On Saturday, the president vetoed a decision of the U.S. International Trade Commission for the first time in over 25 years. As a result, the United States will not be imposing an import ban on older iPhones despite the ITC’s finding that Apple infringed certain patents owned by Samsung. This action by the Obama administration is undoubtedly a good development, not just because you will still be able to get a free iPhone 4 when signing a 2‑year contract, but because the veto simultaneously disciplines and discredits the ITC’s disruptive role in the U.S. patent system. The president’s intervention corrects a bad decision by the ITC. The patents that Samsung accused Apple of infringing in the ITC investigation are standard technology required to run phones on a 3G wireless network. Owners of standard-essential patents must agree to license the technology on fair, reasonable, and non-discriminatory (FRAND) terms to anyone who asks. Samsung claimed at the ITC that Apple refused to pay any royalties at all, and Apple claimed that Samsung demanded an unreasonable royalty. The ITC sided with Samsung. The ITC’s ruling has been controversial not because Samsung won the case, but because the ITC’s remedy—total exclusion of the infringing products from the U.S. market—is excessive. If Samsung had brought its case in federal district court instead of the ITC, the judge would most likely have ordered Apple to pay the royalties it owed Samsung. An injunction against future sales would not be granted, because Samsung never had the right to keep Apple from using the technology in the first place, only to collect royalties. As I wrote last month in anticipation of a potential presidential veto, this action by the president has a number of policy implications that go beyond the Apple–Samsung patent dispute. The Obama administration, leaders in Congress, and much of the tech industry have been converging lately on the idea that remedies for patent infringement at the ITC are too strict. The ITC should not be able to ban future sales in a situation where a district court would refuse to do the same thing. As it stands now, the ITC’s excessive remedies allow patent holders to wield more power than they should and exacerbate the ongoing struggle against patent trolls. Korean press coverage of the issue has implied that the administration’s veto of Samsung’s patent victory against Apple amounts to “flagrant protectionism.” In a separate case, the ITC is set to decide later this week whether Samsung infringed patents owned by Apple. If the administration allows an import ban on Samsung products despite intervening to help Apple, many in Korea will surely cry foul. A trade conflict would be a fitting consequence of mixing patent litigation with trade policy. It doesn’t make sense for President Obama to have the power to intervene in a patent case simply because he doesn’t approve of the outcome. Section 337 of the Tariff Act of 1930, the law that enables the ITC to litigate patents, was designed as a protectionist trade remedy. The president’s veto power is meant to ensure that the ITC’s decisions don’t impede U.S. foreign or economic policy. If the ITC were a legitimate patent court, its decision would not be subject to executive override. The ITC is simply the wrong place to litigate patents, standard-essential or otherwise.

While the evils of civil forfeiture are by no means new — Cato published a book about these laws way back in 1995, and has published much else since, as has my Overlawyered site — it isn’t often that you see a major media treatment as hard-hitting and effective as Sarah Stillman’s new article in the New Yorker. A few highlights:

* Stillman takes a close look at the scandal in Tenaha, Shelby County, Texas, one of many communities where officials have extracted large sums from motorists passing through in rented cars, sometimes threatening to seize the hapless visitors’ children, or actually doing so. Dashboard cameras that might record such encounters often seem to be non-working or obscured. “In some Texas counties, nearly forty per cent of police budgets comes from forfeiture.”

* A Philadelphia couple faced forfeiture of their row house because their son sold $20 worth of marijuana to an informant on their front porch.

* By the time the federal Department of Justice closed down the notorious Bal Harbour, Florida forfeiture program and ordered it to return millions in seized assets, “much of it had already been spent: on luxury-car rentals and first-class plane tickets to pursue stings in New York, New Jersey, California, and elsewhere; on a hundred-thousand-dollar police boat; and on a twenty-one-thousand-dollar drug-prevention beach party.”

* A Virginia state trooper on Interstate 95 seized $28,500 donated by parishioners of a Pentecostal congregation to buy a parcel of land for their church; no contraband was found, but Virginia participates actively in a federal “Equitable Sharing” program that enables local law enforcement to pocket a large share of seized money with few restrictions on how they can use it.

* Federal “fusion” counterterrorism centers can wind up assisting forfeiture cases with no terrorism angle, as with the seizure of the home, possessions, and wife’s jewelry of an Arizona store owner who’d entrusted one of his shops to a dishonest brother.

