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Michael F. Cannon

On July 12, the U.S. Departments of Health & Human Services, Labor, and Treasury issued a notice of proposed rulemaking that would strip health insurance from sick patients, with devastating financial and health consequences.

This week, I filed formal comments on the proposed rule. In sum:

The Departments’ proposal is unreasonable, unlawful, and cruel. The Departments should rescind it and affirm that their current interpretation of the relevant statute is both consistent with Congress’ purpose and can improve the performance of the Patient Protection and Affordable Care Act (ACA).

My complete comments follow.

Dear Secretaries Becerra, Yellen, and Su:

Your Departments’ Notice of Proposed Rulemaking (NPRM) on short-term, limited duration health insurance (STLDI) would effectively cancel all STLDI plans after four months and prohibit renewals of such plans. These changes would reduce consumer protections in the STLDI market. They would strip coverage from sick patients, leaving them uninsured—with all the financial and health risks that follow—for up to 12 months or more in some cases. They would increase by 500,000 the number of uninsured U.S. residents.

The risks of this proposal are so substantial, the Departments propose requiring STLDI marketing and plan materials to warn consumers about them. The Departments are considering a regulatory change so dangerous, they believe it should come with a warning label. The Departments do not propose requiring the warning label to inform consumers that it is the Departments creating those dangers.

The Departments’ proposal is unreasonable, unlawful, and cruel. The Departments should rescind it and affirm that their current interpretation of the relevant statute is both consistent with Congress’ purpose and can improve the performance of the Patient Protection and Affordable Care Act (ACA).

Background

In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA), which imposed several regulations on the individual health insurance market via the Public Health Service Act (PHSA). At the same time, HIPAA expressly exempted “short-term limited duration insurance” from those regulations. Thanks to this exemption, STLDI plans are an important source of health coverage for millions of consumers. The Departments allowed STLDI plans to have an initial contract period of up to 12 months.

In the intervening 27 years, Congress has clearly manifested its desire to preserve the STLDI exemption and has expressed zero desire to reduce the initial contract term. Congress has repeatedly amended the PHSA. Examples include:

The Mental Health Parity Act of 1996 (Pub. L. 104–204, September 26, 1996)
The Newborns’ and Mothers’ Health Protection Act (Pub. L. 104–204, September 26, 1996)
The Women’s Health and Cancer Rights Act (Pub. L. 105–277, October 21, 1998)
The Genetic Information Nondiscrimination Act of 2008 (Pub. L. 110–233, May 21, 2008)
The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (Pub. L. 110–343, October 3, 2008)
Michelle’s Law (Pub. L. 110–381, October 9, 2008)
The Children’s Health Insurance Program Reauthorization Act of 2009 (Pub. L. 111–3, February 4, 2009)
The Patient Protection and Affordable Care Act (Pub. L. 111–148, March 23, 2010)
The No Surprises Act (Division BB of the Consolidated Appropriations Act, Pub. L. 116–260, December 27, 2020)

These laws frequently imposed new requirements on issuers of health insurance. In every case, Congress chose both to preserve the STLDI exemption and to exempt STLDI plans from the new regulations. It has never curtailed the exemption. It has never sought to shorten the 12-month STLDI contract length. On the contrary, congresses and presidents of both political parties have accepted that contract length. Nor has Congress ever sought to prohibit consumers from purchasing multiple consecutive STLDI plans from the same issuer.

The U.S. Court of Appeals for the D.C. Circuit writes that the STLDI exemption allows consumers to use STLDI plans as their primary health insurance:

Congress expressly elected not to set up a Hobson’s choice between purchasing ACA-compliant insurance and forgoing coverage altogether. . . .To be sure, Congress hoped that most individuals would purchase ACA-compliant plans as their primary insurance, and it provided incentives to encourage them to do so. . .But it did not foreclose other options. (Emphases in original.)

The sole instance the Departments cite of Congress imposing burdens on STLDI issuers argues against the changes they propose in the NPRM. In 2020, Congress required issuers of STLDI plans “to disclose the direct or indirect compensation provided by the issuer to an agent or broker associated with enrolling individuals in such coverage to the enrollees in such coverage as well as to report it annually to HHS.” This de minimis regulation indicates that Congress knew how to regulate STLDI plans when it wanted and that Congress has repeatedly chosen not to impose the sorts of burdens and penalties the Departments seek to impose without Congress (see below).

For all but two of the 27 years since Congress created the STLDI exemption, a 12-month initial contract term has been the rule. The only exception occurred from 2016 to 2018, when the Departments required STLDI issuers to cancel all STLDI plans after just three months. (More on this change below.)

In 2018, the Departments reversed themselves. They re-established an initial contract term of 12 months. For the first time, they gave meaning to the statutory phrase “limited duration” by allowing issuers and consumers to extend the initial contract up to a total of 36 months. The Departments also clarified that nothing in federal law either prevented consumers from purchasing consecutive STLDI plans or prevented issuers from selling standalone renewal guarantees that shielded sick enrollees from medical underwriting when they purchased a new STLDI plan.

Importantly, these features are consumer protections. They shield enrollees who develop expensive medical conditions from coverage denials and coverage loss. The opportunity for renewal guarantees means the STLDI market can reduce ACA premiums by giving patients who develop high-cost conditions an affordable source of health insurance that keeps them out of the ACA’s risk pools.

The current rules have withstood a court challenge from private insurance companies that sell ACA plans. Those issuers claimed the current STLDI rules harmed their revenues by providing many consumers with a more attractive option than those insurers’ ACA plans. The insurers explicitly petitioned federal courts to reinstate the three-month limit because doing so would increase their revenues by crippling their competitors and punishing their competitors’ customers.

Both a district court and the U.S. Court of Appeals for the D.C. Circuit upheld the current rules. The D.C. Circuit found the current rules “perfectly reasonable” and that they had “only modest effects on the government Exchanges.” It affirmed that “nothing in [federal law] prevents insurers from renewing expired STLDI policies.”

Characteristics of STLDI Plans

Short-term plans are comprehensive health insurance. The non-partisan Congressional Budget Office (CBO) writes that—thanks to current STLDI rules—95 percent of STLDI plans are a “comprehensive major medical policy that, at a minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals.” In essence, STLDI plans “resemble a typical nongroup insurance plan offered before 2014, when many [ACA] regulations . . . took effect.”

On some dimensions, STLDI plans are more comprehensive than ACA plans. The CBO writes that STLDI plans “may exclude some benefits that [ACA] plans must cover [but] may have lower deductibles or wider provider networks” than ACA plans. Figures 1–4 show that STLDI plans in major cities have a wide range of annual out-of-pocket limits, including limits as low as $1,000. In most markets, STLDI plans offer up to $5 million of lifetime coverage.

Similarly, Figure 5 shows that the broad range of available STLDI plans allows consumers to choose whether and to what extent they will purchase coverage for such items as preventive care, mental health, substance abuse, and prescription drugs. Though apparently no STLDI plans provide coverage for uncomplicated pregnancies, many consumers consider that a feature rather than a drawback (see below).

