President Trump’s announcement of new tariffs on imported steel and aluminum drew swift warnings from free traders, including here at the Cato Institute, that such naked protectionism will lead to job losses and reduced prosperity. But don’t just take our word for it. A new study released this week by the Coalition for a Prosperous America (CPA), a protectionist interest group, concludes that the tariffs will result in both net employment losses and reduced economic activity. While the CPA highlights the study’s finding that tariffs will lead to 18,859 new jobs in “iron and steel nonferrous metals,” it also concedes that these will be more than offset with losses in other sectors, including over 10,000 jobs in construction and nearly 7,500 in manufacturing, for a net loss of 411 jobs. Additionally, the study finds that the tariffs will leave Americans marginally poorer, predicting a decrease in U.S. GDP of $1.4 billion. In other words, the debate is no longer whether these tariffs will be harmful to the U.S. economy—the protectionists have effectively run a white flag up the pole on that question—but rather the magnitude of the damage. Also worth noting is that the CPA study presents a best-case scenario, using assumptions that are, if not questionable, perhaps overly optimistic. For example, the model’s apparent assumption of full employment—by no means obvious given that recent sizeable monthly employment gains have not led to a reduction in the unemployment rate—appears in tension with the study’s claim that steel and aluminum will see relatively restrained cost increases of 6.29 percent and 2.5 percent owing to “available U.S. capacity and competition.” Presumably, any increase in production to partially offset the decline in imports will require additional workers, which may be no easy task in a full employment economy. Furthermore, the study makes no mention of the impact of retaliation that is sure to follow from U.S. trading partners in response to Trump’s tariffs. The study’s finding that the tariffs will result in 464 new agriculture jobs, for example, is hard to square with retaliation threats from the European Union which include targeting American exports of corn, cranberries, rice, orange juice, and tobacco. In contrast, a recent analysis conducted by the Trade Partnership consulting group found that retaliation would contribute to net U.S. job losses of over 468,000. Even absent retaliation, the Trade Partnership found a net loss of 146,000 jobs in a previous study—one that the new CPA report was conducted in response to. The exact amount of the employment decline or loss in economic welfare, however, is almost a second order question on the steel and aluminum tariffs. Directionally, a consensus has been reached, with both free traders and protectionists in apparent agreement that they will cause harm to both jobs and the overall economy. Thus far, President Trump has not heeded the warnings of free traders and appears determined to proceed with his act of self-sabotage. Perhaps he will lend an ear to his fellow protectionists.
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This Blogpost Isn’t Authorized by the Supreme Court
Can the government force private parties to speak against their own interests and disparage the products they offer? The answer is yes when potential consumer harms are significant (think tobacco labels and other safety warnings) or there’s informational asymmetry (securities offerings)—and indeed fraudulent offerings (the prototypical snake oil) are prohibited altogether. But mandated disclosure regimes are proliferating far past these sorts of traditional disclosures, stretching the First Amendment to the breaking point regarding commercial speech.
A recent example of this phenomenon involves Nationwide Biweekly Administration, whose business is saving customers a significant amount on their mortgages by structuring smaller biweekly payments in place of traditional monthly payments—allowing for an extra reduction of principal each year. To market its services, Nationwide uses public information to send potential customers mailers illustrating how much they might save over the life of their loans. Despite front-and-center statements that Nationwide is “not affiliated, connected, or associated with, sponsored, or approved by the lender listed above,” California decided that this information was insufficient to guarantee that consumers wouldn’t be confused. The state required the company to state on solicitations that they are “not authorized by the lender.”
Nationwide challenged this requirement in court, arguing that the state’s message itself was misleading (by implying that lenders have any power to “authorize” Nationwide’s actions) and forced the company to disparage its own services by suggesting that they were somehow not permitted to offer them. But the federal district court, and then the U.S. Court of Appeals for the Ninth Circuit, approved the mandated disclosure, citing the Supreme Court case of Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio (1985).
