California’s Billion-Dollar Stem Cell Initiatives End in Failure

Twenty years of false promises and white coat waste

By K. Lloyd Billingsley. He is a Policy Fellow at the Independent Institute.

"Twenty years ago, in the run-up to the 2004 election, Californians faced a vote on Proposition 71, the Stem Cell Research Initiative. The ballot measure promised life-saving cures and therapies for Alzheimer’s, Parkinson’s, and other diseases through embryonic stem cell research.

“Seventy-one will support research to find cures for diseases that affect millions of people,” said actor Michael J. Fox in an ad, “including cancer, diabetes, Alzheimer’s and Parkinson’s. Please support the effort to find cures.... It could save the life of someone you love.” Christopher Reeve also got in the act.

“My foundation supports cutting-edge research. And we are proud supporters of Prop 71,” Reeve said in the ad. “Stem cells have already cured paralysis in animals. Stem cells are the future of medicine. Please support Prop 71. And, stand up for those that can’t. Thank you.” Also on board was Republican Gov. Arnold Schwarzenegger, whose father-in-law, Sargent Shriver, was afflicted with Alzheimer’s. With this all-star lineup, the measure passed 59.5to 40.95, but there was more to it than grandiose promises.

Proposition 71 ponied up $3 billion for California researchers—nearly $300 million annually for 10 years—with $6 billion to pay back. On the institutional side, the proposition created the California Institute for Regenerative Medicine (CIRM). The prime mover was Democrat insider and real estate tycoon Robert Klein, who wrote the measure to install himself as chairman, and required a 70 percent supermajority of both houses to make any structural or policy changes.

In 2012, it emerged that CIRM was handing out more than 90 percent of its grants to institutions with representatives on its governing board. State Attorney General Kamala Harris ignored this blatant conflict of interest.

Klein also claimed that a steady stream of fees and royalties would make CIRM self-supporting. Trouble was, the state stem-cell agency reported no royalties until 2018, and only in the amount of $190,345.87. That is less than the salary of former state senator Art Torres, a non-scientist CIRM hired when a biotech professional was willing to work for no salary at all.

That same year, according to the San Francisco Chronicle, “not a single federally approved therapy has resulted from CIRM-funded science. The predicted financial windfall has not materialized.” With royalties only chump change and none of the promised cures in the offing, the institute that was supposed to be self-supporting went back to the voters. By this time celebrity support had disappeared, but CIRM bosses made a plan.

Americans for Cures, a nonprofit headed by Robert Klein floated Proposition 14, the Stem Cell Research Institute Bond Initiative, this time for $5.5 billion in general obligation bonds. As this writer twice verified, signature gatherers falsely claimed the measure sought only $1.5 billion.

As the deadline approached, Americans for Cures Vice President Don Reed began pushing for people to print out 16 pages and mail in the signatures. Secretary of State Alex Padilla ignored any fraud in the process and approved the measure for the November ballot. Proposition 14 passed by 51.09 to 48.91, a far cry from 2004.

Last year, according to MIT Technology Review, “after 25 years of hype, embryonic stem cells have yet to reach their moment.” CIRM now claims, “We have supported research that has led to a cure for severe combined immunodeficiency (SCID), a deadly immune disorder.” CIRM-funded scientists are working on a “wide variety of diseases,” including “heart disease, stroke, cancer, diabetes, Alzheimer’s and Parkinson’s disease, among others.”

In 2024, a ballpark figure for CIRM’s promised life-saving cures and therapies is zero. False promises are nothing new, but seldom have they been institutionalized in such a form, with such massive waste. If California is to conduct meaningful reform, it will have to be all about memory against forgetting."

Collecting Jurisdiction: The SEC’s Wrongheaded Expansionary Approach to NFTs

By Jennifer J. Schulp and Jack Solowey of Cato.

"What do Yankees tickets and Pokémon cards have in common? If you guessed wish list items for elementary school kids, you wouldn’t be wrong. But another thing they share is that Securities and Exchange Commission (SEC) Chairman Gary Gensler has been asked to opine on whether they are securities during congressional testimony.

To most people, the answer to that question seems easy: Pokémon cards aren’t traded on the New York Stock Exchange—and neither are Yankees tickets—so they must be different from securities like Walmart or Tesla stock, right? That’s hardly a technical analysis (and decidedly not legal advice), but it reveals a piece of common sense underlying our intuitions about securities laws: If we buy something that has some use—even if we hope that it may become more valuable—it is usually not treated as a security subject to all of the rules and regulations that go along with offering and trading investment assets.

