Stock

Alan Reynolds

Larry Summers, former Director of the National Economic Council for President Obama, recently wrote a Washington Post article advising “What Jerome Powell should say on inflation.”

To support his latest excuses for the Fed to “hit the brakes some more,” he added a strange graph claiming, “The last decade of U.S. inflation mirrors 1966 to 1976.” “It is sobering to recall,” he wrote, “that the shape of the past decade’s inflation curve almost perfectly shadows its path from 1966 to 1976 before it accelerated in the last 1970s.”

It is doubtful that Summers’ graph was meant to imply that inflation follows a predictable 50‐​year cycle. It is more likely that he expected us to see it as proof that inflation is a mysterious wild beast that can arise from the deep and attack us at any moment unless the Fed keeps beating it on the head with “considerably higher” short‐​term interest rates.

To make any sense of the two‐​in‐​one Summers graph, we must separate the two periods and add two key variables—oil prices and Fed interest rates. What both periods had in common were huge surges in oil prices in 1974, 1980, and 2021–22, which greatly affected inflation and Fed interest rates.

The lowest year‐​on‐​year monthly inflation in the 1966–76 period was an artificial decline from 4.4 percent in August 1971 to August 1972, before Nixon’s price controls blew up. That 1972 low Consumer Price Index (CPI) for 1966–76 matches up with the 0.3 percent low in April 2020 when the pandemic hit the United States and oil prices fell 74 percent from a year earlier.

Similarly, the peak inflation numbers in the 1966–76 period were in 1974 when Arab oil production cut pushed monthly oil prices up 135–184 percent. That 1974 peak lines up with highest recent inflation of 8.9 percent in June 2022 with global oil prices up 61 percent from the Russia‐​Ukraine oil crisis—on top of other large oil price hikes during the March to May 2021 reopening and stimulus. For 1966–76, CPI increases averaged 5.5 percent and the federal funds rate averaged 6.3 percent. For 2013–23, average CPI increases were 2.6 percent and the federal funds rate averaged 1 percent.

Figure 1, for 1966 to 1983, copies Summers year‐​over‐​year (YoY) changes in the Consumer Price Index but adds the year‐​over‐​year change in the price of a barrel of West Texas Intermediate (WTI) Crude Oil on the right axis, shown as grey bars. It also adds the federal funds rate as a red line on the left axis together with the YoY change in the CPI in green.

Figure 2 repeats the same data for 2013 to July 2023, with inflation and interest rates on the left axis and WTI oil prices on the right.

Figure 1

The mistaken lesson Fed hawks like Summers try to draw from Figure 1 is that the Fed cut rates too fast too long after the middle of the 1975 recession. But the Fed has always slashed rates in recessions ever since keeping the 5–6 percent discount rate higher‐​for‐​longer” in the deflations of 1921 and 1929. If anyone does not want the Fed to push rates too low (such as June 2008 to June 2022), then don’t let the Federal Open Market Committee (FOMC) keep launching recessions by inverting the yield curve too long.

As it happened, oil prices began rising again in February 1976, up by 25 percent YoY that September, and inflation did too. Oil exploded with the Iranian Revolution—up 149 percent in April 1980, when CPI inflation peaked at 14.6 percent. It is a convenient institutionalized Fed myth that Chairman Burns or Miller cut interest rates “prematurely” before Volcker arrived in August 1979. The federal funds rate had risen in synch with consumer prices after 1975, exceeding the inflation rate by early 1978.

It was the Volcker Fed that cut the fed funds rate prematurely. CPI inflation peaked at 14.6 percent in March 1980 and the federal funds rate was raised to 19.4 percent in the week ending April 2, 1980. But the recession was not as mild as promised, so the federal funds rate was quickly halved to 8.7 percent by July 23. It was back above 19 percent by year end, of course, in time for President Reagan’s inaugural.

Oil price shocks are temporary, and crude oil prices fell after March 1981 and inflation slowed to 8.9 percent by year end. From 1983 to 1986, after the Iran‐​Iraq war subsided, oil prices fell dramatically and so did inflation, which is why Summers ends his graph with 1983. As Figure 1 shows, the Fed was shockingly slow to bring interest rates down as inflation fell which made real interest rates punishingly high. Fortunately, the foolishly delayed Reagan‐​Kemp tax rate reductions were finally implemented with a 10 percent cut in 1983 and another 10 percent in 1984. Much to the dismay of the Fed, real GDP grew by 4.4 percent a year for seven years, with a brief interruption from a brief oil crisis when Iraq invaded Kuwait.

FIGURE 2

In June 2022, Larry Summers lectured that “we need five years of unemployment above 5 percent to contain inflation—in other words, we need two years of 7.5 percent unemployment or five years of 6 percent unemployment or one year of 10 percent unemployment” just to contain inflation, not reduce it.

Figure 2 shows how incredibly wrong that was. The annual rate of CPI inflation was 9.7 percent in the second quarter of 2022 and 2.7 percent in the second quarter of 2023. The annual rate of inflation was 1.5 percent in May, 2.2 percent in June, and 2 percent in July. The habit of measuring inflation over 12‐​month spans understates the pace of change because an average of the last 12 months is still lugging around old baggage leftover from last fall and winter.

The smart takeaway from Larry Summers’ misleading comparison of recent events with the oil crises of 1973–1982, and from his June 2022 cheerleading for a 5–10 percent unemployment rate, is that Fed Chairman Powell should look elsewhere for advice.

Michael Chapman

Republicans have been promising to shut down the federal Department of Education ever since it was created by President Jimmy Carter in 1980, some 43 years ago. At the first GOP presidential debate on August 23, four contenders said they would end the department if elected. While trusting a politician’s promise is a dubious gamble, closing down Fed‐​Ed is good policy.

At the GOP debate in Milwaukee on August 23, Vivek Ramaswamy said, “Let’s shut down the head of the snake: the Department of Education. Take that $80 billion [and] put it in the hands of parents across this country. This is the civil rights issue of our time.”

Three other Republicans on the stage echoed that point: former Vice President Mike Pence, North Dakota Governor Doug Burgum, and Florida Governor Ron DeSantis.

The fiscal year 2023 budget for the Department of Education is $79.6 billion, which, rounded off, is the $80 billion cited by Ramaswamy. The department employs 4,400 people, according to its website.

As the Cato Institute’s 2022 Handbook for Policymakers states, “The Constitution gives the federal government no authority to exercise control over elementary and secondary education, including by spending money and attaching conditions to the funds, the primary mode by which Washington has influenced education.”

America’s Founders believed that education was “best left in the hands of parents and civil society—the families and communities closest to the children—and certainly not in a distant national government,” reports the Cato Handbook. “Nearly 60 years of experience with major and, until very recently, constantly expanding federal meddling in K–12 education have proved them right.”

Some public schools, of course, do an excellent job, and some schools are total failures. And no one denies that many teachers in our public schools are selfless, dedicated, and hard‐​working educators. But the federal government should not be involved. It’s unconstitutional, period. It also apparently does no good.

