Monday, February 19, 2018

"Chain Migration": How Trump Needlessly Demonizes Family-Based Immigration

For those of you have been reading my blog, you have probably noticed that I have been covering the topic of immigration more extensively since Donald Trump became President. Since the beginning of 2017, I have covered such immigration-related topics as the border wall, refugee ban, high-skilled immigration visas, the idiocy behind cutting immigration in half, DACA, why we don't need more border agents on the wall, and temporary protected status. Today, I feel the need to cover another topic of immigration that Trump doesn't have a clue: chain migration.

Chain migration is a term that was popularized in the 1960s to describe how U.S. citizens and green card holders use current law to bring extended family into the country, much like links follow one another in a chain. It refers to a specific type of family reunification, i.e., when a family member is following another immigrant. It is not a derogatory term, but rather a term for a commonsense idea that people are more likely to move whether their relatives are. Chain migration is a mechanism that many families have historically used to bring their families over to the United States, including President Trump.

I bring the topic of chain migration up in the first place because for President Trump, an end to chain migration is an essential to sign off on any immigration deal for the 690,000 affected by DACA. Trump views chain migration both as a way for terrorists to enter the countries and as a way to open the floodgates of immigration by allowing an unlimited number of extended relatives. If we are to get into chain migration, we should figure out the demographics of these individuals and figures out what is going on. With that, let's cover the myths that are commonly used by the President and other like-minded individuals.
  1. "Chain migration" immigrants are a national security threat. The Cato Institute covered this topic last year, and found that the odds of being killed by such in immigrant in a terrorist attack is 1 in 723,000,000. To put this in perspective, the odds of being struck by lightning is 1 in 161,856. You are nearly 4,500 times more likely to get struck by lightning than killed by an immigrant brought in through chain migration, and over 50,000 times more likely to get killed by a native citizen.
  2. Immigrants using "chain migration" to enter the country do not have the skills to succeed in the U.S. Last month, Attorney General Jeff Sessions made the argument that these immigrants are incapable of succeeding because they lack literacy and work skills. Nearly half of adults who come to the United States through family-sponsored and diversity visa categories have a college degree. This is higher than the third of U.S. natives that have a college education. 
  3. The low-skilled "chain migration" immigrants are ruining this country11 percent of those who come through family-based immigration lack a significant formal education. Nevertheless, these individuals, by and large, succeed. This does not surprise me in the least since low-skilled immigrants on the whole positively contribute to the economy.
  4. "Chain migration" is a loophole resulting in an influx of millions of immigrants. Trump claims that "a single immigrant can bring in unlimited numbers of distant relatives." That simply is not true. If you take a look at current law, it only allows for sponsoring immediate relatives (i.e., spouses, children, siblings, parents) and their spouses and minor children. Current law does not allow for aunts, uncles, and cousins, not to mention that immigrants cannot sponsor relatives until they themselves have green cards or become naturalized citizens. 
    • Although there is no cap for immediate family members, there is a maximum of 480,000 family preference visas. In 2015, 69 percent of these visas were for U.S. citizens' spouses and children, which further diminishes the argument. 
    • Per a report released from the Congressional Research Service [CRS] on the topic of family-based visas earlier this month, we have a backlog of 3.95 million people, with average wait time being 23 months and waits as long as 23 years (CRS, p. 13, 19).
    •  The CRS report points out that Trump's hypothetical of immigrants flooding our cities is theory without empirical backing. The report then lists reasons for family-based immigration being more modest, including needing U.S. citizenship, the fact that not all eligible candidates want to immigrate to the United States, and long wait times for visas (CRS, p. 24-25). As the Right-leaning Manhattan Institute states, "Chain migration is an information system that enables networks of people to find each other to come and work. If there is no work, individuals will not invite family members to come."
  5. "Chain migration" is overwhelming the United States. You would think that from President Trump's rhetoric, we are being overrun by immigrants vis-à-vis "chain migration." In absolute numbers, we admit more immigrants than other nations in large part because we are a larger nation than most. In 2016, the United States allowed for 1.2 million legal immigrants. 68 percent of those immigrants were brought here due to "chain migration." To account for nations' sizes, we need to look at immigrants as a percent of the nation's overall population. The Cato Institute did so in mid-2016, and found that as a percent of the population, the United States admits less immigrants than other developed nations.
There are not masses of foreigners coming on our shores (CRS, p. 27-28) and eroding our economy or the "American way of life." "Chain migration" has become  the nativist boogeyman term used as cover to want to cut down on legal immigration. There is no justification on cutting back or banning "chain migration." Ultimately, it does not matter if immigration is "chain migration" or not. It does not matter if the immigrants are high-skilled or low-skilled. What we find is that more immigration is a net benefit for immigrants, native workers, and the economy as a whole.

