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Updated: 51 min 35 sec ago

The Great Debate Over Hobby Lobby

Tue, 09/23/2014 - 09:09

Ilya Shapiro

The Supreme Court’s 5-4 ruling granting certain for-profit companies religious exemptions from Obamacare’s contraceptive mandate has of course generated a flurry of debates between conservatives and liberals (with libertarians siding with the right not to be forced by the government to violate your conscience). But what about within the camp that supported the decision in Hobby Lobby? Was there some conservative vs. libertarian split?

Well, as it happens, one of the icons of the libertarian legal movement, my former professor Richard Epstein, contributed an article to the most recent volume of the Cato Supreme Court Review. He concluded that Justice Samuel Alito’s majority opinion reached the right result for the wrong reason, that the Court should’ve rejected the mandate because the government didn’t have a compelling interest to advance not because it didn’t use the least-restrictive means to advance it. 

Epstein wasn’t able to attend our Constitution Day symposium, however, so Ed Whelan – president of the conservative Ethics & Public Policy Center and noted legal contributor to National Review Online – took Epstein’s place in discussing Hobby Lobby. Whelan took issue with Epstein’s approach; during the panel [see starting at 35:00] his comments about the Review article were akin to Justice Antonin Scalia’s “blistering concurrences” this term, agreeing with little other than the final judgment.

So this sounds ripe for the libertarian-versus-conservative trope, right? Maybe Epstein focused on liberty and Whelan on religion? Actually not really; (most of) their dispute is more about principle with pragmatism.

Whelan’s main line of attack, which he wrote up for NRO’s Bench Memos blog, is that Epstein failed to take into account the need to get five votes for an ultimate ruling. “The short answer to Epstein’s argument that Alito should have ruled on this basis is that Alito doesn’t have four colleagues who are Richard Epstein.”

Epstein replied – which reply Whelan graciously had posted on NRO, along with the rest of their debate – that they were “operating on different levels.” “Whelan’s short answer is no answer at all. For all I know, Justice Alito could not have garnered even his own vote for the position I espouse.” Epstein argued for the “necessity for normative analysis.”

Whelan retorted that they were both analyzing the “intellectual and tactical” perspectives of the ruling:

Do I think that Epstein’s “normative case” is “wrong or correct”? That depends on what Epstein means by the question. If he is asking whether I think it is (to use his phrase) “an extravagant abuse of state power” to “force a religious group to act against its conscience by supplying standardized products that are available in competitive markets,” my answer is a definite yes… .

But if Epstein is asking whether I think that the term compelling governmental interest in the Religious Freedom Restoration Act should be construed according to libertarian principles, I’ll have to express my doubts. Under an original public-meaning approach to statutory interpretation, the relevant inquiry is whether the public meaning of compelling governmental interest at the time that RFRA was enacted would support Epstein’s position. I’m not aware of any showing that it would.

So here at last we do have some engagement on the same (normative) field of play. Epstein did have one final point to clarify, however, saying that 

Whelan’s reading cuts the salami too fine. Justice Alito observes that it is open to “the Government to assume the cost of providing the four contraceptives at issue to any women who are unable to obtain them under their health-insurance policies due to their employers’ religious objections.” He then adds “We therefore conclude that this system constitutes an alternative that achieves all of the Government’s aims while providing greater respect for religious liberty” (emphasis added). In my view, this method is not just a viable alternative, but an ideal method which could apply across the board, including the Wheaton College application [which involved a nonprofit religious employer]. Indeed, what would a better accommodation look like? …

It is therefore a far cleaner resolution to rule in favor of Wheaton College on the merits by making it clear, as I have argued, that the state did not satisfy the compelling-interest standard. The fact that Whelan and I can disagree over the correct reading of the Alito opinion shows at the very least the elusive interpretation of a question that need not have been addressed in the first place.

Epstein has one ultimate sur-reply to that, which ends, amusingly: “How odd that Sotomayor seems to fare better with Epstein than she did with Justice Breyer (who didn’t dissent in Wheaton College).”

I find things to agree with in both writers’ presentation, and I commend this series of writings to anyone who wants to “unpack” (as the academics say) some of the rich debate on Hobby Lobby even among the ruling’s supporters.

Incidentally, I have a book coming out about the case in November; co-authored with David Gans of the Constitutional Accountability Center, we debate the titular question, Religious Liberties for Corporations? Look for it in November.

Categories: Policy Institutes

How Common Are School Shootings?

Mon, 09/22/2014 - 16:47

Jason Bedrick

Schools are stocking up on M16s and modified grenade launchers and holding drills involving shooting blanks in middle and high school hallways, but is the risk really worth the expense and possibility of preemptively traumatizing children?

Groups like Michael Bloomberg’s Everytown for Gun Safety argue that our nation’s schools are dangerous, claiming that there have been 74 school shootings since the Sandy Hook massacre in December 2012 in an infographic that went viral earlier this summer. But a closer look at their numbers revealed that they artificially inflated the statistic by including suicides, accidents, incidents related to criminal activity (e.g. - drug dealing or robbery), and incidences that took place outside of school hours or were unconnected to members of any school community. Moreover, half of those incidences took place on college campuses. Since Sandy Hook, actual number of K-12 school shootings in which the shooter intended to commit mass murder has been ten—a far cry from the “one school shooting per week” that President Obama claimed back in June.