For instance, educational assessments of U.S. public school students are not encouraging. This suggests that the $80 billion spent by the Department of Education might be better spent if it was left in the hands of parents and students.

In December 2019, the Washington Post reported, “Teenagers in the United States continue to lag behind their peers in East Asia and Europe in reading, math and science, according to results of an international exam that suggest U.S. schools are not doing enough to prepare young people for the competitive global economy.”

That test is the Program for International Student Assessment (PISA). The exam is administered to 15‐​year‐​olds in 79 countries every three years. In the 2018 PISA results, the U.S. ranked 13th in reading, behind such countries as China, Hong Kong, Estonia, Canada, Ireland and Poland, reported the Post.

In science, U.S. students ranked 18th and, in math, U.S. students came in 37th, behind students from Russia, Iceland, Latvia and England.

In another measure, the National Center for Education Statistics found that for the school year 2022–23, “The average scores for 13‐​year‐​olds declined 4 points in reading and 9 points in mathematics compared to the previous assessment administered during the 2019–20 school year. Compared to a decade ago, the average scores declined 7 points in reading and 14 points in mathematics.”

The federal government has intervened in America’s public schools for decades, starting as far back as 1957 with the National Defense Education Act. By most every measure, that intervention has not made things better for educating our children.

There’s no constitutional warrant for federal involvement in K–12 education, except perhaps in a few narrow areas: accommodating school choice for military families, Native Americans, and in the District of Columbia, which is overseen by Congress.

As the Cato Handbook notes, “In 1943, the U.S. Constitution Sesquicentennial Commission, chaired by President Franklin Delano Roosevelt, published a document that included the following: ‘Q. Where, in the Constitution, is there mention of education? A. There is none; education is a matter reserved for the states.’”

How ironic that Republican presidential contenders in 2023 agree with the liberal FDR—now that’s bipartisanship!

Clark Packard and Alfredo Carrillo Obregon

Technology and innovation are at the forefront of the geostrategic competition between the United States and China. Who will dominate the commanding heights of technology in the 21st century is a paramount question in the power balance between the world’s two largest economies. Yet policymakers seem intent on breaking up America’s most globally competitive and innovative firms while doing nothing to liberalize desperately‐​needed high‐​skilled immigration. An in‐​depth legal analysis of anti‐​trust claims and potential cases against American tech giants is beyond the scope of this blog post, but aggressive efforts to pursue such cases and moreover, impose additional regulations on U.S. high‐​tech industries has important geopolitical and economic implications that must be acknowledged.

U.S. firms are world leaders in advanced sectors and innovation. According to a recent report by the Boston Consulting Group (BCG), 25 out of the 50 most innovative companies are based in the United States. The companies at the top of the list were Apple, Tesla, Amazon, Alphabet, and Microsoft, all of which are American‐​based multinational firms. Also in the list is Nvidia, which has invested heavily in artificial intelligence (AI) and recently eclipsed over one trillion dollars in market capitalization. Similarly, Google, Amazon, Microsoft, Apple and Facebook collectively spend over $200 billion annually in research and development (R&D) and nearly another $200 billion in capital expenditures.

One reason why U.S. multinationals can invest so heavily in cutting‐​edge R&D and thus be at the forefront of tech innovation is because they have harnessed the power of globalized supply chains and globalized production, which academic studies have found correlates with higher levels of R&D activity and innovation. Notably, the U.S. high‐​tech manufacturing sector emerged as a global leader in this regard. As our Cato colleague Scott Lincicome recently noted, the computer and electronic industry has pioneered a factoryless model, where U.S.-based affiliates concentrate on “knowledge”-intensive activities while overseas suppliers managed physical production. This approach contributed significantly to breakthrough patent growth and the majority of U.S. manufacturing value‐​added growth in the past decades.

This type of innovation and global production has made the United States dominant in advanced sectors, which explains why American‐​based multinational firms account for such a high share of the top 100 companies’ market capitalization. According to recent report from PricewaterhouseCoopers (PwC), the world’s top 100 companies account for $30.9 trillion in market capitalization. U.S.-based multinational firms account for 70 percent—or $21.7 trillion—of this market capitalization.

While the United States is locked in a high‐​stakes competition with China for dominance in the next wave of technological innovation, proposed regulations will undermine U.S. efforts to maintain its lead in the technology race. Breaking up large tech firms may satiate populist demands but it will undermine U.S. innovation and competitiveness vis‐​à‐​vis China and Chinese competitors like Tencent and Alibaba. Unfortunately, many U.S. politicians nonetheless continue to seek to regulate and even break up these firms. In July 2022, Senator Amy Klobuchar and Charles Grassley released the American Innovation and Online Choice Act, which proposes a range of antitrust regulations aimed at reducing the size of many of the technology companies on BCG’s innovation list. Similar bipartisan efforts have been proposed in Congress in recent years.

In fact, contrary to policymakers’ aims, such regulations could have a chilling effect on market entry and competition. In their crusade to limit the growth of the tech giants, policymakers risk imposing industry‐​wide regulations that, counterintuitively, are more burdensome for smaller firms (particularly if the incumbent giants in these industries have an outsized lobbying influence in the creation of these regulations). Competition fuels innovation, and without competition, incumbent firms are less inclined to innovate. The result? Precisely, less dynamism in the high‐​tech sectors that the United States should be intent on dominating, and in turn, greater vulnerability relative to Chinese competitors.

Importantly, innovation is not only desirable for abstract economic and geopolitical purposes. It is also desirable as a means to improve the lives of Americans who increasingly purchase goods and services, directly and indirectly, from these and other high‐​tech firms. Innovation prevents anti‐​competitive monopolies. About 15 years ago, many industry experts thought that Nokia and MySpace would dominate the smartphone and social media market for years to come. When these companies failed to innovate, more innovative competitors like Apple and Facebook eroded the incumbents’ market share. Thus, while anti‐​trust enforcement has been guided for nearly 100 years by the consumer welfare standard—that is, regulators evaluating whether business conduct harms consumers—recent legislative proposals would upend this approach: A 2021 analysis by NERA Economic Consulting estimates these regulations would force the five largest tech companies to incur over $300 billion in additional costs. These costs would likely mean less R&D, less innovation, and less quality and efficiency—all resulting in higher costs for consumers, too. For instance, the study concludes that the implementation of these new laws would probably lead to the termination of Amazon Prime, which would cost the average consumer over $148 annually.

Legislation in Congress is far from the only risk to the dynamism of America’s high‐​tech industries: Anti‐​trust proceedings at the Federal Trade Commission (FTC) could also undermine consumer‐​benefitting innovation. Take, for instance, the FTC’s planned comprehensive antitrust lawsuit against Amazon, which will challenge a wide range of Amazon’s business practices. Amazon is on the forefront of making investments to provide consumers with improved and more affordable goods and services. Amazon acquired Twitch in 2014 to enhance its streaming services market and Whole Foods in 2014 to expand its product range to include organic and fresh products. More recently, the company also announced the launch of Bedrock, which will provide cutting‐​edge language models to compete with OpenAI and Google. Amazon is also on the path to power its operations with renewable energy by 2025. A concerted push to break‐​up Amazon could undermine these efforts and investments—again, to the detriment of the American economy and American consumers.

