As I wrote a couple of weeks ago, back-to-school also means the release of lots of education polling, and Tuesday brought us the yearly Education Next poll, which is one of my favorites. (Of course, I love all you crazy polls!) The Education Next folks do a lot of interesting experimentation with their polls, especially when it comes to funding, and they keep nice longitudinal data. I don’t love every part of the survey—looking at you, Common Core question—but overall I think it is well done and highly informative.

As usual, you should read the whole thing, and I’ll just hit some highlights.

More, more, more!

If there is one repeated theme to the poll, it’s that people generally want more of whatever is being discussed: more spending, higher teacher pay, more school choice, more accountability. People also tend to like their public schools and state colleges, and seem to want more higher ed.

Not especially well informed

While the members of the public express opinions on many education issues, they aren’t always especially knowledgeable, as you would expect of people with regular jobs and lives and not a ton of time to delve deeply into public policy issues, including education. They tend to greatly underestimate how much we spend on public schooling (by about 47 percent), public school teacher salaries (by about 30 percent), and they know either very little or the wrong things about charter schools (no, they cannot charge tuition or hold religious services).

School Choice

As you can see below, support for all sorts of choice—charters, vouchers, scholarship tax credits—rose this year, and scholarship tax credits remain the most popular option. This is probably because a lot of people like school choice and even more like tax credits. Charters have also rebounded after taking a sizeable dive between 2016 and 2017.

Common Core

As we’ve seen before, a significant majority of the public likes the idea of common standards across states that would “be used to hold public schools accountable for their performance.” How much this question reflects support for common standards, accountability, or both is unclear. What is clear is if you attach the name of specific curriculum standards to it—the Common Core—support drops, though it has been inching up as the battle over the Core, and the Core itself, fades in the public memory.

Free College

“Free” college is a bad idea for numerous reasons we have discussed many times—and apparently a lot of economists agree—but there is no question that the idea, at least in the abstract, is popular. 69 percent of the public favors it for two-year schools, and 60 percent for four-year institutions. Troubling, but who doesn’t like a free lunch?

Again, lot’s more to see here, so check it all out.

Yesterday the Business Roundtable released a “Statement on the Purpose of a Corporation” signed by 180 CEOs of major companies. It proclaims “a fundamental commitment to all of our stakeholders,” including customers, employees, suppliers, communities, and, finally, shareholders. It is being widely interpreted as a victory for anti-business campaigners and “corporate social responsibility” advocates, and perhaps also as a repudiation of the shareholder-primacy norm memorably defended (though in no way originated) by free-market economist Milton Friedman.

In reality, as I told Kevin Dugan of the New York Post, the text of the statement in itself signifies little beyond happy talk:

“It would be one thing if they said we’re endorsing having the Delaware courts change this particular legal doctrine, or we’re endorsing a bill in Congress,” said Walter Olson, a senior fellow at the libertarian Cato Institute. “It’s not really clear whether they’re intending to replace any part of the system or do the same things are before, but … smile more.”

Corporate law is a system of rights and corresponding duties that you can take to court. Of the multiple problems with proclaiming a new duty to a broad assortment of stakeholders, the main one, as UCLA lawprof Stephen Bainbridge has put it in a series of on-point articles, is that “managers who are responsible for everyone are responsible to no one.” A vague balancing test as to corporate officers’ and directors’ duties can leave them with more discretion than ever — if they want to close a high-cost plant, for example, they might regretfully decide the interests of customers, shareholders, and sales employees outweigh those of plant employees and communities, while if they choose to do the opposite they’ll have room for that too. Note that the BRT does not speak in terms of a duty that anyone in particular can sue to enforce. For that matter, familiar existing shareholder-primacy norms already allow plenty of leeway for decision-making that takes into account corporate reputation and image, political risk, and so forth — which is one reason the signatories to the BRT statement already engage in plenty of social-responsibility initiatives, some to be applauded and others less so.

Where a vague stakeholder-loyalty norm could really make a difference is in eroding the legal duty of loyalty currently owed to the investors who put up the capital. The chief battlefield is what is called the market for corporate control, as when a board decides whether to accept or spurn a lucrative takeover offer. The law of business organization has for centuries grappled with the “agency problem”: insiders can be strongly tempted to take actions that benefit themselves (by keeping them ensconced in managerial or controlling-owner positions, for example) even if an ownership change would benefit shareholders as a group as well as economic efficiency.

