In the years after World War II, the United States dominated the world economy–so much so that no other nation came close to the U.S. in its global influence and economic might.
But this dominance meant that the United States had no concerns about competing powers or threats to U.S. prosperity. Other countries did have to worry, so they constantly worked to make their tax and regulatory system more competitive. Over time, other countries surpassed the U.S. in various ways.
A Modern Tax Code
One of the most important ways that other countries surpassed the U.S. was in modernizing their tax codes. A modern tax system avoids double taxation of capital income and has the lowest possible corporate tax rate. A modern tax system also recognized the global economy. To be strong at home, and to serve foreign markets, companies usually need to produce and build factories in the markets they serve. This does not mean moving jobs overseas. It means keeping headquarters jobs in the home country. The headquarters jobs are associated with management and R&D. Headquarters jobs produce a disproportionate share of income and represent the highest salaries and benefits. The more operations overseas, the stronger the headquarters is at home. The point of having a global operation is to support the home base.
Therefore, beginning especially in the 1970s and 1980s, countries began to adopt tax systems that encouraged their home companies to go global and earn foreign profits that could make the home companies stronger, resulting in better jobs and more R&D in the home market. The new model of taxation was territorial. Home companies paid taxes at home, and they paid taxes on their foreign operations in foreign countries. There was no barrier to bringing profits home. Also, importantly, business decisions in one country had no bearing on business decisions in another country, at least for tax purposes. Under a territorial principle, every country was independent, and so there was no need to worry that tax policy in one country would interact with another. Also, a business decision in one country would have no adverse tax consequences in another. The territorial principle is all about simplicity on one level. But it is also about growing a global network that supports the home office.
The U.S. Lags Behind
Ironically, the United States was the victor in World War II, but it saw no reason to update its pre-World War II tax system. Before World War II, the model for international business was export trade. Companies made widgets in their home countries, and they exported them overseas. For a long time, the United States was the best place and most competitive place to make widgets, so the U.S. tax system relied on taxing overseas sales. The U.S. tax system worked on what is called a worldwide principle since U.S. companies paid taxes in the U.S. on their worldwide income. This made sense when international trade was mostly about trade involving exported goods, and the U.S. was far and away the best place for manufacturing, farming, mining, and many types of business. But over time, the nature of trade changed. Trade became more about intellectual property, and international investment, to build a global network production that supported the home base, or the headquarters operation, by sending profits home. But while most other countries in the OECD adopted the territorial principle, the U.S. stubbornly insisted that U.S. companies should be taxed worldwide. One result of this was that any business decision overseas had both foreign and U.S. tax consequences, which made business planning complicated.
Then another thing happened. It was President Ronald Reagan’s Tax Reform Act of 1986. Reagan cut the corporate tax rate from 50 percent to 35 percent. At the time, this was one of the lowest corporate tax rates in the world. Suddenly other countries began to cut their corporate tax rates too and kept cutting them, to be more attractive as company headquarters. By 2017, other countries had cut their tax rates so much that the United States had the highest corporate tax rate in the OECD—and the other countries, the United States applied its corporate tax rate of 35 percent on a worldwide basis. This meant that if U.S. companies made money overseas, they had to pay U.S. tax on any profits they brought home. Since the U.S. tax rate was higher than all foreign tax rates, and sometimes much higher, this meant that companies avoided bringing profits home for reinvestment in the U.S. Instead, they declared they declared their foreign profits to be permanently reinvested overseas as a way of avoiding U.S. tax on repatriated earnings. This defeated the purpose of a tax policy to support global trade. Instead of allowing money to flow home, U.S. tax policy pushed investment dollars overseas. The U.S. had adopted a “Do Not Invest in America” policy.
Headquarters Move Overseas
There was something even worse that happened. Headquarters offices with headquarters jobs started moving overseas. This is because foreign companies were able to buy U.S. companies on a scale that had never been possible before. Foreign companies could buy U.S. companies because they could afford to pay a higher price for U.S. companies than U.S. companies or investors could. Indeed, foreign companies could pay more than U.S. companies for acquisitions outside the United States as well.
The price one pays for a company is a multiple of the after-tax income it produces. If a company produces $1 million in earnings per year, and the valuation multiple for that industry is ten times, then a foreign investor that pays no foreign taxes on its U.S. income can buy the company in the U.S. for $10 million. This is called an inbound acquisition. However, if a U.S. company wanted to buy a foreign country overseas, in an outbound acquisition, it would have to account for the difference between foreign taxes and U.S. taxes. If the tax rate in the foreign country was 20 percent, about the OECD, average, then the U.S. company would have to account for a 15 percent difference between the foreign taxes and the U.S. taxes. The U.S. company buying a foreign company would effectively pay a 15 percent tax on its purchase, whereas the foreign company buying a U.S. company would pay no additional tax at home.
By the early 2000s, foreign companies were buying U.S. companies at an impressive rate. To some extent, this reflected the globalization of the economy and increased prosperity worldwide since World War II, which is a good thing. But because of the tax differential, the number of inbound acquisitions of foreign companies buying U.S. companies far exceeded the number of comparable outbound acquisitions in which U.S. companies bought foreign companies. This had two results. One was that iconic U.S. brand names and companies started moving overseas, and the corporate headquarters jobs that had been in the U.S. moved overseas as well. Famous American companies with foreign owners now include Chrysler (French), Budweiser (Belgian), Ben & Jerry’s (Dutch), Good Humor (Dutch), Burger King (Brazilian), and even Kraft Heinz (also Brazilian). But the real impact came in pharmaceuticals, where Europeans were not far behind the U.S. and competitive to begin with. The greatest U.S. pharma companies started moving steadily to Europe. The crown jewel of America’s industrial R&D, Bell Labs, similarly became a French company with its parent, Lucent Technologies, was acquired by Alcatel in 2007. As a result, at least in part, the U.S. has no manufacturer of 5G telecom equipment.
The other impact had to do with startup companies, which are often a source of innovation, growth, and intellectual property. When a U.S. company competed with a foreign company to buy a startup, the foreign company often won because it could pay a higher price. The U.S. company could not pay as much, because it had to factor the OECD’s highest corporate tax rate into what it could afford to pay.
More recently still, China has entered the scene. Chinese companies are subsidized at home, and they pay no Chinese taxes on their foreign earnings. Chinese companies have been aggressively buying startup and mature companies alike in the U.S. and Europe.
Where has this led us? Chinese companies are buying top startups and smaller firms with attractive technology portfolios. U.S. companies have been reliant on Chinese suppliers since the U.S. tax code makes it cheaper to buy from Chinese suppliers than to build factories and facilities in the U.S., or to produce in China from U.S.-owned facilities. In the time of the covid pandemic, the U.S. is dependent on China for most of its basic medical supplies. In a world where 5G will soon dominate the airwaves, and become the basis for the Internet of Things, the U.S. has no company that produces 5G telecom equipment. It’s a tax-induced disaster, made all the more dangerous by China’s aggressive intentions to dominate the world and impose its authoritarian style of government elsewhere.
Fixing the Problem
President Donald Trump recognized the problem. President Trump’s tax reform did two things right away. First, it lowed the corporate tax to 21 percent, which is about the middle of the pack in the OECD–not the highest, not the lowest, but close to the average and competitive. Then, it adopted the same territorial principle that nearly all of the major trading partners of the U.S. in the OECD use, so the United States was suddenly more competitive that way too. In a big change from its post-war arrogance, the U.S. studied the lessons of foreign countries. It may come to the surprise of many, but Trump’s all-American, America-first tax reform was designed to make the U.S. tax code look like the tax codes of the United Kingdom and the Netherlands, which long before the United States ever existed were already among the most successful trading nations of all time, and whose Anglo-Dutch model of shareholder capitalism was the foundation of the U.S. economy as well.
But to address three uniquely American problems, President Trump built three features into his tax system. One feature was designed to make sure that income earned in the United States was actually taxed in the United States, and not exported to lower-tax countries through leaks in the nominally worldwide but also obsolete and antiquated tax code of the U.S. This was called the Base Erosion and Anti-abuse Tax (BEAT). Another feature was designed to deal with the problem of U.S. industries that were based primarily on intellectual property, such as tech and pharma, earning profits overseas but never sending these profits back to the U.S. because of U.S. tax. This was a tax on a category of income called Global Intangible Low Taxed-Income (GILTI). For example, before BEAT, the world’s most valuable company, Apple, shifted many of its U.S. profits into low-tax Ireland. Also, before GILTI, Apple made profits worldwide and moved these profits to Ireland as well, never paying U.S. tax or moving the profits back to the U.S. GILTI respects the territorial principle, and it does not tax U.S. companies making normal profits in a foreign country. However, the tax applies a test for supernormal profits, and if a company is making more than a 10 percent return in any country, GILTI assumes that some of the unusually high profits in the foreign country result from shifting profits out of the United States, and therefore it applies a certain level of U.S. tax to them. Then there is the tax on Foreign Derived Intangible Income (FDII). This is a tax on income that results from unusually high profits on export sales of goods made in the U.S. FDII assumes that some of these supernormal profits result from headquarters activity, R&D, or patents and intellectual property held in the United States, so in this case, it applies a level of U.S. tax as well.
