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I am saddened to report that my dear friend Andrea Millen Rich died this morning at her home in Philadelphia at the age of 79 after a 19-year battle with lung cancer. She was, among many other things, the proprietor of Laissez Faire Books and the wife for 41 years of Howard Rich, the Cato Institute’s longest-serving Board member.

For more than 40 years Andrea was at the center of the libertarian movement, a mentor, counselor, friend, supporter, facilitator, networker, and gracious hostess to hundreds of freedom lovers – young, old, well-known, obscure, successful, down-on-their-luck, didn’t matter. 

She was the first chair of the New York Libertarian Party in 1973-74. The vice chair was Howard S. Rich, whom she soon married. From 1974 to 1977 she was vice chair of the national Libertarian Party, and in 1980 she played a key role in developing television advertising for the campaign of Ed Clark, the Libertarian presidential nominee.

From 1982 to 2005 she was the president of Laissez-Faire Books, which billed itself as “the world’s largest collection of books on liberty.” It had a retail location on Mercer Street in Greenwich Village, described in Radicals for Capitalism by Brian Doherty as “an important social center for the movement in America’s biggest city, a place for any traveling libertarian to stop for company and succor.” But in those pre-Amazon days, it was far better known for its monthly catalog that reached libertarians around the world. Through its Fox & Wilkes publishing imprint it brought many classic libertarian books back into print. (Brian Doherty’s own reflections, along with those of Nick Gillespie, can be found at Reason.)

Andrea often negotiated with publishers to make books more affordable, and some books only found publishers because Laissez-Faire could guarantee an audience beyond the small academic market. She even taught me how to negotiate with publishers. Through her work with Laissez-Faire she became friendly with leading libertarian writers including Milton and Rose Friedman, Robert Nozick, Thomas Sowell, Nathaniel Branden, Thomas Szasz, Charles Murray, Richard Epstein, David Kelley, and Margit von Mises, widow of economist Ludwig von Mises.

As president of the Center for Independent Thought, the parent organization of Laissez-Faire Books, she also launched and managed the Thomas S. Szasz Award for Outstanding Contributions to the Cause of Civil Liberties and the Roy A. Childs Fund for Independent Scholars. CIT’s biggest project was Stossel in the Classroom, which repackaged ABC News and Fox Business videos on economics and public policy by John Stossel for classroom use. The videos have been viewed by tens of millions of high school students – according to Stossel, reaching more people than ABC News and Fox News.

Along the way she also helped to found the Center for Libertarian Studies in 1976 and served on the boards of the Foundation for Economic Education, the oldest free-market think tank, and the Atlas Network, an international association of think tanks. She traveled as far as Russia and Kenya to meet libertarians and spread the ideas of freedom.

Andrea Millen was born February 8, 1939, to the late Louis and Vera Millen of Johnson City, Tennessee. She graduated from Science Hill High School and attended the University of Alabama. After she got a summer job at CBS answering fan mail for Mighty Mouse and Heckle and Jeckle (“my handwriting was perfect for it, they said”), she never went back to school. For 18 years, she worked in television, including for Sid Caesar, Joe Pyne, and the NBC News election unit.

She lived most of her life in Manhattan and Orangeburg, NY, but moved to Philadelphia in 2009.

She is survived by her husband of 41 years, Howard Rich, her sister Elaine Millen of Charlotte, NC, stepsons Joseph Rich and Dan Rich, Dan’s wife Maureen, and granddaughters Cati and Samantha.

Today, the Federal Reserve’s policy setting body decided to hold interest rates steady—a policy move that was predicted with near certainty by financial markets. Because this Federal Open Market Committee (FOMC) meeting was not a “live” one, that is Fed Chairman Powell did not follow it with a press conference, the only news comes from the press release. And the news there is basically no news at all—except for calling economic growth “strong” instead of “solid.” 

But this slightly more bullish tone on economic growth is not license to ignore other potential issues in the economy.

One concern is escalating trade tensions. The increasing levels of protectionism emanating from the U.S. and reverberating across the globe could dampen the economic outlook. Powell, fortunately, is aware of the risks of higher trade barriers—but it remains debatable what precisely the Fed can or should do in light of mounting protectionism.

