A Wall Street Journal news article by David Harrison claims, “State and local government spending and employment levels didn’t fully recover from the 2007-09 recession until last fall, a decade after the downturn ended and only a few months before the coronavirus led to a new round of cuts.” The article reiterates, “Public spending and employment didn’t return to their previous peaks until last fall.”

With regard to spending, those statements are in error and the WSJ should run a correction.

Figure 1 shows total state and local government spending from Bureau of Economic Analysis national income Table 3.3 in raw or nominal dollars. Spending grew during the 2000s, hit $2.4 trillion in 2009 and flat-lined for a few years, then began growing again to reach $3.1 trillion by 2019.

The WSJ was likely referring to real or inflation-adjusted spending, but the article does not say that. In Figure 2, I’ve converted spending to 2019 dollars using BEA’s state-local deflator. Real spending spiked in 2009 and then dipped a bit below the pre-recession level. Spending then began growing again and eclipsed the 2009 peak by 2016.

The WSJ article includes a chart showing state-local government employment dipping from a 2009 peak of 19.8 million to a trough of 19.1 million, then rising to 19.9 million earlier this year. The government workforce was thus trimmed 4 percent before expanding again. Why is that a big deal? Why shouldn’t governments tighten their belts during slowdowns just as individuals and businesses do?

Over the longer term, shouldn’t governments be improving their productivity to provide services at lower costs with fewer workers? Shouldn’t computer advances be making, for example, policing more efficient allowing us to shrink police department bureaucracies? The private sector continually strives to do more with less and improves its productivity steadily over time.

News stories in the Wall Street Journal often tilt Keynesian. Higher government spending is presented as helping the economy, while spending restraint harms it. The state budget story quotes a Harvard economist claiming that the economy gains up to $2 for every $1 of state spending—the WSJ calls this a “principle.” But it’s not a principle, it’s a theory. An alternative theory—which the reporter should have noted—is that there is no free lunch, that government spending results in harmful extractions from the private sector and overall reductions in GDP.

The WSJ story quotes Fed chairman Jerome Powell saying, “We have the evidence of the global financial crisis and the years afterward where state and local government layoffs and lack of hiring did weigh on economic growth.”

Powell is being naive. I suspect he is thinking about state-local government output or valued-added portion of GDP (in Table 1.1.5). He’s implying that if that portion isn’t growing, then GDP must fall. But that is one-sided accounting. State-local governments fund their GDP portion by taking resources from the private sector, so if the state-local portion is cut, then more resources stay in the private sector and support private-sector expansion.

(In referring to “spending,” the WSJ story is probably also referring to government output or value added. But that is only a portion of total state-local government spending).

The real issue is whether resources add more value in the government sector or the private sector at the margin. If state-local cuts eliminate low-value activities allowing resources to be used for higher-value private activities, then the cuts that Powell worries about would add to GDP, not reduce it. If state governments hire more computer experts to code expanded subsidy programs, those experts are not available to help private high-tech firms expand.

To sum up, news stories in the WSJ and elsewhere often assume that government spending grows the economy and they quote Keynesian analysts supportive of that theory. Many reporters and analysts seem to naively assume that since government value-added is a component of GDP, then government cuts automatically reduce GDP. But that ignores where governments get their resources—the private sector. Generally, when governments expand, the private sector contracts.

What is the proper size of government to maximize GDP? That is a complex question because we cannot rely on markets to discover the answer, as we can for, say, the proper size of the beer industry in GDP. We don’t know the marginal value of adding dollars for public schools and fighter jets versus leaving the dollars in the private sector to fund car manufacturing and wheat production. But we do know that there is a trade-off—that there is no free lunch as news stories on government spending often assume.

These issues of proper government size are discussed in this study.

Reasons against federal bail-outs of state and local governments are discussed here.

