New York Attorney General Eric Schneiderman made some interesting rhetorical choices in a New York Times op-ed yesterday taking after share economy leaders AirBnB and Uber. The challenge they present to outdated regulation leads him to call these businesses “cyberlibertarians” and “cybercowboys.” The latter awkward metaphor inhabits the title of the piece: “Taming the Digital Wild West.”
It’s an awkward metaphor because “Wild West” was an epithet leveled at the Internet itself in its early days. Thank heavens the forces of stasis didn’t prevent us from inhabiting this place—and here’s hoping they won’t prevent us from finding new terrain. How safe and impoverished we would be, both materially and spiritually, if we didn’t have the rollicking, wide-open Internet.
But the most interesting rhetorical choice is his effort to push community-enhancing job-creation into the “libertarian” corner of Times’ readers’ vistas. His hope, it appears, is that readers’ revulsion around the word “libertarian” (if not liberty itself) will overcome what they know about car- and room-sharing. People all over New York and the world are operating small businesses, and these small businesses bring them in close personal contact with others. They build wealth, and they build community.
Calling that “cyberlibertarian” may just cause some reflexive progressives and conservatives to take a fresh look at liberty. While we’re working toward miracles, maybe people will drop the “cyber” prefix, too!
(Disclosure: I’ve used both AirBnB and Uber with generally wonderful results.)
K. William Watson
Debates about trade liberalization often focus on identifying the winners and losers of increased openness to foreign competition. Protectionists regale us with sad stories of closed factories, and free traders point to lower prices for consumers and the broad benefits of economic growth. But this whole exercise is completely backwards. We should instead be talking about the winners and losers of protectionism.
Free trade is not a trade policy. Trade policies—such as tariffs, quotas, restrictions on foreign service providers, and protectionist regulations—exist to divert the benefits of free exchange toward politically powerful special interests. Free trade is merely the absence of those policies.
By demanding an explanation for increased openness, the trade debate implicitly legitimizes the protectionist status quo. As a consequence, the news media often accept the argument that opening the U.S. market to foreign competition should be accompanied by programs that alleviate the suffering of the losers of increased trade. But why is anyone entitled to the current arrangement? Perhaps the winners of protectionism owe reparations to those of us who had to suffer the consequences of their rent-seeking.
Who wins and who loses from policies that increase the price of food? Who wins and who loses from regressive taxes on shoes and clothes? Who wins and who loses from shipping restrictions? Who wins and who loses from protectionist overregulation? I could go on.
Last Sunday’s New York Times included an editorial calling on the Obama administration to “Get Global Trade Right” by adding a handful of protectionists’ pet issues to the Trans-Pacific Partnership. Threatening our trade partners with sanctions if they don’t adopt specific labor, environment, or monetary policies is not going help the United States get trade right, but it will make us a bully and reduce our ability to make real progress tearing down genuine barriers.
After (wrongly) blaming increased economic openness for the loss of millions of manufacturing jobs and growing income inequality, the Times—without a hint of irony—says that President Obama needs “to make a strong case for why these new agreements will be good for the American economy and workers.” Well, that is certainly true.
Let me offer some humble advice to the president then on how he might take on that task: Stop selling trade agreements as a way to grow export markets for goods produced in the United States, and start extolling the virtues of agreements as a way to fight cronyism and to tear down bad policies. Thinking about trade agreements this way will not only help you sell the agreement, it could actually make the agreements better.
I’m no Cuba expert, but I have followed the events of recent years with interest. It seems that there have been tentative steps towards liberalizing the Cuban economy, as well as slightly better economic relations between the United States and Cuba. I’m hopeful the long-term trend is towards Cuba becoming a free market democracy, with normal relations with the United States.
In the short-term, though, I’m frustrated by how the “liberalization” of foreign investment is being carried out there. Here’s the Economist:
But on March 29th Cuba’s parliament approved a new foreign-investment law that for the first time allows Cubans living abroad to invest in some enterprises (provided, according to Rodrigo Malmierca, the foreign-trade minister, they are not part of the “Miami terrorist mafia”). The aim is to raise foreign investment in Cuba to about $2.5 billion a year; currently Cuban economists say the stock is $5 billion at most.
