AEI » Latest Content American Enterprise Institute: Freedom, Opportunity, Enterprise Mon, 24 Nov 2014 14:40:41 +0000 en-US hourly 1 Education that works Tue, 21 Oct 2014 20:49:30 +0000 AEI’s exclusive Vision Talks series convenes America’s leading scholars, thinkers, and practitioners to offer fresh perspectives on key areas of policy and public debate. These talks will be filmed and disseminated as standalone videos, such as Robert Doar’s “What works in helping the poor?” talk.

In the United States, we think of education as the key to equal opportunity. But while spending on education is higher than ever, student achievement — particularly for disadvantaged students — has not kept pace.

Myriad government efforts to improve educational attainment have shown mixed results at best. Is conventional thought on reforming education misguided? Is there a better way to foster excellence? What can parents, educators, and citizens do about it, and how can they make an effective case for change?

Please join us for four concise talks on why America needs to rethink education, what that thinking looks like in practice, and how compelling communication can turn ideas into action.

This event will not be live streamed.

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Mexico’s security crisis: Will Iguala be a wake-up call? Mon, 24 Nov 2014 13:41:47 +0000 ...]]]> Key points:

  • The kidnapping and probable murder of 43 students at the hands of corrupt local officials and drug gangsters in September is a tragic reminder of persistent criminality and weak government institutions in much of Mexico.
  • Mexican President Enrique Peña Nieto has prioritized key economic reforms over security, and his administration must now deal with instability that undermines his goal to modernize Mexico.
  • The United States should invigorate security cooperation with Mexico to fight crime and secure the border to safeguard the long-term benefits of a healthy US-Mexico economic partnership.


Read the PDF.


Mexico’s democracy, stability, and economy require a collaborative response from all levels of government to quell the wave of recent political unrest and address the underlying causes of insecurity and public dissatisfaction. The current crisis—sparked by national outrage over the September 26 disappearance of 43 students near the town of Iguala in the state of Guerrero—should be a wake-up call for the country.1

The atrocity in Iguala is linked to drug-related corruption and violence, which continues unabated in many areas of the country and has exposed weak state and local governments that enable criminal organizations to operate with virtual impunity in many parts of Mexico.

Widespread public demonstrations and global media coverage since the tragedy are undermining President Enrique Peña Nieto’s effort to portray Mexico as a stable, modernizing nation.2 Furthermore, a pattern of insecurity has evolved into a political crisis that, if not addressed effectively, threatens the governability of the country and the well-being of all Mexicans.

Thus far, Peña Nieto’s perceived ineffective response to the tragedy is fueling public discontent.3 His decision to leave the country to attend the Asia-Pacific Economic Cooperation Summit in China during the growing public protests—and a scandal involving a multibillion-dollar rail construction bid won by a consortium allegedly linked to a $7 million mansion owned by his wife—have stirred doubts about his ability to manage the crisis.4

Two years into his six-year term, Peña Nieto has focused his attention on a series of economic and social reforms that he hopes will make Mexico a more modern nation. Unfortunately, the issues of corruption and insecurity that he consciously underestimated now threaten the stability of the country and the success of reforms that he hopes will be his legacy. His challenge now is to move beyond the political maneuvering in Mexico City and take a stronger hand in governing a country beset by weak institutions, corruption, and organized crime.

Ghosts of Mexico’s Past

In many ways, Mexico’s story is a tale of two countries. One Mexico is undergoing dynamic, positive change that will result in the country finally fulfilling its enormous potential. Particularly in booming urban centers, there is a growing middle class, social mobility, and robust demand for homes and consumer goods.5 Peña Nieto hopes his reforms will attract investment to this dynamic, modern Mexico. But the second Mexico, revealed in recent weeks by the events in Iguala, is hindered by institutions that are too weak and, in some cases, politicians who are too corrupt to impose the rule of law.

The Institutional Revolutionary Party (PRI) governed Mexico by relying on crony capitalism, quasi-authoritarian political tactics and de facto truces with criminal organizations for more than 70 years. That grip on power was broken from 2000 to 2012 by two successive National Action Party (PAN) presidents. The PRI recovered power with Peña Nieto’s election; however, since his inauguration on December 1, 2012, the young president has advocated sweeping reforms that appeared to break with his party’s corrupt history of defending entrenched interests. He used the political punch of the PRI to push through modernizing reforms that challenged entrenched interests—rewriting tax and education policy and opening up the energy and telecommunications sector.

During his campaign, Peña Nieto also promised a new approach to the confrontational security policy that his predecessor, Felipe Calderón (2006–12), pursued. Calderón launched, for the first time in the country’s history, an aggressive and frontal approach to fighting organized crime. In six years, the bloody confrontation resulted in the loss of some 60,000 Mexican lives, shocking the nation.

