Thank you for standing up for your right, and that of other Americans, not to be coerced:
Lillian Gobitas Klose, who as a school-age member of the Jehovah’s Witnesses refused to salute the U.S. flag with her classmates, a controversial act of conscience that set off a legal tug of war in the 1930s and ’40s that ultimately bolstered the First Amendment right to religious expression, died Aug. 22 in Fayetteville, Ga. She was 90.
School officials in Minersville, Pa., where her parents ran a grocery store, expelled the young Ms. Gobitis for this act of defiance. But convinced that her Jehovah’s Witness faith forbade a public display of allegiance to a national symbol, she took the case all the way to the U.S. Supreme Court in 1940 – and lost, 8-1, with Justice Felix Frankfurter writing, sententiously, that “National unity is the basis of national security.”
Hers wasn’t a comfortable stand to take, especially with war looming, as the Washington Post’s obituary notes:
“It was a very scary time,” Mrs. Klose told the Atlanta Journal-Constitution. On one occasion, the Gobitas family was in a car when a mob attempted to flip it over. Another time, she told the Philadelphia Inquirer, the police chief parked his car outside her family’s grocery store to protect it from a threatened attack.
Especially with homeschooling rights virtually unrecognized at the time, Jehovah’s Witness youngsters were at risk of being sent to state reformatories, and their parents were at risk of prosecution for contributing to delinquency. But by yielding no ground, Lillian Gobitas prepared the way for a victory just three years later, when in a case with similar facts, West Virginia State Board of Education v. Barnette, the high court reversed itself and in a 6-3 ruling upheld the right not to salute the flag or say the pledge. Justice Robert Jackson’s ringing pronouncement was to enter the constitutional canon: “If there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.”
It always did seem a bit hopeful for Jackson to pronounce that principle a “fixed star”; after all, the Court was reversing a contrary ruling from just three years previous. But the phrase was more accurate as prediction: the principle was to become a fixed star in constitutional jurisprudence, to the immense benefit of Americans and our liberty. Even in an era in which, ominously, some elected officials seek to roll back other First Amendment protections, there is little if any movement to reverse the flag and pledge decisions.
Well done, Lillian Gobitas Klose.
K. William Watson
Under current ethics rules, members of Congress are allowed to receive gifts of snack food from companies located in their states or districts, as long as the snacks are available to office visitors. While constituents visiting the Capitol may be getting to enjoy home-grown treats, the real beneficiaries here are the office employees who have privileged access to free snacks.
Yesterday Politico ran a light-hearted story about a thriving, informal market that has developed for congressional staffers to trade these free snacks. It’s funny and you should read it in its entirety. In order to be insufferably pedantic, I thought I would share a few thoughts on how this peculiar market, like all markets, developed as a way for individual humans to improve their lives through trade.
The rules create a peculiar inconvenience for hungry staffers, as they can only get free snacks produced by a company in their boss’s district. Some offices only have Pepsi products while others only have Coke. Some have healthy food and some have junk food. Free snacks are great and all, but what do you do when the snacks you have aren’t the snacks you want?
The problem here is a non-optimal distribution of snacks, and the solution is trade.
Dozens of junior staff who spoke with POLITICO described an elaborate barter system based on local products. Pepsi is swapped for M&M’s, and Coca-Cola for Craisins.
Some of the foods that are most highly in demand are also well supplied in Capitol Hill offices, while others appeal to more particular tastes. These realities shape their value as products to trade.
Frito-Lay chips and Mars candy are the most common — and perhaps the most commonly traded — snacks on the Hill. Both manufacturers have operations in several states.
And orange juice, it turns out, is a hot commodity on the Hill, trading at times for as many as five bags of Lay’s chips.
Not all products on the political circuit are well-known brands. Sen. Richard Blumenthal (D-Conn.) has Ola! all natural granola, Rep. Sam Graves (R-Mo.) has Cherry Mash, a chocolate cherry treat, and Rep. Dave Reichert (R-Wash.) has Aplets & Cotlets, a square fruit puree and nut snack that isn’t all that tradable.
At the risk of being overly simplistic, I think it’s worth pointing out how crazy it would be to restrict this trade. Should offices worry that they’re running a snack trade deficit? Are some snacks being unfairly traded at too low a price? Are other offices inadequately inspecting their exports for safety?
What is perhaps most interesting about this microcosmic economy is how infrastructure and culture have developed to facilitate trade:
The most dedicated snackers have compiled comprehensive lists of who has what — a Capitol Hill snack bible of sorts.
The covert snack economy is not just a way for hungry staffers to seek out chocolate-covered macadamia nuts from Hawaii or Lay’s chips from Texas. It’s a system for aides, especially low on the totem pole, to make friends, forge informal alliances and, ultimately, help keep Capitol Hill functioning.
Between arranging constituent tours and taking calls, staff assistants use a massive email Listserv to arrange snack swaps.
As fun (?) as it might be, I’ll leave it to the reader to analogize these practices with the institutions of our broader economy.
Finally, while the article and the staffers themselves refer to this trading as “black market,” it is not clear that anyone is actually prohibited from sharing snacks. My guess is that the market seems “black” or “underground” to those working in government simply because it is spontaneous and unregulated.
The quality of the discussion about what sort of problem ISIS poses to the United States has been unsurprisingly poor, given who is framing it. All Americans have been appalled by the grotesque killings of James Foley and Steven Sotloff, two American hostages held by the Islamic State. The justness of vengeance against their killers is something everyone agrees on.