The law, which updates a faulty 1995 one, is still patchy, says Pavel Vidal, a Cuban economist living in Colombia. It offers generous tax breaks of eight years for new investments. However, it requires employers to hire workers via state employment agencies that charge (and keep) hard currency, vastly inflating the cost of labour.
Welcoming new foreign investment is great. Here’s the problem, though: In order to liberalize investment, a government really doesn’t need to do anything fancy. It can just say, “foreign investment is permitted, and will be treated like domestic investment.” Very simple. Furthermore, lower tax rates and reduced regulatory burdens can help encourage such investment. Again, very simple.
In practice, though, governments make this process difficult and less liberalizing. Here, what Cuba seems to have done is offered special tax breaks for new foreign investments, and then subjected receipt of these tax advantages to certain hiring conditions. In effect, it introduces two distortions as part of the liberalization process: favoring new foreign investors over other investors through the tax code and then subjecting the favored investors to additional regulation.
To be clear, Cuba is not the only country who does this; this is what many countries do. But there’s just no reason to approach it this way. The simpler way, with low tax rates for all investors, is the more economically beneficial way. Unfortunately, it seems as though “liberalization” is often just a catchword, and governments insist on using their power to intervene in private economic transactions, even when ostensibly moving away from interventionist policies.
Today the Supreme Court finally ruled on Schuette v. Coalition to Defend Affirmative Action, in which Cato filed a brief last summer. This is the case involving a challenge to a voter-approved Michigan state constitutional amendment that bans racial discrimination (including racial preferences) in higher education. The U.S. Court of Appeals for the Sixth Circuit had somehow manage to conclude that such a law violates the Fourteenth Amendment’s Equal Protection Clause, which … requires that state governments treat everyone equally, regardless of race. The ruling was fractured – six justices voted to reverse the lower court, but for three separate reasons, plus a separate concurrence from Chief Justice John Roberts to respond to the two-justice dissent – but ultimately achieved the correct result: Michigan’s Proposal 2 stands.
But really Schuette is a much easier case than the above description might indicate. Indeed, it’s no surprise that six justices found that a state constitutional provision prohibiting racial discrimination complies with the federal constitutional provision that prohibits state racial discrimination. To hold otherwise would be to torture the English language to the point where constitutional text is absolutely meaningless. The only surprise – or, rather, the lamentable pity – is that Justices Sonia Sotomayor and Ruth Bader Ginsburg somehow agreed with the lower court’s confused determination that the Constitution requires what it barely tolerates (racial preferences in university admissions).
To quote the conclusion of Justice Antonin Scalia’s concurring opinion, for himself and Justice Clarence Thomas:
As Justice Harlan observed nearly a century ago, “[o]ur Constitution is color-blind, and neither knows nor tolerates classes among citizens.” Plessy v. Ferguson, 163 U. S. 537, 559 (1896) (dissenting opinion). The people of Michigan wish the same for their governing charter. It would be shameful for us to stand in their way.
This case was so easy precisely because it didn’t involve the fraught question of whether states can pursue race-conscious measures in order to achieve (some mythical) diversity. Instead, it was about the democratic process and whether voters can rein in the powers of their state government. The answer to that question, like the answer to the question of whether the Equal Protection Clause mandates racial preferences, is self-evident.
Here’s the full decision, which begins with a plurality opinion by Justice Anthony Kennedy, for himself, the chief justice, and Justice Samuel Alito.
Today, the Supreme Court decided Prado Navarette v. California, a Fourth Amendment search case. The Fourth Amendment limits the government’s power to stop and search people and the question in this case was whether the police overstepped their authority.
Highway patrol pulled over a pick-up truck and the police smelled, and then found, marijuana. The men arrested later challenged the legality of the stop in court. If the stop was illegal, the marijuana would not be admitted into evidence, and the men would probably go free.
The police said the stop was proper. They received an anonymous 911 call from a woman who said a pickup had almost run her off the road. The dispatcher took her information and the description of the truck. The police found a pickup that matched the description, and then followed it for five minutes, and finally pulled it over. Marijuana discovered, men arrested, case starts moving its way thru the courts.