Surely even one such incident is too high, but with nearly 106,000 public and private schools in the U.S., there were shootings at only 0.009% of schools since December 2012. According to the National Center for Education Statstics’ 2013 “Indicators of School Crime and Safety” report, from the 1992-93 school year until the 2010-11 school year, there were between 11 and 34 homicides of youths ages 5-18 at schools each year (including attacks with weapons other than firearms), with an average of about 23 homicides per year. Comparing that to NCES’s enrollment statistics, about 0.000044% of public and private K-12 students were killed at school per year between 1992-93 and 2010-11. That’s about one out of every 2,273,000 students per year. By contrast, the odds of being hit by lightning in a given year is one out of 700,000 according to National Geographic

School Year K-12 Student Homicides  Fall Enrollment (thousands)  % Homicides 1992-93 34  48,500 0.000070% 1993-94 29  49,113 0.000059% 1994-95 28  49,898 0.000056% 1995-96 32  50,759 0.000063% 1996-97 28  51,544 0.000054% 1997-98 34  52,071 0.000065% 1998-99 33  52,526 0.000063% 1999-00 14  52,875 0.000026% 2000-01 14  53,373 0.000026% 2001-02 16  53,992 0.000030% 2002-03 18  54,403 0.000033% 2003-04 23  54,639 0.000042% 2004-05 22  54,928 0.000040% 2005-06 21  55,224 0.000038% 2006-07 32  55,524 0.000058% 2007-08 21  55,762 0.000038% 2008-09 17  55,966 0.000030% 2009-10 19  56,186 0.000034% 2010-11 11  56,480 0.000019%              Maximum:  0.000070%      Minimum:  0.000019%      Average:  0.000044%

It makes sense for schools to take precautions and have contingency plans, but they should keep a sense of perspective. School shootings, especially the mass casualty incidences like Sandy Hook, are exceedingly rare. Schools should dispense with the M16s, grenade launchers, and armored vehicles.

Categories: Policy Institutes

SBA’s Risky Franchise Lending

Mon, 09/22/2014 - 14:42

Nicole Kaeding

The Small Business Administration’s (SBA) stated mission is to aid small businesses and strengthen the economy. Under its popular 7(a) program, SBA provides private lenders with loan guarantees. In the case of default, SBA steps in to cover up to 85percent of the lender’s losses.

This structure encourages lenders to provide more loans, but also encourages the approval of riskier loans. The lenders are insulated from most of the risks of default.  

A new analysis conducted by the Wall Street Journal confirms that this arrangement induces SBA to provide loans that result in a large number of defaults. Default rates for some franchise companies can be as high as 40 percent. According to the Wall Street Journal:

Quiznos, Cold Stone Creamery, Planet Beach Franchising and Huntington Learning Centers Inc. ranked among the 10 worst franchise brands in terms of Small Business Administration loan defaults.

Franchisees of the 10 brands in the ranking defaulted at more than double the rate for SBA borrowers who invested in all other chains, according to a Wall Street Journal analysis of charge-offs of all SBA-backed franchise loans in the past decade.

Put another way, franchisees of those 10 brands have left taxpayers on the hook for 21% of all franchise-loan charge-offs in the past decade, collectively failing to pay back $121 million in SBA-guaranteed loans from 2004 through 2013.

Thirty percent of the loans provided to Quiznos and Cold Stone Creamery franchises ended in default. The losses from loans to Quiznos franchises totaled $38.4 million during the 2004 to 2013 period, while losses to Cold Stone Creamery amounted to $34.1 million.

This is not the first time that SBA’s franchise lending has been criticized. In a report focused on franchises, SBA’s Inspector General noted in 2013 that SBA “had not implemented a program or process to monitor risk in its portfolio.” The report continues: “SBA did not monitor portfolio segments to identify risk based on default statistics…SBA continued to guarantee loans to high-risk franchises and industries without monitoring risks, and where necessary, implementing controls to mitigate the risks.”

Franchise businesses are an important component of SBA’s activities. In its new analysis, the Wall Street Journal points out that “SBA guaranteed nearly $18 billion in 7(a) loans [in 2013], including $2 billion for franchisees.”

Taxpayers are picking up the costs of these government loan guarantees. SBA charges lenders fees to mitigate the costs of default, but the fee amount seem to be too low. Most recent years, SBA has received a net outlay, or subsidy, from Congress.

What should be done? At the very least, SBA should take its inspector general’s recommendations and review its practices regarding franchise loans to reduce the number of defaults. Ideally as argued on www.downsizingovernment.org, SBA should be closed down.

Categories: Policy Institutes

Secret Service Spending

Mon, 09/22/2014 - 09:55

Chris Edwards

Another federal agency has screwed up. This time it is the Secret Service, which almost allowed an intruder to make a surprise visit on the Obamas. The Washington Post reports:

The Secret Service on Saturday launched a security review to learn how a man carrying a knife was able to get inside the front door of the White House on Friday night after jumping a fence and sprinting more than 70 yards across the North Lawn.

In response to the failure, Rep. Jason Chaffetz observed that “the Secret Service has a serious management problem.” According to the Post:

The service, which once enjoyed a sterling reputation as an elite law enforcement agency, has struggled with some embarrassing episodes recently and the perception that its leadership is lagging in the best security strategies. In spring 2012, the service faced a humiliating moment when a dozen agents were shipped home from a presidential trip in Cartagena, Colombia, where they were implicated in a night of carousing and boozing with prostitutes.

The latest fence-jumping incident is no laughing matter, but this line from the Post did make me chuckle: “Former agents said they fear the breach may be related to a severe staffing shortage the agency has struggled with in the last year in its Uniform Division.”

Staffing shortage? How is that possible when the Secret Service budget has doubled in real (inflation-adjusted) terms since 1998—from $0.9 billion to more than $1.8 billion? The chart shows the particularly strong growth during the George W. Bush years.  

Categories: Policy Institutes

Education under the New Swedish Order

Mon, 09/22/2014 - 08:50

Andrew J. Coulson

Just over a week ago, Swedes threw out the relatively pro-market coalition that had goverened the country for the past 8 years, handing power (though not an outright majority) to a new left-of-center coalition. Swedish students’ falling scores on international tests were a key cause of public dissatisfaction, and they have been widely blamed on a nationwide voucher-like school choice program introduced during the early 1990s. But as I point out in an op-ed in yesterday’s Svenska Dagbladet, the facts simply don’t support that narrative. Here’s the English draft of the op-ed:

Sweden’s collapsing performance on international tests was clearly a factor in the recent election, and redressing that slide will be a priority for the new government. A good first step in charting the way forward is to understand what has gone wrong and what has gone right in the past. Unfortunately, the most popular narrative about Swedish education trends is badly mistaken.

Many have blamed Sweden’s falling international test scores on the proliferation of free schools, merely because the decline is thought to have followed their large-scale expansion. This would be a common logical fallacy even if the timing were correct—but it isn’t.