The hospital at which I work offered antibody serology tests to all medical staff last Wednesday. The test detects IgG, the immunoglobulin that appears in the blood serum of people infected with COVID-19 sometime beyond 14 days from the time of infection. The hospital uses the Abbott Labs Architect serology test, which shows 99.6 percent specificity and 100 percent sensitivity, meaning false negatives and false positives are highly unlikely. A positive IgG test means the person tested was previously infected with COVID-19.

In many medical centers, clinical researchers are transfusing seriously ill COVID-19 patients with plasma containing the IgG from previously infected patients, known as “convalescent serum,” with very encouraging results

The following day I received a phone call from the hospital’s medical officer informing me I tested positive. I cannot recall ever having any symptoms: no fever, cough, unusual fatigue, loss of sense of smell or taste, etc.

In my medical practice I interact with numerous patients who may or not be contagious. Our clinicians and staff take all of the recommended precautions (masks, frequent handwashing, disinfecting surfaces, screening patients for fever and/​or symptoms). Based upon the IgG findings, I likely became infected with COVID-19 at least 3 or 4 weeks ago, possibly even a couple of months ago.

When I told my wife about my positive test result she went the following day to a local Labcorp testing center to get the same test. Labcorp used the same Abbott Labs Architect test on her blood. The results came back today as NEGATIVE.

Apparently, this is not an uncommon finding. In fact, a recent peer-reviewed study published in the journal Respiratory Medicine suggests that asymptomatic carriers may not be nearly as contagious as we originally believed. This may help explain why not everyone quarantined on the Diamond Princess and other cruise ships became infected.

On further reflection, this all makes sense intuitively. If a person is asymptomatic then they are not coughing, sneezing, or otherwise engaging in activities that help spread the virus. In fact, from an epidemiological and teleological perspective, asymptomatic patients should probably make very poor vectors to propagate a virus species.

An important caveat: this is an anecdotal report of a single case study. But it does provide food for thought.

33 private schools have announced that they are closing permanently at least in part due to the COVID-19 economic downturn. That is up from 26 on our special Monday, May 18 update.

We have adjusted how we collect enrollment data, using a combination of media reports, Private School Review, and direct contact with schools. 5,690 students attend the schools that are closing, up from 5,217 on Monday. Were all of these students to go to public schools, and had none been part of publicly connected school choice such as voucher programs or scholarship tax-credits, the new cost to the public purse would be roughly $88,000,000 ($15,424 per student multiplied by 5,690).

As always, the list is expected to grow as schools learn more about the impact of the economic downturn on enrollment and income for the coming school year. We will ordinarily post an update on Cato’s blog every Friday, but if the list reaches 100 schools we may transition to an online, searchable format. You can contact CEF director Neal McCluskey if you need more current numbers, if you know of permanent closures not on the list, or if you believe schools have been listed by mistake. We also welcome suggestions for improving the list.

President Trump is reportedly considering a ban on H‑2B temporary workers that a few Republican senators proposed this month. Companies hire H‑2B workers in seasonal jobs outside of traditional farms, such as landscaping, meat packing, and seafood processing. The plan is supposed to “save” jobs for U.S. workers. Yet this justification holds no water: unemployed Americans already reject 100 percent of jobs for which H‑2Bs are hired.

H‑2B regulations require that employers recruit U.S. workers before they can hire any foreign workers. Employers must do the following:

• Not lay off any qualified U.S. worker for 120 days before the job start date;
• Post a notice of the job’s availability for all current U.S. employees;
• Contact all its former U.S. workers in the prior year and solicit their return to the job;
• Have the State Workforce Agency post the job on the state’s electronic job registry for unemployed U.S. workers for about 60 days; and
• Recruit and accept all qualified U.S. workers interested in the position until three weeks prior to the job start date.

In other words, the H‑2B program already has a built-in unemployment adjustment. When unemployment increases, H‑2B approvals automatically fall, and not just because of a government mandate, but also because employers won’t hire anyone for jobs that aren’t in demand right now. There aren’t too many carnivals in operation right now, so that industry will not be requesting workers this year. Figure 1 shows how during the last spike in unemployment, the number of H‑2B requests and approvals fell quite significantly.