No wonder the Council of Institutional Investors — representing the pension funds, insurance pools, mutual-fund-owning retirees, and others whose interests depend on the duty of loyalty — doesn’t think much of the BRT statement.

The New York Times Magazine recently released its “1619 Project,” an initiative marking the 400th anniversary of the first African slaves arriving in North America. The project is ambitious, aiming to “reframe the country’s history, understanding 1619 as our true founding.” A collection of pundits have framed this project as an attempt to “delegitimize” the United States. Such commentary provides an opportunity to consider the state of American race relations and the role of slavery in American history. 

Whether or not the foundation of the United States was legitimate is an interesting political, moral, and historical question. You can spend a career considering questions about when political violence is justified, what fair representation in a democracy looks like, how to measure and secure the consent of the governed, and what political system best secures natural rights. But these aren’t the kinds of questions many 1619 Project critics have in mind when they accuse it of “delegimitizing” the United States. They’re concerned that highlighting America’s brutal history of slavery and its role in forming the United States undermines the American project; an experiment in self-government. 

The relationship between black people and the white institutions that oppressed them is one of the most consequential features of American history. The most prominent of America’s contradictions is that its Founding documents were written by white men who owned black human beings as farm equipment, yet they expressed a commitment to liberty. 

Thomas Jefferson, the man who believed that it was “self-evident” that all men are created equal owned slaves. James Madison, the “Father of the Constitution” and author of many of The Federalist Papers, also owned slaves and was skeptical of free African Americans being a part of the American polity. After leaving the White House Madison served as the president of the American Colonization Society, which urged freed black people to move to Africa. 

During the Revolutionary War, the British frigate HMS Savage sailed up the Potomac River, its troops burning houses in Maryland in view of Mt. Vernon, George Washington’s Virginia estate. The Royal Governor of Virginia John Murray had earlier issued a proclamation, offering freedom to slaves who fought for Britain. A wartime necessity rather an endorsement of full-throated emancipation to be sure, but it’s nonetheless telling that seventeen of Washington’s slaves fled Mt. Vernon and boarded HMS Savage. To a Virginia slave, housing in a British warship was preferable to the slave quarters belonging to the man who would become the first president of the United States. 

Bewilderment at slave owners proclaiming a devotion to liberty is hardly reserved to 21st century. In a 1775 essay on the American colonies the English writer Samuel Johnson asked not unreasonably, “how is it that we hear the loudest yelps for liberty among the drivers of negroes?” The Founding Father John Adams never owned slaves and opposed slavery, though favored gradual erosion of the institution rather than outright and immediate abolition. His wife Abigail understood the contradiction of the American Founding:

I have sometimes been ready to think that the passion for Liberty cannot be Equally Strong in the Breasts of those who have been accustomed to deprive their fellow Creatures of theirs. Of this I am certain that it is not founded upon that generous and Christian principal of doing to others as we would that others should do unto us.…

That the Founding generation included moral hypocrites is hardly surprising. Every collection of human beings has included flawed people. Anyone scouring history books in search of moral perfection will be left disappointed. 

It’s not clear that the moral hypocrisy of some of America’s founders delegitimizes the United States per se. At worst such hypocrisy makes the founding of the United States far from perfect. Even those who think that it’s a stretch to say that the United States was founded “on” racism can hardly deny that it was founded with racist institutions explicitly protected. The evils of slavery don’t in and of themselves negate the colonists’ complaints about a lack of representation in Parliament or the fact that British officials had subjected colonists to needless, intrusive searches and other abuses against their civil rights. But they shouldn’t be overlooked. 

What is clear is that the United States has yet to fully come to terms with its history of racial violence and oppression. In large part this is because we’re accustomed to measuring our race relations progress through the lenses of military, political, and legislative victories. 

Hundreds of thousands of Americans died in the wake of an illegitimate attempt at secession predicated on the preservation of slavery. The Civil War amendments to the Constitution certainly improved the document, but they hardly erased a culture of violence and racism that made them a necessity. 