Between 1995 and 2011, Swedish math scores on the Trends in International Mathematics and Science Study (TIMSS) fell by a massive 56 points. But the vast majority of that decline—41 points—had already taken place by 2003. In that year, 96 percent of Swedish students were still enrolled in government schools.

Another international test, the Programme on International Student Assessment (PISA), began in the year 2000 and has the advantage of breaking out the scores for government and private schools. The last PISA test was administered in 2012, by which time government school scores had fallen by 34 points while free school scores had fallen by only 6 points.

Anders Böhlmark and Mikael Lindahl’s long-term nationwide study helps to explain these trends: increased local competition from free schools actually raises the performance of students in both sectors—on both national and international tests. But, since free schools still enroll a small fraction of students nationwide, the benefits of this competition have yet to be felt in many areas.

Of course, none of this is to suggest that there are no bad private schools. There has never been an education system in history capable of producing only good schools. The best that can be hoped for is that unsuccessful schools close while good schools expand. And that is precisely what has been happening in Sweden.                                           

Much has been made of the failure of JB Education, which attracted too few students to remain financially viable, and was forced to shut down. This was regrettable for everyone directly concerned, in the short run. In the long run, it is better than any realistic alternative. In most countries, including the United States, atrocious government-run schools are able to continue operating indefinitely because they face no meaningful competition—the poor parents they most often serve simply cannot afford any alternative. These schools are numerous enough that a term has been coined to describe them: “dropout factories.” Swedish families are lucky that they can far more easily escape such schools.

Not only does the Swedish system pressure failing schools to close, it encourages good ones to expand. International English Schools is one of the highest-performing school networks in the country, even after controlling for the parental level of education and immigrant background of its students. It is also one of the fastest growing, now operating 25 schools serving nearly 18,000 students. IES has plans to continue growing so long as demand for its services remains unmet. But if IES’s emphasis on academics and civil classroom behavior seems too traditional for some families, there are many other options to choose from. Another large and successful network is Kunskapsskolan, which allows students to proceed through the curriculum at their own pace, combining tremendous student autonomy with weekly one-on-one meetings with teachers.

But not all good private schools grow. Specifically, non-profit schools tend not to build large networks, no matter how good they are. As a result, thousands of students who might benefit from their services never get the chance to do so. The only good schools that consistently “scale-up” in response to rising demand are those operated as for-profit enterprises. This is not a coincidence. Building a network is both risky and expensive. The profit-and-loss system provides both the resources and the incentives that allow and encourage successful enterprises to grow.  

Sweden is fortunate to have harnessed that system to spur the growth of its high performing schools. Chile does the same thing, and has become not only the highest-performing nation in Latin America but also one of the fastest-improving countries in the entire world on international tests. If Sweden wishes to become a fast-improving nation educationally, the evidence strongly supports preserving the entrepreneurial freedoms and incentives that promote the growth of successful education networks.

Categories: Policy Institutes

The Constitutional Dimension of Your Morning Commute

Mon, 09/22/2014 - 08:48

Ilya Shapiro

Over the last few years, D.C.-area drivers may have noticed the continual increases in toll fares on the Dulles Toll Road, the highway going through the Northern Virginia suburbs past Dulles Airport.  Indeed, since 2005, the toll for the typical round-trip commuter has more than quadrupled from $1.50 to $7.00, with more increases coming. These extra toll dollars haven’t been going for upkeep or expansion of the highway, however, but instead have been funding the over-budget and under-performing construction of the Metro’s Silver Line extension.

While originally slated to fund only 25% of that cost, commuters are now looking at paying more than half of the $5.6 billion (and counting) total cost, with years of construction still to come. The entity in charge of the construction project (and of gouging the toll road’s commuters) is the Metropolitan Washington Airports Authority, a public body established to govern Dulles and Reagan National airports at the behest of the Department of Transportation. But who’s actually in charge of the MWAA, and to whom can beleaguered commuters turn for relief? Although created by an interstate compact between D.C. and Virginia, the MWAA was granted all of its authority by an act of Congress, and the highways and airports that it oversees are federal property.

In many ways, the MWAA acts like a federal agency—in nearly all ways, in fact, except one important aspect: oversight. If federal assets and lawmaking power are being delegated to the MWAA, then there must be a means for the executive branch to “take care that the laws be faithfully executed.” The MWAA, however, is governed by a board of individuals whom the president has no meaningful ability to appoint, oversee, or control. This means that the MWAA has no political accountability for its decisions.

Having no other meaningful recourse, a group of Dulles Toll Road users sued the MWAA, arguing that its decrees violate the separation of powers. (Full disclosure: my wife and I just bought a house in Falls Church and will likely be using the road every now and again, though not on my commute to Cato.) The federal district and appeals courts—two of them, in an unusual development whereby the Federal Circuit transferred the case to the Fourth Circuit—decided that the MWAA’s nature as a state-created entity required the case to be dismissed. Moreover—get this—because the MWAA has no meaningful executive-branch control, there is no separation-of-powers issue. (This despite the federal government’s appearance as an amicus to argue that the MWAA exercises federal power and is subject to separation-of-powers scrutiny.)

Undeterred, the plaintiffs have petitioned the Supreme Court to hear their case. Cato has joined the American Highway Users Alliance and the Recreation Vehicle Industry Association on a brief supporting their petition. We argue that the Court should take the case because (1) there is a critical violation of the separation of powers, (2) there are already manifest harms resulting precisely from that violation, and (3) the federal government sees and treats the MWAA as a federal agency—but one without any meaningful accountability whatsoever.

It isn’t every day that a separation-of-powers case is as squarely presented as it is here, where commuters are being railroaded, so to speak, by a runaway agency whose conductor is absent. The executive branch has to take the blame not only for the MWAA’s policies, but its corruption, incompetence, and mismanagement.

The Supreme Court will decide whether to take Corr v. Metro. Washington Airports Authority later this fall.

Categories: Policy Institutes

Bipartisan Agreement against the Taxpayers

Sat, 09/20/2014 - 10:08

David Boaz

The Washington Post reports on strong disagreements in consecutive appearances by Virginia Senate candidates Mark Warner and Ed Gillespie. Obamacare, terrorism, lobbying, partisanship – lots of arguments. But take heart, the Post advises us: “Despite the positioning, both candidates agreed on a few topics.” As usual, as I’ve written before, when you hear about bipartisanship, watch your wallet. Here’s what Warner and Gillespie agree on:

For example, they each called federal sequestration cuts devastating to the Northern Virginia economy.