The CBO finds that for many consumers, comprehensive STLDI plans carry premiums that are “as much as 60 percent lower than premiums for the lowest-cost bronze [ACA] plan.” Figures 1–4 are broadly consistent with the CBO’s findings. Figure 6 shows where the lowest-cost bronze ACA plan premium falls in relation to the range of available STLDI premiums. STLDI plans even give consumers the choice of paying more than they would pay for the lowest-cost bronze ACA plan.

(Figures 1–4 and 6 show that many STLDI plans have premiums that are much more than 60 percent lower than the lowest-cost bronze ACA plan. Presumably, the 5 percent of STLDI plans that have the lowest premiums are not comprehensive coverage. That still leaves plenty of room for comprehensive STLDI plans with dramatically more affordable premiums than ACA plans.)

Finally, under current rules, consumers may purchase consecutive STLDI plans and issuers may sell standalone renewal guarantees that protect enrollees who become ill from medical underwriting at reenrollment.

Who Benefits from STLDI Plans?

STLDI plans provide reasonable temporary and primary health insurance options for many consumers. In contrast to the ACA, which generally bars consumers from purchasing coverage for 9–10 months out of each year, consumers can purchase STLDI plans at any time. STLDI plans can thus be a lifeline to consumers who miss the ACA’s restrictive “open” or “special” enrollment periods. They can be particularly attractive to consumers who face high ACA premiums, who receive little assistance with those premiums, or who object to certain types of coverage that ACA plans require them to purchase (e.g., religious objections to contraceptives coverage). They provide coverage to undocumented residents who do not qualify for subsidies to purchase ACA plans. When STLDI plans expand coverage to the uninsured, they reduce the problem of uncompensated care.

STLDI plans are especially important as a lifeline in situations that can be difficult for policymakers to foresee. One real-life example is “Maria.” In 2023, Maria entered a convent as a postulant, i.e., to study to become a Catholic nun. Maria’s only option for health insurance is to purchase it herself. The convent does not sponsor health insurance for postulants. Though her income is low enough to qualify for Medicaid, Maria is an immigrant, which makes her ineligible. She is eligible to purchase an ACA plan. Her income is below the federal poverty line ($14,580), however, which makes her ineligible for a premium subsidy. Were she to purchase an ACA plan, she would have to pay the entire premium herself. The lowest-cost bronze plan available to Maria has an annual premium of $4,821—roughly 33 percent of Maria’s household income. That’s nearly four times the amount the Departments consider affordable (9.12 percent of household income).

An STLDI plan is the only affordable option Maria has. She can choose from STLDI plans with annual premiums ranging from $1,100 to $5,300 and deductibles ranging from $1,000 to $10,000. Importantly for Maria, an STLDI plan would allow her to avoid both maternity coverage and contraceptives coverage, one of which violates her religious beliefs and neither of which she needs.

Other potential beneficiaries of STLDI plans are enrollees in ACA plans. If STLDI issuers have the certainty of knowing that the Departments will allow them to sell renewal guarantees that protect STLDI enrollees from medical underwriting at re-enrollment, the STLDI market can give enrollees who fall ill a lower-cost insurance option than ACA plans. Giving high-cost STLDI enrollees that option could help reduce ACA premiums by keeping high-cost patients out of the ACA risk pools. Figure 7 shows that due to renewal guarantees, the pre-ACA individual market did a better job of providing secure health insurance—and thereby reducing the problem of preexisting conditions—than employer-sponsored insurance.

Proposal to Cancel New STLDI Plans after Four Months

The Departments propose to cancel all new STLDI plans after four months. They propose to prohibit renewals by prohibiting insurers to sell two STLDI plans to the same customer within a 12-month period. These proposals would strip away the protections that longer contract terms, renewals, and renewal guarantees provide consumers. They would have little effect on healthy STLDI enrollees but catastrophic effects for STLDI enrollees who fall ill.

Consider these changes from the perspective of Maria. So long as she remains healthy, Maria could continue to use STLDI plans as her primary source of insurance. As she can today, Maria could keep purchasing a series of consecutive STLDI plans, albeit from different insurers. Her premiums would be higher and her plans’ medical loss ratios lower, though, because insurers would have to underwrite enrollees more frequently.

Were she to fall ill, however, Maria could not continue to use STLDI plans as her primary source of insurance. Within four months of falling ill, the Departments’ proposal would strip her of her current STLDI plan and any hope of enrolling in a subsequent STLDI plan. At the same time canceling Maria’s STLDI plan would turn her otherwise insured medical condition into an uninsured preexisting condition, it would also expose her to medical underwriting in that market. She would be unable to obtain STLDI coverage and would then face up to 12 months of uninsurance—with all the financial and health risks that entails—before she would be eligible to enroll in an ACA plan. Such is the situation that most STLDI enrollees would face. But since Maria is ineligible for ACA premium subsidies, she would also either need to devote at least 33 percent of her income to purchase an ACA plan or face more than 12 months without insurance.

These risks are entirely foreseeable. The National Association of Insurance Commissioners (NAIC), which represents state insurance regulators, warned the Departments about the dangers of limiting STLDI plans to less than one year when the Departments were contemplating a three-month limit in 2016. The NAIC wrote:

Short term, limited duration insurance has long been defined as a policy of less than 12 months both by the states and the federal government. The proposed rule provides no data to support the premise that a three-month limit would protect consumers or markets.

In fact, state regulators believe the arbitrary limit proposed in the rule could harm some consumers. For example, if an individual misses the open enrollment period and applies for short-term, limited duration coverage in February, a 3-month policy would not provide coverage until the next policy year (which will start on January 1). The only option would be to buy another short-term policy at the end of the three months, but since the short-term health plans nearly always exclude pre-existing conditions, if the person develops a new condition while covered under the first policy, the condition would be denied as a preexisting condition under the next short-term policy. In other words, only the healthy consumers would have coverage options available to them; unhealthy consumers would not.

This is why we do not believe this proposal will actually solve the problem it is intended to address. If the concern is that healthy individuals will stay out of the general pool by buying short-term, limited duration coverage there is nothing in this proposal that would stop that. If consumers are healthy they can continue buying a new policy every three months. Only those who become unhealthy will be unable to afford care, and that is not good for the risk pools in the long run.

The D.C. Circuit noted that canceling STLDI plans after just a few months would lead consumers “to be denied a new policy based on preexisting medical conditions.”

These risks are not hypothetical. They already befell STLDI enrollees from 2016 to 2018 after the Departments unwisely adopted a proposal to cancel all STLDI plans after three months. Consumer Reports tells the story of 61-year-old Arizona resident Jeanne Balvin. In 2017, the lowest-cost ACA plan Balvin could find had a monthly premium of $744 and a $6,000 deductible. Balvin instead enrolled in an STLDI plan from UnitedHealthcare that had a monthly premium of $274 and a $2,500 deductible. When Balvin required emergency surgery and hospitalization for diverticulitis, her STLDI plan paid its share of her bills promptly and in full.