Zauderer held that “purely factual,” “uncontroversial” disclosures could be required to directly combat consumer deception. While this is a lower form of constitutional scrutiny than most speech restrictions receive, it’s not without teeth. The government still needs to prove actual deception—and once that hurdle is crossed, those compelled government scripts must be both purely factual and uncontroversial, and take care not to burden the speaker any more than necessary.
“Criminal Aliens” Commit Mostly Victimless Crimes, Few Violent Crimes
During his campaign, President Trump promised to target the “bad hombres” in the United States illegally. But Immigration and Customs Enforcement (ICE) statistics indicate that his administration has cast a much wider net. More than one in four immigrants that ICE arrested last year had no criminal convictions at all, and of the rest, their convictions were mostly victimless crimes—largely traffic infractions, immigration offenses, and drug offenses. Almost 90 percent were for nonviolent crimes. ICE cannot justify its broad crackdown based on these figures.
Figure 1 shows immigrants arrested by ICE by whether they had a criminal conviction (top left) and the distribution of the convictions by type of conviction (bottom right). ICE statistics only provide a list of all convictions that the entire population of criminal aliens committed, meaning that they only show the distribution of convictions, not the distribution of immigrants based on their most serious offense. That said, a majority of all convictions were for crimes with no private victims (i.e. not the government or “society”). Just 11 percent were violent crimes (just one percent were homicide and sexual assault).
Figure 1: Immigrants Arrested by ICE by Criminal Conviction and Distribution of Criminal Convictions
Source: Immigration and Customs Enforcement
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An Unhappy Anniversary for the Iraq War
On the unhappy 15th anniversary of the start of the Iraq War, the Charles Koch Institute’s William Ruger and Boston University’s Andrew Bacevich offer important and timely op eds.
Writing in the New York Times, Ruger sees Iraq as “just the worst in a string of failures” of U.S. foreign policy in the past quarter century, a range of missions that have cost nearly 7,000 American troops killed, tens of thousands wounded, and trillions of dollars spent, with precious little to show for it. “Underlying all of these failures,” Ruger writes, “is the view, endorsed by both parties, that we need an active military presence around the globe to shape what happens almost everywhere.” He calls for an “alternate approach to the United States’ role in the world,” a “constructive but realistic mind-set [that] would put our safety first while expanding America’s opportunities to engage productively with the world.”
Bacevich takes the occasion of this sad anniversary to comment on the disconnect between the American people and the elites who sold the war. He attributes Donald Trump’s victory in the 2016 election to the “blood sacrifice vote” — the “communities that paid a high price for the Iraq War in terms of casualties.” Hillary Clinton prevailed among those who preferred to let “someone else’s sons and daughters do the fighting.” It is the sort of scathing critique that Bacevich has come to be known for, but it is no less accurate or insightful for having been written before.
Trump voters, Bacevich posits, supported him, despite the fact that they suspected his “America First” campaign to be “all but devoid of substantive content”:
because Trump said aloud what they themselves knew: that the Iraq War had been [a] monumental error for which they, and pointedly not members of the political elite, had paid dearly. In short, a vote for Trump offered them a way to express their disdain for establishment politicians whose dishonesty they considered far more odious than Trump’s own pronounced tendency to shave the truth.
I’ve written before of how the yawning gap between the foreign policy elite and the people who fight the wars and pay the bills paved the way for a person like Donald Trump to win the presidency (see especially here and here). But I do think it worthwhile to dwell, for a moment, on Iraq as a particularly important step along the process that turned that gap into a chasm.
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“There’s No Fear of Being Caught”
The front page of Monday’s New York Times featured a story about a dirty little police practice colloquially known as “testilying.” Testilying is the name police officers coined to describe lying in official statements, such as sworn affidavits, about particular facts to make a criminal case appear stronger. It happens most often in officer assertions of probable cause to conduct a search of a person or their property without a warrant. For example, an officer could say that contraband was “in plain sight” after he pulled a driver over, giving him the probable cause to suspect a criminal act and thus bypass the warrant requirement of the Fourth Amendment.
