Senator Elizabeth Warren’s “Plan For Economic Patriotism” is causing ideological convulsions on right and left. Yet one part of her controversial plan has so far largely gone uncommented upon: she wants taxpayers (read: government) to have stakes in companies utilizing government research and development.

Far from seeing knowledge and government R&D as some form of public good that can be freely commercialized by profit-making businesses, she wants government to benefit from its investments by being an equity investor in firms – being given shares in companies who utilize public research, retaining royalties on publicly funded innovation, or even keeping a golden share of patent revenue. The misguided idea here is essentially that there should be a return to taxpayers for their money being risked on government research projects.

Such a policy appears to have been lifted from Mariana Mazzucato’s The Entrepreneurial State. This book posits extensive evidence that public money has helped develop some of the technologies or advances that we see around us, including the internet, touch-screens, GPS, and, soon, the self-driving car.

Through its role in procurement, investments in national security technologies through DARPA, and direct support for research, government agencies no doubt have contributed to building knowledge that has then been successfully commercialized through products such as smartphones.

But Mazzucato’s view seems to be that the government can be much more mission-oriented and so contribute more directly to final products, rather than just happening to provide a form of public good that has been later commercialized in new or unexpected ways. That means she rejects the conventional economic view that says if the knowledge is indeed a public good, and not protected by IP, then a case for subsidy exists, but not ownership; and that if the R&D does not have a public good component, whether due to the technological features or IP, then government should not be engaging in it.

Let’s put aside for now the philosophical or empirical questions about the role of government and whether Mazzucato’s contention is correct (there’s a good free-market critique of her work here). Stian Westlake from NESTA has outlined good practical reasons why equity stakes for governments would be an administrative and economic nightmare.

First, in many cases it is near impossible to judge the extent to which public research has contributed to a final product’s profitability. High-tech manufacturers, particularly in areas such as aerospace and defense, use reams of research and different technologies in devising new products, some of which may have been publicly funded. Assessing what to chalk up as the share delivered by public interventions given this patchwork of contributions will be arbitrary and contestable. The question of who will assess it, and how, will be even more problematic in cases where the government procures the goods too, as with many defense products.

Second, granting the government a stake in the business will, in effect, be like an arbitrary tax hike on companies who do utilize public research. On the margin that will mean they find themselves unfavoured relative to low R&D businesses (which in some cases might benefit more heavily from publicly provided roads or education, but who are not expected to give up a business stake in recompense.) If companies are keen to avoid expanding the share of profits attributable to government, they may also curb collaboration with public entities in areas where it might otherwise have been beneficial for consumers.

In short, even if you think government should play an extensive role in technological innovation, then relative to direct and transparent taxation and spending, this idea would create a bureaucratic monster, while tilting the playing field away from exactly the sort of collaboration and product development you might desire.

In a Washington Post op-ed last week, Josh Rogin argued this:

Despite what you may have read, the United States’ strategy toward China does not entail launching another Cold War, imposing a zero-sum game or even winning a “clash of civilizations.” In fact, the entire objective of the Trump administration’s Asia approach is to avoid outright conflict with China. But to do that, Beijing must be deterred from continuing on its aggressive path.

The idea that the White House’s new approach to confront China’s economic aggression and military expansion represents a “Cold War mentality” is popular with pundits both in Washington and in Beijing. But that accusation misunderstands what the United States is trying to do with China. …

Perhaps I am one of the pundits he had in mind, given that I wrote the following earlier this year:

Talking Ourselves into a Cold War with China

Sometimes the latest turns of phrase in policy circles are just fleeting headlines, soon to be forgotten. As a presidential candidate, Hillary Clinton called for “smart and fair trade.” But she disappeared from the political scene before we figured out what that meant.

However, other times they lead us down the road towards real changes in policy. Soon after the 9/11 attacks, Bush administration officials were accusing Saddam Hussein of being involved. At the time, the invasion of Iraq was hardly inevitable, and may not have seemed likely, but armed with the phrase “weapons of mass destruction,” the administration got the war momentum going, and that is the direction in which the country went.