In July 2017, however, the Departments’ three-month rule cancelled Balvin’s STLDI plan. Had the Departments not implemented the three-month limit, Balvin’s diverticulitis would have continued to be an insured condition. Instead, the Departments canceled her plan, which exposed her to medical underwriting. Balvin lost coverage for diverticulitis and was not eligible to enroll in an ACA plan until January 2018. A rule that is functionally identical to the one the Departments are considering today left Jeanne Balvin with $97,000 in unpaid medical bills.

The risks of canceling STLDI plans after four months are so substantial, the Departments propose to warn consumers about those risks. The proposed “Notice to Consumers” would require all STLDI marketing and plan materials to state, in part:

When this policy ends, you might have to wait until an open enrollment period to get comprehensive health insurance.

From one perspective, it is noble that the Departments have compassion enough to warn would-be STLDI enrollees about what will happen to them after the Departments throw them, sick and vulnerable, out of their health plans. From another perspective, a good rule of thumb is that if a product feature is so dangerous that it requires a 14-point-type warning label, regulators should not mandate it.

Misleading Descriptions of STLDI Plans vs. ACA Plans

The NPRM expresses the Departments’ desire to protect consumers from “misleading or aggressive sales and marketing tactics that obscure the differences between comprehensive coverage and STLDI,” tactics to which “underserved populations may be particularly vulnerable.” The NPRM directly conflicts with these goals by aggressively misleading consumers and the public at large about the merits of STLDI plans versus ACA plans, as well as the Departments’ own proposal.

It is false and misleading to tell the public, and to propose requiring STLDI issuers to notify consumers, that STLDI plans are categorically “not comprehensive coverage.” Non-partisan authorities such as the CBO affirm that 95 percent of STLDI plans provide comprehensive coverage. On some dimensions, STLDI plans demonstrably provide more comprehensive coverage than ACA plans (see below).

In certain circumstances, indeed for most of the year, STLDI plans offer more comprehensive coverage than all ACA plans. Consumers are generally free to purchase STLDI throughout the year and coverage can take effect as early as one day after an enrollee applies. By contrast, federal law generally prevents consumers from enrolling in ACA plans for 9–10 months of the year. Consumers may purchase ACA plans only during narrow “open” or “special” enrollment periods. Even then, there can be a lag of up to two months before ACA coverage takes effect. Outside of those narrow enrollment windows and lagged start dates, ACA plans offer consumers zero coverage: no essential health benefits, an annual coverage limit of $0, and unlimited out-of-pocket exposure.

Even if the Departments define “comprehensive coverage” as plans that provide the same benefits as ACA plans, it is still misleading to state, and require STLDI issuers to state, that STLDI plans are categorically “not comprehensive coverage.” Were consumers to demand plans that cover the same benefits as ACA plans with the same cost-sharing structure, STLDI issuers could provide those features—and still with broader provider networks and lower premiums than ACA plans. In that case, STLDI plans would be more comprehensive than ACA plans across all dimensions, all year round. The only obstacle to STLDI issuers selling such plans is a lack of consumer demand. Unless the Departments believe consumers would never voluntarily choose ACA coverage and cost-sharing—not even alongside broader networks and lower premiums—the Departments should not categorically state that STLDI plans are “not comprehensive coverage.”

It is further misleading for the Departments to describe ACA plans as categorically providing “comprehensive health insurance.” Some ACA requirements have the effect of making ACA plans more comprehensive. Other ACA requirements have the effect of making ACA plans less comprehensive. The net result is that on many dimensions, ACA plans are less comprehensive than many STLDI plans.

The centerpiece of the ACA’s regulatory scheme is its community-rating price controls. This set of requirements makes coverage less comprehensive by effectively penalizing issuers unless they “avoid enrolling people who are in worse health” by designing plans to be “unattractive to people with expensive health conditions.” At the same time the ACA purports to end discrimination against the sick, its centerpiece penalizes issuers unless they engage in “backdoor discrimination” against the sick that “undoes intended protections for preexisting conditions.”

One example is network breadth. The ACA’s community-rating price controls effectively penalize ACA plans unless they make their networks narrower than their competitors’ networks. “Narrow networks existed before the implementation of the ACA, but they have grown more common as a result of it.” According to surveys, broad provider networks accounted for 80 percent of individual-market plans in 2013, when networks reflected consumer preferences, but only 21 percent of Exchange plans in 2020. The CBO confirms that ACA provider networks are often less comprehensive than STLDI provider networks.

Another example is prescription drug coverage. The ACA’s community-rating price controls penalize issuers unless they make drug coverage less comprehensive than their competitors’ drug coverage. These “protections” thus ration care for patients with costly chronic illnesses including multiple sclerosis, infertility, substance abuse disorders, hemophilia, severe acne, and nerve pain. The “I Am Essential” coalition of 150 patient groups identified numerous examples of such discrimination against patients with cancer, cystic fibrosis, hepatitis, HIV, and other illnesses.

Rather than guarantee comprehensive coverage, these provisions create a race to the bottom by ceaselessly penalizing any ACA plan that is more comprehensive than its competitors. The resulting gaps in coverage harm patients. Excessively narrow networks “jeopardize the ability of consumers to obtain needed care in a timely manner.” The ACA’s drug-coverage gaps cost patients thousands of dollars per year. The “I Am Essential” coalition writes that such discrimination “completely undermines the goal of the ACA.”

Even “currently healthy consumers cannot be adequately insured.” It is false and misleading for the Departments to describe ACA plans as providing “comprehensive coverage” when the centerpiece of the ACA’s regulatory scheme is actively eroding coverage for all enrollees.

Finally, it is highly misleading for the Departments to propose to cancel STLDI plans after four months and to require STLDI issuers to warn their potential customers about these risks, without also informing consumers that is the Departments themselves that are responsible for creating those risks.

The Departments’ Proposal Is Not Reasonable

The Departments have the authority to interpret (and reinterpret) ambiguous statutes so long as their interpretation is reasonable. The interpretation of “short-term, limited duration insurance” that the Departments propose in this NPRM is not reasonable. An interpretation that cancels all STLDI plans after four months and prohibits renewals directly and starkly conflicts with and undermines Congress’ express goals, as well as the Departments’ stated goals.

Congress has not given the Departments explicit guidance as to the meaning of the statutory phrase “short-term, limited duration.” Yet decades of congressional legislation clearly evince:

Congress wants consumers to have access to STLDI plans that are exempt from federal health insurance regulation.
Congress’ primary goals with respect to health insurance regulation are to reduce gaps in health insurance, to reduce the number of uninsured, and to shield the sick from medical underwriting.
Since the enactment of the ACA, Congress has moved away from negative incentives (i.e., penalties) to induce consumers to enroll in ACA plans in favor of positive incentives (subsidies).