* In a 2008 incident, 40-odd men “in black commando gear” stormed a monthly social event at Detroit’s Contemporary Art Institute, abusing the guests and systematically seizing their cars. Guess what: the robbers were themselves law enforcement, raiding the venue for offering late-night liquor and dancing without a proper license, which made it, in the local terminology, a “blind pig.” (A blind pig raid touched off the 1967 Detroit riots.)

A quote from author Stillman:

During my time in East Texas, a police officer told me that if I ventured beyond Shelby County I’d learn that Tenaha was far from an outlier in the region. When I looked through courthouse records and talked with local interdiction officers in nearby counties, I saw what he meant. In Hunt County, Texas, I found officers scoring personal bonuses of up to twenty-six thousand dollars a year, straight from the forfeiture fund. In Titus County, forfeiture pays the assistant district attorney’s entire salary. Farther south, in Johnson County, I came upon a sheriff’s office that had confiscated an out-of-state driver’s cash, in the absence of contraband, in exchange for a handwritten receipt that gave the traveler no information about who had just taken his money, why, or how he might get it back.

Don’t miss this article.

You wouldn’t know that the United States was the globe’s sole superpower from the administration decision to close a score of embassies and consulates in response to possible terrorist attacks. American facilities already stand apart because they usually are fortresses, disrupting entire neighborhoods. Now Washington says it is unable to defend what are among many cities’ most secure buildings.

One can understand shuttering one diplomatic post in response to a specific threat and using the time to enhance security at the location—or perhaps to move operations elsewhere. However, it seems unlikely that the facilities in Amman, Muscat, Riyadh, Tripoli, and elsewhere will be markedly safer next Monday when they are slated to reopen. And if al-Qaeda members really are prepared to strike, they aren’t likely to give up and go home over the weekend.

In an odd way the administration has allowed the terrorists to win, as the saying goes. Reports of threats from a movement said to be on the run caused the world’s dominant military power to cower in fear. Caution is a virtue, but announcing to everyone on earth that Washington is unable to defend its global presence is a sign of weakness.

More fundamentally, the frenetic closures demonstrate the underlying failure of U.S. anti-terrorism policy. Washington has done well damaging al-Qaeda and rolling up largely incompetent terrorist wannabes in America. But neither the Bush nor the Obama administrations have managed to take the target sign off of Americans.

Nothing justifies terrorist attacks, but they largely reflect anger directed at U.S. foreign policy. America’s Mideast involvement going back to the ouster of elected Iranian Prime Minister Mohammad Mossadegh in 1953 has openly sacrificed the liberty of Arab peoples to multiple U.S. government objectives. No wonder America often is seen as an enemy.

President Barack Obama’s blundering in Egypt demonstrates that nothing has changed. The administration backed dictator Hosni Mubarak against his people, courted the new Islamist leaders as they moved in an authoritarian and sectarian direction, and then endorsed the coup which has brought back much of the old authoritarian Mubarak elite. Thus, Washington did much to earn the hatred of every Egyptian. If the military pushes the Muslim Brotherhood into violent opposition, Americans are likely to end up on that group’s target list.

The U.S. needs a two-track approach to terrorism. Kill or incapacitate those seeking to harm Americans. Stop pursuing policies which cause more people to want to harm Americans. Unfortunately, shuttering diplomatic facilities around the world advances neither of these ends.

Last week, the press was filled with reportage about Tehran throwing a lifeline – actually a credit line of $3.6 billion – to the Syrian regime.

The announcement of this Iranian lifeline should have changed the economic expectations of Syrians in the throes of what has morphed into a bloody civil war. Indeed, if it materializes, the $3.6 billion credit line should allow Damascus to conserve its dwindling supply of foreign exchange. This development should have thrown a positive expectation shock into the market for the Syrian pound.

So, did economic expectations receive a positive boost from the announcement of Tehran’s lifeline? Let’s go back to May 27th. That’s when the tentative credit line agreement was announced. A mini event study shows that the initial agreement had no material impact on expectations, as objectively measured by the Syrian pound/U.S. dollar black-market exchange rate. Indeed, the SYP/USD exchange rate was unmoved by the tentative agreement (see the accompanying table).

The next event in this credit line story occurred on July 30th, when it was announced that the May agreement had been finalized and signed on July 29th. Again, expectations and the SYP/USD exchange rate remained unmoved (see the accompanying table):

What, then, can we say about the Tehran-Damascus deal? Well, objective data – namely market prices – tell us that the widely-reported event had no material effect on Syrians’ economic expectations. Accordingly, the implied inflation rate for Syria remained unmoved. Using these objective black-market exchange-rate data, I estimate that Syria is currently experiencing an annual inflation rate of 190.7%.

