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Alex Nowrasteh

Cato released two new briefing papers this week analyzing an OMB proposal to add new racial categories to U.S. government forms and surveys, particularly a Middle Eastern or North African (MENA) designation. The first paper details the demographics of MENA people in the US, and the second paper documents why creating such a racial category is bad policy.

The first paper by Cato adjunct scholar Andrew C. Forrester used the OMB’s proposed changes to race and ethnicity to create counterfactual American Community Survey (ACS) selected demographic and socioeconomic tables for the 2021 survey year. His goal was to see how the new racial rules, especially the creation of a new Middle Eastern or North African (MENA) category, would alter the results.

He created his counterfactual by relying on the ancestry and country of origin responses to allocate respondents to the new MENA race category and to subtract them from the White[1] and other racial categories, consistent with the new OMB proposal. These are his primary findings:

I find a total MENA population of 3.8 million in 2021—about 1 percent of the total U.S. population. The MENA population is most demographically similar to the Non‐​Hispanic White and Asian populations in terms of age, earnings, education, and occupation. Specifically, the MENA population is more highly educated and has higher earnings than Non‐​Hispanic Whites, but lower levels of education and earnings than the Asian population.

Read Forrester’s entire brief.

I wrote Cato’s second brief about the consequences of a new MENA racial category in U.S. government surveys. Specifically, I catalog and refute the most common arguments made by advocates and others in favor of a new MENA racial category. Since MENA respondents have higher incomes and education than White Americans, they would suffer under affirmative action rules in employment, university admissions, or anywhere else that does or could use government racial categories to allocate benefits.

Affirmative action in education is on the decline thanks to the Supreme Court. Still, it will hurt MENA Americans to the extent that affirmative action persists or is revived, just as it hurts Asian Americans. That should convince some MENA advocates and supporters of this new OMB rule to reconsider their support.

My brief details arguments for a MENA category to allocate benefits through government contracting rules, data accuracy, anti‐​discrimination laws, government surveillance and anti‐​terrorism laws, and more. Cato adjunct scholar John F. Early wrote excellent pieces opposing the reforms that would create the new MENA category, among other things, some months ago.

Our new Cato briefs add to his work by producing new research estimating the results of a new MENA race category and novel arguments against the creation of such a category. I conclude with something personal:

As a social scientist, I find a new government racial category tempting. It would be better to have access to that category with fewer mouse clicks, all else being equal. But all else is not equal. As a libertarian concerned about the scope and power of the government, I believe a new MENA racial category raises many more concerns that outweigh my interest as a social scientist. As an American libertarian, I oppose the creation of a MENA category for other principled, ethical, and universalistic reasons. As an American with Middle Eastern ancestry, I also oppose it out of self‐​interest for myself, my family, and my children.

[1] “White,” other races, and ethnicities are capitalized to be consistent with U.S. government stylistic guidelines

Andrew C. Forrester

The Office of Management and Budget (OMB) is working on a plan to update how the government collects information about race and ethnicity in the United States. Their goal is to better represent the diverse American population and simplify self-reporting on forms and surveys.

Over the most recent decade, the U.S. Census Bureau finds that the population identifying as multiracial increased dramatically since 2010. Given substantial demographic change over past decades, the OMB contends that the current racial and ethnic reporting standards set by Statistical Policy Directive 15 (SPD15) in 1997 need updating.

In a recent Cato Briefing Paper, I use public data to model the proposed OMB categories and analyze each group’s demographic and socioeconomic characteristics. Below is a summary of my Cato brief. Please read the longer version for more details.

Background

The current standards ask about race and ethnicity in two separate questions, designed to provide a “minimum set” of categories that can be used consistently across different sources. This means that the categories must be detailed enough to allow respondents to best self-report their background but broad enough to be compiled into a few consistent groups. The current categories are shown below.

Figure 1
Current Race and Ethnicity Categories

After consulting an interagency group of experts, the OMB proposed the following key changes:

Collapsing race and ethnicity into a single query that adds Hispanic or Latino origin as a separate race category.
Introducing a separate race category for those of Middle Eastern or North African (MENA) descent.
Obtaining by default more detailed racial breakouts within the updated racial categories.

The proposed standards are especially important, as they define how the government collects and understands demographic and socioeconomic trends,[1] administers civil rights enforcement laws,[2] and administers federal programs and grantmaking.[3] It is therefore critical to understand how data collected under the proposed classifications might alter each process.

Methodology

Using public-use microdata from American Community Survey (ACS) (published by IPUMS), I classified respondents in the ACS as MENA if: a) they reported a MENA ancestry or b) they were born in a MENA country. This broad classification follows similar work by the Migration Policy Institute and captures the MENA diaspora, or those likely to have some ancestral ties to the MENA region. With the MENA respondents identified, I approximated the proposed OMB measure by coding respondents as Hispanic or Latino — regardless of race — using the ethnicity question.

I then developed demographic and economic profiles for each group like the ACS Data Profiles, which contain frequently requested statistics on the American population. The tables draw on the wealth of social and economic information in the ACS, including age, sex, employment status, income, and educational attainment, among other things. Among the full set of tabulations (available in the paper here), here are a few stylized facts about the MENA population in 2021.

Stylized Facts

The MENA population is highly educated. Over 53 percent of MENA respondents who are ages 25 and older hold a bachelor’s degree or higher, compared to the White population at 38.6 percent and just below the Asian population at 56.8 percent.

Figure 2
Educational Attainment by Race and Ethnicity, Population Ages 25 and Over

The MENA population has high incomes. MENA households have a median income of $74,000, higher than that of White households ($73,000 and below that of Asian households ($99,000).

Figure 3
Median Household Income by Race and Ethnicity

The majority of the MENA population is foreign-born and most are naturalized. 58 percent of the MENA population is foreign-born, of which 70 percent are naturalized citizens. MENA immigrants are about 5 percent of the foreign-born population in the United States.