Canceling STLDI plans after four months and prohibiting renewals conflicts with each of these elements of Congress’ plan.

The Departments’ proposal conflicts with Congress’ regulatory scheme by treating the STLDI exemption as an aberration or a lesser part of federal law. The STLDI exemption stands on an equal footing with all other provisions of federal law. The same lawmaking process that created the ACA and the remainder of the PHSA also created the STLDI exemption. Indeed, the STLDI exemption predates most federal health insurance regulations, including the ACA. The D.C. Circuit held that the STLDI exception is “[an] exception Congress created” and “Congress expressly elected not to set up a Hobson’s choice between purchasing ACA-compliant insurance and forgoing coverage altogether. . .it did not foreclose other options.” (Emphases in original.)

Congress has never once sought to shorten STLDI plan durations. It has never expressed any dissatisfaction with the 12-month initial contract terms that have prevailed for all but two years of the STLDI exemption’s 27-year history. It has never demonstrated any desire to prohibit consumers from renewing STLDI plans. The Departments have no warrant to favor other provisions of federal law over the STLDI exemption, nor to favor other health insurance over STLDI plans, as this proposal would do.

The Departments’ proposal conflicts with Congress’ regulatory scheme by taking the opposite of the consistent approach to health insurance coverage that Congress has. Decades of legislation clearly show that Congress’ goal in this area of health reform has been to reduce gaps in health insurance; to reduce the number of uninsured; and to reduce discrimination against the sick, in particular by shielding the sick from medical underwriting.

Canceling STLDI plans after four months and prohibiting renewals would increase gaps in health insurance, increase the number of uninsured by 500,000 individuals according to the CBO, and increase discrimination against the sick, including by exposing patients with preexisting conditions to medical underwriting. The NPRM would mandate the very practice of stripping coverage from the sick that the Departments said the ACA would end.

Finally, the Departments’ proposal conflicts with Congress’ regulatory scheme by employing a tactic that Congress disfavors. The Departments propose to encourage consumers to enroll in ACA plans by exposing them to greater financial and health risks if they enroll in the “wrong” health plans (and then requiring issuers of those health plans to advertise those penalties). Since 2010, Congress has moved away from negative incentives (i.e., penalties) to induce consumers to enroll in ACA plans in favor of positive incentives (subsidies). In 2017, Congress eliminated the financial penalties it had previously imposed on taxpayers who fail to enroll in “minimum essential coverage.” In 2021 and 2022, Congress opted for subsidies rather than penalties to induce consumers to enroll in ACA plans.

Even if Congress still favored penalizing consumers who do not enroll in ACA plans, the Departments have identified no statutory authority or support for their proposal to impose these burdens on STLDI enrollees. Nowhere does Congress grant the Departments such a warrant. The Departments’ depiction of Congress’ intent leans heavily into the passive voice: STLDI “is primarily designed,” “was not intended,” “was initially intended,” etc.. Yet the Departments supply no evidence of these designs or intentions. Just as the passive voice presents a verb without an actor, the Departments present a claim about congressional intent without any support.

Conclusion

This proposal is not an attempt to protect consumers. Quite the contrary: it would expose consumers to greater risk by reducing the consumer protections available in the STLDI market. It would increase the number of uninsured by 500,000 and expose sick patients to canceled coverage, uninsurance, and avoidable financial and health risks.

The problem that the Departments seek to redress is not that STLDI plans offer inadequate coverage but that they offer many consumers a perfectly reasonable alternative to ACA plans, and consumers are choosing the alternative that is better for them. For better or worse, Congress leaves STLDI plans free to compete with ACA plans. The Departments should respect Congress’ handiwork.

I respectfully request that the Departments adhere to Congress’ goals, set aside this NPRM, reaffirm the current rules regarding STLDI plans, and affirm that the PHSA grants the Departments no authority to regulate standalone renewal guarantees.

Thank you for your time and attention.

Cordially,

Michael F. Cannon

Director of Health Policy Studies

Cato Institute

Norbert Michel

Six months ago, the failures of Silicon Valley Bank and Signature Bank caused a mild panic. Calls for unlimited deposit insurance and placing government officials on bank boards quickly followed despite the fallout being largely contained. Yet, these events have opened the opportunity to further consider the role and the performance of the Federal Deposit Insurance Corporation (FDIC) and federal banking regulators.

To further discuss those considerations, FDIC vice chairman Travis Hill will be coming to Cato this Thursday.

Vice Chairman Hill and I will discuss the state of banking and the economy, recent regulatory actions, and the outlook for banks and bank regulators. We will also dive into some of the recent regulatory actions that the FDIC has proposed since the failure of the two banks last spring.

You can register here to attend the event in person or watch it online.

Michael Chapman

In a recent speech, GOP presidential contender Vivek Ramaswamy outlined a multi‐​year plan to reduce the federal workforce by 75 percent, slash regulations, and “shut down redundant federal agencies,” if elected. While Ramaswamy’s goals may seem fantastic, scholars at the Cato Institute have presented detailed policies for reducing the size of the federal government and its workforce.

In 2022, for instance, economist Chris Edwards, the editor of Cato’s Down​siz​ing​Gov​ern​ment​.org, published a detailed plan of specific cuts to the federal budget. These spending reductions, phased in over 10 years, would “by 2032 total $2.3 trillion annually, including reduced interest costs,” he wrote.

Federal spending would fall from “23.8 percent of GDP in 2022 to 18.1 percent in 2032, which would balance the budget that year,” and “reduce dangerously high debt levels,” wrote Edwards. The cuts would also trim the federal workforce, which is estimated at 2.2 million civilian workers.

With health care, for instance, Edwards’ plan would produce annual savings of $808 billion (see Table 1). For Social Security, cuts would equal $380 billion a year. Total annual savings in those two categories would equal $1.18 trillion.

With discretionary federal programs there are many places to reduce spending (see Table 2). For instance, in the Agriculture Department, ending farm subsidies would total $33.5 billion a year in savings, and cutting food subsidies would equal $145.6 billion. Ending rural subsidies would save $5.8 billion a year. Total annual savings in 2032 for the department would equal $184 billion.

Some of the annual savings from phased‐​in cuts in several other departments include,

Department of Commerce $5.1 billion
Department of Education $75.9 billion
Department of Energy $6.8 billion
Department of Homeland Security $30.1 billion
Department of Housing and Urban Development $67.3 billion
Department of Transportation $49.8 billion
Department of the Treasury $89.4 billion
Cut foreign aid by 50 percent $12.3 billion
Cut NASA budget by 50 percent $11.7 billion
End EPA state/​local grants $3.7 billion

In total, the discretionary spending cuts from Edwards’ plan would produce an annual savings of $610.9 billion. (“The plan assumes that one‐​tenth of the cuts would be phased in each year over the coming decade.”)

