallies the dozens of COVID-19 therapies and vaccines in development in the chart below and sourced <a href="https://phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Org/PDF/M-O/nji-prnt-pharma-DevelopingNewVaccinesandTreatments-v03.pdf">here</a>.</p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="3bdcefd3-5135-4009-8390-cfc98462f75d" data-langcode="en" class="embedded-entity"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-04/pharma.png?itok=O4lxrc3U 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-04/pharma.png?itok=sRl19_LQ 1.5x" width="700" height="310" src="/sites/cato.org/files/styles/pubs/public/2020-04/pharma.png?itok=O4lxrc3U" alt="s" typeof="Image" class="component-image" /></div> <p><em>David Kemp helped research this blog</em>.</p> Fri, 10 Apr 2020 11:42:20 -0400Chris Edwardshttps://www.cato.org/blog/businesses-combat-covid-19Pandemics and Power Notebook, IIhttps://www.cato.org/blog/pandemics-power-notebook-ii <p><a href="https://www.cato.org/people/walter-olson" hreflang="und">Walter Olson</a></p> <p>Second in a&nbsp;series (first is <a href="https://www.cato.org/blog/pandemics-power-notebook">here</a>):</p> <p>* For me, the week’s high and low morale‐​wise came on the same day in contrasting stories from stricken New York City. The high came with&nbsp;<a href="https://patch.com/new-york/bayside/ems-workers-across-country-join-nyc-coronavirus-fight">reports</a> of how an estimated 500 <a href="https://twitter.com/sethmpk/status/1246231053209088011">EMS crew members from around the country</a> and their vehicles have converged on Gotham&nbsp;from points including Kalamazoo, Mich., Fergus Falls, Minn., and Florida to help the city handle an emergency medical call volume running far above normal. As one who’s lived much of my life in the greater New York area and remembers similar help in the days after 9/11,&nbsp;it means a&nbsp;lot to me to see these heroes <a href="https://www.nytimes.com/2020/04/01/health/coronavirus-emt-workers.html">taking real risks</a> to come to the aid of the city, not because they have to but because they want to.</p> <p>The low point came the same day when I&nbsp;read that New York City Mayor Bill de Blasio <a href="https://www1.nyc.gov/office-of-the-mayor/news/218-20/mayor-de-blasio-calls-draft-essential-medical-personnel">in an official statement</a> had “called on the federal government to institute an essential draft of all private medical personnel to help in the fight against COVID-19.” The mayor’s office later <a href="https://reason.com/2020/04/06/from-drafting-doctors-to-stealing-equipment-politicians-violate-the-limits-of-a-free-society/">confirmed to J.D. Tuccille of Reason</a> that he had conscription in mind. Happily, de Blasio’s call for the use of coercion found few echoes, perhaps because it would be&nbsp;such a&nbsp;brutal assault on individual liberty, perhaps because the mayor’s own reputation for handling the virus <a href="https://gothamist.com/news/missteps-mayor-bill-de-blasios-coronavirus-response">stands</a> so <a href="https://www.washingtonpost.com/politics/2020/04/01/new-york-mayor-bill-de-blasios-repeated-comments-downplaying-coronavirus/">very low</a> that hardly anyone is looking to take advice from him. (De Blasio also figured in <a href="https://www.cato.org/blog/pandemics-power-notebook">last week’s notebook</a> when he threatened to close down rule‐​breaking synagogues “permanently.”)</p> <p>* Chris Edwards <a href="https://www.cato.org/blog/federal-government-stealing-medical-supplies">wrote Wednesday</a> about the battles in which the federal government (as well as some state governments, like those of <a href="https://www.bloomberg.com/news/articles/2020-04-03/n-y-reports-most-deaths-in-day-coronavirus-cases-top-100-000">New Jersey and New York</a>) have stepped in to intercept and requisition supplies of key medical supplies needed in the crisis, from ventilators to personal protective equipment (PPE) to testing supplies. The phenomenon here — local hospitals, businesses, and communities trying to do the right thing for their patients and employees, then finding their carefully developed lines of supply commandeered — reminds me of a&nbsp;famous <a href="https://fee.org/articles/central-planning-side-door-to-socialism/">passage from Ludwig von Mises’s Human Action</a>, about how central planning is inconsistent&nbsp;with the capacity of smaller entities and individuals to plan out their own futures. “The alternative is not plan or no plan. The question is whose planning? Should each member of society plan for himself, or should a&nbsp;benevolent government alone plan for them all?”</p> <p>* <a href="https://www.cato.org/blog/pandemics-power-notebook">Last week I&nbsp;mentioned</a> a&nbsp;seemingly wacky idea about using the crisis as an excuse to ban tobacco and vape devices. Now the New York Times is <a href="https://www.nytimes.com/2020/04/09/health/coronavirus-smoking-vaping-risks.html">promoting that idea</a>, in a&nbsp;discussion that makes zero mention of the implications of creating a&nbsp;gigantic new covert black market as well as, of course, zero mention of the concept of freedom.</p> <p>* I’ll end on a&nbsp;more positive note with an <a href="https://marginalrevolution.com/marginalrevolution/2020/03/from-the-comments-more-about-maurice-hilleman.html">anecdote</a> from the serious 1957 Asian flu outbreak about vaccinologist Maurice Hilleman, who per his <a href="https://en.wikipedia.org/wiki/Maurice_Hilleman">compelling Wikipedia biography</a> “is credited with saving more lives than any other medical scientist of the 20th century.” <a href="https://marginalrevolution.com/marginalrevolution/2020/03/that-was-then-this-is-now-25.html">Per</a> a&nbsp;Tyler Cowen <a href="https://marginalrevolution.com/marginalrevolution/2020/03/from-the-comments-more-about-maurice-hilleman.html">commenter</a>, “Hilleman took a&nbsp;step that seems unbelievable in the bureaucratically hardened, litigious society of today. He bypassed [the federal department that is now HHS] and contacted the heads of the 6&nbsp;U.S. vaccine manufacturers directly. His message was simple. ‘Don’t kill your roosters.’” Why were the roosters important? <a href="https://marginalrevolution.com/marginalrevolution/2020/03/from-the-comments-more-about-maurice-hilleman.html">Follow the link</a> and see.</p> Fri, 10 Apr 2020 09:02:52 -0400Walter Olsonhttps://www.cato.org/blog/pandemics-power-notebook-iiRalph Nader Flips Outhttps://www.cato.org/blog/ralph-nader-flips-out <p><a href="https://www.cato.org/people/george-selgin" hreflang="und">George Selgin</a></p> <p>Earlier this week, while most of us were still trying to wrap our heads around<span> </span><a href="https://mronline.org/tag/federal-reserve-response-to-coronavirus-pandemic/" rel="nofollow external noopener noreferrer" target="_blank">the Fed’s emergency lending plans</a>, consumer advocate Ralph Nader fired‐​off<span> </span><a href="https://nader.org/2020/04/08/letter-to-chairman-jerome-h-powell-of-the-federal-reserve-april-7-2020/?utm_source=rss&amp;utm_medium=rss&amp;utm_campaign=letter-to-chairman-jerome-h-powell-of-the-federal-reserve-april-7-2020" rel="nofollow external noopener noreferrer" target="_blank">an irate letter</a><span> </span>to its Chair, Jay Powell.</p> <p>Nader’s letter didn’t take issue with any of those plans. Instead, it accused Powell of having “stripped hundreds of billions of dollars of interest rate income from over 150 million savers in our country.” Returns on bank and money market accounts, Nader says, “are heading toward near zero because of the Fed’s actions.” And the Fed took those actions only because Powell “buckled under unprecedented pressure and haranguing from Donald Trump.”</p> <p>I’m hardly one to suggest that the Fed can do no wrong, or that it ought to be spared from criticism, during an emergency or otherwise. But criticism can be just or unjust, and it’s hard to imagine anything more unjust than Mr. Nader’s criticism of Powell.</p> <h4>Savers’ Plight</h4> <p>The<span> </span><em>least</em><span> </span>unjust of Nader’s claims is his assertion that savers are harmed by low interest rates. But even that assertion isn’t quite as true as Mr. Nader<span> </span><a href="https://www.cnn.com/2020/03/13/investing/savers-low-rates/index.html" rel="nofollow external noopener noreferrer" target="_blank">and many others suppose</a>. As<span> </span><a href="https://www.richmondfed.org/-/media/richmondfedorg/publications/research/econ_focus/2017/q3/opinion.pdf" rel="nofollow external noopener noreferrer" target="_blank">a 2017 Richmond Fed report</a><span> </span>explains,</p> <blockquote><p>savers are not just savers—they are also… consumers, and lower Fed policy rates generally mean lower loan rates for goods like homes and automobiles, as well as lower interest payments on variable rate loans. Finally, many savers also hold assets whose values tend to rise in low‐​interest‐​rate environments. Low rates tend to boost housing prices, for example, and housing comprises a large majority—nearly two-thirds—of assets for households in the middle of the wealth distribution. This is especially true of older households preparing for retirement; roughly 80 percent of households aged 65 and older own their homes, compared to roughly 64 percent for the nation as a whole, according to the Census Bureau.