But, in yet another example of Gensler’s expansive view of SEC jurisdiction, his answers to Rep. Ritchie Torres (D‑NY) on whether items like Pokémon cards and baseball tickets are securities were not definitive and seemed to rest on an incoherent theory that takes into account whether the assets are in some way stored on a blockchain. That doesn’t sound like the “technology neutral” regulator the SEC claims to be.

Unfortunately, this isn’t just the idle musing of an agency head dreaming of enlarging its fiefdom. The SEC has settled several actions asserting that NFTs (i.e., non-fungible tokens) granting holders certain rights to digital art and exclusive restaurant access were unregistered securities. (The SEC has also issued a Wells Notice, indicating that it intends to file an enforcement action, against a platform that facilitates NFT trading.)

The stated rationale for these actions is that purchasers of the NFTs were led to expect profits when the token appreciated in value based on the efforts of the NFT issuer. In the Commission’s view, this ostensibly meets the criteria set out by the Supreme Court for when something qualifies as an investment contract subject to SEC jurisdiction. But as SEC Commissioner Mary Uyeda has noted, considering “any item sold whose value is based on the efforts of others” to be a security “would appear to scope in many common transactions in the non-digital world, including pre-purchase commitments, collectibles, art, and land.” That’s exactly what the SEC appears to be doing.

NFTs are unique digital tokens that typically are employed to represent (though not necessarily legally confer) ownership of a physical or digital asset. NFTs and cryptocurrencies use the same underlying blockchain technology, but they differ in important respects, most notably in that cryptocurrencies are fungible—meaning that two units of the same cryptocurrency are interchangeable—whereas NFTs are not.

While in one sense NFTs can be thought of as assets themselves, they also can be thought of as something like “certificates of authenticity” that provide a way of verifying that the NFT holder has an ownership claim, access right, or connection to another asset or file that the NFT is linked to (such as a piece of art, digital content, or membership pass). However, the legal rights of a token holder, such as intellectual property and other ownership rights, cannot be assumed based on possession of the token alone and may require reference to additional off-chain legal frameworks.

NFTs can serve a variety of functions, such as representing ownership of real-world or digital assets like art, facilitating benefits like access to a real-world or digital social club or automated royalty payments, or eligibility for discounts associated with customer loyalty rewards, to name a few. Buyers of NFTs may want to collect them, receive the benefits associated with them, or speculate that their future value may rise.

But the fact that someone buys something in hopes that it will appreciate—like a Pokémon card collector or reseller of Yankee playoff tickets—does not turn the item into a security. Where an item has a use unconnected to its appreciation in value, as many NFTs do, it’s even easier to see this because a purchaser may not intend to use the item as an investment. 

The securities laws evolved in no small part to address the risks posed to investors by a managerial body’s ability to possess information that investors do not and that body’s capacity to act at odds with investors’ best interests. Yet, as SEC Commissioners Hester Peirce and Mark Uyeda recognized when dissenting from the Commission’s settlement with Flyfish Club, LLC—which offered NFTs that granted holders access to its restaurant—this type of securities analysis is “inapt because holders of Flyfish NFTs had a reasonable expectation of obtaining wonderful culinary experience and other exclusive member experiences based on the managerial and entrepreneurial efforts of Flyfish and its principals. Whether their expectations will be met should not be judged by a securities regulator” (emphasis added).

The SEC claims to be looking at the “economic reality” of the NFT offering to determine that it falls within the securities laws. But as Commissioners Peirce and Uyeda remarked when dissenting from the settlement with Stoner Cats 2, LLC, which sold NFTs connected to digital art (of stoned cats): “The Stoner Cats NFT purchasers received what they paid for—a still image of a character from the series, access to all six episodes of the Stoner Cat series, and the excitement of being part of a popular phenomenon.” This economic reality isn’t enough to bring a project within the SEC’s jurisdiction because, if it was, every sale of fine art would fall within the SEC’s purview—something that the SEC has acknowledged is not the case. 

That’s not to say that NFTs can never fall within the ambit of the securities laws but rather that it is far from a given that any particular NFT does. The SEC’s jurisdictional grabs—from collectibles to digital art markets to social club memberships—deter artists and other creatives from experimenting with methods to monetize their work. Uncertainty about whether they will face an SEC investigation may chill experimentation, in part by prohibitively raising costs related to legal counsel (or more proactively, for taking legal action against the SEC for clarity). 