But beyond that, the debate is stunning by its internal contradictions. Take, for example, the fact that the outgoing director of the National Counterterrorism Center recently announced that while ISIS “poses a direct and significant threat to us,” there is “no credible information [it] is planning to attack the US.” This echoed the judgment of both the Chairman of the Joint Chiefs of Staff and the FBI and the Department of Homeland Security, which issued similar judgments last month.
At the same time as those charged with threat assessment are stating ISIS does not at present pose a threat to US territory, our political leaders are unanimous in judging that the United States needs to involve itself more deeply in the war taking place across the Syria-Iraq border. Shouldn’t we worry at least a bit that taking sides against it in that war makes the Islamic State more likely to target the United States at home, not less? (For their part, the barbarian murderers of Foley and Sotloff stated that their actions were intended to avenge prior US airstrikes on ISIS.) One could argue that trying to destroy ISIS is worth raising the risk they will target US territory, but shouldn’t the marginal impact of its likelihood of an attack on us here at least show up on the ledger?
Or take the recent statements of our politicians. President Obama famously remarked that he didn’t have a strategy for what to do about ISIS, even though his administration was already bombing them. On Meet the Press, Obama added his voice to those claiming there’s been no “immediate intelligence about threats to the homeland from ISIL.” Rather, according to Obama, “ISIL poses a broader threat because of its territorial ambitions in Iraq and Syria.”
Secretary of State Kerry offered some thoughts on ISIS last week, in which he made clear the administration’s desired end-state: “destroy ISIL”:
these guys are not 10 feet tall. They’re not as disciplined as everybody thinks. They’re not as organized as everybody thinks. And we have the technology, we have the know-how. What we need is obviously the willpower to make certain that we are steady and stay at this.
There is no contain policy for ISIL. They’re an ambitious, avowed genocidal, territorial-grabbing, Caliphate-desiring, quasi state within a regular army. And leaving them in some capacity intact anywhere would leave a cancer in place that will ultimately come back to haunt us…
Two points here. First, if ISIS is in fact as Kerry describes it—a group that isn’t 10 feet tall, a group that isn’t as disciplined or organized as everybody thinks, and a group that is really a quasi state with grandiose objectives—then why isn’t containment a viable option? Grandiose objectives are hard to obtain even for actors who are disciplined and well-organized, even those that are 10 feet tall. So why isn’t ISIS—which Kerry says isn’t so powerful but has ambitious objectives—likely to burn out like so many of its predecessor groups have?
Secondly, Kerry again frames the need to destroy ISIS as the best way to manage dangers posed to Americans, but it seems more likely the opposite is true. Again, that shouldn’t be a knockout argument against the policy, but framing a policy aiming at total destruction of ISIS—a group that our intel folks say isn’t trying to attack US territory—as the best way to avoid risk to Americans seems dubious.
You wouldn’t know it from the hot rhetoric, but Republicans are actually more or less where the administration is, policy-wise, and their arguments are hardly more coherent. The Republicans’ Great White Dove, Sen. Rand Paul, recently endorsed destruction as the desired policy goal for dealing with ISIS, and even suggested that he’d like Washington to ally with Syria’s murderous dictator Bashar Assad to do it.
But what was more striking was the argument proffered by his adviser, Cold War Republican Richard Burt, in an interview with National Review, describing why Paul came to his view. Here’s the payoff from Burt:
“The thing that makes ISIS a particularly serious challenge is that we do have interests” in the Middle East, Burt says — in a thriving Kurdish minority and a stable, successful Iraqi government that integrates the country’s Sunni minority.
It’s certainly true that the Islamic State poses a proximate threat to both the Kurdish minority’s thriving and the Iraqi government’s success and stability and integration of the country’s Sunni minority. But so do dozens of other factors that eight years of US military presence on the ground didn’t solve. The very same political forces that led to a Sunni insurgency during the aughts have contributed to the rise of ISIS. If those politics don’t change—and I see little reason to believe we can make that happen—then you may make gains against ISIS, but the underlying political disease that’s causing the problem remains untreated, and possibly untreatable.
In other words, even if the Islamic State is destroyed, there will be an array of other spoilers endangering a thriving Kurdish minority and a stable, successful Iraqi government that integrates the country’s Sunni minority. In fact, these other problems preexisted and helped lead to the successes of the Islamic State. Are we just supposed to cross that bridge when we get to it?
And none of this says anything about Syria, which everyone agrees can’t be isolated from talking about what to do with the Islamic State. And we all know who we would like to lose in Syria: namely, the two most powerful actors, Bashar Assad’s regime and the army of the Islamic State, along with Assad’s most important patron, Iran. But who would be left to win? Nobody argues that the rump Free Syrian Army is in any condition to take power in Damascus some time soon. So if everyone we want to lose loses—Assad, Iran, and the Islamic State—what is left? It’s a pity they can’t all lose, sure, but they can’t.
Doing something to avenge the deaths of Sotloff and Foley while staying out of other people’s civil wars seems to be where the American people are. But the Obama administration appears poised to get the country into another multi-year war in the Middle East.
According to anonymous advisers in the New York Times, phase one is the air campaign against ISIS, which has already started, phase two is—wait for it—training, advising and equipping the Iraqi military, and phase three is figuring out what to do with Syria.
So Obama’s ready to start this war, handle the bombing, training, advising and equipping, then hand off the Syria part to his successor.
Sounds to me like stupid stuff.