Gillespie said Warner was in support of sequestration, while Warner blamed Republicans for allowing the automatic spending cuts to go through after Congress failed last year to resolve the debt-ceiling crisis.

“Sequestration is stupidity on steroids,” Warner said, promising to look for places to cut spending in other areas. “You have to take on entitlement reform and tax reform.”

Both also agreed that there is an urgent need to improve Virginia’s transportation infrastructure, though Gillespie said the solution lies in bringing in more revenue through deep-sea oil drilling and Warner argued for privatizing portions of transportation improvements.

On national security, Gillespie and Warner agreed on a need to spend more on the U.S. military in the face of the threat posed by the Islamic State. Once again, what the candidates agree on is spending the taxpayers’ money.
Categories: Policy Institutes

Should We Credit Global Warming When Disasters Don’t Happen?

Fri, 09/19/2014 - 16:53

Paul C. "Chip" Knappenberger

Every time there is some sort of weather disaster somewhere, someone blames it on human-caused global warming. Maybe not directly, but the implication is clear. “While we can’t link individual events to global warming, the increase of this type of event is consistent with our expectations, blah, blah…”

Most recently this came in testimony from White House Science Adviser John Holdren before the Committee on Science, Space, and Technology of the U.S. House of Representatives:

In general, one cannot say with confidence that an individual extreme weather event (or weather-related event)—for example, a heat wave, drought, flood, powerful storm, or large wildfire—was caused by global climate change. Such events usually result from the convergence of multiple factors, and these kinds of events occurred with some frequency before the onset of the discernible, largely human-caused changes in global climate in the late 20th and early 21st centuries. But there is much evidence demonstrating that extreme weather events of many kinds are beginning to be influenced—in magnitude or frequency—by changes in climate.

Holdren then goes to list a bunch of types of extreme weather whose characteristics have changed (remarkably, all becoming worse), adding that:

There are good scientific explanations, moreover, supported by measurements, of the mechanisms by which the overall changes in climate resulting from the human-caused build-up of heat-trapping substances are leading to the observed changes in weather-related extremes.

Holdren’s implication is pretty clear—human-caused global warming is leading to changes in extreme weather. And just for good measure, he added this zinger:

[I]t is reasonable to say that most weather in most places is being influenced in modest to significant ways by the changes in climate that have occurred as a result of human activities.

If this were the case, then there is a lot of good news to be found here, for by and large the weather is pretty good, with rare examples to the contrary.

Take, for instance, what has been all abuzz this week in Washington, D.C.: how great the weather has been. The Washington Post’s Capital Weather Gang, which keeps close tabs on the pulse of D.C. weather, has commented repeatedly on how remarkable and enjoyable it has been. According to Holdren’s logic, we have global warming to thank, and yet I have not seen one news story that links the pleasant weather to human-caused climate change.

Across the country in Tucson, Ariz. (where I reside), the news this week has been dominated by the threat of the passage of the remnants of Hurricane Odile, which were forecast to move into the region from out of the Gulf of California. The predictions were for record-breaking rainfall amounts with the potential for widespread damage from flooding. The outlook stirred up memories of the passage of Tropical Storm Octave in 1983, which resulted in over $500 million (in 1983 dollars) of damage to the region. Thankfully, this did not come to pass. Instead, the heavy rains associated with Odile passed well east of the city, over much more sparsely populated country. Since apparently all weather is influenced by anthropogenic global warming, we have it to thank for averting what could have been a very costly and hugely disruptive situation affecting upwards of a million people.

And speaking of hurricanes, the first major hurricane (category 3 or greater) in almost two years formed in the Atlantic Ocean. But, in encountering conditions arguably consistent with human-caused climate change, Hurricane Edouard quickly weakened and remained far out in the open Atlantic, steering well clear of the U.S. mainland. Major disaster averted. It has now been nearly nine years since the last major hurricane made landfall in the United States, the longest such occurrence going back at least to the year 1900. Thanks, global warming!

I could go on, because there are a lot more cases of non-extreme weather than there are of extreme weather, and as many or more cases to be made for weather catastrophes averted by conditions “consistent with global warming” than caused by it.

So if you want to play the all-weather-is-influenced-by-global-warming game, you are going to lose.

Best bet would be to stick with the science, which for most types of extreme weather events and for most places indicates that a definitive link between event characteristics and human-caused climate change has not been established. Either talk about that situation or leave the attribution issue alone.

Categories: Policy Institutes

San Francisco Taxi Trips Plunge Amid Rise of Rideshare Companies

Fri, 09/19/2014 - 16:45

Matthew Feeney

According to Kate Toran, the San Francisco transport authority’s Taxis and Accessible Services interim director, companies such as Uber and Lyft, which provide ridesharing services, “have dramatically changed the for-hire transportation industry in San Francisco.”

A few days ago, the San Francisco Examiner reported on a presentation Toran gave to the San Francisco Municipal Transportation Agency (SFMTA) board of directors. The presentation included the slide below:

 

Uber and Lyft are both headquartered in San Francisco and are classified as Transportation Network Companies (TNCs), a designation created by California’s Public Utilities Commission last year.

Uber CEO Travis Kalanick has not hidden his feelings regarding the taxi industry. Earlier this year he said that Uber was in a political campaign against “an ass*** named Taxi.”

Of course, the slide does not show the whole picture. Correlation is not causation, and without data on ridesharing companies’ rides in San Francisco over the same time period, it is impossible to conclude for sure that the ridesharing services provided by companies such as Uber and Lyft are significantly contributing to the taxi decline in San Francisco.

It is notable that the SFMTA has decided to waive some fees—including the driver application fee—for taxis in 2014-2015 in an attempt to attract new drivers and keep current drivers from quitting. Among the many advantages of companies such as Lyft is the low cost of entry for drivers.