Friday, February 16, 2018

Biennial Budgeting: An Example of Bogus Budget Reform

Last week, Congress passed a federal budget for the fiscal year 2019. You can read an analysis from the Committee for a Responsible Federal Budget here, but essentially, the claimed deficit reduction will not be adequate to deal with the upcoming increase in debt. Creating and passing a budget is a messy process, to be sure. It makes me think of possible ways to make federal budgeting more efficient.

I found one such policy reform when reading a piece from libertarian think tank R Street: biennial budgeting. Biennial budgeting is preparing and adopting budgets for two-year periods. This is in contrast to an annual budget, which prepares and adopts a budget for a one-year period. With all the threats of shutdowns, the budgetary process is held hostage by political desires instead of the desire to serve the people it is meant to serve. Proponents argue that a biennial budget process would solve this problem. Additionally, it could potentially make the budgeting process more efficient because Congress would lessen the number of repetitive votes required by an annual budgeting process, thereby allowing for more time on oversight of federal spending and less politicking. And of course, there is the decrease in man-hours and resources spent on the additional budget that is part of annual budgeting. These all sound like wonderful benefits, but does biennial budgeting outshine annual budgeting? I'm not so sure for a few reasons:

  1. Inaccurate budget forecasting. Economic forecasting is a tricky endeavor. It is difficult to forecast one year out, never mind two years. The Congressional Budget Office doesn't exactly have a spotless record on budget projections beyond one year (see testimony from Urban Institute scholar here). There has even been congressional testimony by former CBO analyst Philip Joyce attesting to that fact. In a biennial budget, we would see more budgetary uncertainty, not less.
  2. Frequently revised budgets. There is a good chance that because of the inaccurate forecasting, there would need to be off-year appropriations to fill in for unforeseen gaps. This does not account for additional political pressures for additional appropriations that were not political fodder in the previous year.
  3. High likelihood of increased spending. Supplemental appropriations increase government spending (De Rugy, 2011). Given the probability of supplemental appropriations in a biennial budgeting process, it is unlikely that biennial budgeting would be cheaper. The libertarian Mercatus Center highlights a couple of studies showing how biennial budgeting translates into higher spending (Fichtner et al., 2016). Plus, a biennial process would give Congress less opportunities to reform non-Social Security entitlement programs, which are major drivers of government spending. 
  4. Outdated budget decisions. The Left-Leaning Center on Budget and Policy Priorities makes a good point. Not only is biennial budgeting done too far in advance, but policy considerations and priorities can shift a lot in a year. An annual budgeting process is more adaptable than a biennial one.  
  5. Questionable increase in oversight. Congress has hundreds of committee and subcommittee hearings every year (see Brookings Institution stats here). The issue here is not oversight, but lack of follow-through on oversight findings. Biennial budgeting is not going to make Congress more likely to act on these findings. Plus, let's consider that Congress would have to audit twice the spending in the same amount of time. I would not consider it plausible under those circumstances that Congress would have more time for oversight. If anything, there would be less. 
  6. Little to prevent budget shutdowns. One would think that biennial budgeting would put an end to the political squabbling and the threat of government shutdown. However, let's think of this intuitively. In a biennial budget, there is more at stake because there are two years of government spending at stake, not just one. Raising the stakes could make the politicking of budgeting worse, not better. 