Figure 4
Nativity and Citizenship by Race and Ethnicity

Further Work

The OMB expects to have a revision to SPD 15 set by the Summer of 2024. In the meantime, this methodology provides a useful benchmark to the OMB’s proposal using current data — especially with detailed race and ethnicity results just released by the U.S. Census Bureau.

For more demographic and technical details, please check out my Cato brief, and check out more analysis by Cato adjunct scholar John F. Early. My codes are available on GitHub to anyone interested in replicating or exploring this further.

[1] For example, data collections through household surveys like the Current Population Survey (CPS) and the American Community Survey (ACS) among many others.

[2] For example, employment, mortgage applications, and school enrollment forms among many others.

[3] For example, grant-making at the National Institutes of Health (NIH)

Walter Olson

In Garrity v. New Jersey (1967), one of the most remarkable decisions of the Warren Court, a 5–4 majority of justices said public employees cannot be found guilty of crimes based on their admissions in disciplinary interviews conducted as a condition of employment.

Justice Harlan, writing in dissent, said the majority had fundamentally misunderstood the nature of the constitutional right against compelled self‐​incrimination. The relevant scope of “involuntary as a matter of law,” in his view, should be seen to reach only situations of actual legal compulsion, not those in which the price you pay for declining to speak frankly about how you behaved on the job is that your employer might not want to keep you on its payroll.

Garrity has become a key element of legal weaponry for public employees and their unions seeking to minimize consequences for on‐​duty misbehavior. (Although the original setting was one involving police officers, the decision applies broadly to public employment generally.)

Aside from its momentous reading of employment relations as themselves a species of coercion, Garrity has been cited as a key breakthrough for the “New Property” ideas associated with the late Yale law professor Charles Reich. He had argued that the holding of a government job or the receipt of welfare benefits should be analogized to property and protected in similar fashion by vigorous judicial action.

The Garrity doctrine plays a key role in this stomach‐​churning new Reason cover story by C.J. Ciaramella about impunity for prison rape.

Internal Affairs [at the federal Bureau of Prisons] then forced the correctional officers to sit for sworn interviews. Once those officers confessed to sexual assault, the possibility of criminal prosecution evaporated [under Garrity]…

By compelling prison guards to admit to criminal conduct, BOP internal affairs investigators got enough dirt to kick them out of the agency but also shielded them from future criminal prosecution.

Although it would technically be possible for federal prosecutors to bring charges now, they would have to rely on other evidence and prove that nothing in their case was tainted by those interviews. Perversely, the more detailed and thorough the confession, the harder it is to prosecute—a feature that any BOP employee who screws up badly enough to get called in for a sworn interview understands.

Interviews held on a condition of non‐​prosecution are known as “Garrity interviews,” but they had a nickname:

A former correctional officer at [the problem institution] says they were called “queen for a day.” As in, “Did you hear that Smith got queen for a day?” The term is more commonly used in criminal law to refer to a proffer agreement between federal prosecutors and a potential defendant—basically, spill the beans in exchange for possible immunity—but it worked much the same way between BOP internal affairs investigators and correctional officers.

Garrity interviews also allowed the BOP to quietly remove problem officers without the media attention that criminal charges would bring.

It’s hard to escape the conclusion that the 1967 decision has had some gravely damaging consequences. As an error in constitutional interpretation, it cannot practically be revised or revisited by agencies themselves, by lawmakers, or by lower court judges. That leaves the high court itself. Is it wise or prudent for the U.S. Supreme Court to afford Garrity the eternal benefit of stare decisis?

Thomas A. Berry

The Constitution requires, as a default rule, that “Officers of the United States” must be nominated by the president and confirmed by the Senate. The Constitution allows only one potential exception to this default rule: If an officer is merely an “inferior officer,” Congress may waive Senate consent. But even if an officer is inferior, Congress is limited to only three choices for who may appoint that officer: “the President alone,” “the Heads of Departments,” and “the Courts of Law.”

The Federal Vacancies Reform Act (FVRA) is one such statute that vests appointments in “the President alone.” Specifically, it grants the president authority to unilaterally appoint temporary, time‐​limited “acting officers” to fill vacancies in positions that normally require Senate consent.

When President Trump took office in January 2017, the acting commissioner of the Social Security Administration (SSA) resigned. A new acting commissioner, Nancy Berryhill, then purportedly took office. But President Trump did not select Berryhill to be acting commissioner. Rather, Berryhill was elevated pursuant to a Succession Order issued by outgoing President Obama the previous month, which named and ranked positions (not people) within SSA to fill potential future vacancies in the office of commissioner.

Plaintiff Brian Dahle later challenged an action that Berryhill took as acting commissioner, arguing that Berryhill was not validly serving under the terms of the FVRA when she took the action. But the Eighth Circuit rejected Dahle’s statutory arguments, holding that Berryhill was validly appointed by former President Obama as acting commissioner under the terms of the Succession Order.

The panel held that even though Obama was not the president when Berryhill was elevated, “presidential orders without specific time limitations carry over from administration to administration” and “a new president does not have to take affirmative action to keep existing orders in place.”

Dahle is now asking the Supreme Court to take his case, and the Cato Institute has filed an amicus brief supporting his petition. In the brief, we point out that the Eighth Circuit’s statutory holding raises a serious constitutional problem: Berryhill’s elevation via Succession Order was not an “appointment” under the meaning of the Constitution.

In the Federalist Papers, Alexander Hamilton explained that because the president alone would be responsible for choosing nominees, “the blame of a bad nomination would fall upon the President singly and absolutely.” But if an appointment is made by contingency order rather than by name, then the accountability mandated by the Appointments Clause vanishes. The people cannot blame President Obama for Berryhill’s performance, because Obama did not choose Berryhill for the position. Indeed, the people cannot blame any single person for Berryhill’s accession to the position of acting commissioner, because her accession resulted from the combined actions and inactions of no fewer than four people. That is precisely the diffusion of accountability that the Appointments Clause forbids.

The Supreme Court should take this case to review the Eighth Circuit’s decision in light of the Appointments Clause. When there is no clear line of accountability for a nomination, political accountability suffers. Requiring the president to take accountability for federal officers by actually naming those officers is not too much to ask.