According to the San Francisco Examiner, the SFMTA is also contemplating reducing the medallion fee:

Other possible regulatory actions the transit agency has contemplated to make cab driving more financially attractive to drivers include reducing fees for medallions, which allow holders to operate taxis. Other ideas include reducing the fee to transfer medallions by 20 percent, eliminating the $500 ramp taxi medallion use fee, lowering the medallion renewal for transferrable medallion holders and allowing taxi wrap advertising. 

During her presentation, Toran also highlighted the need for the SFMTA to review regulation. From the San Francisco Examiner:

“It’s time for [the] MTA as a regulator to really review the regulations and make sure our regulations have been thoroughly reviewed and that they still make sense,” Toran said. “Our bottom line is public safety, but to the extent that the regulations can be more flexible and more responsive and we have a process to update.”

The presentation mentions taxi apps Curb and Flywheel. It remains to be seen if an increasing number of San Francisco taxis using these apps will halt the dramatic decline in taxi trips, but it is encouraging to see that Toran supports competing with ridesharing apps and reviewing San Francisco’s taxi regulations.

Categories: Policy Institutes

Getting Government Out of the Mortgage Business, DOJ-Style

Fri, 09/19/2014 - 16:32

Mark A. Calabria

Yesterday Bloomberg reported that Federal Housing Administration (FHA) purchase loan guarantees “plunged” compared to a year ago. Part of that plunge, of course, was an expected decline in refinance activity. Currently, FHA endorsement activity is almost 80 percent purchase, whereas a year it ago it was just over half for purchase. Looking at trends in purchase endorsements, the decline looks a lot more moderate.

Even so, there has been a modest decline. Many in the banking industry, as expressed to Bloomberg, believe this is because FHA and the U.S. Deparment of Justice have been too tough on lenders, making them take back soured loans and assessing damages. JP Morgan CEO Jamie Dimon recently asked, because of the legal risk, “should we [JP Morgan] be in the FHA business at all?” 

Personally, this sounds like little more than jawboning. As illustrated by FHA’s recent credit reports, lenders are still dumping an awful lot of junk onto FHA. The average credit score is around a 680 FICO, meaning about half of FHA’s recent business is subprime. Beyond that, even subprime borrowers typically face downpayments of only around 5%, and then there’s the high debt levels witnessed. Lenders should be held responsible for making loans of such poor credit quality.

If DOJ fines on poorly performing FHA loans are chasing banks away from FHA, then I say “great.” That’s one of the reasons I helped get FHA new powers against fraud back in 2008 (see Section 2129 of HERA). As Congress is unlikely to ever scale bank the various mortgage subsidies, perhaps our only hope is that DOJ makes those subsidies so unattractive that lenders won’t use them. But then I could also see DOJ sue lenders, under fair-lending, for not using FHA.

Categories: Policy Institutes

President Poroshenko Goes to Washington

Fri, 09/19/2014 - 13:07

Emma Ashford

Ukrainian President Petro Poroshenko spoke before the U.S. Congress yesterday morning, and afterward met with President Obama at the White House. The visit was overshadowed by other major events of the week—Congress’s vote to authorize arms and training for Syrian rebels, and the Scottish independence referendum—but it was noteworthy that the visit didn’t elicit any U.S. offers of military support for Ukraine.

Poroshenko’s speech to Congress focused heavily on Ukraine’s role as a “strong American partner” and fellow democracy, and argued for greater U.S. involvement in the crisis. He even went so far as to argue that “this is America’s war too,” though he certainly offered no justification for why Ukraine is of key strategic interest for the United States. Between rousing rhetoric, references to John F. Kennedy, and anecdotes about brave Ukrainian warriors, he did ask the United States for three pieces of aid:

First, he asked for weaponry. Poroshenko thanked the United States for the humanitarian aid it has provided to Ukraine, but argued that “we can’t win a war with blankets.” The White House has promised a new $53 million aid package, comprising nonlethal military aid (i.e., blankets and food supplies). In contrast, the Ukrainians are particularly interested in heavy and antitank weapons.

Second, Poroshenko asked Congress for a massive injection of financial aid to support investment, fight corruption, and reform the Ukrainian state.

Finally, and most worrisome, he asked the United States (and NATO) to grant Ukraine a “special, non-allied partner status” for security and defense. It’s unclear exactly what this would entail, but it sounds suspiciously like a plea for NATO protection of Ukraine without full NATO membership.

There is limited interest in Congress to give Poroshenko some of what he is seeking. Sens. Bob Corker (R-TN) and Robert Menendez (D-NJ) have co-sponsored the Ukraine Freedom Support Act of 2014, which would seek to arm Ukrainian troops. But though the bill unanimously passed the Senate Foreign Relations Committee, it is unclear what will become of it as the Senate begins its recess, or whether it would command broader support from Congress.

Arming Ukraine’s government is foolhardy at best. Even if Ukraine were central to U.S. interests, the United States cannot possibly provide enough military aid to allow Ukraine to prevail against the Russian military. Such aid has the potential to escalate the situation and undermine a diplomatic settlement. Giving Ukraine a “special defense status” is an even worse idea, especially if it were to commit NATO to the military defense of Ukraine.

Luckily, the Obama administration seems determined to give Poroshenko a public relations boost—rolling out the red carpet for his visit—and nothing more. President Obama’s remarks praised Poroshenko’s leadership, but promised only to continue to help Ukraine reach a diplomatic settlement with Russia. With the U.S. military already gearing up for action on two different continents, it isn’t surprising that American leaders would choose to avoid escalating another regional conflict. Let’s hope this restraint continues once the other crises are past. 

Categories: Policy Institutes

A Tip o' the Hat to the United Kingdom

Fri, 09/19/2014 - 11:51

David Boaz

As an eighth-generation Scottish-American, I’m disappointed that my ancestral homeland has chosen not to be A Nation Once Again. But at the Daily Caller I do note one remarkable and positive aspect of the referendum:

The leaders of the United Kingdom allowed this referendum to take place, allowed the Scots to peacefully decide their own fate. Just think how remarkable that is. We Americans weren’t allowed to peacefully leave the United Kingdom….