Another concern is the flattening yield curve, where yields on short-term Treasury bonds have been inching higher and closer to yields on long-term Treasury bonds. If short-term yields exceed long-term yields, we end up with a yield curve inversion. Yield curve inversions often portend a recession, as they indicate market uncertainty about short-term prospects. While the flattening has abated this month—and while some Fed watchers rightly point out that if the curve stays relatively flat without inverting, there is less reason to worry—the Fed should continue to monitor important feedback from the bond market.

But the real issue the FOMC ought to be focused on is the Fed’s operating framework. I discussed the FOMC’s tinkering with the mechanics of monetary policy last month, highlighting that the current operating system was an experiment that grew out of the financial crisis and that it remains a framework with which the Fed has little experience. Of course, my colleague George Selgin has been the leader on this issue, bringing much needed attention to the myriad problems the “leaky floor” system poses. When the minutes from this FOMC meeting are released in three weeks, we can only hope they reveal the members giving this topic its rightful due.

It’s all well and good for the FOMC to adjust its language in the wake of positive GDP figures, but the Fed still has a very large question to address. It’s past time that they begin to do so in earnest.  

Today was a busy day for financial regulatory policy. In the morning, the Department of the Treasury released its long-awaited report on nonbank financials, fintech, and innovation. A few hours later, the Office of the Comptroller of the Currency announced that it will start taking applications for a special purpose charter for “fintech companies engaged in the business of banking.”

Over the eighteen months since President Trump signed an executive order outlining the core principles for financial regulation under his watch, the fintech sector has been gripped by policy uncertainty and the looming threat of regulation by enforcement. Today’s events bring much-needed clarity on the Trump administration’s outlook for financial innovation, and the likely way forward.

At 222 pages, the Treasury report is a mammoth document. However, in grappling with the chief ailments of the U.S. financial regulatory framework, the report starts a discussion that will hopefully lead to major revision of existing rules and regulatory approaches.

Three problems afflict the current edifice of the financial regulatory system. Firstly, it was largely designed at a time when most of the technologies that are changing financial services provision did not exist. Secondly, there is a great deal of fragmentation, both horizontal—with rulemaking, supervisory, and enforcement power dispersed across many federal agencies—and vertical—with competences distributed between states and the federal government. Thirdly, it is by design a precautionary system, focused on protecting consumers at all costs, often at the expense of beneficial innovation.

Comprehensively addressing these three problem areas will take more than a sympathetic attitude from the executive. However, the report helpfully points the way forward in seven areas.

1. Clarity about how financial providers talk to consumers

The rules governing communications between financial providers and their customers stem from the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA), passed respectively in 1977 and 1991. Unsurprisingly, both laws fail to take account of the increasing reliance on text and email communication via smartphones—and the Federal Communications Commission has given a wide interpretation to statutory provisions, constraining providers’ ability to reach their customers using new media. The Treasury report finds that the reach of current regulations is overly broad, an assessment vindicated by recent court rulings. It recommends changes to the FDCPA and TCPA to make it easier for consumers to revoke consent to be contacted. It also calls for greater clarity about the ways in which providers can reach consumers and the information they can disclose over email and voicemail services.

2. Data access and use by fintech firms

More people are making use of technology platforms for budgeting, saving, investment, and debt management. Enabling fintech applications to gain access to one’s financial data can improve consumer welfare by making it easier and cheaper to refinance loans, manage bank accounts, and learn about suitable new financial products. But banks and other established financial firms are reluctant to give access to customer data to third parties—partly because it is a competitive threat but also because it can compromise the confidentiality of those data, for which banks could be found liable. The Treasury report calls for increased efforts to improve data aggregation. It favors private-sector action and standardization of applications to make data-sharing easier and more secure but doesn’t rule out federal standards.

3. Credit scoring

One of the key ways that financial innovation is improving consumer welfare is by helping to model risk and predict default in more accurate ways. This lowers the cost of credit and expands access to marginal borrowers. For instance, a recent Federal Reserve paper finds fintech credit scoring to lead to better default estimates and lower interest spreads than FICO scores. The Treasury recognizes the value of alternative data use for better credit scoring, but it is wary of potential discrimination. Growing empirical evidence, on the other hand, suggests that better outcomes can be achieved without undermining equal treatment laws.