By a 5-4 vote, the Supreme Court upheld the legality of the stop. Interestingly, the case scrambled the usual right-left split among the justices. Justice Breyer joined Thomas, Kennedy, Roberts and Alito for the majority. Justice Scalia joined Ginsburg, Kagan, and Sotomayor in dissent.
Here is an excerpt from Scalia’s dissenting opinion:
The Court’s opinion serves up a freedom-destroying cocktail consisting of two parts patent falsity: (1) that anonymous 911 reports of traffic violations are reliable so long as they correctly identify a car and its location, and
(2) that a single instance of careless or reckless driving necessarily supports a reasonable suspicion of drunkenness. All the malevolent 911 caller need do is assert a traffic violation, and the targeted car will be stopped, forcibly if necessary, by the police. If the driver turns out not to be drunk (which will almost always be the case), the caller need fear no consequences, even if 911 knows his identity. After all, he never alleged drunkenness, but merely called in a traffic violation—and on that point his word is as good as his victim’s.
Drunken driving is a serious matter, but so is the loss of our freedom to come and go as we please without police interference. To prevent and detect murder we do not allow searches without probable cause or targeted Terry stops without reasonable suspicion. We should not do so for drunken driving either. After today’s opinion all of us on the road, and not just drug dealers, are at risk of having our freedom of movement curtailed on suspicion of drunkenness, based upon a phone tip, true or false, of a single instance of careless driving.
Although the Middle East is most known for religious conflict, sectarian violence is spreading ominously across Africa. The only good news is that so far the conflicts appear to be national rather than regional.
Sudan long has suffered from a complicated religious-ethnic conflict. In Mali France was drawn into a religious-infused civil war. Nigeria is a divided nation where long-standing sectarian antagonisms increasingly have been amplified by the Islamic terrorist group Boko Haram.
Thankfully, fighting in the first two has ebbed. Nigeria’s battle remains intense, but contained within its national boundaries.
As I warn in the New York Times: “However, rising violence within the Central African Republic (CAR) threatens to swamp the other conflicts in regional impact. Attacks on Christians following a takeover by the rebel Islamic Seleka coalition triggered retaliation by Christian militias. Not only is the violence creating a host of angry victims, but the outward flow of refugees is planting seeds of conflict in surrounding nations.”
Of course, addressing even largely distinct national conflicts is not easy, as we have seen in Sudan and Nigeria. Unfortunately, religion is one force capable of transcending normal political and ethnic differences. The exodus from CAR creates an increased possibility of cooperation among various militants acting as friends if not quite allies.
All of CAR’s neighbors share an interest in ending the sectarian killing. Not just for humanitarian reasons, but also as a matter of basic self-interest.
The summer driving season is still weeks away, but rising U.S. gas prices are already back in the news. Last week, the average price for regular gasoline at U.S. gas stations hit $3.6918 a gallon – the highest since March 22, 2013 and up 43 cents this year. Much of this price depends on global supply and demand, but certainly not all of it. In fact, two archaic, little-known U.S. policies – vigorously defended by the well-connected interest groups who benefit from them – restrict free trade in petroleum products and, as a result, force American consumers to pay considerably more at the pump.
First, the Jones Act - a 94-year-old law that requires all domestic seaborne trade to be shipped on U.S.-crewed, -owned, flagged and manufactured vessels – prevents cost-effective intrastate shipping of crude oil or refined products. According to Bloomberg, there are only 13 ships that can legally move oil between U.S. ports, and these ships are “booked solid.” As a result, abundant oil supplies in the Gulf Coast region cannot be shipped to other U.S. states with spare refinery capacity. And, even when such vessels are available, the Jones Act makes intrastate crude shipping artificially expensive. According to a 2012 report by the Financial Times, shipping U.S. crude from Texas to Philadelphia cost more than three times as much as shipping the same product on a foreign-flagged vessel to a Canadian refinery, even though the latter route is longer.
It doesn’t take an energy economist to see how the Jones Act’s byzantine protectionism leads to higher prices at the pump for American drivers. According to one recent estimate, revoking the Jones Act would reduce U.S. gasoline prices by as much as 15 cents per gallon “by increasing the supply of ships able to shuttle the fuel between U.S. ports.”
