Stock

Tad DeHaven

The International Longshoremen’s Association (ILA) strike, which halted the movement of exports and imports from East and Gulf Coast ports for three days, has been suspended. The union had been demanding a substantial wage increase and tighter restrictions on port automation. In a tentative agreement, the ILA got the substantial wage increase (62 percent over six years), but automation will continue to be negotiated. The new date for the parties to come to agreement on a new contract is January 15, 2025. 

Of the myriad issues that have been at play, it is the union’s vehement opposition to any degree of automation that arguably deserves the most scrutiny. A major purpose of a union is to preserve the jobs of its members, so it’s no surprise the ILA opposes the introduction of labor-saving technology. The past is replete with examples of such opposition: weavers vs. power looms, railroad workers vs. automatic coupling systems, miners vs. continuous mining machines, automobile workers vs. automated assembly lines, telephone workers against automated switching systems, postal employees vs. automated mail sorting machines, and on and on. 

There’s another example that is particularly relevant: the ILA’s mid-20th century opposition to containerization. A 1977 New York Times article on an ILA strike that year reported:

Behind the strike that has tied up container cargo in Gulf and East Coast ports is a revolution in transportation that has come to dominate ocean shipping in only 20 years.

[.…]

The revolution—the use of containers —has superseded longshoremen’s arms with the mechanical arms of giant cranes and has replaced teeming waterfronts full of wooden crates and burlap sacks with vast, stark marshaling yards packed with sleek, steel boxes. The boxes, called containers, become instant trailer vans when they are swung off ships and snapped onto truck chassis.

Containerization cost many union dockworkers their jobs. But those losses were dwarfed by the consequent economic benefits realized by countless American consumers, businesses, and workers in other industries.

The most recent World Bank/S&P Global rankings of 405 ports around the world show US port performance continues to underachieve. The US’s top port (Philadelphia) comes in at only 50th. Most are in the middle or ranked toward the bottom. (For more on this and related issues at US ports, see Scott Lincicome here and here.)

The United States lags Europe and Asia in its use of port automation. While the relative lack of automation is just one factor impacting US port performance, it’s certainly an issue. A recent Government Accountability Office (GAO) report compared select US and foreign ports on automation utilization. As the GAO table shows, the ten largest US container ports it reviewed utilize less automation technology compared to the foreign ports examined. One reason the GAO cites is labor agreements that prohibit automation.

Intransigent labor unions aren’t the only reason the US ports are behind. The GAO notes that the foreign ports it reviewed all handle higher cargo volumes than the US ports. Automation technology isn’t cheap, so the higher the volume the likelier a positive return on the investment. Another issue is foreign ports move more containers from one ship to another ship (transshipment), which lends itself to utilizing automation. In both instances, US regulations play a key role. 

As Colin Grabow points out, transshipment is nonexistent in the US because of the protectionist Jones Act. He also explains that the Jones Act and other government regulations inhibit the dredging of US ports for capacity expansion. 

The ILA strike makes it tempting to say the ports should simply be automated and labor taken out of the equation. As it currently stands, however, automation isn’t a panacea. The GAO found that automation can be a mixed bag performance-wise, and as noted, it may not make sense from an investment standpoint. But setting aside government policies that can and do negatively impact automation performance and cost, the key phrase is as it currently stands. Unless overzealous regulators get in the way, future technological advancements will lead to more effective and efficient automation tools for ports to utilize.

That’s what’s maddening about the union’s government-granted ability to gum up the progress works. The longer special interest roadblocks remain in front of automaton adoption, the longer market forces will be held at bay, and thus the longer it will take for the US to realize the benefits of automation a la containerization. As Reason’s Eric Boehm asks, “… if maximizing the number of union jobs at ports was the highest value to society … [w]hy not demand a ban on cranes, forklifts, and tractor-trailers too?” 

In the wake of the strike, the Biden administration and presidential candidate Vice President Harris reflexively sided with the Democratic Party’s union ally. Tellingly, that’s despite the heavy damage a strike could have imposed on the economy just a month away from election day. On the other side, a previous press release from the ILA says that Republican presidential candidate Donald Trump “promised to support the ILA in its opposition to automated terminals in the U.S.”

It remains to be seen what the final agreement on a new labor contract says about the ability to use automation at East and Gulf Coast ports. A crack in the union’s wall that allows for some small degree of automation may be the ceiling. However, if there’s hope to be had from the discourse surrounding the strike, it’s that more Americans will have woken up to the counterproductive role that government-favored special interests play in their lives.