Meanwhile, in an increasingly globalized world with more options than ever for high quality talent, U.S. immigration policies undermine efforts to push the envelope on precisely the type of high‐​tech R&D needed to outcompete China. Eric Schmidt, the former CEO of Google, recently wrote in Foreign Affairs:

“[T]he United States must invest in the input that lies at the core of innovation: talent. The United States boasts the world’s top startups, incumbent companies, and universities, all of which attract the best and the brightest from around the world. Yet too many talented people are prevented from coming to the United States by its outdated immigration system.”

Indeed, the immigration system desperately needs reform. Current law is riddled with barriers to recruiting and retaining the world’s top scientists and engineers, which puts the United States at a disadvantage to countries more welcoming of high‐​skilled immigrants such as Canada and the United Kingdom.

After examining new data from the Organisation for Economic Co‐​operation and Development, our Cato colleague David Bier recently noted that the United States lost more published scientists than it gained in 2021 while China gained more than 2,400 published scientists.

To see how this plays out in real life, consider the story of Erdal Arikan, a Turkish citizen and graduate of the California Institute of Technology and the Massachusetts Institute of Technology. Arikan authored a paper that provided the theoretical basis for faster and more accurate data transfers. Yet Arikan was unable to obtain a green card through an academic position “or funding to work on this seemingly esoteric problem in the United States.” Arikan was forced to return home to Turkey and instead found opportunity in China. As the essay notes, “It turned out that Arikan’s insight was the breakthrough needed to leap from 4G telecommunications networks to much faster 5G mobile internet services.” American immigration policies made Huawei, China’s technology giant, the beneficiary of Arikan’s genius and today holds over two‐​thirds of the patents related to Arikan’s work.

Or consider the recent story on Saudi Arabia’s competitor to ChatGPT, which is being built at King Abdullah University of Science and Technology (KAUST). Chinese scientists and engineers are largely responsible for the work being done at KAUST. Yet, as noted in the Financial Times, “Many Chinese nationals with AI expertise have chosen to work at KAUST because they have been prevented from studying and working in the United States […]” Indeed, foreign talent will continue to look for opportunities outside the United States as long as American policymakers refuse to adapt immigration policies to the realities of a globalized 21st century economy.

Onerous regulations and immigration restrictions can slow innovation, reduce investment, and hamper product development. If American policymakers are serious about countering China’s rise at the nexus of technology, and truly want to foster economic growth and innovation while maintaining global competitiveness, it is crucial to support and encourage a vibrant ecosystem of companies, while avoiding counterproductive efforts that hinder their potential.

Cato Institute interns Dyuti Pan Dya and Aidan Meath contributed to the writing of this blog post.

Jeffrey Miron

This article appeared on Substack on August 24, 2023.

Over the past two decades, numerous countries and cities have adopted body‐​worn camera (BWC) requirements for some or all of their police officers. The primary motivation is to discourage misconduct by creating evidence of any inappropriate behavior.

BWC programs have always been expensive; beyond cameras and associated equipment, costs include administration, monitoring, and (video) file storage.

More recently, police groups in several U.S. cities have requested extra compensation in exchange for wearing BWCs, which makes such programs even more expensive.

So do BWC requirements generate benefits greater than costs?

The evidence is mixed. Some early studies found desirable effects, such as reductions in civilian complaints or reduced police violence, but other research estimates weak or even perverse impacts. A 2020 review offered a tepid endorsement.

More recent evidence, however, along with a related meta‐​analysis, seems to make a solid case for BWCs, finding a benefit to cost ratio of almost 5 to 1.

This cost‐​benefit analysis, however, did not incorporate the police stipends mentioned above (because they did not yet exist). Accounting for these reduces the benefit to cost ratio by about half.

The right policy then becomes less clear. Local police departments should presumably still be free to experiment with BWCs, since these are not obviously harmful and might provide useful evidence.

Yet BWC programs will probably become more expensive over time, assuming police unions negotiate for higher and higher stipends.

In addition, BWCs do not address the most fundamental problem with existing criminal justice systems: laws that should not exist in the first place, such as drug prohibition. Perhaps the greatest cost of BWC requirements, therefore, is detracting attention from this key issue.

Colleen Hroncich

One of the most exciting parts of the growing push for universal school choice is the new learning options that will be created when parents can direct the education funding for their children. Expression Prep Academy in Huntington, West Virginia, is a good example of this. Pastor Kevin West of Expression Church says he’d been looking for the right time to start a school. Then a friend introduced him to Don and Ashley Soifer from the National Microschooling Center.

“Their model seemed like the perfect hybrid between the homeschool and private Christian school setting,” he says. “I started researching it and put a team together. Last year, with the Hope Scholarship coming into play here in West Virginia, it made it really feasible. Rather than doing a real slow process, it helped us expedite it by making it more affordable for families.”

When the Hope Scholarship was delayed by a lawsuit, Pastor West says they decided to move ahead with the new school despite the uncertainty. “We started out with about 13 kids last year and this year we have tripled that. We’re around 43 kids now. Our biggest challenge is the scholarship application period goes from March 1 to May 15 here in West Virginia and people just don’t know about it.”

Expression Prep was K–8 in the first year with multi‐​age classrooms split into K–2, 3–4, 5–6, 7–8. This year includes a high school, which has a different structure since the students have to earn specific credits to graduate. Each student has an individualized learning plan, so they can progress according to their specific needs and abilities. The teachers work with students in small groups and one‐​on‐​one throughout the day.

Pastor West would prefer to have kindergarteners in a separate classroom, but the student body isn’t quite big enough yet. By next school year, he expects to have 100 students overall and at least one separate kindergarten class. They have a 32,000-square-foot building, an additional building, and another 3 or 4 acres that can use.

“I’m confident we’ll be able to grow. There are about 37–38,000 people in Huntington, but we’re right on the river, so we draw from Kentucky, Ohio, and West Virginia,” Pastor West says. “We’re a very sports‐​driven area and a lot of the private schools lose kids to public high schools because of the lack of sports and arts and music. But we are a very big arts, music, and athletic school and church. We have the facilities for it, and we’re building a sports dome right now on our campus.”

He says even as the school grows, they’ll focus on keeping the small school feel. “Our church has the same model as this microschool,” he says. “We’re a small church with lots of people. We do everything we possibly can to create small community and affinity groups. We work hard at that. So I don’t think the number of kids is going to be an issue as long as we stay true to our model.”

For parents looking for a small Christian school with strong music, arts, and athletics programs, Expression Prep Academy could be the perfect fit. Thanks to the Hope Scholarship, opportunities like this are becoming more and more accessible for West Virginian families.

Adam N. Michel

Policymakers across the political spectrum and around the world are concerned about global profit shifting—whereby multinational businesses artificially shift paper profits between countries to lower their effective tax rates and erode the domestic tax base. These concerns have motivated decades-long policy initiatives to stop profit shifting with costly new international tax rules. However, data indicate that profit shifting is economically small and, following the 2017 U.S. corporate tax cut, profit shifting has steadily declined.

