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1. Uncle Sucker: Why U.S. Efforts at Defense Burdensharing Fail

Author:
Justin Logan
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
In 2022, the United States counted 50 of the world’s 195 countries as formal treaty allies, not including dozens more informal security relationships. U.S. allies do not carry a proportionate share of the burden of their defense; Washington’s allies account for roughly 36 percent of world economic output but only 24 percent of world military spending. In every alliance, the United States is the most important member and gives more than it gets in return. American politicians and the American public regularly express frustration with allies’ behavior. In 1959, for example, President Dwight D. Eisenhower lamented that the insufficient defense efforts of U.S. allies in Europe meant that the Europeans were close to “making a sucker out of Uncle Sam.” Things have gotten worse since 1959. Today, America’s alliances act as transfer payments from U.S. taxpayers to taxpayers in allied countries. History and theory both suggest that hectoring allies is unlikely to produce much change. Allies know that they can pocket the gains from U.S. commitments, then spend their own money in the ways they believe benefit them most. Policymakers should evaluate alliance commitments in the context of the net contributions of U.S. allies to U.S. defense, weighed against the costs and benefits of a non‐​alliance. The only way to produce more equitable burdensharing is to make allies doubt the strength of the U.S. commitment: the stronger the belief in the U.S. commitment, the harder it is to get allies to defend themselves. Unless policymakers fundamentally change their approach to alliances, there is little hope that defense burdens can be spread more equitably.
Topic:
History, Alliance, Defense Spending, Military, and Burden-sharing
Political Geography:
North America and United States of America

2. The Fiscal Impact of Immigration in the United States

Author:
Alex Nowrasteh, Sarah Eckhardt, and Michael Howard
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The National Research Council and the National Academy of Sciences (NAS) published groundbreaking investigations into the economics of immigration in 1997 and 2017. Both publications contained thorough literature surveys compiled by experts, academics, and think tank scholars on how immigration affects many aspects of the U.S. economy. The 2017 NAS report included an original fiscal impact model as a unique contribution to immigration scholarship. Its findings have been used by policymakers, economists, journalists, and others to debate immigration reform. Here, we acquired the exact methods used by the NAS from its authors to replicate, update, and expand upon the 2017 fiscal impact model published in the NAS’s The Economic and Fiscal Consequences of Immigration. This paper presents two analyses: a measure of the historical fiscal impacts of immigrants from 1994 to 2018 and the projected long‐​term fiscal impact of an additional immigrant and that immigrant’s descendants. An individual’s fiscal impact refers to the difference between the taxes that person paid and the benefits that person received over a given period. We use and compare two models for these analyses: the first follows the NAS’s methodology as closely as possible and updates the data for more recent years (hereafter referred to as the Updated Model), and the second makes several methodological changes that we believe improve the accuracy of the final results (hereafter referred to as the Cato Model). The most substantial changes made in the Cato Model include correcting for a downward bias in the estimation of immigrants’ future fiscal contributions identified by Michael Clemens in 2021, allocating the fiscal impact of U.S.-born dependents of immigrants to the second generation group, and using a predictive regression to assign future education levels to individuals who are too young to have completed their education. Other minor changes are discussed in later sections. Immigrants have a more positive net fiscal impact than that of native‐​born Americans in most scenarios in the Updated Model and in every scenario in the Cato Model, depending on how the costs of public goods are allocated. The Cato Model finds that immigrant individuals who arrive at age 25 and who are high school dropouts have a net fiscal impact of +$216,000 in net present value terms, which does not include their descendants. Including the fiscal impact of those immigrants’ descendants reduces those immigrants’ net fiscal impact to +$57,000. By comparison, native‐​born American high school dropouts of the same age have a net fiscal impact of −$32,000 that drops to −$177,000 when their descendants are included (see Table 31). Results also differ by level of government. State and local governments often incur a less positive or even negative net fiscal impact from immigration, whereas the federal government almost always sees revenues rise above expenditures in response to immigration. With some variation and exceptions, the net fiscal impact of immigrants is more positive than it is for native‐​born Americans and positive overall for the federal and state/​local governments.
Topic:
Immigration, History, and Fiscal Policy
Political Geography:
North America and United States of America

3. The Economic Impact of Tax Changes, 1920–1939

Author:
Alan Reynolds
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Estimates of the elasticity of taxable income (ETI) investigate how high‐​income taxpayers faced with changes in marginal tax rates respond in ways that reduce expected revenue from higher tax rates, or raise more than expected from lower tax rates. Diamond and Saez (2011) pioneered the use of a statistical formula, which Saez developed, to convert an ETI estimate into a revenue‐​maximizing (“socially optimal”) top tax rate. For the United States, they found that the optimal top rate was about 73 percent when combining the marginal tax rates on income, payrolls, and sales at the federal, state, and local levels. A related paper by Piketty, Saez, and Stantcheva (2014) concluded that, at the highest income levels, the ETI was so small that comparable top tax rates as high as 83 percent could maximize short‐​term revenues, supposedly without suppressing long‐​term economic growth. Such studies could be viewed as part of a larger effort to minimize any efficiency costs of distortive taxation while maximizing assumed revenue gains and redistributive benefits.
Topic:
Economics, History, Tax Systems, and High-Income People
Political Geography:
North America, Global Focus, and United States of America