These reductions in federal spending would produce numerous benefits. They would boost economic growth (more money and opportunities in the private sector), trim the power of the administrative state (fewer federal workers), slash deficit spending, reduce inflation and the national debt, and enhance individual liberty. Federal downsizing would disperse power out of Washington and back to the people—individuals, private businesses, and communities.

It would also help to corral the federal government back inside its constitutional borders.

In a separate report on federal pay and benefits, Edwards documented that the 2.2 million federal civilian workers impose “a substantial burden on American taxpayers.” Their wages and benefits in 2019 cost taxpayers $291 billion.

The U.S. Bureau of Economic Analysis reported in 2022 that federal civilian workers enjoyed an average wage of $99,622. In the private sector that year the average annual salary was $74,666.

But that does not include total compensation, such as health insurance, paid vacation days, and a pension. In 2022, total federal compensation averaged $143,643, or 63 percent more than the private‐​sector average of $88,152, reported Down​siz​ing​Gov​ern​ment​.org.

On average, a federal civilian worker’s benefits package cost $44,021 (in 2021); in the private sector, the package cost $13,486.

Federal workers also get about “13 days of sick leave per year, 10 paid federal holidays, and 13 to 26 days of paid vacation, depending on years of service,” reported the Washington Post. They also “enjoy first priority and subsidies at a number of top‐​notch daycare facilities.”

On top of all this, federal workers rarely get fired. As Down​siz​ing​Gov​ern​ment​.org reported, “Just 0.5 percent of federal civilian workers a year get fired for any reason, including poor performance and misconduct. That rate is just one‐​sixth of the private‐​sector firing rate.”

In such a situation, footed by American taxpayers, there is no incentive to scale back or improve, no retrenching. There are no market forces at play, no competition, and virtually no layoffs. Yet this intractable behemoth administers $6,200,000,000,000 in revenue.

It is no mystery why the federal government is inefficient and intervening in nearly every aspect of people’s lives.

The federal government and its workforce must be radically downsized. There are ways to do that. But it takes political commitment. Talking about a 75 percent federal workforce reduction may seem unattainable, but talking about it is a start. Even a 7 percent reduction would be a giant step in the direction of freedom.

David J. Bier

For many years, I have advocated for the U.S. government to allow the private sponsorship of immigrants and refugees, freeing U.S. citizens to resettle vulnerable people. This vision finally became reality in 2022 when the Department of Homeland Security (DHS) announced it would allow Americans to sponsor Ukrainians fleeing Russia’s invasion. A version of this same policy was then expanded to Cubans, Haitians, Nicaraguans, and Venezuelans.

In a new paper Cato released today, I explain how these policies work and what challenges they face going forward. Here is the executive summary:

The U.S. government has recently launched multiple novel migration initiatives through which Americans may sponsor Ukrainians, Cubans, Haitians, Nicaraguans, and Venezuelans for a temporary U.S. residence known as parole. Parole allows the beneficiaries to travel to the United States legally and live there legally for at least two years. Sponsors must show financial assets and income sufficient to support the beneficiaries. The parole sponsorship processes have decreased migration from these five countries to the U.S.-Mexican border.

This policy has transformed migration to the United States. By July 2023, parole had already redirected about 316,000 people away from long, perilous treks through Mexico and into a legal framework to fly directly from their home countries or third countries to the United States. The parole sponsorship processes have accomplished these early positive results mainly because they have relatively open eligibility criteria and because the government initially expedited their adjudications.

Unfortunately, some features of the processes have stymied the initial progress, and a backlog of about 1.7 million applicants has developed. The government also failed to cover the costs of parole processing because it exempted sponsors and parole applicants from fees usually charged to other travelers, leading to delays in adjudication. Even if resources were sufficient, the government has capped approvals for Cuba, Haiti, Nicaragua, and Venezuela at just 30,000 per month, making extremely long waits inevitable. Removing the cap and charging a fee would permit expansion to other countries where a legal avenue is sorely needed.

You can read the whole paper here.

Alex Nowrasteh

Yesterday, I testified at the “Terrorist Entry Through the Southwest Border” hearing before the House Subcommittee on Immigration Integrity, Security, and Enforcement. You can watch the entire hearing here, my spoken testimony here, and highlights here. My written testimony is here. This was an excellent opportunity to highlight my research on foreign‐​born terrorism in the United States.

Inspired by John Mueller’s pathbreaking work to quantitatively estimate the risk posed by terrorism, I adapted his methods to estimate the threat posed by foreign‐​born and native‐​born terrorists in response to the policy issues in the 2016 election and during much of the Trump administration. I updated the terrorism and immigration risk analysis last month, but this is just a tiny sample of my work on this topic.

I testified that zero Americans have been injured or killed in terrorist attacks by illegal immigrants or asylum seekers who entered through the southwest border. Indeed, there have been zero terrorist attacks on U.S. soil by illegal immigrants or asylum seekers who crossed that border.

However, nine foreign‐​born terrorists have entered the United States illegally since 1975. Three convicted illegal immigrant terrorists crossed the U.S.-Mexico border. They are Dritan Duka, Eljvir Duka, and Shain Duka, and they entered illegally in 1984 when they were aged 5, 3, and 1, respectively. They were arrested in 2007 while plotting to attack Fort Dix. Of the other illegal immigrant terrorists, five illegally crossed the U.S.-Canada border, and one was a stowaway on a ship.

Over the 1975–2022 period, the chance of being murdered in an attack by a foreign‐​born terrorist was about 1 in 4.3 million per year. That is no comfort to the actual victims of foreign‐​born terrorism, nor should it ever be construed as comfort. The rarity of foreign‐​born terrorism does not diminish the death or injury of the victims and the suffering it causes their families. But the rarity of such attacks means that pain, injury, and death are mercifully uncommon. The U.S. government has an obligation to intercept foreign‐​born terrorists and to prevent their entry into the United States.

The rarity of terrorism and the death and destruction it causes should guide public policy. The quantity of taxpayer resources and the types of restrictions on individual liberty that have been enacted to counter the threat of foreign‐​born terrorism is grossly disproportionate to the risk, like it is for all counterterrorism spending.

At a minimum, the government has an obligation to use taxpayer resources wisely so that expenditures pass a cost‐​benefit test. That bare minimum has not been met in counterterrorism or in many other areas.

Below is my opening statement to the subcommittee.

Chairman McClintock, Ranking Member Jayapal, and distinguished members of the subcommittee, thank you for the opportunity to testify. Over many decades, the Cato Institute has produced original research on immigration and sober evaluations of the realistic threat of foreign‐​born terrorism.

Terrorism is a serious topic, so serious that we should focus laser‐​like on data and facts. We cannot let ourselves be distracted by fiction or speculation. This focus on data and facts requires looking at the past, which is the source of all data about terrorism. The title of this hearing is “Terrorist Entry Through the Southwest Border.” When I first heard that was the title, my reaction was, “What terrorist entry through the southwest border?”