Conclusion: One of the advantages of a federalist system is the states act as "laboratories of democracy" to see which policies work and which do not. In the past fifty years, fifteen states switched from biennial to annual budgeting, whereas only three states switched from annual to biennial budgeting. As state budgeting processes get more complex over time, we see a switch over to annual budgeting, and for good reason: it works better. And if we see larger states switching over to annual budgeting, wouldn't we think that, a fortiori, that annual budgeting would be better for the federal government? I hope that Congress does not convert the federal budgeting process into a biennial one simply as feel-good policy. Otherwise, it is the American people that figuratively and literally pay the price.

Monday, February 12, 2018

What Uber and the Ridesharing Industry Can Teach About the Gender Wage Gap Myth

Our economy is evolving in such a way where there is an increase of positions in which companies contract with independent workers and freelancers for short-term engagements. This phenomenon is known as the "gig economy." One of the main features of the gig economy is that these contracted positions give workers flexibility in their work-life balance. Economists were hoping that the gig economy could help eliminate the wage gap. However, that might not be the case. Last month, five economists released a study entitled The Gender Earning Gaps in the Gig Economy: Evidence from Over a Million Rideshare Drivers (Cook et al., 2018)

Instead of the wage gap being non-existent, the study found that there was a wage gap of 7 percent. The other interesting part of the study was that the wage gap in the ridesharing industry had nothing to do with gender discrimination, which is all the more significant considering that the algorithm and the dispatch are gender-blind. The study found that the wage gap is due to three factors: experience on the platform (learning-by-doing), preferences of where and when to work, and preferences for driving speed. Male Uber drivers work more, they are more likely to drive in areas and times in which pay is higher, and they drive 2.5 percent faster than female Uber drivers.


The study is significant given that the sample size is 1.9 million Uber drivers and nearly 2 billion ride-sharing trips. This study provides statistical evidence that there is a wage gap without gender discrimination. However, these findings are confined to one market. As fascinating as these findings are, we cannot say that there is a lack of a wage gap based on gender discrimination....at least not with this study alone.

I wrote on this topic five years ago. Although it was five years ago, my general conclusion about the wage gap remains the same: there are other factors that account for the wage gap. Men work longer hours, men are more attached to the labor market, a discrepancy in occupational hazards, and there is a discrepancy in the choice that men and women in job selection. As the American Enterprise Institute pointed out in August 2017, when factoring these considerations in account, the gender wage gap is all but nonexistent (also see Blau and Kahn, 2016; Furchgott-Roth, 2016). These findings are not confined to the United States. A 2016 study from the Hay Group compared across 33 nations, and found that the when looking at an apple-to-apple comparison with the same level, company, and function pay gap, the wage gap on a global level is only 1.6 percent.

The Uber study is additional evidence that the gender wage gap is more myth than anything else. Let's just remind ourselves of that fact when Equal Pay Day comes around on April 10th.

Tuesday, February 6, 2018

Thoughts and Reflections of the Family and Medical Leave Act at 25

Life happens sometimes, and that was the impetus behind the creation of the Family and Medical Leave Act (FMLA). 25 years ago yesterday, Congress signed the FMLA into law. The purpose behind this labor law is to cover job-protected leave for medical and family reasons, including pregnancy, adoption, placement of a foster child, medical leave, and family military leave. The FMLA allows for eligible employees to take up to 12 weeks in a calendar year to tend to these matters. Unlike other countries' leave policies, the FMLA's leave policy provides unpaid leave only. The unpaid provision has caused much controversy over the years. Nevertheless, I do wonder if FMLA is successful policy. Here are some thoughts I have on the FMLA and paid leave more generally.