The most generous rationalization for this behavior is something like, “The suspect was guilty of a crime, I knew he was guilty but I couldn’t legally prove it, so I found a way around the rules and discovered the criminal evidence I needed to make an arrest.” Put simply, the ends (an arrest for criminal behavior) justifies the means (an unconstitutional search). But, very often, what the officers “know” is wrong and they violate the rights of perfectly innocent people. Even when they are right, illegal searches and the lies to cover them up corrupt the law in order to enforce it. That’s not how policing is supposed to work. Police are supposed to protect our rights, not violate them to make an arrest.
And as the Times story explains, the lie is not only used against people who are breaking the law:
There had been a shooting, Officer Martinez testified, and he wanted to search a nearby apartment for evidence. A woman stood in the doorway, carrying a laundry bag. Officer Martinez said she set the bag down “in the middle of the doorway” — directly in his path. “I picked it up to move it out of the way so we could get in.” The laundry bag felt heavy.
When he put it down, he said, he heard a “clunk, a thud.”
Officer Martinez tapped the bag with his foot and felt something hard, he testified. He opened the bag, leading to the discovery of a Ruger 9‑millimeter handgun and the arrest of the woman. But a hallway surveillance camera captured the true story: There’s no laundry bag or gun in sight as Officer Martinez and other investigators question the woman in the doorway and then stride into the apartment. Inside, they did find a gun, but little to link it to the woman.
It took over a year for the woman, Ms. Kimberly Thomas, to clear her name with the help of surveillance video. In a way, she was very fortunate to even get that chance.
“There’s no fear of being caught,” said one Brooklyn officer who has been on the force for roughly a decade. “You’re not going to go to trial and nobody is going to be cross-examined.” The percentage of cases that progress to the point where an officer is cross-examined is tiny. In 2016, for instance, there were slightly more than 185 guilty pleas, dismissals or other non-trial outcomes for each criminal case in New York City that went to trial and reached a verdict. There were 1,460 trial verdicts in criminal cases that year, while 270,304 criminal cases were resolved without a trial.
The presumption that an officer will be able to swear a false affidavit and never be challenged in court is a casualty of a criminal justice system that has grown absolutely dependent on plea bargains. The justice system’s overreliance on plea bargains removes the safeguards and incentives that are supposed to hold the government and its officers accountable for lies and petty abuses.
You can read the whole piece here.
Supreme Court, Over Thomas/Gorsuch Dissent, Passes Up Chance to Rein in Administrative State
More than seven decades ago, litigation over the Emergency Price Control Act of 1942 left courts with an embarrassing black eye that would affect decisions for decades. In Bowles v. Seminole Rock & Sand Co. (1945), the Supreme Court decided to give controlling deference to administrative agencies’ interpretations of their own regulations. In Auer v. Robbins (1997), the Court unanimously doubled down on Seminole Rock. As the late Justice Antonin Scalia noted in a 2013 case when it seems he began having a change of heart, “[f]or decades, and for no good reason, [courts] have been giving agencies the authority to say what their rules mean.”
These “interpretations,” for which there are no standardized processes, can come in informal contexts, as was the case in Garco Construction v. Speer, where the government’s deferred to “interpretation” that didn’t come around until litigation was well underway. This year, the Supreme Court had a golden opportunity to finally do away or at least curb this problematic doctrine, but alas it was an opportunity it failed to seize, today denying Garco’s petition for review (which Cato had supported with an amicus brief).
There are a multitude of arguments for overturning Seminole Rock and Auer. Even when the cases were decided, the Court gave little justification for the doctrine beyond administrative and judicial convenient. To the contrary, giving agencies the authority to interpret (and reinterpret) their own rules violates principles of separation of powers, as well as the Administrative Procedure Act. As Justice Clarence Thomas pointed out in 2015, the doctrine combines “the power to prescribe with the power to interpret,” and the separation of those two powers was one of the primary goals of the Founders. Justices John Roberts, Scalia, Sam Alito, Thomas, and Neil Gorsuch have all written opinions questioning — or outright rejecting — the doctrine’s scope on that ground alone.