Peña Nieto advocated a strategy that favored intelligence over frontal attacks against criminal organizations and focused on dealing with high-impact crimes, such as kidnappings, extortion, and murder.6 Once elected, Peña Nieto made a point of reining in Mexican cooperation with US law enforcement and military. However, it is not clear that he implemented a comprehensive security strategy, preferring to intervene on an ad hoc basis when security crises flared up in various states.

Unfortunately, the toll on citizen security since Peña Nieto took office has been steep. Kidnappings and extortion cases have increased by 27 percent compared to the last administration, according to Mexico’s National Public Security System.7 This criminality has stoked public anxiety about insecurity, which has increased exponentially with the murders in Iguala and the government’s uneven response.


Read the full report.



Felipe Trigos, research analyst at Visión AméricasLLC, contributed significant sections of this report.

1. In an interview with Christiane Amanpour, Eduardo Medina Mora, Mexico’s ambassador to the United States, noted that Iguala “is a wakeup call for all of us in the shortcomings of our institutional advancement, particularly in states like Guerrero.” See Madalena Araujo, “Mexico Facing ‘Big Political Crisis’ in Aftermath of Student Disappearances, Says Ambassador to U.S.,” CNN, November 12, 2014,

2. Karla Zabludovsky, “Suspected Student Massacre Shocks Violence-Weary Mexico,” Newsweek, October 10, 2014,

3. Jo Tuckman, “President Peña Nieto’s Reputation Founders amid Failure to Find Students,” Guardian, November 3, 2014,

4. Leticia Pineda, “Mexico First Lady’s Mansion Causes Stir,” AFP, November 10, 2014,

5. Enrique Hernández, “Crece apetito por el sector inmobiliario” [There Is a Growing Appetite for Real Estate], 24 Horas, June 19, 2014,

6. Francisco Reséndiz, “Peña Nieto pide más prevención contra el crimen” [Peña Nieto Requests More Crime Prevention], El Universal, February 12, 2013,

7. “Cifras de incidencia delictiva 1997–2014” [Crime Rate Figures, 1997–2014], National Public Security System,

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Bee deaths and colony collapse disorder: How Chensheng Lu and his flawed ‘Harvard Study’ endangers bees Mon, 24 Nov 2014 13:00:07 +0000 Last week, in Part I of this two part series, “Bee Deaths Mystery Solved? Neonicotinoids (Neonics) May Actually Help Bee Health”, we explored the claims by Harvard School of Public Health researcher Chensheng Lu, heralded by anti-pesticide and anti-GMO advocacy groups, for his research that purportedly proves that the class of chemicals known as neonicotinoids are killing bees and endangering humans. And we saw how many journalists, out of ignorance or for ideological reasons, promote dicey science.

In part II, we examine the specific claims that neonics are responsible for Colony Collapse Disorder—the centerpiece of Lu’s claims. We again see how influential media manipulate quotes and selectively present information to ideologically influence trusting readers. And we look at what might happen if neonics are banned and also their real impact—including intriguing, but incomplete evidence, that when used appropriately the controversial pesticide may actually improve bee health.

A week does not go by without one advocacy group or government official or activist scientist making sensational claims about the supposed catastrophic dangers that neonics supposedly present.

Just last week, for example, advertisements began appearing across Ontario in Canada warning, “neonic pesticides hurt our bees and us,” accompanied by a young boy gazing sadly at a dead bee. They were placed by a fringe advocacy group, the Canadian Association of Physicians for the Environment; its primary funder is David Suzuki, a once prominent but now long retired geneticist who more recently has become known for rants against GMO foods.

That kind of hyperbole, scientists say, obscures the complex story of what’s really happening to bees and why—and the risks that advocacy groups and activist journalists risk of driving science and agricultural regulations into a policy ditch.

This article is available at Science 2.0. 

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Nobody is pushing Thomas Piketty’s policies to combat economic inequality Mon, 24 Nov 2014 10:00:51 +0000 Last spring, you may remember, the French economist Thomas Piketty was all the rage in certain enlightened circles. His book Capital shot up to the number one spot on bestseller lists, and many economists praised his statistics showing increased income and wealth inequality. Piketty argued that, absent a world war, returns to capital will exceed economic growth, inevitably producing growing inequality in the twenty-first century.

There are problems with Piketty’s — or anyone else’s — statistics. Reliance on U.S. income tax returns overlooks the fact that tax cuts encourage people to realize income and misses non-taxable income like welfare and Social Security payments.

Still, there has clearly been a boom in the incomes and wealth of the top 1 percent here and worldwide. Piketty sees this as a threat to democracy. Liberal economists and pundits hoped that his revelations would finally get politicians to support policies like Piketty’s 80 percent tax rate on high incomes and progressive tax on great wealth — and get the masses to vote for them.

So far it hasn’t happened here or just about anywhere.