</p> </blockquote> <h4>Interest Rates and Unemployment</h4> <p>Most savers are also<span> </span><em>workers</em>, and it’s by ignoring that fact that Mr. Nader’s complaint reaches a higher plateau of injustice. The Fed’s dual mandate, as he presumably knows, charges it with avoiding unnecessary unemployment. And the surest way for the Fed to fail to meet that requirement is by keeping money too tight, that is, by setting overly‐​high rate targets. When people are unemployed, it is of little consolation to them to know that their dwindling savings accounts yield high returns.</p> <p>Moreover, the longer‐​run effects of an excessively high Fed rate target include disinflation, if not deflation; and these effects end up reducing instead of raising nominal returns of bank deposits and money market funds.</p> <h4>Natural Rates Rule the Roost</h4> <p>Like all too many Fed critics, Mr. Nader misunderstands what he calls the Fed’s “extreme zero‐​interest rate policy.” The misunderstanding consists of the belief that the aim of ZIRP (to employ the popular acronym) is to suppress market interest rates, that is, to drive and keep them down artificially when they’d otherwise tend to rise. But while it’s true that market rates often respond to changes in the Fed’s rate settings,<span> </span><a href="https://www.mercatus.org/system/files/hummel-interest-rates-mercatus-working-paper-v1.pdf" rel="nofollow external noopener noreferrer" target="_blank">it’s no less often the case that the Fed responds to changes in the “natural” or “neutral” interest rate</a>, meaning the rate consistent with stable prices or (and, I think, more accurately)<span> </span><a href="https://www.dallasfed.org/news/speeches/kaplan/2018/rsk181024.aspx" rel="nofollow external noopener noreferrer" target="_blank">the avoidance of cyclical unemployment</a>.</p> <p>That natural rates have been on the decline for some time now is<span> </span><a href="https://research.stlouisfed.org/publications/economic-synopses/2019/04/19/factors-behind-the-decline-in-the-u-s-natural-rate-of-interest" rel="nofollow external noopener noreferrer" target="_blank">one of the more notorious facts—if not<span> </span><em>the</em><span> </span>most notorious fact—the Fed has had to contend with</a><span> </span>over the course of the last dozen years. It’s owing to that decline, and not because it’s indifferent to the welfare of savers, that the Fed has had to resort twice now to ZIRP. Nor (as the FRED chart below makes clear) can there be any doubt that in each of these instances the Fed’s rate settings, far from leading market rates to zero, followed them there. Indeed, if the Fed is to be faulted, it’s for having delayed ZIRP too long,<span> </span><a href="https://www.alt-m.org/2018/04/30/anniversary-of-a-fed-blunder/" rel="nofollow noopener noreferrer" target="_blank">particularly in 2008</a>.</p> <p><a href="https://www.alt-m.org/?attachment_id=220780" rel="attachment wp-att-220780 nofollow noopener noreferrer" target="_blank"><img alt="" height="282" src="https://cdn.alt-m.org/wp-content/uploads/2020/04/FedFollows.png" width="700" /></a></p> <h4>A Trump Toady?</h4> <p>So far, Mr. Nader’s unjust criticisms of Powell’s policies can be blamed on his ignorance of monetary economics. But that ignorance can’t explain, let alone excuse, Nader’s suggestion that Powell went along with the Fed’s recent rate cuts only because he was too weak‐​kneed to stand up to<span> </span><a href="https://www.wsj.com/articles/trump-steps-up-criticism-of-fed-11584227180" rel="nofollow external noopener noreferrer" target="_blank">President Trump’s bullying</a>.</p> <p>Trump has, of course, long favored lower, if not zero, rates, and he has criticized Powell for not delivering them. Now Powell has delivered them. This much can be said in Nader’s favor. Alas, it’s hardly enough. The whole newspaper reading world knows that until recently Powell repeatedly disappointed Trump, while<span> </span><a href="https://www.politico.com/news/2019/10/07/jerome-powell-fed-freedom-037731" rel="nofollow external noopener noreferrer" target="_blank">publicly insisting on the Fed’s independence</a>. The merit of Nader’s charge therefore depends entirely on whether the Fed’s recent resort to ZIRP was motivated, not by the coronavirus crisis, but by Powell’s finally having caved‐​in to Trump’s badgering. Alas for Mr. Nader,<span> </span><a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20200315.pdf" rel="nofollow external noopener noreferrer" target="_blank">the recently‐​released minutes for the Fed’s March 15th meeting</a><span> </span>leave no room for doubt concerning the reasoning behind the Fed’s decision. Had Mr. Nader waited just one more day, he might have read those minutes, and spared Mr. Powell his groundless and ill‐​timed philippic.</p> <p>[<a href="https://www.alt-m.org/2020/04/10/raph-nader-flips-out/">Cross‐​posted at Alt​-​M​.org</a>]</p> Fri, 10 Apr 2020 08:45:53 -0400George Selginhttps://www.cato.org/blog/ralph-nader-flips-outRethinking Hawks and Doves Post‐​COVID‐​19https://www.cato.org/blog/rethinking-hawks-doves-post-covid-19 <p><a href="https://www.cato.org/people/christopher-preble" hreflang="und">Christopher A. Preble</a></p> <p>In a&nbsp;new article at <a href="https://responsiblestatecraft.org/2020/04/08/how-will-covid-19-change-us-national-security-strategy/">Responsible Statecraft</a>, I&nbsp;ponder the possible implications of the COVID-19 outbreak on the future of U.S. foreign policy. U.S. government officials are responsible for identifying and prioritizing among many national security threats, and generally trusted with finding the most appropriate tools for addressing those threats. There are <a href="https://www.cato.org/blog/comparing-military-spending-covid-19-related-medical-costs">obvious tradeoffs</a>. For example, the U.S. military – that mostly deals with problems “over there” – competes for resources with those institutions responsible for defeating threats to public safety here in the United States.</p> <p>Pentagon spending advocates – <a href="https://www.jstor.org/stable/2150933?seq=1#metadata_info_tab_contents">hawks in the usual parlance</a> – are likely to argue that we shouldn’t cut the military in order to free up more resources for public health. We’ll soon go back to normal, they’ll say. COVID-19 was a&nbsp;black swan event. From their perspective, it would be unwise to reorient our national security strategy and spending to deal with one type of threat at the expense of all others.</p> <p>That isn’t exactly how politics responded after 9/11, also a&nbsp;black swan event – but, in that case, the military eventually came out on top. In fact, anyone arguing against the militarized approach (i.e. so‐​called doves), and who saw counterterrorism as chiefly an intelligence and law enforcement problem, was attacked by the hawks for not taking the threat seriously enough. Only a&nbsp;war would do. Anything less was naïve — or even callous, a&nbsp;sign of indifference to the inevitable suffering of those future victims of certain terrorist attacks.</p> <p>That perspective, fixed within days or weeks of September 11, 2001, has persisted. Even today, proposals to remove U.S. forces from Afghanistan, for example, are met with <a href="https://www.politico.com/news/2020/03/03/top-allies-trump-forces-afghanistan-119694">dire warnings that this will increase the risk of future terrorist incidents here in the United States</a>. Only an ongoing and open‐​ended U.S. military presence, we’re told, can manage this risk. And nothing will eliminate it. The best we can do is manage the danger.</p> <p>Will such arguments survive the current crisis here at home? What politician will make the argument that Americans might have to die of COVID-19 today in order to ensure that other Americans are not killed by a&nbsp;terrorist in the future? And might those military personnel so active in helping to build foreign countries be needed to save this one?</p> <p>The suggestion seemed absurd for generations. There was no such danger nearby, or even on the horizon.</p> <p>The danger is now here.</p> <p>So, whereas it was once considered naïve to doubt that terrorism posed a&nbsp;very grave threat to public safety, will pandemic skeptics in the future be panned as dangerously out of touch with reality? Will the claims of traditional defense hawks, who could be counted on to make a&nbsp;full‐​throated case for every ship, tank, or missile that the Pentagon wanted (<a href="https://www.military.com/daily-news/2015/01/28/pentagon-tells-congress-to-stop-buying-equipment-it-doesnt-need.html">and even a&nbsp;few that it didn’t</a>), now be subjected to greater scrutiny? At a&nbsp;minimum, it seems likely that some senator or congressman will ask, for example, how that ship, tank, or missile, might perform against a&nbsp;killer pandemic.</p> <p>In the post‐​9/​11 era, <a href="https://www.cato.org/sites/cato.org/files/serials/files/regulation/2004/10/v27n3-5.pdf">a&nbsp;few dared to question</a> whether the massive costs we had incurred (not merely in our wallets but also to&nbsp;our liberties) amounted to a&nbsp;needless overreaction. But most Americans fell meekly into line – literally. The lines manned by TSA agents. Or at sporting events. Or public buildings. Will a&nbsp;similar pattern play out post COVID-19? The early signs are troubling.