Knowing the magnitude and distribution of multinational profits around the world is critical to assessing the validity of proposed policy responses, such as domestic proposals by President Biden or the global tax increases proposed by the OECD. Unfortunately, the data on the location of corporate income around the world is notoriously imperfect and difficult to interpret, given the complex structures of modern multinational firms. This piece first assesses data from the U.S. Bureau of Economic Analysis (BEA) on the location of multinational foreign profits. Then, it puts those estimates into the context of total corporate profits, concluding that the share of total corporate income reported in tax havens has grown modestly over time and has most recently fallen to its lowest level in over a decade.

Where in the World Do Firms Report Income?

Simple measures of foreign corporate profits show a precipitous rise in the share of income reported in tax havens beginning in the 1990s. Other measures that better attribute income to its original source show a much lower level of income in tax havens and significantly temper the increasing trend over time.

The top line in Figure 1 shows the share of U.S. multinational foreign direct investment income (DII) reported in seven low-tax tax havens as a share of all foreign income.[1] The DII data show the key trend motivating policy concerns over increasing profit shifting. By this measure, the tax haven share began to rise from about 25 percent of all foreign profits in the 1980s to 65 percent in 2016. The data show a clear shift in trend in 2017, after which the tax haven share of U.S. multinational foreign profits declined. However, DII systematically overstates income reported in tax havens relative to higher tax jurisdictions. The second line in Figure 1 presents a more accurate measure of the havens’ share.

Because multinationals tend to own affiliates in high-tax countries through holding companies in low-tax countries, DII does not correctly source income to its appropriate affiliate. For example, if a U.S. multinational parent owns a German affiliate through an intermediate holding company in the Netherlands, BEA reports the German income on the Netherlands’ account due to the cascading ownership structure. DII is also reported after-tax, which mechanically biases up tax-haven profits (which face low or no taxes) compared to higher-tax, non-haven countries.

The BEA reports a second series on the activities of U.S. multinationals, but it also systematically overstates foreign income in tax havens.[2] The data on net income from activities of U.S. multinationals’ foreign affiliates double counts the profits of affiliates owned through an intermediary.[3] Jennifer Blouin and Leslie Robinson suggest removing equity income and adding back foreign tax expense to estimate adjusted pre-tax income (Adj. PTI), shown as the lower line in Figure 1. Adjusted PTI is a more faithful accounting of where profits are earned, but there remains some disagreement as to whether removing all equity income may over-correct the data and understate some profit shifting.

The adjusted PTI series shows that the haven profit share is significantly lower than reported by DII. Through the 2000s, the haven share of adjusted foreign profits averaged 25 percent, reaching 44 percent in 2018. Over the last decade, the havens’ share of adjusted PTI is about 22 percentage points lower than as measured by DII.

These data show that multinational firms have increased the share of foreign profits reported in tax havens, but simple measures overstate both the level and the magnitude of the shift over time.

Profit Shifting Is Economically Small

The trend in the tax haven’s share of foreign profits only tells part of the story. The overall magnitude of income reported in tax havens is relatively small compared to total U.S. corporate income.

Figure 2 shows tax haven DII as a share of total foreign and domestic U.S. corporate profits. By this measure, haven profits averaged about 6 percent before 2007 and 15 percent after 2008. In 2021, tax haven profits were 11.3 percent.[4] The financial crisis and subsequent policy uncertainty likely accelerated the use of more aggressive tax planning, leading to the increase in haven profits in the late 2000s. Due to DII’s overreporting of haven profits, Figure 2 shows an upper bound of haven income.

Adjusted PTI does not have a precisely comparable worldwide measure, but tax haven’s adjusted PTI share of total U.S. multinational net income (a smaller universe than all corporate profits) was 11 percent in 2020 and follows a similar trend to that in Figure 2.

The small magnitude of profit shifting is also apparent in the aggregate corporate tax data. If profit shifting significantly erodes countries’ tax bases, corporate tax revenue in higher-tax countries should decline. However, as I’ve written previously, data from the mostly higher-tax OECD countries show that aggregate corporate tax revenue has trended up, not down, over the last 40 years. Corporate tax revenue as a share of the economy increased from 2.4 percent in 1981 to 3.5 percent in 2021 across 22 OECD countries. Corporate tax revenue as a share of all revenue has also trended up since the 1980s. These trends are even more impressive given that the average corporate income tax rate across the same OECD countries was cut in half during the same time, falling from about 48 percent in the early‐​1980s to 24 percent in 2021.

The corporate revenue data is consistent with the trend in Figure 2. The share of total U.S. corporate income reported in tax havens grew modestly before 2008, remained relatively flat through 2017, and most recently fell to its lowest level in 14 years.

Conclusion

It is important to remember that tax haven income is not necessarily harmful and very likely creates economic benefits. For example, foreign low-tax investments are associated with additional complementary domestic investments that lead to higher employment levels and wage growth at home. Profits reported in tax havens are also not necessarily moved there artificially but instead are often associated with real economic activity and physical investments. In one estimate, approximately 60 percent of reported tax haven profits were not artificially tax-induced but rather the result of real investment activity.

Lastly, all three measures of tax haven profits show that profit shifting stopped increasing and began to fall around the time of the 2017 corporate income tax cut. In 2018, the U.S. federal corporate tax rate fell from 35 percent to 21 percent, almost entirely closing the 12-percentage point gap between the combined U.S. tax rate and the OECD average. This data suggests that a lower corporate tax rate is the most effective reform to reduce profit shifting.

Despite the flaws, the data on the distribution of foreign profits should give pause to policymakers proposing novel international tax increases to combat profit shifting. The mechanisms used to prevent profit shifting usually come with high compliance and other economic costs that may outstrip promises of higher tax revenues, especially if profit shifting is already small and declining.

Adam N. Michel

Last night, eight Republican presidential hopefuls faced one another on stage to vie for primary voters’ support. The debaters discussed the economy, foreign policy, education, crime, abortion, and climate change. Despite a few passing mentions, tax policy was almost entirely absent.

This absence is notable, as the next president will have an unprecedented opportunity to build on the success of the 2017 Tax Cuts and Jobs Act. Without Congressional action, the 2017 law will expire, and taxes will automatically increase for virtually every American at the end of 2025.

The 2017 tax cuts made historic reforms to the tax code. The next president and Congress must think critically about what additional improvements can be made. The U.S. fiscal situation has also changed dramatically. Fueled by higher spending, deficits continue to climb despite federal tax revenue as a percent of the economy reached a two‐​decade high last year (and is projected to remain above the historical average).

What follows is a brief guide for those Americans who may need to remember the specifics of the 2017 reforms or need to begin thinking about what should be done in 2025.

What was in the 2017 tax cuts?

