The Cato Institute

Legalizing Marijuana Has Made the Border More Secure

Turns out, legalizing marijuana has done way more for border security than building a wall ever could…

Although President Trump cites drugs passing over the U.S.’s southern border as a major justification for erecting a border wall, new data shows that, since the legalization of marijuana, drug flow over the border has substantially decreased and fewer drugs are entering where a border wall would matter.

Because it is difficult to conceal, marijuana is the main drug transported between ports of entry where a border wall would matter. However, Border Patrol seizure figures demonstrate that marijuana flows have fallen continuously since 2014, when states began to legalize marijuana. After decades of no progress in reducing marijuana smuggling, the average Border Patrol agent between ports of entry confiscated 78% less marijuana in fiscal year (FY) 2018 than in FY 2013. 

As a result, the value of all drugs seized by the average agent has fallen by 70% since FY 2013. Without marijuana coming in between ports of entry, drug smuggling activity now primarily occurs at ports of entry, where a border wall would have no effect. In FY 2018, the average inspector at ports of entry made drug seizures that were three times more valuable overall than those made by Border Patrol agents between ports of entry — a radical change from 2013 when Border Patrol agents averaged more valuable seizures. This is because smugglers bring mainly hard drugs through ports. By weight, the average port inspector seized 8 times more cocaine, 17 times more fentanyl, 23 times more methamphetamine, and 36 times more heroin than the average Border Patrol agent seized at the physical border in early 2018.

Given these trends, a border wall or more Border Patrol agents to stop drugs between ports of entry makes little sense. State marijuana legalization starting in 2014 did more to reduce marijuana smuggling than the doubling of Border Patrol agents or the construction of hundreds of miles of border fencing did from 2003 to 2009.

As more states — particularly on the East Coast — legalize marijuana in 2019, these trends will only accelerate. The administration should avoid endangering this success and not prosecute state-legal sellers of marijuana. This success also provides a model for addressing illegal immigration. Just as legalization has reduced the incentives to smuggle marijuana illegally, greater legal migration opportunities undercut the incentive to enter illegally. Congress should recognize marijuana legalization’s success and replicate it for immigration.

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Humanity is Experiencing Superabundance

Every additional human being born appears to make resources proportionally more plentiful for all of us on Earth…

A new Cato Institute study that relies on 37 years worth of data for 50 foundational commodities covering energy, food, materials, and metals to develop a new framework to measure resource availability finds that, instead of making resources scarcer, population growth has gone hand in hand with greater resource abundance.

The report builds on the famous wager between biologist Paul Ehrlich and economist and former Cato Senior Fellow Julian Simon on the effect of population growth on the Earth’s resources. While Ehrlich warned that population growth could deplete resources and lead to global catastrophe, Simon saw humans as the “ultimate resource” who could innovate their way out of such shortages. The Ehrlich-Simon wager tracked the real price of a basket of five raw materials between 1980 and 1990, finding as Simon hypothesized that all measured commodities decreased in price by an average of 57.6 percent, despite a population increase of 873 million.

Expanding on Simon’s original insight, the new study looks at 50 different commodities and analyzes a longer time period between 1980 and 2017, finding that the real price of the commodities decreased by 36.3%.

The study also introduces a new measure termed “time-price,” the time that an average human must work in order to earn enough money to buy a particular commodity. They find the time-price of their basket of 50 commodities has fallen by 64.%. Put differently, commodities that took 60 minutes of work to buy in 1980 took only 21 minutes of work to purchase in 2017. Should the current trend continue, commodities could become 50 percent cheaper every 26 years.

In addition, the authors develop the concept of price elasticity of population (PEP), which allows them to estimate the effect of population growth on the availability of resources. Over the time period studied the population grew from 4.46 billion to 7.55 billion, a 69.3% increase. The PEP indicates that the time-price of the basket of commodities declined by 0.934% for every 1% of increase in population. Every additional human being born on our planet appears to make resources proportionally more plentiful for the rest of us.

Using the PEP values the authors form the Simon Abundance Framework, which describes progression from decreasing abundance at the one end to increasing abundance at the other end. The authors conclude that humanity is experiencing superabundance with the time-price commodities decreasing at a faster proportional rate than the population is increasing.