But Figure 1 shows that unemployed Americans won’t accept certain H‑2B positions even when unemployment is high. Landscaping, forestry, meat and poultry processing, and certain construction jobs are so physically demanding that Americans would simply prefer unemployment to taking them. In many cases—such as in forestry—the jobs require constant time apart from family and friends. It is not reasonable to expect that temporarily furloughed Americans will ditch inflated unemployment benefits for dangerous and physically taxing jobs away from their families.

These recruitment and acceptance requirements come on top of onerous wage and hour regulations that require employers to pay inflated wages and benefits to both the new hire and all existing similar employees. The H‑2B minimum wage requirements exceeded every state’s minimum wage requirement by an average of 60 percent last year.

During the economic recovery, the goal should be to help businesses get back to the pre-pandemic status quo as quickly as possible. Forcibly keeping jobs open hinders that goal and will delay the recovery, hurting U.S. workers elsewhere in the economy. The government should stop trying to micromanage the labor force and focus on addressing the actual cause of the unemployment crisis: the COVID-19 outbreak.

Last week in this space I noted that many businesses are faced with puzzling dilemmas as they try to reopen with social distancing without running afoul of the Americans with Disabilities Act. One issue I didn’t mention: if they require the wearing of face masks as a condition of entering the premises, they may run into some customers who claim to have non-obvious disabilities which entitle them, as an accommodation under the ADA, not to have to wear a mask. Even if they strongly suspect such a customer of pulling a fast one, it may seem the less risky legal course just to back off, given that the law confers on business no right to demand medical documentation.

One issue I did mention last week is that the ADA creates legal risks should a business screen those who enter the premises for fever using some method such as a contact-free temperature gun. (Amazon announced last month that it was checking more than 100,000 employees a day this way, and checks at store entrances are familiar in some Asian countries.) Two new articles make it clear that this is one of those situations where you can look forward to being sued if you do and sued if you don’t.

Consider first a Slate article arguing against legislation to protect businesses from lawsuits related to COVID-19. The gist of its argument is that we already have a litigation system under which “liability is not likely to present a huge problem” or pose “burdensome difficulties” for businesses that “take reasonable action to keep their customers safe.” Welcome news, and so simple too!

But now that you think of it, how do we identify in hindsight a business whose safety efforts have fallen short of what is reasonable? The Slate article has some ideas on that:

A business that might be considered to have properly reopened can still find itself liable to customers for failure at the level of implementation of whatever safety protocols are required. …. what if a reasonable business would do more, such as taking the temperature of each customer as they enter the business? (Even though that’s not being widely done in the United States right now, it’s an easy precaution to take — and can at least bring down the rate of transmission.)

In sum, then, if someone sues you claiming to have contracted the virus at your business establishment, and their lawyer’s main theory is that you should have been doing front-door temperature checks, Slate is going to nod and say the system is working as it should.

Meanwhile, the New York Times reports that the venerable American Civil Liberties Union has issued a new report that is strenuously critical of temperature-sensing technologies as a screen against contagion in public places, even when done by businesses on private property. (You may wonder how the ACLU came to see pushing back against private business practices as part of its mission — especially when it lets slide so much rights-mangling activity by governments — but that’s another, and sadder, story.)

The ACLU report makes much of various facts that hardly anyone disputes — temperature sensors are far from ideally accurate, some people return “hot” results who do not have COVID-19 while others who do have it are not running a fever, and so forth. The argument for sensors has never been that they are perfect, but that by detecting at least some potentially contagious arrivals, they shift the odds and thus reduce overall spread of the disease in conjunction with de-crowding, mask use, and other measures. The report concludes that temperature sensing should go forward only if public health authorities affirmatively call for its use, and it flags possible theories, from data privacy to disparate racial impact, by which lawyers might trip up unwary businesses that go forward with it absent such a mandate.

In its wisdom, the American legal system does not give you a way to avoid legal exposure, with all its costs and miseries — but at least it gives you some choice as to which set of lawyers you will have to face off against.