Romina Boccia and Dominik Lett

The federal government may be heading toward a partial shutdown as soon as this weekend as Democrats and Republicans remain at great odds over funding bill details, including how much to spend on regular appropriations. In addition to disagreements over additional border funding, Ukraine aid, and disaster assistance, neither the House nor the Senate have fully embraced the spending limits agreed upon in the May debt limit deal, with the House seeking to spend less and the Senate seeking to spend more by abusing a budget deal loophole.

The May Fiscal Responsibility Act set spending limits on discretionary funding but left a loophole for any spending designated as an emergency. In 1991, the Office of Management and Budget laid out five criteria all emergency and disaster spending should meet: necessary; sudden; urgent; unforeseen; and not permanent. Under current law, however, Congress can label pretty much anything as emergency spending, making it exempt from budgetary enforcement mechanisms.

In other words, the Fiscal Responsibility Act’s $1.59 trillion discretionary spending cap for fiscal year 2024 has little to no bite if appropriators decide the caps shouldn’t apply. By late July, the Senate Appropriations Committee did just that, promising to add $13.7 billion in emergency spending to circumvent discretionary caps. They went a little overboard, designating nearly three times that amount as emergency spending.

Each year, Congress is supposed to produce 12 spending bills—often combined into an omnibus bill—which fund everything from the Department of Defense to the Department of Energy (about 27 percent of total federal spending). Across 9 of the 12 annual appropriations bills, the Senate allocated $37 billion in net emergency spending (known as “budget authority,” or BA). That’s just $3 billion less than Biden’s latest Ukraine funding request.

The emergency Ukraine package saw significant pushback from the House. The Senate’s “regular” emergency appropriations should face yet more scrutiny for being in blatant violation of the May debt limit deal spending caps.

Last month, we examined the $2 billion in “emergency” spending provided by the Commerce, Justice, and Science (CJS) appropriations bill. Most of it was not for urgent, unexpected, and temporary events. Here we examine the remaining $35 billion in Senate discretionary funding designated for emergencies. Table 1 details emergency designations broken down by Senate appropriations bills. These funding items do not qualify as emergency spending under any reasonable definition of the term.

Housing assistance

The Senate designates $13 billion in housing and rental subsidies as emergency spending (S.2437 & S.2624). See Table 2 for a breakdown. About $10 billion goes to tenant- and project-based rental assistance such as Section 8 vouchers. These Housing and Urban Development programs have been argued over for half a century—that hardly sounds like an unexpected and temporary expenditure.

They are also a harmful use of taxpayer dollars. As former Manhattan Institute scholar Howard Husock explains, “Federal interventions undermine neighborhoods, encourage dependency, and create disincentives for long-term maintenance and improvements in housing. They also rest on the false premise that the private sector cannot provide housing for those of modest means.”

Defense

The Department of Defense receives $8 billion in emergency budget authority (S.2587). None of the funds address emergencies. Take the $2 billion Congress provides to address “revised economic assumptions” and “higher than anticipated fuel costs.” One year earlier, Congress was able to budget for similar costs without resorting to emergency designations.

Another $2 billion goes toward so-called “unfunded priorities”—essentially wish-list items that didn’t make the base budget. Providing emergency funding for these unfunded priorities can incentivize “budget gamesmanship,” where the Department of Defense places critical programs on the unfunded priorities list. This process inflates total defense spending and undermines fiscal commitments. If these priorities merit funding, appropriators should budget for them within existing budget caps, following the regular process.

What about the $1 billion appropriation to “address defense industrial base capacity and workforce shortfalls?” People say the defense industrial base is declining. If this is true (debatable), it is partly due to budget unpredictability. When contractors fail to meet deadlines (often under short-term contracts), they come running to Congress to ask for more money in the following year. The result is a mismatch between funds and good strategy. Overreliance on emergency spending is part of the problem—not the solution.

If policymakers want to strengthen national security, they should reevaluate protectionist “Buy American”–style laws or consider reforming defense contracting to allow for more innovative small businesses to compete. Policy reforms in either area would have the added benefit of pushing costs downward by welcoming more goods and services suppliers, thus increasing competition.

Foreign aid

Foreign aid receives nearly $2 billion in emergency funding (S.2438). Congress provides $1.1 billion for international disaster assistance—a massive slush fund for natural disasters, disaster preparedness, or food security and $900 million is for general economic aid (some of which is for Ukraine and surrounding states). The related statutory language is similarly vague. Ultimately, the dispersion of this aid is largely left up to the president and the United States Agency for International Development (USAID).

Most of fiscal year 2024’s international aid is not considered emergency spending. Indeed, the $2 billion in additional emergency spending has no reasonable justification for being urgent, unexpected, and temporary in nature. International disaster assistance appropriations and Ukraine-related economic aid deserve the same oversight and trade-off considerations the rest of the discretionary budget process faces.

Health research

Health research and administration gets $1 billion in emergency funding (S.2624). Most of that budget authority is for federally funded research programs such as the National Cancer Institute, National Institute of Neurological Disorders and Stroke, and National Institute of Mental Health. Setting aside the limitations of federally funded research, all of these line items are recurring or predictable. They do not merit emergency designations.

Other spending tricks

Across two bills, the Senate provides $4 billion in gross budget authority for refugee and migration assistance (S.2624 & S.2624). However, about $2 billion comes from a transfer in previously allocated emergency budget authority from “United States emergency refugee and migration” to “Enduring Welcome Administration and Support”—an Afghanistan refugee program. The net emergency budget authority for refugee and migration assistance is $2 billion.

The canceling of certain budget authority—sometimes called rescissions—was a more frequent feature of previous decades. In some cases, rescissions promote more responsible spending. By canceling existing budget authority, appropriators can justify new expenditures without breaking the bank. Unfortunately, some rescissions obscure the true cost of spending by rescinding funds that were already scheduled to expire or were unlikely to be spent altogether. Based on CBO’s projections by spending accounts, it looks like Senate appropriators are shifting unspent funds around rather than making real cuts.