Finally, the authors produce the Simon Abundance Index (SAI) that represents the ratio of the change in population over the change in the time-price. Between 1980 and 2017, resource availability increased at a compounded annual growth rate of 4.32%, meaning Earth was 379.6% more abundant in 2017 than it was in 1980.

The time-price of commodities could fall a further 29% over the next 37 years as humanity continues to make resources more plentiful through greater efficiency of use, increased supply, and the development of cheaper substitutes. However, for this trend to continue, market incentives and the price mechanism must endure.

The world is a closed system in the way that a piano is a closed system. The instrument has only 88 notes, but those notes can be played in a nearly infinite variety of ways. The same applies to our planet. The Earth’s atoms may be fixed, but the possible combinations of those atoms are infinite. What matters, then, is not the physical limits of our planet, but human freedom to experiment and reimagine the use of resources that we have.

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The U.S. Economy Still Hasn’t Fully Recovered from the Great Recession

Ten years after the Great Recession of 2007-2009, U.S. real GDP, productivity, and other aggregate economic indicators remain well below their historical trend levels…

For nearly 250 years, the United States has recovered from enormous economic and political shocks, including the Civil War, two World Wars, the Great Depression, and the high inflation and oil crises of the 1970s. Following each of these events, the U.S. economy returned to its previous economic trend.

In sharp contrast to this historical record of recovery, ten years after the Great Recession of 2007-2009, the U.S. economy shows no sign of recovering as it did following previous downturns — an unprecedented failure.

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Ten Reasons the Amazon Subsidies Hurt More Than They Help

Some New York and Virginia workers will be winners from the Amazon deal, but business subsidies are a loser for citizens overall…

Amazon has chosen New York City and Arlington, Virginia, for new corporate headquarters after the cities ponied up more than $2 billion in subsidies to the retail giant.

As with much of government spending, the costs of corporate pork to society are large but diffuse, while the benefits to the recipients are direct and visible.

Workers in the two cities will be winners as labor demand gets boosted, but business subsidies make losers of taxpayers, other businesses and good governance.

Ten Harmful Consequences of Handouts for Amazon

1. Fairness. Subsidies give Amazon an unfair edge other tech firms in New York City and Northern Virginia.
2. Alternatives. New York and Virginia would have generated more durable growth by cutting business taxes across the board by $2 billion. That would have boosted investment by many businesses, and thus created more balanced prosperity.
3. Diversity. Industry clusters such as Silicon Valley are successful not because they have big companies, but because they have a start-up culture that nurtures growth companies with venture capital. Rather than favoring big companies, state and local politicians would better spur growth by reducing tax and regulatory barriers to spawn a diversity of new companies.
   
4. Corruption. Allowing politicians to hand-out business subsidies at their discretion generates corruption because the hand-outs get swapped for campaign cash and outright bribes.
   
5. Bureaucracy. Amazon-style subsidy deals are jobs programs for accountants and lawyers.
   
6. Lobbyists. The high-profile Amazon win will inspire more companies to shake down politicians for subsidies. 
7. Dependency. Just as welfare undermines individual productivity, corporate welfare undermines business productivity. 
8. Bad Decisions. Subsidies induce companies to make bad decisions that backfire.
   
9. Politics. High-profile subsidy deals are politically risky. 
10. Priorities. State and local governments face serious problems that may sink their economies in coming years such as large unfunded pension costs. They should fix those problems rather than trying to micromanage the economy.
    

Rather than subsidizing big businesses, the states should aim to create a diverse business ecosystem — an Amazon, if you will — by cutting taxes and regulations for all types of investment. If states adopt low tax rates and repeal unneeded regulations on zoning, licensing, and other activities, growth will take care of itself.

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New Research Shows Traditional Education Rankings Are Misleading

Traditional education rankings, such as those published by U.S. News & World Report, while well-intentioned, are unreliable and misleading…

Traditional education rankings rankings fail to provide “apples to apples" comparisons among states. By treating states as though they had identical students, they ignore the substantial variation present in student populations across states. Conventional rankings also include inappropriate or irrelevant data to the educational performance of schools, such as raw spending per pupil, graduation rates, and pre-K enrollment. 