Apparently Washington believes its allies to be wimps and weaklings. Why else would NATO officials promise to defend Turkey from the Islamic State? Surely this well-armed U.S. ally can hold off a few thousand Islamic irregulars, some of whom Ankara allowed to enter Syria next door.
The rise of the Islamic State has led to much nonsense from Washington officials who speak as if the group was capable of conquering America. ISIL is made up of dangerous fanatics, but in the form of the Islamic State they are largely powerless to harm the U.S.
Their conventional capabilities are minimal compared to those of the U.S. Moreover, so long as the Islamists are attempting to conquer territory they cannot afford to launch terrorist attacks on America, which would bring down the full wrath of the U.S. military on the return address they had so thoughtfully provided.
Among the states really threatened by ISIL is Turkey. This led NATO Secretary-General Anders Fogh Rasmussen to promise to defend Ankara: “If any of our allies, and in this case of course particularly Turkey, were to be threatened from any source of threat, we won’t hesitate to take all steps necessary to ensure effective defense of Turkey or any other ally.”
However, Ankara is partly to blame for ISIL’s rise. The Erdogan government decided to support the ouster of Syrian President Bashar al-Assad and allowed opposition fighters from all sides, including ISIL, easy access to the battlefield.
Reported the Washington Post: “eager to aid any and all enemies of Syrian President Bashar al-Assad, Turkey rolled out the red carpet.” The government simply looked the other way as members of the Islamic State and other Islamist groups traveled to Syria. One Islamic State commander told the Post: “most of the fighters who joined us in the beginning of the war came via Turkey, and so did our equipment and supplies.”
A politician from Reyhanli, Tamer Apis, complained that “this is a mess of Turkey’s making,” he added. The Erdogan government since has changed course, but passage for people and materiel through the 565-mile border still is available at a price.
Moreover, the worst damage has been done. Reported Bloomberg’s Mehul Srivastava and Selcan Hacaoglu, ISIL “has already established itself firmly in Turkish society.” Ankara is paying the price of its own folly. There’s no reason to share the burden with 27 other NATO members.
Especially since Turkey can well handle the fall-out. Ankara can easily defeat anything ISIL throws at the former.
The number of ISIL fighters has been estimated at around 10,000. Turkey has an armed forces of more than a half million. The Institute for Strategic Studies reported: “The army is becoming smaller but more capable … The air force is well-equipped and well-trained … the military has ambitious procurement plans.”
Why would NATO have to protect Turkey?
Indeed, Ankara should be thinking offense. If the Islamic State consolidates its position, Turkey is likely to be a site for the group’s expanded activities.
The Erdogan government is part of NATO’s “core coalition” targeting ISIL. I ask in my latest Forbes online column: “Why are U.S. planes and drones striking Islamic radicals operating next door to Turkey when Ankara’s forces could take the lead?”
The Islamic State is evil, but that does not make it a serious military threat against America. ISIL is a much more significant threat against the Middle Eastern states, such as Turkey.
These nations also hold the key to the group’s defeat. They have the interest and capability. As Islamic nations they also have credibility.
All that’s lacking is necessity. If Washington or NATO rushes in to relieve them of responsibility, they likely won’t act. These nations should be held responsible for their past policies.
While the Senate votes on a constitutional amendment to carve out an exception to the First Amendment by limiting spending on political campaigns, members of Congress have no compunctions about spending tax dollars on their own re-elections. WAMU radio in Washington reports on some of the expenditures by D.C., Maryland, and Virginia members:
“I think franked mail is a tool that can be used to communicate with your constituents,” [Rep. Gerry] Connolly [R-Va.] says.
Last year Connolly spent more than $94,000 of your tax dollar on mostly glossy, color pamphlets with pictures of him at his office declaring his support for federal workers, while D.C. Del. Eleanor Holmes Norton spent just over $3,000 touting her record. Maryland Democrat John Delaney spent more than $50,000, which his press secretary says is to introduce his freshman boss to voters, which watchdogs say gives him a leg up over his challenger, Republican Dan Bonjino. Congressman Randy Forbes (R-Va. 4) spent about $30,000 on Facebook ads, railing against “Obamacare,” questioning “Free taxpayer funded cell phones” and on dozens of electronic polls, which he defends.
It’s not that members of Congress object to people spending money on elections. They just want the people’s money sent to Washington, and spent by Congress, on their own re-election efforts. So much less messy and divisive that way.
If you needed more proof that bureaucracy induces the sacrifice of common sense to rigid rules, there’s this forehead-slapping story from the Washington Post’s Petula Dvorak:
Avery Gagliano is a commanding young pianist who attacks Chopin with the focused diligence of a master craftsman and the grace of a ballet dancer.
The prodigy, who just turned 13, was one of 12 musicians selected from across the globe to play at a prestigious event in Munich last year and has won competitions and headlined with orchestras nationwide.
One would expect that she’d be the pride of her school. Unfortunately, little Miss Avery attended a government-run school in Washington D.C.
But to the D.C. public school system, the eighth-grader from Mount Pleasant is also a truant. Yes, you read that right. Avery’s amazing talent and straight-A grades at Alice Deal Middle School earned her no slack from school officials, despite her parents begging and pleading for an exception.
“As I shared during our phone conversation this morning, DCPS is unable to excuse Avery’s absences due to her piano travels, performances, rehearsals, etc.,” Jemea Goso, attendance specialist with the school system’s Office of Youth Engagement, wrote in an e-mail to Avery’s parents, Drew Gagliano and Ying Lam, last year before she left to perform in Munich.