A few secession efforts in the United States also demonstrate the remarkable nature of the Scottish independence referendum. The San Fernando Valley region wanted to secede from the city of Los Angeles in the 1970s, and eventually a vote on secession was held in 2002. But the entire city of Los Angeles got to vote on whether the Valley could leave, and the effort was defeated. Today there are counties in both California and Colorado that have discussed secession, but in both cases the state law says that the legislature would have to approve. Few central governments look kindly on the loss of any portion of their taxpayers.

And that’s why I offer a tip o’ the hat today to the Parliament and the governments of the United Kingdom. They allowed the people of Scotland to decide their own fate. They did not insist that any secession had to get the approval of the government from which the dissident region wanted to secede. They did campaign hard to persuade Scottish voters to stick with the UK. But they let the Scots decide. May the road rise up to meet them, and may the sun shine warm upon their faces. And may other central governments learn from their example.

Categories: Policy Institutes

State Inspectors Get Run Of California Worksites—At Business Groups' Behest

Fri, 09/19/2014 - 11:36

Walter Olson

That workman from Craigslist who dropped by to install a set of office cabinets for you “off the books” is now more likely to be headed to jail, no matter how happy you are with the quality of his work, thanks to the California legislature:

Gov. Jerry Brown has signed S.B. 315, described by its sponsor, Sen. Ted Lieu (D-Beverly Hills), as a measure “to help curb California’s underground economy.” The measure would step up penalties and enforcement against persons who advertise for, or perform, repair and construction work with a value of $500 or more, counting parts and material as well as labor. … First offenses are subject to six months in jail and a $5,000 fine, and subsequent offenses are treated yet more harshly.

There’s more. The bill, according to its legislative summary, “would additionally require that the enforcement division, when participating in the activities of the Joint Enforcement Strike Force on the Underground Economy, be granted free access to all places of labor,” at least in business locations. (Yes, “all”; you only thought your property was private.) 

A special touch: the customer who ordered the work will now be legally classed as a “victim of crime” entitled to restitution and other benefits, even if the work was done exactly as ordered, and even if (the law is explicit) the customer was fully aware the job was unlicensed. 

How could the California legislature have unanimously (as it did) passed a measure curtailing property rights by giving more state inspectors access to places of labor against owners’ will? Simple: it was framed as a pro-business measure. Among its backers were the sponsoring Contractors State License Board and such groups as the Air Conditioning and Refrigeration Contractors Association, the electrical contractors, the landscape contractors, the plumbing and heating contractors, and so forth.   

The costs of occupational licensure are many. Not least is that it gives established businesses a stake in making government more powerful and invasive.  

P.S.: Possibly unrelated, or possibly not: California issued massive fines that closed down a small winery whose owners were allowing volunteers to do some work, in violation of state law; a state spokesman said permitting volunteer labor “isn’t fair” to competing wineries with all-professional staff. 

Categories: Policy Institutes

#WhyLiberty: Venezuela

Fri, 09/19/2014 - 10:05

Caleb O. Brown

Thousands of Venezuelans regularly protest Nicolás Maduro’s government. Juan Carlos Hidalgo, a Policy Analyst on Latin America at the Center for Global Liberty and Prosperity at the Cato Institute, recalls witnessing the struggle for freedom in Caracas.

“Why Liberty” is a short series of personal stories emphasizing the value of liberty. Feel free to make your own video telling your story using #WhyLiberty. And, of course, subscribe to us on YouTube.

Categories: Policy Institutes

Intellectual Property in Trade Agreements

Fri, 09/19/2014 - 09:57

Simon Lester

Tom Giovanetti of the Institute for Policy Innovation, who spoke at a Cato event we held earlier this year, has a new essay arguing that intellectual property protection should be included in trade agreements. He makes several points, but I’m going to focus on just one.  He states:

[N]umerous studies have found a correlation between higher levels of IP protection and stronger economic growth.

  • According to a 2008 OECD [Organization for Economic Cooperation and Development] study, stronger patent rights in developing countries are a significant determinant of levels of foreign direct investment, and also facilitate higher levels of technology transfer.
  • A 2012 OECD study found that a 1 percent change in the strength of a country’s IP framework is associated with a 2.8 percent increase in foreign direct investment inflows and a 0.7 percent increase in domestic R&D [research and development].
  • And a 2013 study found that R&D spending has grown relative to GDP in developing countries after they adopted the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The study also found that medicines for developing countries had received additional funding, and that the TRIPS agreement had directly contributed to the emergence of native film industries in African countries.

Here’s the problem: If you treat intellectual property as a single concept, and you can either have more or less protection of it, it would be reasonable to conclude that some countries have too little protection and probably need more. But intellectual property covers a lot of ground. To name a few areas, you have copyrights, trademarks, and patents.  You also have the European favorite, “geographical indications.”

If the argument is that having intellectual property protection is better than not having intellectual property protection, in terms of economic growth, that seems like an easy one.  It’s hard to imagine a modern economy working very well without effective trademark enforcement, for example.

But beyond that, things get complicated. How much protection is too much?  The United States is pushing copyright terms that last for the life of the author plus 70 years as part of its trade negotiations. I’ve argued that’s way too long. What is the right amount exactly?  Well, no one seems to be sure, as far as I can tell, but there are plenty of people who say life plus 70 years is excessive.

So, it’s not enough just to say, “we need stronger IP protection in trade agreements.”  If you want to convince anybody, you need to get into the specifics of each kind of protection, and why the stronger level you propose is justified. Otherwise I’m just going to assume you want stronger IP protection of any and all kinds and would go along with the European Union demand that Feta cheese can only be made in Greece.

Categories: Policy Institutes

Bankers Advise Fed to Regulate Bitcoin

Thu, 09/18/2014 - 16:01

Mark A. Calabria

Four times a year members of the Federal Reserve Board are scheduled to meet with members of the banking industry, as represented by the Fed’s Federal Advisory Council.  This, of course, does not include all the many other occasions that the Fed meets with bankers.  These meetings allow the banking industry to express its views to the Fed on a wide range of issues.  Summarized records of those meetings are released to the public.  In the most recent meeting, bankers raised, among other topics, the issue of Bitcoin. 