Colleen Hroncich

Nicholas Ellis wants to tell a different story about what it means to flourish. “What does it mean to win at life if you stay in your local community?” he asks. “If you get educated within your community and you get married and build a family. And you’re part of that local civic enterprise—you’re the mayor of your town or you’re on the school board. I hope that’s not just a Wendell Berry-ian nostalgia. I hope it’s something that we can actually build.”

Nicholas has a bold vision and an ambitious goal: to transform communities by focusing on educational programs that prioritize local flourishing, soul formation, and self-governance. That vision is what inspired Nicholas to found Christian Halls International (CHI), an organization that equips communities to provide their young adults with intellectual, spiritual, and vocational formation. A Christian Hall is a local, independent learning community that pairs in-person tutorials with coursework from partner universities.

Christian Halls International is a unique program, which isn’t surprising considering Nicholas’s unique background. He grew up being homeschooled with his four siblings in Brazil where his parents were missionaries. He moved back to the US for his undergraduate degree, headed to Canada for a master’s degree, and completed his studies in England at the University of Oxford where he received another master’s degree and a PhD.

The Christian Hall design is modeled after the tutorial style of education Nicholas experienced at Oxford. “At our college, Wickliffe Hall, we would prepare kids for the examinations. The University of Oxford is the one that has the examination school and the professors. But virtually no lecturing happens at Oxford,” he says. “It’s not really a lecture-based education. It’s really research, discussion, peer review, small group tutorials, seminar work. But ultimately, you’re preparing for your examinations at the university.”

CHI mimics that design by creating shared partnerships between local, self-governing halls and the partner university. The local entity creating the hall chooses from available coursework and may supplement with local resources to design a program that works for the community. The academic responsibility remains with the university, which provides accreditation, professors, syllabi, and degree-granting.

To create this innovative program, Nicholas says CHI approached about a dozen different Christian universities. “We acquired the rights to all of their degree programs. So we have about 500 degrees now, and about 10,000 classes—everything from dual credit through PhD,” he says. “The local community can only unlock those if they’re willing to go to their elders, go to their retirement community, go to their confident businessmen, and say we need you to get involved in the shaping and forming of our people. So we can support you, but you have to govern the space.”

A community only needs one tutor and three students to create a new hall. After signing up, they’ll have access to the CHI platform that lets them choose which coursework they want to support. CHI started with liberal arts programs similar to Oxford, Great Books, or PPE (politics, philosophy, economics), Nicholas says, “because tons of our families want to go to Hillsdale, but Hillsdale only accepted like 14% of applicants last year. There’s not enough supply in that space.” So they built a program that would allow classical high schools to offer higher education tutorials to their students.

Homeschoolers found out about it and asked CHI to create programs through community colleges. For example, Nicholas says there are three community colleges in the Dallas-Fort Worth area, and there are around 350,000 people in those three community colleges. “Nobody wants that degree. They’re just using that as a two-year transfer program before the transfer to A&M or UT,” says Nicholas. “So I said, I’ve got to go build 40 different micro-campuses across homeschool communities and classical schools and churches. Because of those 350,000 kids, I firmly believe that 10 to 20 percent of them are just conservative kids that want to knock off their gen eds and save some money before they transfer out.” That’s become CHI’s biggest program because in every community he goes to he finds a similar situation.

When it comes to trades, Nicholas says they’re often partnering with local businesses. For example, they have an oil and gas partner in West Texas that needs engineering, drilling, welding, plumbing, and diesel. CHI went to their university partners and explained the program they wanted to implement. If they want, students can do just the certificate in a specific skill—for example, welding. But CHI offers more than just the certificate so they can build a long-term career.

The West Texas program has math tutors and a retired businessman who can teach business structure and entrepreneurship. In that degree program, half is general education requirements so students can receive an associate’s degree. The other half is a hands-on apprenticeship with the oil and gas company, where local trade masters come through and work with the university to certify the students are mastering the skills. By pulling all of those pieces together, CHI is able to offer a bachelor’s of business entrepreneurship with a certificate in welding and deploy that into the local business community.

Christian Halls International is currently preparing to launch a network of teacher colleges to help supply teachers for Christian schools. Nicholas tells schools, “We want to provide a conservative homegrown option so that you don’t have to hire teachers that are not aligned with you, that are not part of your culture, that don’t understand what you’re trying to do.” They’re also designing a Conservatory of the Arts program for an MFA or BFA to encourage flourishing arts programs in local communities.