Recently, Rep. William Timmons (R‑SC) floated legislation, the “New Frontiers in Technology Act,” seeking to exclude NFTs that relate to works of art, collectibles, loyalty points, and tickets (among other things) from coverage under the securities laws. Whether as a result of legislation or otherwise, though, the SEC needs to walk back from its untenable position that anything purchased that may rise in value is a security—a position that needs to be revised not only for NFTs but for technological innovation more broadly."

There are not 13,099 Illegal Immigrant Murders Roaming Free on American Streets

Or how you should learn to stop worrying and read the fine print

By Alex Nowrasteh. 

"Immigration and Customs Enforcement (ICE) recently responded to Rep. Tony Gonzalez’s (R-TX) question on the number of noncitizen criminals on ICE’s docket for removal (deportation) from the United States. The data contained in the letter have blown up in a big way during the presidential election cycle, with former President Trump highlighting the letter’s contents at recent rallies and Vice President Harris struggling to respond.

Commentators focused on the letter's claim that ICE did not detain 13,099 migrants convicted of homicide, but they tended to misunderstand the data. Even former President Trump distorted the evidence by claiming that the criminals all entered during the Biden administration. Those commentators and former President Trump are making several untrue claims about the new ICE data. The following will correct the record.

The first untrue claim about the data is that the 13,099 non-detained migrants convicted of homicide are free to roam the United States. That is not true. Migrants incarcerated for homicide are considered “non-detained” by ICE when they are in state or federal prisons. When ICE uses the term “non-detained,” they mean not currently detained by ICE. In other words, the migrant murderers included in the letter are overwhelmingly in prison serving their sentences. After they serve their sentences, the government transfers them onto ICE’s docket for removal from the United States.

The second untrue claim is that the small number of migrant murderers who are not in prison were released willy-nilly. This claim has been commonly leveled against President Biden and DHS Secretary Mayorkas, but releases of criminal migrants fell after Biden took office compared to the Trump administration. U.S. law requires migrants who are convicted of homicide to be detained pending their deportation, but there are exceptions. The major one is for migrants who were convicted, served their time in prison, and are unable to be deported because there is no repatriation agreement with their countries of origin or they routinely violate those agreements. The U.S. does not have agreements or has limited agreements with Iran, Cuba, China, Vietnam, Laos, and more. Many other countries like Venezuela periodically suspend their agreements for political reasons, or the United States government suspends deportations because of civil disorder in the destination country. The small number of non-detained migrants convicted of homicide who aren’t in prison because they served their time are mostly from one of those countries. Repatriation agreements are required because foreign governments do not have to accept their nationals back. The government should remove migrants convicted of violent and property offenses from the United States. Still, the small number of non-detained migrants who served their sentences and were released from prison are from countries without a repatriation agreement.

The third untrue claim is that these 13,099 migrants convicted of homicide committed their crimes recently. Those migrant criminal convictions go back over 40 years or more. Confusion over the period covered by a dataset afflicts the interpretation of other criminal datasets too. If there really were 13,099 migrants convicted for domestic homicides in 2023, then they would have accounted for about 99 percent of all homicide convictions in the U.S. last year despite being about 4 percent of the population. That is obviously not the case because no group of people is criminally overrepresented by a factor of 25 above their share of the population. Even when the 13,099 homicide convictions of migrants are spread out over the entire Biden administration, migrants would have accounted for about one-third of all homicide convictions from 2021 through 2023. That’s obviously not true. The problem comes from erroneously increasing the numerator (the number of homicide convictions) for a single year and decreasing the denominator (the total number of homicide convictions in just one year) rather than spreading out the convictions and the total number of all murders over a 40-plus year period.

Texas has the best criminal conviction data by immigration status. Illegal immigrants in Texas are about 7.1 percent of the population, but they accounted for just 5 percent of all homicide convictions in 2022. From 2013-2022, there were 472 convictions of illegal immigrants for homicide in Texas out of a total of almost 8,000 total homicide convictions. The state of Texas has the second-highest illegal immigrant population outside of California. It is not plausible that the migrants convicted of homicides were convicted for recent offenses unless illegal immigrants in Texas are radically less crime-prone than others. Those 13,099 migrants convicted of homicides committed their crimes over the last 40 years or longer.

The fourth untrue claim about ICE’s data is that all these migrants were convicted for homicides committed in the United States. Some of them were, but many of them were convicted of homicide in other countries and then apprehended in the United States. They should be removed, but many of them are from countries without repatriation agreements.