Zero people have been murdered in attacks committed by terrorists who entered as illegal immigrants. Zero people have been injured in attacks committed by terrorists who entered illegally. Zero attacks have been carried out by immigrants who entered illegally.

Nine terrorists have entered the United States illegally. Five of them illegally crossed the U.S.-Canada border, one was a stowaway on a ship, and three of them, Dritan Duka, Eljvir Duka, and Shain Duka, entered illegally through the U.S.-Mexico border in 1984. At the time of entry, Dritan Duka was five years old, Eljvir Duka was three years old, and Shain Duka was one year old. In 2007, they were convicted as part of the Fort Dix plot, which was broken up by law enforcement during the planning stage.

Zero asylum seekers who became terrorists entered through the U.S.-Mexico border. Thirteen terrorists have entered as asylum seekers, and they are responsible for nine murders and about 669 injuries in attacks on U.S. soil, but none of them crossed the southwest border.

There have been zero terrorist attacks by illegal border crossers who were flagged by the Terrorism Screening Database (also called the watchlist). Federal prosecutors have not filed charges related to a terrorist plot on U.S. soil against anyone who entered between a port of entry and who was flagged by the watchlist.

Almost all individuals listed on the watchlist are not terrorists. Data released to the Washington Examiner showed that 25 of the 27 watchlist hits encountered by Border Patrol in the first six months of 2022 were citizens of Colombia. If they were even members of Foreign Terrorist Organizations (FTO), they were likely members or former members of FARC, FARC offshoots, or other insurgents in Colombia.

There has never been a terrorist attack committed on U.S. soil by these Colombian FTOs, there is no publicly available evidence that they have ever intended to target the U.S. homeland, and no foreign‐​born person from Colombia has ever committed, planned, attempted, or been convicted of attempting to commit terrorism on U.S. soil.

Special interest aliens (SIA) are a supposed terrorism concern along the U.S.-Mexico border. DHS has a fancy definition of SIA, but the reality is that the SIA designation is a label for “illegal immigrants from a country that could have terrorists” and nothing more. SIA is not a meaningful metric to understand the threat of terrorism along the border or anywhere else.

Although terrorists who crossed the U.S.-Mexico border have never murdered or injured anyone in a terrorist attack on U.S. soil, there is a chance that a foreign‐​born terrorist could cross the U.S.-Mexico border and commit an attack in the future. The way to reduce that threat is to vastly expand legal immigration to diminish the number of illegal immigrants down to very low levels.

Such a liberalization and deregulation of immigration would allow Border Patrol to focus its efforts more fully on deterring security threats instead of trying to centrally plan international labor markets.

Thank you.

Gabriella Beaumont-Smith

On August 31, New Zealand introduced legislation for a digital services tax (DST). Also last month, Canada issued new draft legislation on its proposed DST.

Countries levy DSTs differently (see Table 1), but generally they are a tax on gross revenues based on user location. As such, DSTs can be considered extraterritorial taxes, meaning that governments tax and collect revenue beyond their territories. The scope of DSTs is also very broad, covering online sales, digital advertising, data usage, streaming and downloads, and more.

The renewed momentum on DSTs is tied to ongoing negotiations at the Organisation for Economic Co‐​operation and Development (OECD) on the Base Erosion and Profit Shifting (BEPS) project. Pillar One of the BEPS project tries to address growing concerns over unilateral DSTs, like Canada and New Zealand’s proposals. However, Pillar One will maintain taxation based on customer location, rather than business activities.

This prong is presenting problems for numerous American businesses (e.g. YouTube) that are unsubtly targeted by DSTs and will be disproportionately impacted by Pillar One. For example, France implemented a 3% DST on revenue from sales of user data, digital advertisements, and online platforms run by companies with more than €750 million in global revenues; and Nigeria’s DST targets non‐​resident businesses with revenue over N25 million from sales of digital content, user data, etc.

As negotiations continue at the OECD, countries with adopted or proposed DSTs agreed to hold off applying the taxes until 2025. Canada is the only country to refuse the “freeze” on unilateral DSTs. What’s even more problematic is that Canada’s proposal contains a retroactivity provision. The 3% tax applies starting January 1, 2024 and is retroactive to January 1, 2022.

Further, the Canadian DST could violate the United States‐​Mexico‐​Canada Agreement (USMCA). In fact, in February 2022, the United States Trade Representative (USTR) stated that if Canada adopts its DST proposal, “USTR would examine all options, including under our trade agreements,” implying it could use enforcement mechanisms outlined in the USMCA.

The uncertainty surrounding the OECD negotiations is made worse by the options the USTR might employ to counter Canada. For example, in 2019 and again in 2021, the Trump administration initiated investigations under Section 301 of the Trade Act of 1974 after a handful of countries implemented DSTs. The Trump administration used Section 301 to ”determine whether an act, policy, or practice of a foreign country is… unreasonable or discriminatory” and burdens or restricts U.S. commerce.

The USTR found that these DSTs were discriminatory against U.S. companies and threatened retaliatory tariffs. If the Biden administration utilized this law and equally threatened retaliatory tariffs, U.S. businesses and consumers would pay for Canada’s misdirected tax policy.

While the OECD seems to have lost its way on promoting global free market economic development, the World Trade Organization (WTO) has spearheaded efforts to reduce taxes on digital products.

Since 1998, members have voted every two years to maintain the moratorium on customs duties on electronic transmissions. These transmissions are commonly understood to include things like digital music, video games, movies, software, text messages, emails, etc. These duties are different from DSTs and more akin to a tariff as they apply to electronic transmissions imports whereas DSTs are technically domestic taxes that could apply to domestic and foreign businesses. DSTs are also a tax on business revenues, while a tariff is usually applied as a fixed fee or ad‐​valorem (a percentage based on the value of the good) to the price of the product.

Unfortunately, the increasing importance of digitalization and, thus, increased opportunity for raising tax revenue, is having repercussions for the moratorium—some members have expressed reservations about foregone revenues and may not vote to extend the moratorium next year. Given the problems at the OECD, it would be prudent for WTO members to make the moratorium permanent.

Politicians capitalizing on digitalization to raise tax revenue is problematic. Customs duties are the same as tariffs and if the moratorium is not extended, consumers will likely bear the brunt of the costs. DST costs will similarly be passed on.

Since DSTs are applied to revenues (not profits), a firm could be required to pay taxes in a jurisdiction it doesn’t actually earn income in. As a result, consumers will likely pay the price or see reduced variety in the market. For example, in the case of the French DST, a study from Deloitte estimated that over half of the tax would be paid by French consumers directly, and 40% by local French businesses that use the taxed digital platforms. For Canada, the Montreal Economic Institute estimates that the tax will cost Canadian consumers between $1.1 billion and $3.3 billion per year.