To better measure educational outcomes, Stan J. Liebowitz, Cato adjunct scholar and Ashbel Smith Professor of Economics at the University of Texas at Dallas (UTD) with Matthew L. Kelly, a graduate student at UTD, compare state test scores for each of three subjects (math, reading, and science), four major ethnic groups (whites, blacks, Hispanics, and Asian/Pacific Islanders) and two grades (fourth and eighth), for a total of 24 potential observations in each state and the District of Columbia. They give each of the 24 tests equal weight and base their ranking on the average of the test scores.

After adjusting for the heterogeneity of students, states in New England and the Upper Midwest who typically perform favorably fall in the rankings, whereas many states in the South and Southwest score much higher than they do in conventional reports. 

The authors also produce rankings that, unlike most conventional reports, consider states’ cost-effectiveness of education spending. Florida, Texas, and Virginia are the most efficient in terms of quality achieved per cost of living-adjusted dollar spent. Conversely, West Virginia, Alabama, and Maine are the least efficient. Some states, such as Massachusetts and New Jersey, do an excellent job educating students but also spend quite lavishly and thus fall considerably when spending efficiency is considered. 

While the authors observe a positive relationship between spending and achievement using nominal dollars, it disappears when state-level cost of living adjustments are made. This does not necessarily imply that spending overall has no effect on outcome, but merely that most states have reached a sufficient level of spending such that additional spending does not appear to be related to achievement as measured by these test scores.

The authors also briefly examine additional factors that affect student performance. They find states with stronger unions tend to get worse academic outcomes. Unions are negatively related to student performance, presumably through opposing the removal of underperforming teachers, opposing merit-based pay, or because of union work rules. Additionally, the authors’ results indicate that having a greater share of students in charter schools is positively related to student achievement.

Although this study constitutes a significant improvement on leading state education rankings, it retains some limitations. There exists substantial variation in education quality within states and disagreement about desired educational outcomes. However, state-level rankings do provide an intuitively pleasing basis for lawmakers and interested citizens to compare state education policies. The authors’ main goal is to provide rankings that more accurately reflect the learning that is taking place by focusing only on academic achievement and disaggregating scores, rather than scoring inputs and state-wide test scores.

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Twelve Charts Proving Why the Federal Government Should Terminate Transit Subsidies

Current total transit subsidies total more than $50 billion a year, with annual subsidies averaging more than $150 per U.S. resident. And, yet, most Americans rarely, if ever, use public transit — and ridership is declining…

Transit Ridership Is Declining:

Since 2014, ridership has been steadily falling in almost every urban area despite a healthy economy.

Transit’s Recent Decline Is Nearly Catastrophic in Some Areas:

Transit ridership in 31 of the nation’s 50 largest urban areas has dropped 15 percent or more since the year of highest ridership in each region in the last decade. While transit ridership has declined in the past, as it did between 1990 and 1995, it recovered due to high gas prices. Today, moderate gas prices are fueled by America’s resurging oil industry, and when that resurgence is combined with deteriorating transit infrastructure and the growth of the ride-hailing industry, it appears that the most recent decline may be irreversible.

Transit Requires High Downtown Job Concentrations:

Many assume that transit ridership is heavily influenced by population density, however, much more important to transit is the concentration of downtown jobs. A major reason for transit’s decline has been the dispersion of jobs from concentrated job centers to distribution across the urban landscape. O'Toole finds the only urban areas whose transit systems carried more than 10 percent of commuters had more than 240,000 downtown jobs.

Transit is Slow:

The average speed of transit is 15 miles per hour while the average speed of urban driving is at least 27 miles per hour.

Nearly Everyone Has a Car:

Americans have responded to the automobile’s advantages over transit by steadily increasing automobile ownership, with 21 percent of American households having three or more cars and fewer than 9 percent having no car. Making matters even more difficult for transit, about half the households with no cars also have no workers: only 4.3 percent of American workers live in households that have no cars. In addition, more than 20 percent of workers in carless households nevertheless drive alone to work (probably in employer-supplied cars) while fewer than 42 percent take transit to work.

Transit is Expensive:

Per passenger mile, transit costs more than four times as much as driving, and transit subsidies are more than 70 times larger than highway subsidies.

About Half the Cost of Transit Is Because It Is Government-Run:

Today transit carries fewer than 27,000 riders per operating employee compared to 59,000 riders per employee in the decade prior to 1964, the year Congress gave cities and states incentives to municipalize transit systems.