Further, the APA provides that it is for the reviewing court to “determine the meaning or applicability of the terms of an agency action,” and that all legislative rulemaking go through public notice-and-comment procedures. With Seminole Rock/Auer, however, agencies have been enabled to get around these requirements by simply “promulgat[ing] vague and open-ended regulations that they can later interpret as they see fit.” Even where regulations are not so vague, though, this doctrine rears its ugly head. In Duquesne Light Holdings v. Commissioner of Internal Revenue, in which Cato just today filed an amicus brief, a regulated entity followed controlling regulations to the letter, but was nonetheless penalized tens of millions of dollars after the Third Circuit deferred to the IRS’s countertextual reading of its own regulations.
It seemed that Garco Construction was a great vehicle for adjusting Seminole Rock/Auer deference. Garco Construction won a contract to build housing on an Air Force Base in Montana. The contract, and its prior contracts, allowed Garco to use employees who had criminal records. Base regulations, however, allowed officials to refuse entry to any workers who had any outstanding “wants and warrants.” After Garco began work on its contract, base officials suddenly began running full background checks on all workers, and refusing those with any criminal record, not just those with an outstanding want or warrant (whom Garco didn’t employ). This change forced the contractors to hire, train, and transport new workers who could pass the suddenly tightened rule. The contractors requested reimbursement of these costs, but were denied by the government.
Garco was never given a reason for the sudden change — until litigation seven years later, when base officials justified the denials by testifying that they interpreted “wants and warrants” to mean, as Justice Thomas pointed out in his dissent from denial of certiorari, “wants or warrants, sex offenders, violent offenders, those who are on probation, and those who are in a pre-release program.”
Justice Thomas, who was joined by Justice Gorsuch, is right. Garco Construction would have been a good case to reconsider Seminole Rock, “as it illustrates the problems that the doctrine creates … an agency was able to unilaterally modify a contract by issuing a new ‘clarification’ with retroactive effect.” “This type of conduct ‘frustrates the notice and predictability purposes of rulemaking, and promotes arbitrary government.’” In declining to hear the case, the Court has “passed up another opportunity to remedy ‘precisely the accumulation of governmental powers that the Framers warned against.’”
Perhaps the other justices shied away because Garco involved the military, which generally gets more deference than other governmental institutions. But regardless, this issue isn’t going away and, as Justice Thomas put it, “Seminole Rock deference is constitutionally suspect.”
Invalid When Made: The District Court’s Madden v. Midland Decision
The seven-year saga of Madden v. Midland began as a dispute over a four-figure consumer debt. But billions of dollars’ worth of loans, and the future of consumer lending markets, now hang in the balance.
Madden began in 2011 as a lawsuit based on a claim of usury. The plaintiff, Saliha Madden, a New York resident who had defaulted on $5,000 worth of credit card loans. The balance owed was later acquired by Midland Funding, a debt collector headquartered in California. Midland attempted to collect the debt with a default interest rate of 27 percent. Although the loan contract stipulated that it would be governed by Delaware law, which does not have a usury cap, Madden sued Midland, alleging unfair debt collection practices under federal law and usury under New York law — which considers interest rates above 25 percent usurious.
The Southern District Court for New York ruled in favor of Midland, rejecting the claim of unfair collection practices and finding that the National Bank Act pre-empted the application of state usury law. But the Second Circuit Court of Appeals — which covers Connecticut and Vermont as well as Madden’s home state of New York — reversed the District Court ruling, finding that the National Bank Act pre-emption did not apply to Midland because Midland is not a national bank. Therefore, the opinion went, applying state usury law in this instance would not hinder any national bank’s powers. The Second Circuit thereby remanded the case back to the District Court, which in turn found that New York law should apply since applying Delaware law, which provides for no usury limit, would “violate a fundamental public policy of the state of New York.”
Should the District Court’s decision stand, Madden would jeopardize the long-standing judicial precedent of “valid-when-made,” which holds that non-usurious debt remains valid when acquired by a third party, even if the interest rate implied in the latter transaction is usurious. Not surprisingly, the uncertainty sparked in the aftermath of the Second Circuit’s ruling has prompted policymakers to turn to a legislative fix to restore the “valid-when-made” precedent by making it federal law governing consumer credit markets.