The North won the Civil War, the South won Reconstruction. The explicit exemption of blacks from civil rights and political participation in the South as well as the emergence of a racist domestic terrorist organization are all evidence that wars and Constitutional amendments hardly erase cultures that took centuries to develop. A century after Robert E. Lee surrendered to General Ulysses S. Grant at Appomattox Court House, racists were murdering civil rights activists in the Jim Crow South. Thousands of black people had been lynched during those hundred years. Others were subjected to medical experiments. Segregation, bans on interracial marriage, and many other indignities were imposed by white-majority legislatures. 

We can and should applaud the progress that the U.S. has made since its founding while accepting that there is much work to be done. Such work requires an honest look at history that treats the Founding Fathers and America’s founding documents as men and historical writings, not prophets and religious texts. 

Although decades have passed since the civil rights movement American institutions continue to reflect America’s racist history. Law enforcement and criminal justice are perhaps the most prominent and obvious examples, but we shouldn’t ignore the impact racism has had on housing policy, education, and economic regulations. This history of course doesn’t imply that everyone who works in law enforcement, housing, and education or advocates for minimum wage increases is a racist, but it should be considered when discussing the ongoing impact of race relations on American society. 

We should also consider modern moral hypocrisies and racial language. Today, many people who claim to support “liberty” protest the removal of statues of Confederate generals who fought to preserve slavery. More than 150 years after the end of the Civil War, a city worker in New Orleans wore body armor and a face covering while removing a statue of Confederate leader Jefferson Davis. 

Rep. Mark Meadows (R‑NC), a member of the “Freedom Caucus,” won re-election despite saying that President Obama should be sent “back home to Kenya or wherever” (he has since disowned the comments). The whole Obama presidency is full of examples of thinly veiled racial language being used against the president and his family. Rep. Steve King (R‑IA) has used racist language and adorned his desk with a Confederate flag, which he displayed without any hint of irony alongside the American flag.

If initiatives like The 1619 Project can help Americans better understand their history and institutions then they should be applauded. I’ve yet to read the 1619 essay collection in full, and I’m sure that I’ll have some disagreements with some of its contributors. The essay on the link between slavery and the “brutality of American capitalism” looks ripe for educated criticism.

It’s important for an honest look at American institutions and history because the United States — unlike France and Greece — was founded on a set of principles. French and Greek identities have endured despite Greece and France being governed by a wide range of political regimes (republics, parliaments, monarchies, occupations, etc.). Yet there’s a sense in which American identity is tied to the political commitment outlined in the Declaration: a government tasked to securing rights endowed to all people. 

I am bound to that commitment. I took an oath to the Constitution when I became an American citizen ten years ago. I did so gladly, knowing that the document and the men who ratified it were imperfect. But such imperfections didn’t dent my budding patriotism. Anyone with a family and friends knows that you can love something that isn’t perfect. My relationship with my country is like my relationship with anyone: it improves with increased honesty, reflection, and candor. 

“I love America more than any other country in this world, and, exactly for this reason, I insist on the right to criticize her perpetually.”

With those words in Notes of a Native Son, author and essayist James Baldwin captured a core conflict of being an African American in the 1950s: to love a home that very often lets you know it doesn’t love you back. So much has changed and improved since 1955, but the words still have resonance with black writers and commentators today. Criticisms of American institutions by black people are often dismissed as “divisive” or even “anti-American” because the authors want their home—our home—to be more fair and just.

Over the weekend, the New York Times Magazine published The 1619 Project, a collection of essays, stories, poems, and photography marking the 400^th anniversary of the first enslaved Africans arriving in the future United States. The project, the brainchild of Nikole Hannah-Jones, is an ambitious collaboration to address the painful but necessary aspects of American history that shape the present. The 1619 Project explores the most profound struggle for freedom in the United States:race-based chattel slavery and its myriad legacies. Anyone committed to liberty should read and engage it.

Unfortunately, The 1619 Project is receiving over-the-top criticisms that accuse the writers of dividing America along racial lines or undermining the very idea of the American project. Perhaps anticipating such reactions, Hannah-Jones echoes Baldwin’s sentiment in the opening essay, writing “Black people have seen the worst of America, yet, somehow, we still believe in its best.”

To be clear, engagement does not mean unquestioning agreement with everything in the 1619 issue. Indeed, libertarians specifically will find certain claims about the relationship between modern American capitalism and slavery to be off-putting, and there are economic and historical claims that are already being contested by scholars. But those issues are not in every piece, and much of the history is solid but not well-known. One need not agree with everything a writer says to benefit from reading it.