Restrain emergency spending

At the core of the emergency spending exemption is a good idea—sudden, urgent events may demand budgetary escape valves. However, the latest round of Senate appropriations demonstrates just how strong the temptation is to use emergencies as a justification to evade discretionary spending caps. Routine abuse of emergency designations erodes the credibility of fiscal commitments and adds to deficits and the already unsustainable growth in the debt.

Congress should commit to restraining emergency spending. Establishing a mechanism like CUTGO to account for emergency spending and offset could restore fiscal credibility and reduce the temptation to abuse emergency designations. Such a mechanism could retain the emergency cap exemption, track spending (plus interest costs), and reduce discretionary limits over the following five years.

Congress should incentivize and commit to forward-looking budgetary planning to gain control of America’s worsening fiscal trajectory and restore transparency and accountability in federal budgeting. Budgeting and paying for emergency spending is a good place to start.

James Bacchus

In a joint appearance last Friday with Director‐​General Ngozi Okonjo‐​Iweala of the World Trade Organization at the Center for Strategic and International Studies in Washington, U.S. Trade Representative Katherine Tai tried to reassure those who care about international trade of the strength of the commitment of the Biden administration to the WTO.

This would be reassuring if not for the fact that Tai also continues to perpetuate wrongful myths about the WTO and its supposed unfairness towards the United States, myths that I address in a new essay published today as part of Cato’s Defending Globalization project.

“The United States is committed to the organization and its foundational goals and values,” Tai insisted, and is “proud to champion the international rules‐​based order and the multilateral trading system.” WTO reform, however, is much needed, she added, and, in contemplating this needed reform, “we all need a WTO focused on its foundational goals.”

This affirmation of the support of the Biden administration for the WTO was, however, called into question by the almost simultaneous publication by Politico of an interview with Ambassador Tai before her speech, in which she said, “I don’t have enough time and money to waste resources in Geneva on a process that we don’t actually believe in.”

In context, it appears she meant to say that she would not be investing energy and resources in an institution in which she did not believe. But those who question the truth of her commitment and that of President Joe Biden to the WTO‐​based multilateral trading system can perhaps be forgiven for thinking she may have meant something else.

While making some good points about the need for reforms that align trade more with climate change and other aspects of sustainable development and that create more transparency in the WTO and its workings, Tai said, “The WTO and the multilateral trading system’s rules were never meant to be immutable or static.”

True enough. The original idea was for the WTO to be an ongoing framework and forum for revising existing rules and negotiating new rules as the world needed. But WTO rules were meant to be binding. And like the Trump administration, the Biden administration does not seem to believe the United States is bound by WTO rules.

Tai rightly criticized trade‐​distorting subsidies of other “certain Members”—by which she later acknowledged she meant China. But what of our own actions? The Inflation Reduction Act (IRA) includes a spate of subsidies that may or may not be consistent with binding WTO rules, and certainly are not to the extent that they are coupled with “Buy American” domestic content requirements, which are prohibited under those rules.

She did not mention the IRA in her speech, nor did she mention the half dozen WTO cases in which unilateral tariffs imposed by the Trump administration on Chinese and other imports have been found by WTO jurists to be illegal under WTO rules—judgments the Biden administration has simply ignored.

In her speech, Tai accused the WTO of suffering from a “lack of restraint.” Equally, she bemoaned the way in which the WTO has supposedly diminished lawful “policy space” for members to take needed domestic actions and second‐​guessed members’ legitimate security interests.

In her interview with Politico, she said that the WTO should avoid “holding its members back from exercising their rights—whether it’s on the essential security side or their right to develop, or to correct for deindustrialization.”

None of this is true. WTO jurists and other WTO members simply expect the United States to fulfill the trade obligations to which it agreed in the WTO treaty. And, to resort to a popular political retort these days, “what about” the lack of restraint of the United States itself when it comes to applying unilateral and discriminatory trade measures?

The hypocrisy of the Biden administration is most evident in WTO dispute settlement, which it has crippled by refusing to join other WTO members in appointing new judges on the trading system’s final tribunal of appeal, the WTO Appellate Body.

The goal of dispute settlement reform, Tai said, “is about providing confidence that the system is fair.” The US has presented no evidence that it is not fair. “The Appellate Body systematically overreached to usurp the role of Members themselves to negotiate and create new rules. And in so doing, it undermined the ability of all Members to defend their workers from harmful non‐​market policies.”

“Systematically overreached?” This is, to borrow her word, very much a rhetorical overreach. Why, we might ask, have none of the 163 other members of the WTO said that the Appellate Body engaged in “systematic overreach.” Put simply, it is because it did not.

The US has presented no evidence that the dispute settlement system is not fair to Americans. For the most part, the US has simply lost a number of cases it should have lost because it wanted to apply anti‐​dumping duties, anti‐​subsidy duties, and other trade remedies beyond what the WTO rules allow.

Have I mentioned that the United States played a major role in writing the current trade remedy rules during the Uruguay Round of trade negotiations, that we spent the previous several decades trying to get the rest of the world to agree on rules for applying such remedies, and that, indeed, we insisted on many of them as they are written?

I should know. I was there, first at the USTR and later as a Member of Congress.

What we have here is an elaborate and prolonged charade for sheer protectionism—for unlimited trade remedies. Why? Because Biden, Tai, and others who are defending this indefensible position of the United States are afraid that if they profess anything less than full‐​throated support for the maximum amount of discretionary latitude in applying trade remedies, then they will lose the upcoming national elections in protection‐​minded Pennsylvania, Michigan, and Wisconsin—three key swing states that could decide who wins the presidency (and, for that matter, control of the Congress) in 2024.

Why won’t the president and his USTR be honest with us about this?

The United States has—after several years of recalcitrance on the subject—recently finally acknowledged that it wants to abolish the Appellate Body and eliminate the current automatic right of appeal. The rest of the members of the WTO continue to favor a two‐​tier system with an automatic right of appeal.