The Trump administration reportedly is considering a plan this week to restrict or ban foreign students from working after graduation from U.S. universities. Under Optional Practical Training (OPT), foreign students can study for at least one year after receiving their degrees. Foreign students in Science, Technology, Engineering, or Math fields can extend OPT for another two years.

The plan is supposedly to benefit unemployed Americans—almost none of whom work in the relevant fields—after states reopen for business. The program is the main on-ramp for American companies to recruit and retain foreign talent in the United States. Gutting it would harm U.S. workers by undermining the very companies that would employ them.

What is the OPT?

The U.S. government has allowed foreign students to “engage in some version of OPT during their studies or on a temporary basis after the completion of their studies” since 1947. The core component of OPT is that it is “optional” or recommended rather than required by the school to graduate. The original regulation that created OPT allowed foreign student to seek jobs “where employment for practical training is required or recommended by the school.”

While it did not explicitly discuss the ability to work after graduation, immigration or other court decisions as well as subsequent regulations make it clear that this was also permitted and happening. In 1991, the government split OPT into pre-completion and post-completion authorization and permitted only a single year of post-completion OPT “directly related to his or her area of studies.”

What is STEM OPT?

In 2008, the Department of Homeland Security (DHS) permitted extensions of OPT for Science, Technology, Engineering, or Math (STEM) graduates of U.S. universities for up to 17 months because the “ability of U.S. high-tech employers to retain skilled technical workers, rather than losing such workers to foreign business, is an important economic interest for the United States.” In 2016, DHS extended the period to 24 months, allowing for a 3‑year period of total post-graduation employment. The 2016 rule requires employers hiring a worker on a STEM OPT extension to attest that the worker is not replacing a U.S. worker and will receive similar pay to the employer’s similarly situated U.S. workers. DHS can conduct an on-site audit to review employer records to confirm the accuracy of these attestations.

How many foreign students apply for OPT?

In fiscal year 2019, U.S. Citizenship and Immigration Services (USCIS) approved 223,284 requests for Employment Authorization Documents (EADs) for all types of OPT—the highest number ever. Nearly all approvals were for post-graduate OPT—either regular OPT (152,029) or STEM (69,353). Figure 1 shows that the numbers of approved EADs has nearly tripled from less than 80,000 in 2003 to more than 223,000 in 2019—nearly all of this growth occurred during the Obama administration from FY 2009 to partway through FY 2017. STEM OPT accounts for almost half the growth.

How many OPT recipients are employed?

Not all OPT recipients find jobs, but a much greater share are finding them than in the recent past. Unfortunately, an exact comparison between the share with and without jobs is not available, but Figure 2 compares OPT approvals to OPT participants with jobs. In 2007, there were more than 3 approvals for each participant with a job. By 2018, the ratio was nearly 1:1. Overall, 200,162 OPT participants had jobs in 2018.

What countries do OPT participants come from?

In 2018, two thirds of OPT participants came from India and China, according to the Institute of International Education (IIE). IIE—with the sponsorship of the U.S. Department of State—conducts a survey of international students including those with OPT. It shows that an astounding 42 percent of Indian international students are currently enrolled in OPT (Figure 3). That share is well over double the rest of the world. The difference can be partly attributed to the difficulties that Indians have obtaining employment‐​based green cards compared to the rest of the world. They end up using OPT to maintain status in the United States, while other nationalities can simply adjust to permanent residence.

IIE doesn’t report data specifically on STEM OPT, but Immigration and Customs Enforcement data show that again, India represents 59 percent of all STEM OPT participants, and 40 percent of Indian STEM students are involved in OPT—by far the highest share of any nationality with more than 2 participants. It also shows that the United States risks losing nearly half a million STEM students if the government rescinded OPT.

What companies employ OPT participants?