GILTI and FDII are designed to work in complement to one another. To discourage companies from moving their patent portfolios or research operations to foreign countries, GILTI and FDII have incentives and penalties to make sure that no country in the world offers better tax treatment of intellectual property for U.S. companies, but also that the U.S. tax treatment of U.S. intellectual property is the most favorable in the world. Together, GILTI and FDII mimic something called a “patent box,” which is used in the UK and European countries to ensure that intellectual property gets a preferential rate in those countries, as long as the R&D was performed there and the resulting patents are housed there as well.
Don’t Turn Back the Clock
For a long time, the United States pursued unilateral disarmament with regard to tax policy while other countries engaged in an arms race to make their tax systems more competitive. We see the result in the loss of U.S. headquarters companies from the U.S. and the dangerous ascendancy of China, which seeks to dominate and monopolize the technologies of the future while putting them at the service of its totalitarian system. President Trump put the U.S. back on the offensive and at the top of its game.
But President Joe Biden comes to office with a different set of values, in which government supposedly drives economic growth, and the government imposes high corporate taxes to support the welfare state, redistribute income, and reward its favored constitutions such as big labor. The major reason the United States took decades to overhaul its tax system while other countries made rapid progress is that labor unions fought to keep the U.S. on a worldwide tax basis. They argued the only possible reason for a U.S. company to locate overseas was to avoid U.S. labor costs, and for that matter, U.S. labor unions. But in fact, this is a view of global business that is decades behind the times. The primary model for global business today is not the export of commodities and manufactured from products from the U.S. That is important but is even more important for U.S. industries based on intellectual property to be able to operate anywhere, and for companies that serve foreign markets to support their U.S. headquarters by building factories and facilities around the world that still get their competitive edge from the U.S. knowledge economy. Big Labor wants to turn back the clock, and retreat to an outdated economic model, while China, with a more modern tax system, threatens both U.S. prosperity and national security, and even friendly trading partners have been acquiring many of our best and brightest companies and moving their headquarters overseas in a lopsided, one-way flow of mergers and acquisitions.
The Trump tax reform is a territorial system that makes the U.S. competitive with its top trading partners. The Trump tax reform incorporates GILTI, FDII, BEAT, to make sure that the U.S. benefits from U.S. intellectual property while also enjoying the financial benefits and good jobs that come to headquarters companies at the center of a global network. But Biden’s view is different. He wants to go back to a worldwide system, where U.S. companies have the highest tax rate in the OECD at home and must pay a global minimum on their overseas earrings as well. The problem is that China has no global minimum tax, and China is the biggest threat today.
J.P. Lucier is a tax policy analyst.
Is China weakening US intellectual property protection?
There is a global effort afoot to get the United States to suspend intellectual property rights (IP) for any and all COVID-19 medical innovations. Interestingly, China is a big backer of this global effort and has been using the World Trade Organization (WTO) to put pressure on the US. The Biden Administration fairly predictably is now backing the China backed pressure campaign. The communist Chinese state-controlled media has praised President Biden for giving into “global pressure.”
The US can certainly help the rest of the world deal with the COVID virus. Humanitarian efforts are about helping save lives, not giving the Chinese regime billions in intellectual property. The US now has a surplus of vaccines and we have the supply chain and the manufacturing set up to continue pumping out the vaccine for the rest of the world. If China and others wanted access to the vaccine as quickly as possible, that’s already available to them — all they need to do is ask.
But stealing the IP of those who invested billions in developing it won’t help the rest of the world because it would take them a year, or two, or more to set up the manufacturing process and organize the supply chains to replicate what the US is currently is able to do. If nations need help to deal with the virus, it isn’t in a year or two — it is now. So what the WTO and China are pushing for won’t help them solve any immediate problem or save lives. But it will help the communist Chinese regime access billions in research and development which they can use to undercut American jobs and innovation for decades to come.
So that’s how you know the global effort isn’t about helping vaccinate the world. It is about stealing the IP rights of American innovators. China has made a living stealing American IP and it has not only harmed us economically, but it has also endangered our national security. And one thing that the Chinese regime is very good at is using every tool at its disposal to weaken America and seek its own long-term advantage. If we don’t wake up to this, we will live to regret it.
If people are interested in helping those around the globe get vaccinated, let’s do that. But why is stealing IP part of that discussion? Especially, since it won’t provide any vaccinations for a year or more from now. But will be used by hostile regimes to undermine American innovation and American jobs.
The bottom line is that suspending intellectual property rights is bad policy. It does nothing to help those around the globe who need a vaccine right away. And it also undermines American medical innovation, and American jobs. Plus, under our Constitution, the government may not unilaterally take the property of its citizens without just compensation. The Constitution specially provides for the protection of intellectual property. And that is why America has been the world’s greatest engine of innovation. Let’s not kill the goose that lays golden eggs.
The very reason American pharmaceutical companies were able to provide vaccines so quickly to deal with the COVID-19 virus is because our system of intellectual property told them that investing billions of dollars in finding a cure was a good idea. If we remove that, future innovations and future discoveries will be far less likely. If we hope to continue to find new earth-breaking cures for cancer, Alzheimer’s, diabetes, etc, and new vaccines for the next horrible disease, we had better keep our intellectual property protections strong.
There is a why the United States leads the world in innovation — we’ve historically had the most robust intellectual property protections. As we’ve allowed those protections to slide, we’ve seen our innovation advantage start to slide as well. So rather than abrogating IP rights, we should be strengthening and reinvigorating them.
This global initiative to pressure the US into voluntarily destroying its system of intellectual property protections would be very costly — not only the US, but to the entire world because our innovation ultimately benefits the entire globe. Let’s hope Congress puts a stop to this foolishness. The Biden Administration has already caved in and signaled its willingness to compromise American law and American strength. Sure, America can, and should help the rest of the world. No one is suggesting that we hide the vaccine or prevent it from other nations or peoples. But using the pandemic as an excuse to kill off American IP protections and violate US law is akin to a beggar demanding access to your home equity loan when asking for help to buy dinner. You offer him a nice meal, and he says, “No, I want your home equity loan! Don’t you want to help a guy down on his luck?!” Beware, it’s a scam!
Education Department to propose Title IX rule amendments, undo Trump-era protections for victims and the accused
Initiating what could be a years-long project to undo Trump-era protections for college sexual assault victims and the accused, the Biden administration on Tuesday launched its audit of Education Department policies outlining how universities handle sexual misconduct investigations.
The Department of Education’s Office for Civil Rights announced it would begin a “comprehensive review” of Title IX rules that prescribe how university administrators deal with sexual misconduct cases. In a letter to students and educators, the office requested input on the department’s Title IX regulations—specifically, the August 2020 rule changes implemented under former education secretary Betsy DeVos.
Tuesday’s announcement follows President Joe Biden’s March 8 executive order on sex and gender discrimination, which asked the department to undertake a complete review of Title IX policies. The department’s letter marks the first step toward dismantling DeVos’s rules—a process that could take months or even years through the notice and comment rulemaking process, as outlined by federal policies.
“Today’s action is the first step in making sure that the Title IX regulations are effective and are fostering safe learning environments for our students while implementing fair processes,” Education Secretary Miguel Cardona said in a statement. “Sexual harassment and other forms of sex discrimination, including in extracurricular activities and other educational settings, threaten access to education for students of all ages.”
President Joe Biden pledged to bring a “quick end” to DeVos’s Title IX rules during his campaign and faced pressure from progressive legal organizations to do so. DeVos’s changes drew ire from feminist activists because they allowed students accused of sexual misconduct to cross-examine their accusers through a third-party representative. The August 2020 changes also delegated misconduct cases that occurred off-campus to local authorities.
In addition to due process protections, DeVos established the first federally mandated protections for sexual assault victims on college campuses. University administrators are required to provide victims with necessary support—for example, allowing the student to change his or her class schedule and providing the victim with a chaperone.