When asked by the CSIS moderator what the dispute settlement system should look like, she did not answer, although she did say she thought an outcome on dispute settlement reform at the upcoming 13th Ministerial Conference of the WTO in Dubai in February is “in the realm of possibility.” Let us hope so—so long as it does not include a restored Appellate Body shorn of the independence and impartiality that are essential to its success in helping uphold the rule of law in world trade.

In response to all this, Dr. Ngozi demurred on the question of the Appellate Body. That is, after all, a matter for the WTO to resolve, not the Director‐​General. Yet, she politely pointed out that between 1995 and 2022, real per capita incomes in wealthier countries rose by about 50 percent, while in emerging markets and developing economies it increased by over 140 percent, from a much lower base.

As a recent issue of The Economist highlighted, the US has been the fastest growing major advanced economy over that period. Peterson Institute research estimates that between 1950 and 2016 trade expansion raised US incomes by over $7,000 per capita, or $18,000 per household. Simply put, Americans have profited enormously from trade and from membership in the WTO.

She also put into context the much over‐​cited “China shock” report some years back by David Autor and his co‐​authors, who told the world that increased exposure to imports from China explains more than a third of the manufacturing job losses in the United States between 1999 and 2011, some 2 million to 2.4 million jobs.

In addition to overlooking the fact that it is the adoption of automation and not trade that has accounted for a considerable majority of the job losses in US manufacturing, the Autor report—as its authors acknowledged at the time—tells only half of the trade story.

The other half of the story is this, as the Director‐​General indicated: Robert Feenstra at UC‐​Davis and Akira Sasahara at Keio University in Tokyo indicate that between 1995 and 2011, while increased goods imports from China eliminated 2 million jobs in the United States, increased exports to China and elsewhere added 6.6 million jobs to the US economy, 4 million of them from higher‐​services exports.

In their overall trade policy, Tai, the president, and his administration are proceeding from a bogus economic premise. Like the Trump administration before them, they are also being less than candid with the other members of the WTO and with the American people about the source of their animus against the Appellate Body. Little wonder few have been persuaded by Ambassador Tai’s assertion that the Biden administration supports the WTO. Actions do speak louder than words, especially in Washington.

President Biden emphasized at the United Nations this week, “We’re going to continue our efforts to reform the World Trade Organization and preserve competition, openness, transparency, and the rule of law while, at the same time, equipping it to better tackle modern‐​day imperatives, like driving the clean‐​energy transition, protecting workers, promoting inclusive and sustainable growth.”

Amen, Mr. President. I am ready to vote for you one more time. But you need to know, if your White House staff and cabinet members will not tell you, that this worthy goal cannot be accomplished while your administration continues to undermine WTO dispute settlement by perpetuating the big lie that the system has been unfair to the United States of America. It has not. You should know it. And you should say it for all to hear.

My explanation of these and some other myths about the WTO that abound within the Washington Beltway can be read in my contribution to Cato’s Defending Globalization Project, “The World Trade Organization: Myths versus Reality.”

Scott Lincicome

As I mentioned when introducing Cato’s new Defending Globalization project two weeks ago, we’ll be publishing new multimedia content throughout the fall and into 2024. Today we have three new essays and our first piece of interactive content: a 20‐​question quiz on all things globalization.

You can find the quiz embedded on the main project page or at this direct link. We hope that it not only tests your knowledge of all things globalization, but also challenges a lot of conventional wisdom on international trade, supply chains, global development, and the United States’ experience in the global economy. Please be sure to play and share it widely.

Today’s new Defending Globalization essays are as follows:

The Problem of the Tariff in American Economic History, 1787–1934, by Phillip W. Magness
Digital Trade in Services: Globalization’s Exciting New Frontier, by Gary Winslett
The World Trade Organization: Myths versus Reality, by James Bacchus

Each coincidentally covers a topic that’s recently been in the news, so we hope that readers will find them particularly useful. Collectively, the essays also indicate the wide range of issues that our project will cover in the months ahead.

Plenty more to come. Stay tuned and enjoy.

Marc Joffe

As the Wall Street Journal recently reported, retirements and career changes are exacerbating a national shortage of Certified Public Accountants (CPAs). Those departing the profession could be replaced by new college graduates, but state licensing laws appear to be deterring some young people from pursuing an accounting career.

The Bureau of Labor Statistics projects continued growth in the demand for accountants and auditors due to the “complex tax and regulatory environment,” among other factors. Baby boomer retirements and burnout among younger accountants are constraining the supply of new professionals. A shortage of CPAs threatens to prevent local governments from completing timely audits, as required by some states and the federal government.

Although certification is not required for all accounting activities, a CPA is needed to conduct an external audit or defend a tax return before the IRS. Consequently, state laws affecting the entry of new CPAs are exacerbating the shortage of accountants.

All states require individuals seeking a CPA to pass a four‐​part, 14‐​hour exam maintained and scored by the American Institute of Certified Public Accountants (AICPA). As the accompanying chart shows, the number of individuals sitting for the CPA exam has declined sharply since 2016. Only about 67,000 people took the exam in 2022. Since many test‐​takers fail one or more portions of the test and retake them one or more times, the number of individuals obtaining the credential is much lower than the number of test‐​takers in any given year.

Many business undergraduates are avoiding the CPA track because states generally require five years of post‐​secondary education (which is usually expressed in law as 150 credit hours). This standard is part of the model legislation maintained by the National Association of State Boards of Accountancy (NASBA), whose members include accounting boards from all fifty states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, and the Northern Mariana Islands.

This means that it is generally impossible to get a CPA without attending at least one year of graduate school. For some students, this requirement may be too much given modest pay and long working hours in the accounting profession.

Policymakers in some states are considering liberalizing their CPA requirements, but the NASBA framework may be a constraint. Oklahoma passed a reform in 2023 that remained within NASBA limits. Previously, the state required candidates to complete all 150 of the required credit hours before taking the CPA exam. With the passage of SB 171 earlier this year, aspiring accountants can take the exam after completing their undergraduate degree, but they will still need to complete the additional 30 credit hours before being certified.

