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The Little-discussed Policy That’s a Major Problem for International Trade

The United States is in the midst of negotiating two groundbreaking free trade agreements. However, one major impediment to international trade is surprisingly absent from the conversation. The Merchant Marine Act of 1920, also known as the Jones Act, requires all goods transported by water between U.S. ports to be carried on ships built in America, owned by citizens, and crewed by U.S. residents. While this Act may sound harmless, it has devastating effects on American consumers and domestic business investment.

Contrary to the claims of Jones Act supporters, the law does not increase economic growth. Rather, it reduces it. A select few ship builders and those they employ benefit, but most consumers lose because the restriction on shipping competition raises prices for everyday goods. For example, because of the Jones Act, it costs about $6 per barrel to move crude oil from the Gulf Coast to New England — triple what it costs to ship crude from the same destination to Canada on a foreign-flagged ship.

The Jones Act is particularly harmful to non-contiguous U.S. states and territories, such as Puerto Rico, Alaska, and Hawaii. Former U.S. Representative Charles Djou of Hawaii told me, “The Jones Act is an antiquated piece of legislation that needlessly drives up the cost of living in Hawaii. We lack the competition with trucking and rail to help keep shipping prices down. That’s why regulated monopoly shipping particularly hurts Hawaiians.” No wonder Hawaii has the nation’s highest cost of living, 12 percent higher than second-place Connecticut.

By insulating domestic producers from foreign competition, the Jones Act is harming, not supporting, the U.S. maritime shipping industry. The U.S. trucking industry does not enjoy the same protections as maritime shipping does, though both are critical to American economic and geopolitical power. U.S. exports of cruise and cargo ships only reached $100 million in 2013, compared with $4.1 billion for exports of semi-trailer trucks.

Read the rest at The Washington Examiner…

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About-Face: Canada’s Shift from Peacekeeper to Bomb-Dropper

“Canadians want to live in peace,” declared Prime Minister John Diefenbaker to the nation in 1960 in the midst of the ongoing Cold War.

Those were difficult times. The United States and the Soviet Union were divvying up the world and expanding their influence. Proxy conflicts, spy games, sanctions, and the threat of nuclear war reverberated in headlines across the world.

Yet, despite the pressure from its southern neighbor, Canada kept a cool head and stood firm in its commitment for peace. It avoided the pitfalls of the Vietnam War, struck a friendly relationship with Cuba instead of signing onto the US embargo, and deployed thousands of peacekeepers to United Nations missions in the Suez Canal, Congo, Syria, and elsewhere.

Now, 50 years later, even after avoiding so many disastrous wars throughout the decades, Canada finds itself strategically bombing pieces of the Iraq held by the Islamic State. Ironically, Canada was reluctant to lend soldiers and bombs to the first effort led by the United States in 2003. Now it’s taking center stage and flexing its bombing muscle.

Canada’s UN mission website boasts that “to date, over 125,000 Canadians have served in close to 50 UN missions.”It’s a far cry from the “peacekeepers first” mentality formed by nearly five decades of Canadian foreign policy.

One of the most notorious was the mission in genocide-era Rwanda, headed up by Canadian General Roméo Dallaire from 1993-94. Since that time, however, Canada has slowly shed its peacekeeping prowess for a more dirty role in world affairs.

According to the United Nations, Canada has substantially dropped its number of peacekeepers deployed from the high of 3,336 in 1993 to just 113 today, mostly as military police in war zones across the African continent. In the last decade alone, that number has flatlined.

In the era of Canadian muscle, the military, not the peacekeepers, receives the first call.

Such was the case for Operation Athena, Canada’s support mission for NATO in its occupation of Afghanistan. It began with a few dozen Special Forces commandos in 2001, and expanded to thousands of Canadian soldiers governing the entire provinces of Kandahar and Helmand from 2003 until the withdrawal of combat troops in 2011.

The last Canadian soldiers returned home from Afghanistan in March 2014, after nearly three years of an “advisory and training role,” according to the Conservative government of Prime Minister Stephen Harper.

Read the rest at the PanAmerican Post…

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Advocate Fred Published in HuffPost Germany on Defense Spending

Some minor components of MEADS are being developed in Germany by a team of approximately 200 engineers in Bavaria. Supporters of MEADS use the argument to protect jobs in order to justify multi-billion Euros of public spending. Given the high degree of education and skills these engineers have and the shortage of engineers on the German job market it is more than hard to justify why taxpayers should spend about 12.5 million Euros per saved engineering job.

For German taxpayers and European security interests one can only hope that Lockheed’s PR stunts won’t succeed and that technical feasibility and budgetary realities will be the decision variables for a new air defense system.