Although administrators at Deal were supportive of Avery’s budding career and her new role as an ambassador for an international music foundation, the question of whether her absences violated the District’s truancy rules and law had to be kicked up to the main office. And despite requests, no one from the school system wanted to go on the record explaining its refusal to consider her performance-related absences as excused instead of unexcused.
The decision might be understandable if her piano-playing came at the expense of her literacy and numeracy, but Avery earned straight-A’s and her parents went above and beyond to ensure that her that she continued to make academic progress.
Avery’s parents say they did everything they could to persuade the school system. They created a portfolio of her musical achievements and academic record and drafted an independent study plan for the days she’d miss while touring the world as one of the star pianists selected by a prestigious Lang Lang Music Foundation, run by Chinese pianist Lang Lang, who handpicked Avery to be an international music ambassador.
But the school officials wouldn’t budge, even though the truancy law gives them the option to decide what an unexcused absence is. The law states that an excused absence can be “an emergency or other circumstances approved by an educational institution.”
Too bad, so sad. After 10 unexcused absences, it doesn’t matter whether a child was playing hooky to hang at the mall or charming audiences in Hong Kong with her mastery of Mozart. D.C. bureaucrats will label the kid a truant, will mar her transcript with that assessment and will assign a truancy officer to the case.
It was at that point that Avery’s parents decided she would no longer perform in the school’s theater of the absurd. Unable to afford private school, they decided to home-school their daughter.
“We decided to home-school her because of all the issues, because it was like a punch in the gut to have to face the fight again this year,” said Gagliano, who works at Hertz Car Rental. “We didn’t want to do this. We want to be part of the public school system. Avery has been in public school since kindergarten. She’s a great success story for the schools.”
Yet maddeningly, the government-run school doesn’t see it that way—a fact that Dvorak contrasts with a local Catholic school that not only allowed a student to take time off to win Olympic gold medals in swimming, but also proudly displays her achievements on their website.
What explains the difference in treatment? Ludwig von Mises observed in Bureaucracy that government agencies exert powerful pressure on even the most well-meaning bureaucrats to follow predetermined rules, even to the point of absurity (like, say, a school district banning chapstick as “over-the-counter medicine”). Von Mises wrote:
Public administration, the handling of the government apparatus of coercion and compulsion, must necessarily be formalistic and bureaucratic. […] It is useless to blame them for their slowness and slackness. It is vain to lament over the fact that the assiduity, carefulness, and painstaking work of the average bureau clerk are, as a rule, below those of the average worker in private business. (There are, after all, many civil servants whose enthusiastic fervor amounts to unselfish sacrifice.) In the absence of an unquestionable yardstick of success and failure it is almost impossible for the vast majority of men to find that incentive to utmost exertion that the money calculus of profit-seeking business easily provides. It is of no use to criticize the bureaucrat’s pedantic observance of rigid rules and regulations.
When parents have the ability to remove their children from a school that isn’t meeting their needs and send them somewhere else, the schools must be responsive to their needs. By contrast, assigned district schools in lower-income areas have a captive audience, so there is no incentive to meet parental and student needs beyond the bureaucrat’s goodwill. But as Avery’s parents sadly learned, when that goodwill conflicts with some rule or regulation, it’s the latter that tend to win out.
Daniel J. Ikenson
Media have framed the debate over Export-Import Bank reauthorization as yet another battle in the war being waged by free market extremists to wrest control of the Republican Party from what they see as the infidels of the business establishment. That simplistic narrative, perpetuated by an irrepressible disdain for anything that whiffs of Tea Party ideology, has brought editorial boards and journalists from the Left to stand shoulder-to-shoulder with the multinational corporations they normally demonize in an effort to beat back a common foe.
But the compelling case against Ex-Im is less an ideological than a moral one. It is not merely that Ex-Im puts taxpayer resources are risk or that the Bank’s operation encourages too close a relationship between big business and government or that resources are being used inefficiently. Anyone concerned about economic fairness should see the virtue in terminating a program that benefits some companies at great expense to many, many others. But the window to that view has been shuttered by a media that finds it more important to portray the reformers as childish idealists throwing tantrums.
Ex-Im is a government-run export credit agency that arranges special financing to facilitate sales between U.S. companies and foreign customers. Barring congressional reauthorization, its charter will expire on September 30. Supporters claim that the since exports are good for growth and job creation and since the Bank “creates” exports, failure to reauthorize will hurt the economy. But that conclusion rests on the illusion of single-entry accounting. It fails to consider the substantial, but more difficult to observe costs.
There are opportunity costs, representing the growth that would have occurred had Ex-Im’s resources been deployed more efficiently in the private sector. There are intra-industry costs – those incurred by the unsubsidized competitors of firms receiving Ex-Im subsidies. And there are “downstream” industry costs borne by producers whose domestic suppliers receive export subsidies. These downstream firms are hurt because crucial inputs become more expensive, while their foreign competition gets subsidies from U.S. taxpayers.