  • Limited eligibility. Since the FMLA only applies for employers with over 50 employees, 44 percent do not even qualify for FMLA leave. Furthermore, FMLA only covers employees that have been at their employer for 12 months. This exemption does not cover a considerable minority, which means coverage is not as extensive.
  • Many eligible people do not take FMLA. According to a 2014 survey commissioned for the Department of Labor (DOL), 45 percent of eligible employees did not take FMLA leave because it would cause financial hardship. This finding should not be surprising since FMLA only provides for unpaid leave. The DOL survey also showed that a third of those who ended up taking FMLA cut their leave time short to cover lost wages.
  • Wage gaps. A 2016 study from the National Bureau of Economic Research found that FMLA had a small, positive effect on the women's employment level, but had no effect on the wage gap (Blau and Kahn, 2016). 
  • Employment gaps. Even the New York Times points out that although FMLA makes it 5 percent more likely that a woman remains employed, FMLA makes it 8 percent less likely that a woman receives a promotion. 
    • There is more than a philosophical consideration to the notion of paid maternal leave. Other countries can provide us an idea of how family leave can affect female employment. Looking at Chile as an example, paid maternal leave helps ease the transition back into work. However, the law also had the result of their wages being 9 to 20 percent lower than without paid maternal leave laws (Prada et al., 2015). Spain's maternity leave law was not any better. In Spain, companies were 6 percent less likely to hire childbearing women, 37 percent less likely to promote them, and 45 percent more likely to dismiss (Fernández-Kranz and Rodríguez-Planas, 2013). In a study of 22 countries, family-friendly policies in Europe makes it more possible to work, but also more likely to be stuck in a dead-end job (Blau and Kahn, 2013).

Postscript: Although proponents of paid leave can and do point out the flaws of FMLA, there is also the market failure of a lack of paid leave to consider. Only 13 percent of employers offer paid family leave. This is more pronounced by socioeconomic class. Only 4 percent of those in the lowest 10 percent have access to paid leave. What I can say is that 25 years of FMLA, my guess is that FMLA is not going to get repealed. It will probably not even get expanded. If anything, it is likely to get replaced with paid family leave for at least two reasons. One is that the United States is the only developed country without paid leave. This fact helps give the "paid leave" movement some traction. The second is that mandatory paid leave is gaining in popularity. Pew Research found that over 80 percent are in support of mandatory paid leave, although there is more of a division as to whether it should be mandated by the government or employers should choose themselves. The Right-leaning American Enterprise Institute is on board with paid paternal leave. 25 years after FMLA, the conversation about family and medical leave is not going away. We should continue to have that conversation.

I analyzed mandated paid leave four years ago, and am tempted to take another look at paid family leave in light of the increased momentum. Looking at the FMLA reminds me a golden rule of policy: every policy has its tradeoffs. This is especially true with employee protection laws, whether that is menstrual leave or France's employee protection laws. Yes, paid leave makes it easier for women to return to work. There is evidence that it provides some job security. However, as we see above and in the other hyperlinks in this paragraph, they come with a price. Women are less likely to get promoted or hired in the first place. Labor economists generally find that the cost of fringe benefits primarily fall on the employee, which is something to consider. As we move forward with the "paid leave" debate, we need to keep these costs and benefits in mind.

Tuesday, January 30, 2018

Conversion "Therapy" Is Harmful and Ineffective, But Should the Government Ban It?

Many people try quit alcohol or tobacco because it is harmful to one's health. There is also another type of "quitting" that has been encouraged by certain individual religious figures: being homosexual. For a number of years, there have been those who have been encouraged homosexuals to become heterosexual through what is called conversion "therapy." Conversion "therapy" is the idea of changing one's sexuality through psychological or spiritual means. Methods of conversion "therapy" range from "pray the gay away" to electroshock therapy. I put the word "therapy" in quotes because I'm of the opinion that there is nothing wrong with being gay, especially when dealing with the idiotic argument of "homosexuality is unnatural" or realizing that G-d doesn't even have an issue with it. Ergo, there is nothing to cure. Even if there were something to cure, the definition of the word "therapy" implies that it can be cured. Some things we can change and others we cannot: that's life. The first question to answer is whether something like sexuality can be changed and whether conversion "therapy" helps.