In addition to cutting individual tax rates, the reforms made it easier for millions of Americans to pay their taxes, simplified family benefits, and reduced some special interest tax subsidies, among many other reforms. The law also cut the corporate income tax rate from the highest rate in the developed world to about average (this is the primary permanent tax cut) and made other significant business tax changes. As a result, the law boosted economic growth, investment, wages, and jobs.

Some of the most significant changes that expire in 2025 include:

Lower individual income tax rates and thresholds. More than nine out of 10 taxpayers received a tax cut or saw no change in their tax bill. According to estimates at the time, only 4.8 percent of taxpayers were projected to see a tax increase, and more than 80 percent of taxpayers benefited from a tax cut.
Nearly doubled standard deductions of $12,000 for single filers and $24,000 for married couples filing jointly in 2018. Doubling the standard deduction and curtailing the value of some itemized deductions moved more than 29 million taxpayers from the more complicated itemized system to the standard deduction.
New $10,000 cap on the state and local tax (SALT) deduction and a $250,000 reduction (to $750,000) to the cap on the mortgage interest deduction for new mortgages. The phase‐​out of itemized deductions (Pease limitation) and other smaller itemized deductions were eliminated.
Doubled child tax credit to $2,000 and increased the phase‐​out threshold. The refundable portion of the credit increased, a new $500 non‐​child dependent credit was added, and the personal and dependent exemptions were repealed.
Reduced number of families who must pay the estate tax and the individual alternative minimum tax (AMT).
Full immediate deduction (expensing) for business investments in equipment and machinery.
New 20 percent deduction for certain pass‐​through business income, repealed the domestic production activities deduction, and repealed the corporate AMT.

Tax Reforms Candidates Should Consider

The Republican presidential candidates—and every other candidate running for office—need to think critically, not just about how to keep taxes from increasing, but how to make additional fiscally responsible reforms to the U.S. tax code.

Extending the 2017 cuts is estimated to lower revenue by more than $3.3 trillion before accounting for increased economic growth. However, economic growth cannot cover all, or even most, of the lost revenue. Instead, Congress will need to consider reforms to spending programs and special interest tax loopholes if they want to keep taxes from rising.

In addition to making the 2017 law permanent, there are other reforms that candidates should consider:

Individual brackets and tax rates. Continue to lower marginal income tax rates, consolidate tax brackets, and cut the capital gains tax rate.
Child and education subsidies. There are currently six different ways a child might qualify a family for tax benefits and more than twice as many ways the tax code subsidizes higher education. In 2025, these tax subsidies should be simplified, if not outright repealed.
Limit itemized deductions. Limits on the SALT and mortgage deductions moved all but 10 percent of Americans to the simpler, larger standard deduction. Congress should continue to limit itemized deductions, ideally eliminating them entirely.
Create Universal Savings Accounts (USAs). USAs operate like retirement accounts but without restrictions on how you spend the funds. Without withdrawal restrictions, taxpayers save more and get to decide how to spend their savings without dictates from Washington.
Permanent business expensing. Business expensing has already begun to phase out, depressing new investment and exacerbating the already heightened risk of recession. Congress should permanently restore full expensing for R&D and equipment and expand the same treatment to longer‐​lived structures.
Repeal business tax subsidies. Well over a trillion dollars in business tax subsidies should be repealed to offset lower tax rates. These include dozens of tax credits for energy production, housing construction, drug development, research spending, employment, and railroads.
Reject the OECD minimum tax, make other business reforms. The U.S. can opt out of the OECD‐​Biden tax cartel by lowering the corporate tax rate to 15 percent and moving to a fully territorial system that disregards foreign profits and taxes. Additional reforms could equalize the treatment of different types of businesses through corporate integration and rationalizing the treatment of interest in the tax code.

Jennifer Huddleston

One of the great benefits of the internet is how it connects global communities. From its earliest days, people have used the internet to make friends and learn about different experiences around the world. Many have credited the internet and social media in lowering the barriers to speech and providing new opportunities for voices that might have otherwise been oppressed.

The United States has been the birthplace of many of the leading global online platforms, and these companies have expressed a strong commitment to free speech online. What was initially considered a strong feature of the internet is now facing rising pushback both at home and abroad as not all governments support a broad conception of free speech.

While the strength of the First Amendment may allow Americans to think they are insulated from attacks on free speech, especially given the dominance of American platforms, the global nature of the internet means restrictions and changing perceptions of free speech abroad are still likely to impact users and businesses in the United States.

What Might Be Causing a Brussels Effect on Speech?

The Brussels Effect refers to European Union regulations which become the de facto governance norms beyond the borders of the EU. One notable example of this phenomenon is the General Data Protection Regulation (GDPR), which has emerged as the default for data privacy regulation. The potential penalties for violation and the significant expenditures and manhours for compliance with the regulation are likely part of this story. Additionally, the concrete definition of data subject or covered entity also may encourage broader applications. Now, various proposed regulations could have a similar impact on speech, both through formal regulation and more informal influence on online speech.

In the EU, the Digital Services Act, a sister piece of legislation to the Digital Markets Act, updates the legal framework for how companies advertise and report their content, and is likely to have significant impacts on free speech. In its attempts to “protect users,” the DSA bans targeted advertising for online platforms based on personal data, requires transparency by online platforms on recommendation algorithms, and implements a user “flagging” system to combat illegal goods and misinformation online, along with other regulations designed to insulate consumers from harm.

While the DSA may be seeking to limit the impact of “bad” content, it is also likely to impact access to content more generally. The Act gives the European Commission more regulatory oversight through the creation of a European Board for Digital Services to inform and enforce the new rules. Among its requirements are transparency about specific harms. Such a requirement, however, is unlikely to only impact “bad” content and could evolve into a much broader requirement that has a more significant impact on speech. In some cases, these may start out as “optional,” but such a requirement is still likely to be enforced broadly out of concerns for further regulatory scrutiny or involvement. The bill went into effect in November of last year, and full enforcement for the DSA will begin next February.

Even though the United Kingdom has left the European Union, it too has recently considered numerous proposals that would have a significant impact on the future of online speech.

The UK’s Online Safety Bill is legislation with the focus of protecting children online, similar to the many U.S. state‐​level bills and the Kids Online Safety Act presented in this year’s U.S. Congress. However, the OSB has become a catchall for content moderation policy since its first draft in 2021, including provisions that require age checks on pornography sites in the same breath as removing child sexual abuse material (CSAM) from platforms through the usage of “accredited technology.” There are aggressive consequences for failure to comply with the OSB: fines up to 10% of worldwide revenue of the company and the blockage of their service from the United Kingdom market. The bill is in the House of Lords, the Parliament’s upper chamber, and could be passed by the end of this summer at its current pace.

Additionally, the update of the Investigatory Powers Act put forward would require companies to approve new security features before launching them, or even disable certain features. Such a requirement would make encrypted messaging services more vulnerable. As a result, a number of companies, including Apple, have threatened to remove their messaging products from the UK if the proposal goes through as currently drafted. While we often think of encryption as a privacy issue, this tool is critical for the speech of those who may be concerned about their safety and security from their own government, including journalists and activists.