4. Harmonizing or federalizing money transmitter and nonbank lender licensing

As Brian Knight from the Mercatus Center has discussed at length, a key weakness of existing financial regulation is its fragmentation across states. The Treasury is aware of the onerous licensing and compliance costs that such fragmentation imposes on providers, and its report encourages voluntary harmonization by states, via passporting rules. If states cannot achieve the requisite degree of equivalence, the Treasury advocates federal action. Given New York’s fierce opposition to any perceived dilution of its financial rules, it looks like federal preemption will come sooner or later. Federalization would foreclose healthy regulatory competition, but in light of the operating costs imposed by fragmentation, the trade-off may redound to the benefit of consumers.

5. Codifying valid-when-made for banks and nonbank lenders

Legal precedent for two hundred years has established that, if a loan extended by a national bank did not violate usury laws at the time or location of its issue, then it is valid at a subsequent time and location within the United States. More recent judicial decisions have expanded the application of this doctrine to nonbanks, but a recent case involving defaulted credit card debt questioned the principle, throwing interstate marketplace lending into disarray. The Treasury rightly calls on Congress to codify the valid-when-made doctrine. In fact, the House already passed a bill that does exactly that.

6. Rescind the BCFP’s payday rule

Nobody likes high-cost short-term credit, but the accumulated evidence—contrary to popular wisdom—shows that payday loans serve many customers much of the time—especially those with urgent need for funds and no access to alternatives. Despite this evidence, the Bureau of Consumer Financial Protection (BCFP) under its previous director sought to apply new rules on payday lenders that would have required them to verify the borrower’s ability repay. These checks would be inappropriate precisely because payday loans are a last-resort emergency product, meaning that some non-negligible proportion of borrowers will indeed end up not paying them back. That makes payday loans costly to extend, but it does not mean they do not help the typical borrower. The Treasury recommends that this draconian BCFP rule be rescinded. Instead, the emphasis should be on removing regulation to encourage a broader spectrum of lower-cost small-dollar products provided by banks and nonbanks alike.

7. Adopt regulatory sandboxes as a spur to innovation

Existing rules aiming to protect consumers may not pose a threat to established institutions, but they do raise barriers to entry for challenger firms, reducing competition. A pragmatic way to maintain existing protections—even though the case to do so is often dubious—while encouraging innovation is to allow for regulatory sandboxes: in which new firms can begin operations under regulatory supervision, but without being subject to the full corpus of regulation. Leading financial jurisdictions such as Britain and Singapore have implemented sandbox programs. The Treasury report calls for similar policies from U.S. regulators, and, if needed, congressional action to facilitate innovation and preempt state barriers. While the sandbox approach eschews the broader question of whether existing rules are appropriate, it almost surely will improve the environment for innovators.

The above is not a comprehensive discussion of the report, but a summary of its key proposals. The tenor of the Treasury’s recommendations is laudable and many of the specific reforms much-needed. However, perhaps the thorniest of issues goes unmentioned, namely, whether the sheer number of regulators and regulatory restrictions placed on financial services firms is making the financial services industry less dynamic and innovative than it could be. That is the question underlying present efforts, however modest, at regulatory relief for banks, nonbank lenders and new players such as cryptocurrency issuers and exchanges.

The tone of the Treasury’s report suggests an answer, but it remains to be seen whether executive and legislative action will measure up to the challenge.

[Cross-posted from Alt-M.org.]

Since the 2016 election Facebook has faced several problems, some related to the election, some not. In 2016 Russian agents bought ads on Facebook and posted messages related to the election. Facebook has been blamed for not preventing the Russians from doing this. Many people may believe the Russian efforts led to Donald Trump’s election. That view remains unproven and highly implausible.

Beset by other problems, Facebook seeks to avoid a replay of 2016 after the 2018 elections. Yesterday Facebook tried to take the offensive by removing 32 false pages and profiles from its platform; the pages had 16,000 to 18,000 followers, all connected to an upcoming event “No Unite the Right 2 – DC”.  

Facebook stated the pages engaged in “coordinated inauthentic behavior [which] is not allowed on Facebook because we don’t want people or organizations creating networks of accounts to mislead others about who they are, or what they’re doing.” Facebook does not allow anonymity on its platform at least in the United States. They appear to be enforcing their community standards.

Most people might not worry too much about what Facebook did. The speech at issue was said to be divisive disinformation supported by a traditional adversary of the United States. Who worries about the speech of hostile foreigners? Still a reasonable person might be concerned for other reasons.