</p> <p>On the other hand, the disease and its aftermath should prompt a&nbsp;robust debate over how best to preserve U.S. national security. In a&nbsp;peculiar twist, those calling for more spending to defeat diseases could be called the pandemic hawks, while those arguing against (and preferring that most resources remain with the military) become the doves. The suggestion might seem bizarre, and the terms hawk and dove pertain to more than spending priorities. But, as I&nbsp;conclude at Responsible Statecraft, “while the coronavirus won’t change everything, it will change <em>many</em> things.”</p> <p>Finding the proper balance between public safety and personal freedom post‐​COVID‐​19 “will require us to revisit all of the things that we say we need to do to keep us safe. And it should entail finally shifting resources away from the military, and dropping a&nbsp;militarized approach to global problems, in favor of the many other instruments of American power and influence.”</p> <p>You can read the whole thing <a href="https://responsiblestatecraft.org/2020/04/08/how-will-covid-19-change-us-national-security-strategy/">here</a>.</p> Thu, 09 Apr 2020 10:11:20 -0400Christopher A. Preblehttps://www.cato.org/blog/rethinking-hawks-doves-post-covid-19With Improving Fatality Projections, a Lesson about Decentralization and Local Knowledgehttps://www.cato.org/blog/improving-fatality-projections-covid-19-pandemic-comes-lesson-about-decentralization-local <p><a href="https://www.cato.org/people/jeffrey-singer" hreflang="und">Jeffrey A. Singer</a></p> <p><span><span><span>The Institute for Health Metrics and Evaluation at the University of Washington provides a&nbsp;forecasting model respected and used by the White House Coronavirus Task Force to plan the response to the COVID-19 pandemic. Last Sunday it revised its fatality projections downward to <a href="http://www.healthdata.org/news-release/new-ihme-covid-19-forecasts-find-lower-hospital-bed-need-epidemics-starting-peak">81,766 deaths</a> (range 49,431 to 136,401) by early August, with the peak day occurring on April 16. It now projects <a href="https://covid19.healthdata.org/united-states-of-america">60,401 deaths</a> (range 31,221 to 126,703) by August 4, with a&nbsp;peak day of April 11. </span></span></span></p> <p><span><span><span>This is very encouraging news. As Dr. Anthony Fauci of the task force previously <a href="https://www.politico.com/video/2020/03/31/fauci-models-white-house-coronavirus-task-force-070476">stated</a>, “Models are as good as the assumptions you put into them.” And as more data come in and we develop more knowledge about the virus’ impact, the assumptions put into the models change and the projections change with them.</span></span></span></p> <p><span><span><span>These improved projections are little comfort to the people living in the New York/​New Jersey metropolitan areas, as well other highly impacted areas such as New Orleans or Detroit, whose health systems are overwhelmed and whose fatality rates are striking, But it is important to bear in mind that different portions of the country are experiencing <a href="https://www.worldometers.info/coronavirus/country/us/">different case rates and fatality rates</a>. </span></span></span></p> <p><span><span><span>As the Wall Street Journal pointed out in its April 8&nbsp;<a href="https://www.wsj.com/articles/the-art-of-coronavirus-modeling-11586301975">editorial</a>, demographic and geographical differences probably explain a&nbsp;lot about these variations. That’s why I&nbsp;have <a href="https://cronkitenews.azpbs.org/2020/03/31/brnovich-weighs-in-as-duceys-stay-home-order-takes-effect-statewide/">argued</a> that policies implemented in response to the public health emergency should not be one‐​size‐​fits‐​all, but should be customized to fit the facts on the ground in various regions of the country based upon local knowledge. California, which began its statewide lockdown on March 22, just three days before New York, had 485 fatalities reported on April 8, compared to New York which had 6,268 fatalities. It is reasonable to ask if the same policies that are appropriate in New York are completely necessary in California. It is also reasonable to ask if perhaps Californians were exposed to COVID-19 months ago, and herd immunity may have already developed there, slowing the virus’ spread. (More on that later.)</span></span></span></p> <p><span><span><span>Speaking of local knowledge, on March 16 the Food and Drug Administration responded to criticisms that its cumbersome regulatory process is slowing the development and release of COVID-19 tests by <a href="https://www.cato.org/blog/temporarily-unshackled-private-sector-responds-demand-more-coronavirus-tests">delegating authority to the states</a> to approve tests within their borders.</span></span></span></p> <p><span><span><span>Public health officials are hoping that tests for antibodies, which indicate if a&nbsp;person has already had the infection and therefore developed immunity, will soon become widely available. This is key to a&nbsp;plan in <a href="https://www.businessinsider.com/coronavirus-germany-covid-19-immunity-certificates-testing-social-distancing-lockdown-2020-3">Germany</a>: people there who display immunity will be given “immunity certificates” and allowed to go back to work. They can’t become infected and can’t infect any contacts.</span></span></span></p> <p><span><span><span>The FDA finally gave emergency use authorization for an antibody test&nbsp;made by the biotech company <em><a href="https://www.mdedge.com/internalmedicine/article/220225/coronavirus-updates/fda-grants-emergency-authorization-first-rapid">Cellex</a>&nbsp;</em>on April 4<em>.</em>&nbsp;However, it <a href="https://www.fda.gov/media/136622/download">specified</a> that the manufacturer must state on the test label that it is not formally FDA‐​approved, and testing is limited to FDA‐​certified labs. The tests are <a href="https://www.ncbiotech.org/news/cellex-cleared-market-antibody-test-covid-19">not available</a> to private labs or for home testing. They should be available soon.</span></span></span></p> <p>While we wait—and exercising the authority delegated to it by the FDA—California<span><span><span>, on April 1, allowed an antibody test made by <a href="https://www.ksbw.com/article/monterey-lab-offers-new-coronavirus-antibody-test/32011948">Premier Biotech</a> to be used by ARCpoint Labs, a&nbsp;commercial laboratory in Monterey, CA. The test is not FDA‐​approved.</span></span></span></p> <p><span><span><span>And on April 3&nbsp;researchers at Stanford University School of Medicine began a&nbsp;<a href="https://www.ksbw.com/article/new-study-investigates-californias-possible-herd-immunity-to-covid-19/32073873">study</a> using that same Premier Biotech test, hoping to learn if California’s low fatality rate might be the result of herd immunity. California is the number one U.S. tourist destination for people from China. Chinese health authorities recently revised the date that they believe the COVID-19 virus came on the scene in Wuhan, from early January to early November. The Stanford researchers believe it might have developed even earlier, and was being brought to California by asymptomatic or mildly symptomatic Chinese tourists in the fall—when California doctors were reporting an earlier than usual flu season.</span></span></span></p> <p><span><span><span>On April 3<sup>rd</sup> and 4<sup>th</sup> the Stanford researchers performed the test on 3,200 people at sites in San Jose, Los Gatos, and Mountain View. The tests just take a&nbsp;few minutes to run. They hope to complete the study and release their findings in the next few weeks. Meanwhile, ARCpoint Labs has already conducted 500 of the tests, with some positive results, and is sending in all of the results to the Monterey County Health Department.</span></span></span></p> <p><span><span><span>If it turns out that Californians are approaching herd immunity, life there can return to normal sooner than the national models would otherwise predict.</span></span></span></p> <p><span><span><span>California provides a&nbsp;good example here of how decentralization and deregulation, using local knowledge, can produce rapid and community‐​specific responses when unexpected emergencies arise.</span></span></span></p> Wed, 08 Apr 2020 22:42:44 -0400Jeffrey A. Singerhttps://www.cato.org/blog/improving-fatality-projections-covid-19-pandemic-comes-lesson-about-decentralization-localIs the Federal Government Stealing Medical Supplies?https://www.cato.org/blog/federal-government-stealing-medical-supplies <p><a href="https://www.cato.org/people/chris-edwards" hreflang="und">Chris Edwards</a></p> <p>That appears to be the case. The <em>Los Angeles Times</em> <a href="https://www.latimes.com/politics/story/2020-04-07/hospitals-washington-seize-coronavirus-supplies">calls it</a> “seizing,” but it amounts to the same thing as these are legal products that the government did not order. The White House and FEMA are swooping in to grab masks, thermometers, and other items in a secretive process with apparently little recourse.