Immigration data in the United States can be complex. ICE and other government agencies use terms in ways that are confusing to the general public, commentators, Presidential candidates like Donald Trump, and immigration experts. The best way to interpret these data releases is to first define the terms like "non-detained" before jumping to conclusions.

More importantly, do these newly released ICE data show that illegal immigrants are more likely to be murderers than others? No, these ICE data do not show that illegal immigrants are more likely to commit homicide than native-born Americans. Assuming all the migrants convicted of homicide committed their crime in the U.S. (a major assumption that biases the calculation against my research), they are responsible for about 1.6 percent of all homicides during that time while being about 3.1 percent of the population. Assuming a homicide clearance rate of 65 percent over those 40 years, they are still responsible for less than 2.5 percent of all homicides under assumptions that maximize their domestic criminality. In other words, the ICE data confirm that illegal immigrants account for a smaller share of convicted murderers than their share of the population would suggest."

The impact (of tariffs) from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and especially by higher costs in downstream industries…[the] net effect is a relative reduction in manufacturing employment

See  Tariffs Hurt Manufacturing from Alex Tabarrok.

"In Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector (forthcoming) Aaron Flaaen and Justin Pierce of the Federal Reserve Board write:

The unprecedented increase in tariffs imposed by the United States against its major trading partners in 2018-2019 has brought renewed attention to the economic effects of tariffs. While vast theoretical and empirical literatures document the effects of changes in trade policy, it is not clear how prior estimates apply when there are virtually no modern episodes of a large, advanced economy raising tariffs in a way comparable to the U.S. during this period. Further complicating estimation of the effects of tariffs is the rapid expansion of globally interconnected supply chains, in which tariffs can have impacts through channels beyond their traditional effect of limiting import competition.

Another important feature of these tariffs is that they were imposed, in part, to boost the U.S. manufacturing sector by protecting against what were deemed to be the unfair trade practices of trading partners, principally China. Thus, understanding the impact of tariffs on manufacturing is vitally important, as some may view the negative consequences of tariff increases documented in existing research—including higher prices, lower consumption, and reduced business investment—as an acceptable cost for boosting manufacturing activity in the United States.

…On the one hand, U.S. import tariffs may protect some U.S.-based manufacturers from import competition in the domestic market, allowing them to gain market share at the expense of foreign competitors. On the other hand, U.S. tariffs have also been imposed on intermediate inputs, and the associated increase in costs may hurt U.S. firms’ competitiveness in producing for both the export and domestic markets. Moreover, U.S. trade partners have imposed retaliatory tariffs on U.S. exports of certain goods, which could again put U.S. firms at a disadvantage in those markets, relative to their foreign competitors. Disentangling the effects of these three channels and determining which effect dominates is an empirical question of critical importance.

…Our results suggest that the traditional use of trade policy as a tool for the protection and promotion of domestic manufacturing is complicated by the presence of globally interconnnected supply chains and the retaliatory actions of trade partners. Indeed, we find the impact from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and especially by higher costs in downstream industries…[the] net effect is a relative reduction in manufacturing employment.

Most famously, Whirlpool predicted that tariffs on washing machines would be great for Whirlpool profits, but their pleasure turned to dismay when they  realized that steel and aluminum tariffs would raise their input prices."

Trade and Wages

By Jon Murphy.

"In a recent essay at American Compass, Michael Lind attempts to refute certain aspects of economists’ case for free trade.  Others have addressed the numerous empirical, factual, and theoretical issues with his essay.  I will focus on just one particular claim.  Lind writes:

The attack on tariffs as regressive taxes unites two of the themes of early twenty-first-century neoliberalism. One is the left-neoliberal dogma that each individual tax—not government policy or the economy as a whole—must be progressive in its effects. The other is the right-neoliberal dogma that deregulating trade and immigration to reduce wages for workers and thus reduce prices for consumers is the “efficient” and thus best policy, as long as the “winners” compensate the “losers”—preferably in the form of redistribution through the tax code.

For the sake of space, I will ignore his claim on left-dogma and focus on the claim of right-dogma: “deregulating trade and immigration to reduce wages for workers and thus reduce prices for consumers is the “efficient” and thus best policy, as long as the “winners” compensate the “losers”—preferably in the form of redistribution through the tax code.”  Lind provides no citations or links supporting his claim, so it is hard to tell who (or what), exactly, he is responding to here.  Open any trade textbook and you won’t find such dogmas he claims are there.  