It is more than the anecdotal evidence I have from some friends and acquaintances that conversion "therapy" is completely bunk and harmful. The fact of the matter is that conversion "therapy" is a pseudoscientific practice with no real evidence to back up its assertion that sexuality can be changed. There is one study stating that it could potentially have some positive effect (Nicolosi et al., 2000), and even that study has more than its fair share of flaws (e.g., only a minority of participants claimed success, it was only based on self-reporting). Conversely, Columbia University identified 12 studies showing that conversion "therapy" is ineffective and/or harmful.

There is no evidence that conversion "therapy" helps. There is, however, plenty of evidence that conversion "therapy" is harmful, and leads to increased likelihood of depression, suicide, anxiety, and social isolation. The American Psychological Association wrote a lengthy and substantive report on the topic in 2009 and concluded the same thing. It's not just the APA. You also have the American Academy of Child Adolescent Psychiatry, the American Academy of Pediatrics, the American College of Physicians, the American Medical Association, the American Counseling Association, the American Psychoanalytic Association, the British Psychological Association, the Canadian Psychological Association, the Australian Psychological Society, the World Psychiatric Association, the Pan-American Health Association, and the Substance Abuse and Mental Health Services Administration (SAMHSA). There was a time that the mental health profession believed that homosexuality was a mental disorder. The good news is that we know better. We know that bisexuality and homosexuality are natural and healthy variations of sexuality.

And if the consensus of mainstream mental health organizations is not enough, how about Robert Spitzer? Spitzer was a professor of psychiatry that was famous (or rather infamous) in this field. He was the one who led the fight against having homosexuality declassified as a mental disorder back in the 1970s. He was also the one who released a report that was used to "prove" that conversion "therapy" could "cure" homosexuals (Spitzer, 2003). Not only did he retract his findings, but he issued an apology for all the harm he caused. And then there's another great story. After 37 years of trying to "convert" gay people, the well-known ex-gay therapy group Exodus International closed its doors in 2013 and apologized to the LGBT community for the harm it caused. And for added fun, I would like anti-gay individuals who assume that sexuality is a choice do some serious reflection and ask themselves "At what point did I choose to become heterosexual?" Because if those anti-gay individuals were intellectually honest, they would realize that they did not choose their sexuality. To summarize thus far, conversion "therapy" is devoid of scientific backing, and it is proven to harm those who are subjected to it. 

Knowing what we know about conversion "therapy," the question is whether the government should step in and ban it. Although I consider myself libertarian, this question is trickier than initially anticipated. Conversion "therapy" is as much quackery as being against vaccines or saying that genetically modified organisms (GMOs) are unhealthy. At the same time, we have an opt-out system for vaccination and we allow people to choose whether they want to eat GMOs or organic food.

On the one hand, the empirical research shows that it is consumer fraud to sell the idea that one could change their sexuality vis-à-vis sexual orientation change efforts (SOCEs). On the other hand, I believe that adults should make their own decisions, no matter how much I disagree with it. Research shows that having children before marriage is a bad idea, but if you want to mess up your life, it's yours to mess up. The same goes with smoking cigarettes, not wearing a bicycle helmet, eating unhealthy food, or buying lottery tickets. If we are to have a [relatively] free society, you have to be free to make poor life choices and even partake in actions that could cause self-harm. I think that, regardless of whether counseling is considered a First Amendment issue or not.

On the other other hand, the adults who enter conversion "therapy" tend to be in religious communities that stigmatize and demonize homosexuality and homosexuals. Take ultra-Orthodox Jews who happen to be homosexual. They can go to a place like JONAH (which, thank G-d, was sued for consumer fraud, ordered to pay a settlement, and was shut down so it could never harm another soul again) or they can leave their community. While that sounds easy, it's not. In ultra-Orthodox communities, Jewish children are typically not brought up with a secular education or life skills that would help them live in the real world. Some of them converse only in Yiddish, so it makes choice seem like more of an illusion than anything else. I'm sure homosexuals who are part of non-Jewish religious communities have similar impediments to making an actual choice. Even with that caveat, I still think adults should have the option to enter it, as long as they have the ability to opt out at any point. Plus, there is no ex ante manner in which to filter out the sorts of adults that I just mentioned in order to prevent such harm.