The source of the Facebook pages, not the company’s policies, seemed of most interest in Washington. Sen. Mark Warner said that “the Kremlin” had exploited Facebook “to sow division and spread disinformation.” Warner’s confidence seems unwarranted. The Washington Post reported that Facebook “couldn’t tie the activity to Russia.” Facebook’s chief security officer called the Russian link “interesting but not determinant.” The company did say “the profiles shared a pattern of behavior with the [2016] Russian disinformation campaign.”

The takedown also affected some Americans. Ars Technica said the event on the removed page “attracted a lot of organic support, including the recruitment of legitimate Page admins to join and advertise the effort.” Perhaps Russian operatives have no protections for their speech. But the Americans affected by the takedown do or at least would have had such protections if the government had ordered Facebook to take down the page in question.

But the source of the speech was not the only problem. As noted earlier, Sen. Warner thought two kinds of speech deserved suppression: divisive speech and disinformation. But, as a member of Congress, he cannot act on that belief. Courts almost always prevent public officials from discriminating against speech based on its content. For example, the First Amendment protects “abusive invective” related to “race, color, creed, religion or gender.” The Supreme Court has also said false statements are not an exception to the First Amendment.

In contrast, Facebook can remove speech from their private forum. The First Amendment does not govern their actions. But Facebook’s freedom in this regard might one day threaten everyone else’s.

Here’s how. Facebook might have removed the page for purely business reasons. Or they have acted more or less as agents of the federal government. The New York Times reported that Sen. Warner “has exerted intense pressure on the social media companies.” His colleague Sen. Diane Feinstein told social media companies last year “You’ve created these platforms, and now they are being misused, and you have to be the ones to do something about it. Or we will.” Free speech would fare poorly if social media were both free of constitutional constraints and effectively under the thumb of public officials.

Facebook officials may see business reasons to resist Russian efforts on their platform, a goal served by enforcing existing rules. At the same time Facebook wishes to be seen by Congress as responsive to congressional bullying. But being too responsive would only encourage more threats later, and in general, giving elected officials even partial control over your business is not a good idea. So Facebook is both careful about Russian influence and responsive to congressional concerns, a good citizen rather than an enthusiastic conscript in defense of the nation.

Facebook’s efforts may yet keep Congress at a safe distance. But members of Congress may be learning they can get they want from the tech companies. In the future federal officials free of constitutional constraints may indirectly but effectively decide the meaning of “divisive speech” and “disinformation” on Facebook and elsewhere. Their definitions would be unlikely to affect only the speech of America’s adversaries.

This is getting old. I find myself correcting false claims regarding the scientific evidence on private school choice all too often. For example, using only one correlational study that did not detect any statistically significant effects, Valerie Strauss recently concluded that “private schools aren’t better at educating kids than public schools” in the Washington Post. As I have pointed out many times before, the preponderance of the causal evidence indicates that school voucher programs in the U.S. improve student test scores and more important outcomes such as high school graduation, college enrollment, and tolerance of others.

But science shouldn’t determine whether families are allowed to pick the schools they want for their kids.

Just imagine if we used the scientific evidence to decide whether people should be residentially assigned to their nearest government grocery store. What if we randomly assigned thousands of families to government-run grocery stores and found that, on average, those families consumed fewer calories than the families with the freedom to shop for groceries on their own? Such an empirical finding certainly wouldn’t mean that the government should compel all individual families to accept the grocery basket deemed ideal by the experts. After all, a crude metric such as caloric intake can only tell us so much about how well an individual’s nutritional needs are being met. And, of course, some people may simply value eating appetizing foods more than the benefits of having a lower BMI. It would be a disgraceful limitation of freedom to compel people to consume—and pay for—a basket of groceries they did not want.

Yet this is precisely the type argument often used against freedom in education—that parents are somehow unfit to choose schools for their own kids.

But it’s worse than that with education because most of the random-assignment evaluations find that students are better off when their parents are allowed to choose their schools. And even though the most rigorous scientific evidence available says families should have school choice, less than one percent of the school-aged population in the U.S. uses a private school choice program.

But why shouldn’t society use science to force other people to do the “right” things?

Of course, science can tell us a lot about the world around us. And random assignment (the “gold standard” of scientific research) is the best thing we have available to determine how certain treatments (or policies) affect groups of people. However, even the best methodology has important flaws that do not allow researchers to give central planners enough information to make good decisions for individual families.