</p> <div> <p><strong>Related Event</strong></p> <span class="hs-cta-wrapper" id="hs-cta-wrapper-d708a46f-08e4-4f86-81c0-577933ad9f40"><span class="hs-cta-node hs-cta-d708a46f-08e4-4f86-81c0-577933ad9f40" id="hs-cta-d708a46f-08e4-4f86-81c0-577933ad9f40"><a href="https://cta-redirect.hubspot.com/cta/redirect/4957480/d708a46f-08e4-4f86-81c0-577933ad9f40"><img class="hs-cta-img lozad" id="hs-cta-img-d708a46f-08e4-4f86-81c0-577933ad9f40" alt="The Economics of Lockdowns" data-src="https://no-cache.hubspot.com/cta/default/4957480/d708a46f-08e4-4f86-81c0-577933ad9f40.png" /></a></span> //--&gt; </span> <p><strong>Webcast</strong></p> <a href="https://www.cato.org/events/the-economics-of-lockdowns"><img class="component-image lozad" data-src="https://www.cato.org/sites/cato.org/files/styles/pubs_2x/public/brightcove/videos/images/posters/image_20626.jpg?itok=JHHcsFdG" /></a> <p>How much of the coming economic downturn will be driven by government shutdowns as opposed to the changing consumer and producer behavior we’d expect because of the coronavirus?</p> <span class="hs-cta-wrapper" id="hs-cta-wrapper-b72fbdbc-f2fb-423e-a1ef-858fa31388f8"><span class="hs-cta-node hs-cta-b72fbdbc-f2fb-423e-a1ef-858fa31388f8" id="hs-cta-b72fbdbc-f2fb-423e-a1ef-858fa31388f8"><a href="https://cta-redirect.hubspot.com/cta/redirect/4957480/b72fbdbc-f2fb-423e-a1ef-858fa31388f8"><img class="hs-cta-img lozad" id="hs-cta-img-b72fbdbc-f2fb-423e-a1ef-858fa31388f8" alt="WATCH NOW" data-src="https://no-cache.hubspot.com/cta/default/4957480/b72fbdbc-f2fb-423e-a1ef-858fa31388f8.png" /></a></span> //--&gt; </span> </div><br /><p>These actions are abusive from a civil liberties perspective, and such command‐​and‐​control methods make no practical sense either. As I discuss <a href="https://www.cato.org/blog/covid-19-top-down-confusion-vs-horizonal-cooperation">here</a>, <a href="https://www.cato.org/blog/disasters-federalism-strength-not-weakness">here</a>, and <a href="https://www.downsizinggovernment.org/dhs/fema">here</a>, central planning is the wrong way to go for disaster planning and response, as it will make the nation less safe and resilient.</p> <p><em>Los Angeles Times</em> reporter Noam M. Levey <a href="https://www.latimes.com/politics/story/2020-04-07/hospitals-washington-seize-coronavirus-supplies">describes</a> what is going on:</p> <blockquote> <p><span>Although President Trump has directed states and hospitals to secure what supplies they can, the federal government is quietly seizing orders, leaving medical providers across the country in the dark about where the material is going and how they can get what they need to deal with the coronavirus pandemic.</span></p> <p><span><span><span><span><span>Hospital and clinic officials in seven states described the seizures in interviews over the past week. The Federal Emergency Management Agency is not publicly reporting the acquisitions, despite the outlay of millions of dollars of taxpayer money, nor has the administration detailed how it decides which supplies to seize and where to reroute them.</span></span></span></span></span></p> <p><span><span>Officials who’ve had materials seized also say they’ve received no guidance from the government about how or if they will get access to the supplies they ordered. </span></span></p> <p><span><span>… In Florida, a large medical system saw an order for thermometers taken away. And officials at a system in Massachusetts were unable to determine where its order of masks went.</span></span></p> <p><span><span>… PeaceHealth, a 10‐​hospital system in Washington, Oregon and Alaska, had a shipment of testing supplies seized recently. “It’s incredibly frustrating,” said Richard DeCarlo, the system’s chief operating officer.</span></span></p> <p><span><span>… In response to questions from The Times, a FEMA representative said the agency, working with the Department of Health and Human Services and the Department of Defense, has developed a system for identifying needed supplies from vendors and distributing them equitably….But the agency has refused to provide any details about how these determinations are made or why it is choosing to seize some supply orders and not others. </span></span></p> <p><span><span>… </span>Hospital and health officials describe an opaque process in which federal officials sweep in without warning to expropriate supplies.</span></p> <p><span><span><span><span><span>Jose Camacho, who heads the Texas Assn. of Community Health Centers, said his group was trying to purchase a small order of just 20,000 masks when his supplier reported that the order had been taken.</span></span></span></span></span></p> <p><span><span><span><span><span>Camacho was flabbergasted. Several of his member clinics — which as primary care centers are supposed to alleviate pressure on overburdened hospitals — are struggling to stay open amid woeful shortages of protective equipment.</span></span></span></span></span></p> <p><span><span><span><span><span>“Everyone says you are supposed to be on your own,” Camacho said, noting Trump’s repeated admonition that states and local health systems cannot rely on Washington for supplies. “Then to have this happen, you just sit there wondering what else you can do. You can’t fight the federal government.”</span></span></span></span></span></p> </blockquote> Wed, 08 Apr 2020 15:56:25 -0400Chris Edwardshttps://www.cato.org/blog/federal-government-stealing-medical-suppliesThe Risk of Too Much Air Safety Regulation—Further Thoughtshttps://www.cato.org/blog/risk-too-much-air-safety-regulation-further-thoughts <p><a href="https://www.cato.org/people/peter-vandoren" hreflang="und">Peter Van Doren</a> and <span class="text-semibold">Dennis L. Weisman</span></p> <p><strong>Introduction</strong></p> <p>In <a href="https://www.cato.org/sites/cato.org/files/2020-03/regv43n1-1.pdf">a&nbsp;recent article</a> (“The Risk of Too Much Air Safety Regulation,” <em>Regulation</em>, Spring 2020), we argued that reflexive overregulation of air safety following the two tragic crashes of Boeing’s 737 Max aircraft could easily cost many more lives that it saves. This observation follows from the fact that increased air safety regulation would force Boeing to reflect these higher regulatory compliance costs in price increases for new aircraft. This price‐​cost dynamic would drive up airfares and thereby divert some proportion of travelers from the low‐​risk skies to the high‐​risk highways. Because it is over 100 times more hazardous to drive than to fly on a&nbsp;per‐​mile basis, the lives saved in the air would be swamped by the far greater number of lives lost on the roadways. This analysis was the basis for our public policy counsel that investment in air‐​safety regulation is properly focused on minimizing the net number of lives lost across all viable modes of travel rather than air travel alone.</p> <p>The purpose of this commentary is to extend our previous analysis to include the increased number of serious injuries that are likely to result from an increase in air‐​safety regulation in the aftermath of the two crashes of the Boeing 737 Max airliners. From a&nbsp;public policy perspective, the results of this supplemental analysis are no less concerning than the original analysis given the dramatic increase in the net number of injuries induced by an increase in air safety regulation. The risk of injury in driving is almost 24,000 times greater than that of flying on a&nbsp;per‐​mile basis. The roads are dangerous and deadly—the skies are markedly less so.</p> <p><strong>The Grim Statistics</strong></p> <p>According to the <a href="https://www.bts.gov/topics/national-transportation-statistics">National Transport Statistics</a>, in 2017 there were 0.233 injuries reported per 100 million aircraft miles compared with an alarming 85 injuries reported<strong> </strong>per 100 million motor vehicle miles (Tables 2–9 and 2–17). This represents a&nbsp;365‐​fold difference (85 <em>÷ </em>0.233) in injuries across the two modes of travel.</p> <p>Airplanes, of course, carry many more passengers per mile of travel than motor vehicles. In 2017 airplanes traveled 6,338 million miles (Table 1–35) resulting in 693,818 million passenger miles (Table 1–40) for an average occupancy of 109.47 (693,818 <em>÷ </em>6,338<em>)</em> while motor vehicles traveled 3,212,347 million miles (Table 1–35) resulting in 5,502,417 million passenger miles (Table 1–40) for an average occupancy of 1.71 (5,502,417 <em>÷ </em>3,212,347).</p> <p>If one uses these data to convert the injury rates from a&nbsp;vehicle‐​mile to passenger‐​mile basis, the result is 0.0021 injuries reported per one‐​hundred million aircraft passenger‐​miles (.233 ÷ 109.47) compared to 49.7 injuries reported per one‐​hundred million motor vehicle passenger‐​miles (85 ÷ 1.71). This implies that, on average, the risk of injury is approximately 23,667 (49.7 <em>÷ </em>0.0021) times greater when traveling by motor vehicle than traveling by airplane on a&nbsp;per passenger‐​mile basis.</p> <p><strong>Estimating the Injuries From New Air‐​Safety Regulation</strong></p> <p>Because Boeing was recertifying an existing aircraft (the 737 was initially certified in 1967) as opposed to certifying a&nbsp;new aircraft, it received a&nbsp;FAA (Federal Aviation Administration) waiver for a&nbsp;pilot‐​alert system on the 737 Max that is required of new aircraft and that would have cost $10 billion to implement. The pilot‐​warning system is a&nbsp;central focus of the FAA’s accident investigation into the 737 Max crashes.