Such changes have been increasing outside of Europe as well. For example, in Latin America, government espionage through spyware and sweeping online speech restrictions violate the right to privacy and freedom of expression of citizens throughout the region.

Human rights groups have uncovered the use of the Israeli spyware Pegasus in three Latin American countries — Mexico, El Salvador, and the Dominican Republic — by government executives to spy on their citizens without their knowledge or consent. Those engaged in investigative journalism and civic activism are targeted in particular by the spyware. In addition to unconstitutional surveillance, the legislative bodies of many governments in the region have passed or are in the process of passing laws which would stifle free speech under the guise of fighting against disinformation or hate speech online. For example, Venezuela’s Law Against Hate (passed unanimously by an illegitimate chamber) squashes online discussion on messaging and social media platforms which were safe havens until the legislation, which cracks down on speech. The bill operates through Maduro loyalists and government technicians who point out social media posts or text messages that “promot[e] national hate” to prosecutors without much definition on what constitutes such hate.

There are many other international examples that could be explored but, in general, a growing amount of regulation around the world risks spillover effects to comply with such laws.

How International Tech Policy Could Impact Americans’ Speech

American companies often bring American values regarding free speech and expression into their policy decisions. However, many companies find it easier to have a single set of standards around issues — such as content moderation — rather than have specific rules for each country of operation. While it is certainly understandable why this may be easier, the reality is many Americans may find changes to their online experiences or their own ability to speak freely online. Additionally, this raises questions of what such shifts may do to the positive ways in which the internet has expanded speech for marginalized users and communities as platforms face an increasing number of challenging regulations.

Attacks on encryption could lessen the security of everyone that uses these services. A “backdoor” that allows law enforcement to scan messages could easily be abused by bad actors to obtain information. Additionally, it could render users more vulnerable to surveillance by adversarial nations like Russia or China and limit the ability of journalists to safely contact those engaged in activism in such countries.

Changes to online speech, however, can also happen in more informal ways. For example, many European and Latin American countries have created laws governing hate speech or harmful content online. Platforms may use such laws to formally govern content in such countries, but they are also likely to further the development of internal policies around such issues as well. While many would applaud platforms for taking down racist, sexist, or antisemitic content, the result of hate speech laws’ interpretation is the take‐​down of much more speech than many would immediately assume. Platforms might remove debates over important but sensitive topics such as the Israel‐​Palestine conflict or transgender athletes in women’s sports because of the way moderation terms might be adapted to avoid violating such laws. The result is a concerning shift in norms around online speech that might favor over‐​moderation over potential risks in legitimate debate.

Additionally, a number of governments have placed informal or formal pressure on online platforms to moderate their users’ content. Again, this can remove certain information or opinions from everyone due to the preferences of a particular government.

There is an extensive history of jawboning over the last half a century in the United States, culminating in the age of social media where it manifests as invisible changes to content moderation policies of platforms. However, this phenomenon is not exclusive to the United States. Authoritarian regimes around the world engage in similar practices to control the kinds of speech that exist online, especially if said speech talks ill of the administration in power. Countries like Turkey and India have ordered social media platforms to take down content or block users in the name of national unity or to maintain a positive national image.

While this jawboning and direct censorship by foreign actors does not carry an obvious effect on the United States, it limits the diversity of sources online and forces platforms to possibly change their content moderation policies to adapt to the threats and regulations of countries that seek to limit freedom of expression. These actions come at the detriment of all social media users.

Conclusion

Americans have trusted that the value of free speech on the internet will be based on an American approach to such principles. A growing number of international laws, however, are creating new challenges for both American companies and users. This certainly does not mean that the United States should seek to change its position and more greatly regulate online speech, but it does mean that, in our increasingly connected age, it is important to be aware of the challenges to free speech around the globe and the consequences such proposals have for both companies and users.

David J. Bier

This updates an earlier post.

Fentanyl overdoses tragically caused tens of thousands of preventable deaths last year. Many politicians who want to end U.S. asylum law claim that immigrants crossing the border illegally are responsible. An NPR‐​Ipsos poll found that 39 percent of Americans and 60 percent of Republicans believe, “Most of the fentanyl entering the U.S. is smuggled in by unauthorized migrants crossing the border illegally.” A more accurate summary is that fentanyl is overwhelmingly smuggled by U.S. citizens, almost entirely for U.S. citizen consumers.

Here are the facts:

Fentanyl smuggling is ultimately funded by U.S. consumers who pay for illicit opioids: nearly 99 percent of whom are U.S. citizens.
In 2022, U.S. citizens were 89 percent of convicted fentanyl drug traffickers—12 times greater than convictions of illegal immigrants for the same offense.
In 2023, 93 percent of fentanyl seizures occurred at legal crossing points or interior vehicle checkpoints, not on illegal migration routes, so U.S. citizens (who are subject to less scrutiny) when crossing legally are the best smugglers.
The location of smuggling makes sense because hard drugs at ports of entry are at least 96 percent less likely to be stopped than people crossing illegally between them.
At most, just 0.009 percent of the people arrested by Border Patrol for crossing illegally possessed any fentanyl whatsoever.
Each individual busted for fentanyl by Border Patrol possessed, on average, half as much fentanyl as each person busted at ports of entry in 2023 (10 versus 20 pounds).
The government exacerbated the problem by banning most legal cross-border traffic in 2020 and 2021, accelerating a switch to fentanyl (the easiest-to-conceal drug).
During the travel restrictions, fentanyl seizures at ports quadrupled from fiscal year 2019 to 2021. Fentanyl went from a third of combined heroin and fentanyl seizures to over 90 percent.
Annual deaths from fentanyl nearly doubled from 2019 to 2021 after the government banned most travel (and asylum).

It is monstrous that tens of thousands of people are dying unnecessarily every year from fentanyl. But banning asylum and limiting travel backfired. Reducing deaths requires figuring out the cause, not jumping to blame a group that is not responsible. Instead of attacking immigrants, policymakers should focus on effective solutions that help people at risk of a fentanyl overdose.

U.S. Citizen Consumers Fund Fentanyl Smuggling

U.S. consumer payments for illicit opioids ultimately fund fentanyl smuggling. Consumers pay retail dealers who pay wholesalers, and the cash is then transferred back in bulk cash form to Mexico. These funds are then used to pay smugglers to bring drugs back into the United States again. The best evidence indicates that about 99 percent of U.S. consumers of fentanyl (or products containing fentanyl) are U.S. citizens. Noncitizens appear to be about 80 percent less likely to be fentanyl consumers than their share of the population would predict. Fentanyl smuggling is almost entirely conducted on behalf of U.S. citizen-consumers. Of course, consumers would prefer much safer and legal opioids over illicit fentanyl, but the government has unfortunately forced them into the black market with few safe options.

U.S. Citizens Are Fentanyl Traffickers

Fentanyl is primarily trafficked by U.S. citizens. The U.S. Sentencing Commission publishes data on all federal convictions, which includes demographic information on individuals convicted of fentanyl trafficking. Figure 1 shows the citizenship status of fentanyl traffickers for 2018 to 2022. Every year, U.S. citizens receive the most convictions by far. In 2022, U.S. citizens accounted for 89 percent of fentanyl trafficking convictions compared to just 8.9 percent for illegal immigrants.

