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Individual Liberty, Free Markets, and Peace
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The Right to Own Includes the Right to Rent Out

Wed, 07/02/2014 - 16:29

Ilya Shapiro

Since 2005, the city of Winona, MN will not grant rental licenses to property owners if more than 30 percent of the lots on their block already have rental licenses (the 30% “rule”). The rule contains a “grandfather clause,” however, that allows property owners who had licenses prior to the rule to continue renting even if their block has already reached the 30 percent threshold. Therefore, many blocks in the city violate the rule, which the Minnesota Supreme Court is now reviewing.

Cato has filed an amicus brief, joined by the Minnesota Free Market Institute at the Center of the American Experiment, supporting the property owners challenging the rule. We argue that the rule is an arbitrary, inefficient, and unconstitutional restraint on an essential and fundamental property right because it strips property owners of their right to manage and enjoy their property at the result of actions of their neighbors. The rule also damages communities by reducing property values and creating inefficiencies in the local economy and housing market without a substantial government interest.

First, the rule is a significant intrusion into the fundamental rights of residential property owners because it denies the right to rent—one of the three principal ways to use a property—and significantly limits the right to sell. In addition, since the rule restricts fundamental rights, it needs to be tailored to achieve a legitimate government interest to be held valid—but the rule is both over-inclusive and under-inclusive.

Second, the right to rent is too important to restrict with an arbitrary limit on rental licenses. The rule isn’t an effective way to protect “community character”—its purpose according to the city—especially given the fact that the law has many exceptions and is applied arbitrarily. For example, the rule favors currently licensed property owners and encourages them to add rental properties to their lots, thereby defeating the asserted goal of avoiding rental clustering. Finally, the rule harms communities by artificially depressing property values and increasing the probability of vacancy. It further fails to rationally address the city’s other concerns. For example, one of the rule’s ostensible purposes is to reduce student-housing-related nuisance complaints, but it still allows large groups of students to live together in “theme houses.”

For these reasons, the Minnesota high court should reverse the lower courts’ ruling and protect the full constitutional rights of Minnesota property owners.

(Full disclosure: My condo building established a similar rule a few years ago because, due to federal regulation, it’s hard to get lenders to approve mortgages to finance purchases in buildings with a high rental quotient. Because I’m one of the original owners in my 7-year-old building, my unit is grandfathered in—except the condo board is now trying to apply the rental cap even to owners who predate the rule. It hasn’t come to litigation yet and the issue here is contractual rather than constitutional or statutory—and I don’t plan to rent out my place any time soon—but this episode just reinforced for me the practical importance of the high-fallutin’ principles Cato defends.)

Categories: Policy Institutes

Cato Went 10-1 at Supreme Court This Term

Wed, 07/02/2014 - 16:01

Ilya Shapiro

And so another term has come and gone at the marble palace at One First Street NE. Like last year, Cato did swimmingly, compiling a 10–1 record in cases where we filed an amicus brief. Notably, we again vastly outperformed the solicitor general’s office, which went 11–9 on the year. Perhaps the government would be better served following our lead on constitutional interpretation, advocating positions that reinforce our founding document’s role in securing and protecting individual liberty.

Cato was also the only group in the country to file on the winning side of this term’s three highest-profile 5-4 cases: McCutcheon v. FEC (campaign finance), Harris v. Quinn (workers’ rights), and Burwell v. Hobby Lobby (HHS mandate). This again matches our performance last year, when we were the only ones to file on the winning side of Fisher v. UT-Austin (racial preferences), Shelby County v. Holder (voting rights), and United States v. Windsor (DOMA). There’s an obvious reason why it’s become a “best practice” among elite Supreme Court advocates to solicit an amicus brief from Cato; while our denial rate is lower than the Supreme Court’s, it’s been growing steadily given increasing requests without a commensurate growth in manpower.

For the record, here’s a record of cases in which we filed this term (in order of argument):

Winning side (10): McCutcheon v. FEC; Schuette v. Coalition to Defend Affirmative Action; Bond v. United States; Noel Canning v. NLRB; Brandt v. United States; McCullen v. Coakley; Harris v. Quinn; Burwell v. Hobby Lobby; SBA List v. Driehaus; Riley v. California

Losing side (1): Kaley v. United States

To learn more about all these cases and the views of Cato-friendly scholars and practitioners, register for our 13th Annual Constitution Day Symposium, which will be held September 17 to review the term just past and look ahead to the next one. (This year’s conference features P.J. O’Rourke, Miguel Estrada, and Judge Diane Sykes, among others.) That’s also when we’ll be releasing the latest volume of the Cato Supreme Court Review. Speaking of which, I’d better get editing…

Categories: Policy Institutes

Can Egypt Cure Its Subsidy Addiction?