For example, since the internal validity of experimental design relies on something called the law of large numbers, the methodology only allows researchers to determine the average effects of policies for large groups of people. In other words, even the best scientific methodology that exists cannot determine the effect of policies on specific individuals. And then there is the external validity problem—even if a school choice program is found to have large positive (or negative) effects on one group of students, on average, it is unlikely that the effects will be exactly the same for the other cohorts of students or in different settings. Similarly, the effectiveness of school choice programs—and the supply of private schools—can change over time.

And education technocrats frequently use faulty measures of success—standardized test scores—because it is extremely difficult for researchers to get their hands on more important long-term outcomes such as earnings, crime, and character skills. The main problem is that effects on math and reading test scores often do not predict effects on more important long-term outcomes. For instance, a recent American Enterprise Institute review of the evidence found that 61 percent of school choice programs’ effects on math test scores—and 50 percent of effects on reading test scores—did not predict effects on high school graduation. And at least 11 other studies have found divergences between private schools’ effects on test scores and their effects on more important long-term outcomes. For example, a peer-reviewed evaluation found that private school vouchers in Ohio had no effect on test scores but increased students’ charitable donations by 23 percent. In other words, focusing too much on standardized test scores could compromise the character skills necessary for true lifelong success.

And that’s just the tip of the iceberg. Many evaluations do not use random assignment—and the problems only get much worse when weaker empirical methods are used. Put simply, central planners face a severe knowledge problem with education today—just as central planners faced severe knowledge problems with five-year plans in the Soviet Union.

The fact is that families have more information about what their individual children need than education bureaucrats and scientists sitting in offices—hundreds of miles away. Families are also more interested in their own children’s lifelong success than anyone else.

The strongest scientific evidence we have on the subject suggests that private school choice works. But that really shouldn’t even matter. Just as people have the right to pick their own groceries, people should have the right to pick the schools that they believe will work best for their own kids. And just as government officials cannot force families to eat at particular restaurants, government officials shouldn’t be able to force families to send their kids to failing government schools.

Late yesterday, U.S. District Court Judge Robert Lasnik issued a temporary restraining order (TRO) blocking the release of design files for 3D-printed guns. The order comes in response to a lawsuit filed by a number of state attorneys general who claim that the Trump administration acted unlawfully in reaching a settlement in a lawsuit brought by Defense Distributed, a company that produces digital blueprints for 3D-printed guns, and the Second Amendment Foundation. Judge Lasnik found that states were likely to suffer irreparable harm—the standard for a TRO—if the digital blueprints became distributable via a website, and he felt that the situation was such an emergency that the order was issued within a day of when the suit was filed.

This is a deeply silly order. People have been making guns out of various objects for centuries. Watch this video of someone making a shotgun out of two pieces of commonly available tubing.

Zip guns like those have been used for centuries. They’re easy to make and easy to learn how to make. And, as long as you follow certain guidelines (such as not making a machine gun), such guns are perfectly legal to make. As the ATF website says: “No, a license is not required to make a firearm solely for personal use.”

Moreover, distributing plans for zip guns is a form of speech protected by the First Amendment, as it should be. Here’s a website telling you how to make one, and here’s a YouTube video telling you how to make one in less than two minutes. Judge Lasnik’s TRO is the equivalent of shutting down those websites and videos because telling people how to make zip guns creates an “irreparable harm.”

3D-printed guns are little better than those zip guns. The Libertor is a one-shot pistol that, if it works, fires a low-powered bullet with an effective range of maybe 20 feet. More often, it might just explode in your hand. As one commentator writes,

The Liberator’s bullet emerges going very slowly and wobbling or tumbling due to lack of spin. It might go almost anywhere, though not very far, and is unlikely to do much damage to anything it manages to hit. It’s a bit better than holding up a cartridge in a pair of pliers and banging the cap with a centrepunch or similar, but not much.

The Songbird is another design that works slightly better, but still wouldn’t be your first choice for doing anything except demonstrating to your friends that you built a gun that doesn’t blow up in your hand.