You didn’t see any campaign ads calling for Piketty taxes this fall. You didn’t even see any ads hailing Democrats for having raised taxes on high earners in early 2013. Democratic candidates in seriously contested races didn’t come close to advocating such policies.

You may have heard some Democrats bemoaning income inequality. The idea that the rich get richer while everyone else doesn’t gets pretty wide agreement in the polls. So does the Democrats’ one redistributionist policy — raising the minimum wage.

As a policy to address inequality, though, it’s rather pathetic. About half of minimum wage earners are not in the lowest fifth households in income. Even fewer are their own household’s primary earner. Almost all economists agree that when the minimum wage is raised, some employees lose their jobs.

It is only slightly hyperbolic to say that an increased minimum wage is a transfer of income from fast food customers to fast food workers minus those who are replaced by kiosks. That’s not a very effective way to sock it to the top 1 percent.

Even after the election, some Democrats argue that they didn’t hit the issue hard enough. One Democrat’s advice to President Obama, according to Politico, “is focus on income inequality, and talk about and propose things, and just be a fierce advocate of addressing the economic divide. That will leave people after two years saying the Democratic party really stands for something.”

“Propose things” — but what? A recent Congressional Budget Office report shows that when you measure federal taxes paid minus federal transfers received (welfare, food stamps, Social Security, etc.), the top 20 percent of earners pay an average of $46,500. The next 20 percent pay an average of $700. The bottom three-fifths get back more than they pay. Plus, the U.S. already relies more heavily on the income tax for revenues than any other advanced economy nation.

In other words, America already has lots of economic redistribution. American voters evidently sense that more redistribution more would sap economic growth. They’re willing to throw a little to minimum wage earners, but they don’t want to kill the geese laying the golden eggs.

Americans are not alone in feeling that way. You don’t see much demand for Piketty policies in other countries either.

Even in Brazil, with near-zero growth and much greater inequality than the U.S., incumbent President Dilma Rousseff saw her percentage slip from 56 percent in 2010 to 52 percent this October.

In Britain, facing an election next May, there are calls within the Labour party to oust leader Ed Miliband, who has called for freezing energy prices and a tax on “mansions” which would hit Londoners hard.

Piketty confesses he has seldom left Paris in his adult years. But even there his policies are in trouble. The job approval of Socialist President François Hollande, who imposed a top income tax rate of 75 percent, currently hovers just above 10 percent.

Politicians opposing massive economic redistribution have a hard time coming up with appealing rhetoric. But there seems to be something more powerful working in their favor — a widespread if unspoken understanding that government attempts to “spread the wealth around” (as candidate Obama once told Joe the Plumber) tend to destroy it instead.

Piketty has sold a lot of books. But his policies don’t seem to be selling well anywhere.

Michael Barone is a senior political columnist for the Washington Examiner. This column is reprinted with permission from

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An amazing chart of an amazing job-creating state; we owe a debt of gratitude to ‘Saudi Texas’ and the shale boom Sat, 22 Nov 2014 00:22:24 +0000 ...]]]> The chart above shows a most amazing economic phenomenon: Since December 2007 when the Great Recession started, Texas civilian employment has increased by 12.4% and by more than 1.36 million jobs, from just over 11 million jobs in December 2007 to 12.37 million in October of this year (see blue line in chart). In contrast, civilian employment in the other 49 states without Texas is still 0.26% and more than 350,000 jobs below the December 2007 level (see red line in chart) — there were 134.9 million non-Texas jobs in October vs. 135.26 million in December 2007.

It’s also important to note that while job growth in Texas slowed considerably in 2008 and 2009 due to the recession, the level of civilian employment in Texas never fell below its pre-recessionary, December 2007 level. Also, while Texas was able to actually increase jobs slightly even during the depths of the recession in 2008 and 2009, the US labor market minus Texas experienced a stunning loss of 8.374 million jobs (a percentage drop of 6.2%) in the two year period between December 2007 and December 2009.

In another job-related milestone for Texas, the BLS reported today that annual payroll employment in Texas increased in October by more than 400,000 jobs from a year ago for the third straight month, and established a new all-time state record for job growth over a 12-month period with a 421,900 gain from October 2013. Over the last year, Texas has added more than 1,600 new jobs every business day – a hiring rate of more than 200 jobs every hour! Also, Texas’s annual job gain of 421,900 through October represented 16% of the country’s 2.643 million increase in nonfarm payroll employment over that period, even though Texas’s population is only 8.4% of the US total. In percentage terms, Texas payrolls increased by 3.74% over the last 12 months, almost double the 1.93% growth in US payroll employment.