The Biden administration on Tuesday began what could be a lengthy procedure to unravel DeVos’s rules. The Trump-era guidance replaced the Obama administration’s “Dear Colleague” letters, which provided a framework for university administrators to handle sexual misconduct cases. Unlike the Obama administration’s directions, the DeVos rules were added to federal law through a rulemaking procedure called the Administrative Procedures Act—a process that took nearly two years.
Those regulations could take just as long to undo. The civil rights office must respond to each public comment, as they requested in their letter. Secretary DeVos’s civil rights office received more than 124,000 separate comments during their 2018 Title IX review, which took 18 months to resolve.
Candice Jackson, a counsel in DeVos’s Office for Civil Rights, insisted that universities must continue to address sexual misconduct as outlined by federal law while the department proceeds with their investigation.
“[The Office for Civil Rights] should be applauded for initiating a review process that centers around public input,” Jackson, one of the architects behind the 2020 Title IX changes, told the Washington Free Beacon. “In the meantime, the current 2020 regulations continue to provide schools with clear, legally binding obligations that take sexual harassment seriously, promote educational access, and respect the constitutional rights of all students and faculty.”
Progressive legal groups pressured the Biden administration to act on the DeVos Title IX rules. Public Justice and the National Center for Youth Law filed a lawsuit in California last month on behalf of the Berkeley High School Women’s Student Union. The plaintiffs claim the DeVos regulations made it more challenging for schools to investigate sexual misconduct cases and therefore caused an uptick in sexual assaults.
The suit asked for a preliminary injunction that, if granted, would have suspended the Education Department’s enforcement of DeVos’s Title IX rules.
The Office of Civil Rights will conduct a hearing in the coming weeks to give the public additional opportunities to comment, after which the department expects to release a proposed rulemaking notice.
The United States won the Cold War. The world was benefited by the fact that a pro-liberty, pro-human rights nation became the world’s sole superpower. Had that superpower been the former Soviet Union or current China, the world would be a much less free, happy and prosperous place.
Thanos, in the Marvel movies, was the ultimate supervillain. His goal was to kill half of all human life. Of course, Thanos is a make-believe villain. But there are real-life villains who have no problem brutally repressing and killing those they see as their subjects. When evil regimes have power, the people suffer — often horrifically. History proves that.
It is not inconsequential or coincidental that the U.S. also won the race to the moon. Being able to defend yourself from hostile powers has always been easier when you have the high ground and the superior technology. While no battles were fought on the surface of the moon, the technological advances that we obtained by making the trip helped our nation win the Cold War and benefited the entire free world.
This is one of the reasons that space exploration isn’t simply a fun hobby or a matter of national pride. Looking back at history, when Thomas Jefferson was president, it is clear that the Lewis and Clark exploration of America’s vast western frontier (1803-1806) was about a lot more than just mapping the frontier or learning about it. Part of the mission that Jefferson gave them was establishing our national presence in the west so that European powers didn’t claim it as their own and use it as a launch point to attack our young nation. Jefferson wasn’t imagining the risk. Only a few years later, the British did attack America — but not from the western frontier.
In today’s world, space exploration serves many vital national interests. China very much wants to overtake us in space exploration and its motives are not about advancing the cause of mankind. If you don’t believe me, ask one of the critics of China’s repressive and violent domination of Hong Kong.
The good news is that the United States is making important strides to reestablish its leadership role in space and space exploration. We just witnessed a very important test of NASA’s Space Launch System (SLS). It was a successful test and shows that America is once again Earth’s most capable nation in space exploration. We cannot afford to lose the momentum. We need for national leaders to fully support our efforts in space.
One thing that most Americans don’t understand is that as interesting as it has been to watch the development of SpaceX’s Vulcan Heavy and Falcon Heavy, they are limited in their capabilities. In fact, using lift capability as the measure, SpaceX’s options are less than 1/2 as capable as the current SLS and they will be only about 1/3 as capable as the next generation SLS. While it is true that SpaceX has lowered the cost of a generic space launch, the truth is that SLS can get us to the moon and Mars and beyond. Neither the Vulcan nor Falcon have the lift capability to do that.
Moreover, if we were to build the International Space Station (ISS) now, using SLS to send the parts and equipment into space, we could do it with only three launches. Even though each individual launch would be more expensive, SLS’s vastly superior lift capability would make the entire mission far, far less expensive. It took more than 30 launches to build the ISS with less capable space vehicles.
To state that differently, if you were moving across the country, a single trip in a small commuter car would be the cheapest option to make the 2,500 mile drive. But if you were hoping to move more than a few people, you’d quickly find that a larger, more capable vehicle would actually be cheaper to accomplish the mission of getting your belongings and furniture across the country. We all understand this point and would never seriously consider moving a house full of furniture and household belongings across the country in a Honda Civic.
The bottom line is that America needs SLS if we hope to maintain our advantage in space and continue to be the world’s high technology leader. The new Biden Administration and Congress must continue to support America’s leadership in space. It isn’t merely a matter of national pride or a geeky hobby. We, of course, learn so much in science, health, medicine,and technology when we explore. And history has proven over and over that we must always lead in technology and have the high ground if we hope to keep the world’s despots and totalitarians at bay.
The US should use performance-based contracting tied to reducing recidivism.
President Biden’s executive order calling for the eventual elimination of the use of private prisons by the federal Bureau of Prisons (BOP) serves as a hasty and misguided attempt to satisfy a political impulse without actually improving federal correctional services.
In fact, the new executive order could make conditions in prisons worse for inmates and staff. The Biden executive order repeats many of the same flawed arguments former President Barack Obama’s then-Assistant Attorney General Sally Yates made in an August 2016 memothat coincided with the release of an Office of the Inspector General (OIG) report. At that time Yates said:
“Private prisons … simply do not provide the same level of correctional services, programs, and resources; they do not save substantially on costs; and as noted in a recent report by the Department‘s Office of the lnspector General, they do not maintain the same level of safety and security. The rehabilitative services that the Bureau provides, such as educational programs and job training, have proved difficult to replicate and outsource—and these services are essential to reducing recidivism and improving public safety.”
The biggest sticking point of the Yates memo was the allegation that private prisons in the Bureau of Prisons perform poorly when compared to their BOP-operated counterparts. This allegation does not have a basis in the OIG report itself, but it is nonetheless parroted by the new Biden administration’s EO, which says:
“(A)s the Department of Justice’s Office of Inspector General found in 2016, privately operated criminal detention facilities do not maintain the same levels of safety and security for people in the Federal criminal justice system or for correctional staff.”
As I noted in a report released in 2017, despite Yates’, and now Biden’s strong claims, there’s no evidence, that privately-run BOP prisons are less safe or provide inferior service compared to the BOP’s “in-house” prisons. In fact, the BOP warned against making such comparisons in a response to an earlier draft of the August 2016 OIG report:
“(W)e continue to caution against drawing comparisons of contract prisons to BOP operated facilities as the different nature of the inmate populations and programs offered in each facility limit such comparisons.”
Despite this clear warning from the BOP itself saying not to use the August 2016 OIG report to compare public and private prisons against each other due to the numerous factors that make such comparisons untenable, many continue to do so.
When sample groups share similar characteristics, comparisons tend to be more valid. But the Bureau of Prisons overwhelmingly puts foreign prisoners (mostly from Mexico and a few Central American countries) in privately-run BOP prisons, while the BOP-operated prisons are overwhelmingly filled with Americans. While the distinction may seem subtle, communicating with a mostly non-English speaking population presents additional costs and challenges for the operation of those prisons. Communication with a mostly Spanish-speaking population requires additional staff resources that add costs to operating the facilities. In addition to the communication barriers, there can be other problems related to the prisons having a lack of background information on the inmates themselves. Having a clearer criminal background of inmate populations helps corrections officers plan housing arrangements to minimize potential conflicts. When a prison knows of potential affiliations with hate groups, gang affiliations, and the like, it is available to better inform such decisions.
This segregated approach also can affect the safety of inmates and staff. The placement of inmates in cells is usually coordinated to avoid potential violent confrontations, so confining one large subset of inmates to one type of prison makes that sort of planning more difficult. The authors of the OIG report make those points pretty clearly:
“We acknowledge that inmates from different countries or who are incarcerated in various geographical regions may have different cultures, behaviors, and communication methods. The BOP stated that incidents in any prison are usually a result of a conflict of cultures, misinterpreting behaviors, or failing to communicate well. One difference within a prison housing a high percentage of non-U.S. citizens is the potential number of different languages and, within languages, different dialects. Without the BOP conducting an in-depth study into the influence of such demographic factors on prison incidents, it would not be possible to determine their impact.”