With regards to banning conversion "therapy" for adults, I am legitimately torn between my libertarian principles and seeing the harm it so clearly causes. However, the libertarian Reason Magazine brings up a good point: It was not too long ago when homosexuals were erroneously considered to be mentally deranged predators. Based on the logic of the current conversion "therapy" bans, it would have been perfectly acceptable for the government to have banned any therapist from trying to encourage homosexuals to accept and act upon their sexuality. The state of Tennessee actually tried banning teachers from teaching about homosexuality as recent as 2013. The anti-gay bigotry that permeates throughout much of American history should remind us why government should not control cultural discussions in such a manner.

Children are also another complicated case. I bring this up because a study from the Williams Institute, which was released just last week, shows how 20,000 youth currently between the ages of 13 and 17 will be exposed to this fraud by the time they turn 18. And that doesn't count the 700,000 U.S. adults who have previously been exposed to conversion "therapy" (ibid.). While children are human beings and deserving of respect, they do not quite possess the mens rea to fully make their own decisions. Something tells me that a teenager who is struggling with their sexuality would seldom, if ever, would choose to opt for something that horrific. Looking at recent conversion "therapy" bans, they are confined to mental health professionals on the job (e.g., does not ban non-licensed religion based conversion efforts), as well as the "therapy" being providing to minors. I actually came across a libertarian arguing for conversion "therapy" bans based on the current state licensing structure. Since therapists have to undergo licensing, it is a lot easier to regulate conversion "therapy" than it is some other harmful thing a parent could subject their child to, such as corporal punishment.

At the end of it all, my opinion is twofold. For adults, I reluctantly opine that adults should be allowed to partake in conversion "therapy" if they so choose, as long as there is a clear way to opt out. As for children, I have no problem having conversion "therapy" bans for minors. Even if the parents believe they are acting in their best interest of their homosexual child, they should still not be allowed to subject their child to such cruelty. Yes, it is true that Gallup and Pew Research findings show there are still a considerable minority of Americans who believe that being gay is a choice or can be altered. However, the good market trend is that conversion "therapy" is being more and more discredited as time goes on and is falling out of practice, as it should be. I look forward to the day that it nothing more than a moment in history in which we shake our heads and wonder what people were thinking in believing in such nonsense. Until then, banning conversion "therapy" for children is the best we can do in the meantime while still preserving our freedoms.

Friday, January 26, 2018

Solar Panel Tariffs: Trump's Latest Protectionist Folly

While on the campaign trail, then-presidential candidate Donald Trump made campaign promises to add high tariffs on products imported from Mexico and China. Naturally, this sort of response pleased certain Americans who were frustrated with the U.S. economy. After his first year in office, President Trump is making good on that campaign promise. Earlier this week, he imposed a 30 percent tariff on solar panels. This has been the most significant action that Trump has made on international trade since he withdrew from the Trans-Pacific Partnership on his first day in office. This all started when two solar panel manufacturers, Sunviva and SolarWorld, brought a case to the International Trade Commission last year. In September, the ITC Chairs recommended tariffs ranging from 10 to 35 percent on solar panels (see here and here). As a result, the Trump administration ruled that it will impose a 30 percent tariff on solar panels that will gradually reduce to 15 percent.

Reading the ruling, you get the impression that Trump is leveling the playing field. For Trump, the Chinese had been subsidizing these two industries, thereby giving the Chinese undue advantage. He thinks he will make America great again by imposing these tariffs. The problem is that he is wrong. How do I know?

For one, tariffs do not give the imposing country the advantage he thinks it does. I covered the economic theory and economic literature on the subject a couple of years ago. Tariffs limit economic growth and efficiency while making citizens poorer. Tariffs only benefit a few, well-connected domestic producers while screwing over everyone else.

Second of all, this is not the first time the United States imposed such a tariff. The last time that the United States invoked Safeguard under Section 201 of the Trade Act of 1974 to impose a similar tariff was when President Bush imposed steel tariffs in 2002. How did that turn out? You can refer to my 2017 piece on those steel tariffs here, but essentially, it resulted in 200,000 jobs lost and $4 billion in lost wages (Francois and Baughman, 2003). If it weren't successfully challenged at the World Trade Organization (WTO), the United States would have ended up in a trade war with the European Union.

