Rhetoric and Emotion

The beginning of Aristotle’s On Rhetoric has a lesson for staying informed despite today’s dominant political strategy:

Appeals to the emotions warp the judgment.

One of Aristotle’s main points is that rhetoric by itself is morally and ideologically neutral. A skilled rhetorician can use this weakness in human cognition for either good or evil. To do sound policy analysis, one must be aware when the emotional appeal strategy is being used, especially towards illiberal ends.

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In the News: Steel Tariffs

An ABC News story cites some research I did finding that President Trump’s steel tariffs will increase car prices by an average of about $250.

A few weeks ago, ABC News also quoted me on how steel tariffs are affecting the economy:

Saving 33,000 steel-industry jobs costs the economy 179,000 jobs, a net loss of 146,000, Ryan Young, a fellow in regulatory studies at the Competitive Enterprise Institute, told ABC News.

“Basically,” Young added, “the few are benefiting at the expense of the many.”

What Do the Midterms Mean for Trade?

Trade was a highly contentious issue during President Trump’s first two years. He has doubled tariffs, other countries have enacted equivalent retaliatory tariffs, and tensions are unlikely to ease anytime soon. This unease will not change under a newly divided Congress. The midterm elections will have significant implications for trade policy in the short, medium, and long runs.

The biggest short-term question will be what happens to the renegotiated NAFTA, called the United States-Mexico-Canada (USMC) Agreement. Congress is currently in the middle of a 90-day window to vote on the revised agreement, but Republicans are lukewarm on it. Many Republicans share economists’ skepticism of President Trump’s trade protectionism. At the same time, they are reluctant to buck a Republican president—some Republicans have even gone one further and reversed their stances on trade and other issues in deference to the president. Lame duck Republicans will likely punt to the next Congress in an attempt to avoid cognitive dissonance.

That’s where the new Democratic House majority comes in. The new NAFTA/USMCA changes very little in terms of actual trade policy. But it has significant symbolic value as a political victory for President Trump. Democrats would love to deny Trump this victory. But they will also be reluctant to cause further tensions with Canada and Mexico’s governments, staunch allies which endured many slights during the negotiating process, both domestically and from President Trump. They would like to have something to show for their indignities, even if it’s just getting President Trump out of their hair for a bit. This could push foreign policy-minded Democrats in favor of passing NAFTA/USMCA. At this point, it is hard to predict which impulse is stronger.

This is also partially because Democrats are just as divided as Republicans on trade issues. Traditional Democrats often favor a more-or-less open approach to trade, not terribly different from the average pre-Trump Republican. The original NAFTA and the creation of the World Trade Organization happened under Bill Clinton, and President Obama signed about half a dozen trade agreements that liberalized trade on net. Going further back, President Kennedy signed a major trade bill in 1962 that led to a successful round of international negotiations bearing his name that sharply reduced tariffs around the world. Franklin D. Roosevelt’s Secretary of State, Cordell Hull, presciently argued that if goods do not cross borders, soldiers will.

Democrats have slowly become more protectionist in recent years, with Sen. Charles Schumer (D-NY) even arguing for a 27.5 blanket tariff against Chinese goods in the mid-2000s. This makes him roughly 2.5 percentage points different from President Trump, which sounds about right. But Trump’s vocal advocacy of government-managed trade has pushed many Democrats somewhat back towards the free trade side.

At the same time, the party’s labor and environmental wings tend to oppose free trade. Labor interests often see protectionism as a rent-seeking opportunity to kneecap competitors. Many environmental activists reflexively oppose policies that create wealth and development. The party’s ideological left flank also tends towards protectionism; Sen. Bernie Sanders (I-VT) is uncomfortably similar to President Trump on trade.

In the medium term, between now and the 2020 election, President Trump hopes to pursue trade agreements with the United Kingdom, European Union, and Japan. As with NAFTA/USMCA, House Democrats will be eager to deny President Trump a political victory. The question is whether Democrats can overcome their own protectionist elements enough to be an effective opposition party.

The biggest long-term policy that could come out of the new congressional alignment is similar to the biggest possible upside to regulatory reform: a renewed separation of powers. Under the Constitution, only Congress has the power to tax. But Congress delegated away much of its tariff-setting authority to the president during the 1960s and 1970s. That is how President Trump was able to enact so many tariffs without congressional input. Democrats should rein in a too-powerful executive branch and reclaim Congress’ intended constitutional taxing authority.

Trade will be a busy issue for at least the next two years. Unlike their Republican colleagues, the new Democratic House majority can be an effective check against President Trump’s government-managed trade policies. But they have to keep their own populist impulses in check in order to do so effectively. Perhaps Iain Murray’s and my “Traders of the Lost Ark” can serve as a guide, as well as excellent primers by Don Boudreaux and Pierre Lemieux.