It would be an important sign of the Ministry of Defense to kill MEADS once for all. This might finally lead to a happy end in its procurement strategy and once in a lifetime it might say: On time, in budget, and flawlessly operational

Read the rest at HuffPost Germany…

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Barack Obama’s Populist Tax Hikes Will Hit US Investment

In his State of the Union Address, President Obama proposed raising the top tax rate on capital gains and dividends to 28 per cent from the current rate of 24 per cent. This is up from 15 per cent when Obama took office. Part of the increase came from a 3.8 per cent tax on unearned income to help fund the Affordable Care Act.

But America does not need to increase its taxes on investment income in an effort to soak the rich. Rather, there is good reason that investment income is taxed at a lower rate, and lowering the rate further would benefit the economy.

Data from the nonpartisan Tax Foundation show America’s average combined state and federal tax rate on personal dividend income and capital gains are both over 28 per cent. These rates are uncompetitive among the 34 Organisation for Economic Co-operation and Development countries, as the US ranks in the top ten highest tax rates for both capital gains and dividends.

The first reason dividends have a lower tax rate because the corporate earnings which they come from have already been taxed. The company the investment was made in has to pay corporate income tax, which lowers its revenue and the value of the investment. The same logic holds for capital gains.

The statutory federal corporate tax rate is 35 per cent. When the personal dividend and corporate income taxes are combined, the total federal tax rate on dividends can grow to 53 per cent. State and local taxes can bring the tax even higher. When more than half of earnings are lost to taxes, it is no surprise that many US corporations are moving more of their operations and staff overseas.

Capital gains are also taxed at a lower rate because many investments are held for the long-term and much of their gains can be lowered by inflation. It makes little sense to tax gains that came from inflation. Rather than calculating the gain from inflation for each stock, for the sake of simplicity, Congress decided to tax those gains at a lower rate. This is one reason why the tax rate on long-term capital gains, those held longer than a year, is lower than that on short-term capital gains.

Read the rest at CityAM…

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Will Next Month’s Nigerian Election Even Happen?

In many ways, the leadup to Nigeria’s February 2015 elections is a familiar sight to any political observer, with ads blaring nonstop on national media as candidates squabble about the issues. Yet one oddity drastically separates the African country’s election from those the Western world are used to; only one month out, it remains uncertain if the election will even happen at all.

This is not an outlandish observation considering the security crisis in Northeast Nigeria with Boko Haram and the perennial underfunding of the Independent National Election Commission (INEC). But, more directly, there are two provisions of Nigeria’s 1999 constitution capable of being exploited to either undermine the integrity of the presidential election or postpone it completely. In a country polarized between two major parties, the invocation of either of these provisions is capable of devolving Nigeria into chaos.

The first of these provisions is section 135(3), providing the president emergency powers to extend his tenure for up to six months at a time with legislative approval if “the Federation is at war in which the territory of Nigeria is physically involved and the President considers that it is not practicable to hold elections.”

The other provision, 134(2), obliges a presidential candidate to obtain not just a majority vote but also “not less than one-quarter of the votes cast at the election in each of at least two-thirds of all the States in the Federation” in order to win. When these two provisions are weighed alongside the continuing Boko Haram war in the Northeast that has displaced countless citizens, the possibilities for election tampering or even postponement are quite worrying.

The emergency provision essentially acts as a political safety net the incumbent president can utilize for either genuine security concerns or selfish ones. As an unpopular president who is unwilling to face an election against a strong contender, Goodluck Jonathan may just stall the election for a few more months until his public image improves. Furthermore, the National Assembly, a legislature full of incumbents that have historically been cooperative with the president, with the exception of minor tussles, may be likely to support an extension of his presidential tenure.

Read the rest at The Daily Caller…

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The Case for Expanding U.S. Student Visa Policy

[Editor’s Note: Young Voices is writing a book! Each day over the next two weeks, we will be posting a chapter of our compilation on Millennial politics that is currently being edited. If these ideas interest you and you can assist Young Voices in having it published, please contact us.]

On January 1st, 1892, seventeen-year-old Irish immigrant Annie Moore arrived on Ellis Island with her two younger brothers. Annie was the first of twelve million people to be processed at the Ellis Island immigration station, where ninety-eight percent of immigrants who arrived on the island were eventually awarded citizenship. Young immigrants like Ms. Moore and her brothers played a vital role in creating the US melting pot Americans enjoy today – with an incredible diversity of people, cultures, religions, ideas, and more. Immigration scholar Alvaro Llosa calls this product of open immigration, “the kaleidoscope of nationalities.”

The United States is commonly referred to as a nation of immigrants, but unfortunately it has closed the door to opportunity for millions who hope to undergo the same journey many of our ancestors went through generations ago. U.S. immigration policy from its founding through the early 20th century allowed near-universal entry into the United States if immigrants weren’t criminals, diseased, or prevented from other minor restrictions. But as anti-immigrant fervor rose and the popularity of economic and cultural myths surrounding immigrants grew, the U.S. Congress began passing restrictive immigration laws beginning in 1921.