Extraterritorial taxation, including as currently being negotiated at the OECD, gives distant politicians the power to involve themselves in local affairs. While free trade proponents (like myself) wish for as borderless a world as possible, borders matter. After all, tariffs are taxes and as long as we live in a world with non‐​zero tariffs, it is important that tax competition can exist among countries through sovereignty over trade and tax policy.

The United States should question the direction the OECD has taken and USTR should continue to consider the implications of taxing digital products, whether through a customs duty or a DST, which only serves to empower politicians and impoverish people.

Colleen Hroncich

When education was disrupted during the pandemic, Dominique Burgess didn’t waste time. An educator with more than a decade of experience, she had started Burbrella Education pre‐​COVID‐​19 to support parents, teachers, and school leaders with coaching and support. In spring 2020, she started offering remote learning options to help families while schools were closed.

Dominique was very flexible and began adding options as parents and teachers expressed interest. She now operates Burbrella Learning Academy, which includes an online microschool, an in‐​person microschool in North Carolina, and tutoring.

In the beginning, she says most of the families who signed up with Burbrella were already homeschooling their kids and were looking for academic support and a consistent schedule. Then there were parents who were frustrated by the poor communications from their local school and wanted something more concrete. As schools started to return in person, some parents who weren’t ready for that turned to Burbrella. But at the same time, other parents were asking for in‐​person options. “So we coordinated some homeschool co‐​ops in specific states where we had interest from parents,” she explains.

As the homeschool co‐​ops spread, more families were asking for in‐​person options in their locations. Dominique says, “I did a good amount of research on microschools for about a year. After looking at the parameters around how a microschool can operate in North Carolina, I decided to start the first one here because (1) this is currently home for me, and (2) I spent a lot of time during Covid analyzing the different educational institutions and dynamics of education here in North Carolina.”

She chose Alamance County for her first in‐​person location to help parents see that there are other educational options out there and because she didn’t find many alternatives in the area. “The first question that we get is ‘what’s a microschool,’” says Dominique. That gives her the opportunity to explain what a microschool is and how they are revitalizing education while providing families with choice.

The Burbrella microschool in NC, which opened this year, is K‑5 and meets Monday through Friday. Parents can choose a hybrid option as well, where they do three days in person and two at home in the online school. There’s also a homeschool drop‐​in option for homeschoolers on Tuesdays and Thursdays. The after‐​school program is open to district, charter, and private school students.

Plans are in the works to open an in‐​person microschool in Indiana next year. The online microschool is preK‐​12, which is Dominique’s goal for her in‐​person locations as well.

The Burbrella online microschool offers live classes Monday through Friday. Students get all of the core content area subjects—math, reading, history, and STEAM [science, technology, engineering, art, and math]. Dominique says teachers must understand that Burbrella is play‑, projects‑, and nature‐​based. “Our classes are structured just a little bit different than the traditional online classes, and we hire teachers that are aligned with our philosophy and our mission,” she says.

According to Dominique, Burbrella operates kind of like a network school district. “We say, ‘Here are the parameters around curriculum. Every class that will be taught in the online school needs to cover these four subjects—because we’re in a large number of states and want to make sure that the homeschooling expectation for every state is covered.”

It’s clear that Dominique’s flexible approach is appealing for many parents. She has 168 students from 18 states in the online microschool.

Dominique’s advice for parents is “know what’s available to you in your community, in your county. If it’s not there, push for it, ask for it.” And, like other education entrepreneurs I’ve talked to, her advice for prospective school founders is “take the leap.”

She notes that many teachers are afraid to leave the traditional setting because they don’t know where they’ll get things like insurance and retirement plans. “It will find you,” she says. “I tell teachers all the time the same 401K that I had and insurance premiums that I had, I still have. And that’s because people in this community found me. I was able to bring plans over for a much cheaper rate. So, take the leap. Do it. All the things will fall into place for you.”

Daniel Griswold

The Census Bureau reported this week that real median household income in the United States fell in 2022 for the third year in a row. We can debate the underlying causes of the setback, but the report shouldn’t obscure the long‐​term gains made by American workers and families during recent decades of expanding globalization.

One data point—highlighted by AEI scholar (emeritus) Mark Perry in a chart posted on X—exposes the myth that decades of growing trade have somehow “hollowed out” the American middle class. Going back to 1967, Perry shows that the share of American households with earnings between $35,000 and $100,000 (in constant 2022 dollars) has indeed shrunk, but so too has the share of households with earnings below $35,000. Meanwhile, the share of households earning more than $100,000 has nearly tripled.

I document the same phenomenon in a new essay, “The Misplaced Nostalgia for a Less Globalized Past: The ‘Great Again’ Economy Wasn’t so Great.” The essay is part of an ambitious new Cato Institute project called “Defending Globalization.”

Looking at the same Census series from 1970 to 2021, you can see in the nearby chart that the number of both poor and middle‐​class households has been shrinking as a share of total households, while those with incomes above $100,000 in constant dollars have been rising. The American middle class in the era of globalization has been moving up, not hollowing out!

In fact, when we account for changing household sizes as well as more accurate measures of price inflation, median household income in the United States has increased by 50 percent since 1967. Meanwhile, real average hourly earnings have risen by 74 percent in the past 50 years. The time that Americans must work to acquire basic household goods such as food, clothing, and appliances has fallen steadily as technology and trade have combined to make goods more affordable.

The essay goes on to show that Americans are not only earning more on the job but are safer from workplace injury and death. Women workers have benefited in our more globalized era from rising levels of education and more opportunities in the workplace. The rising level of prosperity has benefited minorities as well with falling levels of poverty; inequality as measured by the Gini co‐​efficient has actually decreased slightly in recent decades.

All this has occurred over decades of rising levels of foreign trade and investment as a share of U.S. gross domestic product. Despite the recent turbulence, Americans today are better off than they were 50 years ago, not despite globalization, but in significant measure because of it.

You can check out all the essays as they roll out as well as Scott Lincicome’s introductory talk at the “Defending Globalization” website.

Scott Lincicome

Thirty‐​four years ago tomorrow, Boris Yeltsin — then a newly elected member of the Supreme Soviet of the Soviet Union — visited NASA’s Johnson Space Center in Houston, Texas, where he toured the U.S. government facility and the various technologies therein. But it’s a brief, impromptu visit to a nearby grocery store that may very well have changed world history.

Yeltsin, who’d two years later become the first freely elected leader of Russia, roamed the aisles of the relatively small Randall’s market that day and was astonished at the variety and affordability of the products on display. According to various reports, this visit — not the one to NASA — catalyzed Yeltsin’s exit from the Communist Party and his abandonment of the Soviet economic model. His 2007 New York Times obituary tells the tale:

During a visit to the United States in 1989 he became more convinced than ever that Russia had been ruinously damaged by its centralized, state‐​run economic system, where people stood in long lines to buy the most basic needs of life and more often than not found the shelves bare. He was overwhelmed by what he saw at a Houston supermarket, by the kaleidoscopic variety of meats and vegetables available to ordinary Americans.