Rather, I think he is referring to a potential outcome in international trade called the Factor Equalization Theorem, independently derived by Wolfgang Stolper & Paul Samuelson in 1941 and Abba Lerner in 1952.  Sparing you, dear reader, the technical details, I’ll note that the theorem states that, under certain conditions, when two countries trade the trading partner that is relatively labor abundant will see wages rise and returns to capital fall while the country that is relatively capital abundant will see returns to capital rise and wages fall.  According to this theorem, the factor prices (wages and returns to capital) will equalize across trading partners: wages will be equal between the two countries and returns to capital will be equal between the two countries.

Assuming I am correct that he is pulling off the Factor Equalization Theorem, Lind seems to be seizing on it, imparting to it certain claims no one actually holds, and claiming these as free-trade dogmas.  The problem is that the theorem hasn’t held up well to empirical scrutiny.  The assumptions in it are too strong.  In particular, the theorem requires that labor across the trading partners is virtually identical (the same with capital).  In reality, labor is not identical across many trading partners.  American workers are extraordinarily productive: we operate in a capital-fueled economy with powerful and stable institutions, high education, and generally high access to productivity-improving infrastructure.  Chinese workers, by contrast, do not: they are much less productive.  According to the World Bank, the average Chinese worker produces approximately $42,000 worth of goods and services a year.  Conversely, the average American worker produces approximately $150,000 worth of goods and services per year, making the average American worker 257% more productive than the average Chinese worker.  A Chinese worker is not a good substitute for an American worker.  We shouldn’t expect to see American wages fall toward Chinese wages with trade.  Indeed, we do not see American wages falling.

To make this point less abstract, consider the following: the New England Patriots, my hometown football team, is in desperate need of a good quarterback.  I, a 35-year old man, would love to play for the Patriots.  In fact, they could offer me the league minimum wage ($795k) and I would instantly quit my job and go play for the Patriots.  Millions of other New Englanders (and Americans, for that matter) would also take the Patriots up on that offer.  Why, then, did the Patriots offer 21-year old rookie Drake Maye from UNC almost $60 million ($36 million over 4 years plus $24 million signing bonus)?  The answer is obvious: He and I are not the same by a long shot.  No one would reasonably expect our wages to equalize (mine rise and his to fall).  The theorem doesn’t hold in this case.

Factor price equalization will more likely occur between very similar trading partners like the US and Canada: the technology is similar, there are lower costs to relocating, and workers are similar.  But factor price equalization will not occur as a matter of course from trade, as Lind seems to think.  In fact, just the opposite could just as easily occur.  Factor price equalization is a special case, not a general case, of trade."

Washington Worsened Hurricane Helene's Destruction

How the National Flood Insurance Program subsidizes living in high-risk flood zones

By Jack Nicastro of Reason. 

"At least 119 people have died as a result of Hurricane Helene as of Monday, reports CNN. While the Federal Emergency Management Agency (FEMA) is busy helping survivors in flood-stricken regions, its National Flood Insurance Program (NFIP) perversely incentivizes Americans to reside in these high-risk areas.

People choose to remain in flood-prone areas for many reasons, including proximity to family, work, and school. Uprooting oneself and one's family can be a painful thing to do, and choosing to take on risk to stay where you've established your home is understandable. But choosing to stay in these areas genuinely does involve considerable risk. According to FEMA, the average flood insurance claim in 2018 was $40,000, and that risk should be borne by the risk-taker.

The Biden-Harris administration approved an additional $715 million for FEMA's Flood Mitigation Assistance Program (FMAP) in advance of Hurricane Helene on September 23. FMAP, which falls under NFIP, makes up 15.5 percent of FEMA's budget and provides homeowners with subsidized flood insurance.

FEMA itself recognizes the folly of providing homeowners insurance at below-market rates. Established by the National Flood Insurance Act of 1968, the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) was passed to reduce debt incurred by the NFIP from Hurricanes Rita, Wilma, and Katrina in 2005.

BW-12 removed discounts for some NFIP policyholders so that their insurance rates would "more accurately reflec[t] their expected flood losses," according to FEMA's 2018 affordability framework. These reforms were as actuarially sound as they were unpopular and were overturned two years later.

The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) restored pre-BW-12 rates, repealed certain rate increases, and capped annual premium increases at 18 and 25 percent for primary homes and secondary residences, respectively. Congress instituted these effective price ceilings to encourage participation, but FEMA's affordability framework recognizes the market price of insurance as "one of the best signals of risk that a consumer receives."