What Do the Midterms Mean for Regulatory Reform?

A divided Congress probably means the status quo will reign on regulation. This is a mixed bag from a free-market perspective. President Trump made some positive reforms upon taking office, but they were via executive order, and can be easily overturned by a future president—Congress needs to pass legislation to give reforms any staying power. Barring a lame duck miracle, that won’t happen now. Republicans blew a rare opportunity.

President Trump’s executive order reforms include a one-in-two-out rule for new regulations, and a requirement for agencies to add zero net regulatory costs—a de facto regulatory budget, which the Competitive Enterprise Institute has been advocating for more than 20 years. Agencies are not exactly transparent with their data. But based on what we do know, it’s possible that total regulatory burdens have not only stopped growing, but might have even gone down by as much as 1 percent over the last two years.

The main reform priority is the rulemaking process itself. It’s nice to get rid of this or that unfair, obsolete, or burdensome rule, but those are just symptoms. The root problem is the process that allows such regulations through in the first place. Better results require better rules. This cannot be overemphasized.

Congressional Democrats mostly oppose process-level regulatory reforms. Legislation to make recent reforms permanent, or enact further reforms, are unlikely to pass on their watch. But there is one long-running trend that should bring at least some Democrats over to reformers’ side: separation of powers.

Over the last several decades, Congress has slowly but steadily delegated away more and more of its legislative powers to executive branch agencies. Congress will usually pass a little more than 100 bills in a given year; agencies will issue more than 3,000 regulations. Considering who currently runs the executive branch, congressional Democrats are more open than usual to pleas for a more healthy separation of powers, and increased executive branch transparency. This is only a possibility, but well worth pursuing.

At a more concrete level, House Democrats will be unable to legislatively undo President Trump’s executive orders; the GOP Senate won’t allow it. At the same time, if the Senate passed reform legislation, the House wouldn’t let it through. What one hand giveth, the other taketh away.

Even so, it is important to reintroduce reform bills such as the REINS Act, Regulatory Accountability Act, Regulatory Improvement Act, and more. They will almost certainly not pass in the 116th Congress. But keeping the reforms alive in ready legislative form will make them easy to pass if political wins change, and provide opportunities for constructive dialogue about the importance of process reform, transparency, and the separation of powers—concepts which apply to issues far beyond regulatory reform.

In short, when it comes to regulatory reform in the next Congress, not much will happen. But there is much to do.

Official Disdain for Commerce

Most cultures have held trade and commerce in low regard. This is true in nearly all times and places, and whether people are rich or poor, religious or secular, and cuts across political beliefs. Governments don’t much like the merchant class either, even though this disdain is biting the hand that feeds. James C. Scott provides an example from ancient China on p. 131 of his thought-provoking 2017 book Against the Grain: A Deep History of the Earliest States:

One reason for the official distrust and stigmatization of the merchant class in China was the simple fact that its wealth, unlike that of the rice planter, was illegible, concealable, and fugitive. One might tax a market, or collect tolls on a road or river junction where goods and transactions were more transparent, but taxing merchants was a tax collector’s nightmare.

This Week in Ridiculous Regulations

Regulators were relatively quiet during the week before the midterm election, though CEI wasn’t, with our colleague Ted Frank arguing a case before the Supreme Court on class action legal abuses. New regulations from the last week range from farm mortgages to military acquisition mentors.

On to the data:

  • Last week, 68 new final regulations were published in the Federal Register, after 79 the previous week.
  • That’s the equivalent of a new regulation every two hours and 28 minutes.
  • Federal agencies have issued 2,782 final regulations in 2018. At that pace, there will be 3,344 new final regulations. Last year’s total was 3,236 regulations.
  • Last week, 1,066 new pages were added to the Federal Register, after 1,349 pages the previous week.
  • The 2018 Federal Register totals 54,227 pages. It is on pace for 65,167 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. Five such rules have been published this year, none in the last week.
  • The running compliance cost tally for 2018’s economically significant regulations is a net savings ranging from $348.9 million to $560.9 million.
  • Agencies have published 90 final rules meeting the broader definition of “significant” so far this year.
  • So far in 2018, 527 new rules affect small businesses; 22 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

Basics of Antitrust Regulation

From p. 69 of Richard Posner’s Antitrust Law, 2nd Ed. (2001):

There is no sound basis in economic theory for thinking that if there are just a few major sellers in a market, competition will disappear automatically.

It’s an empirical question, not an a priori one. Too many analysts and regulators forget that.