One way to better ensure safety, equality, and facilitate comparisons between the BOP’s public and private prisons would be to integrate the native Spanish-speaking population into all BOP facilities, so all BOP prisons would have a similar mix of native English and Spanish speakers. The added diversity would force BOP-run prisons to account for serving an entirely new set of inmates in terms of background, while the added ability to separate and strategically place inmates could help to minimize potentially violent incidents in all facilities. Providing services for inmates to a meaningful level of satisfaction is difficult for any prison operator, and it is made even more difficult when language barriers are introduced. Equalizing populations would also force the Bureau of Prisons to undertake those challenges itself, which it will eventually have to do anyway if private prisons are eliminated in the BOP.
Another problem that prevents valid comparisons between public and private prisons in the BOP is the lack of assurance that the two prison types have equal levels of security and monitoring procedures. While both public and private BOP prisons have dedicated resources to monitoring the operations and safety of their facilities, the Bureau of Prisons serving as both operator and monitor in its own facilities raises concerns about the comparability of the operational and monitoring regimes of public and private prisons in the BOP.
The August 2016 report does note that a greater number of security incidents per capita in privately-run BOP prisons, but in addition to communication barriers and other factors that make ensuring safety and security more difficult in contract prisons, there is reason to believe that publicly-run BOP prisons also have problems implementing staff policies and changes related to safety. Far from conclusive and limited to contraband interdiction, the BOP OIG’s own findings at least suggest a culture of distrust exists between staff and management in BOP-operated prisons, hindering opportunities to accurately assess and identify problems, much less improve and innovate practices and procedures in response to those problems.
Another OIG report produced in June 2016, which focused mostly on conducting staff contraband searches in BOP-operated prisons, noted that searching BOP staff at recommended levels has long been a struggle. The June 2016 report notes the BOP was asked to implement recommended staff search procedure changes in 2006, calling on all facilities to randomly search at least five percent of their staff on a monthly basis, only for the BOP prison guard union to stall and avoid implementation. After nearly a decade, it has implemented the policy inadequately and unevenly. The contraband interdiction report notes only one percent of employee shifts had received any pat-down searches between January and June of 2014, and the searches themselves did not follow established protocol for conducting proper searches (which should take two minutes per person, despite at least one search event lasting only a single minute).
While the BOP says that they were not finding contraband in the prisons they operate in-house, the OIG makes it clear that they doubt the validity of their self-reported claims:
“(I)n light of the BOP’s infrequent application of random pat search events and other related issues described in this report, the absence of contraband recoveries may not constitute an accurate performance measure.”
Since the contraband interdiction report’s time span coincides with the August 2016 report’s period of reporting incidents, the OIG seems to be saying that at least some of the contraband numbers reported from BOP-run prisons in their subsequent August report may be inaccurate. And the BOP’s in-house contraband interdiction efforts do not seem to be improving much. According to an OIG report from last year intended to map out the agency’s largest performance challenges, contraband is still a “pervasive problem” in BOP prisons. The report says that “5 of the 11 recommendations (from the 2016 contraband interdiction report) remain open, including those related to revising its contraband staff search policy and upgrading its security camera system.”
In contrast, the August 2016 OIG report’s authors do note that the relationship between BOP and private prison company staff (for the oversight and monitoring of contracts) is one that effectively works to improve conditions as problems are confronted:
“We determined that for each of the safety and security-related deficiencies that BOP onsite monitors identified during our study period, the contractor responded to the BOP and took corrective actions to ensure the prison was in compliance with policies and the contract.”
While one cannot conclude that guard searches are not an issue in privately-run BOP prisons, the OIG’s findings show that guard searches remain a big problem in the BOP’s publicly run prisons, despite over a decade of warnings and recommendations from the OIG to improve things. The August 2016 OIG report, in contrast, provides examples of how private BOP prisons changed procedures in immediate response to problems, including improving the interdiction of contraband as well as health care procedures, recordkeeping, and staffing procedures. None of these changes took contracted facilities a decade to implement fully.
The Biden executive order also creates problems on the training, educational and rehabilitation side of corrections. “We must ensure that our nation’s incarceration and correctional systems are prioritizing rehabilitation and redemption,” the order says.
The BOP itself is currently entered into over 150 contracts with private entities (businesses and nonprofits) for reentry services alone, with centers scattered all over the United States, mostly in or near medium-to-large cities (100,000+). Some of those firms are the same ones that operate reentry facilities, and a new anti-contracting would certainly undermine BOP’s goals on reentry.
Map of Reentry Centers Contracted By the Bureau of Prisons:
GEO and CoreCivic, two companies that manage federal prisons, alone combine for 17 contract facilities that accommodate around 13 percent of the BOP’s total capacity of roughly 9,800 inmates. The 2016 Yates memo chides private prison companies for preventing the reduction of inmate recidivism, even as the BOP continues to rely on these same companies for reentry services.
Prioritizing rehabilitation and redemption in the BOP would undoubtedly include finding the best reentry services and facilities for those transitioning back into society. Banning private prison companies from the equation only ensures that the BOP would be forced to eliminate some of the very arrangements it sees as providing the best answers to the difficult questions of preparing inmates for the final steps of returning to life as citizens.
Few question that prison systems in the United States need significant reforms and changes. Many are finally starting to come to the conclusion that the so-called tough-on-crime mentality has done more harm than good, including in terms of making conditions worse for inmates while in prison and subsequently after their release. Some of these failures have reached the point where federal consent decrees in multiple states have been filed in recent decades that cite prison conditions that violate our Constitution’s protections against cruel and unusual punishment.
But solutions to improving life inside and after prison have largely remained elusive to governments. Radical and innovative thinking will be needed to improve prison conditions to be more in line with best practices that have been demonstrated in Australia and New Zealandthrough effective use of performance-based contracting where private prison funding levels are tied to reducing recidivism.
A move toward a more rehabilitative and constructive incarceration experience requires policy changes that move away from the real driving factors of mass incarceration. After decades of courts, politicians, and prosecutors making incarceration harsher and lengthier, a growing consensus is moving toward a more rehabilitative approach that recognizes most inmates will eventually be released and reenter society.
New approaches focus on building inmates’ work and personal skills to help them avoid a return to prison. Innovative and competition-driven corrections services can help make that happen, and such a transformation requires departments of corrections that seek to find solutions wherever they emerge.
Getting prison operators and service providers the right incentives to work toward effective solutions should be the focus of the Bureau of Prisons and state departments of correction, regardless of whether the individuals’ responsible work for the government or private sector.
In the corrections space, reform should hinge on improving health and safety conditions as well as the availability of opportunities for inmates while in prison and after release. That is not what government-run prisons have delivered, and expecting that to change without competition from the private sector ignores how the present situation in corrections has played out for decades.
Given the BOP’s reliance on the private sector, a working relationship with private operators who provide effective rehabilitative and reentry services seems crucial. So let’s continue to develop ways to hold all prisons accountable to similar standards, no matter who runs them, and try to find what works best to ensure inmates and staff are kept in safe, secure environments that provide opportunities for those inmates to improve their lives behind bars and after their release. Looking to end private prisons in no way simplifies the difficult problems facing corrections, and the Biden administration’s proposed ban would, unfortunately, work to make solutions more elusive.
“The Right Minimum Wage: $0.00.” That was the title of a 1987 editorial in a major American newspaper. The editorial stated: “There’s a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage would price working poor people out of the job market.” You might expect the Wall Street Journal editors to write something like that. But the editorial wasn’t in the Wall Street Journal. It did appear, though, in a prominent New York newspaper. Which one? The New York Times.
In a 1970 economics textbook, a famous Nobel Prize–winning economist wrote of 1970’s minimum wage rate of $1.60, “What good does it do a black youth to know that an employer must pay him $1.60 per hour if the fact that he must be paid that amount is what keeps him from getting the job?” Who wrote that? It must have been free-marketer Milton Friedman, right? Wrong. The author of that statement was liberal economist Paul Samuelson.
Among non-economists and politicians, the minimum wage is one of the most misunderstood issues in economic policy. President Biden and almost all Democrats and some Republicans in the US Congress advocate increasing the federal minimum wage from its current level of $7.25 an hour to $15 an hour over four years. They argue that many of the workers earning between $7.25 and $15 will get a raise in hourly wage. That’s true. But what they don’t tell you, and what many of them probably don’t know, is that many workers in that wage range will suffer a huge drop in wages—from whatever they’re earning down to zero. Other low-wage workers will stay employed but will work fewer hours a week. Many low-wage workers will find that their non-wage benefits will fall and that employers will work them harder. Why all those effects? Because an increase in the minimum wage doesn’t magically make workers more productive. A minimum wage of $15 an hour will exceed the productivity of many low-wage workers.