The 2018 framework candidly admits that flood insurance affordability programs create perverse incentives, including "encouraging lower-income households eligible for assistance to purchase properties in very risky areas." And that's just what the NFIP has done: approximately 13 million homeowners live in Special Flood Hazard Areas (SFHAs), where there is at least a 1 percent annual risk of flooding.

NFIP deems 12 percent of these homeowners to have Principal, Insurance, Taxes, Insurance (PITI) to household income ratios in excess of the maximum affordable standard. Even with mandatory enrollment in SFHAs, which reduces insurance rates by forcibly expanding the base of the insurance program, the average policyholder cost for a single-family home is $1,098—more than twice the cost of policies outside the SFHAs.

Without NFIP-subsidized insurance, rates would increase, becoming unaffordable for some homeowners. Unaffordability is a feature of insurance markets, not a bug. High insurance rates discourage risky behavior that is likely to be even more painful than having to pull up roots.

More than 2 million homes and businesses lacked power as of Monday morning, reports The Weather Channel, and about 3,000 people were housed in shelters across five states, according to The New York Times. Artificially lowering insurance rates deprives homeowners of the very information that indicates the risk of such devastation and displacement.

FEMA's affordability framework argues good public policy consists of balancing "increased flood insurance take-up with increased program costs due to…policyholders paying less than full-risk rates." This balancing act is simple: The federal government must stop subsidizing NFIP and allow its more than 50 partnered insurance companies to set rates that fully reflect the risk of extreme weather events like Hurricane Helene."

The Impact of Chinese Trade on U.S. Employment: The Good, The Bad, and The Debatable

By Nicholas Bloom, Kyle Handley, and Phillip Luck.

"Abstract:

"Using confidential US Census micro data we find three results. First, there is no evidence that Chinese import competition generated net job losses. In low-human capital areas (for example,much of the South and mid-West) manufacturing saw large job losses, driven by plant shrinkage and closure. But in high-human capital areas (for example, much of the West Coast or New England) manufacturing job losses were limited, with much larger gains in service employment,particularly in research, management and wholesale. As such, Chinese competition reallocated employment from manufacturing to services, and from the US heartland to the coasts. Second,looking at the firm-level data we find almost all of the manufacturing job losses are in large, multinational firms that are simultaneously expanding in services. Hence, these large firms appear to have off shored manufacturing employment while creating US service sector jobs. Indeed, we show large publicly traded US firms do not seem to have been negatively impacted by the rise in Chinese imports. Finally, the impact of Chinese imports disappears after 2007 – we find strong  employment impacts from 2000 to 2007, but nothing since from 2008 to 2015"

The Schumer Permitting Exception for Semiconductors

Computer chips get a NEPA reprieve, but the rest of the economy needs one too

WSJ editorial. 

"Wonder of wonders, miracle of miracles. Democrats in Congress have finally conceded that the U.S. economy needs permitting reform—at least if you make computer chips. Herewith a tale of political favoritism and industrial policy.

The House on Monday passed the Building Chips in America Act, which is a cleanup job for the 2022 Chips and Science Act. While the previous law doled out $39 billion to build semiconductors, the new bill will help projects shorten the path to approval under the National Environmental Policy Act (NEPA). The bill passed the Senate in December and President Biden is eager to sign it.

Chip makers will get several ways to skip environmental reviews. They can earn an exemption by starting construction before the end of this year, which several have already done. NEPA rules will also be waived for companies that receive loans rather than grants through the Chips Act, or use federal grants for less than 10% of their total project cost.

More House Republicans than Democrats voted for the bill, and the GOP support is easier to explain. Most Republicans have sought for years to streamline permitting across all industries. Even Republicans against chip subsidies would prefer projects to move quickly once the funds are appropriated.

But Democrats are breaking their usual NEPA habit. Senate Majority Leader Chuck Schumer has blocked multiple attempts at permitting reform, including a House proposal in May to speed up energy production and transmission. The green lobby sues and sues some more under NEPA to slow projects for years. The average wait is 4½ years, according to a 2020 review by the White House Council on Environmental Quality.

Without the exemptions, chip makers would likely face similar delays. A large fabrication plant can consume as much water each day as 300,000 people, and only 15% to 20% of it is recyclable, according to a study by the research firm Interface. That’s catnip for endless bureaucratic review and lawsuits. The climate lobby opposed the Building Chips act, and 112 Democrats voted no in the House.