Note that since trafficking involves movement from Mexico to the United States, it is unclear how to measure the likelihood of conviction for “noncitizens without U.S. lawful immigration status” since the denominator would include most Mexicans in Mexico as well as anyone who crosses through Mexico. Regardless, the reality is that people with U.S. citizenship or residence traffic the vast majority of fentanyl, not illegal border crossers specifically or illegal immigrants generally.

Indeed, this appears to be the case even for the most high-profile cases. Aaron Reichlin‐​Melnick of the American Immigration Council analyzed every Customs and Border Protection press release mentioning fentanyl over a six‑month period and found just 3 percent involved illegal immigrants. This means that the agency itself believes the most important smugglers are U.S. citizens.

U.S. Citizens Bring Fentanyl Through Legal Crossing Points

That U.S. citizens account for most fentanyl trafficking convictions is not surprising given the location of fentanyl border seizures. In 2023, 93 percent of fentanyl border seizures occurred at legal border crossings and interior vehicle checkpoints (and 91 percent of drug seizures at checkpoints are from U.S. citizens—only 4 percent by “potentially removable” immigrants). In 2022, so far, Border Patrol agents who were not at vehicle checkpoints accounted for just 7 percent of the fentanyl seizures near the border (Figure 2). Of that 7 percent, CBP has testified the majority was seized from vehicle stops, again usually from U.S. citizens. Since it is easier for U.S. citizens to cross legally than noncitizens, it makes sense for fentanyl producers to hire U.S. citizen smugglers.

The DEA reports that criminal organizations “exploit major highway routes for transportation, and the most common method employed involves smuggling illicit drugs through U.S. [ports of entry] in passenger vehicles with concealed compartments or commingled with legitimate goods on tractor-trailers.” Several agencies including CBP, ICE, and DHS intelligence told Congress in May 2022 the same thing: hard drugs come through ports of entry.

Some people posit that less fentanyl is interdicted between ports of entry because it is more difficult to detect there. But the opposite is true: fentanyl is smuggled through official crossing points specifically because it is easier to conceal it on a legal traveler or in legal goods than it is to conceal a person crossing the border illegally. Customs and Border Protection estimates that it caught less than 3 percent of cocaine smuggled at ports of entry in 2021 (the only drug it analyzed), while it estimated that its interdiction effectiveness rate for illegal crossers was about 83 percent in 2021 and 76 percent in 2022 (Figure 3). This means that drugs coming at a port of entry are at least 96 percent less likely to be interdicted than a person coming between ports of entry, and this massive incentive to smuggle through ports would remain even if Border Patrol was far less effective at stopping people crossing illegally than it now estimates that it is.

Closing Ports Increased Fentanyl Smuggling

During the early days of the pandemic, the Trump administration drastically restricted legal travel to the United States, banning nonessential travel through land ports of entry from Mexico in particular in late‐​March 2020. Because there were fewer opportunities to traffic drugs at ports of entry, traffickers switched to trafficking more fentanyl. Because fentanyl is at least 50 times more potent per pound than heroin and other drugs­­, smugglers need fewer trips to supply the same market. The seizure data demonstrate the change in tactics. From October 2018 to February 2020, about a third of fentanyl and heroin seizures at southwest ports of entry were fentanyl with no clear upward trend. By the time the travel restrictions were ended (at least for vaccinated travelers) in January 2022, over 90 percent of heroin‐​fentanyl seizures were fentanyl. Unfortunately, the market shift has continued. The absolute amount of fentanyl being seized quadrupled (Figure 4).

The United Nations Office on Drugs and Crime reported that in mid‐​2020, as a result of travel restrictions, “Many countries have reported drug shortages at the retail level, with reports of heroin shortages in Europe, South‐​West Asia and North America in particular” and that “heroin users may switch to substances such as fentanyl.” The DEA predicted in 2020 that “additional restrictions or limits on travel across the U.S.-Mexico border due to pandemic concerns will likely impact heroin DTOs [drug trafficking organizations], particularly those using couriers or personal vehicles to smuggle heroin into the United States,” leading to “mixing fentanyl into distributed heroin.”

Unsurprisingly, the increased reliance on fentanyl has increased fentanyl deaths. Indeed, it appears that the border closures rapidly accelerated the transition from heroin to fentanyl, leading to tens of thousands of additional deaths per year (Figure 5). The annual number of fentanyl deaths have nearly doubled between 2019 and 2021. Banning asylum under Title 42 of the U.S. code probably had no effect on these trends, but it certainly did not help reduce fentanyl deaths, as some have claimed.

Asylum Seekers Don’t Aid Fentanyl Smuggling

Fentanyl smuggling is not a reason to end asylum. The people arrested by Border Patrol are not smuggling fentanyl. Border Patrol made just 253 seizures of fentanyl for the entire fiscal year 2023. About 37 percent of those were at vehicle checkpoints—which are over 90 percent from U.S. citizens and legal permanent residents—and many other seizures are from U.S. citizens at roving traffic stops in the interior, so likely fewer than 150 of the nearly 1.7 million Border Patrol arrests this year ended in a fentanyl seizure—too small of a percentage (0.009 percent) to appear on a graph. Some people say we can’t know what gets by agents. In a way, that’s true, but we have a massive sample size, and the number of seizures is far too small to affect fentanyl supply in the United States.

Some officials have asserted that asylum seekers distract Border Patrol from drug interdiction efforts. If asylum seekers were indirectly aiding drug smuggling, however, we would expect the effect to show up in the seizure trends by changing the locations, times, or amounts of the seizures in some way. But drug seizure trends simply do not deviate measurably with greater arrests of asylum seekers. This is true on several different metrics: across time, between sectors, along mile‐​distance from the border, or the share of seizures at ports of entry versus between them. If the administration legalized asylum at ports of entry, even this hypothetical problem would disappear.

Aggressive Drug Interdiction Exacerbates Fentanyl Smuggling

The fentanyl problem is a direct consequence of drug prohibition and interdiction. As my colleague Dr. Jeff Singer has written:

Fentanyl’s appearance in the underground drug trade is an excellent example of the “iron law of prohibition:” when alcohol or drugs are prohibited they will tend to get produced in more concentrated forms, because they take up less space and weight in transporting and reap more money when subdivided for sale.

Fentanyl is at least 50 times more powerful per pound than heroin, which means you have to smuggle nearly 50 pounds of heroin to supply the market that a single pound of fentanyl could. This is a massive incentive to smuggle fentanyl, and the more efforts are made to restrict the drug trade, the more fentanyl will be the drug that is smuggled. The DEA has even admitted, “The low cost, high potency, and ease of acquisition of fentanyl may encourage heroin users to switch to the drug should future heroin supplies be disrupted.” In other words, heroin interdiction makes the fentanyl problem worse.