The reason some workers earn low wages is not that employers are greedy exploiters. If exploitation were enough to explain low wages, then why would employers ever pay anyone over $7.25 an hour? Wages are what they are because they reflect two things: (1) workers’ productivity and (2) competition among employers.
Employers don’t hire workers as a favor. Instead, employers hire workers to make money. They hire people only if the wage and other components of compensation they pay are less than or equal to the value of the worker’s productivity. If an employer pays $10 an hour to someone whose productivity is $15 an hour, that situation won’t last long. A competing employer will offer, say $12 an hour to lure the worker away from his current job. And then another employer will compete by offering $13 an hour. Competition among employers, not government wage-setting, is what protects workers from exploitation.
We all understand that fact when we see discussions on ESPN about why one football player makes $20 million a year and another makes “only” $10 million a year. Everyone recognizes the twin facts of player productivity and competition among NFL teams. The same principles, but with much lower wages, apply to competition among employers for relatively low-skilled employees.
Open up almost any economics textbook that discusses the minimum wage and you’ll likely see a demand and supply graph showing that the minimum wage prices some low-wage workers out of the market. For textbooks published in the past twenty years, though, you might also find a statement that although some workers will lose their jobs, there’s controversy among economists about how many jobs will be lost. According to the textbook writers, some economists think the number will be large and others think it will be small or even imperceptible. You could easily conclude that there’s no longer a consensus among economists that an increase in the minimum wage would cause much job loss.
But that conclusion would be wrong. UC-Irvine economist David Neumark and Peter Shirley, an economist with the West Virginia Legislature’s Joint Committee on Government and Finance, showed that in a January 2021 study published by the National Bureau of Economic Research. Neumark is one of the leading scholars on the economic effects of minimum wages.
Neumark and Shirley chose a clever methodology. They read every published study of the effects of the minimum wage on employment in the United States that was done between 1992 and the present. They identified for each study the core estimates of the effect of minimum wages on employment. When that was difficult to do, they contacted the studies’ authors to ask them what they regarded as their bottom-line estimates. Sixty-six studies met their criteria and these criteria had nothing to do with the size or direction of the estimates.
Here’s what they found. The vast majority of studies, 79.3 percent, found that a higher minimum wage led to less employment. A majority of the studies, 55.4 percent, found that the negative effect of a higher minimum wage on employment was significant at the 10 percent level. Translation: for those studies, the probability that there was a negative effect on jobs was 90 percent. Almost half the studies, 47.9 percent, found a negative effect on jobs at the 5 percent confidence level. For those studies, in other words, the probability that there was a negative effect on jobs was 95 percent.
Moreover, found Neumark and Shirley, the evidence “of negative employment effects is stronger for teens and young adults, and more so for the less-educated.” They concluded that the commonly heard refrain that minimum wages don’t destroy jobs “requires discarding or ignoring most of the evidence.”
Moreover, virtually all the studies of the effects of minimum wages in the United States have considered increases in the minimum wage of between 10 and 20 percent. The US government has never raised the minimum wage by anything close to the 107 percent envisioned in the increase from $7.25 to $15.
Why does that matter? Because the higher is the increase as a percent of the existing minimum wage, the more certain we economists are that it will hurt job opportunities for unskilled workers. We are sure of that because of the law of demand, which says that for any good or service, the higher the price, the less is demanded. That applies whether we’re talking about iPhones, skateboards, or labor. So raise that price a lot, and the amount demanded falls more than it would fall if you raised it a little. And what employers don’t demand, willing workers can’t supply.
The effect of the $15 minimum wage would vary a lot from state to state. In New York in 2019, the median hourly wage was $22.44 and the average hourly wage was $30.76. So a $15 minimum would affect a fairly small percent of New York’s labor force. In Alabama, by contrast, the median hourly wage in 2019 was only $16.73 and the average was only $21.60. So the $15 minimum in Alabama could hurt a much greater percent of the labor force.
The University of Chicago’s Booth School has an Initiative on Global Markets (IGM) that occasionally surveys US economists on policy issues. Possibly because of the surveyors’ understanding that the $15 minimum wage would hurt some states more than others, the IGM recently made the following statement and asked forty-three economists to agree or disagree: “A federal minimum wage of $15 per hour would lower employment for low-wage workers in many states.” Unfortunately, the question did not specify what is meant by “many.” Is it ten, twenty, thirty? Some economists surveyed pointed out that ambiguity. That ambiguity could explain why a number of the economists answered that they were uncertain. But of those who agreed or disagreed, nineteen agreed that it would cause job loss in many states and only six disagreed.
One economist who disagreed, Richard Thaler of the University of Chicago, gave as his explanation this sentence: “The literature suggests minimal effects on employment.” No, it doesn’t. As noted earlier, the federal government has never tried to raise the minimum wage by such a large amount and so there is no scholarly literature on such an increase. Would Thaler say that if putting a cat in the oven at a temperature of 72.5 degrees Fahrenheit doesn’t hurt the cat, then putting a cat in the oven at 150 degrees wouldn’t hurt the cat either?
While few economists have actually estimated the effects of such a large increase in the minimum wage, the US Congressional Budget Office (CBO) presented its economists’ estimate earlier this month. According to the CBO, the increase would reduce US employment by 0.9 percent. That might not sound like much, but 0.9 percent translates into 1.4 million workers put out of work.
But wouldn’t the increase in the minimum wage also increase wages for a lot of workers who keep their jobs? Yes, it would, and the CBO estimates that although the workers who lose their jobs would lose income, their loss over the years from 2021 to 2031 would be “only” 34 percent of the gain to the workers who gained wages.
But the gain in wages is not an unalloyed benefit to those who gain. The reason is that, as noted above, an increase in wage rates doesn’t automatically make workers more productive. So employers, looking for ways to avoid paying more to workers than their productivity is worth, would search out other ways of compensating. They might cut non-wage benefits, work the employees harder, or reduce training, to name three. Interestingly, on its website in 2006, when Congress was considering an increase in the federal minimum wage, the Economic Policy Institute (EPI), an organization funded partly by labor unions, admitted the last two of these three. It stated, “employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.” How would an employer make his workers more productive and reduce absenteeism? Probably by working the employees harder and firing those who miss work. How would he reduce training costs? By providing less training. In an article in the winter 2021 issue of the Journal of Economic Perspectives, UC-San Diego economist Jeffrey Clemens noted a negative correlation between minimum wages and employer-provided health insurance. In the workplace as in the rest of the world, there’s no free lunch.
The late economist Walter Williams has written about how, as a teenager, he learned many skills on the job that made him more productive and ultimately higher paid. I wrote recently that he could get those early jobs because the minimum wage was so low. Low-paid jobs are often crucial for black youths and other youths who need to build their work skills and work histories. These skills might be as simple as learning to show up on time. In 1967, when I was sixteen, I worked in a kitchen at a summer resort in Minaki, Ontario. The minimum wage at the time was $1 an hour and I was paid, if I recall correctly, $1.25 an hour. For the first three days of the job, I showed up about twenty minutes late. On the third day, the chef told me that if I was late the fourth day, I shouldn’t bother showing up because I would be fired. I was never late again. I learned the “skill” of punctuality. We adults take such things for granted. Kids don’t. Raise the minimum wage enough and a whole lot of young people won’t learn the basics, or won’t learn them until later in life. That would be tragic.
How many Deaths is an elected official allowed before he/she is assigned an accurate but less than complimentary Nom De Plume which reflects his/her accomplishment ? If you are Ron DeSantis of Florida the number is probably zero. However, If you are Andrew Cuomo , the number is in the thousands.
The exact number may never be known since the quality of the recordkeeping and reporting is suspect – but published reports of the effect of the his now infamous March 25, 2021 order, put the number into the thousands. For those who don’t remember, Gov. Cuomo ordered Nursing homes to accept, without testing, medically stable patients without regard as to their COVID 19 status. Nursing homes were specifically prohibited from requiring testing of a hospitalized resident determined to be medically stable.
The stated reason for this policy was the urgent need for hospital beds, yet , the Javits Center opened with a 1,000 bed capacity two days after the order was issued. The USNS Comfort , with an additional 1,000 beds arrived March 30. It left New York waters on April 30 having cared for 282 patients, less than 30% of it’s capacity. Yet the order stayed on.