The chart and data tell a powerful and remarkable story of job creation in the Lone Star State of more than 1.36 million new jobs added since the start of the Great Recession, compared to a net deficit of 354,000 jobs for the other 49 states combined. Much of the economic success of Texas in recent years that has fueled job creation in the state is a direct result of the shale oil and gas boom taking place in areas like the Permian Basin in west Texas (1.8 million barrels of oil per day) and the Eagle Ford in south central Texas (1.6 million barrels per day). Texas is now producing almost 37% of America’s total crude oil production, and as a separate country would be the world’s 8th largest oil-producer. Further, Texas has done a great job of attracting businesses like Toyota because of the state’s “employer-friendly combination of low taxes, fair courts, smart regulations and world-class workforce.”

Bottom Line: The country, the president, and all of us individually owe a huge debt of gratitude to the state of Texas and to the oil and gas industry for helping support the US economy during and after the Great Recession. Without the energy-driven economic stimulus from the fracking revolution, and without the gusher of jobs in the state of Texas, there’s no question that the Great Recession would have been much worse and lasted much longer, and the jobs picture today would be much bleaker. The chart above helps to illustrate how important the state of “Saudi Texas” is to the US labor market and economy. Thanks largely to the Lone Star State, the US has finally gained back all of the jobs lost during the Great Recession – September and October this year have been the only two months since 2007 that civilian employment in the US surpassed the pre-recession jobs peak. God Bless Texas.

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Obama’s immigration executive order Fri, 21 Nov 2014 22:15:56 +0000 ...]]]> Last night in prime time remarks, President Obama laid out his plan to address illegal immigration in the US. While some are hailing it as necessary action in a stalled political system, others are calling it a drastic overreach beyond the scope of presidential power. AEI scholars offer their perspective on the executive order, from its policy merits to the potential political implications.

AEI immigration expert Madeline Zavodny explains how the executive order is detrimental to reforming the immigration system as a whole:

The real disappointment is that this executive action distracts Congress and the American public from the far more important issue of the need to reform the entire U.S. immigration system. Instead of focusing on unauthorized immigrants, who are less than 30 percent of all immigrants in the U.S., the U.S. should rethink how it admits legal immigrants. The U.S. needs to change its legal immigrant system to increase the number of visas available to workers and to reduce chain migration based on family ties.

Visiting Fellow Roger Noriega explores the executive order’s potential to increase illegal immigration:

The president’s decision to grant lawful residence and work permits to about 4 million aliens with children who are US citizens or legal US residents cannot be implemented without funding, and, starting in January, a Republican Congress pulls the purse strings. Even if funds were forthcoming, about 8 million aliens are not covered by Obama’s order. So, the White House decision has merely sown more confusion and anxiety among these illegal aliens. In the meantime, as word spreads in Mexico and Central America that President Obama is doling out green cards and work permits, more immigrants might take their chances at an illegal crossing.

Resident Scholar Stan Veuger, however, examines its benefits:

What the president is doing, in effect, is going from not enforcing federal immigration law (much like his predecessors) to announcing that he is not enforcing federal immigration law, and detailing more of the specifics of this non-enforcement. In other words, he’s gone from not deporting 11 million people to not deporting 5 million or 3 million people. For a number of reasons this is, along practically all dimensions, good and helpful public policy.

To arrange an interview with an AEI scholar, or for other media inquires, please contact AEI Media Services by emailing (202.862.5829) or a media representative below.

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How to check the president Fri, 21 Nov 2014 20:09:20 +0000 President Obama last night unveiled an executive order that suspends the deportation of as many as 5 million illegal aliens — almost half of the estimated 11 million persons illegally present in the United States — for the remainder of his term of office. He also intends to issue work permits to many of them. The administration’s stated objective is to “normalize” the conditions of life for the beneficiaries of the order — to enable them to be as fully integrated into mainstream American society as possible. The president’s expectation is that his successor and a later Congress will hereafter be forced, morally and politically, to legalize the permanent presence of this population and to put it on the path to citizenship. As former Justice Department lawyers who a) have defended a vigorous executive branch and b) support an expansion of immigration quotas, we believe that Obama is violating the Constitution and that Congress and the courts must respond.

When he assumed office, Obama swore that he would enforce the Constitution and the laws. During his first election campaign, and for a period after, he and his party argued against what they saw as overreaching claims to executive power made by President George W. Bush. Obama originally acknowledged that he, as president, had no legal authority to take exactly the kind of step that he has just ordered. In 2011, he said: “With respect to the notion that I can just suspend deportations through executive order, that’s just not the case, because there are laws on the books that Congress has passed. . . . [W]e’ve got three branches of government. Congress passes the law. The executive branch’s job is to enforce and implement those laws.” In 2013, he said: “I’m not a king. I am the head of the executive branch of the government. I’m required to follow the law.”

In acknowledging his constitutional duty to enforce the law (even when the law embodies policy choices with which he vehemently disagrees), Obama was merely restating what many earlier presidents, including Lincoln and Washington, had said long before. Basing themselves on centuries of English law, precedent, and practice, the Framers had consciously denied the president any authority to “suspend” the law. They embodied his duty in Article II, Section 3 of the Constitution, which requires the president to “take Care that the Laws be faithfully executed.”