While the bankers did not yet view Bitcoin as a viable competitor to their role in the payments system, the bankers did express that Bitcoin “regulation is advisable.”  Those soft-hearted bankers expressed a concern that without adquate consumer protections, users of Bitcoin would be vulnerable to fraud and theft.  Bankers also suggested, presumably out of a concern for national security, that Bitcoin be subject to the same anti-money-laundering procedures, including Know-Your-Consumer, that banks are subjected to.  Bankers explicitly suggested that Bitcoin be subjected to the suspicious activities reports (SARs) that banks must currently file. Personally, this all sounds like an attempt at “raising rivals’ costs” to me.

Interestingly banks also suggested that in “an economy hypothetically dominated by Bitcoin, its finite number (21 million) would prevent the application of traditional monetary policy tools to provide support…” In other words banks are concerned that a Bitcoin world would be one where bank bailouts and assistance were more difficult to achieve.  I guess one man’s bug is another man’s feature.

Categories: Policy Institutes

Government Failure: More from Paul Light

Thu, 09/18/2014 - 14:20

Chris Edwards

NYU’s Paul Light provides thoughts on government failure in the Wall Street Journal today.

Congress returned to its investigation of the General Motors faulty ignition switch Tuesday with a blistering Senate hearing on the National Highway Traffic Safety Administration’s failure to act. As the House Energy and Commerce Committee concluded on the same day, the agency had more than enough information in 2007 to prevent further tragedy, but gave GM a pass.

Lest anyone think that the neglect was an aberration in an otherwise invulnerable government, the cascade of highly visible failures has been accelerating since the mid-1980s. According to my list of management failures that made the national news over the past quarter-century, the federal government produced an average of 1.5 failures per year from 1986 to 1993, two per year from 1993 to 2001, and three per year from 2001 to today.

Light’s views build on his recent study on the subject, which I discussed in this blog. Light says some nice things about the bureaucracy, which I have not quoted here. But he has documented a long list of failures:

With more aggressive oversight and stronger policy, for example, the Occupational Health and Safety Administration could have prevented the fertilizer plant explosion in West, Texas, last year that killed 13 people. With more effective monitoring of at least two of its watchlists, the intelligence community could have warned the Boston police that there was a potential terrorist duo in the city before the Boston Marathon bombing. With a bit of late-night reading of its own internal reports, the Department of Veterans Affairs could have discovered the VA’s wait-list scandal well before it hit the news. And so it goes, from the flu-vaccine shortages, to the Columbia shuttle disaster, the financial meltdown, the Gulf of Mexico oil spill and the healthcare.gov disaster.

I think a key reason why the federal government is failing more than ever is because it is larger than ever. Light suggests other reasons for the government’s poor performance. Either way, this is an important discussion to have, and I am glad Light is out front documenting the failures and asking some fundamental questions.

Categories: Policy Institutes

Patent and Trademark Employees Cheat on Bonuses

Thu, 09/18/2014 - 13:54

Nicole Kaeding

Two years after whistleblowers submitted tips to the Commerce Department Inspector General’s office, the United States Patent and Trademark Office (USPTO) is acknowledging extensive timekeeping fraud among its employees. Many employees have reported working more hours and achieving higher levels of production than they actually did in order to secure overtime pay and bonuses.

The Washington Post has the details:

For example, patent examiners are allowed to submit incomplete reviews in order to meet productivity deadlines that ensure their work will be rewarded with bonuses. But the work is not always completed, the officials told congressional investigators.

They also said they believe they have adequate tools to allow managers to make sure the examiners they supervise are working, primarily through e-mail and phone calls. The 32-page review had concluded that many managers feel they have little authority to oversee their employees’ work; examiners have a full day to respond to calls and are not required to log into the agency’s internal Web site, so their bosses do not know if they are at their desks at a given time…

More than 70 percent of the 80 managers interviewed told the internal review team that a “significant” number of examiners did not work for long periods, then rushed to get their reviews done at the end of each quarter. The supervisors were concerned that the practice negatively affected the quality of the work.

After the tips were received, USPTO assigned an internal team to investigate. The team produced a 32 page report detailing the abuse. However, the agency scrubbed the report before submitting it to the inspector general. According to the Washington Post, “top patent officials removed the most damaging revelations from the report, providing the agency’s inspector general with an account half the length and with many potentially embarrassing findings removed.”

The agency now claims that the issue is under control. Workers are required to log into the agency’s remote server while teleworking. Unlike many federal agencies, the USPTO is specifically authorized by the U.S. Constitution, but it still has a duty to spend money wisely. 

Categories: Policy Institutes

Reflections on Rapid Response to Unjustified Climate Alarm

Thu, 09/18/2014 - 11:48

Richard Lindzen

The Cato Institute’s Center for the Study of Science today kicks off its rapid response center that will identify and correct inappropriate and generally bizarre claims on behalf of climate alarm. I wish them luck in this worthy enterprise, but more will surely be needed to deal with this issue.

To be sure, there is an important role for such a center. It is not to convince the ‘believers.’ Nor do I think that there is any longer a significant body of sincere and intelligent individuals who are simply trying to assess the evidence. As far as I can tell, the issue has largely polarized that relatively small portion of the population that has chosen to care about the issue. The remainder quite reasonably have chosen to remain outside the polarization. Thus the purpose of a rapid response Center will be to reassure those who realize that this is a fishy issue, that there remain scientists who are still concerned with the integrity of science. There is also a crucial role in informing those who wish to avoid the conflict as to what is at stake. While these are important functions, there are other issues that I feel a think tank ought to consider. Moreover, there is a danger that rapid response to trivial claims lends unwarranted seriousness to these claims. 

Climate alarm belongs to a class of issues characterized by a claim for which there is no evidence, that nonetheless appeals strongly to one or more interests or prejudices. Once the issue is adopted, evidence becomes irrelevant. Instead, the believer sees what he believes. Anything can serve as a supporting omen. Three very different previous examples come to mind (though there are many more examples that could be cited): Malthus’ theory of overpopulation, social Darwinism and the Dreyfus Affair. Although each of these issues engendered opposition, only the Dreyfus Affair led to widespread societal polarization. More commonly, only the ‘believers’ are sufficiently driven to form a movement. We will briefly review these examples (though each has been subject to book length analyses), but the issue of climate alarm is somewhat special in that it appeals to a sizeable number of interests, and has strong claims on the scientific community. It also has the potential to cause exceptional harm to an unprecedented number of people. This has led to persistent opposition amidst widespread lack of interest. However, all these issues are characterized by profound immorality pretending to virtue. 