In Minnesota, the state’s society of CPAs (MNCPA) proposed legislation that would grant certification to individuals who pass the CPA exam, complete 120 credit hours of education, and have two years of relevant professional experience. Bills with bipartisan sponsors containing this language were filed in both the Minnesota State House (HF 1749) and Senate (SF 1660), but neither bill passed out of the committee to which it was referred. According to a blog post by MNCPA government relations director Geno Fragnito, the bills will be carried forward into the 2024 legislation when committee debates are expected.

The South Carolina Association of CPAs (SCAPA) is also working on reform legislation. Its draft bill would authorize the state Board of Accountancy “to approve up to thirty hours of educational credit derived from non‐​accredited sources, such as unaccredited courses, apprenticeships, certificates, experiential learning, or alternative educational programs.” So, an aspiring CPA would still have to complete a bachelor’s degree but would have multiple educational alternatives to a fifth year of graduate school.

The association’s bill contains other reforms such as expanding the time limit for passing all four CPA exam sections from 18 to 36 months, and giving the board the authority “to issue a reciprocal license to a CPA possessing an active certificate/​license/​permit to practice from any jurisdiction, regardless of that jurisdiction’s substantial equivalency status.”

As he researched CPA licensing requirements in other states, SCAPA Chair David Knoble found a couple of exceptions to NASBA’s 150‐​hour educational standard. New York State allows individuals to become CPAs if they pass the exam and have fifteen years of relevant work experience. Ohio provides a certification path that involves getting four years of relevant experience plus a score of at least 670 on the Graduate Management Admission Test (GMAT). Depending on their reciprocity requirements, other states may prevent New York and Ohio CPAs lacking 150 credit hours of education from practicing.

NASBA’s legislative framework and states’ adherence to it is attractive because it provides an interstate licensing environment akin to universal licensing recognition. But NASBA is setting a universally high bar. As NASBA CEO Ken Bishop told the Journal of Accountancy:

Should any state or jurisdiction lower the licensure requirement to 120 hours, their CPAs would no longer be automatically substantially equivalent and would no longer enjoy the mobility and reciprocal practice privileges they currently are afforded. Lowering the bar to 120 hours is only one of the alternatives we have heard that has been discussed and considered. Others, including lowering the cut score for passing the CPA Exam, have the potential and risk of creating the perception of dumbing down the profession. No one is talking about, for example, lowering the bar to become an attorney, and they’re also suffering from lack of entry.

But the legal profession is not experiencing the kind of acute shortage confronting accountancy. Indeed, Wells Fargo’s Legal Specialty Group found that in 2022 top law firms billed 1.9% fewer hours than they did in 2021. And the number of individuals taking the bar exam has remained fairly steady in recent years.

While the U.S. does not need more lawyers, it does need more CPAs. Minnesota and South Carolina are leading the way toward needed reform of the CPA licensing regime. Accounting societies and legislators in other states should take notice.

Daniel Raisbeck and Gabriela Calderon de Burgos

In a recent article, The Economist assures that inflation‐​ridden Argentina should not and cannot dollarize. The publication’s anti‐​dollarization stance is part of a broader warning against free market economist Javier Milei, who gained a surprise victory in last month’s primary elections and vows to dollarize the Argentine economy if he wins the presidency later this year.

The Economist misunderstands the most fundamental aspects of Milei’s plan to dollarize Argentina and shut down its central bank. This is, in fact, the best thought‐​out and most urgent part of his political platform. It affirms, for instance, that “Argentine banks and households would need a float of dollars to get up and running, which Mr. Milei has no way of providing.”

Dollarization and Available Dollars

As we explain in our recent policy brief, Argentina’s central bank might lack dollars, but Argentine citizens and companies do not. Private sector actors do try to shield themselves from the country’s frequent bank runs by holding dollars in other jurisdictions or under their mattresses. At the end of 2022, Argentines held over $246 billion in foreign bank accounts, safe deposit boxes, and mostly undeclared cash, according to Argentina’s National Institute of Statistics and Census. This amounts to over 50 percent of Argentina’s GDP in current dollars for 2021 ($487 billion). Hence, the dollar scarcity pertains only to the Argentine state.

To dollarize, Argentina needs to replace the peso‐​denominated monetary base with the equivalent in U.S. dollars at — or slightly above — the free market rate of exchange. Dollarizing at a rate far above that of the free market would be counterproductive because it would produce even higher inflation levels for a prolonged period. On the other hand, dollarizing at a rate below the free‐​market exchange rate would lead to a bank run because depositors would act to protect their savings from a forced devaluation.

In Argentina’s particular case, there is an official exchange rate—currently ARS $365—which most people cannot access. Hence, the black market exchange rate, known locally as the “blue dollar,” is the closest approximation to what a free‐​floating peso would be worth in dollar terms. At the moment, ARS $740 will buy you one blue dollar.

In Argentina’s case, economist Iván Carrino argued in May that, while the central bank’s liabilities amounted to ARS $18.8 trillion, dollarizing overnight at ARS $470, the blue dollar exchange rate at the time, would have required around USD $40 billion (the result of dividing the central bank’s liabilities by the exchange rate). The central bank’s total assets, meanwhile, were worth $34.5 billion. In theory, therefore, the government would have lacked around $5.5 billion—or around 1.1 percent of GDP— to dollarize at the market rate.

Nevertheless, the aforementioned imbalance is not as significant as it may seem at first. The last two dollarization processes in Latin American countries prove that “purchasing” the entire monetary base with U.S. dollars from one moment to the next is not only impractical, but it is also unnecessary.

The Mechanics of Dollarization

In both Ecuador and El Salvador, which dollarized in 2000 and 2001 respectively, dollarization involved parallel processes. In both countries, the most straightforward process was the dollarization of all existing deposits, which can be converted into dollars at the determined exchange rate instantly.

As Argentine economist Nicolás Cachanosky explains, when you dollarize deposits, the danger of a bank run is minimized insofar as dollarization takes place at the market rate and monetary transactions continue to take place within the banking system.