Defenders of the legality of the president’s action have made several arguments on his behalf.

“We don’t have the funding.”

Budgetary constraints preclude the enforcement of federal law at all times and in every case. Administrators have to make judgments about the best use of the scarce resources available to them. They must choose what enforcement measures to take and which cases to bring. Obama’s defenders have claimed that his deportation deferrals reflect the prudent and permissible choice of enforcement priorities in immigration.

But budgetary concerns do not drive Obama’s decision. If they did, Obama would have taken the non-enforcement decision as quietly as possible, rather than announce it in a blaze of publicity. Handling such a policy shift discreetly would not encourage massive and continuing violations of the law. If a county prosecutor lacked the resources to prosecute any burglaries, announcing that she would no longer bring burglary cases would have the foreseeable effect of making burglaries more common. So it is here. Announce to illegal aliens that they have zero risk of deportation, and they are more likely to stay. And others outside the country more likely to enter illegally. Obama’s 2012 announcement provoked the tragic surge of children seeking to enter the United States illegally from Central America last summer.

Work permits are plainly not a cost-savings measure. They only raise the expected level of violation of the law. An illegal alien with work authorization and a legal job is more likely to remain. If the president truly means to enforce the immigration laws within financial constraints, he would deny, not grant, work permits and other benefits. Finally, the stated aim of the decision is to integrate the beneficiaries as much as possible into the mainstream of American life. But that too is not a budgetary purpose; it is a legislative policy choice, which may well increase costs to government at all levels as illegal aliens make use of schools and social services.

“Reagan and Bush did it.”

Part of Obama’s decision is known technically as “deferred enforced departure” (DED). It covers some but not all of the 5 million. This piece of the policy is the part that carries work authorization. Those who are granted DED have a “quasi-legal” status. Apologists for this action have argued that other presidents have granted DED on a class-wide basis on numerous occasions.

But in a July 2012 memo, the well-regarded Congressional Research Service (CRS) compiled a list of the blanket DED grants since 1976. CRS noted that “most of these discretionary deferrals have been done on a country-specific basis, usually in response to war, civil unrest, or natural disasters. In many of these instances, Congress was considering legislative remedies for the affected groups, but had not yet enacted immigration relief for them.” Obama’s policy differs from the general pattern of the past 40 years in three important ways: It is not country-specific; it does not arise from a critical humanitarian emergency in the home country; and it is done in open defiance of Congress.

If past practice sets the norm, then we should also consider President Eisenhower. When Eisenhower entered office, he found that our southern border was porous. As many as 3 million illegal aliens had walked or waded northward. Once in the United States, they were often forced to take work in agriculture, including cotton growing in the Rio Grande Valley, and were paid half the wages of ordinary working Americans. Using only 1,075 Border Control agents — roughly a tenth of the number available to Obama — Eisenhower cut off the illegal flow. In one month, immigration officers captured 50,000 illegal workers in two states; another 488,000, fearing arrest, fled the country. Within the next three months, 500,000 to 700,000 illegal workers had fled Texas voluntarily.

“It’s a matter of prosecutorial discretion.”

Prosecutorial discretion is indeed one of the president’s affirmative authorities and is rooted in the text of the Constitution. But its primary sphere of operation is in the criminal law. The executive’s power not to bring a criminal case even against a suspect who is likely to have committed a crime can be seen as a logical corollary of the president’s power to pardon. Clemency for those accused or convicted of crimes had long been considered an essential attribute of rulers, and the Framers vested that traditional authority in the president. Moreover, prosecutorial discretion in the criminal area makes sense in separation-of-powers terms: If Congress has enacted a criminal statute that is too harsh, or has become obsolete, or clearly was not intended to apply in a specific situation, prosecutorial discretion serves the constitutional goal of protecting individual liberty from the tyranny of one branch. But the Constitution provides no affirmative presidential power not to enforce the civil law as against a class of 5 million people. That is not “prosecutorial discretion”; it is simply the refusal to discharge a basic constitutional duty.

Obama’s Justice Department seeks to defend his order by reference to a 1985 Supreme Court case, Heckler v. Cheney. Although the Court declined to review the legality of an agency’s non-prosecution decision in a particular case, this doesn’t offer much help to Obama. First, the Court was as much concerned with limiting its own powers as with defining the executive branch’s responsibilities. In general, courts should not review non-enforcement decisions in specific cases. If they do, they will be micro-managing executive functions, in violation of separation-of-powers principles. But the non-reviewability of an executive choice for inaction doesn’t mean that the choice is constitutional. It might be unconstitutional but simply outside a court’s reach. Second, Heckler reserved judgment on the category of non-enforcement decisions that were so sweeping that they amounted to an abdication of the executive’s responsibilities. A decision not to enforce the deportation law against roughly half the nation’s illegal-immigrant population looks like an abdication to us and would seem so to a Court faithfully applying Heckler.