Table 2 displays the top 100 companies for OPT hires in 2018 and 2017 as well as the entire period from 2003 to 2018. The largest OPT employer with 2,911 OPT employees was Amazon, which makes most of its hires under the STEM OPT program. Other technology companies—Integra, Intel, Google, and Microsoft—fill out the top 5 with more than 1,000 employees each. The Top 100 companies make 18 percent of OPT hires. Under the H‑1B program, the Top 100 employers make 35 percent of H‑1B hires. This disparity is compatible with previous research concluding that OPT is more common among startups than the more expensive, complex, and bureaucratic H‑1B program.

What industries do OPT participants work in?

While exact statistics for the entire OPT population is unavailable, the Department of Labor reports that 30 percent of student visa holders with college degrees sponsored by employers for permanent residence (mainly OPT participants) in FY 2019 were offered jobs in professional, scientific, or technical services, such as custom computer programming, computer systems design, and research and development into biotechnology. Another 24 percent were employed in the manufacturing sector, mainly semiconductors and other electronic components (Table 3).

What occupations do OPT participants work in?

Again, exact statistics for the entire OPT population is unavailable, but the Department of Labor reports that 46 percent of student visa holders with a college degree or above sponsored by employers for permanent residence were offered computer and math jobs (Table 4), mainly software developers. Another 20 percent were in architecture and engineering (mainly non-computer electronics engineers) followed by almost 12 percent in business and finance with market research analysts and accountants being the most common.

How has COVID-19 affected OPT occupations?

As Stuart Anderson first noticed, the computer jobs that are the most common jobs among OPT students have remained entirely unscathed by the recent economic downturn. The unemployment rate for computer had actually declined since January (Figure 4). Anderson comments that this positive employment situation “makes citing unemployment in these occupations as a reason for new restrictions on H‑1B visas and international students on OPT more dubious.” The downward trend continued in May.

What are the wages of OPT workers?

Again, exact figures for the entire OPT population are not available, but the Department of Labor reports that college graduates in student visa status who were sponsored by employers for permanent residence averaged a wage offer of $86,908 in FY 2019. That was significantly higher than the average wage for all U.S. workers that year (Figure 5). These wages imply that if OPT were implemented, it would contract the economy by more than $17.4 billion annually.

What does research say about OPT?

Business Roundtable and the Interindustry Forecasting Project at the University of Maryland found that “scaling back OPT would cause the unemployment rate to rise 0.15 percentage points by 2028.” In 2019, economist Madeline Zavodny found that “A larger number of foreign students approved for OPT, relative to the number of U.S. workers, is associated with a lower unemployment rate among those U.S. workers.” In March 2019, Jeremy Neufeld used OPT data to conclude that “higher levels of OPT participants in a region lead to increased innovation in that region, as measured by the number of patents, higher average earnings among the college educated. In addition, it finds no evidence of adverse effects on average earnings, unemployment, or labor force participation.”

Stuart Anderson has also found that 39 percent of Nobel Prizes in chemistry, medicine, and physics since 2000 have been immigrants to the United States. International students dominate the STEM majors. NFAP has also found that in 2015, more than three quarters of the graduate students in electrical engineering, petroleum engineering, computer science, and industrial engineering were international students. A majority of the graduate students in pharmaceutical sciences and chemical engineering—two majors of particular interest today—were also foreign-born. In 2018, NFAP found that nearly a quarter of American startups valued at $1 billion or more had a founder who entered the Untied States as an international student, which had created 1,200 jobs per company. Michelle Zatlyn, co-founder of Cloudflare, and Ashifi Gogo, founder of Sproxil, both used OPT to launch their businesses.

In 2008, the Department of Homeland Security (DHS) when it launched STEM OPT concluded that the expansion was a national security necessity. “With their large and growing populations of STEM-graduate scientists, high-tech industries in [Russia, China, and India] and others in the OECD now compete much more effectively against the U.S. high technology industry.” It notes that China and India had 31 percent of global R&D staff up from 3.2 percent in 1990. It would be strange for the department to reverse itself completely a decade later, even as the underlying trends continue.

-Post updated 6/17/2020 to provide more details about the OPT program.