4. A Brief History of U.S. Immigration Policy from the Colonial Period to the Present Day

Author:
Andrew M. Baxter and Alex Nowrasteh
Publication Date:
08-2021
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
More than 86 million people have legally immigrated to the United States between 1783 and 2019. The legal regime under which they immigrated has changed radically over that time; the politics surrounding those changes have remained contentious, and past immigration policies inform the current political debate. Conflicting visions and piecemeal legislation have left the United States with an archaic and barely coherent immigration system with outdated policy objectives that is primarily controlled by the executive branch of government. We review the history of U.S. immigration policy, including the legal controversies that empowered Congress with its immigration plenary power and the historical policy decisions that still guide the U.S. immigration system, in order to contextualize the current political debate over immigration at the beginning of the Biden administration.
Topic:
Government, History, Immigration, and Immigration Policy
Political Geography:
North America and United States of America

5. Common‐​Sense Policy Reforms for California Housing

Author:
Lee E. Ohanian
Publication Date:
08-2021
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
California housing has become unaffordable. As of February 2021, the median California home price was nearly $700,000 and the median condominium price was $515,000. The median rent for the same month was $1,733. Based on industry mortgage financing and renting standards, this means that both homebuyers and renters require household incomes of nearly $100,000 to qualify for housing.
Topic:
History, Reform, Regulation, and Housing
Political Geography:
North America and United States of America

6. On the Origins of Entrepreneurial Alertness: Did Bauer and Yamey Precede Kirzner?

Author:
J. Robert Subrick
Publication Date:
10-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
After the Second World War, the entrepreneur virtually disappeared from economic analysis (Baumol 1968). This neglect followed from the emerging models of general equilibrium that formed one aspect of the core of economic theory. By assumption, the Walrasian auctioneer knew the appropriate prices necessary to equate quantity supplied with quantity demanded in each market. In addition, the auctioneer knew when and by how much to adjust prices when an exogenous factor changed such as income or production technology. Trade only occurred at equilibrium prices so that markets cleared. No market participant chose or changed prices; it occurred exogenously. Kenneth Arrow recognized the lack of real world mechanisms to determine and adjust prices in competitive markets. He identified a logical gap in the perfectly competitive model. He wrote that “there is no place for a rational decision with respect to prices as there is with respect to quantities” (Arrow 1959: 42). Prices exist independent of consumer and firm behavior. A complete model would have to provide a solution to the conundrum.
Topic:
Markets, History, Entrepreneurship, and Economy
Political Geography:
North America and United States of America

7. American Constitutional Theory and History: Implications for European Constitutionalism

Author:
Roger Pilon
Publication Date:
10-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
It is perhaps not impertinent to suggest that American constitutional theory and history, owing to the longevity of the document that is their subject, hold lessons for constitutionalism everywhere, but especially for European constitutionalism—the more recent and ever evolving treaties that serve as a “Constitutional Charter” for the European Union. An American constitutionalist looking east today, seeing everything from Brexit to Grexit plus the reactions in European capitals, must be struck by the tension in the EU between exclusion and inclusion in its many forms, including individualism and collectivism. Those themes underpin my discussion here. The issues surrounding them are universal. They are at the heart of the human condition.
Topic:
Markets, History, European Union, and Constitution
Political Geography:
Europe, North America, and United States of America

8. The Columbian Exchange and the Reversal of Fortune

Author:
Thomas Grennes
Publication Date:
01-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
It is difficult to think about modern American food without including hamburgers and hotdogs. It is also difficult to think about popular American history without cowboys mounted on horseback tending herds of cattle. However, before the arrival of Columbus in 1492 there were no cattle or pigs in America to provide beef and pork for hamburgers and hotdogs. There was no wheat to make hamburger and hotdog buns. There were no horses for cowboys or Indians to ride. The European settlers brought with them cattle, pigs, horses, wheat, and many other plants and animals that became the foundation for modern food and agriculture in the Western Hemisphere. It is also difficult to think about modern Mexican food without including rice, tacos filled with meat, refried beans in animal fat, cheese in enchiladas, and sugar, cinnamon, and milk in chocolate. However, Mexico in 1492 had none of these ingredients. The massive transplantation of plants and animals across the Atlantic Ocean in both directions has been called the Columbian Exchange (Crosby 1972). It has been described as the “greatest human intervention in nature since the invention of agriculture (Fernandez-Armesto 2002: 165), and it has had an enormous effect on the Americas and the entire world. The Columbian Exchange altered the kind of food Americans and Mexicans eat, the kind of agricultural products produced in both countries, and the entire pattern of world economic growth. This article will concentrate on the effects of the Columbian Exchange, but the exchange of plants and animals was part of a broader process of trade, migration, investment, colonization, and exchange of ideas that followed the voyages of discovery by Columbus and others. The same Old World plants and animals were introduced to the two regions that would become the United States and Mexico, but the effects in the two countries were substantially different.1 The United States was the poorer neighbor in 1492, but it became relatively richer. The purpose of this article is to show how differences in institutional development affected responses to the same opportunities. I shall concentrate on developments in the United States and Mexico, but the Canadian experience was similar to the U.S. response, and the response in the rest of Latin America was similar to the Mexican response (Cole et al. 2005).
Topic:
Migration, History, Food, Investment, Trade, and Columbian Exchange
Political Geography:
North America, Mexico, and United States of America