So why did the chip exception pass? Local and election politics. Democrats have made manufacturing a main theme of this year’s campaigns and want to promote more projects before Election Day. Mr. Schumer is also crucial to this NEPA override. The new bill will likely speed construction for Micron Technology’s plant near Syracuse, N.Y., which was set to break ground this year but has been tied up by the environmental review process. It’s good to be the Majority Leader.

The chip exception shows how much NEPA permitting reform is needed for the entire economy. Companies shouldn’t need a Majority Leader in their pocket to get permission to build the plants and products that drive American prosperity."

The Kamala Harris Plan for More Housing Shortages

Her plan would stimulate demand, not supply, and redistribute wealth to the sellers of existing homes

By Edward Pinto. 

"A signature feature of Kamala Harris’s housing plan is providing first-time home buyers with $25,000 in down-payment support, at a total cost of $100 billion over four years. Absent a severe recession, this policy is all but certain to lead to higher home prices. That’s because the four million program recipients would become price setters for all buyers in their neighborhoods.

According to the American Enterprise Institute’s Housing Center, 77% of all home purchases would be subject to this home buyer “tax,” causing the price of these homes to increase by 3.6%. Over four years the increase in home prices would total $175 billion, more than the $100 billion cost of the program. The price increase would show up in higher revenue for sellers, thus acting as a wealth transfer to them. 

The law of supply and demand dictates that an increase in demand without a commensurate increase in supply will result in higher prices. This effect on prices is because we’re currently in a strong sellers’ market, which exists when the number of months it would take to sell all the homes currently on the market is less than six. As of August, the overall supply of homes for sale was 3.7 months’ worth. For houses in lower price tiers, that number drops to 2.4 months. Sellers’ markets create upward price pressure on home prices, which grows more powerful when demand is further stimulated. Ms. Harris’s policy would do just that, boosting demand by giving buyers more spending money.

The plan’s defects don’t stop there. Ms. Harris’s proposed tax incentive for building starter homes is intended to increase housing supply substantially. This approach has led to significant market distortions on at least two occasions.

The Housing and Urban Development Act of 1968, with its easy credit terms and substantial subsidies, resulted in a surge of housing permits in 1971 and 1972. By 1975 the housing boom had reversed, leaving lasting scars on cities including Detroit, Chicago and Cleveland. Similarly, the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which set affordable-housing goals, combined with Bill Clinton’s National Homeownership Strategy, led to credit liberalization in the runup to the 2008-09 financial crisis. Housing permits doubled, from 1.1 million in 1992 to 2.2 million in 2005, but then collapsed by 73% in 2009. In the aftermath, millions faced foreclosure, and the resulting housing-supply deficit still afflicts us today.

Without such dangerous credit easing, it is likely that Ms. Harris’s proposal would provide incentives largely for new homes that would have been built anyway, with any incremental construction being unevenly distributed across the nation. This would cause further imbalances between supply and demand.

Ms. Harris also proposes a $40 billion fund for local governments to explore “innovative” housing solutions. The Housing and Urban Development Department would likely channel this money into programs laden with self-defeating government-mandated affordability requirements, which markets abhor.

History offers a cautionary tale against such federal interference in the housing market: From the 1930s to 2008, at least 43 housing, urban-renewal and community-development programs were signed into law. Despite these laws’ lofty goals, these initiatives consistently failed to make housing more affordable.

There is indeed a housing affordability crisis. The root cause of this is a housing supply shortage of between three million and eight million housing units. Rather than pursuing Ms. Harris’s misguided plan, the federal government has several options to increase the housing supply at market rate:

• Implement a 10-year plan to auction surplus federal lands for home construction. Doing so could add 200,000 homes per year. By my estimate, these sales could generate $10 billion in annual receipts.

• Eliminate the tax deduction for interest on mortgages. This would increase supply and reduce demand by freeing up over the next decade 700,000 existing homes currently being used as secondary residences.

• Adopt a credible plan to reduce deficit spending. This could lower the 10-year Treasury rate (and mortgage rates along with it) by 0.75 to 1 percentage point.

• Subsidized housing projects often involve a cycle of subsidizing, rehabilitating, tearing down and rebuilding, all on the same parcel. Congress should require HUD to document, project by project, this revolving door of waste.

These measures, in combination with state and local efforts to deregulate land use and zoning, would mitigate the housing affordability crisis—all at no taxpayer cost and without unintended consequences.