These guns are little better than a musket or a muzzle-loading flintlock pistol, which anyone can purchase without a background check. Yes, that’s right, criminals all over the country can purchase something like this replica English Civil War cavalry pistol and wreak havoc. Sure, they’ll need to get some black powder, some wadding, and some musket balls, but those are widely available, especially in the internet age. Or, if they want more than one shot, they can purchase this 1860 model Colt revolver replica, also without a background check, which would certainly be good enough to rob a store. So why aren’t people constantly robbing stores with the guns of Jesse James or Captain Jack Sparrow? Because it would be stupid and more expensive than purchasing this professionally manufactured Hi-Point 916 for $149.00. And if someone is prohibited from purchasing a gun from a licensed dealer, perhaps because they’re a convicted felon, they can acquire a gun in the myriad ways criminals acquire guns. No street-level gun dealer is waiting for the TRO to be lifted so he can start flooding the streets with in-demand single-shot plastic pistols. The concept is too silly to contemplate.

The idea that allowing websites to distribute digital blueprints for 3D-printed guns creates “irreparable harm” to the states is as silly as saying allowing people to distribute plans for zip guns does “irreparable harm.” The fear created by the phrase “3D-printed guns” should not be allowed to override common sense.

The usual narrative is that Democrats support consumer protections and Republicans oppose them. Today’s short-term plans final rule flips that narrative: Republicans are expanding consumer protections, and Democrats are opposing them.

Today’s rule reverses a 2016 Obama rule. The Obama rule reduced consumer protections in short-term plans by exposing sick patients to medical underwriting. Before that rule, consumers could purchase short-term plans that lasted 12 months. If they developed a serious illness, their plan could cover them until the next ObamaCare open enrollment period, when they could purchase coverage without medical underwriting. The Obama rule restricted short-term plans to 3 months. It prohibited “renewal guarantees” that protect enrollees who fall ill from medical underwriting when they purchased a new short-term plan. As a result, the Obama rule left short-term plan enrollees who got sick with no coverage for up to 9 months: those who purchased a plan in January, and developed a serious illness in February, would lose their coverage at the end of March, and have no coverage until the following January. (Source: NAIC) This was by design: the Obama administration wanted to expose sick people in short-term plans to medical underwriting and lost coverage as a way of forcing consumers to buy ObamaCare coverage instead. That’s at least a little messed up.

Today’s rule allows short-term plans to last 12 months and offer renewal guarantees. It therefore allows short-term plans to protect the sick from medical underwriting for an additional 9 months—indeed, “issuers may offer coverage under a short-term, limited-duration insurance policy for up to a total of 36 months, without any medical underwriting or experience rating beyond that completed upon the initial sale of the policy”—and allows renewal guarantees to protect them from medical underwriting indefinitely. Protecting the sick from medical underwriting has long been a goal of Congress.

So, to recap, Republicans are expanding consumer protections, and Democrats are opposing an expansion of consumer protections.

Weird, isn’t it?

President Trump tweeted this morning that, “One of the reasons we need Great Border Security is that Mexico’s murder rate in 2017 increased by 27% to 31,174 people killed, a record! The Democrats want Open Borders. I want Maximum Border Security and respect for ICE and our great Law Enforcement Professionals!”  He tweeted this because he’s spent the last few days stating that he would shut down the government if Congress did not adopt his immigration proposed reforms in the upcoming budget debate, especially the funding for the construction of a border wall.

Besides the political motivation for his tweet, President Trump seems to have assumed that crime in Mexico bleeds north into the United States, so more border security is required to prevent that from happening as murder rates begin to rise again in Mexico.  Although illegal immigrant incarceration rates are lower than they are for natives, illegal immigrant conviction rates in the border state of Texas are lower for almost every crime including homicide, and the vast majority of evidence indicates that illegal and legal immigrants are less crime-prone than natives, the President’s specific claim that murder rates spread from Mexico to the United States is different from most of the existing peer-reviewed literature. 

My colleague Andrew Forrester and I ran some simple regressions to test whether higher homicide rates in Mexican states that border the United States spread northward to U.S. states on the other side of the border.  It doesn’t make much sense to compare Mexican crime in the Yucatan Peninsula with that in Maine but, if President Trump’s theory is correct, then we should expect to see it cross from Baja California to California, for instance.  Homicide data for the Mexican border states come from the Mexican National Institute of Statistics and Geography.  American homicide data come from the Uniform Crime Reporting statistics at the FBI (files here).  Homicide rates in states in both countries are per 100,000 state residents which allows an apples-to-apples comparison.  We used data from 1997 through 2016 but were not able to include 2017 as U.S. crime data is unavailable for the American states although it is available for the Mexican states.  We decided to look exclusively at U.S. and Mexican border states because those are where we would expect crime to bleed over if such a thing happened. 