Crucially, in both Ecuador and El Salvador, dollarization not only did not lead to bank runs; it led to a rapid and sharp increase in deposits, even amid economic and political turmoil in Ecuador’s case. With the mere announcement of dollarization in January 2000, Ecuadorians began to deposit their dollars in banks even though the latter were so beleaguered they were paying negative interest rates.

The tendency held. Between January and December of 2000, Ecuador’s total deposits increased by $733 million, whereas the total amount of international reserves in December of 1999 stood at a mere $872 million. Also, whereas deposits accounted for just around 15 percent of GDP in 1999, they had increased to 19.1 percent of GDP at the end of 2000.

Deposits continued to increase over the following decades. At the end of 2022, Ecuador’s deposits amounted to 37.9 percent of GDP. By way of comparison, Argentina’s deposits reached a meager 22.5 percent of GDP at the end of last year.

Dollarizing the Circulating Currency

The other, parallel dollarization process involves turning the national currency in circulation into U.S. dollars. Critics who claim that Argentina cannot dollarize due to an insufficient amount of dollars assume that the government must count with the entire dollar amount necessary to buy all pesos in circulation on day one. Nevertheless, this was not the case in either Ecuador or El Salvador.

In Ecuador, the sucres in circulation were dollarized within a nine‐​month period mandated by the government, which had to rely on the Coca‐​Cola Company’s supply network to exchange dollars for sucres in remote rural areas.

According to Miguel Dávila, the president of Ecuador’s central bank when dollarization took place, the monetary authorities only had to back the central bank’s liabilities that needed to be liquid on day one of dollarization. These included all sucre coins and bills in circulation, banking reserves deposited at the central bank, and central bank deposits from state entities that were likely to require immediate withdrawals. The rest of the central bank’s liabilities were not available for withdrawal immediately. Rather, they were restructured.

This seemed like a risky bet. In December 1999, the central bank’s liabilities in dollars amounted to $1.25 billion, a figure that far surpassed the country’s international reserves. Experts thus claimed that dollarization was only viable at the extremely high exchange rate of 40,000 sucres. The market rate on the streets, meanwhile, was at or above 25,000 sucres. So who provided the dollars?

Ecuadorians did. Dollarization was announced on January 9, 2000, at a near‐​market rate of 25,000 sucres per dollar. By September of that year, 97 percent of all sucres in circulation—equivalent then to $577 million— had been exchanged for dollars. In other words, new dollar deposits had matched and even surpassed the dollar amount of the circulating national currency.

Emilio Ocampo, the Argentine economist whom Milei has put in charge of plans for Argentina’s dollarization should he win the presidency, summarizes Ecuador’s experience thus:

People exchanged their dollars through the banks and a large part of those dollars were deposited in the same banks. The central bank had virtually no need to disburse reserves. This was not by design but was a spontaneous result.

The Salvadoran Model

Dollar deposits also increased spontaneously in El Salvador, a country that dollarized in 2001. By the end of 2022, the country’s deposits amounted to 49.6 percent of GDP—in Panama, another dollarized peer, deposits stood at 117 percent of GDP.

El Salvador’s banking system was dollarized immediately, but the conversion of the circulating currency was voluntary, with citizens allowed to decide if and when to exchange their colones for dollars. Ocampo notes that, in both Ecuador and El Salvador, only 30 percent of the circulating currency had been exchanged for dollars four months after dollarization was announced so that both currencies circulated simultaneously. In the latter country, it took over two years for 90 percent of the monetary base to be dollar‐​based.

Cachanosky explains that, in an El Salvador‐​type, voluntary dollarization scenario, the circulating national currency can be dollarized as it is deposited or used to pay taxes, in which case the sums are converted to dollars once they enter a state‐​owned bank account. Hence, “there is no need for the central bank to buy the circulating currency” at a moment’s notice.

The corollary is that, although it is important for Argentina’s new government to announce dollarization as quickly as possible, the actual process of dollarizing the circulating currency can and should be drawn out. The region provides two relatively recent and successful examples of dollarization, one of which (Ecuador) was achieved fully in nine months, the other (El Salvador) in roughly 24.

The Remaining Stage of Dollarization in Argentina

The most difficult stage of dollarizing Argentina involves a particular feature of that country’s recent and tremendous inflationary build‐​up: namely, the $30 billion in LELIQ liquidity notes that, as we explain in our policy brief, are a fiscal time bomb:

The central bank issues LELIQs to mop up pesos from the market in an attempt to revive domestic demand for the local currency. Despite their constant escalation, nominal LELIQ interest rates—the current rate is 97 percent, versus 38 percent in early January 2022—have not kept up with what is now triple‐​digit inflation. The effective rate, on the other hand, stands at an astronomical 155 percent per annum.

The central bank has only been able to pay for such drastic interest rate hikes by expanding the monetary base aggressively, thus boosting inflation further. Since higher inflation leads to greater demand for hard currency, the use of LELIQs as a means to strengthen the peso has become counterproductive.

Ocampo and Cachanosky, who co‐​wrote a book titled Dollarization: A Solution for Argentina, propose to defuse the LELIQ bomb without defaulting or taking on further debt. The plan, which we summarize, involves swapping the central bank’s assets—namely, its loans to the Argentine treasury—for bonds in a foreign jurisdiction. As we summarize, the latter would then be deposited

In a new trust with the ability to issue asset‐​backed commercial paper with short‐​term maturities. The trust, which would be supported by an underwriting backstop facility … would swap LELIQs for dollar‐​denominated commercial paper, which would be paid off with proceeds from the trust’s assets until the entirety of LELIQ debt is liquidated.

Whether or not LELIQ debt is dollarized and restructured in this fashion, the issue at stake is not whether Argentina now has enough dollars to do so. The issue is that the central bank has no liquid assets with which to back this rapidly growing liability. With or without dollarization, the next government, which will take office in December, will have to deal with the LELIQ problem. After all, LELIQs are a fiscal liability of the Argentine state which will have to be restructured with or without dollarization and even without a central bank.