Solar power is expected to grow at a 2017-2022 CAGR of 5 percent, which is the fastest-growing energy industry. It is growing so fast that solar accounted for 1 out of 50 new jobs in the U.S. in 2016. Prior to this tariff, solar power was expected to exceed the current energy capacity of India and Japan combined. That could very well change as a result of this tariff, especially considering that 80 percent of U.S. solar panel installations use imported panels. Here are a few estimates of impact:

  • Goldman Sachs anticipated that global solar panel costs would double and that demand for solar power would be substantially reduced. 
  • The Solar Energy Industries Association is estimating that 23,000 jobs will be lost in an industry of 260,000 employees, as well as the delay or cancellation of billions of dollars worth of solar projects. Only about 38,000 employees in the solar market are manufacturers, whereas the remainder are focused on installation. Since the majority of the solar jobs depend on cheaper imports, net unemployment is certainly feasible. The problem is that Trump is also trying to keep his other campaign promise of "bringing manufacturing jobs back," which is based on two erroneous assumptions: 1) China took [most of] the manufacturing jobs, 2) Trump can actually bring them back, even though automation was the primary culprit. 
  • Bloomberg New Energy Finance estimates that the final price of solar systems will increase 10 percent for utilities and 3 percent for consumers. 
  • GTM Research found that the tariff is expected to reduce solar panel installations by 11 percent through 2022 (see below), as well as slow 2018-2022 market growth by 8.3 percent.
  • Just last year, Trump's ITC found that removing significant restraints (e.g., tariffs) would increase annual U.S. economic welfare by $3.3 billion by 2020. Ironic considering what the ITC recommended for the solar panels, isn't it?
 

The only ones who benefit are select manufacturers of solar panels. Everyone else, including the installers of solar panels, utilities that purchase solar power, commercial users of solar power, and other consumers are all going to be harmed by this solar panel tariff. Economic theory, a substantial amount of empirical evidence, historical precedent with safeguard tariffs, and current estimates of the solar panel tariff all point to how damaging the tariff will be to the solar industry.

A tariff that only lasts four years and ratchets downwards will not have the boost for manufacturing that Trump is looking for. Instead, it will hinder the solar power market from growing just when it's starting to reach grid parity. In a worst-case scenario, it could impede solar power from being a viable power source that could meet America's energy demands, although it is probable that it will hamper the solar market. This is the first case that Trump was able to use his discretion on imposing tariffs. Now I am afraid that he has opened the floodgates for more litigation, more tariffs, and harming the American people with his misguided protectionism.


1-27-2018 Addendum: Here is a piece from the Council on Foreign Relations as to why the tariff will create more losers than winners.

Tuesday, January 23, 2018

Debunking Five Myths Used Against Capitalism

Capitalism gets a bad reputation. Critics have blamed it from everything to exploiting workers to inequality, racism, global warming, and poverty. With all the accusations lobbed against capitalism, you would think that capitalism is the worst thing to have ever plagued the planet. Yet when you take a closer look at capitalism, it's quite the opposite. It's in that vein that I write this blog entry: to dispel some myths people use to discredit capitalism.

Before beginning, I would like to briefly cover what capitalism is because there is enough misunderstanding of what capitalism is. Capitalism is an economic system that is characterized by private ownership of the means of production. The production, distribution, and exchange of wealth is conducted by private individuals or enterprises. Although there are different gradations of a capitalist system, common features of a capitalist system include property rights, spontaneous order, voluntary exchange, consumer sovereignty, and willingness to adapt and change. Capitalism is also hallmarked by minimal government intervention, although in its purest form, it would be considered a free market system. I would like to start off with debunking five myths today in the hopes that I can debunk more in the future. With that out of the way, let's begin:

1. Capitalism causes poverty. Poverty predates capitalism. When looking back in history, poverty was the default. 99.999999% of people in premodern times lived in squalor. It was not some foreign aid or international development project that caused the decline of extreme poverty in the world. It was market capitalism. Allowing for freer trade, foreign investment, and market liberalization have done more for alleviating poverty than any government intervention. There is no political or economic system that holds a candle to capitalism.