The U.S.-China relationship is facing similar attempts to define it with very serious sounding terminology, as U.S. policymakers are in the grips of the latest bout of buzzwords and groupthink. The U.S.-China relationship, we are told, may undergo a “conscious uncoupling.” The two countries could be moving towards an “economic cold war.” Actual war is unlikely (although you never know), but nevertheless a seismic geopolitical shift is supposedly upon us.

There is certainly plenty of talk in Washington about a Cold War and a “clash of civilizations.” But is any of it coming from the Trump administration, rather than from pundits? Rogin points to one piece of recent evidence and quickly dismisses it:

Those who criticize U.S. policy on China argue that the United States went looking for another enemy after the fall of the Soviet Union. Some point to the unfortunate remarks by Kiron Skinner, the State Department’s policy planning director, who clumsily called the U.S.-China competition “a fight with a really different civilization and ideology.” That was an error, not a defining statement on U.S. policy.

To me, though, the full quote from Skinner, as part of a conversation with Anne-Marie Slaughter, indicates that there is a lot more to this than Rogin suggests:

Skinner: … not to make light of the Cold War, and the reality of nuclear war that could have happened — and the fact that we came close in some instances — but when we think about the Soviet Union and that competition, in a way it was a fight within the Western family. Karl Marx was a German Jew who developed a philosophy that was really within the larger body of political thought … that has some tenets even within classical liberalism. And so, in that way, I think it was a huge fight within the Western family.

You can look at the Soviet Union – part West, part East – but it had some openings there that got us the Helsinki Final Act in 1975. It was a really important Western concept that opened the door really to undermine the Soviet Union, a totalitarian state, on human rights principles.

That’s not really possible with China. This is a fight with a really different civilization and a different ideology, and the United States hasn’t had that before, nor has it had an economic competitor the way that we have. The Soviet Union was a country with nuclear weapons, a huge Red Army, but a backwards economy. That was the insight of Reagan when the intel community told him differently. He said I just don’t see the signs that it can survive a technology race with the West. So in China we have an economic competitor, we have an ideological competitor, one that really does seek a kind of global reach that many of us didn’t expect a couple of decades ago, and I think it’s also striking that it’s the first time that we will have a great power competitor that is not Caucasian.

Slaughter: You sound like Huntington’s Clash of Civilizations

Skinner: Some of those tenets but a little bit different, and all of those things together are a bit perplexing for the American foreign policy establishment, and I think we have to take the rose colored glasses and get real about the nature of the threat and I think we also have to give a kind of respect for I think what the Chinese seek to accomplish.

Clumsy or not, this wasn’t just a slip of the tongue. It seems like a fairly well-developed worldview, one that perhaps has been discussed around the State Department and that she articulated pretty clearly in a very public forum.

Along the same lines as a Cold War, although more restrained, is all the talk of Great Power competition. In this regard, there was this speech from Christopher Ford of the State Department, in which he says the following:

Re-learning a Competitive Mindset in Great-Power Competition

…

Hence, of course, our need for competitive strategy. Indeed, the challenge from China may be even deeper than that, for in some sense it is developing not only at the somewhat prosaic, realpolitik level of power and influence, but also at the more profound level of what one might call socio-political “operating systems.” As observed in the National Defense Strategy, “[i]t is increasingly clear that China and Russia want to shape a world consistent with their authoritarian model – gaining veto authority over other nations’ economic, diplomatic, and security decisions.” China, in particular, has become notably interested in exporting its state-capitalist, high-technology police state model of government to other countries – what I believe the journalist Nicolas Kristof once called “Market Leninism” – even while ensnaring ever-greater portions of the developing world in manipulated debt dependencies and “neo-neocolonial” economic relationships. The global competition, in other words, is becoming ideological. Increasingly, it seems to be not just about who will dominate the 21st century world, but also about what the operating system of that world will be, and the predominant mode of governance within it. Clearly, this is serious stuff.