“Financially, we negotiate a price point for our members so that it’s nondebt, pay-as-you-go subscription style member payments. We’ve never had any students go into debt, they’ve never had to sign a promissory note,” explains Nicholas. “Fifty percent of the tuition goes to the university to pay professors and those kinds of things, 25 percent goes to the local hall to pay their tutors and create a sustainable revenue share model for that local operation. And 25 percent comes back to us at CHI to build local structures, program design, technology. So it’s really a three-way partnership between us, the local halls, and the university vendors.”

In some states, education savings accounts can be used to pay for the Christian Halls program. This makes it even more accessible for students who are eligible for ESAs. Students could take dual enrollment classes with CHI while in high school and pay with their ESA—potentially earning an associate degree or more.

Christian Halls International has rolled out 170 programs this year. Nicholas thinks they can hit 500 next year, and the 10-year goal is to have one per county. “I can find local patrons and say, who do you trust? Who would you want to work with? What programs do we need to install? Everything from civics programs, teacher colleges, nursing and medicine, all the way to great books and honors programs,” he says.

Jennifer J. Schulp and Jack Solowey

What do Yankees tickets and Pokémon cards have in common? If you guessed wish list items for elementary school kids, you wouldn’t be wrong. But another thing they share is that Securities and Exchange Commission (SEC) Chairman Gary Gensler has been asked to opine on whether they are securities during congressional testimony.

To most people, the answer to that question seems easy: Pokémon cards aren’t traded on the New York Stock Exchange—and neither are Yankees tickets—so they must be different from securities like Walmart or Tesla stock, right? That’s hardly a technical analysis (and decidedly not legal advice), but it reveals a piece of common sense underlying our intuitions about securities laws: If we buy something that has some use—even if we hope that it may become more valuable—it is usually not treated as a security subject to all of the rules and regulations that go along with offering and trading investment assets.

But, in yet another example of Gensler’s expansive view of SEC jurisdiction, his answers to Rep. Ritchie Torres (D‑NY) on whether items like Pokémon cards and baseball tickets are securities were not definitive and seemed to rest on an incoherent theory that takes into account whether the assets are in some way stored on a blockchain. That doesn’t sound like the “technology neutral” regulator the SEC claims to be.

Unfortunately, this isn’t just the idle musing of an agency head dreaming of enlarging its fiefdom. The SEC has settled several actions asserting that NFTs (i.e., non-fungible tokens) granting holders certain rights to digital art and exclusive restaurant access were unregistered securities. (The SEC has also issued a Wells Notice, indicating that it intends to file an enforcement action, against a platform that facilitates NFT trading.)

The stated rationale for these actions is that purchasers of the NFTs were led to expect profits when the token appreciated in value based on the efforts of the NFT issuer. In the Commission’s view, this ostensibly meets the criteria set out by the Supreme Court for when something qualifies as an investment contract subject to SEC jurisdiction. But as SEC Commissioner Mary Uyeda has noted, considering “any item sold whose value is based on the efforts of others” to be a security “would appear to scope in many common transactions in the non-digital world, including pre-purchase commitments, collectibles, art, and land.” That’s exactly what the SEC appears to be doing.

NFTs are unique digital tokens that typically are employed to represent (though not necessarily legally confer) ownership of a physical or digital asset. NFTs and cryptocurrencies use the same underlying blockchain technology, but they differ in important respects, most notably in that cryptocurrencies are fungible—meaning that two units of the same cryptocurrency are interchangeable—whereas NFTs are not.

While in one sense NFTs can be thought of as assets themselves, they also can be thought of as something like “certificates of authenticity” that provide a way of verifying that the NFT holder has an ownership claim, access right, or connection to another asset or file that the NFT is linked to (such as a piece of art, digital content, or membership pass). However, the legal rights of a token holder, such as intellectual property and other ownership rights, cannot be assumed based on possession of the token alone and may require reference to additional off-chain legal frameworks.

NFTs can serve a variety of functions, such as representing ownership of real-world or digital assets like art, facilitating benefits like access to a real-world or digital social club or automated royalty payments, or eligibility for discounts associated with customer loyalty rewards, to name a few. Buyers of NFTs may want to collect them, receive the benefits associated with them, or speculate that their future value may rise.