A new Cato Institute study released today, “The Export-Import Bank and Its Victims: Which Industries and States Bear the Brunt?“ includes estimates of these “downstream” costs. These are some of its findings:
- Of $50 billion in Ex-Im subsidies granted to non-aircraft U.S. manufacturers between 2007 and 2013, $40 billion were costs imposed on downstream firms;
- $0.80 of every $1.00 of Ex-Im subsidies is a cost imposed on other downstream companies;
- 189 of the 236 non-aircraft manufacturing sub-industries (NAICS-6) populating all 21 broad industries (NAICS-3) can be counted as Ex-Im “victims” because the value of subsidies received was smaller than the costs incurred;
- These 189 industries incurred a net loss of $19.5 billion or $2.8 billion per year or $14.7 million per sub-industry per year on account of Ex-Im;
- The five broad industries (NAICS-3) incurring the largest net costs were producers of electrical equipment, appliances and components; furniture; food; non-metallic mineral products; and, chemicals;
- A total of 47 of 236 non-aircraft manufacturing sub-industries (NAICS-6) populating 13 of 21 broad manufacturing industries (NAICS-3) can be counted among Ex-Im’s winners;
- Between 2007 and 2013, these 47 “winners” realized a net benefit of $29.5 billion or $4.2 billion per year or $89.8 million per sub-industry per year on account of Ex-Im;
- Thus, Ex-Im policies amount to a net tax of $2.8 billion per year on 189 sub-industries ($15 million per industry) and a net subsidy of $4.2 billion per year to 47 sub-industries ($90 million per industry);
- These figures support the claim that Ex-Im amounts to an exercise in “picking winners and losers”;
- Every U.S. state counts Ex-Im victims among its manufacturing firms;
- The most important MFG industry (% of GDP) in 33 states was a top ten Ex-Im victim;
- The industry accounting for the most or second most manufacturing GDP in 47 U.S. states was a top ten Ex-Im victim;
- The top five Ex-Im victims cumulatively account for 50 percent of more of manufacturing value-added in seven U.S. states: North Carolina (62.8%), Delaware (60.5%), New Jersey (60.3%), Virginia (57.0%), Nebraska (53.0%), West Virginia (52.4%), and Maryland (50.5%);
- The top ten Ex-Im victims cumulatively account for two-thirds or more of manufacturing value-added in 22 states;
- In 17 U.S. states, the largest manufacturing industry was a top five Ex-Im victim;
- The chemical industry – the fifth largest Ex-Im victim – is the largest manufacturing industry in 11 states.
While some media might find the arguments against Ex-Im reauthorization to be “ridiculous,” a more plausible conclusion is that some have allowed their contempt to impede their job performance. There are plenty of compelling, ideology-neutral facts to support the case for ending Ex-Im. It is the media’s job to open the shutters to that view.
We have an uncompetitive federal corporate tax rate of 35 percent compared to Canada’s 15 percent. Our Roth IRA is inferior to Canada’s TFSA, as Amity Shlaes and I discussed in the Wall Street Journal. And while Serena Williams still tops rising star Eugenie Bouchard, we should be paying attention to ”What Canada Can Teach Us About Tennis.”
Now we face another competitive threat from the north. This time it’s British Columbia seaports says Bloomberg:
Container ships sailing across the northern Pacific are carrying more cargo and are setting course for British Columbia to avoid delays from a possible strike by U.S. West Coast longshoremen. Traffic in Prince Rupert soared 49 percent in July from a year earlier, according to data compiled by Bloomberg Intelligence, while volume dropped 19 percent in Seattle, its nearest major U.S. rival.
Canadian ports are gaining an advantage over their U.S. rivals amid an economic recovery that’s increasing container volumes from East Asia. While U.S. West Coast ports are mired in a labor dispute and congestion hobbles local railways, Prince Rupert is winning customers with its shorter sailing times from China and efficient infrastructure that can whisk freight to the U.S. Midwest and beyond.
“If people are using the Canadian ports now out of concern for a slowdown, and they like what they see and they like the processing times and the experience, they’ll continue to funnel some of their traffic that way,” Emma Griffith, a director at Fitch Ratings in New York.
So Canadian seaports are gaining in the short-term because of our self-inflicted wound, but they may also gain in the long-term because of both natural and man-made advantages:
[Prince Rupert] lies ice-free 745 kilometers (462 miles) northwest of Vancouver, is as many as 68 hours closer to Shanghai in sailing time than is Los Angeles, according to the Prince Rupert Port Authority. Including rail times, cargo transiting from Shanghai through Prince Rupert would reach Chicago two days quicker than if the ships called at Oakland or Seattle-Tacoma, and three quicker than if they unloaded in Los Angeles…
One of Prince Rupert’s advantages is that inbound containers can be transferred directly to trains rather than trucks that head to a distribution center, which is what happens at other West Coast ports, according to Kris Schumacher, a spokesman for the port authority. This kind of traffic, which uses different modes of transportation, is known within the industry as intermodal freight, and it’s booming for Canadian National.
Meanwhile back on the United States, it’s antibusiness-as-usual:
…there’s no indication when new contracts will be signed for workers at 29 ports from Washington state to California. About 20,000 dockworkers represented by the International Longshore and Warehouse Union have been without a contract since early July. The union and the maritime association are negotiating over work rules, salaries and health-care benefits.
In 2002, the maritime association locked out U.S. West Coast port workers after contract talks broke down. The 10-day shutdown ended when then-President George W. Bush invoked the rarely used Taft-Hartley Act to reopen the ports. The dispute cost the U.S. economy $1 billion a day, according to the maritime association.
Over at Cato’s Police Misconduct web site, we have identified the ‘worst case’ for August.