Some of these costs could potentially be mitigated if it weren’t for the second U.S. trade policy inflating gas prices: restrictions on crude oil exports. As I wrote for Cato last year, current U.S. law – implemented in the 1970s during a bygone era of energy scarcity and dependence – effectively bans the exportation of U.S. crude oil to any country other than Canada. Because U.S. and Canadian refinery capacity is finite, America’s newfound energy abundance has led to a glut of domestic oil and caused domestic crude oil prices (West Texas Intermediate and Louisiana Light Sweet) to drop well below their global (Brent) counterpart. One might think that this price divergence would mean lower U.S. gas prices, but such thinking fails to understand that U.S. gasoline exports may be freely exported, and that gasoline prices are set on global markets based on Brent crude prices. As a result, several recent analyses – including ones by Citigroup [$], Resources for the Future and the American Petroleum Institute - have found that liberalization of U.S. crude oil exports would lower, not raise, gas prices by as much as 7 cents per gallon.
Thus, the Jones Act and the crude oil export ban – each implemented decades ago – together inflate U.S. gasoline prices by as much as 0.22 per gallon – or about 6% of the current price at your local gas station. Not everyone in the United States, however, is harmed. In the case of the Jones Act, the American shipping unions and shipbuilders that benefit from the law have long opposed any type of reforms, regardless of the pains imposed on the American economy and U.S. consumers. The crude oil export restrictions, on the other hand, have found new support from a small group of U.S. refiners who profit handsomely from depressed domestic crude prices and the lack of any legal limits on their exports. As is always the case with protectionism, these groups win and U.S. consumers lose.
Given this political dynamic, reform of either law appears unlikely in the near future, regardless of how dramatically the U.S. trade and energy landscape has changed since the laws were imposed. So the next time you fill up the tank, note that about 6 percent of your bill pads the bottom lines of a few well-connected cronies.
Marian L. Tupy
To paraphrase Lord Peter Bauer, the first recipient of the Milton Friedman prize, each child comes to this world not only with an empty belly, but also with a brain. Put differently, people are not parasites living off finite resources (though exception needs to be made in the case of most politicians and bureaucrats). They are discoverers and innovators, who look for ways to achieve more with less. They are the creators of wealth and drivers of human progress.
As a reminder of human ingenuity, consider that a Chinese company was able use a massive 3-D printer to print 10 houses in 24 hours at the cost of $4,800 per house.
Let’s put that in perspective. There are 30 million people in Afghanistan, or 7.5 million families of four. At a cost of $4,800 per house (expect the cost to drop significantly over the next few years), it would cost $36 billion to build all Afghani families a new house. The current foreign aid to Afghanistan is $6.7 billion, which means that – using foreign aid money alone – it would take 5.4 years to have each Afghani family housed in a brand new Chinese-made home.
Will it happen? Probably not, since most of the foreign aid money to Afghanistan is devoured by parasitic government officials.
The United States is busy in the world, but no function seems more important than acting as the world’s universal comforter, constantly “reassuring” friends and allies no matter the location.
For instance, after Russia’s annexation of Crimea, the administration undertook what Secretary of State John Kerry termed “concrete steps to reassure our NATO allies.” The Military Times reported that Washington dispatched aircraft “to reassure NATO partners that border Russia.”
The process continues. The Wall Street Journal entitled an article “U.S. Tries to Help Ukraine, Reassure Allies Without Riling Russia.” Gen. Philip Breedlove said the transatlantic alliance would maintain new security measures throughout the year “to assure our allies of our complete commitment.”
Beijing’s assertiveness has resulted in another gaggle of friendly states clamoring for reassurance. Defense Secretary Chuck Hagel visited Asia in early April; the Washington Post reported that he sought “to reassure allies in Asia amid questions about U.S. commitment.” The president headed to Asia in mid-April, explained Voice of America, “in a bid to reassure allies in the region.”
As I point out in my new Forbes online column: “Washington’s obligation always is to give. The U.S. not only is supposed to guarantee the security of assorted friends and allies. It also must constantly reassure them. Americans must not only be prepared to die for anyone and everyone who wants protection, but Americans must always and in every way demonstrate that willingness.”