But the fact that someone buys something in hopes that it will appreciate—like a Pokémon card collector or reseller of Yankee playoff tickets—does not turn the item into a security. Where an item has a use unconnected to its appreciation in value, as many NFTs do, it’s even easier to see this because a purchaser may not intend to use the item as an investment. 

The securities laws evolved in no small part to address the risks posed to investors by a managerial body’s ability to possess information that investors do not and that body’s capacity to act at odds with investors’ best interests. Yet, as SEC Commissioners Hester Peirce and Mark Uyeda recognized when dissenting from the Commission’s settlement with Flyfish Club, LLC—which offered NFTs that granted holders access to its restaurant—this type of securities analysis is “inapt because holders of Flyfish NFTs had a reasonable expectation of obtaining wonderful culinary experience and other exclusive member experiences based on the managerial and entrepreneurial efforts of Flyfish and its principals. Whether their expectations will be met should not be judged by a securities regulator” (emphasis added).

The SEC claims to be looking at the “economic reality” of the NFT offering to determine that it falls within the securities laws. But as Commissioners Peirce and Uyeda remarked when dissenting from the settlement with Stoner Cats 2, LLC, which sold NFTs connected to digital art (of stoned cats): “The Stoner Cats NFT purchasers received what they paid for—a still image of a character from the series, access to all six episodes of the Stoner Cat series, and the excitement of being part of a popular phenomenon.” This economic reality isn’t enough to bring a project within the SEC’s jurisdiction because, if it was, every sale of fine art would fall within the SEC’s purview—something that the SEC has acknowledged is not the case. 

That’s not to say that NFTs can never fall within the ambit of the securities laws but rather that it is far from a given that any particular NFT does. The SEC’s jurisdictional grabs—from collectibles to digital art markets to social club memberships—deter artists and other creatives from experimenting with methods to monetize their work. Uncertainty about whether they will face an SEC investigation may chill experimentation, in part by prohibitively raising costs related to legal counsel (or more proactively, for taking legal action against the SEC for clarity). 

Recently, Rep. William Timmons (R‑SC) floated legislation, the “New Frontiers in Technology Act,” seeking to exclude NFTs that relate to works of art, collectibles, loyalty points, and tickets (among other things) from coverage under the securities laws. Whether as a result of legislation or otherwise, though, the SEC needs to walk back from its untenable position that anything purchased that may rise in value is a security—a position that needs to be revised not only for NFTs but for technological innovation more broadly.

James A. Dorn

In her recent article in Business Insider, Linette Lopez, a graduate of the School of Journalism at Columbia University, argues that China’s latest efforts to spur the economy are too little, too late. She holds that Xi Jinping is opposed to massive stimulus programs that would directly stimulate consumption by sending checks to households because “the Chinese president is a follower of the Austrian economist Friedrich Hayek, who believed that direct stimulus distorts markets and leads to uncontrollable inflation.”

Xi’s Views Are Diametrically Opposed to Hayek’s

Xi Jinping has never been a follower of Hayek, a free market, classical liberal economist. Unlike Hayek, Xi and his comrades see order flowing from power, not from the voluntary actions of free individuals in pursuit of a better life bounded by limited government under a just rule of law. The Hayekian idea of spontaneous order, based on private property rights and a free market for ideas, is anathema to Xi and the CCP.

Since Xi took power as general secretary of the Chinese Communist Party (CCP) in November 2012 and as president in March 2013, China has moved away from market liberalization and returned to state-led development and industrial policy. The private sector has lost out to the growing state sector, and individual freedom has suffered under Xi’s crackdown on human rights. Reformers and all those who favor greater freedom of thought and expression have been silenced. Moreover, Xi’s suppression of Hong Kong’s free market in ideas—in the name of “national security”—has transformed what was once the star of market liberalism into a puppet of China.

The Case of Unirule

One notable example is the closure of the Unirule Institute in August 2019. Established in 1993 by Mao Yushi and others, it was a beacon for liberty and a proponent of Hayek’s ideas. As early as 1998, Mao commissioned a Chinese translation of The Constitution of Liberty, one of Hayek’s most important works. In 2012, just before Xi came to power, the Cato Institute awarded Mao with its highest honor, the Milton Friedman Prize for Advancing Liberty.

The fragile future of freedom under Xi was already evident by October 2013, when Gao Quanxi, a noted Hayekian and law professor at Beihang University spoke at the Unirule Institute. With members of the Hayek Association present, he warned, “Today we’re in a new planned economy” with less freedom than a decade ago. The free market for ideas is moribund. “Communism has failed. Socialism has failed. What we have here is statism. And Hayek really opposed that.” Upon the closing of Unirule, its executive director, Sheng Hong, sadly stated, “We no longer have any space for survival.”