As you may have already guessed, it was the Ferguson Police Department. As the events in Ferguson played out during August, the police department there put on a clinic on how not to police a community. From the withholding of Darren Wilson’s name (he was the officer who shot Michael Brown six times), to brandishing weapons of war against a community expressing its anger and mourning through protest, and blatantly targeting journalists for arrest and assault, the events in Ferguson have shown just how disastrous poor policing can be to a community. If there is any silver lining to the situation, it is that people across the country have been presented with a good look at the consequences of when police misconduct goes unchecked and bad policies, like militarizing local police forces, are allowed to continue. Things were bad enough in Ferguson for them to collectively qualify as the worst police misconduct of August, but the situation will be much worse if the lessons of Ferguson are not learned and the mistakes not corrected in the future—and not just in Ferguson, but in similar towns around the country.
Finally, a not-so-’honorable mention’ goes to the Denver police officer who tried to get out of his DUI arrest by telling the arresting officer “Bro, I’m a cop.” That he would even attempt such a ploy tells us something about the police subculture–where too many law enforcement officers come to believe that they are above the law. They aren’t, and the arresting officer did the right thing by getting a dangerous drunk driver off the streets—cop or not.
Today the Washington Post is starting a series of articles entitled, “Stop and Seize,” which take a critical look at the power of the government to take cash away from people using civil asset forfeiture laws. Here are a few of the findings from the Post investigation:
- There have been 61,998 cash seizures made on highways and elsewhere since 9/11 without search warrants or indictments through the Equitable Sharing Program, totaling more than $2.5 billion. State and local authorities kept more than $1.7 billion of that while Justice, Homeland Security and other federal agencies received $800 million. Half of the seizures were below $8,800.
- Only a sixth of the seizures were legally challenged, in part because of the costs of legal action against the government. But in 41 percent of cases — 4,455 — where there was a challenge, the government agreed to return money. The appeals process took more than a year in 40 percent of those cases and often required owners of the cash to sign agreements not to sue police over the seizures.
- Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008.
- Agencies with police known to be participating in the Black Asphalt intelligence network have seen a 32 percent jump in seizures beginning in 2005, three times the rate of other police departments. Desert Snow-trained officers reported more than $427 million in cash seizures during highway stops in just one five-year period, according to company officials. More than 25,000 police have belonged to Black Asphalt, company officials said.
Mandrel Stuart, a 35-year-old African American owner of a small barbecue restaurant in Staunton, Va., was stunned when police took $17,550 from him during a stop in 2012 for a minor traffic infraction on Interstate 66 in Fairfax. He rejected a settlement with the government for half of his money and demanded a jury trial. He eventually got his money back but lost his business because he didn’t have the cash to pay his overhead. “I paid taxes on that money. I worked for that money,” Stuart said. “Why should I give them my money?”That’s a question that Cato has been asking policymakers for many years now. In 1992, Cato published “American Forfeiture Law: When Property Owners Meet the Prosecutor.” In 1995, Cato published, Forfeiting Our Property Rights: Is Your Property Safe from Seizure?, by the late Rep. Henry Hyde (R-IL). In 1999, Cato held a conference titled, “Forfeiture Reform: Now, or Never? More recently, in 2010, Cato hosted an event for the authors of Policing for Profit, a report from our friends at the Institute for Justice. Over the years, in blog posts, op-eds, congressional testimony, radio interviews, and university lectures, Cato scholars have been defending the rights of people from forfeiture abuse.
Large government projects often double in cost between when they are first considered and when they are finally completed. This pattern—call it “Edwards’ Law”—is revealed in story after story about highways, airports, computer systems, and other types of government infrastructure.
The most expensive train station in the U.S. is taking shape at the site of the former World Trade Center, a majestic marble-and-steel commuter hub that was seen by project boosters as a landmark to American hope and resilience.
Instead, the terminal connecting New Jersey with downtown Manhattan has turned into a public-works embarrassment. Overtaking the project’s emotional resonance is a practical question: How could such a high-profile project fall eight years behind schedule and at least $2 billion over budget?
An analysis of federal oversight reports viewed by The Wall Street Journal and interviews with current and former officials show a project sunk in a morass of politics and government.
Edwards’ law takes effect:
When completed in 2015, the station is on track to cost between $3.7 and $4 billion, more than double its original budget of $1.7 billion to $2 billion.
What were some of the causes of the cost doubling? Typical government stuff, it appears, such as squabbling between agencies and political incentives detached from the bottom line:
Those redesigning the World Trade Center—destroyed by terrorists in 2001—were besieged by demands from various agencies and officials, and “the answer was never, ‘No,’ ” said Christopher Ward, executive director from 2008 to 2011 of the Port Authority of New York and New Jersey, the project’s builder.”
…The Port Authority, run jointly by the two states, has long been known for political infighting. City, state and federal agencies, as well as real-estate developer Larry Silverstein, also joined in. In public and private clashes, they each pushed to include their own ideas, making the site’s design ever more complex, former project officials said. These disputes added significant delays and costs to the transit station…
Former New York Mayor Michael Bloomberg, for example, insisted the memorial plaza be finished by the 10th anniversary of the Sept. 11, 2001 attacks. The request added more than $100 million to costs and months of delay…”
Conflicting goals among agencies were a major cause of delays and added costs, an analysis by the Journal of monthly oversight reports by the Federal Transit Administration shows.
Here is a rule of thumb for citizens to remember when they hear about a proposed government project: whatever dollar figure the politician claims, double it for a more realistic estimate. For more, see here.
ObamaCare Exchanges Recklessly, Often Unlawfully, Throwing Taxpayer Money At Health Insurance Companies
Michael F. Cannon
The Obama administration has no idea how many people are currently enrolled [in exchanges] but they keep cutting checks for hundreds of millions of dollars a month for insurance subsidies for people who may or may not have paid their premium, continued their insurance, or are even legal residents.