If done correctly, dollarization can provide a positive confidence shock that can help the new government steer Argentina away from the fiscal cliff. In fact, adopting a sound currency and reaching single‐​digit inflation levels as soon as possible are prerequisites for all the other supply‐​side reforms that Argentina needs. Dollarization is the surest and fastest way to achieve that. Furthermore, restructuring any fiscal obligation, including the LELIQs, becomes far easier with lower interest rates, another proven benefit of dollarization.

Is There a Realistic Alternative to Dollarization?

In fact, the burden of proof falls on dollarization’s critics, many of whom reveal a Panglossian belief in the sudden emergence of a responsible and independent central bank in Argentina, to show how they intend to stabilize the Argentine economy without granting legal tender to a hard currency. As Cato Senior Fellow Lawrence White explained with regard to Ecuador, “the relevant alternative to dollarization is thus not an imagined regime in which precisely calibrated depreciations of the local currency’s exchange rate are administered by experts to adjust wages.”

That is, the purported costs of losing the ability to depreciate the local currency with utter precision should be compared with the actual, massive costs of the central bank’s excessive money creation, spurred as it is by the fiscal profligacy of Argentina’s political class. It is true that ipso facto, dollarization will not turn Argentine politicians into fiscal conservatives. However, adopting the dollar will separate fiscal policy from monetary policy, which will no longer respond to local political pressure. Hence, dollarization in Argentina will significantly limit the scope of the damage that reckless fiscal policy can wreak. This brings us to another of The Economist’s mistaken assumptions

The Point of Dollarization

In its article on Milei, The Economist also argues that dollarization would make any future default “even more painful, since there would be no lender of last resort if Argentina’s central bank disappeared with the peso.” Argentina, however, already has no effective lender of last resort at the national level. Instead, its governments turn recurrently to the IMF (International Monetary Fund) as a de facto lender of last resort that provides them with—what else?—U.S. dollars.

The Economist adds that, even with dollarization, Argentine politicians “would still try to borrow too much, and there would be no central bank to inflate the debt away.” This fully misses the essential point behind the adoption of the dollar, which is to protect ordinary people’s purchasing power from the excesses of chronically profligate politicians and often subservient—or simply incompetent—central bankers. As we have mentioned, by depriving the local political class of all ability to manipulate the currency, dollarization separates fiscal policy from monetary policy.

This is why, as Manuel Hinds, a former finance minister in El Salvador, has explained, solvent Salvadorans in the private sector can borrow at rates of around 7 percent on their mortgages while international sovereign bond markets will only lend to the Salvadoran government at far higher rates. As Hinds writes, under dollarization, “the government cannot transfer its financial costs to the private sector by printing domestic money and devaluing it.”

This is yet another lesson of dollarization’s actual experience in Latin American countries. It is also a reason why the vast majority of the population in the dollarized nations has no desire for a return to a national currency. The monetary experiences of daily life have taught them that dollarization’s palpable benefits far outweigh its theoretical drawbacks.

Colin Grabow

In an ambitious move to promote coastal shipping, India’s government reportedly plans to abolish cabotage restrictions that prevent foreign vessels from transporting goods between the country’s ports. The rationale is easy to understand. With India’s merchant fleet comprising less than one percent of the world’s deadweight tonnage (essentially, carrying capacity), the existing cabotage law places the vast majority of the world’s shipping off‐​limits for transportation within India. That means fewer options, higher prices, and added pressure on other transport modes such as trucking and rail.

If India proceeds with the planned opening of its domestic maritime market, it will continue something of a recent international trend. In 2021 China relaxed its protectionist maritime measures on a trial basis to allow the transshipment of international cargo via Chinese ports on foreign‐​flagged ships. And last year Brazil eased its cabotage laws to bolster competition and the use of domestic shipping. Canada, meanwhile, extended limited cabotage privileges to European Union vessels as part of a trade agreement with the EU that took effect in 2017.

Past decades have seen other notable examples of cabotage restrictions being pared back. In 1993–2004 the European Union liberalized maritime cabotage among EU members, and in 1993 New Zealand allowed foreign vessels visiting the country in the course of conducting international trade to engage in limited domestic transport. In the latter case, even this relatively modest step appeared to produce significant benefits, correlating with a 20–25 percent decline in freight rates from 1994–2000 and improved service.

In stark contrast, the United States clings to the 103‐​year‐​old Jones Act, described by the World Economic Forum as the world’s “most restrictive example” of a cabotage law. The title is well deserved. A 1991 U.S. Maritime Administration summary of the world’s cabotage laws, for example, found the United States was one of just six countries—Brazil, Egypt, Indonesia, Peru, and Spain being the others—that required vessels used in domestic trade to be constructed in that same country. Since then, Spain has discarded its prohibition on foreign‐​built vessels, Brazil has liberalized its cabotage law, and the other countries have requirements significantly less severe than those of the Jones Act.

Numerous other countries, including neighboring Canada and Mexico, also already have commonsense waiver provisions allowing the use of foreign vessels if no domestic vessel is available. The United States, meanwhile, only allows Jones Act waivers—rarely issued—for reasons of national defense, and in recent years has made it even more difficult to obtain them.

Unwillingness to reform or repeal the Jones Act is particularly unfortunate given the significant gains the United States stands to reap from liberalization. That approximately 40 percent of the U.S. population—including over 5.5 million Americans in Alaska, Guam, Hawaii, and Puerto Rico who heavily rely on marine transport—lives in coastal areas speaks to the opportunity costs stemming from inefficient (or non‐​existent) domestic shipping. Even modest reforms would still pay considerable dividends.

When confronted with the Jones Act’s costs, supporters of the law typically attempt to justify maritime protectionism as a national security imperative. Such claims should be met with considerable skepticism. Indeed, that both China and India—countries that hardly regard national security considerations as an afterthought—have targeted their cabotage laws for reform further undermines such arguments.

Recent efforts at cabotage liberalization around the world suggest an increasing appreciation of the costs of existing maritime transport restrictions and the potential efficiency gains from their removal or relaxation. Given its maritime disposition, the United States stands to similarly benefit should it follow in these other countries’ footsteps by repealing or reforming its own highly restrictive cabotage law.