The CCP’s Opposition to Welfarism

The real reason Xi opposes the welfare state is not because he is a follower of Hayek, but because the CCP has always been ideologically against social welfare spending. The CCP’s long-held doctrine is that welfare spending would only prolong poverty by diminishing the incentive to work and to save. As Lingling Wei and Stella Yifan Xie note, “The lack of spending on social welfare runs counter to some stated goals of China’s Communist Party, which has staked its legitimacy on delivering continued prosperity.”

The key role of the CCP is to nurture “socialism with Chinese characteristics,” not to imitate Western welfare states. China’s paramount leader Deng Xiaoping realized that prosperity was better served with economic liberalization than continued central planning and state-led development. Xi has turned away from that vision.

China Needs Hayek

China’s biggest challenge will be to rethink the role of the state and market, and consider the fundamental role of a free market for ideas—and a genuine rule of law—in the quest for prosperity and human well-being.

In doing so, reflection on Hayek’s work can provide some guiding principles, the most important of which is the role of freedom in creating a spontaneous social and economic order, which cannot be attained by the power of central planning and control. As Hayek concluded in The Road to Serfdom, now celebrating its 80th anniversary, the “only truly progressive policy” is “a policy of freedom for the individual.” 

Eric Gomez and Benjamin Giltner

There were multiple developments in US security assistance to Taiwan in September 2024, but the size of the arms sale backlog did not change from the previous month. The topline figure for the Taiwan arms sale backlog remains $20.5 billion. New information that came to light in September about several of the largest arms sale cases in the backlog is good news for Taiwan, but none of the arms sale cases completed delivery.

Figures 1 and 2 show how the backlog is divided between munitions, asymmetric capabilities, and traditional capabilities. Table 1 shows an itemized list of backlogged capabilities. 

New Maintenance Sale

One new arms sale to Taiwan was notified to Congress in September 2024, but this sale is not included in our dataset because it is for maintenance.

On September 16, the Defense Security Cooperation Agency notified Congress of a $228 million sale of aircraft spare parts. We do not consider this new sale part of the arms sale backlog because, unlike the sales that are part of our dataset, Taiwan already possesses the weapons that the spare parts support and could use them to defend itself.

This most recent sale brings the Biden administration’s total maintenance sales to Taiwan to $2.45 billion over 12 sales, compared to the Trump administration’s $1.85 billion over 4 sales. Generally, the Biden administration has focused on selling new asymmetric weapons and munitions to Taiwan while maintaining Taiwan’s traditional capabilities. The Trump administration sold more traditional capabilities like F‑16s and Abrams tanks, but these are more vulnerable to China’s armed forces. 

Initial Deliveries of Large Arms Sales

In good news for the backlog, press reports from Taiwan indicate that deliveries of the three largest arms sale packages—F‑16 aircraft ($8 billion), the Harpoon Coastal Defense System ($2.37 billion), and Abrams tanks ($2 billion)—have either started or will begin in the very near future.

The first of 66 newly built F‑16 aircraft, a sale notified to Congress in 2019, should arrive before the end of 2024, though the precise timing and number of aircraft that will arrive this year are unclear. The F‑16s were supposed to begin arriving earlier this year, but the delivery was shifted due to production delays.

The Liberty Times reported that equipment for ground-based Harpoon anti-ship missiles arrived in Taiwan. A first batch of 32 launchers (out of 100) and 128 missiles (out of 400) is expected in 2026. It is unclear if the equipment mentioned by Liberty Times refers to early delivery of this initial tranche or the delivery of supporting equipment with the launchers and missiles arriving later, though it is likely the latter.

Finally, a report by Taiwan’s Central News Agency on the army’s plans to train soldiers on Abrams tanks says that the first batch of 38 tanks (out of 108) should arrive in December 2024. Similar to the F‑16s, the tanks were originally supposed to arrive earlier in the year but were delayed.

Our monthly updates to the backlog dataset will make note of these deliveries as they advance. For many of the larger arms sale cases, Taiwan does not receive all the equipment at once. Instead, deliveries are spread out over a few years. Our dataset only removes items from the backlog once delivery is fully completed, but we will find ways to note which deliveries are in progress in future updates.