And if you think they’re doing those “enrollees” a favor, remember that if it turns out a recipient wasn’t eligible for the subsidy, he or she has to pay the money back.
Surprised? Don’t be. This is part of a deliberate, consistent strategy by the Obama administration to throw money at individual voters and key health care industry groups—lawfully or not—to buy support for this consistently unpopular law.
Jason Millman of the Washington Post’s Wonkblog casually assumes that Democratic-appointed judges can be counted on to uphold the Affordable Care Act and its implementation against any legal challenge:
The Obama administration and supporters of the president’s health-care law are probably breathing a little easier this morning after some pretty big news from the U.S. Court of Appeals for the District of Columbia.
A few months after a three-member panel of the court ruled the federal government can’t provide insurance subsidies through federal-run exchanges in 36 states, the court on Thursday granted the Obama administration’s request for the entire panel to re-hear the case. The en banc hearing, as it’s known, wasn’t entirely unexpected—and with a heavy makeup of Democratic-appointed judges on the panel, it seems likely the administration will get a more favorable ruling when the entire court reconsiders the case later this year.
I don’t know. I know that Obamacare passed in both the House and Senate on straight party-line votes, over unanimous Republican opposition. But judges aren’t politicians. With a slew of Reagan- and Bush-appointed judges striking down gay marriage bans, I hope and expect that Democratic-appointed judges will show similar nonpartisan judiciousness when they consider the challenge to the IRS’s illegal implementation of insurance subsidies.
[cross-posted, slightly adapted, from Overlawyered]
…cheese counters could soon be a lot less aromatic, with several popular cheeses falling victim to a more zealous U.S. Food and Drug Administration. Roquefort — France’s top-selling blue — is in the agency’s cross hairs along with raw-milk versions of Morbier, St. Nectaire and Tomme de Savoie. …
Of course, French creameries haven’t changed their recipes for any of these classic cheeses. But their wheels are flunking now because the FDA has drastically cut allowances for a typically harmless bacterium by a factor of 10.
The new rules have resulted in holds even on super-safe Parmigiano Reggiano, and the risk of losing a costly shipment of a perishable commodity is likely to be enough to drive many European producers out of the market for export to America entirely. Highly praised artisanal cheese makers in the United States are facing shutdown as well.
They told us this administration was going to be run by wine-and-cheese liberals. Now where are they when they could do us some good?
Peter Van Doren
Rather than selling cars through independent dealers, the upstart electric car maker Tesla sells its automobiles directly to consumers. However, many states prohibit direct auto sales, thanks to laws from the mid-20th century that ostensibly were intended to protect dealers from automakers’ market power. The need for that protection was questionable when the laws and regulations were adopted and are even more dubious in today’s highly competitive auto market. But they are especially inappropriate when applied to a small new automaker that solely wants to engage in direct sales.
This week, the Georgia Automobile Dealers Association filed a petition with the state’s Department of Revenue in an attempt to bar further sales of Tesla sedans. Such battles have erupted in numerous states, from Missouri to New Jersey. In the latest issue of Regulation, University of Michigan Law professor Daniel Crane argues that dealer distribution restrictions are based on faulty ideas of consumer protection. Traditional dealers claim that competition among a brand’s dealers prevents the manufacturer from “gouging” consumers and extracting monopoly profits. Crane argues that standard economic theory demonstrates that these claims are nonsense. Firms with market power will be able to claim monopoly profits, regardless of whether middlemen, such as dealerships, are involved.
Moreover, by restricting competition among business models for auto sales, laws such as those in Georgia stifle competition among automakers. When companies such as Tesla seek to lower costs through innovative business designs, they face costly regulatory hurdles and legal challenges such as the sales ban in Georgia. These laws protect existing dealers and hurt consumers.
Mark A. Calabria
A recent paper from the Brookings Institute raises an important observation that businesses are “becoming older,” that is, the age profile of American business is increasingly dominated by older firms. One reason is that the entry rate of new businesses has been steadily declining for decades.
While this decline has been witnessed across firm size, it has been most dramatic among small firms. One potential contributor to the decline in new small businesses is the long run decline in the personal savings rate. According to the Census Bureau’s Survey of Business Owners, the number one, by a long shot, source of capital for new businesses is the personal savings of the owner. For firms with employees, about 72 percent relied upon personal/family savings for start-up capital. The other dominate sources of capital, credit cards and home equity, were much less frequently used. Recent legislative changes (2009 Card Act) and a volatile housing market have made those sources less reliable in recent years.
The chart below compares the trend in entry rates for new business establishments with less than five employees with the personal savings rate. The correlation between the two is 0.62. While both the decline in business entry and savings are likely driven by common macroeconomic factors, it seems plausible that if households have fewer saving, they are also less likely to be able to start a business. My preferred response would be to eliminate policies, such as those in the tax code or current monetary policy, which penalize savings. I suspect others might have different suggestions.
Michael F. Cannon
My reaction to the D.C. Circuit’s decision to grant en banc review of Halbig v. Burwell in a nutshell:
- It is unnecessary.
- It is unwise.
- It is unfortunate.
- It appears political, as would a decision to overrule Halbig.
- It will likely only delay Supreme Court review.
- En banc review does not necessarily mean the court will overturn Halbig, though it doesn’t look good.
- I predict that even if the court overturns Halbig, the Obama administration will lose ground.
- The D.C. Circuit will not have the last word.
If you want to go outside the nutshell, where I unpack all this with more words and facts and links, go here.