In short, Syrians viewed the deal as irrelevant. They think that either Iranians won’t deliver on the promised credit line, or that if they do, it will not change the situation on the ground.

I often tell my students to be mindful of the late Prof. Armen Alchian’s “95% rule”: Ninety-five percent of what you read that passes for finance and economics is either wrong or irrelevant. For the time being, it appears that Syria’s Iranian credit line falls under the latter category.

I have established a page to track current black-market exchange-rate and implied inflation data for the Syrian pound, as well as for troubled currencies in Iran, Argentina, North Korea, and Venezuela. For more, see: The Troubled Currencies Project.

Representative Goodlatte (R‑VA) is working toward a compromise on legalization and a path to citizenship for unauthorized immigrants. This issue is the current bottleneck in the immigration reform debate. Many Republican, Goodlatte included, are skeptical of a path to citizenship for current unauthorized immigrants. Many Democrats, however, will not support immigration reform unless some unauthorized immigrants are allowed to become citizens eventually. Could this impasse make immigration reform impossible this year?

Goodlatte’s proposal, as far as we know, would be to grant unauthorized immigrants provisional legal status. They would then be legally allowed to work and live here but only eligible for a green card or citizenship if they use the existing immigration system. This proposal would shrink the number of unauthorized immigration who could eventually earn a green card or gain citizenship.

I suggest a third proposal: create two paths toward legal status.

The first path should lead to permanent legal status on a work permit that cannot be used to earn a green card unless the person marries an American or serves in the military (other categories should be considered too). This path could be relatively easy and cheap, preferably a few hundred dollars to pay for the paperwork processing fee as well as criminal, national security, and health checks.

The second path should be toward a green card and eventual citizenship. It should probably be similar to the Senate plan, take many years, and cost more money. This should be the more difficult legalization process but it should not be any more difficult than what is included in the Senate bill.

Creating two paths will allow the unauthorized immigrants themselves to choose the type of legal status they wish to have in the United States. This also addresses some of the concerns of immigration reform skeptics while actually allowing a path to citizenship that, theoretically, most unauthorized immigrants could follow. Furthermore, this plan is probably more politically feasible than a one sized fits all path to legal status. The sooner a reform is passes, the sooner the deportations can stop.

Currently every interest group involved in immigration reform is trying to choose which legal status unauthorized immigrants should have. The unauthorized immigrant should instead be able to choose for themselves. Ever more complex legalization and path to citizenship plans of the type Goodlatte will propose will not accommodate most of the 11–12 million unauthorized immigrants here. Several paths toward legal status should be created and the unauthorized immigrants should be allowed to choose for themselves.

U.S. policy in Egypt is a disaster. Washington long backed authoritarian rule. Now military rule has supplanted short-lived democracy. Washington should disengage and cut off all foreign “aid.”

Instead, the Obama administration has embraced putative dictatorship. According to Secretary of State John Kerry, “the military did not take over to the best of our judgment so far.”

The administration could have acknowledged that Gen. Abdul-Fattah al-Sisi rules by force and then argued that the coup was justified. But the case was weak.

President Mohamed Morsi misplayed his hand and the Muslim Brotherhood deserves suspicion. But the first elected leader in Egypt’s 5000-year history was discrediting himself and political Islam. Nor could he have become a dictator without the military’s support.

The administration refuses to call the coup a coup to avoid triggering the law which requires cutting off aid. President Barack Obama’s policy towards Egypt is one of his greatest failures.

Washington backed the dictator Mubarak as Egyptians were rallying against him. The administration then accepted President Morsi’s rise, unsuccessfully urging him to rule in an inclusive manner. Several administration officials urged the Egyptian military not to stage a coup. Subsequently Gen. Sisi ignored American advice not to persecute the Brotherhood. Yet today virtually every Egyptian blames America. 

Still, leading Republicans have endorsed the Obama policy. The Senate rejected an amendment from Sen. Rand Paul (R‑KY) to cut off America’s $1.55 billion in annual foreign “aid.”

For instance, Florida’s Sen. Marco Rubio echoed the clueless Secretary Kerry, warning that if you cut off aid “you lose leverage.” However, as I ask in my new article on American Spectator online:

Where, one wonders, is the evidence of this vaunted leverage—after nearly $75 billion in “assistance” over the years? When Presidents Sadat and Mubarak jailed opponents, persecuted Coptic Christians, enriched supporters, and despoiled the economy? When President Morsi claimed extraordinary power and refused to conciliate his opponents? When Gen. Sisi staged the coup? When the general ignored the administration’s advice to govern in an inclusive fashion? When he embraced the corrupt and authoritarian Mubarak elite? One unnamed official reluctantly admitted to the New York Times: “what we say might not be part of their calculus.”