Presidential Drawdown

The final development in US security assistance to Taiwan is new information about equipment sent via Presidential Drawdown Authority (PDA). Weapons sent through the PDA are drawn from existing US stockpiles and can be sent more rapidly than typical arms sales.

In July 2023, the United States announced a PDA package for Taiwan worth $345 million. In September 2024, the United States announced a second drawdown for Taiwan, valued at $567 million. Unlike PDA notices for weapons sent to Ukraine, neither of the two Taiwan PDA notices has gone into detail on the equipment being transferred.

A September 2024 report by the Department of Defense Office for the Inspector General (IG) reveals worrying information about the July 2023 drawdown. According to the IG report, “more than 340 of 504 total pallets of [Presidential Drawdown] items (about 67 percent) sustained water damage” as they waited for over three months at a US military base for airlift to Taiwan. Other problems mentioned in the IG report include moldy body armor, 40-year-old ammunition that was improperly packaged, and machine guns shipped in a cardboard box without any wrapping or cushioning.

While a second, larger PDA package is good news for quickly getting equipment into Taiwan’s hands, the sorry state of the first package is concerning and belies a lack of US prioritization despite repeatedly naming China as the “pacing threat.”

Taiwan Arms Backlog Dataset, September 2024

Michael F. Cannon

President Joe Biden has touted how the Inflation Reduction Act (IRA) gives Medicare the power to negotiate lower drug prices. He has boasted that this new authority will save $6 billion in its first year.

As I explained at the policy forum, “At What Price: Determining Pharmaceutical Prices in Medicare,” however, the IRA contains other provisions that will increase Medicare spending on prescription drugs for seniors. In particular, it provides a 100 percent subsidy for drug spending after Part D enrollees spend $2,000 out of pocket. The Congressional Budget Office estimates that the out-of-pocket-spending cap and other provisions of the IRA will nearly triple the per-enrollee cost of Part D. Congress could have appropriated additional funds to prevent that additional expense from increasing Part D premiums. It chose not to do so.

That presented the Biden–Harris administration with a problem. Left to its own devices, federal law—which is to say, Congress—would dramatically increase Part D premiums right before this November’s presidential election. Angry seniors could take out their frustrations on the Democratic nominee, Vice President Kamala Harris.

So the Biden administration struck upon a scheme: spend taxpayer dollars on a sham Medicare “demonstration program” that hides from enrollees the cost of the IRA’s expensive new coverage by shifting that cost to taxpayers. Federal law allows Medicare to create demonstration programs that test new ideas (payment reforms and the like) in small corners of the Medicare program. The Biden–Harris administration (ab)used that authority to create a “demonstration program” that offers all insurers who participate in Part D new, temporary subsidies—if they pledge not to increase premiums before Election Day.

The Biden administration is literally spending money Congress chose not to spend, increasing federal deficits and debt, to hide the cost of its health reforms, all in the service of buying votes for its presidential candidate in an election year. 

The Biden administration defends its sham demonstration program as “consistent with other demonstrations that [Medicare] has conducted in the past to address transitional issues associated with the implementation of major changes to the Medicare program.” Translation: Prior administrations were crooked too. It’s the sort of defense that reveals the situation is much worse than you thought.

The CBO estimates the all-in cost of the first year of Biden’s sham demonstration program will all but eliminate the same-year savings from Medicare negotiating lower prices for prescription drugs.

The episode illustrates why Medicare is neither efficient nor a sacred bond between the generations but rather the main force behind rising federal deficits and debt. Medicare is, and always has been, a tool for buying votes from seniors and high-cost, low-quality providers by skewering the least politically powerful people in the room—taxpayers. 

Scott Lincicome

Today we’ve published three new essays for Cato’s Defending Globalization project:

“The Trade Balance and Winning at Trade,” by Andreas Freytag and Phil Levy, explains that the trade balance is a particularly bad measure of national well-being.

“The Globalization of Popular Music,” by Clark Packard, traces how popular music became globalized, with particular attention paid to the Beatles.

“The Democratic Promise of Globalized Film and Television,” by Paul Matzko, shows that viewers today enjoy a larger, more diverse selection of high-quality video content than ever before—and even greater changes may be on the way.

And in case you missed it earlier this week—we worked with a major multinational retailer to make our own T‑shirt, which followed a surprisingly complex supply chain involving dozens of people in several countries, including the United States. We also created a new website to document the T‑shirt’s journey from idea to doorstep.

This content joins 36 other essays and additional multimedia features on the main Defending Globalization project page.