For Californians who have long opposed building more housing in their communities, COVID-19 has provided a new and seemingly convincing argument: density is dangerous. Some have even suggested that the pandemic vindicates proponents of “single-family sprawl” or justifies a moratorium on new housing legislation, which are views these observers would likely hold regardless of the current crisis.

At first glance, the argument against density seems correct, but evidence suggests there are other factors at play. A virus that transmits person to person is much more likely to spread in areas where large numbers of people congregate. That’s one reason why urban centers like New York City, Chicago, Detroit, and Los Angeles have been hit hard. And, it is the logic behind social distancing. But, as with so many anti-housing arguments, there is less here than meets the eye.

Simply look at those Asian countries that have done a far better job of containing the virus than we have, despite extreme density. For example, Seoul, South Korea is about 50 percent denser than NYC but has had less than one percent as many cases per capita. Likewise, extremely dense Singapore, Hong Kong, and Taipei have held their infection rates to much lower levels than cities in this country. Undoubtedly, previous experience with infectious diseases like SARS improved not only governments’ responses to the current crisis but also individuals’ responses, vastly outweighing any effect density may have had.

Turning to Europe, we also find the link between density and infections to be weaker than expected. Berlin, for instance, is about four times as dense as France’s Ile-de-France region (which includes Paris) and only slightly less dense than London but has only about half as many COVID-19 cases as either, on a per capita basis. Density clearly wasn’t the central determinant here: other factors had a much bigger impact.

Even looking at New York City and its surrounding environs shows a muddled picture, with less dense Westchester and Suffolk counties showing higher infection rates than extremely dense Manhattan. And, in California, San Francisco has a lower infection rate than Los Angeles, despite being about six times denser. Perhaps even more surprisingly, San Francisco’s infection rate is about the same as Kansas’ (2.24 cases per thousand San Franciscans versus 2.54 cases per thousand Kansans).

In addition, we should remember that California’s lack of affordable housing creates its own kind of density, one that is even more conducive to the virus’s spread. There is a big difference between people in their own apartments in a dense multi-family structure and several roommates jammed together in a tiny space because it is all that is available or affordable.

A study of COVID-19 cases in New York showed that crowding (generally defined as more than one resident per bedroom) contributed to higher rates of COVID-19, while density, in general, did not. The data from California also indicates this: San Diego County, with about 7% of households living in crowded homes, has a lower rate of coronavirus infections than either Los Angeles or San Francisco counties, which have higher rates of crowding. Conversely, Los Angeles County, with a higher rate of crowding (about 11%) has the highest infection rate of the three counties. San Francisco’s crowding rate is only slightly higher than San Diego’s. at 7.1%, and this helps explain its similarly-low infection rate.

California’s lack of affordable housing also contributes to the state’s growing homelessness crisis. Yet, the homeless are both extremely vulnerable to infection and a potential source of spread to the population at large. In addition to makeshift efforts to get the homeless off the streets by housing them in hotels or other temporary fixes, California would be well-served by ensuring a bigger supply of affordable housing.

Moreover, the economic toll from the pandemic and “shelter in place” orders will fall most heavily on California’s poorest citizens, many of whom are already one missed paycheck away from homelessness. Rent and eviction freezes can create more problems than they solve and can’t last forever. Failing to build more housing will ultimately make the pandemic’s toll worse.

In turns out that the evidence of the impact of California’s excessive housing regulations is far stronger and more convincing than arguments about density and coronavirus. We know that strict zoning and density regulations prevent the construction of affordable housing in America’s urban areas. We also know that many of these laws are part of America’s history of institutional racism and segregation. The COVID-19 crisis does not change these facts.

Perceptions and expectations, whether they are accurate or not, have a way of shaping future behavior and policymaking. Housing affordability will remain a problem for America’s cities long after the current crisis subsides. We can’t afford to let misinterpretations of the pandemic’s causes get in the way of long-term efforts to relax the outdated restrictions that prevent affordable housing in so many of California’s cities.