Since 1970, Subsidies Have Exceeded $1.3 Trillion:

Current total transit subsidies total more than $50 billion a year, with annual subsidies averaging more than $150 per U.S. resident even though most people rarely, if ever, use transit. A major problem with transit agencies’ dependence on subsidies is that such dependence makes them more beholden to politicians and their backers than to transit riders. Agencies become willing and eager to approve cushy union contracts and gold-plated infrastructure projects that do little to improve local or regional transportation. Meanwhile, politicians neglect the maintenance of existing systems, leading to frequent breakdowns.

Growing Subsidies Haven’t Boosted Transit Ridership:

At best, the tens of billions of dollars in annual transit subsidies have only slowed the decline in ridership.

Transit Is Increasingly Used By High-Income People:

The 2010 Census found that people who earned $75,000 or more per year were more likely to ride transit than any other income class.

Transit Isn’t Green:

In all but four urban areas, transit uses more energy and emits more greenhouse gases per passenger mile than driving.

Transit Spending Doesn’t Boost Urban Growth:

The fastest-growing urban areas in the 2000s were ones that spent the least on transit improvements in the 1990s, while urban areas that spent the most on transit improvements were among the slowest-growing regions.

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The WTO is the Best Hope for Disciplining China’s Trade Practices

The Trump administration’s current approach of using unilateral tariffs to curtail China’s protectionist trade practices is ineffective and hurts U.S. businesses and consumers…

A multilateral solution harnessing the World Trade Organization’s (WTO) dispute settlement system is the better solution.

While some of China’s specific practices may be a problem, its desire for economic development is natural and appropriate. Demonizing China for participating in trade practices which are common in other countries exacerbates the problem. Whatever policies are adopted with respect to Chinese trade should not try to limit China’s economic ambitions. 

When practices do arise that are protectionist or otherwise problematic, the U.S. along with its key allies should utilize internationally agreed upon trade rules to steer China toward market-oriented solutions. Despite the belief that China “cheats” at trade and therefore litigating through the WTO would be worthless, China actually has a relatively strong record of compliance. Of the matters litigated against China since it joined the WTO, 12 were litigated all the way through, while 10 were either addressed in settlements or dropped. In almost all of these completed cases, China’s response was to move toward greater market access by altering its measures and practices to comply with WTO rules.

While this litigation has been successful, there are several possible WTO complaints that have been overlooked, including those involving general intellectual property protection and enforcement, trade secrets protection, forced technology transfer, and subsidies. One glaring example is the U.S. failure to pursue broad WTO complaints targeting China’s transgressions against U.S. intellectual property rights.

The existing WTO rules are not adequate in all respects to deal with the unique challenges presented by China. The remedy for this inadequacy is not, however, abandoning those rules, but the adoption of more and better ones. China’s protectionist policies should encourage countries to redouble their efforts to reinvigorate the rules-based trading system by negotiating new rules to discipline protectionist actions and encourage China to adopt market-based approaches. These new rules could include Chinese accession to the WTO’s Government Procurement Agreement, negotiation of new disciplines on subsidies for state-owned enterprises, and negotiation of disciplines on forced localization of services and other aspects of digital trade and digital trade in services, to name a few.

The Trump administration may prefer the contentious use of unilateral tariffs, but if they are looking for effective approaches to addressing Chinese protectionism, WTO disputes are the better avenue. 

The WTO dispute process is not perfect but, it’s biggest flaw is that it is underutilized. The Trump administration should work with U.S. allies to use the WTO dispute process to press China to fulfill its promises and become more market-oriented.

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A Split Congress Could Impact Midterm Strategy

The two primary ways the new Congress could influence North Korea policy is through investigations and appropriations…

A split Congress could affect President Trump’s negotiating strategy vis-à-vis North Korea, but the legislative branch’s impact will mostly come at the margins of U.S. policy.

Trump’s control over the two major levers of U.S. pressure on North Korea —sanctions implementation and the military — means that he has significant discretion over negotiations with Pyongyang. By controlling the sources of U.S. pressure, Trump can adjust either and impact negotiations with little concern for what Congress thinks or wants.

Congress does have the ability to prevent either extreme outcome of war or peace, but neither of these seem likely given the current conditions on the peninsula.

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