Figure 1 shows a negative relationship between homicide rates in U.S. border states and Mexican border states with a negative correlation coefficient of -0.46.  The coefficient is nearly identical when Mexican homicide rates in the previous year are compared to American homicide rates in the following year.  Although we did not include other controls, there is a negative relationship between homicides on the American side and the Mexican side.  In other words, when Mexican homicide rates go up then American rates tend to go down and vice versa.     

Figure 1

Homicide Rates in U.S. and Mexican Border States, 1997-2016

Homicide Rates in U.S. and Mexican Border States

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Figure 2 shows the same data but with years on the X-axis.  Mexican border state homicide rates vary considerably over time, especially when that government decided to try to crack down on drug cartels, but U.S. border state homicide rates trended slowly downward over the entire time.  There is a negative relationship between Mexican homicide rates and homicide rates in U.S. border states. 

Figure 2

Homicide Rates in U.S. and Mexican Border States, 1997-2016

Homicide Rates in U.S. and Mexican Border States

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Our figures and regressions above might not be capturing the whole picture.  Perhaps crime travels from Mexican border states and goes directly into the U.S. state that it is bordering.  That could be the source of President Trump’s worry.  We tested that in Figures 3-6 where we looked at how homicide rates in Mexican states contiguous to U.S. states are correlated with homicide rates there. 

Figure 3 shows homicide rates in the Mexican state of Baja California and in the American state of California.  There is a negative correlation coefficient of -0.66 between homicide rates in Baja California and in California, meaning that homicide rates move in the opposite directions in these two states.    

Figure 3

Homicide Rates in California and Baja California, 1997-2016

Homicide Rates in California and Baja California

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Figure 4 compares homicide rates in Arizona with those in Baja California and Sonora.  Homicide rates between Baja California and Arizona have a correlation coefficient of -0.69, meaning that homicide rates in Baja California and Arizona generally move in opposite directions.  Homicide rates in Arizona and Sonora have a correlation coefficient of +0.20, which means that they somewhat move in the same direction. 

It’s important to point out that the Sonoran homicide rate moves in roughly the same direction as Arizona’s homicide rate because Sonora’s rate mostly declines over the entire period and varies little by year just as Arizona’s rate does.  The Sonoran homicide rate will most closely track homicide rates in other American states for that reason but that does not show that Mexican murderers are crossing the border because Sonora is not as affected by the violent homicide swings that seem to dominate homicide rates in other Mexican states.  The Sonoran homicide rate comoves with Arizona’s homicide rate since they are both less volatile over time.    

Figure 4

Homicide Rates in Arizona, Baja California, and Sonora, 1997-2016

Homicide Rates in California and Baja California

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Figure 5 shows that homicide rates in New Mexico are positively correlated with those in Sonora at Chihuahua with coefficients of +0.40 and +0.05, respectively.  New Mexico’s homicide rate is more erratic and has a higher standard deviation than the other American states. 

 

Figure 5

Homicide Rates in New Mexico, Chihuahua, and Sonora, 1997-2016

Homicide Rates in New Mexico, Chihuahua, and Sonora

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Homicide rates in Texas are negatively correlated with homicide rates in the Mexican states of Coahuila, Nuevo Leon, and Tamaulipas with correlation coefficients of -0.79, -0.79, and -0.36, respectively.     

Figure 6

Homicide Rates in Texas, Coahuila, Nuevo Leon, and Tamaulipas, 1997-2016

Homicide Rates in Texas, Coahuila, Nuevo Leon, and Tamaulipas

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Correlation is not causation, especially in these simple regressions, but it would be very difficult to show that Mexican homicide rates are driving or at least influencing those in U.S. border states without at least finding a positive correlation.  The p-values in all of the above figures are all so high that the correlations are statistically insignificant in every case.  Researchers should dig into this data further to tease out more precise estimates or effects, but they are not significant or interesting enough for us to spend more time on them.  There are, of course, individual circumstances of Mexican criminals committing crimes in American states but that does not tell us how common those events are or whether President Trump’s proposed solutions would have any impact.  If the past events are any indication of the future, our work above allows us to confidently say that there is little reason to worry that homicide rates in Mexican border states will influence homicide rates in U.S. border states.  Whatever potential justifications there are for an expensive border wall, preventing the spread of homicide northward shouldn’t be one of them.      

Special thanks to Andrew Forrester for his help in writing this piece.      

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