Wed, 07/02/2014 - 15:13

Dalibor Rohac

Egypt’s government spends more on subsidies of consumer products—most prominently energy and food—than on health and education combined. Subsidies distort markets, lead to waste, and are largely ineffective in helping Egypt’s poor. Therefore, it should be heartening to see the government tackling the problem, as part of its effort to bring down the country’s fiscal deficit.

According to Finance Minister Hany Kadri Dimian, in the new fiscal year 2014–2015, “[T]he allocation for fuel subsidies has been cut from around EGP144bn ($20bn) last year to EGP100bn in the new budget.”

On the surface, that appears to be a bold step, slashing spending on fuel subsidies—which are by far the biggest fraction of the total subsidy bill—by almost a third. But there is a catch. According to the budget for the past fiscal year, 2013–2014, the subsidies to oil materials were already supposed to be close to EGP100bn ($14bn). Yet, the actual spending was drastically higher, perhaps by as much as an additional EGP70bn ($10bn)

And, similarly, in the preceding fiscal year, 2012–2013, the budget for fuel subsidies was to be EGP70bn, in what was seen at the time as an attempt to bring spending under control, especially relative to the previous fiscal year. But again, the actual spending on fuel subsidies during the year was drastically higher. Some of the Finance Ministry’s revised estimates were at EGP100bn, while others claimed the real numbers were even more sizeable.

In short, in recent years the government of Egypt systematically—and quite substantially—underestimated the planned spending on fuel subsidies. One can blame that on many factors, most prominently on the political turmoil, but this track record gives little guarantee that this time will be different.

Although the awareness of the problem, as well as the wider use of smart cards to allocate subsidies, are both encouraging, one needs to keep in mind that the most recent announcement is a far cry from a genuine reform plan. Even if actual spending on subsidies were exactly equal to the amount allocated in the budget, in nominal terms that would only bring Egypt back to the spending levels of fiscal 2011–2012, which were already unsustainable. As I argued in an earlier paper, what Egypt needs is a plan to phase out fuel subsidies altogether and replace them with targeted cash transfers. Alas, such a plan is nowhere in sight.

Categories: Policy Institutes

Century Old Terrorists Still Creating Wars From Iraq To Ukraine

Wed, 07/02/2014 - 12:30

Doug Bandow

The conflict in Iraq started a century ago. So did the civil war in Syria. And so did Russia’s dismemberment of Ukraine. 

All of those conflicts, and much more, grew out of World War I.

At the turn of the 20th century, Europe was prospering. But on June 28, 1914, 19-year-old Serb nationalist Gavrilo Princip assassinated Franz Ferdinand, heir to the Austro-Hungarian Empire, and his wife Sophie.

The following weeks were filled with ultimatums, plans, and pleas. But governments soon found that “control has been lost and the stone has begun to roll,” as German Chancellor Theobald von Bethmann-Hollweg put it.

Among the Great War’s participants, Great Britain enjoyed the best reputation because it was on the winning side and ran the war’s most brilliant public relations operation. Germany’s franchise was in fact broader, though Wilhelmine Germany’s political structure was flawed. Belgium looked to be the most innocent, but its rule killed millions of Africans in the Belgian Congo. France was a revenge-minded democracy. Austro-Hungary was less democratic, but the empire contained important checks and balances within.

A member of the Entente—the allies that included Britain, France, and ultimately the United States—was the antisemitic despotism of the Tsar. Its protégé, Serbia, backed Princip as an act of state terrorism against Austro-Hungary. The sclerotic and authoritarian Ottoman Empire and Bulgaria completed the Quadruple Alliance, while Romania, Italy, and Japan, joined the Entente.

The United States had nothing at stake in this quarrel. Unfortunately, America’s president, the haughty, sanctimonious, and egotistical Woodrow Wilson, imagined himself as being annointed by God to bring peace to the earth.

With Germany facing defeat, an armistice was reached in November 1918. The vainglorious Wilson enunciated high-minded principles for peace, but was out-maneuvered at the Versailles Peace Conference the following year.

The allies plundered the defeated while dictating a vengeful peace. Like the journey from Princip to World War I, the path from Versailles to Adolf Hitler was long but clear.

Wilson’s hope to reorder the world backfired spectacularly. The potentially reforming empires of Austria-Hungary, Germany, and Russia all disappeared. Eastern Europe was filled with what Germans called Saisonstaaten, or “states for a season.” The allies carved up the carcass of the Ottoman Empire, creating artificial entities like Iraq and Syria.