If the Obama administration is willing to torture language and ignore the law to keep shoveling money into Cairo, it is evident that nothing, except presumably war with Israel, would cause Washington to close the spigot. Since Gen. Sisi and his fellow officers can count on America’s money—as well as a promised $12 billion from Saudi Arabia and other Persian Gulf states—they have no reason to pay the slightest attention to Secretary Kerry.

Sen. Lindsey Graham (R‑SC) worried about the impact on Israel. However, aid is not why Cairo has kept the peace with Israel for 40 years. Syria has been at peace with Israel for the same period of time and received no money. Both states know they would lose a war with Israel, which would be particularly bad news for Egypt’s generals. 

Unfortunately, the U.S. faces inevitable blowback. Backing military rule risks generating the same sort of long-term harm that came from Washington’s support for the 1953 coup against Iran’s democratically elected prime minister, Mohammad Mossadegh. 

Washington should avoid being linked to the Brotherhood or the military. Disengage and let Egyptians decide their own future. 

The NY Times has a long article about the U.S. medical system, in which it notes how much cheaper things are abroad. I’ll leave it to my colleague Michael Cannon and others to comment on the accuracy of the piece, if they see anything worth commenting on. I just want to weigh in on a trade policy aspect. Economist Dean Baker responded to the article with a post that starts off as follows:

The NYT has an article today on the enormous savings available to people who had major surgeries performed in Europe rather than the United States. The piece reports that the cost of hip replacement or knee replacement surgery in the United States are more than five times higher than they are in comparable quality facilities in Europe. (The gap would be even larger with facilities in Thailand and India.)

This shows the enormous potential gains from increased medical trade. In effect, our hospitals, doctors, and medical equipment makers benefit from tariffs on the order of 500 percent or more. If the Obama administration really is interesting in promoting growth through trade it would be difficult to imagine a sector with larger potential gains than trade in medical care. The agreements would focus on setting clear liability rules, accreditation systems, and removing obstacles for insurers and government programs that prevent them taking advantage of lower cost medical services in other countries.

I think he is absolutely right that there are enormous gains to be had here. I’m not sure about the recommendations he makes in the last sentence — I would want to talk to a health care expert about specific barriers before endorsing his proposals. But I have no doubt that making it easier to trade medical services across borders would be of great benefit to consumers. If there are barriers getting in the way of trade, let’s get them out of the way.

But here’s where things get interesting. Baker seems to think he has caught free trade advocates in some hypocrisy. The post is entitled “Will Medical Trade Be Included in the EU Trade Deal and the TPP? If Not, Why Not?,” and he says:

If the trade deals do not include major openings on medical trade then it would be a clear example of why these deals are in fact about selective protectionism rather than free trade. Past trade deals have been quite explicitly focused on putting U.S. manufacturing workers in direct competition with the low paid manufacturing workers in developing countries.

Anyone who believes in free trade would want U.S. doctors and other professionals subjected to the same sort of competition. Otherwise, they really only want to use trade to lower the wages of less educated workers to benefit the the wealthy. (Low wages means cheap help.) It is dishonest to call that policy “free trade.” 

He then tweeted: “For some reason “free traders” don’t understand trade in medical services: Gains from eliminating protections enormous”.

Thus, his suggestion seems to be that there are some free traders out there who are arguing for free trade only in the manufacturing sector, not in professional service sectors, and as a result the two big trade talks going on right now might exclude these services.

Let me respond by noting that I have never met any free traders who take the view that professional services, or any other sectors (except perhaps defense), should be excluded. Of course, if they did, they wouldn’t really be free traders. Free trade doesn’t make a distinction between sectors. So, to Dean Baker, let me just say that I, a confessed free trader, whole-heartedly endorse the idea of free trade in medical services! And I’m pretty sure all other free traders feel the same way.

That’s not to say there aren’t people (i.e., special interest groups) out there who want protection for the medical service sector, just like there are people who want protection for the manufacturing sector. No doubt U.S. doctors would love to impose a 25% tariff on foreign medical services, just like the tariff we impose on imports of SUVs. But that’s just special interests doing what they always do, in all policy areas. It’s our job to fight their efforts, and hopefully Baker will join in. Baker mentions the Europe and Pacific trade talks underway right now. With some good arguments and a bit of luck, those talks will go a long way towards getting rid of any protectionism in these and other sectors.