Today, nearly everyone agrees the American immigration system is broken, although their solutions are mixed. High-skilled immigration is curtailed unnecessarily which prevents economic growth, low-skilled immigration opportunities barely exist which incentivizes illegal immigration, and visa and green card backlogs are in the millions. But for Millennials, the real gripe with the system comes with the problems associated with student visa policy: foreign students spend years in the U.S. living and studying yet are urgently pushed out following graduation. It’s inhumane, impractical, and its economic consequences hinder the U.S. economy. Reforms must be made to unshackle Main Street, Wall Street, Silicon Valley, and the rest of the U.S. economy with foreign students who proudly want to call the U.S. home.

At the end of each semester, in the midst of teary-eyed parents, elated college students assemble in big arenas to celebrate their graduation. Young Americans between twenty and twenty-four face a terrifying twelve percent unemployment rate following graduation and on average have a nearly $30,000 debt bill. But foreign students face these two problems in addition to an even greater danger: deportation. Foreign students have only sixty days following graduation to leave the US before their student visa will expire.

The ability for a nation to attract and retain top students is vital to the nation’s ability to compete on the world stage. In economics, human capital is defined as the knowledge, information, ideas, and skills of individuals. Current student visa policy purposely restricts the human capital available in the American economy by pushing students back to their home or to nations with friendlier immigration laws. Therefore, the U.S. is masochistically self-harming its economic competitiveness and constricting economic growth by depleting the overall pool of educated labor in the country. Instead of an immigration policy that encourages high-skilled labor, the U.S. employs a policy that disincentivizes investment and entrepreneurship in the U.S.

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DC Metro Tragedy Shows Failure of Tangled Governance

On Monday, January 12, tragedy struck the DC Metro subway system once again. This time, an electrical failure caused smoke to fill a train near L’Enfant Plaza Metro station, leaving one dead, and about 80 sick or injured.

This is by no means the first time that someone has died because of a major failure on the Metro. No, the agency that governs the system, the Washington Metropolitan Area Transit Authority (WMATA), has a history of preventable failure, death, and injury dating back years. In June 2009, a crash on Metro’s Red line left nine dead and 80 injured.

Much of the blame, albeit not all, falls squarely on the shoulders of WMATA, and the tangled web of indirect oversight that governs it. Neither the federal government, nor the Tri-State Oversight Committee (which oversees Metro’s rail safety), have the ability to place binding regulations on the organization.

Moreover, the agency is funded by an awkward combination of transit fares, and direct and indirect federal, state, and local subsidies. This is a combination bound for poor public decision making if there ever was one. Perverse incentives are abound at every level, from train driver to the system’s board of directors.

If the government is going to provide public transit, designing the governance of the system is key. The goal should be to mitigate the well-known forces that drive organizations to fail at their one and only job: providing mass transit to the population of a given area.

Subsidies for public transit should be clear to their recipients, while the system should refrain from seeking out other goals, such as providing jobs, and spurring economic development. This sounds easy on paper, but in reality, preventing projects from turning into monstrosities is abundantly difficult given the broader framework of government policies.

Read the rest at PanAm Post…

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Uber Economics: How Markets Are Changing the Sharing Economy

Uber, Lyft, Airbnb. These brand names have dominated headlines over the past year alongside mentions of the “sharing economy.” But what exactly is this brave new world of commerce? How is it different from years of trade in the past? Here are four ways in which the sharing economy is fundamentally changing the world around us.

Transaction costs are lowering. Every day, we demand goods and services that could be supplied by people around us, but we’re not aware of how to coordinate with those potential sellers. A commuter taking a similar route to work as you may be willing to give you a lift for a small fare. The used lawnmower you’ve been meaning to buy could be tucked away in your neighbor’s basement. What stands in between buyer and seller are transaction costs — the time, money, and effort needed to facilitate a market exchange. Before the Internet age, the regulatory and liability costs for producers to bring their goods to market were high, as was the knowledge problem that prevents consumers from knowing whom to trust. As a result, market exchanges were often facilitated through firms, middlemen, or even government agencies.

The sharing economy is disrupting this old model by directly connecting producers with consumers, eliminating the need for much of what stands in the middle. Instead of working for a taxi company, drivers can now turn on their cell phones and offer rides to people on the street through mobile apps like Uber, Lyft, or Sidecar as independent contractors. Instead of relying on professional reviews or government regulators to know which restaurants will provide the best meals, consumers can rely on the feedback of average joes through Yelp, TripAdvisor, or Google Maps. Markets are discovering new frontiers of possibility, disseminating information, lowering prices, and opening entrepreneurial doors at an unprecedented rate.