But this is where competitive mindset comes in. For a long time, our mindset was part of the problem. As I have noted elsewhere, after the collapse of Communism and the end of the Cold War, our country and its democratic and capitalist “operating system” stood seemingly unchallenged, feeling happily vindicated after decades of struggle against ideologized tyrannies of both the Right and the Left. Concluding that the world’s most important ideological and Great Power conflicts had all just resolved themselves conclusively in our favor, our policy community basically went on a complacent vacation from Great Power competitive strategy – even while China took our post-Cold War ascendancy as a compelling reason to improve its competitive game, and Beijing has spent the last quarter-century implementing a strategy dedicated to challenging and undermining our power and influence in the world.

Is this kind of Great Power competition similar to a Cold War or a “clash of civilizations”? It is all probably a matter of degree. Rogin is arguing that the Trump administration is simply “deterring” China, rather than “clashing” with China. It’s kind of a fine line, though.

I haven’t collected the full range of quotes from Trump administration officials, to see what each person thinks. But it seems to me there is some good evidence that at least a few high-ranking Trump administration officials are pretty enthusiastic about something Cold War-ish with China.

Should you be worried about mercury emitted from power plants?

Sure, but only if you are a pregnant woman, who during gestation consumes about 220 pounds of fish caught from exclusively the top ten percent most polluted fresh waters of the United States, despite all the signs along these rivers and lakes warning “DO NOT EAT THE FISH!”

Don’t take my word for it. I’m simply relaying EPA science. And not the ‘bad” kind produced by the Trump administration; rather, I’m talking about virtuous EPA science as practiced by the Obama administration.

A little background: mercury emissions aren’t a direct threat to humans, but instead settle onto water bodies, and then make their way up the aquatic food chain. Because mercury is a neurotoxin, the fear is that pregnant women can engender developmental disorders in their offspring by eating fish that have bio-accumulated the toxin.

In the course of promulgating the Obama-era Mercury and Air Toxics Standards for power plants, the EPA stated that it considers “IQ loss estimates of 1–2 points as being clearly of public health significance,” even though this low a number rests comfortably within the error of measurement inherent to an IQ test. According to the EPA’s analysis, the Mercury Rule was necessary to prevent an IQ loss of 1.1 points supposedly suffered by children born to a putative population of pregnant women from substance families, who during their pregnancies eat 220 pounds of self-caught fish reeled in from the most polluted bodies of fresh water. Notably, the EPA failed to identify a single member of this supposed population. Instead, these women were modeled to exist.

Even under EPA’s ultra-accommodating analysis of its rules’ benefits, the agency pegged the benefits of the Mercury Rule at a mere $6 million. In stark contrast, the agency estimated that the rule would cost about $10 billion annually, making it one of the most expensive regulations ever.

On its face, such an imbalanced cost-benefit ratio is plainly unreasonable. But the EPA pointed to the rule’s “co-benefits,” which were estimated to be dwarf the rule’s costs.

So, what are these “co-benefits”?

Retrofitted air pollution controls employ either a filter or a chemical reaction to capture pollutants from the power plant exhaust flue. Though these controls are optimized for the specific pollutants they are designed to reduce, other pollutants also are captured. With the Mercury Rule, the EPA claimed that “co-benefits” attendant to the required mercury controls would amount to $37 billion annually.

On the one hand, I agree with Prof. Cass Sunstein, who has argued that it would be foolish to ignore readily evident costs and benefits, regardless whether they are direct or indirect. On the other hand, there’s an element of duplicity behind the EPA’s co-benefits, to which I object.

Co-benefit pollutants are known as “criteria pollutants,” and they are regulated by the Clean Air Act. Indeed, criteria pollutants are regulated at a level that is “requisite to protect the public health” with “an adequate margin of safety.” That is, these pollutants are regulated by an entire statutory program at standards that go beyond what is necessary to protect public health.

The EPA, moreover, is not allowed to consider costs when it regulates “criteria” pollutants. It is somewhat ironic that the agency is attributing billions of dollars worth of benefits to the reduction of a pollutant beyond stringent public health limits set by EPA without considering costs.