Make sure to check it all out and stay tuned for future releases.

Kayla Susalla

During the October 1 vice-presidential debate, when asked about holding parents accountable for mass shootings in schools, Sen. JD Vance (R‑OH) responded, in part:

I don’t want my kids to go to school and a school that feels unsafe or where there are visible signs of security. But I unfortunately think that we have to increase security in our schools. We have to make the doors lock better. We have to make the doors stronger. We’ve got to make the windows stronger. And, of course, we’ve got to increase school resource officers because the idea that we can magically wave a wand and take guns out of the hands of bad guys, it just doesn’t fit with recent experience.

Crucially, while the desire to do everything possible to prevent school shootings is entirely understandable, it is unclear if police presence is a net positive.

Researchers have found that weapons-related offenses persisted when school resource officers (SROs) were increased in California schools using federal grants, compared to statistically matched schools that did not increase SROs, concluding they did not make schools safer. Another study found that increasing the SROs in North Carolina schools had no effect on weapon possession, drug possession, or alcohol offenses but did decrease instances of serious violence. On the flip side, it increased exclusionary discipline. 

A third study, using a nationally representative sample, compared schools near police departments above the threshold to receive federal SRO grants and schools below. It found that being above the line increased the number of recorded firearm offenses and decreased the instances of violent fights. More SROs did not prevent school shootings or gun-related incidents but did increase exclusionary discipline actions.

With research producing inconclusive results about the long-term effects on deterring weapons possession and school shootings, the federal government should not incentivize states to increase SROs. It is important to remember that there are possible upsides but also possible downsides to increased policing of schools, the latter including potential misconduct by SROs who could be effectively immune from prosecutorial accountability and unnecessarily feeding the school-to-prison pipeline.

The federal government should not be promoting policies that could be doing more harm than good. States are our “laboratories of democracy” and must be allowed to employ their own approaches free of federal coercion.

Jeffrey Miron

A common critique of marijuana legalization asserts that marijuana use causes mental illness. Numerous studies document a correlation between use and conditions such as psychosis. This evidence, however, does not pin down the degree to which use causes, versus results from, reduced mental health. Indeed, mere correlations are consistent with use, making preexisting mental health conditions less severe.

New evidence sheds light on how policy impacts the relationship between access to legal marijuana and mental health:

Our research examines how the availability of medical cannabis dispensaries in New York State has affected mental health.…

Medical cannabis availability was not associated with self-reported poor mental health for adults overall.… Medical cannabis availability improved self-reported mental health among people aged 65 years and older.

Earlier research produced a similar conclusion based on suicide rates.

This article appeared on Substack on October 3, 2024.

Romina Boccia

Congress will soon consider the repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which would unfairly increase benefits for individuals with earnings that weren’t subject to Social Security taxation and end up costing taxpayers an additional $196 billion over ten years.

Reps. Garret Graves (R‑LA) and Abigail Spanberger (D‑VA) have secured enough support to file a discharge petition in the House of Representatives. This forces the bill onto the House floor for a vote this fall, bypassing House leadership’s agenda-setting power. This is rubbing many GOP leaders the wrong way, with some calling for changes to discharge petition rules to avoid similar clashes between House members and leadership in the future.

This change is further controversial in that repealing WEP and GPO would unfairly benefit public sector workers at a high cost to taxpayers. Instead, Congress should change the WEP formula to enhance fairness and accuracy in Social Security benefits without increasing taxpayer costs, and reform Social Security spousal benefits to better reflect the realities of 21st century families.

What are the WEP and GPO rules?

The WEP adjusts Social Security benefits for workers who have pensions from working for state or local governments and who also qualify for Social Security but with a limited earnings record. The GPO makes similar adjustments for spouses and survivors who worked in jobs that were not subject to Social Security’s taxes.

Congress adopted these adjustments to preserve the intent behind Social Security’s progressive benefit formula, which replaces a higher percentage of preretirement wages for lower-income workers than for higher earners, and to duplicate the dual-entitlement rule that prevents workers from collecting more than one benefit at a time. Before the windfall elimination provision and government pension offset were implemented, certain workers and spouses would receive an unfair “windfall” in the form of higher benefits than Congress intended.