Barriers to entry are being eliminated. As technology continues to lower transaction costs, many of the obstacles producers face to enter a market are completely being eliminated as well — what are known as barriers to entry. Perhaps the most burdensome barrier is occupational licenses, which are essentially government permission-slips to work in a given industry. Instead of spending exorbitant sums in metropolises like New York City to purchase expensive taxi medallions (which regularly sell for more than $1 million each, car owners can now contract their services for little more than a background check. Instead of jumping through the hoops of obtaining a hotel license, people can rent out their homes through Airbnb or Couchsurfing with no consent needed except that of the guest.

Read the rest at the Atlas Network…

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Four Reasons President Obama’s Community College Plan Will Fail American Students

Last week, President Obama announced a new plan to be included in his upcoming State of the Union address that would make “the first two years of community college free for anyone who’s willing to work for it.” Of course, as the Nobel prize-winning economist Milton Friedman famously wrote, “There’s no such thing as a free lunch.” The cost of the “free” program will come from taxpayers in the form of increased expenditures. While the White House has been vague on the details so far, policy analysts put the price tag to be $60 billion over ten years, adding more strain on an already bloated federal budget.

Although the fiscal impact is enough of a reason to oppose the plan, three additional concerns could create massive unintended consequences.

Most people who start community college don’t finish. According to the Digest of Education Statistics, a mere 19.5 percent of first-time, full-time community college students earn their degree in three years. That figure means that, if the current education climate continues, 80 cents of every dollar the government would spend on the plan would be wasted on students who do not advance their education. Of course, the government’s promise of free education would likely drive enrollment in community colleges up even further, creating more potential for waste on students with little motivation to actually finish the degree.

Community college is already free for most low-income students. Supporters of the plan may argue that reducing the cost of community college to low-income individuals will raise the completion rate. However, this ignores the fact that community college is already free for most low-income students through the federal government’s Pell Grant program. Thus, the new plan would act more as a subsidy for middle-income students than the poor — and an unnecessary one at that. Tuition at most community colleges is nominal at a few hundred dollars a class. The bigger crisis in college affordability is at four-year universities, where costs have skyrocketed 500 percent since 1985.

There are other options for low-income students to obtain the skills needed to thrive. Not only will the president’s plan make little difference in improving college accessibility for the poor, it continues the government’s misguided policy of promoting college education as the only option to build a skillset at the expense of cheaper alternatives like vocational schools. While statistics show a four-year college degree is still worth the money, there is little doubt that the return on investment has been decreasing in recent years as the recent graduate unemployment and underemployment rates continue at historical highs. That is not to say that low-income individuals should not go to college; there are numerous government programs like Pell Grants, federally subsidized student loans, and private scholarships for them to do so. However, it is to say that the government should not be narrowly focused on encouraging poor kids to rack up thousands of dollars in debt when they could make more money and even be happier in a vocational field.

Ultimately, we’ve seen this dog and pony show right before a State of the Union in the past. In 2013, the president announced a universal preschool plan in his address but, with a Republican Congress, the proposal ultimately went nowhere. Obama is likely aware the community college plan is destined for the same fate with the GOP now controlling both houses of Congress. Nevertheless, it stands as an interesting look into what ideas progressive policy makers may push for in future years where the political climate is tilted more in their favor.

Image: Crime Laden Camden, New Jersey Deemed Poorest City In Country By U.S. Census

Yes, Income Inequality Matters

My colleague, Gannon LeBlanc, recently wrote a piece in Townhall arguing income inequality is not an underlying problem in America. Gannon argues income inequality doomsayers are focusing on “income,” when they should be focused on “wealth.” He also points out that someone as liberal as Paul Krugman found some problems in the arguments against income inequality put forth by Joseph Stiglitz, not to mention the fact that even the poorest Americans are among the richest people in the entire world.

I largely agree with these points, but they don’t address the fundamental issue. Gannon understands this and correctly points out, “The real problem behind the income inequality debate shouldn’t be about the digits in one citizens bank account compared to another, but about the ability of citizens to gain wealth and a higher quality of living.” This brings us to the central issue: to what extent do coercive measures prevent citizens from gaining wealth and achieving a higher standard of living and how much inequality is rooted in those measurers?

It turns out a lot.

The United States has already slipped to 13th on the Index of Economic Freedomand many government policies intended to help the poor just create more poverty. The economy is infested with various government regulations, taxes, barriers to entry, and other coercive interventions that do exactly what Gannon identifies as the real issue. A whole host of state intervention incessantly and systematically prevents the ability of Americans to improve their quality of life and earn a living – creating the inequality itself.

Read the rest of the piece at Townhall…

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