It’s a bizarre policy. First, the overriding responsibility of Washington officials is to safeguard America—its people, territory, constitutional liberties, and prosperity. The Department of Defense is not a charity created to protect the world, subsidize the improvident, calm the nervous, or save the indifferent.
Second, America’s broader foreign policies should be directed at advancing the interests of Americans. The national government is the agent of those who fund, staff, and support it, the American people. Their welfare is primary. Washington should look after their interests, not those of some imaginary “international community” that exists only in the minds of social engineers who desire to escape even minimal national restraints.
Moreover, the tendency of political organizations to live out Lord Acton’s famous warning that “power tends to corrupt and absolute power corrupts absolutely” requires the U.S. government to build limits into its own institutions and especially those beyond its borders.
The notion that America has an obligation to constantly “reassure” others is particularly pernicious when applied to the military. Washington’s principal obligation is to protect the American people, not those who desire to be defended by the world’s greatest military power.
There are occasions when it is in America’s interest to aid other states, but only rarely. Today Washington collects allies like most people accumulate Facebook friends.
Unfortunately, almost all U.S. allies expect to be defended by America rather than to help defend America. Some contribute small troop contingents to Washington’s unnecessary wars elsewhere, such as in Iraq, but that is not worth promising to face down nuclear-armed Russia on their behalf.
One of the worst consequences of America’s defense guarantees is discouraging prosperous and populous states from defending themselves. Europe has eight times Russia’s GDP—why is it relying on America at all?
Similarly, why is Japan, a wealthy state which until recently had the world’s second largest economy, expecting Washington’s help to assert control over contested islands? Why does South Korea, with 40 times the GDP of North Korea, presume the U.S. will forever maintain military forces in the peninsula?
Now Washington is sending Cabinet secretaries and military forces hither and yon to “reassure” these same nations that it will continue to subsidize their defense. Why should governments in Asia and Europe inconvenience their peoples when Washington is willing to burden Americans to pay for everyone’s defense?
It is time for Washington to start reassuring Americans.
Does restricting access to alcohol reduce traffic accidents? Not necessarily, according to a recent study by economists from the University of Lancaster:
Recent legislation liberalised closing times with the object of reducing social problems thought associated with drinking to “beat the clock.” Indeed, we show that one consequence of this liberalization was a decrease in traffic accidents. This decrease is concentrated heavily among younger drivers. Moreover, we provide evidence that the effect was most pronounced in the hours of the week directly affected by the liberalization; late nights and early mornings on weekends.
The authors also suggest that the restrictive closing times caused more traffic congestion (everyone left the pubs at the same time), increasing the scope for accidents.
So more freedom seems to generate better outcomes, presumably because most people use increased freedom sensibly.
The battle between Nevada rancher Cliven Bundy and the Bureau of Land Management (BLM) might be viewed as an overly aggressive federal bureaucracy enforcing misguided environmental regulations vs. an oppressed individual and his overly enthusiastic supporters with guns.
However, like the ongoing battles in California between farmers and environmentalists over water, the Nevada story is more complex than that. The issues are not divided neatly along left-right political lines. In both cases, the property rights issues are complicated, and the federal government has long subsidized the use of land and water resources in the West. The first step toward a permanent solution in both cases is to revive federalism. That is, to transfer federal assets to state governments and the private sector.
To understand the Nevada situation, it is useful to consider the history of federal land ownership in the West. From an essay by Randal O’Toole and myself:
“From the founding of the nation, the federal government began accumulating large tracts of land … As the federal government was accumulating land, it was also trying to unload it. The government’s general policy for more than a century was to sell or transfer its western lands to settlers, railroad companies, and state governments … With the rise of the Progressive movement at the turn of the 20th century, federal policy began to change toward land retention and land additions. Progressives believed that federal agencies would manage western lands better than states, businesses, or individuals.”
It turned out that the Progressives were dead wrong. In his book Public Lands and Private Rights, Robert H. Nelson describes how the Progressive ideas of scientific management and federal land planning have failed repeatedly. The last century of federal land management has been “filled with laws that had lofty purposes and achieved dismal results,” he concludes. He also notes that “federal ownership of vast areas of western land is an anomaly in the American system of private enterprise and decentralized government authority.” Federal policymakers should start fixing that anomaly.