Leon Aron, quoting a Yeltsin associate, wrote in his biography, “Yeltsin, A Revolutionary Life”…: “For a long time, on the plane to Miami, he sat motionless, his head in his hands. ‘What have they done to our poor people?’ he said after a long silence.” He added, “On his return to Moscow, Yeltsin would confess the pain he had felt after the Houston excursion: the ‘pain for all of us, for our country so rich, so talented and so exhausted by incessant experiments.’ ”

He wrote that Mr. Yeltsin added, “I think we have committed a crime against our people by making their standard of living so incomparably lower than that of the Americans.” An aide, Lev Sukhanov was reported to have said that it was at that moment that “the last vestige of Bolshevism collapsed” inside his boss.

My Cato colleague Sophia Bagley and I recall this wonderful story in a forthcoming essay for Cato’s new Defending Globalization project, explaining how the United States’ grocery abundance — owed in large part to globalization — fueled Yeltsin’s freezer‐​side conversion and has increased further since that time. Between 1975 and 2022, for example, the number of products in an average U.S. supermarket has increased by more than three‐​fold, from 8,948 products to a whopping 31,530. Not all of that increase is due to globalization, of course, but much of it is. As shown below, for example, imports of essentially every type of food have increased substantially in the decades following Yeltsin’s tour of Randall’s:

Some of these gains reflect Americans’ increasing appetites for “ethnic foods” and the related explosion of such items in American grocery stores. As I note in my first essay for the project (on the current state of globalization), these cuisines are today “so commonplace that American grocers are struggling to fit them all in the ‘ethnic food’ aisle, where buyers and sellers prefer them,” while “H Mart, a Korean American supermarket chain, has become one of the fastest‐​growing retailers by specializing in foods from around the world.”

But there’s probably no bigger symbol of U.S. grocery globalization than in the produce section. Supermarkets in 1980, for example, carried an average of 100 different produce items, and the number approached approached 250 by 1993. But, even then, certain fruits and vegetables were limited to North American growing seasons, and few here had even heard of products like rambutans, lychee, or jackfruit.

A casual stroll through the same aisles today, by contrast, reveals an incredible variety, driven in large part by global trade and Americans’ globalized taste buds. According to the FDA, in fact, 55 percent of fresh fruits and 32 percent of fresh vegetables are today sourced from abroad. As Bagley and I explain in our essay, much of the expansion in international trade in food is owed to trade agreements completed in the 1990s.

In the United States, the 1994 North American Free Trade Agreement improved Americans’ access to warm‐​weather produce grown in Mexico and certain other foods in which Canada specialized (and not just maple syrup). Globally, the 1995 World Trade Organization agreements, especially the Agreement on Agriculture, dramatically reduced global food and related trade barriers. Since then, agricultural trade has more than doubled in volume and calories. (For more on why we have these and other trade agreements, check out Simon Lester’s new Defending Globalization essay.)

Globalization has even improved our domestic food supply. For example, more than 40 percent of the steel used for canning goods is sourced globally, meaning that many canned foods, although grown domestically, would be more expensive if U.S. producers lacked access to imported materials. American farmers, meanwhile, often rely on imported fertilizer, or use export revenues to fund expansions or crop experimentation. Total U.S. food and agriculture exports hit $196 billion in 2022, almost half of which ($88 billion) went to Asia.

Sadly, the hope and optimism of Yeltsin’s Russia are today a distant memory. But his amazement that day in Houston — and the blessings of American grocery abundance — are still worth celebrating. They may have even changed the world.

Jeffrey A. Singer

On September 12, a Food and Drug Administration advisory panel reported that oral phenylephrine hydrochloride, an ingredient in many popular over‐​the‐​counter decongestants people purchase to treat common cold symptoms, does not reduce nasal congestion.

Phenylephrine, a drug that causes small blood vessels to constrict, is an ingredient in numerous cold remedies, including Nyquil Sinex Nighttime Relief and Sudafed PE. The FDA and drug makers believed that constricting blood vessels that supply mucus glands in the nasal passages and sinuses would cause a drop in mucus production. However, new research shows that oral phenylephrine is no more effective than a placebo.

Because FDA drug approval means that the agency determines a drug is both safe and effective, the agency might next order all of these popular brands pulled off the shelves.

The FDA first approved phenylephrine as a safe and effective over‐​the‐​counter decongestant in the 1970s. In 2007, an advisory panel told the FDA that evidence oral phenylephrine worked was “murky” and “not definitive” and recommended further study.

It is reasonable to ask why it has taken the FDA—an agency that controls what drugs doctors can recommend to their patients and what medications people may take to self-medicate—roughly 50 years to figure out that a drug it declared effective is not.

As Michael Cannon and I wrote in “Drug Reformation”:

Government‐​imposed prescription requirements violate the rights of individuals to access the medicines they want. Vesting this power in government has left Americans with less access to medicines overall—even relative to consumers in other nations where governments also impose prescription requirements. It imposes unnecessary costs that rise during public health crises such as the COVID-19 pandemic. Evidence also suggests that government‐​imposed prescription requirements make patients less safe, not more.

The answer might have something to do with the fact that Congress passed the Combat Methamphetamine Epidemic Act in 2005, which went into effect in March 2006. Designed to prevent the diversion of an effective decongestant, pseudoephedrine, into the black market where meth lab “cooks” converted it into methamphetamine, the Drug Enforcement Administration ordered all oral pseudoephedrine medications to be “behind the counter.”

Pharmacists must record the personal identification of patients wishing to purchase it. The DEA places strict limits on the dose and number of pseudoephedrine‐​containing products patients may obtain within a 30‐​day time frame. Oregon and Mississippi lawmakers went even further. Those states required patients to get a doctor’s prescription to purchase oral pseudoephedrine. Both states repealed those prescription requirements in 2022.

Sudafed, a popular and effective brand of pseudoephedrine decongestant, was moved “behind the counter” under the new law. People can purchase Sudafed PE over the counter without restrictions. Sudafed PE substitutes phenylephrine for pseudoephedrine (thus the “PE”).

Of course, the restrictions and inconveniences the DEA imposed on patients did nothing to combat the “methamphetamine epidemic.” It didn’t take long for the drug cartels to figure out other ingredients that could be used to make methamphetamine more efficiently (anybody who has watched the award‐​winning television series “Breaking Bad” knows this).

One such ingredient is phenyl‐​2‐​propanone, also called phenylacetone or P2P. As a result, meth‐​related drug deaths per 100,000 increased nationally by 1,500 percent between 2006 and 2021. The iron law of prohibition — “the harder the law enforcement, the harder the drug” — struck again.

Two agencies, the FDA and the DEA, combined to make millions of people with colds, allergies, and other causes of severe congestion waste their money on placebos and go without relief for decades while driving the drug cartels to discover more effective ways to make more potent forms of meth, which helped to cause meth‐​related deaths to skyrocket. 

Sometimes, irony can be tragic.