Economic and social crises afflicted even the victors, while the virulent bacilli of communism, fascism, and Nazism were loosed among the losers. The Great Depression spread misery widely.

A generation later, Europeans went to war again, causing more death and destruction. Today, territorial creations in the Balkans and Middle East continue to implode.

Winston Churchill observed in 1936:

America should have minded her own business and stayed out of the World War. If you hadn’t entered the war, the Allies would have made peace with Germany in the spring of 1917. Had we made peace, then there would have been no collapse in Russia followed by Communism, no breakdown in Italy followed by Fascism, and Germany would not have signed the Versailles Treaty, which has enthroned Nazism in Germany.

The so-called Great War demonstrated that appeasement often works. As I point out in my new Forbes online article:

Political figures routinely intone “Munich” without understanding that episode’s unique circumstances. A little more “appeasement” in the summer of 1914 would have prevented World War I—and its many spinoff conflicts.

Alliances often accelerate hostilities rather than deter conflict. In World War I, the two competing blocs became transmission belts of war. Two gunshots in Sarajevo triggered a conflict that eventually reached America.

War is no humanitarian exercise. Countries practiced “war socialism” and sacrificed civil liberties everywhere.

Intervention usually creates additional problems, begetting more intervention. Most every military step, from World War I to the Iraq invasion, spawned new geopolitical crises and demands for military action.

Today Washington is filled with proposals for new interventions.  Most seem unlikely to trigger a new world war.  But a century ago no one expected a distant assassination to do so either.  Americans should make war truly a last resort.

Categories: Policy Institutes

Exporting Ex-Im Bank Skepticism

Wed, 07/02/2014 - 12:15

Simon Lester

One of the points supporters of the Ex-Im Bank like to make is that other countries have their own versions of the bank to help finance purchases of those countries’ exports, and the United States should not “unilaterally disarm.” Here’s the NY Times:

[M]ost governments around the world support exports in similar ways, and if the United States dismantled the bank unilaterally, as some lawmakers are advocating, American companies could lose billions of dollars in overseas orders and decide to move their operations to other countries that provide generous export financing.

It’s true that other countries provide similar export subsidies, but I see this as an opportunity, not a hurdle to getting rid of Ex-Im. Liberalization through international trade negotiations has been struggling in recent years. Getting rid of Ex-Im could give it a boost. If we could end Ex-Im, and then call on our trading partners to follow our lead, it could give trade talks an important and meaningful purpose. In these negotiations, governments often seem reluctant to give up any protectionism until others agree to do so as well. That has not served us well recently; not much liberalization has occurred. It may be time to try something new, and lead the way with a unilateral liberalization proposal, to show the world we actually believe in free trade (they have good reason to doubt this), and encourage others to move in that direction as well.

Categories: Policy Institutes

Uber and Lyft Told To Halt Operations in Pittsburgh

Wed, 07/02/2014 - 12:10

Matthew Feeney

Yesterday ride-sharing app operators Uber and Lyft were issued cease and desist orders in Pittsburgh. The orders were granted by two judges, who were reportedly convinced by the Pennsylvania Public Utility Commission’s Bureau of Investigation and Enforcement that the two companies are a threat to public safety. The orders state that Uber and Lyft cannot operate in Pittsburgh without the Pennsylvania Public Utility Commission’s approval.

The orders come less than a month after the Virginia Department of Motor Vehicles issued Uber and Lyft cease and desist orders, saying that the companies are violating state law. Uber and Lyft have both continued to operate in Virginia despite the orders.

The Pennsylvania Public Utility Commission’s three major concerns regarding Uber and Lyft relate to background checks for drivers who use the app, vehicle inspections, and insurance. However, both companies already carry out strict background checks, have means by which to drop drivers with unsatisfactory vehicles, and have insurance schemes in place.

Drivers who want to use the Uber and Lyft apps to rideshare must pass background checks. Uber will not allow drivers to use its service if there are any DUI or drug offenses in the driver applicant’s record in the last seven years (although California requires no DUIs in the last 10 years). Lyft will not let any driver use its service if the applicant has any DUI or drug offenses at all. The background checks used by Uber and Lyft also screen for violent and sexual offenses.

Lyft carries out an in-person inspection of vehicles before drivers can use their service. Uber’s vehicle inspection is less rigorous. According to reporting from earlier this year on San Francisco drivers using UberX (Uber’s ridesharing service), Uber does not do in-person inspections of vehicles and only requires drivers to send in photos of their cars. Under legislation passed last month in Colorado, which were praised by Uber and Lyft, rideshare vehicles must be inspected.