</p> <p>We estimated in our previous article that the $10 billion expenditure on the pilot‐​alert system would have raised airfares by approximately 10.52% and resulted in a&nbsp;0.63% increase in highway passenger‐​miles. This equates to an additional 347 hundred‐​million passenger‐​miles driven. (This is based on a&nbsp;cross‐​price elasticity between air and automobile travel of 0.06 and a&nbsp;base of 55,024.2 one‐​hundred million passenger‐​miles.) The product of 347 and 49.7 (injuries per one‐​hundred million motor vehicle passenger miles) implies that an estimated additional 17,246 injuries on the roadways would occur because of the regulation‐​induced increase in airfares. Assuming a&nbsp;one‐​to‐​one correspondence between the increase in miles driven and the decrease in miles flown, an estimated 0.7287 (347 × .0021) injuries would have been avoided in the air as a&nbsp;result of this increase in airfares. Hence, the net number of injuries induced by the increase in air safety regulation is approximately 17,245 (17,246 – 0.7287).</p> <p>Investigation into the Boeing 737 Max crashes revealed that the actual task of air‐​worthiness certification was not carried out by government inspectors but (incredibly) by Boeing employees. If those certification functions currently conducted by Boeing were taken over by the FAA, the estimated cost is $1.8 billion and 10,000 employees. If this additional cost were paid by those who fly (and conservatively assuming there is no demand response in terms of reduced passenger air miles), this would result in an increase in airfares of approximately 1.9% resulting in an additional 62.7 one‐​hundred million motor vehicle passenger‐​miles driven (0.019 × 0.06 × 55024.2). The increase in the number of highway injuries induced by this change in regulation is approximately 3,116 (62.7 × 49.7). Because significantly less than one injury is avoided in the air because of the decreased air travel as a&nbsp;result of this increase in airfares and the very low injury rate in air travel, the net number of injuries induced by this change in regulation is essentially simply the increase in highway injuries.</p> <p><strong>Conclusion</strong></p> <p>The FAA’s investigation into the 737 Max crashes is ongoing and some troubling facts have already surfaced; more are certain to follow. These observations notwithstanding, the fact that the technology exists that could have saved lives and avoided injuries in the air does not imply that it would have been prudent to implement those safety measures. Policymakers must not be myopic in their zeal “to do something.” They must, of necessity, exercise due diligence so as not to implement costly air safety measures that drive up airfares and cause consumers to substitute high‐​risk highway travel for low‐​risk air travel. As we stated in our original article and reiterate here, from a&nbsp;public policy perspective the greatest risk confronting the traveling public is not airplanes falling out of the sky, but rather reflexive over‐​regulation of air safety that on balance costs far more lives than it saves and causes far more injuries than it avoids.</p> Wed, 08 Apr 2020 13:24:17 -0400Peter Van Doren, Dennis L. Weismanhttps://www.cato.org/blog/risk-too-much-air-safety-regulation-further-thoughtsRegulations Stymie COVID-19 Innovationhttps://www.cato.org/blog/regulations-stymie-covid-19-innovation <p><a href="https://www.cato.org/people/jeffrey-miron" hreflang="und">Jeffrey Miron</a> and <span class="text-semibold">Erin Partin</span></p> <p>Amid a&nbsp;nationwide ventilator <a href="https://www.nytimes.com/2020/03/18/business/coronavirus-ventilator-shortage.html">shortage</a>, hospitals are facing increasing pressure to make <a href="https://www.washingtonpost.com/health/2020/04/07/ventilators-rationing-coronavirus-hospitals/">difficult decisions</a>. In preparation for such a&nbsp;shortage one doctor at the <a href="https://umc.edu/news/News_Articles/2020/04/UMMC-builds-ventilators-for-COVID-19-pandemic-response.html">University of Mississippi Medical Center</a>, Charles Robinson, had an idea to build the “absolute simplest, cheapest functioning ventilator from widely available parts.”</p> <blockquote><p>“The Robertson Ventilators are made from garden hose sections, adapters, valves, a&nbsp;solenoid and a&nbsp;lamp timer, all of which can be bought at a&nbsp;hardware store or online. The parts cost less than 100 dollars per ventilator and can be assembled in less than an hour. The ventilator works when plugged into the standard oxygen line in a&nbsp;hospital room, meaning it can be used in more locations than a&nbsp;standard ventilator.”</p> </blockquote> <p>Dr. Robertson and his team designed and build 170 of these ventilators, more than doubling the hospital’s supply. The ventilators have been extensively tested and are ready for use, but until the FDA approves an <a href="https://www.fda.gov/emergency-preparedness-and-response/mcm-legal-regulatory-and-policy-framework/emergency-use-authorization">Emergency Use Authorization</a> the life‐​saving equipment will sit idle.</p> <p>Critically ill patients may not have the luxury of time. The FDA has already contributed to the severity of the pandemic by <a href="https://www.politifact.com/factchecks/2020/mar/23/dan-crenshaw/did-fda-regulations-slow-testing-coronavirus/">delaying approval</a> of coronavirus tests. The FDA’s <a href="https://www.fda.gov/media/93524/download">mission statement</a> claims, in part, that they are, “responsible for advancing the public health by helping to speed innovations.” But so far during this pandemic we have seen significant bureaucratic obstacles and costly delays. The sooner this stops, the better.</p> Wed, 08 Apr 2020 12:05:06 -0400Jeffrey Miron, Erin Partinhttps://www.cato.org/blog/regulations-stymie-covid-19-innovationCOVID-19: Top‐​Down Confusion vs Horizonal Cooperationhttps://www.cato.org/blog/covid-19-top-down-confusion-vs-horizonal-cooperation <p><a href="https://www.cato.org/people/chris-edwards" hreflang="und">Chris Edwards</a></p> <p>The former CEO of the Bill and Melinda Gates Foundation, Susan Desmond‐​Hellmann, discussed ways to prepare for the next pandemic <a href="https://www.wsj.com/articles/preparing-for-the-next-pandemic-11585936915">in the <em>Wall Street Journal</em></a>:</p> <blockquote><p>First, there is no substitute for federal preparedness when it comes to ensuring a&nbsp;ready supply of personal protective gear. Companies like Apple and Facebook stepped up to donate masks they had stockpiled when California wildfires pushed them to protect their staff, and other private companies were able to leverage their global supply chains to pitch in. As grateful as we should be for these efforts, it’s not the private sector’s job to save us in a&nbsp;public health emergency.</p> <p>It is the role of the federal government to adequately stockpile and plan for a&nbsp;pandemic. Clear accountability on the National Security Council, matching the authority that already exists for the military procurement and supply chain, would allow asset allocation to the states and regions in greatest need. It would avoid what we see today, with states competing against each other for vital supplies.</p> </blockquote> <p>Alas, I&nbsp;fear that is a&nbsp;harmful message—that the nation should rely on the federal government to do the planning and stockpiling for crises. Such reliance would undermine incentives for the states, hospital systems, and other institutions to build their own inventories of emergency supplies. A&nbsp;diversity of approaches and distributed supplies will create more resilience than putting all our eggs in one basket, especially when the one basket is the <a href="https://www.cato.org/sites/cato.org/files/pubs/pdf/pa777.pdf">failure‐​prone</a> federal government.</p> <p>Desmond‐​Hellmann wants a&nbsp;military‐​style “authority,” but such a&nbsp;centralized structure would produce inferior decisions because, as Walter Olson<span> <a href="https://www.cato.org/blog/disasters-federalism-strength-not-weakness">noted</a></span>, state leaders have more knowledge of <span>local resources, hazards, and priorities. Also, </span><a href="https://www.downsizinggovernment.org/dhs/fema"><span>experience shows</span></a><span> that federal intervention can slow disaster response by adding layers of unneeded rules.</span></p> <p><span>In the current crisis, federal intervention into medical supply chains is creating confusion. The <em>Los Angeles Times</em> <a href="https://sports.yahoo.com/hospitals-feds-seizing-masks-other-210748808.html">reported yesterday</a> that “the federal government is quietly seizing orders, leaving medical providers across the country in the dark about where the material is going and how they can get what they need to deal with the coronavirus pandemic.</span>” A&nbsp;new <a href="https://www.cnn.com/2020/04/08/politics/fema-governor-response/index.html">CNN report</a> similarly describes the confusion and complexity that FEMA and White House manipulation of medical supplies is creating.