The amount of information crammed into this issue is impressive, and many of the contributors are stellar in their given fields, including poet and author Eve L. Ewing, bestselling author and activist Bryan Stevenson, historians Kevin Kruse and Khalil Gibran Muhammad, and Oscar-winning director and writer Barry Jenkins, to name a few. Topics include, inter alia, enduring medical myths, incarceration, lynchings, and even how segregation led to Atlanta’s traffic jams. I especially liked Jenkins’ short story about Gabriel’s Rebellion.

The 1619 Project is an important endeavor to fill the gaps in Americans’ understanding of the nation’s history. The history of black people in the United States is filled with suffering, oppression, injustice, and crippling defeats; but it is also filled with joy, inspiration, and triumphs. The United States can be loved in spite of its flaws, and there are many. Wanting to correct those flaws is not anti-American; in fact, it’s quite the opposite.

For Times subscribers, The 1619 Project is online here. Non-subscribers can access the PDF at the Pulitzer Center here.

If the recent yield curve panic proves anything, it proves that, in financial markets, what may start out as a mere statistical correlation, and possibly a spurious one, can become a genuine causal relationship. In particular, if enough people subscribe to a post-hoc fallacy, it may not stay a fallacy for long.

A Self-Fulfilling Prophecy

It was, therefore, just a matter of time before the discovery that inverted yield curves often anticipate recessions resulted in the world’s first yield-curve induced panic. And the distance between panic to recession is no great stretch. Knowing that the curve has turned turtle, and anticipating tumbling stock markets and shrinking incomes, the public rushes to trade stocks for more liquid assets, while banks tighten lending standards. Lo and behold, stocks do tumble, and incomes do shrink. A slowdown then threatens. Should the monetary and fiscal authorities fail to avert it, the slowdown can become a contraction. If the contraction lasts, it becomes a recession. And all this because the yield curve went concave. Post hoc ergo propter hoc. Really.

That an inverted yield curve now strikes the general public much as that acorn struck Chicken Little isn’t itself the Fed’s fault. Although Fed officials and researchers have been among those who have drawn attention to the coincidence of past inversions and subsequent recessions, their writings on the topic have been anything but sensational. “Not all declines in the yield-curve slope are bad news for the economy,” says a representative piece from the Chicago Fed, “and not all instances of steepening are good news either.” Quite right.

Blame the Fed Anyway

Yet the Fed still has a lot to answer for. For even if panic alone is to blame for it, the fact remains that an inverted yield curve, whatever its underlying cause, is a dangerous thing. The Fed therefore ought to do what it can to keep the yield curve in fine fettle. Instead, Fed policies deserve the lion’s share of blame for the yield curve’s recent gymnastics.

Those policies consisted, first, of the Fed’s October 8th, 2008 switch to a “floor system” of monetary control. That switch severed the traditional connection between the direction and extent of the Fed’s asset purchases and the level of overnight interest rates. In the old days, the Fed’s asset purchases would confront banks with reserves they didn’t need, which the banks would then offer to other banks on the fed funds market. Short-term interest rates would then decline. Because the Fed mainly bought short-term Treasuries, its purchases tended to steepen rather than flatten the yield curve. Under a floor system, in contrast, the Fed can acquire assets without lowering short-term rates. Instead, it regulates those rates by adjusting the interest rate it pays on banks’ excess reserves.

Fed officials saw this extra degree of freedom as a virtue of the new arrangement, in part because it granted the Fed powers of “yield curve control” it hadn’t wielded since WWII. Those powers allowed the Fed to target not just short-term rates but, using large-scale asset purchases and sales, longer-term ones. Alas, they also made it that much easier for the Fed to flip the yield curve, if only unintentionally.

The Fed’s subsequent rounds of Quantitative Easing, including Operation Twist, were all exercises in yield curve control. During three rounds of QE between March 2009 and December 2014, the Fed purchased $3.8 trillion in long-term assets, with the express aim of lowering long run interest rates. That amount—to place it in perspective—was roughly a third of the total value of publicly-held U.S. government debt at the end of 2012. Because short-term rates were mired near their zero lower bound, such large long-term debt purchases were bound to flatten the yield curve; indeed, they flattened it, not just in the U.S. but elsewhere, and considerably. That was, indeed, their purpose. Operation Twist, which involved the Fed’s gradual swapping of $400 billion in shorter-term Treasuries with as many longer-term Treasuries, contributed some further flattening.