However, it is worth noting that Uber and Lyft allow for passengers to rate drivers, and both companies do drop drivers who do not maintain good ratings. It is unlikely that a driver with a dirty or unsafe vehicle is going to be able to maintain a good rating for very long without making changes.

Both Uber and Lyft offer insurance protection, which is outlined in the images below:

 

These plans may not be the same as those demanded by the Pennsylvania Public Utility Commission, but the information is freely available to Uber and Lyft passengers and drivers.

Thankfully, Uber and Lyft have an ally in Pittsburgh Mayor Bill Peduto, who tweeted the following yesterday:

We will not let PUC shut down innovation without a battle. Ride sharing is worldwide—technology does not stand still. PA PUC must change.

The growth of so-called “sharing economy” companies such as Uber, Lyft, Airbnb, and TaskRabbit highlights not only that customers like the services that they provide, but also that the economy will almost certainly become increasingly peer-to-peer as technology improves and becomes more accessible. Cease and desist orders such as those issued yesterday are the latest examples of outdated regulatory framework that is understandably failing to keep up with technology being used by innovative companies. That innovation should be welcomed, not hampered.

Categories: Policy Institutes

NASA, Global Warming, and Free Enterprise

Wed, 07/02/2014 - 12:02

Stephanie Rugolo

Yesterday, NASA aborted a third attempt to launch a probe that would measure the level of atmospheric carbon dioxide, where it comes from, and where it is stored. The agency may try again today, as the probe’s findings, we are told, will be “crucial to understanding how much human activity affects the planet’s climate.”

While we eagerly await NASA’s findings, it is well-known that carbon dioxide emissions are on the rise worldwide. We also know that developed countries emit less, or increase emissions at a slower pace, than in the past. Crucially, developed countries also show falling emissions per dollar of output and per person.

According to HumanProgress.org and the World Bank, developed countries’ growth in carbon dioxide emissions has slowed or reversed over time.

Carbon dioxide emissions per person in these developed countries have been on the decline since at least 2000.

Over time, developed countries emit less carbon dioxide per unit of wealth created.

There are several causes for this trend, one of which is free enterprise. While history shows that corporations can be serious polluters, we also know that the free market helps to reduce emissions. That is because a concern for public opinion coupled with a desire to limit inputs (both of which affect profits) incentivize businesses to reduce emissions. After all, pollution is simply wasted resources contributing nothing to profits, a fact that leads companies to voluntarily reduce their emissions and waste. That is why in 1972, a pound of aluminum yielded 21.75 soda cans and in 2012 (as a result of can-makers’ use of less metal per unit), one pound of aluminum produced 33 cans.

Categories: Policy Institutes

Federal Highway Spending

Wed, 07/02/2014 - 11:56

Chris Edwards

The federal Highway Trust Fund (HTF) is running out of money. Congress will likely pass a short-term fix for the program in coming weeks. Over the longer term, many policymakers favor raising taxes to close the $14 billion annual gap between HTF spending and revenues.

Tax-hike advocates say the gap is caused by insufficient gas tax revenues. It is true that the value of the federal gas tax rate has been eroded by inflation since it was last raised two decades ago. But the gas tax rate was more than quadrupled between 1982 and 1994 from 4 cents per gallon to 18.4 cents. So if you look at the whole period since 1982, gas tax revenues have risen at a robust annual average rate of 6.1 percent (see data here).

In recent years, gas tax revenues have flat-lined. But the source of the HTF gap was highway and transit spending getting ahead of revenues, and then staying at elevated levels.

The chart below (from DownsizingGovernment.org/charts) shows real federal highway and transit spending since 1970. Real highway spending (red line) has almost doubled over the last two decades, from $29.1 billion in 1994 to $56.2 billion in 2014. Real transit spending (green line) has also risen since the mid-1990s. (If you visit the /charts page, you can see the dollar values by hovering the mouse over the lines.)

For more, see my congressional testimony and also recent items by Emily Goff.

Categories: Policy Institutes

A Plea to End Corporate Welfare

Tue, 07/01/2014 - 18:03

Caleb O. Brown

Following last week’s event for Ralph Nader’s Unstoppable, I sat down with himto discuss some of the ideas he expressed about how best to gather a large coalition to end corporate welfare, crony capitalism, and corporatism. We may agree more than this discussion indicates, but we disagree quite a bit, as you’ll see. You be the judge.

A somewhat longer audio version is available here.

Categories: Policy Institutes

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