2. The United States has a capitalist economy. One could apply a purity test to the term "capitalism," but it wouldn't be practical. Government has always played some economic role. The question is whether that role is extensive enough to no longer be considered capitalist as was outlined in the introduction. According to Heritage Foundation's Economic Freedom Index, the United States is only considered "Mostly Free." Its score has declined since former President Obama took office. The United States currently is ranked in 17th, and is tied with Denmark.

Looking at general government spending statistics from the OECD, the United States spends 39 percent of its GDP on government spending. There are a fair amount of taxes that have to be acquired to fund this largesse. And then there's the size of the public sector. In the United States, 17 percent of the labor market was public sector in 2013. This is smaller than the OECD average of 21 percent, but it's still a far cry from having a capitalist society. Why?

Capitalism is about maximizing the separation between the private and public sectors, as well as limiting the public sector's scope. In the United States, you have considerable government intervention, not just in terms of taxation but also regulation. The government interferes in the economy in a number of ways to achieve social aims, including, but not limited to, tariffs, occupational licensing, the child tax credit, land use regulations, federal student loan subsidies, and daylight savings time.  While there are certain elements of voluntary exchange in the U.S. economy, it cannot definitionally be considered capitalist. Yes, the United States has more elements of capitalism than most other countries, but it is, at best, a mixed economy.

3. Being pro-capitalist is the same as being pro-business. The premise behind consumer sovereignty is that businesses have to compete against one another to benefit the consumer. Since this means that businesses have to work harder than they would like, there are a fair number of businesses that actually despise capitalism for this reason. Businesses will use their political connections to get into bed with Big Government in order to protect themselves from competition in what is known as rent-seeking. Here are some examples. Walmart has supported minimum wage, not because it wants to provide people a living wage but because its competitors cannot afford to pay it. Netflix is for net neutrality not because it cares about its customers, but because it doesn't want to be charged a premium for being a bandwidth hog. Oil producer Exxon-Mobil supports a carbon tax not out of concern for the environment, but to tax coal companies and give itself an advantage in the market.

4. Capitalism was responsible for the financial crisis that caused the Great Recession. For one, the U.S. government was instrumental in causing the Financial Crisis. It heavily subsidized the risk and incentivized housing investment that created the conditions leading up to the housing bubble. Let's also recall that there was more financial regulation, not less, leading up to the Great Recession. Looking at the companies that benefited under the bailouts from the Troubled Asset Relief Program (TARP) were huge corporations, including banks, automobile companies, and government-backed mortgage giants Fannie Mae and Freddie Mac. This was not free enterprise. This was a collusion between Big Business and Big Government known as "corporatism" and "corporate capitalism," or what I prefer to call "crapitalism" (see points #2 and #3).

5. Capitalism is about greed and envy. As Nobel-winning economist Milton Friedman points out in his succinct case for capitalism (see 1979 interview with Phil Donahue below), no political or economic system is immune from greed. I don't necessarily want to get into how self-interest is not the same as selfishness, but I would like to say this. Capitalism is not synonymous with greed, but rather functions primarily a description of voluntary exchange. Entrepreneurs want to maximize profit, and do so by pursuing their self-interest and creating a product or service that benefits consumers. Consumers want to maximize utility by purchasing said goods and services. Laborers want to maximize their wages.

The premise behind voluntary exchange is that actors engage in economic activities with minimal coercion. There is legitimate self-interest and then there is the illegitimate kind that involves deceit, coercion, and violence. When legitimate self-interest is pursued, then all parties benefit (see point #1). Capitalism is about an economic system in which legitimate self-interest is best channelled to maximize economic efficiency and the benefit of society as a whole. Legitimate interest is the foundation for real economic growth that not only spurs innovation and production, but has done so much to give us a quality of life that our ancestors could only dream of.