“Congress is dysfunctional.”

This is the weakest defense of all — and yet, it is the one on which the administration leans very heavily. A new Congress has just been elected and will take office in January. The president had contemplated issuing his order last summer, then pulled back when the polling showed that it would hurt his party, then came forward with it again after the election. Instead of taking the opportunity to work with a new Congress toward immigration reform (which many Republicans strongly favor), he has decided to wreck the chance of bipartisanship. The “dysfunction” is with a president who neither respects the wishes of the electorate nor is willing to play his part in good faith in the constitutional law-making process.


Although Obama’s deportation-deferral program violates the president’s duty to enforce the laws, the Constitution does not set out any obvious paths for resistance. The Constitution does not specifically set out the immigration power itself, only a power of naturalization, which it vests in Congress. The Supreme Court, however, has long recognized that control over the borders and immigration lies in Congress’s hands, not the president’s. To restore the Constitution’s separation of powers, critics will have to avail themselves of a variety of responses, some of which are less politically feasible than others.

Our Founders established three primary mechanisms to control an unconstitutional government. The first was the power of impeachment. The Clinton affair focused on whether perjury fell into the Constitution’s impeachable offenses: “Treason, Bribery, or other high Crimes and Misdemeanors.” Clinton’s defenders made a good point that this provision seemed to limit impeachment to the president’s public performance of his job. At the time of the Constitution’s writing, the British Parliament had used impeachment to remove ministers not just for constitutional disputes, but for incompetence and failure in office, such as losing a battle or a war. The Framers would have had no problem concluding that the president’s refusal to carry out his constitutional duties amounts to an impeachable offense.

The problem with impeachment is not its constitutional availability, but its political viability. As the Clinton affair teaches, Congress should not embark on impeachment unless it has the votes to convict. The House may vote to impeach — essentially a decision to prosecute — but the Senate must agree by a two-thirds vote to remove the president. Even with their stunning victories in this month’s midterm elections, Republicans have nothing approaching 67 votes in the Senate. Not only will impeachment fail, but as with Clinton, it will likely redound to Obama’s political benefit. Congress could always censure the president, as it considered during the Clinton affair. That could be a stinging rebuke, but it would have no practical effect on Obama’s order or his unconstitutional exercise of power.

The second, more promising, route is the power of the purse. Responding to the criticism that the Constitution made the president a potential dictator, James Madison declared in the critical Virginia ratifying convention that “the sword and the purse are not to be given to the same member.” Comparing the U.S. Constitution to the British, he said, “The sword is in the hands of the British King; the purse in the hands of the Parliament. It is so in America, as far as any analogy can exist.”

Opponents in Congress should immediately turn to the funding power. They need not aim for a complete government shutdown, which proved disastrous for the Republican party last year. They should use funds as a scalpel, not a sledgehammer. Congress could increase funds for border and immigration-control officers and cut them for higher management and legal advisers in the Department of Homeland Security and the Justice Department. It could separate the DHS appropriation from the overall federal budget and take a stronger hand in reorganizing and downsizing the department. It could refuse to cooperate with the Obama administration on any new funding proposals in other areas unrelated to immigration, and it could ignore the administration and spend more funds on national security.

Republicans should combine funding cutoffs with the usual tools of oversight to paralyze the Obama administration for the next two years. It could hold hearings where Obama officials face tough questions and conduct investigations into the performance on immigration, border, and national security. The Senate could refuse to confirm any Obama nominees for executive or judicial positions. It could refuse to approve any treaties or international agreements. President Obama should expect that his proposals in any area will be dead on arrival in Congress.

A third means for relief from unconstitutional government puts Republicans in a tough spot. Americans’ first reaction to a violation of the Constitution is to go to court. The problem is that of standing, which requires that a plaintiff have suffered an “injury in fact” that is traceable to the government’s action and for which the court can order a remedy. Conservatives such as Justice Antonin Scalia favor standing because it makes sure that federal judges are deciding real cases and controversies, as required by the Constitution, and not using lawsuits as an excuse to make social policy. When the president refuses to enforce the law, plaintiffs will have difficulty hurdling the standing bar, because all citizens may be harmed, but no individual American is uniquely harmed enough to bring suit.

Here, however, recent precedents point the way to a viable lawsuit. In Massachusetts v. EPA (2007), a state sued the Bush administration for failing to issue regulations controlling the emissions of greenhouse gases. Standing should have stopped Massachusetts from forcing the president to enforce its understanding of the Clean Air Act. But with the liberal Justice Stevens writing, the Court held that Massachusetts had standing because, some day, the rising seas caused by global warming might reduce the state’s coastline.