The other problem with EPA’s “co-benefits” is the likelihood of double-counting. Since the George W. Bush administration, the EPA has justified most of its major rules by relying on “co-benefits.” Yet the agency isn’t keeping a running tab of its claimed “co-benefits.” As a result, it’s almost certain that the agency has counted the same benefits twice or more. 

Recently, EPA Administrator Andrew Wheeler initiated reforms regarding the agency’s use of of costs and benefits in the rule-making process. While there’s no reason for the agency to categorically ban the use of co-benefits, the EPA should render their use reasonable. To this end, the EPA should refine its analysis to account for doubly-counted co-benefits. The agency also must inform the public how much of the co-benefits valuation can be ascribed to pollution reductions below a level that the agency already had determined to be “requisite to protect the public health” with “an adequate margin of safety.”

President Trump is tweeting about NASA today. He is worried about “all of the money we are spending” on the agency.

It is $21 billion this year. The chart shows spending on NASA since 1970 in real or inflation-adjusted dollars.

Border Patrol apprehensions of Central Americans from the Northern Triangle countries of El Salvador, Guatemala, and Honduras rose again this month to 444,509, so far this fiscal year (FY). According to United Nations population estimates, U.S. Border Patrol apprehended 1.32 percent of all residents of the Northern Triangle countries to date this fiscal year. Northern Triangle citizens account for 75 percent of all Border Patrol apprehensions this FY.

So far in FY 2019, 1.8 percent of the population of Honduras, 1.2 percent of the population of Guatemala, and 0.9 percent of the population of El Salvador have been apprehended by U.S. Border Patrol. The percent of the Northern Triangle populations apprehended by Border Patrol are still far lower than the annual emigration rates from many European countries during the Age of Migration in the late 19th and early 20th centuries. According to Dudley Baines, the emigration rate from Italy was about 2 percent per year from 1901–1913 while it was almost 4 percent per year from Calabria during the same time. Regardless, Border Patrol apprehensions in FY 2019 as a percentage of the sending country’s population is very high.

The rate of Northern Triangle emigration has accelerated rapidly over the last several years as reflected by the percent of the population in those countries apprehended by Border Patrol (Figure 1). However, the collapse of Border Patrol apprehensions of Mexicans is equally dramatic as it fell from about 0.6 percent of Mexico’s population in 2007 to 0.1 percent in 2019. A major difference between the apprehension of Mexicans in the past and those from the Northern Triangle today is that the latter are turning themselves into Border Patrol to ask for asylum while the former were trying to evade.

Figure 1 does not include the number of immigrants from those countries who received green cards, work visas, entered unlawfully and escaped detection, or returned to their home countries from the United States. It is just a gross apprehension rate by Border Patrol. It both undercounts and overcounts the net emigration rate from the Northern Triangle. It overcounts because only some of those apprehended are let in and many are removed, it doesn’t include other deportations from the interior of the United States, and it doesn’t count voluntary returns. It undercounts because it doesn’t include the number of green cards issued to those abroad in the Northern Triangle nor does it include the number of other visas issued to them. The net effect on the net emigration rate of the Northern Triangle is ambiguous.

The total number of foreign-born persons in the United States from the Northern Triangle as a percentage of their home countries’ populations grew steadily from 2007 through 2017 and it will probably grow more quickly when the 2018 and 2019 data are released (Figure 2). 

The U.S. government issued many more H‑2A and H‑2B guest worker visas to Mexican workers, which is the main reason why the rate and number of Mexicans apprehended by Border Patrol fell so much since the mid-2000s. The U.S. government increased the number of H‑2 visas for Mexicans from about 80,871 in 2007 to 242,582 in 2018, or from about 45 percent of all H‑2s issued annually to 87 percent. H‑2 data for 2019 are not available yet. Instead of coming illegally, Mexicans were able to enter lawfully on a work visa and then go home with the ability to return if they follow the rules.

Figure 3 shows the share of all Mexicans who entered the United States illegally, on H‑2 visas, and green cards. I used the annual federal government calculations of the apprehension rate for illegal immigrants to estimate how many successfully entered. Illegal entries fell from 56 percent of all Mexicans coming to the United States in 2007 to 7 percent in 2018 as the proportion of H‑2 visas increased dramatically. 