The Javits center closed on May 8, 2020. The order requiring Nursing Homes to take COVID 19 positive patients remained in place until May 27, 2020 after NY had registered one of if not the highest death rate in the Nation.
Now many are suggesting that Gov. Cuomo be investigated for attempting to cover-up his handling of the news concerning his lethal order.
The time is overdue for Mr. Cuomo to receive a Nom De Plum worthy of his actions. Henceforth he shall be known as The Butcher of Albany.
Serious consideration should be given to criminal prosecution for the untold number of persons who died because of his infamous order. Their cries for justice are deafening.
On February 8, 2021, the Financial Times published an op-ed authored by Eric Schmidt titled US’s Flawed Approach to 5G Threatens Its Digital Future. In it, Mr. Schmidt makes a series of claims, but his central theme is that the U.S. is not doing enough to promote our 5G infrastructure and, worse, forcing us to forfeit the U.S.’s dominant position in the race to 5G to China. He even goes as far as to suggest that the U.S. should throw the proverbial baby out with the bathwater by adopting a more nationalized approach to 5G vis-a-vis the Department of Defense (DoD) spectrum sharing plan. In this article, I address the most glaring of his assertions to put the 5G debate in the proper context.
Claim: “…China, is already far ahead [in 5G].”
Response: Mr. Schmidt’s article does not provide a metric when he says that China is “far ahead.” Based on the article, it appears that Mr. Schmidt might be comparing the two countries in the following ways: 1) internet speeds; and 2) national 5G coverage. In each case the United States is excelling. Although both countries have taken very different approaches to 5G, both countries’ 5G strategies involve blending their 4G/LTE networks with their nascent 5G networks. Hence, it is appropriate to compare the countries’ progress on those measures.
In terms of broadband speeds, China has an average internet speed of just 105.2 mbps where the United States has an average of 124.1 Mbps. In terms of broadband speed, we are far ahead of China. Moreover, a study conducted by Global Wireless Solutions released network performance testing from Super Bowl LV in Tampa and found that all three of the nation’s carriers averaged more than 1 gigabit per second on their respective 5G networks, which for the uninitiated means that we have past light speed and are now entering into ludicrous speed. Hence, we are certainly leading in this area.
In terms of 5G coverage, China appears to be deploying far more infrastructure than the U.S., but basing China’s success in 5G purely on the amount of infrastructure deployed may be misguided. The main issue China is having is making its 5G infrastructure compatible with its 4G/LTE networks. This issue is so prevalent that Huawei’s Ryan Ding described China’s 5G rollout as “fake, dumb, and poor,” because most of the applications China is calling 5G is really just disrupted 4G due to the frequent and sporadic handover between the two networks. This is distinct from the U.S.’s plan where it and its carriers have a slower deployment strategy to ensure that its 5G networks can efficiently interoperate with its 4G/LTE networks. However, China’s aggressive 5G policy should be taken seriously, but we should not assume that China is in fact “ahead” of anyone.
The one place where China may pose a competitive threat is in spectrum. This is because China can more easily clear incumbents from spectrum bands for 5G due to its heavier regulatory control when it comes to property rights. Also, China has much more local zoning control over deployment. It is similar to its government’s control on spectrum where it relies on heavy centralized state control allowing quicker infrastructure deployment without public input. If the U.S. wanted to emulate China’s approach, then Mr. Schmidt is essentially advocating that the U.S. allow the FCC to clear bands with disregard to the property rights of incumbents operating in those bands.
Claim: The FCC’s C-Band Auction is a “digital setback,” because the auction provided “no meaningful requirement to build necessary network infrastructure.”
Response: This criticism is simply untrue. As it relates to its C-Band Order, the FCC requires C-Band licensees to meet multiple performance metrics based off of the service or services the provider wishes to provide. For example, In paragraph 93 of the C-Band Order, the FCC requires licensees in the A, B, and C Blocks offering mobile or point-to-multipoint services must provide reliable signal coverage and offer service to at least 45% of the population in each of their license areas within eight years of the license issue date (i.e., first performance benchmark), and to at least 80% of the population in each of their license areas within 12 years from the license issue date (i.e., second performance benchmark). These population benchmarks are actually more aggressive than those for other flexible-use services under part 27 of the FCC’s rules.
There are even performance metrics for licensees providing IoT-type fixed and mobile services on paragraphs 97-99. The C-Band Order requires licensees providing Fixed Service in the A, B, and C Blocks band to demonstrate within eight years of the license issue date (first performance benchmark) that they have four links operating and providing service, either to customers or for internal use, if the population within the license area is equal to or less than 268,000. If the population within the license area is greater than 268,000, the FCC requires a licensee relying on point-to-point service to demonstrate it has at least one link in operation and providing service, either to customers or for internal use, per every 67,000 persons within a license area. The FCC requires licensees relying on point-to-point service to demonstrate within 12 years of the license issue date (final performance benchmark) that they have eight links operating and providing service, either to customers or for internal use, if the population within the license area is equal to or less than 268,000. If the population within the license area is greater than 268,000, the C-Band Order requires a licensee relying on point-to-point service to demonstrate it is providing service and has at least two links in operation per every 67,000 persons within a license area.
Claim: “Future auctions must set stringent build requirements, with penalties for underperformance.”
Response: In paragraphs 102-103 the C-Band Order goes into detail about the penalties for each licensee for not meeting the performance metric. For example, the C-Band Order outlines that, in the event a particular licensee fails to meet its performance benchmark, the licensee will have its license term substantially reduced and, when the shortened term is exhausted, the C-Band Order states that “licensee’s spectrum rights would become available for reassignment pursuant to the competitive bidding provisions of section 309(j) [of the Communications Act of 1934 that articulates restrictions on spectrum license applications] and any licensee who forfeits its license for failure to meet its performance requirements would be precluded from regaining the license.”
Claim: “Pursue alternatives to auctions.”
Response: Mr. Schmidt’s statement is myopic as auctions are only one way the U.S. has advanced 5G. His article failed to review or even mention the myriad of 5G policies in place now. In fact, the U.S. has taken an holistic approach to advance our 5G networks through: 1) a series of subsidy programs (e.g., Rural 5G Fund, RUS Fund, USF programs, etc.); 2) clearing spectrum and auctions (e.g., 24 GHz Auction, CBRS, Ligado Order, and, yes, the C-Band auction); 3) granting key mergers (e.g., T-Mobile-Sprint, AT&T-Time Warner, etc.); and 4) lowering regulatory burdens for wireless infrastructure (e.g., 5G Upgrade Order, 5G Small Cell Order, One Touch Make Ready Order, 6409 Order). Again, Mr. Schmidt fails to mention or even allude to these policies focused on infrastructure.
Claim: “The defense department has proposed sharing government-controlled spectrum with commercial providers if they build infrastructure quickly.”
Response: Mr. Schmidt’s endorsement of the DoD’s proposal is misguided.As I and others have argued before, the DoD’s blue-chip in 5G is that it sits on most of our Nation’s valuable mid-band spectrum, which is essential for 5G deployment. This is clearly evident from every other countries’ inclusion of these frequencies in their respective 5G plans. This is especially true in the case of China that is a leader in mid-band spectrum deployment for 5G. The DoD’s frequencies in its RFI (i.e., 3450-3550 MHz) are prime “beachfront” mid-band spectrum and are critical to open up for commercial use. This is because U.S. commercial 5G networks are severely lacking in mid-band spectrum; a fact of which the DoD is well aware. DoD’s offer to industry is, thus, enticing, but it comes at a hefty price: every carrier must go through the DoD to access this mid-band spectrum that they all will need to make their networks functional. This is a Hobson’s choice for carriers: either they want a functioning 5G network or not. Hence, they will be compelled to work with DoD if this proposal moves forward. This will most likely translate into the DoD being yet another bureaucratic barrier of entry for carriers looking to deploy 5G, which, in turn, slows down the deployment that Mr. Schmidt says the DoD’s plan will promote.
In his article, Mr. Schmidt makes assertions that are either exaggerated, myopic, or confused on the issues of 5G. We can both agree that China’s growth in the area is concerning. However, the arguments Mr. Schmidt presents regarding our auctioning process are not at all the issue and, ironically, is an example of the U.S.’s success in this technological race.
• • • • • • • • • •
Joel L. Thayer is an attorney with Phillips Lytle LLP and a member of the firm’s Telecommunications and Data Security & Privacy Practice Teams. Prior to joining Phillips Lytle, he served as Policy Counsel for ACT | The App Association, where he advised the Association and its members on legal and regulatory issues concerning spectrum, broadband deployment, data privacy, and antitrust matters. Prior to ACT, he also held positions on Capitol Hill, as well as at the FCC and FTC. The views expressed here are his own and do not reflect those of Phillips Lytle LLP, or the firm’s clients.