We consider the Court’s finding of injury to be tenuous, if not laughable. But if Massachusetts enjoys standing because of the rising seas, a state today must have standing to challenge the non-enforcement of the immigration laws. States, especially those along the nation’s borders, will expend more money and resources on the illegal aliens in their jurisdictions. They will have to spend more on police and social services, such as education and health care. Just as Massachusetts could sue to force the Bush administration to enforce its preferred understanding of the Clean Air Act, so states today should be able to sue to force the Obama administration to enforce the immigration laws. In the 1990s, the state of California sued the Clinton administration for failing to enforce the immigration laws under a similar theory. While the case never made it to the Supreme Court, the lower courts did not reject the case for lack of standing (though they did dismiss it because California founded its case on the U.S.’s responsibility to protect the states from invasion).

All of this will take time, of course, on multiple fronts. But Republicans should not forget the ultimate check on a president: the next president. Any unilateral executive non-enforcement decision, no matter how sweeping, is fleeting. Because orders like these are based on a president’s decision how to exercise (or not) his constitutional powers, the next president can undo it on his first day in office. A new president could take the list of illegal aliens who have applied for Obama deferrals and order them deported. A new president could order enforcement actions brought against any business that hires aliens under Obama’s work permits. It will take winning the 2016 election to ultimately undo the harm that President Obama has inflicted on the Constitution, and it is to that goal that Republicans should immediately turn.

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Greece’s collision course with Germany Fri, 21 Nov 2014 20:00:48 +0000 Today’s decision by the Greek government to present a budget for 2015 that is in open defiance of the wishes of its European Union and IMF paymasters is of singular importance. Since it signals that not only the far-left Syriza Party but the whole of the Greek political establishment is now hostile to further fiscal adjustment and structural economic reform. This would seem to put Greece on a clear collision course with Germany that could have serious consequences for the Greek economy next year.

The Greek government’s budget presentation was made in the context of its expectation that general elections might need to be called early next year. Under the Greek constitution, the government needs a 60% parliamentary majority to elect a replacement for the country’s current president, whose term expires in February 2015. In the all too likely event that the government fails to muster the required majority, the Greek parliament would be dissolved and a general election would be called.

The far-left Syriza Party, which is comfortably ahead in the electoral polls has long since called for an end to fiscal austerity and structural reform. The significance of today’s move by the government appears to be that it too is now singing from the same hymn sheet as the opposition. This means that irrespective of which party wins the general election next year, Greece will no longer hew to the line dictated to it by the IMF and EU, which are very much despised by a recession-weary Greek public.

Many across the Greek policymaking spectrum appear to think that Greece can now thumb its nose at the IMF and EU with impunity. They do so in the belief that since the Greek government has a primary budget surplus (or a surplus once interest payments are excluded from the budget), it no longer needs net financing from abroad to cover its budget needs. Sadly, in so doing they overlook the fact that the Greek government has major amortization payments to make in 2015, a large part of which payments are due to the IMF and to the European Central Bank (ECB). It would be fanciful to believe that the IMF and the ECB would passively roll over the payments falling due to them in the absence of a Greek commitment to budget prudence and structural reform. Since such a stance by the IMF and ECB would send a clear message to the other countries in the European periphery like Italy, Portugal, and Spain, that there are no consequences for wayward economic policy behavior.

Running afoul of the ECB would be a particularly risky course for Greece to take as Greece policymakers should well know from their own experience at the start of the European sovereign debt crisis. Since Greece needs to have acceptable macroeconomic policies in place to access the ECB’s rediscount window. Absent such ECB access, the Greek banking system would be highly vulnerable to capital flight from Greece in search of safer havens abroad.

Hopefully the developing Greek political consensus against budget discipline and structural reform is noise ahead of a likely general election early next year. Since, if it is not noise, the world should be bracing itself for a second round in the Greek exit from the Euro saga.

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Why America’s entrepreneurial heart is beating more slowly Fri, 21 Nov 2014 19:04:37 +0000 Again on the subject on the decline of US entrepreneurship — or at least the decline of US startups — over the past three decades, here is the latest research from Ian Hathaway and Robert Litan, as summarized by the great Ben Casselman at 538:

Hathaway and Litan look at more than three decades of data on business startups, expansions and failures from the Census Bureau’s Business Dynamics Statistics. They find a strong correlation between a region’s population growth and its startup rate. That makes intuitive sense: For example, Arizona, Florida and Utah experienced booming economies for much of the late 20thcentury that attracted new residents and new entrepreneurs. Overall population growth, however, has been gradually slowing over the past 20 years, possibly dragging the startup rate down with it.