Boosting the number of H‑2 visas for Mexicans worked to channel illegal Mexican immigrants into the legal market to such an extent that the number of guest workers entering legally is higher than the number of Mexican apprehended for the last couple of years. One legal Mexican worker replaced more than one illegal Mexican worker. 

Remarkably, H‑2 visas were successful during those years even though the relative real wage difference between Mexico and the United States increased by a factor of 3.50 to a factor of 3.95. In other words, Mexican illegal immigration to the United States collapsed when the economic benefits of doing so increased, which is evidence that another factor (H‑2 visas, most likely) explains it. The negative relationship between Mexican apprehensions and H‑2 visas for Mexicans in Figure 4 makes that clear.

Meanwhile, the U.S. government has issued very few H‑2 visas to citizens of the Northern Triangle countries. In 2018, only 9,122 were issued to residents of the Northern Triangle. Whereas one out of every 545 Mexicans received an H‑2 in 2018, only one out of every 3,626 people in the Northern Triangle received H‑2s. A seven-fold increase in the number of H‑2 visas for citizens of El Salvador, Guatemala, and Honduras will help get the border under control and restore order to the asylum system. 

The U.S. government is currently releasing many Northern Triangle asylum-seekers with a court date but without a credible fear interview because there are too many asylum seekers. The federal government’s goal should not be to restrict asylum, but to channel enough marginal or non-credible asylum seekers into other migration channels so that the system can return to normality. Pressuring the Mexican government may achieve that goal, but the United States should pursue it by creating many more H‑2 visa opportunities for residents from the Northern Triangle without reducing them for Mexicans. 

Mail volumes are falling and the U.S. Postal Service is losing billions of dollars a year while accumulating large liabilities.

The USPS has partly offset declining mail revenues with growth in package revenues. But the company’s finances look pretty bleak overall.

The table below illustrates the USPS’s predicament with data from 2009 and 2018 from here, here, and here.

The data in the table reflects that:

• Mail demand is falling and package demand is rising. The problem is that mail is more profitable and accounts for most of USPS revenues.
• USPS management has cut costs where it can, such as by reducing the worker count. But Congress resists other cost savings such as closing post offices, even though the number of retail customers is falling.
• Marketing mail has become by far the largest type of mail by volume. Thus we have a vast fleet of trucks driving around the country, burning gas and creating pollution, and the main thing being delivered is junk mail.
• More than three-quarters of USPS costs are employee compensation, which includes excessive health and pension benefits. About four-fifths of the USPS labor force is unionized.
• USPS has been losing money for more than a decade. Expenses are a few billion a year higher than revenues.
• USPS assets are falling and liabilities are soaring. The largest liabilities are unfunded retiree health benefits, worker compensation costs, and debt.

What’s the solution? I testified to Congress that the USPS should be privatized and postal markets opened to competition. Those reforms would give the USPS the flexibility it needs to cut costs, diversify, and innovate, while creating equal tax and regulatory treatment of businesses across postal and package markets.

Following a London West End staged reading, a cast soundtrack was released last month for A Theory of Justice: The Musical. The show, composed in 2013 and performed at Oxford and the Edinburgh Fringe since then, takes as its protagonist Harvard political philosopher John Rawls, whose influential work argues for a version of modern liberalism in which the state plays a significant redistributive role. In the plot, Rawls travels through time and encounters earlier political philosophers such as Rousseau, Locke, and Hobbes. As for dramatic tension, that is provided by Rawls’ conflict with contemporary antagonists Robert Nozick, his libertarian colleague in the Harvard philosophy department famed for his work Anarchy, State, and Utopia, along with novelist-philosopher Ayn Rand, who seems to loom as large in the modern liberal imagination as ever (her character here, evoking Lola in Damn Yankees, is apparently assigned the showstopping number, and dances a dangerously persuasive tango with Nozick). 

According to coverage of the show, Nozick and Rand are portrayed as a couple. That’s absurdly at variance with the lives of those real figures, of course. But musicals, like unfortunate political theories, take liberties.