From Flat to Inverted

While the Fed’s postcrisis actions left the economy with a very flat yield curve, they didn’t invert it. Nor could they easily have done so as long as overnight rates remained stuck near their presumed zero lower bound. The risk of an inversion arose only once the Fed began raising its policy rates at the end of 2015. In all, as the chart below reminds us, between December 2015 and December 2018, it raised the interest rate on excess reserves by 215 basis points. With 10-year Treasuries yielding little more than 200 basis points when that tightening cycle started, the risk of a yield curve inversion depended on the extent to which their yield also responded to the Fed’s tightening. In fact, it did respond, but only modestly, from about 2.25% at the time of the Fed’s first rate hike, to about 2.7% at its last, and with many a dip in between. For most of the first quarter of 2019 the gap between the 10-year yield and the effective fed funds rate was less than 30 basis points. And in March that gap briefly turned negative for the first time since the start of the Great Recession.

To his credit, St. Louis Fed President Jim Bullard was among the first to see trouble looming. In a briefing he gave in Little Rock, Arkansas in December 2017, Bullard warned that “There is a material risk of yield curve inversion over the forecast horizon if the FOMC continues on its present course of increases in the policy rate.” He also recognized the possibility that “longer-term yields in the U.S. are being held lower in part because of the size of the Fed’s balance sheet.” Finally, he observed that “The simplest way to avoid yield curve inversion in the near term is for policymakers to be cautious in raising the policy rate.” In a July 2018 presentation Bullard renewed his warning, noting that since December, events had “flattened the yield curve further, and imminent yield curve inversion in the U.S. has become a real possibility.” Finally, in an article published in October 2018, several months before the Fed’s last and most controversial rate hike, Bullard repeated his warning once again, calling the still-mounting risk of an inversion “a key issue in U.S. monetary policy in the near term.”

That Bullard’s advice wasn’t followed is now notorious. Instead of being cautious about raising its policy rate, the Fed raised it yet again that December, adding insult to injury by suggesting that 2019 would probably bring more rate hikes. It took this position, not because circumstances called for it, but because Fed officials were committed to “normalizing” monetary policy, and because they equated “normal” monetary policy with a fed funds rate in the neighborhood of 3 percent—a figure reflecting a real rate of 1 percent plus 2 percent inflation. That flagging productivity might make even a 1 percent real funds rate optimistic, and that inflation might persistently fall short of the Fed’s 2 percent target, were possibilities the Fed was not yet prepared to recognize.

In the meantime, the 10-year Treasury rate had begun a steep dive that’s still in progress. The Fed’s actual and planned rate hikes themselves contributed to that decline, by rattling markets and lowering inflation and growth projections. So did the Trump administration’s increasingly belligerent trade policies. Finally, the Fed made another, less obvious contribution to falling bond yields by prematurely ending its planned balance sheet unwind. So long as that unwind continued, it put at least some downward pressure on long-term bond prices, propping-up their yields correspondingly. But in March 2019, the Fed announced that it would cease unwinding this fall. Then, in its July meeting, the FOMC made two decision with offsetting yield curve consequences. It decided at last to reverse the December 2018 rate hike it should never have undertaken. But (for reasons I explained in my last post) it also put an immediate end to its balance sheet unwind. Whether by coincidence or not, the outcome of these combined measures was a steep decline in the 10-year Treasury yield that almost perfectly matched the decline in the short-term rates. Within days, the inversion Bullard had long warned against became a reality at last.

Woulda, Coulda, Shoulda

Could the Fed have avoided it? Had it refrained from that notorious December 2018 rate hike, it might at least have put the inversion off for a time. But it could also have done a lot more. In particular, the Fed could have reduced its policy rates more aggressively, while continuing to unwind its balance sheet. While the unwind would reduce the supply of bank reserves, a sufficiently lowered interest rate on excess reserves could have reduced the demand for reserves more than proportionately. In that case, short-term market rates would have fallen, even as the Fed boosted up long-term rates by shrinking its long-term Treasury portfolio. Together these steps would almost certainly have sufficed to keep the yield curve right-side up. It’s true that those steps would have meant sacrificing the Fed’s floor system of monetary control, and with it the Fed’s future ability to manage the yield curve. But—judging by how it has managed that curve thus far—that’s a sacrifice we’d have had no reason to mourn.