</p> <p><span>During his daily briefings, President Trump seems to relish acting like a&nbsp;central planner dishing out ventilators and masks here and there to various states. But the LAT and CNN reports suggest that the nontransparency of federal seizures—basically theft—is creating anger and uncertainty in the medical community.</span></p> <p>Desmond‐​Hellmann thinks that federal stockpiling would avoid “states competing against each other for vital supplies.” But wouldn’t it do the opposite? The larger the share of the nation’s medical supplies controlled by the federal government, the more intense the political jockeying would be because states and hospital systems would face more uncertainty and desperation.</p> <p>People may think that federal coordination is needed during disasters, but the states coordinate among themselves all the time. As I&nbsp;<a href="https://www.downsizinggovernment.org/dhs/fema">discuss here</a>, the states have a&nbsp;standing agreement <a href="https://www.emacweb.org/">(EMAC</a>) to share assets during disasters such as hurricanes. When Hurricane Katrina hit in 2005, Florida rushed its stockpile of emergency supplies to Louisiana. During wildfires, the states share <a href="https://www.usatoday.com/story/news/nation/2019/11/06/california-relies-help-oregon-firefighters-hotter-longer-fire-season/4169898002/">firefighters and equipment</a>. Similarly, electric utilities share crews and equipment during disasters. Where I&nbsp;live in Virginia, utility trucks have come in from other states to assist after storms have knocked out power. Such horizontal cooperation is more efficient than vertical control through Washington, which adds regulations, delays, and politics.</p> <p>The federal government has important roles to play during disasters. The military has unique assets that can be crucial, such as Navy hospital ships during the current crisis and Coast Guard vessels during hurricanes. And it does make sense for the federal government to have backup supplies of critical medicines and other resources. But federalism should underpin disaster preparation and response, and emergency supply systems should be mainly based on distributed stockpiling, markets, and horizontal cooperation.</p> Wed, 08 Apr 2020 12:03:55 -0400Chris Edwardshttps://www.cato.org/blog/covid-19-top-down-confusion-vs-horizonal-cooperationThe Trump Administration Joins the Rush to Restrict Medical Supply Exportshttps://www.cato.org/blog/trump-administration-joins-rush-restrict-medical-supply-exports <p><a href="https://www.cato.org/people/simon-lester" hreflang="und">Simon Lester</a></p> <p>Nine days ago, I&nbsp;<a href="https://www.cato.org/blog/response-coronavirus-must-be-internationalist-not-nationalist">noted here on this blog</a> that “[s]o far, <a href="https://www.globaltradealert.org/reports/51">54 countries</a> have implemented some form of export restriction on medical supplies.” The number has increased since then, and it appears that the United States will be joining the club.</p> <p>Last week, President Trump issued a “<a href="https://www.whitehouse.gov/presidential-actions/memorandum-allocating-certain-scarce-threatened-health-medical-resources-domestic-use/">Memorandum on Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use</a>,” which including the following passage about personal protective&nbsp;equipment (PPE):</p> <blockquote><p>On March 25, 2020, the Secretary of Health and Human Services designated under section 102 of the Act 15 categories of health and medical resources as scarce materials or materials the supply of which would be threatened by accumulation in excess of the reasonable demands of business, personal, or home consumption, or for the purpose of resale at prices in excess of prevailing market prices (“scarce or threatened materials”). These designated items include certain PPE materials. To ensure that these scarce or threatened PPE materials remain in the United States for use in responding to the spread of COVID-19, it is the policy of the United States to prevent domestic brokers, distributors, and other intermediaries from diverting such material overseas.</p> </blockquote> <p>An accompanying <a href="https://www.whitehouse.gov/briefings-statements/statement-president-regarding-defense-production-act-3/">statement</a> clarified:</p> <blockquote><p>Nothing in this order will interfere with the ability of PPE manufacturers to export when doing so is consistent with United States policy and in the national interest of the United States.</p> </blockquote> <p>The memorandum was a&nbsp;bit strangely worded, and these kinds of announcements from the Trump administration sometimes don’t lead to much, so I&nbsp;wondered where this was going. But now it has gone somewhere. Last night, FEMA put out a&nbsp;<a href="https://s3.amazonaws.com/public-inspection.federalregister.gov/2020-07659.pdf">temporary final rule</a> (scheduled for publication in the Federal Register on April 10) entitled “Prioritization and Allocation of Certain Scarce or Threatened Health and Medical Resources for Domestic Use.” This rule will give FEMA the authority to block exports of PPE (such as N95 respirators, gloves, and masks) in particular circumstances. The key part of the rule states:</p> <blockquote><p>Following consultation with the Secretary of HHS; pursuant to the President’s direction; and as an exercise of the Administrator’s priority order, allocation, and regulatory authorities under the Act, the Administrator has determined that the scarce or threatened materials identified in the April 3, 2020 Presidential Memorandum (“covered materials”) shall be allocated for domestic use, and may not be exported from the United States without explicit approval by FEMA. See new 44 CFR 328.102(a).</p> <p>The rule is necessary and appropriate to promote the national defense with respect to the covered materials because the domestic need for them exceeds the supply. Under this temporary rule, before any shipments of such covered materials may leave the United States, CBP will detain the shipment temporarily, during which time FEMA will determine whether to return for domestic use, issue a&nbsp;rated order for, or allow the export of part or all of the shipment under section 101(a) of the Act, 50 U.S.C. 4511(a). FEMA will make such a&nbsp;determination within a&nbsp;reasonable time of being notified of an intended shipment and will make all decisions consistent with promoting the national defense. See new 44 CFR 328.102(b). FEMA will work to review and make determinations quickly and will endeavor to minimize disruptions to the supply chain.</p> <p>In determining whether it is necessary or appropriate to promote the national defense to purchase covered materials, or allocate materials for domestic use, FEMA may consult other agencies and will consider the totality of the circumstances, including the following factors: (1) the need to ensure that scarce or threatened items are appropriately allocated for domestic use; (2) minimization of disruption to the supply chain, both domestically and abroad; (3) the circumstances surrounding the distribution of the materials and potential hoarding or price‐​gouging concerns; (4) the quantity and quality of the materials; (5) humanitarian considerations; and (6) international relations and diplomatic considerations.</p> <p>This rule contains an exemption that the Administrator has determined to be necessary or appropriate to promote the national defense. See new 44 CFR 328.102(c). Specifically, the Administrator has determined that FEMA will not purchase covered materials from shipments made by or on behalf of U.S. manufacturers with continuous export agreements with customers in other countries since at least January 1, 2020, so long as at least 80 percent of such manufacturer’s domestic production of covered materials, on a&nbsp;per item basis, was distributed in the United States in the preceding 12 months. The Administrator decided that this exemption is necessary or appropriate to promote the national defense because it would limit the impact of this order on pre‐​existing commercial relationships, in recognition of the importance of these commercial relationships to the international supply chain, and for humanitarian reasons, in consideration of the global nature of the COVID-19 pandemic. If FEMA determines that a&nbsp;shipment of covered materials falls within this exemption, such materials may be transferred out of the United States without further review by FEMA, provided that the Administrator may waive this exemption and fully review shipments of covered materials subject to this exemption for further action by FEMA, if the Administrator determines that doing so is necessary or appropriate to promote the national defense. FEMA may develop additional guidance regarding which exports are covered by this exemption, and encourages manufacturers to contact FEMA with specific information regarding their status under this exemption.</p> </blockquote> <p>What does all this mean in practice? What impact will the rule have on exports of PPEs? How many exports will fall under the exemption described in the last paragraph?