For the WEP, the reasons include that Social Security’s benefit formula is based on average earnings over 35 years. Workers who spent part of their careers in state and local government positions in which their earnings were excluded from Social Security taxation would appear to have had lower earnings than they did. Because Social Security’s formula replaces 90% of earnings in the lowest tier and only 15% of earnings in the highest tier, a benefit adjustment for workers with non-covered earnings makes sense to prevent higher-income earners from receiving Social Security benefits based on a lower-income earner’s replacement rate.

For the GPO, the Social Security Administration applies an implicit test of a spouse’s or widow(er)’s dependency on the primary worker for financial support. This is particularly important because, unlike private pension plans, there are no actuarially fair adjustments applying to spousal and survivor benefits—these are pure income transfers from taxpayers to a worker’s spouse. The GPO reduces a Social Security spousal benefit by an amount equal to two-thirds of the non-covered government pension (i.e., a 67% offset). It also affects mostly individuals who have generous public pensions. As the Bipartisan Policy Center explains, “because the GPO already treats all affected beneficiaries more generously than the standard benefit formula (by applying a 67% offset rather than a 100% offset against the spousal or widow(er) benefit), any reform to improve fairness would be politically challenging. […] Nearly 70% of beneficiaries affected by the GPO had their entire spousal or widow(er) benefit offset and had an average monthly non-covered pension of $3,502.”

Fixing an Outdated Approach

While Congress adopted WEP rules to ensure the program’s progressive intent, the current approach treats some beneficiaries better than others. When these rules were enacted in 1983, Social Security lacked the necessary data to make appropriate adjustments. Today, thanks to more complete earnings data, including from work not subject to Social Security taxes, the agency could calculate the proper benefit adjustment if Congress changed the formula to improve accuracy and fairness.

President Barack Obama’s 2017 budget included such a proposal. The Concord Coalition has proposed such a change, calling the current repeal effort “The Social Security Un-Fairness Act.” A bipartisan duo in the House, Reps. Kevin Brady, (R‑TX) and Richard Neal, (D‑MA), had put forth a plan in 2015. A version of this change was also included in the comprehensive Social Security Reform Act of 2016, from then-Rep. Sam Johnson, (R‑TX). And most recently, House Budget Committee Chair Jodey Arrington (R‑TX) introduced the Equal Treatment of Public Servants Act (H.R. 5342) with bipartisan support.

For GPO, the best approach is to rethink Social Security spousal and survivor benefits, which are outdated, hailing from an era when most households had a single earner. In today’s world with many more two-earner families, Social Security’s spousal benefits often provide disproportionately high payouts to the non-working spouses of higher-income earners, while lower-income families with similar earnings attained by two workers receive less. Since the GPO is not based on a beneficiary’s earnings but those of their spouse, there’s no simple way to address this provision. Congress should rethink the purpose of spousal benefits as part of a more comprehensive reform package.

A New Handout Instead of a Fix

Instead of improving upon the current formula for WEP to ensure fair treatment across affected populations, Congress is considering giving public sector workers a new handout. The Social Security Fairness Act of 2023 (H.R.82) would repeal both rules, giving public sector workers unfairly high benefits by treating them as if they had been low-income workers with limited earnings histories and discounting years of public service that qualified them for receiving generous public pensions.

It’s no surprise that in this election cycle characterized by candidates giving away taxpayer-funded goodies left and right, changes to these complex Social Security provisions have gained traction. They affect voters who are represented by well-funded special interest groups, particularly public sector employee unions for teachers, police officers, and firefighters.

As Mancur Olson argues in The Logic of Collective Action, well-organized groups with concentrated benefits (like those affected by WEP and GPO) are often more effective at lobbying for their interests than larger groups with diffuse benefits. Well-funded public sector unions can secure a substantial benefit increase for their members by lobbying Congress aggressively while the broader taxpayer base, which would bear the cost of the repeal, is a much larger and more diffuse group, and thus less able to organize to defend their interests.

Don’t Repeal WEP/GPO

The proposed repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) would unfairly benefit certain public sector workers at a substantial cost to taxpayers. Adopting a new formula for WEP, as previously proposed, could enhance fairness and accuracy in Social Security benefits without increasing costs for taxpayers. Meanwhile, Congress should either leave GPO in place until Congress revamps spousal and survivor benefits as part of a comprehensive Social Security reform package or consider a better formula that achieves parity between covered and non-covered workers with respect to spousal and survivor benefits.

Taxpayers will be better served if Congress does nothing, instead of making things worse. Repealing WEP/GPO would be a costly election giveaway to public sector union members that would increase unfairness in the system by enhancing redistributive features that disproportionately harm younger workers.