The second big trend Hathaway and Litan look at is consolidation. Virtually every sector of the economy is more dominated by big companies today than it was 30 years ago. The authors find that regions that have seen more consolidation have also seen bigger declines in entrepreneurship. That, too, makes sense: For all the talk about disruption, it’s much harder to break into an industry that’s dominated by a handful of big, entrenched incumbents.

Hathaway and Litan conclude these two factors could be responsible for some three-fourths of the multi-decade decline, with bad policy such as regulation and taxes perhaps making up some bit of the rest. As far as a policy agenda goes, the researchers think it is “very likely that creating and expanding both entrepreneur and STEM education/green card visas in the future would increase startup rates. Teaching entrepreneurship in college and K-12 might also have some promise but needs more research and experimentation. Hathaway actually addressed the education issue in a recent podcast with me:

So Bill Aulet at MIT has written a great book on this called “Disciplined Entrepreneurship.”  Some folks say you can’t teach entrepreneurship.   I disagree with that.  And I think Bill’s sort of one of the leaders in this space and has a lot to say on that. And my co-author Bob Litan  has this great idea of instead of just teaching math and science  where students aren’t that engaged, but actually incorporating how that scientific and that mathematical knowledge has been used in the course of business to create goods and services and, teaching the commercial side of this, providing a link to that from young ages so it’s sort of a part of that curriculum and that learning all along throughout the education process.

Beyond that, let me add this: Increased immigration overall and fertility rates would be one way to address the first startup inhibitor. As for the second, consolidation, that could be result of less competitive intensity in the economy and the rise of strong creative monopolies like Facebook and Apple due to network effects. As economist Mike Feroli of JP Morgan has argued, ” … the decline in start-up activity has been a disconcerting feature of this expansion. … This is especially the case since most measures of business profit margins look elevated, which should stimulate new business formation. … One hypothesis is that those elevated margins owe to natural monopoly profits, perhaps due to an increased prevalence of network effects. In this case, the incumbent profits are incontestable, and start-up activity shouldn’t be expected to increase.”

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Red ink redux: Why a return to trillion-dollar budget deficits starts in 2017 Fri, 21 Nov 2014 18:00:28 +0000 It’s an underreported story — except on this blog — but the US budget deficit has come way down in recent years. The fiscal gap has narrowed from $1.4 trillion, or 9.8% of GDP, in fiscal 2009 to $483 billion, or 2.8% of GDP in fiscal 2014. The key drivers:an improving economy, 2013 tax hikes, and the spending cuts/caps of the 2011 Budget Control Act.

But enjoy it while it lasts. Trillion-dollar deficits are likely on their way back. Citi:

Despite recent reductions in the Federal deficit, we believe that FY2016 will be a turning point, after which the deficit (as a share of GDP) resumes its rise. Unless policymakers implement substantial measures now, a legacy of outsized mandatory spending on health care (Medicare and Medicaid) and retirement (Social Security) benefits, rising debt service and inefficient tax collection, along with demographic trends, will cause the Federal deficit and debt to balloon over the next decade. …

Outsized deficits and debts may reduce the pace of economic growth and lower the standard of living of many. Moreover, government resources that could be used for national priorities or mitigating shocks, might be crowded out by interest expenses generated from borrowing to finance fiscal obligations. Currently, such pressures have been muted because nominal and real interest rates on Federal debt are at record lows. But over time, debt service will mount amid more normalized interest rates. On balance, the large amount that the government will have to borrow to finance rising future mandated expenditures will raise US Treasury securities issuance well above historical norms.



Citi, CBO

Citi, CBO

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The rise of the machines vs. workers, in one chart Fri, 21 Nov 2014 16:49:05 +0000 For a long time, the share of national income going to labor vs. capital (represented in the above chart as worker income vs. corporate profits) was a steady relationship. But as University of Chicago economists Loukas Karabarbounis and Brent Neiman note in “The Global Decline of the Labor Share”, “the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries.” A macro-observation deserves a macro-explanation:

We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced fi rms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares such as increasing pro ts, capital-augmenting technology growth, and the changing skill composition of the labor force.

As machines can do more,  companies need man less — at least the kind of man without complementary skills. Policymakers must at least consider that technology-driven unemployment is a long-term factor that should influence next steps on reforming everything from education to taxes to the safety net. More from Andrew McAfee in the FT, who pointed me to the chart:

I expect the red line to continue to fall as robots, artificial intelligence, 3D printing, autonomous vehicles, and the many other technologies that until recently were the stuff of science fiction, permeate industry after industry. Policies intended to keep these advances out of a country might halt the decline of the labour share for a while, but they’d also halt competitiveness pretty quickly, thus leaving both capital and labour worse off.

I think the continued decline of the labour share, brought on by tech progress, will be a central dynamic, if not the central dynamic, of the world’s economies and societies in the 21st century. It’s a story much more about what will happen to the livelihood of the 50th percentile worker than to the wealth of the 1 per cent. And a much more important story.

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