Mr. Pinto is co-director of the American Enterprise Institute’s Housing Center."

The Biden Manufacturing Boom That Isn’t

U.S. industry output has been flat for two years, despite huge subsidies

WSJ editorial. 

"Kamala Harris is vying for votes in the Midwest by touting the Administration’s efforts to boost U.S. manufacturing. In the recent debate, she boasted about “building a clean energy economy” and “investing in American-made products.” So what’s the Administration’s actual record?

Start with the top line, which is that U.S. manufacturing output hasn’t fully recovered from its pandemic plunge and is lower than in 2013. Most manufacturing growth under Mr. Biden occurred during his first year in office amid the post-Covid rebound. Businesses scaled up production owing to an increased demand for goods that was super-charged by the pandemic largesse.

It’s true that spending on construction of new factories has more than doubled during the Biden years, no doubt partly owing to a gusher of subsidies. The Inflation Reduction Act includes rich tax credits for green manufacturing and renewable electricity projects built with U.S.-made materials.

Yet there are already signs that this government-driven investment is a mistake. Auto makers are scaling back electric-vehicle production, which may lead to under-utilized factories. Some green startups are struggling to stay in business, such as Lordstown and Fisker.

The Institute for Supply Management’s purchasing managers index shows the manufacturing industry as a whole has been in almost continuous contraction since autumn 2022, right after Mr. Biden signed the IRA and Chips Act.

Meanwhile, investment in new industrial equipment has been notably weaker under Mr. Biden than Donald Trump. This suggests fewer manufacturers are refurbishing existing plants and investing in technology that will make them more globally competitive.

What about jobs? Ms. Harris said in her debate with Mr. Trump that the U.S. has “created over 800,000 new manufacturing jobs while I have been vice president.” But almost all were bounce-back from the pandemic. As the nearby chart shows, manufacturing job growth has since been flat for two years. 

Manufacturing employment has grown in businesses boosted by subsidies, such as semiconductors (17,800) and batteries (8,800). But jobs have declined in others smacked hard by regulation and inflation, such as oil and gas machinery (-10,400), foundries (-7,200) and fabricated metals (-6,800).

Jobs and hours worked have declined since October 2022 when the Biden subsidy gusher began. Real average weekly wages for manufacturing workers are 2.7% lower than in January 2021.

In a fact sheet on Monday aimed at voters in Michigan, Ms. Harris and the White House boasted about $28 billion in private investment in “clean energy and manufacturing” in the state during the Biden years. Yet overall Michigan has lost 11,300 net manufacturing jobs in the last year and 7,200 since the IRA passed.

The problem for U.S. companies is that Mr. Biden’s anti-business policies offset the impact of subsidies. Inflation caused by all that government spending has raised business costs, and soaring electricity prices have been especially damaging. In March, Metal Technologies Inc. announced it is closing its Northern Foundry in Minnesota, citing the state’s rising electricity prices. Blame in part Minnesota Gov. Tim Walz’s renewable-energy mandate, which has forced the retirement of a major coal plant that provided cheap power.

The Environmental Protection Agency imposed rules requiring steel mills and iron foundries to limit carbon emissions. EPA’s regulations “stand to paralyze an industry” and “impose billions of dollars in mandates” on U.S. manufacturers, warned Democratic Sens. Bob Casey, John Fetterman, Amy Klobuchar, Sherrod Brown and independent Joe Manchin. U.S. Steel warns it will close its Mon Valley plant because of refurbishment costs if the government blocks its acquisition by Nippon Steel. 

The Biden EPA has also imposed stringent emissions limits on paper, cement, glass, steel, iron, and chemicals manufacturers in the name of reducing smog in downstream states despite little connection between the two. States and manufacturing groups challenged the rule, which the Supreme Court stayed in June.

But the business uncertainty caused by myriad rules has chilled investment. Electric transformer manufacturers last year warned that proposed efficiency standards for their industry made it difficult to scale up production. This in turn stalled other business investments, including housing projects and data centers.

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The U.S. economy is dominated by services these days, so making a political fetish of manufacturing is misguided. But to the extent policy makers want to encourage more investment and hiring in manufacturing, the answer is to reduce costs to make U.S. firms more competitive. Low energy prices, low taxes and fewer regulatory costs are better than government-directed investment in industries that might not have a market.

Biden-Harris policy has been to raise costs for all businesses and then slather on subsidies for those they like. It isn’t paying off for most U.S. companies or workers."