&nbsp;It’s hard to say and we’ll have to see how FEMA applies the rule. It is possible that FEMA will apply it strictly and try to divert a&nbsp;fair amount of these products to the domestic market rather than let them be exported. It is also possible that FEMA will apply it flexibly, and only block exports if they would clearly undermine coronavirus‐​related global health policy. In making its decision on whether to allow export, FEMA is supposed to consider a&nbsp;number of factors, including “humanitarian considerations” and “international relations and diplomatic considerations.” Blocking exports of medical supplies being sent abroad to help people in other countries would seem to undermine those goals.</p> <p>Generally speaking, I’m not too worried about the existence of regulations like this one in principle. It seems to me that governments should be tracking where these products are right now, in order to coordinate with each other and help those most in need at a&nbsp;given time. If an export regulation such as this one is used mostly as a&nbsp;monitoring mechanism, to track where these products are being sold, it would be fine. And to take an extreme hypothetical, if it were used to prevent an order being shipped somewhere for a&nbsp;big halloween party where everyone wants to wear surgical masks, that’s OK too.&nbsp;And it’s even all right if governments keep the products in their country if they are at the peak of the crisis while the export destination country hasn’t been hit yet.</p> <p>The key is to talk to other governments about what you are doing. The exercise shouldn’t be a&nbsp;purely unilateral one. The instruction in the rule to take into account “international relations and diplomatic considerations” should serve as the basis for cooperating with other countries in the implementation of this rule. Let’s hope it does. If the Trump administration uses the regulation as a&nbsp;way to hoard medical supplies, it’s going to cause retaliation by our trading partners in the short–&nbsp;and long‐​terms, as they apply tough export restrictions of their own and begin to lose trust in the United States as a&nbsp;reliable trading partner. Hoarding is not the answer here. Instead, governments should&nbsp;focus on encouraging increased production and should work together to make sure those with the greatest need have access to the necessary supplies.</p> Wed, 08 Apr 2020 08:55:33 -0400Simon Lesterhttps://www.cato.org/blog/trump-administration-joins-rush-restrict-medical-supply-exportsWhen the Waterbed Burstshttps://www.cato.org/blog/when-waterbed-bursts <p><a href="https://www.cato.org/people/diego-zuluaga" hreflang="und">Diego Zuluaga</a></p> <p>While it appears the combination of ample liquidity injections by the Fed and soft loans guaranteed by the Small Business Administration has managed to ease concerns of a&nbsp;looming and massive cash crunch across the economy, there is at least one group of financial firms that has yet to see any respite:<span> </span><a href="https://www.americanbanker.com/articles/mortgage-servicers-teeter-near-crisis-that-regulators-saw-coming" rel="nofollow external noopener noreferrer" target="_blank">mortgage servicers</a>. These are the companies that collect mortgage payments and pass them on to the investors who hold mortgage‐​backed securities (MBS). For that service, they collect a&nbsp;fee.</p> <p>But now that officials have declared a&nbsp;moratorium on mortgage payments for all distressed borrowers, mortgage servicers are in trouble. By contract with the main guarantors of MBS—Fannie Mae, Freddie Mac, and Ginnie Mae (all government‐​run)— they are supposed to continue paying investors even if borrowers become delinquent. Fannie &amp;&nbsp;Co. ultimately make up for those payments, but there is a&nbsp;lag between nonpayment and reimbursement, which servicers must manage.</p> <p>In ordinary circumstances, mortgage servicers usually have a&nbsp;capital cushion sufficient to handle the gap between borrower delinquency and reimbursement by the guarantor. But the government‐​mandated nature of the COVID-19 lockdown and the broad coverage of the moratorium mean that millions of borrowers are expected to go delinquent at once, for a&nbsp;period of as‐​yet‐​unknown length. Owing to this large and unforeseen event, mortgage servicers have<span> </span><a href="https://www.americanbanker.com/news/april-wave-of-missed-payments-could-upend-mortgage-servicers" rel="nofollow external noopener noreferrer" target="_blank">warned</a><span> </span>that they will soon find themselves defaulting on their contracts unless the guarantors come to their rescue.</p> <p>While I&nbsp;have little doubt that servicers will eventually benefit from some form of taxpayer‐​backed liquidity facility, the unfolding cash crunch is yet another instance of the ‘waterbed effect’ of regulation, whereby risky activity that regulatory interventions seek to discourage in one part of the market tends to re‐​appear in other parts that are exempt from such regulation. What’s more, the new hubs of the risky activity sometimes have other vulnerabilities that can set the stage for a&nbsp;worse crisis than the one regulators sought to avoid. I&nbsp;fear that may be happening now with mortgage servicing.</p> <p>In 2013, banking regulators<span> </span><a href="https://www.federalreserve.gov/publications/other-reports/files/effect-capital-rules-mortgage-servicing-assets-201606.pdf" rel="nofollow external noopener noreferrer" target="_blank">enacted</a><span> </span>strict capital requirements for mortgage servicing assets (MSAs) that have since discouraged banks from holding them. A<span> </span><a href="https://www.federalregister.gov/documents/2019/07/22/2019-15131/regulatory-capital-rule-simplifications-to-the-capital-rule-pursuant-to-the-economic-growth-and" rel="nofollow external noopener noreferrer" target="_blank">rule</a><span> </span>issued last year eases MSA requirements for domestically focused banks under $250 billion, but the changes only kicked in last week and they cover at most 48.4 percent of U.S. banks by assets. (I say “at most” because some banks under $250 billion have more substantial foreign activities that disqualify them from the new rule.) Besides, many of these smaller banks are no longer involved in mortgage servicing and have no immediate plans to return to that line of business.</p> <p>The original MSA capital rule hastened a<span> </span><a href="https://www.nber.org/papers/w23288" rel="nofollow external noopener noreferrer" target="_blank">shift</a><span> </span>of mortgage market activity (both origination and servicing) from banks to nonbanks after the 2008 financial crisis. Post‐​crisis litigation and Dodd‐​Frank regulations chased many banks away, while<span> </span><a href="https://www.americanbanker.com/opinion/dear-cfpb-let-the-qm-patch-expire" rel="nofollow external noopener noreferrer" target="_blank">exemptions</a><span> </span>from general underwriting rules for mortgages purchased by Fannie and Freddie made it easier for nonbanks (which do not keep any of the mortgages they originate) to cater to their businesses. Regulation appears to be the most important, but not the sole, driver of the rise of nonbanks, which also tend to have superior technology that enables them to market, originate, and service mortgages more cheaply than most banks.</p> <p>Nonbank mortgage servicers face no federal prudential requirements. And although they must meet conditions set by guarantors they wish to work with, these are typically<span> </span><a href="https://www.urban.org/sites/default/files/publication/78131/2000633-Nonbank-Servicer-Regulation-New-Capital-and-Liquidity-Requirements-Don%27t-Offer-Enough-Loss-Protection.pdf" rel="nofollow external noopener noreferrer" target="_blank">less onerous</a><span> </span>than the ones regulators place on banks. Bankers complain that this differential treatment gives nonbanks a&nbsp;competitive edge. Nonbanks counter that this treatment is reasonable, since unlike the largest U.S. banks, they do not pose a&nbsp;systemic risk owing to their smaller balance sheets and the short period of time for which they hold mortgages. Moreover, nonbanks largely get their funding from banks, which themselves have access to emergency lending through the Fed’s discount window, and cheap funding thanks to FDIC insurance and the Federal Home Loan Bank system. In a&nbsp;somewhat circuitous way, therefore, nonbanks have (and pay for) access to the federal safety net.</p> <p>But nonbanks also have distinct characteristics that make them less robust in times of stress. Whereas mortgage servicing has always been a&nbsp;small part of banks’ balance sheets—even when they dominated the market—many nonbanks<span> </span><a href="https://www.brookings.edu/wp-content/uploads/2018/03/KimEtAl_Text.pdf" rel="nofollow external noopener noreferrer" target="_blank">specialize</a><span> </span>in this business. This lack of diversification makes them more vulnerable to a&nbsp;servicing cash crunch. And while nonbanks may claim their reliance on short‐​term bank funding as a&nbsp;virtue, such funding is also less stable than the insured deposit funding banks enjoy. Should banks turn off the tap, nonbanks will quickly find themselves in trouble. Nor could banks be accused of imprudent behavior if they did so, since mortgage servicing has suddenly become a&nbsp;very risky undertaking.