A quick note on unfortunate happenings at the U.S. Court of Appeals for the D.C. Circuit this morning: The court vacated its excellent July 22 decision in Halbig v. Burwell, which had held that Obamacare’s plain language precluded the federal government from subsidizing the health insurance premiums of policies people obtain through exchanges established by the federal government. Just hours after that July 22 decision came down, the Fourth Circuit Court of Appeals ruled the other way on the question in King v. Burwell, setting up a circuit split and a reason for the Supreme Court to promptly decide the question, especially given the scope and magnitude of the issues at stake (36 states have declined to establish state exchanges, for which Obamacare does provided subsidies).
Thus, with the D.C. Circuit now having vacated its three-judge panel’s decision and having agreed to rehear the case en banc (by the entire court), there is no longer a circuit split and less urgency for the Supreme Court to take up the issue. Other cases challenging the federal subsidies are coming along, but for the moment, this is where things are. For more on these issues, see Ilya’s latest post and a WSJ op-ed by Adam White, both written before this morning’s decision. It’s rare for any circuit, but especially for the D.C. Circuit, to grant en banc rehearings. But then nothing has been normal about Obamacare, which is what you should expect when so politicized a program is thrust upon the nation.
When the Affordable Care Act was being debated in Congress, former House Speaker Nancy Pelosi infamously insisted that “we have to pass the bill to find out what’s in it.” It turns out, however, that the Obama administration—which has been making it up as it goes along with regard to ACA enforcement—doesn’t care “what’s in it.”
The IRS in particular has been implementing Obamacare as it thinks the law should be, not as it is. The ACA encourages states to establish health insurance exchanges by offering people who get their health coverage “through an Exchange established by the State” a tax credit—a subsidy to help them pay their premium. In the event a state declines to establish an exchange, Section 1321 further empowers the Department of Health and Human Services to establish federal exchange in states that decline to establish their own exchanges (without providing for the premium subsidy).
When, contrary to the expectations of the law’s achitects, 34 states declined to establish an exchange—two more have since failed—the IRS decided that those getting their insurance on federally established exchanges should qualify for tax credits regardless of the statutory text. In conflict with the U.S. Court of Appeals for the D.C. Circuit in a similar case called Halbig v. Burwell, the Fourth Circuit in King v. Burwell found the legal text to be ambiguous and thus deferred to the IRS interpretation.
The so-called Chevron doctrine counsels that statutory text controls when Congress has spoken clearly on an issue. But where Congress is ambiguous or silent, the agency can fill the regulatory gap with its own rules and policies. The problem here is that the ACA’s text was not ambiguous and there is no evidence that Congress intended to delegate to the IRS the power to determine whether billions of taxpayer dollars should annually be dispersed to those purchasing health care coverage on federal exchanges. That the Fourth Circuit has bent over backwards to accommodate the administration’s latest Obamacare “fix shows that it, too, is not so concerned with “what’s in” the law.
To that end, Cato joined four other organizations to support the plaintiffs’ petition for review by the Supreme Court. Our brief argues that the Court should hear the case because it offers the opportunity to reverse potentially grave harm to the separation of powers, to correct a misapplication of the Chevron doctrine, and to restore the idea that drastically altering the operation of a major legislative act belongs to the political process and not in a back rooms of an administrative agency. Just because those who voted for the ACA didn’t care what it said doesn’t mean that the executive and judicial branches should also turn a blind eye.
To see the legal machinations now at play in these cases regarding the Obamacare-IRS-tax-credit, see my recent op-ed in the National Law Journal. Since that was published this past Monday, the government received a 30-day extension in which it has to file its response to the King cert petition. That means that the Supreme Court will be considering at some point next month whether to take the case.
Mark A. Calabria
In the Dodd-Frank Act, Congress, without irony, decided the best way to end “too big to fail” was to have a committee of regulators label certain companies “too big to fail.” That committee, established under Title I of Dodd-Frank, is called the Financial Stability Oversight Council (FSOC) and is chaired by the Treasury Secretary. Like so much of Dodd-Frank, FSOC gets to write its own rules. Unfortunately FSOC won’t even write those rules, but instead it has decided that it knows systemic risk when it sees it. This has led to an ad hoc process that almost makes the bailouts of 2008 look systematic.
Compare the process for asset management firms and that for insurance companies. In late 2013, the Treasury released a report on the asset management industry. It was widely viewed as an attempt to make the case for labeling some asset management firms “systemic.” The report was widely criticized. Such criticism did not stop FSOC from conducting a public conference on the asset management industry in May 2014. Whether it was the public reaction to the conference or the paper, FSOC has largely abandoned labeling asset managers as “too big to fail.” That was an appropriate outcome as firms in that industry are not systemic and shouldn’t be lead to expect a federal rescue.
Now don’t get me wrong: A shoddy report and a conference do not constitute a thorough process. As someone who has overseen a rulemaking process, I can say they do not even meet the basics of the Administrative Procedures Act. But just when that process seemed wholly inadequate, along comes the “process” for insurance companies.
Not unexpectedly, AIG went along without a peep. Given its role in the crisis that’s not a surprise. But there’s been no report or even a conference on whether insurance companies pose systemic risk. Completing either one would, of course, require FSOC to define systemic risk and to offer some minimal metrics. Instead, what we have is unelected bureaucrats simply making it up as they go along.
And here I was thinking Dodd-Frank was meant to end the haphazard behavior of regulators in 2008 and lead us towards a predictable rules-based approach to ending systemic risk!