According to recent news reports, Senator Lisa Murkowski (R-AK) and Senator Joe Manchin (D-WV) are pushing for a far reaching energy bill that is shockingly similar to the New Green Deal to be shoe-horned into the “must-pass” government funding bill that is being negotiated during the remaining days of the lame duck legislative session.
Frontiers of Freedom President George Landrith said:
The Manchin-Murkowski energy bill is a horrible piece of energy legislation that would endanger America’s energy independence, increase costs to consumers, kill jobs, and is effectively the Green New Deal light. If the bill were a piece of stand alone legislation, it would be entirely worthy of outright defeat which is precisely why the Senators are trying to attach it to “must-pass government funding” legislation where there would be no real opportunity to review and debate the far reaching consequences of the bill.
This energy bill includes language lifted from the Green New Deal that would commit our nation to very costly and even highly impractical regulations that would restrict energy choices to either 100 percent renewable sources or zero emission sources. This 100% provision as a “Sense of Congress” is dangerous because it would give future Energy Department bureaucrats a blank check from Congress to impose virtually any energy regulations that suit their fancy. This is not government accountability — it is the precise opposite.
While innovation and the marketplace will continue to find cleaner and cleaner ways to provide consumers and our economy with needed energy, government regulations that attempt to force the issue will compel us into high cost solutions and do far more harm than good.
Even if one thinks that some of the ideas contained in this energy bill deserve consideration, this “slight of hand” procedural move should be universally opposed because it will rush us into radically different direction with virtually no debate or discussion. The economic costs and the job creation costs are obvious. But even national security and foreign policy could be impacted.
Making America less energy independent or forcing energy shortages on America does not make us more secure or help us keep aggressive adversaries like China or Russia at bay. To be blunt, China and Russia have to be cheering this effort. They would be its biggest beneficiary. It is the equivalent of the United States voluntarily shooting holes in our Olympic runners’ feet just before the start of their race.
Major shifts in important public policy that will have significant economic and even national security implications deserve full consideration and should not employ procedural chicanery to help them pass in the dark of night with no significant discussion, review or debate.
Senators Murkowski (R-AK) and Manchin (D-WV) both have a reputation for being moderate — politically speaking — but there is nothing moderate about their energy proposal. Its impact will harm America economically, reduce job growth at a time we desperately need more jobs, and increase consumer costs to Americans already struggling to make ends meet. On the international front, our adversaries in China and Russia and around the globe have to be cheering this effort.
The fact that the bill may contain some worthwhile reforms or provisions is largely irrelevant and cannot be a reason for supporting it. Let’s be honest, if you were offered a piece of cake that was made with only 5% poison, you would wisely decline and toss it in the trash. This bill is more than 5% poison and should be discarded with enthusiasm.
We urge Senators to opposed this move to radically change American energy policy in the dark of night and without serious debate and review. This is a bad energy bill. But the idea of passing it in a procedural move that hides it from the American public is truly sinister. Any Senator supporting this effort is unworthy of their office.
On November 13th, the U.S. Postal Service reported its Fiscal Year (FY) 2020 results. This revealed many insights about the agency with the largest takeaway being a disappointing $9.2 billion net loss. USPS, like so many other operations, has been adversely affected by the Covid-19 pandemic; mail volume, for example, declined 13.8 billion pieces. However, it is important to note that the USPS financial troubles far predate the coronavirus pandemic.
Frontiers of Freedom president George Landrith states, “The USPS has been consistently losing money year after year and has requested up to $75 billion in taxpayer money to remain solvent, but until thoughtful postal reform is completed, this money will merely kick the problem down the road.” He continues, “If we give USPS the money they are requesting, but allow the agency to continue with failed policies, we will inevitably have to bail them out again in the future.”
The agency states in the report that losses within the management’s control was $3.8 billion this year. This is a $334 million increase from the controllable loss in 2019. The agency is trending in the wrong direction and without postal reform it will only continue to decline.
In fact, although operating revenue has actually increased by nearly $2 billion due to a surge in e-commerce and greater package demand, the USPS’ out-of-date pricing system means the agency is unable to afford package costs or make a profit on these deliveries. Further, USPS calls shipping and packages its most “labor-intensive” effort, which is especially true during Covid-19, but how and to what extent that translates to its costs and full accounting picture continues to be unclear.
Landrith concludes, “In order to effectively manage and reduce the agency’s $160 billion debt, the USPS must update its policies and work with the incoming Biden administration to create thoughtful reform that will help preserve and ensure the success of our most important public institutions.”
In Washington, bad ideas are like bad pennies: They keep turning up.
In early 2019 a group of well-connected Washington insiders was suggesting with the utmost sincerity that it would be best to have the Pentagon in charge of the push to 5G, the next-level communications network. The primary reason for this, they said, was national security and the threat posed by China.
President Donald J. Trump, a man who is in no way soft on China, wisely rejected their advice. In a Rose Garden press conference with Federal Communications Chairman Ajit Pai, he rejected the government-led approach, calling it “not as good, and not as fast.” Instead, he committed to a 5G buildout that would be “private sector driven, and private sector led,” ending talk of a nationalized network.
Or so we thought. The Wall Street Journal recently reported that the idea of a 5G network run out the Pentagon is once again on the table. A new proposal for a government-managed system under the supervision of a single company is once again under discussion. And, as before, the firm the DoD has in mind has little to no experience managing large information clusters.
The reason the idea’s come back has more to do with the swamp-dwellers who profit off big government contracts than with the science involved, the efficiency needed to bring 5G to life quickly, or the ability of firms in the private sector to make it all happen. It’s crony capitalism at its worst.
The best way to get to 5G is to allow the best minds and best engineers in the best firms to develop competing technologies – with the winner to be chosen in the marketplace. The plan being pushed yet again by the DoD gives one company – in this case, most likely Rivada Networks – control of the spectrum and its allocation as well as access to the protected intellectual property of those who’d be doing the job if the Pentagon had not taken the project over. At least that’s the opinion of 19 U.S. Senators who wrote the department complaining the way it wanted to move forward “contradicts the successful free-market strategy that has embraced 5G.”
Somehow what President Donald J. Trump likes to call “the race to 5G” is again in danger of being taken over by the officials in charge of it. Instead of fair competition, a vital future national and economic security project is being influenced unfairly by what leading congressional Democrats including House Energy and Commerce Committee Chairman Frank Pallone, D-N.J., say is a plan “specifically crafted to enrich President Trump’s cronies.”
Partisan hyperbole aside, it’s easy to see Pallone’s point. Building a national 5G network requires more than influential political connections. Rivada Networks, the company lobbying hardest to win the bid, is not exactly known for its ability to build out and manage broadband networks. Its proposal to manage FirstNet, a nationwide public safety broadband system, was shot down due to concerns at the Interior Department over concerns about the insecurity of its technology.
One might think this would give the Pentagon pause, yet Rivada’s advocates within the department say they are confident the company can get the job done and have an operating network functioning within three years. Of course these are some of the same people who have already spent more than a decade and hundreds of billions or more on the development of the new multi-service Joint Strike Fight and still haven’t gotten it right.
Chairman Pai, a national hero for his work preventing the Internet from coming under the thumb of the U.S. government as a regulated utility, has dismissed the effort to get to a nationalized 5G run by the Pentagon as being a costly and counterproductive distraction from what America ought to be doing. The federal government moves slowly by design. Processes that work quickly in an authoritarian country like China don’t work in America. Here, roadblocks and rulemaking are the order of the day. Washington can’t compete with the U.S. private sector. In Beijing, the private and public sectors are indistinguishable.
Thanks to President Trump, Chairman Pai, and others who understand the stakes, America is a lot farther down the road to a working 5G network than people might believe. Thanks to a competitive market where the nation’s three largest carriers have all prioritized building the nation’s biggest, fastest 5G network, we’ll get there faster and in better shape than if we let the government do it.
Dear Mr. President and Director Navarro,
We write in support of the Administration prioritizing incentives for onshoring certain manufacturing, including pharmaceutical products and ingredients. As you well know, about 72 percent of pharmaceutical ingredients supplying the United States are not manufactured here. That is an alarming percentage, especially considering we are fighting a global pandemic.