</p> <p>Many may be tempted to conclude that nonbank servicers’ current travails show that they should be subject to tighter capital and liquidity requirements. But while there may well be good arguments in favor of such a&nbsp;policy, today’s highly unusual circumstances form a&nbsp;doubtful foundation on which to base new rules, which could end up making mortgage credit unnecessarily expensive for many borrowers.</p> <p>But the experience should prompt banking regulators to reevaluate their MSA capital rule. Mortgage servicing assets are a&nbsp;small share of the balance sheets of most banks, large and small. Indeed, they have<span> </span><a href="https://bpi.com/the-impact-of-recent-changes-in-capital-requirements-on-mortgage-servicing-assets/#_ftn3" rel="nofollow external noopener noreferrer" target="_blank">dropped</a><span> </span>from over 10 percent of aggregate core bank capital before the 2008 crisis, to around 3&nbsp;percent today. Allowing banks to take up a&nbsp;bigger share of mortgage servicing can therefore make the system safer, without increasing the cost of credit or exposing taxpayers to losses. The best way to keep a&nbsp;bulging waterbed from bursting is not to step on the bulge, but to take some weight off.</p> <p>[<a href="https://www.alt-m.org/2020/04/07/when-the-waterbed-bursts/">Cross‐​posted from Alt​-​M​.org</a>]</p> Wed, 08 Apr 2020 08:12:26 -0400Diego Zuluagahttps://www.cato.org/blog/when-waterbed-burstsCoronavirus Means the U.S. Needs MORE Skilled Immigrantshttps://www.cato.org/blog/coronavirus-means-us-needs-more-skilled-immigrants <p><a href="https://www.cato.org/people/jeffrey-miron" hreflang="und">Jeffrey Miron</a> and <span class="text-semibold">Erin Partin</span></p> <p>Some immigration opponents want lawmakers to <a href="https://www.conservativereview.com/news/horowitz-administration-preparing-bring-85000-foreign-workers-shutting-economy">cancel</a> the H1B visa lottery, which admits 85,000 skilled immigrants per year. Their position may reflect a&nbsp;belief that high‐​skilled immigration is especially dangerous during the COVID-19 pandemic. If so, they have the analysis backwards.</p> <p>Not only do highly skilled immigrants help U.S. companies develop new technologies and innovations; many serve on the front lines of the medical response to COVID-19.</p> <p>Medical professionals make up roughly <a href="https://www.myvisajobs.com/Reports/2020-H1B-Visa-Category.aspx?T=OC#LCA">5&nbsp;percent</a> of H1B visa applicants out of the top 100 occupations. These doctors, nurses, and technicians already face overly <a href="https://www.cnn.com/2020/03/30/us/immigrant-medical-professionals-sidelined/index.html">strict regulations</a> that limit their ability to provide care. In addition to the thousands of immigrants working in medicine, adjacent industries – including biotechnology, pharmacology, and more – rely heavily on skilled immigrant labor.</p> <p>Policymakers should make it easier, not harder, for skilled immigrants to perform these critical duties. Suspending the H1B lottery is even more misguided now than it would be in normal times.</p> Tue, 07 Apr 2020 15:40:20 -0400Jeffrey Miron, Erin Partinhttps://www.cato.org/blog/coronavirus-means-us-needs-more-skilled-immigrantsCoronavirus Roundup: Help for Schooling at Home, and Policy Implicationshttps://www.cato.org/blog/coronavirus-roundup-help-schooling-home-policy-implications <p><a href="https://www.cato.org/people/catherine-straus" hreflang="en">Catherine Straus</a></p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-embed-display-settings="https://upload.wikimedia.org/wikipedia/commons/1/11/Homeschooler.jpg" data-entity-type="media" data-entity-uuid="78c410fc-746a-45f3-a4dc-898f89ee50df" data-langcode="en" class="embedded-entity"><a href="https://upload.wikimedia.org/wikipedia/commons/1/11/Homeschooler.jpg"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-04/Homeschooler.jpg?itok=todJS9Lm 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-04/Homeschooler.jpg?itok=zSZxUvO4 1.5x" width="700" height="525" src="/sites/cato.org/files/styles/pubs/public/2020-04/Homeschooler.jpg?itok=todJS9Lm" alt="Homeschooling students" typeof="Image" class="component-image" /></a></div> <p><span>Cato’s <a href="https://www.cato.org/centers/center-educational-freedom">Center for Educational Freedom</a> has been thinking hard about the coronavirus and its impact on our education system. Here’s a quick roundup of our work furnishing suggestions and resources for the suddenly homeschooling and grappling with the education policy implications of the coronavirus lockdown.</span></p> <p><span><strong>Help for the Newly Homeschooling</strong></span></p> <p><a href="https://www.cato.org/blog/homeschooling-during-covid-19-pandemic">Homeschooling During the COVID-19 Pandemic</a></p> <p>Homeschooling expert Kerry McDonald recorded a three‐​part Cato Daily Podcast series on homeschooling and the coronavirus. All three episodes are embedded in this blog post, which also summarizes each episode’s theme. McDonald differentiates coronavirus‐​forced virtual schooling from richer, full homeschooling, discusses the potential benefits of an education system with suddenly relaxed regulations, and explores the benefits for homeschooling of expanding school choice initiatives.</p> <p><span><a href="https://www.cato.org/events/beating-covid-19-education-disruption?__hstc=38939644.910326a62834700a1756036cf565baaa.1578329067368.1586120010827.1586152775888.43&amp;__hssc=38939644.1.1586198181904&amp;__hsfp=427773433&amp;hsCtaTracking=cc672788-fce8-43f2-a65f-c4e6dcb4acd9%7C9dc47329-1448-4e62-83d5-42ae15e77ea1">Beating the COVID-19 Education Disruption: Answering YOUR Questions</a></span></p> <p><span>Here a panel of homeschooling and education policy experts answer questions from people newly confronted with schooling at home. They tackle everything from having unstructured time, to delivering education to your kids even if you think <em>your </em>education is not good enough.</span></p> <p><span><a href="https://www.wbur.org/cognoscenti/2020/03/17/tips-for-parents-schools-closed-coronavirus-kerry-mcdonald">I Homeschool My Kids. Here Are 6 Ideas For Parents While Schools Are Closed</a></span></p> <p><span>There are many steps parents can take to make educating their kids at home a rewarding experience:</span></p> <p><span>1. Avoid replicating school at home </span></p> <p><span>2. Prioritize play and unstructured time</span></p> <p><span>3. Use online learning resources </span></p> <p><span>4. Encourage virtual playdates </span></p> <p><span>5. Embrace family time</span></p> <p><span>6. Make room for reflection</span></p> <p><span><strong>Policy</strong></span></p> <p><span><a href="https://www.detroitnews.com/story/opinion/2020/04/06/opinion-covid-19-proves-education-too-rigid/2939983001/">COVID-19 proves educational system too rigid</a></span></p> <p><span>Fears of some children falling behind as everyone moves education online are totally understandable. The consequences for those who fall behind would be less dire if we had an education system that did not essentially require us to batch process kids based largely on their age.</span></p> <p><span><a href="https://www.washingtonexaminer.com/opinion/individualism-hasnt-failed-us-during-coronavirus-pandemic">Individualism hasn’t failed us</a></span></p> <p><span>The New York Daily News published an article titled “American individualism has failed epically: The hard lesson of the coronavirus crisis.” The piece essentially blamed American “individualism” for putting profiteering ahead of caring. But the evidence, with a special spotlight on education, destroys their case.</span></p> <p><span><a href="https://www.forbes.com/sites/nealmccluskey/2020/03/19/two-coronavirus-education-pauses-that-make-sense/#9d0480238515">Two Coronavirus Education Pauses That Make Sense</a></span></p> <p><span>Since many student loan borrowers will have trouble repaying their loans given the coronavirus, the government should implement a simple repayment pause. It should <em>not</em> implement broad forgiveness. It also makes sense for the federal government to waive state testing requirements at the K-12 level.</span></p> <p><span><a href="https://www.ocregister.com/2020/03/19/how-californias-school-system-can-adapt-to-coronavirus/">How California’s school system can adapt to coronavirus</a></span></p> <p><span>California essentially jumped to a 100% K-12 homeschooling population as a consequence of the coronavirus. Most school districts are providing educational services virtually. However, families also have the ability to opt for virtual charter schools that have been providing tuition‐​free online learning to children for decades.</span></p> <p><span><a href="https://www.cato.org/publications/commentary/school-choice-will-help-us-respond-coronavirus">School Choice Will Help Us Respond to Coronavirus</a></span></p> <p><span>The American education system is fairly well equipped to respond to the coronavirus because it is decentralized and we have given room to alternative education models. Districts could respond to COVID-19 according to unique local circumstances, and having options such as charter, private, and homeschooling have helped to develop multiple ways of delivering education, including virtual. </span></p> Tue, 07 Apr 2020 15:08:07 -0400Catherine Straushttps://www.cato.org/blog/coronavirus-roundup-help-schooling-home-policy-implications

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