Malthus’ peculiar theory wherein the claimed linear growth of food loses out to the exponential growth of population has maintained continuous popularity in the faculty lounge for about two centuries. It is, therefore, worth noting that Malthus had no evidence that food supply would increase only linearly. Nor did he have evidence for exponential population growth. Malthus initially went so far as to estimate an e-folding time for population of 25 years, based on the population of North America, and ignoring the role of immigration. Although Malthus, himself, eventually acknowledged these problems, the enthusiasm for his anti-human conclusions remains strong. Neither the green revolution nor the diminution of famine amidst increasing population dissuades them. The fact that Chad is poor and the Netherlands is rich never strikes the believer as odd. Apparently, the growth of cities, the movement of workers from the farm to the city, and, for much of the developed world, immigration, all served to convince people of means that there were too many other people around, and Malthusian theory formed a framework for something they were (and are) eager to believe.

Social Darwinism and its corollary, eugenics, represents another case of a theory without support that was widely accepted with, at times, horrid consequences. Darwin’s “The Origin of the Species” had immense influence. It presented a theory whereby natural selection and what were essentially mutations could account for biological evolution. While it offered valuable insights into the development of finch beaks, it was hardly meant to describe societal evolution. Nevertheless, the notion of ‘survival of the fittest’ applied to society had obvious appeal to those who perceived themselves to be the fittest and who naturally regarded the application as scientifically justified. It was a small step to eugenics which was the counterpart of modern day environmentalism during the first third of the twentieth century, and was supported by all the ‘best’ people (including George Bernard Shaw, Margaret Sanger, Alexander Graham Bell, and Theodore Roosevelt) despite the fact that there actually was a mathematical theorem (the Hardy-Weinberg Theorem) that showed that the impact of eugenics on the gene pool would be negligible. Needless to add, mathematics is of no importance to the ‘best’ people. Malthusian population fears continue to the present, but eugenics was rendered unfashionable by the obvious implications presented by the Nazis.

While science is a common vehicle for such misuse, the Dreyfus Affair shows that other vehicles exist. In 1894, Captain Alfred Dreyfus was accused of passing secret French military information to the Germans. There was, in fact, no evidence to support this accusation. Nevertheless, there was again a strong desire on the part of many people in France to believe the accusation. To be sure, there was the endemic anti-Semitism in France. However, there was also the humiliation of France’s loss in the Franco-Prussian War, and the desire to blame such loss not on the army, but on the perfidy of a group that some considered to be ‘outside’. (The Nazis’ ‘stab in the back’ theory for the German loss in WW1 represents a similar instinct). Dreyfus was tried (several times) and sentenced to Devil’s Island. Prominent Frenchmen (Emile Zola in particular) , incensed by the obvious injustice campaigned for Dreyfus, and the issue literally split France in half (partly because the conflict between Catholics and Secularists also entered the Affair). Dreyfus was eventually exonerated after the identification of the actual spy became undeniable.

The current issue of global warming/climate change is extreme in terms of the number of special interests that opportunistically have strong interests in believing in the claims of catastrophe despite the lack of evidence. In no particular order, there are the leftist economists for whom global warming represents a market failure, there are the UN apparatchiks for whom global warming is the route to global governance, there are third world dictators who see guilt over global warming as providing a convenient claim on aid (ie, the transfer of wealth from the poor in rich countries to the wealthy in poor countries), there are the environmental activists who love any issue that has the capacity to frighten the gullible into making hefty contributions to their numerous NGOs, there are the crony capitalists who see the opportunity to cash in on the immense sums being made available for ‘sustainable’ energy, there are the government regulators for whom the control of a natural product of breathing is a dream come true, there are newly minted billionaires who find the issue of ‘saving the planet’ appropriately suitable to their grandiose pretensions, etc., etc. Strange as it may seem, even the fossil fuel industry is generally willing to go along. After all, they realize better than most, that there is no current replacement for fossil fuels. The closest possibilities, nuclear and hydro, are despised by the environmentalists. As long as fossil fuel companies have a level playing field, and can pass expenses to the consumers, they are satisfied. Given the nature of corporate overhead, the latter can even form a profit center. The situation within science itself is equally grim. Huge sums of government and private funding have become available to what was initially a small backwater field. Science becomes easy when emphasis is on malleable models supported by hugely uncertain data that can be readily found ‘consistent’ with the models supplemented by fervidly imagined catastrophic ‘implications.’ Indeed, uncertainty is often exaggerated for just this purpose. Opposition within the scientific community is immediately met with ad hominem attacks, loss of funding, and difficulty in publishing.

Of course, science is not the only victim of this situation. Affordable energy has been the primary vehicle for the greatest advance in human welfare in human history. This issue promises to deny this to the over 1 billion humans who still lack electricity. For billions more energy will be much less affordable leading to increased poverty. Poverty, itself, is a major factor in reduced life expectancy. It requires a peculiarly ugly obtuseness to ignore the fundamental immorality of this issue.

Although all these issues have strong political consequences, it is by no means clear that their origin is, itself, political. I would suggest that a more likely situation is that politics is always opportunistically seeking some cause that fits its needs. However, once an illusional issue becomes a passionate belief, it becomes impervious to argument. Given how dangerous some illusional positions are, it is an important problem to know how to avoid them. This is a problem that is truly worthy of Cato’s attention. Rapid response can only do so much; belief seems to inevitably trump objective reality when one is free to choose ones narrative.

Categories: Policy Institutes

Ideas Freely Exchanged

Thu, 09/18/2014 - 10:43

Caleb O. Brown

Freedom of Speech - Why Liberty?

Having the ability to freely exchange ideas creates better governance and stronger communities. Catherine Sevenko describes her time working overseas in Budapest and Moscow and understanding the importance of our First Amendment rights.

Catherine Sevcenko works for the Foundation for Individual Rights in Education.

Categories: Policy Institutes

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