Conclusion

Border enforcement will not stop fentanyl smuggling. Border Patrol’s experience with marijuana smuggling may provide even clearer evidence for this fact. Marijuana is the bulkiest and easiest‐​to‐​detect drug, which is why it was largely trafficked between ports of entry. Despite doubling the Border Patrol and building a border fence in the 2000s in part to combat the trade, the only thing that actually reduced marijuana smuggling was U.S. states legalizing marijuana. It is absurd to believe that interdiction will be more effective against a drug that is orders of magnitude more difficult to detect.

The DEA plainly stated in 2020 that fentanyl “will likely continue to contribute to high numbers of drug overdose deaths in the United States” even with the ban on asylum and travel restrictions. But ending asylum or banning travel has been worse than useless. These policies are both directly and indirectly counterproductive: first directly, by incentivizing more fentanyl smuggling, and then indirectly, by distracting from the true causes of the crisis.

My colleagues have been warning for many years that doubling down on these failed prohibition policies will lead to even worse outcomes, and unfortunately, time has repeatedly proven them correct. The best response to the opioid epidemic is the appropriate treatment of addiction. But for this to be possible, the government must adopt policies that facilitate treatment and reduce the harms from addiction—most importantly, deaths. To develop these policies, policymakers need to ignore the calls to blame foreigners for our problems.

Anastasia P. Boden

150 years ago, the Supreme Court tore a hole through civil rights law when it drastically narrowed the scope of the Fourteenth Amendment. In the Slaughter‐​House Cases, the Court ruled that the Privileges or Immunities Clause protected very few rights from state infringement, including only rights like the freedom to access seaports or to peaceably assemble.

Ever since, scholars, historians, and litigants have tried to persuade the Court to undo its mistake. While they’ve been partially successful in convincing the Court to protect things like freedom of speech and other enumerated rights from state overreach, they’ve been less successful when it comes to economic rights.

This is a huge failure of civil rights law. Historically, occupational regulations have been weaponized against politically powerless groups to keep them from competing. From the Chinese laundry owners in Yick Wo v. Hopkins, to women like Myra Bradwell, who was kept from becoming a lawyer merely because she was a woman, people require economic freedom to thrive. When Courts refuse to protect that freedom, they leave one of our most precious constitutional rights to the whim of the legislature.

Even today, licensure laws and other economic regulations continue to deprive people of opportunity for largely protectionist reasons. Take Ursula Newell‐​Davis, who has been engaged in a multi‐​year battle to open a care business for special needs kids. Louisiana shut her out of the industry solely to ease its workload, which it contends self‐​evidently benefits the public. Federal courts have thus far rejected Ms. Newell-Davis’s claims that the state is depriving her of the right to enter a lawful occupation.

Given courts’ unwillingness to protect the right to earn a living under the Fourteenth Amendment, it’s time to try something new. The Robert A. Levy Center for Constitutional Studies is calling for papers on how to restore economic liberty by looking beyond the Fourteenth Amendment to other parts of the Constitution or sources of law.

I’m copying our call for papers below and I look forward to seeing what you come up with.

Most people would be hard‐​pressed to define the “American Dream” without some reference to economic freedom. From Benjamin Franklin’s dozens of inventions (bifocals! A flexible catheter!), to self‐​made man Frederick Douglass, to serial inventor Joy Mangano’s miracle mop, Americans believe that with a good idea and enough hard work, anyone can enjoy economic success—no matter the circumstances of their birth.

They’d be surprised, then, to learn that courts do very little to protect the right to earn a living. By all accounts, that precious right was intended to be a centerpiece of the Fourteenth Amendment. Yet Federal courts have all but written it out of the Constitution.

Despite vast scholarship by heavy hitters like Bernard Siegan and Randy Barnett and decades of public interest litigation with sympathetic facts, the Supreme Court refuses to consider the right to earn a living a “fundamental” right protected by the Due Process Clause. And apart from a few scattered dissents, the Court appears similarly disinterested in reviving the Fourteenth Amendment’s Privileges or Immunities Clause. Many scholars believe that Clause was drafted with an eye towards protecting economic liberty in particular, but it was (in the words of Akhil Amar) “strangled in its crib” by the Slaughter‐​House Cases. As a result of that 150‐​year‐​old mistake, courts have upheld even the most absurd laws (ie. licensure requirements for florists) in Fourteenth Amendment cases involving plaintiffs left destitute by government overreach.

If we want the judiciary to protect economic freedom, it’s time to try something new.

Are there constitutional theories besides due process and equal protection that could provide more effective protection for economic liberty? The Cato Institute’s Robert A. Levy Center for Constitutional Studies is calling for legal scholarship on legal theories that would protect the freedom to contract, to innovate, to earn a living, and to freely engage in mutually beneficial economic transactions. The Center seeks a mix of papers that are both theoretical and practical; that both suggest new litigation strategies and identify specific policies that seem ripe for legal challenge. The papers will be compiled in a special journal edition produced by the Cato Institute, which can serve as a blueprint for scholars, researchers, and litigants who seek to restore the Constitution’s promise of opportunity through economic freedom.

Examples include:

Evidence of the original meaning of the Contracts Clause and ways it might be reinvigorated through litigation

Potential theories under the Citizenship Clause

State constitutional anti‐​monopoly and anti‐​gift provisions and other causes of action unique to state law or state constitutions

Questions left open by North Carolina Dental Board and ways in which parties can use the Sherman Act to hold regulatory bodies accountable for anti‐​competitive conduct

What’s left of the dormant Commerce Clause after National Pork Producers v. Ross?

Empirical research about licensure creep or theories of how regulatory bodies might be acting ultra vires

Surveys of laws that are particularly ripe for challenge

Lessons learned from the past 20 years of economic liberty litigation

Submission Details: Please submit a brief research proposal that describes a new or underexplored constitutional protection for economic liberty. Proposals should be submitted by November 1, 2023, to Anastasia Boden at aboden@​cato.​org. All proposals will be reviewed on a rolling basis and approvals will allow authors to begin work early.

Honorarium and Other Support:: Authors of accepted papers will receive a $2000 honorarium. Authors will be offered expert feedback on their research, along with peer‐​review and copyediting assistance. Papers will be published as a special journal volume through the Cato Institute. If requested during the initial proposal period or soon thereafter, we also will try to connect potential coauthors with different legal and empirical expertise.

Symposium: Completed drafts are due by March 1, 2024, but need not be in polished or publishable form. Each author will be expected to formally comment on others’ papers. Authors will present their papers at symposium at the Cato Institute in April of 2024. Cato will cover the cost of hotel accommodation and reasonable travel expenses to the symposium.

Contact Information: For questions regarding the call for papers, please contact Anastasia Boden at aboden@​cato.​org

Deadlines:

November 1, 2023: Deadline for submission of paper proposals.

November 21, 2023: Authors notified of acceptance.

March 1, 2023: Deadline for draft papers.

Early April 2024: Presentation of papers at half‐​day symposium at Cato Institute.

Early May 2024: Deadline for revisions and submission of final papers.

Summer 2024: Target for publishing of papers in journal form.