For decades, American manufacturing has been disincentivized and pushed overseas. The Trump administration pledged to bring the supply chain and everything that it entails, including jobs and security, back to the United States. That is why President Trump made the tactical move to invoke the Defense Production Act, typically a wartime move, to bring the pharmaceutical supply chain home.
One tangible step the Administration has taken to secure our drug supply chain is early approval of a loan to Eastman Kodak to manufacture key pharmaceutical ingredients in Upstate New York. This move included some controversy, after some alleged that Kodak executives made improper stock transactions in advance of the loan announcement. But now that an internal investigation has cleared the company of wrongdoing, it is imperative that we stay the course and bring pharmaceutical manufacturing home from places like China, that are often at odds with American national security.
The Trump administration should be encouraging any capable American company to move its manufacturing back to the United States. Making America a compelling place to do business and also having robust trade relations with nations of goodwill is smart, but policies must change, and American companies must be incentivized and encouraged to take that step. The Trump administration has the opportunity to revamp American manufacturing – I hope you both follow through.
Thank you for your thoughtful consideration.
George C. Landrith
President and CEO
Frontiers of Freedom
James L. Martin
60 Plus Association
Tea Party Nation
Americans for Limited Government
Institute for Liberty
Counsel on Government Relations
Founder, Producer & Co-host
Conservative Commandos Radio Show
Saulius “Saul” Anuzis
60 Plus Association
Defending America Foundation
Strengthening America for All
The Last Best Hope on Earth Institute
Americans for Liberty & Security
Vote America First
Kerri (Houston) Toloczko
For years U.S. lawmakers and special interest groups have promoted policies that drove U.S. manufacturing offshore without people really being aware of it. Higher taxes, workplace regulations, environmental rules with onerous penalties, and other actions by government drove the costs of making things in America up so high it became a matter of corporate survival to take it to other countries.
Good for them, bad for us. China’s middle class has risen at the expense of U.S. workers and their families. Jobs have left places like Michigan and New York and Illinois for places with names most Americans can’t pronounce let alone find on a map.
It was a tragedy for workers and entire communities as the job providers moved away. Middle America understood what was going on, providing Donald Trump with fertile ground for his rhetoric about “bad trade deals” when he ran for president in 2016. For the coastal elites who only looked at the soaring values of their retirement portfolios, it was another story. It wasn’t until the COVID-19 pandemic struck that they realized what they had done.
For probably the first time since World War II, the U.S. economy was riddled with shortages. No matter how much money you had to spend, in some places, there wasn’t a roll of toilet tissue or a bottle of hand sanitizer to be found. Unless, in a few cases, you were willing to wait and buy it from China.
Memories may be short, but it wasn’t just these common household items that were in short supply. Items thought necessary for treating coronavirus patients like ventilators and pharmaceuticals as well as the personal protective equipment for hospital workers on the frontlines fighting the pandemic needed to protect themselves were not available in the quantities needed. China, where the outbreak was first detected, was hoarding what they made for their own use.
Recognizing the problem and expanding on what he promised while campaign, Mr. Trump has been looking for opportunities to bring the manufacturing of these products — and the jobs that go with them — home. And, unsurprisingly, he’s been criticized for doing it.
The Trump administration recently signaled its support for the launch of Kodak Pharmaceuticals, which would be a branch of the once-mighty Eastman Kodak company, by providing a $765 million loan to get things going. Kodak has been the anchor of Rochester, New York’s economy but has had difficulty adapting to the digital age.
This deal would not only stabilize a domestic supply chain, but it would reestablish the Rochester economy with a huge boom in the job market. So you would think the establishment of a new corporate entity to manufacture pharmaceutical ingredients in the United States that will help secure America’s drug supply chain and create what the Democrats used to call “good jobs at good wages” would be met with cheers and brass bands. Instead, the company finds itself under examination because the news caused the company’s stock to rise in value, creating the illusion that some company executives benefited financially.
It’s that kind of muddled thinking that drove so many jobs and companies out of the United States in the first place. At a time when initiative at home is desperately needed in the corporate sector, the first ones to step to the front of the line find themselves the victims of bad press and potential investigations. This is not to excuse any bad actions or actors – and if there were any, they would have been uncovered by Kodak’s independent review, but none were.
We should expect that a company’s “good news” should lead to an increase in the price of its stock. That’s good for the shareholders, which should be any company’s principal if not the only concern, as well as the country. The idea that people working for the company might also profit is the hallmark of the suspicious, anti-free market attitudes that infected the media, members of the political class, and consumer watchdogs for decades and which, more than once, nearly destroyed the American economy.
Senior White House trade advisor Peter Navarro recently called COVID-19 a wake-up call for the nation, not just because of the threat it posed to our health or healthcare system but because it left us defenseless in economic and national security terms. “We have already witnessed over 80 countries impose some form of export restrictions on medicines or medical supplies, proving that no matter how strong our friendships or alliances may be, they mean nothing in a pandemic,” he told the Wall Street Journal.
Kodak was found innocent of all “charges” after an in-depth internal investigation. Policymakers and watchdogs need to move on and come up with a plan to bring manufacturing and jobs home, by creating incentives to do just that.
There are a lot of tools in the tool kit to make this possible: tax breaks, additional deregulation, export assistance, and opportunity zones are just a few of the things that can be dangled in front of the heads of big companies to lure them to bring their operations home.
America needs a big plan that ties them and other ideas together to bring the manufacture of essential goods like pharmaceuticals and PPE home, before the next global pandemic hits. Breaking our 100% dependence on foreign manufactures located in countries whose interests may diverge from ours at some future and highly inconvenient time must become a national priority now.
Unexpected expenses are never welcome and no one likes a costly surprise. So it isn’t surprising that there has been a lot of talk in Washington and Congress about “protecting” patients from surprise medical bills. And if rumors swirling around Washington are true, the Administration will enter the fray with an announcement about an executive order that will supposedly “fix” the surprise medical billing problem. This may sound good, but in reality it won’t be good news despite the Administration’s best intentions. In the end, a government “solution” will simply drive out and crowd out market forces which if allowed to work would not only solve the surprise billing problem and reduce costs to consumers, but also maintain the highest levels of quality and incentivize innovation in our healthcare system.
The most common cause of a surprise medical bill is when a person uses a healthcare provider that is not in their insurance plan’s network of providers. While it doesn’t happen that often, it is a real challenge for consumers when it does happen. Insurance companies have contracts with healthcare providers to provide medical services at discounted rates. That makes them “in-network.” The “out-of-network” providers charge a price without any pre-negotiated discounted rates which means the out of network costs are greater.
These circumstances, no matter how rare, are used by politicians to make us think they are proactively solving problems for our benefit. Sadly, they are doing nothing of the sort. One only needs remember how President Obama and Vice President Biden repeatedly promised that they would save us all thousands of dollars every year and allow us to keep our health insurance and our doctor. Obviously, Obama and Biden failed to deliver on that promise. It was the lie of the year even as judged by liberal fact checkers. Literally, millions of Americans lost their preferred plans and virtually everyone saw their health insurance costs increase — not decrease by thousands.
So a healthy dose of skepticism about promises to fix surprise billing with government price controls is entirely justified. Government imposed price controls skew incentives and reduce the availability of quality healthcare. To make things worse, government imposed price controls also reduce the likelihood of future healthcare innovations and slow the development of promising medicines and procedures. But the bad news doesn’t end there — government mandates almost invariably shift power to government bureaucrats and health insurance companies, rather than giving consumers more control over their own healthcare.
And it is fair to ask what is the government’s track record on reducing costs? And on top of that, government mandates will do nothing to reward innovation or to empower consumers.
The marketplace — and the negotiations that take place when you have two or more parties all trying to maximize the value that they receive — has a knack for providing high quality goods and services for the lowest possible prices. That is the process that has brought us smart phones that have more computing power than was used in the 1960s in the Apollo program. Today, the average American eats better and spends a lot less to feed themselves than our great grandparents did. We also have access to all manner of foods — something even kings didn’t have a few generations ago. Additionally, we work far fewer hours to obtain that food. This is the power of the marketplace and the innovation that it encourages.
We need to harness that market power which will deliver high quality and low prices in the medical arena. Because the government has historically been such a big player in the medical field and because it is always arguing for a larger and more powerful role, we will see less quality and higher prices than the marketplace could have provided.
Instead of continuing to empower government, let’s try reforms that put economic power back in the hands of healthcare consumers. Where’s the proof that government run schemes produce the needed quality and lower costs? Let’s trust the marketplace to do what it does so well — boost quality and keep prices comparatively low. We trust the marketplace to provide us with food, housing, technology, and a thousand other things. Why not healthcare?