[Cross-posted from Alt‑M.org]

Although the Constitution assigns regulatory power over foreign commerce to Congress, the Trade Expansion Act of 1962 delegates this function to the president. As made obvious by its title, the purpose of this law is to grow foreign commerce by opening trade. Alas, one provision—Section 232—works to diminish international trade by empowering the president to unilaterally regulate imports in the interest of “national security.” When Congress passed Section 232, lawmakers were worried about the possibility that a disruption in the global oil trade might constrain the military’s supply of jet fuel. Accordingly, presidential exercises of Section 232, while rare, always targeted oil imports.

In March of 2018, President Trump smashed the mold and instituted a 25 percent tariff on imported steel products. “Flimsy” is a gross understatement in describing the president’s putative “national security” justification: military requirements for steel represent only three percent of the commodity’s domestic production. Indeed, the United States produces twice as much steel as it imports. More troubling is that the president made no effort to explain why he departed from his predecessors’ practice, which uniformly had accounted for the allied status of countries potentially subject to Section 232. Perhaps most disconcerting of all, President Trump offered no explanation for why he chose to set the tariffs at an even 25 percent and how this figure relates to the “national security.”

Faced with these unprecedented and unreasonable regulations, the American Institute for International Steel (a trade group of steel-consuming companies) and other parties harmed by the tariffs filed suit in the Court of International Trade (“CIT”). They alleged that Section 232 is an unconstitutional delegation of lawmaking power because it allows the president to merely cite “national security” and thereby to regulate imports in any manner.

The CIT conceded the dangers of unbound executive authority, yet refused to provide a constitutional check. According to that court, Section 232 regulation falls into “a gray area where the President could invoke the statute to act in a manner constitutionally reserved for Congress but not objectively outside the President’s statutory authority, and the scope of review would preclude the uncovering of such a truth.”

After the CIT sided with the government, the plaintiffs sought to take the case directly to the Supreme Court, and Cato filed a brief supporting them. Because the Supreme Court denied that petition, their case is now before the U.S. Court of Appeals for the Federal Circuit. Cato has again filed a brief supporting these challengers to the existing legal regime.

We argue that the CIT is wrong in allowing for regulatory “gray areas” where the president may act within the statute but outside the Constitution. In fact, the CIT mistakenly assumed that federal courts may not conduct any oversight of the president’s regulatory powers over international trade. To the contrary, if courts can’t review such actions, then Congress violated the non-delegation principle by giving the president legislative powers that are beyond review. But if courts can review the president’s regulatory powers, then President Trump’s arbitrary steel tariffs have to fail judicial scrutiny.

The case is American Institute for International Steel v. United States.

A lot of “national conservatives” and those sympathetic to their economic goals have been pushing for the federal government to adopt an explicit “industrial policy.” Chief among them has been Oren Cass, a thoughtful scholar at the Manhattan Institute, whose writings on the dignity of work I’ve written briefly about before.

Though a lot of his arguments echo those heard historically or in other countries, his specific case is worth addressing directly, as it seems to be resonating in conservative circles. So today I’ve published an extensive critique of his recent speech at the National Conservatism conference as a Cato commentary.

In short, I’m disappointed by the lack of empirical grounding to his arguments. And I think he makes a fundamental mistake in assuming that, even if an industrial policy was feasible and could be faithfully executed, it would generate both “stable employment” for low-skilled workers and high productivity growth.

I conclude:

Oren Cass asserts that markets cannot generally allocate resources efficiently by industry. Yet he provides no meaningful metrics to show this is the case, nor shows why his policies would deliver better outcomes. His two main claims about the benefits of a manufacturing sector — “stable employment” and “strong productivity growth” — are directly contradictory. A plethora of evidence suggests as countries’ get richer due to automation and technological improvements, they demand relatively more services, and so the industrial sector declines in employment terms.

It would hurt, not improve, general economic performance to try to create stable employment in manufacturing industries given these trends, and would be particularly foolish given the likely rising demand for high-end manufacturing and services (healthcare, education, insurance, finance, etc.) as the global middle-class develops.

You can read the whole piece here.