The BLM faces a complex task in juggling all the competing uses of its timberlands, rangelands, minerals, watersheds, wildlife, water, and other resources located across a huge area. Livestock grazing, timber cutting, and mineral extraction all potentially conflict with wildlife habitat, watershed protection, and outdoor recreation.
The situation is made worse by BLM officials operating in a nonmarket environment. Essentially, they run a giant socialist enterprise in trying to centrally plan vast lands and resources. The decisions the agency makes are often infuriating to Westerners because they are made by unaccountable officials on the other side of the country.
The solution is to transfer most federal lands in Nevada to the State of Nevada. Charges for the use of the land—such as grazing fees—should be set in the marketplace. Where feasible, environmentally significant land should be owned and managed by private non-profit land trusts, as discussed here. But these sorts of decisions should be made by the Nevada legislature. Politicians in Washington lack the knowledge to make the crucial land-use decisions that affect the lives of people such as Cliven Bundy, and they are far too distracted with all the other issues on the federal agenda.
I’ve got a piece just up at the Daily Caller, drawing on two brief stories earlier today that capture nicely the growing intolerance of the Left for people and groups holding views with which they disagree. One arises from a decision by Yale’s Social Justice Network (SJN) of Dwight Hall to deny membership to the school’s Choose Life at Yale (CLAY) group. The second concerns a proposed ban on judges affiliated with the Boy Scouts in California. Both illustrate how a bedrock American principle, freedom of association, is increasingly being gutted by the Left’s anti-discrimination agenda.
The Yale case is straightforward. As blogger Katherine Timpf writes, although CLAY was provisionally admitted to the network over the past year, during which its members did voluntary work with a local non-profit organization helping pregnant women, CLAY was voted out last week because, said the chair of the Yale chapter of the ACLU (itself a member), admitting CLAY would “divert funds away from groups that do important work pursuing actual social justice.”
That’s par for the course on today’s campuses. It’s training for the real world, as seen in the California case. Here, blogger Patrick Howley writes:
The California Supreme Court Advisory Committee on The Code of Judicial Ethics has proposed to classify the Boy Scouts as practicing “invidious discrimination” against gays, which would end the group’s exemption to anti-discriminatory ethics rules and would prohibit judges from being affiliated with the group.
Such a change in status could not be limited to the Boy Scouts, of course, but it’s a good start. That point was made in a letter to the committee from Catherine Short, legal director of the pro-life group Life Legal Defense Foundation. The Girl Scouts, numerous pro-life and religious groups, even the military practice “discrimination” of one kind or another, she wrote.
Years ago, when I was a scout leader as my son was growing up, I read a lengthy insert in the handbook meant for leaders. It concerned sexual exploitation and the need for scout leaders to take it seriously, prompted doubtless by experience. Given the nature of scouting activities, often isolated in the wild, and the need to assure both boys and their parents concerning the potential for abuse, even if the BSA had never taken an express position on sexual orientation, its decision to disallow gay scout leaders would not be gratuitous.
Go to the Daily Caller piece for a fuller discussion of the principles at stake here and a glimpse at how the distinction between private and public and the further distinction between reasonable and unreasonable discrimination are being undermined by a political agenda that has the freedom of private association as its ultimate target.
Federal Judge Jed Rakoff:
“The criminal justice system is nothing like you see on TV — it has become a system of plea bargaining,” Rakoff said.
Today, only 2 percent of cases in the federal system go to trial, and 4 percent of cases in the state system go before a jury. As a result, accepting a deal from prosecutors — despite one’s guilt or innocence — has become a common choice for individuals accused of a crime.
“Plea bargains have led many innocent people to take a deal,” Rakoff said. “People accused of crimes are often offered five years by prosecutors or face 20 to 30 years if they go to trial. … The prosecutor has the information, he has all the chips … and the defense lawyer has very, very little to work with. So it’s a system of prosecutor power and prosecutor discretion. I saw it in real life [as a criminal defense attorney], and I also know it in my work as a judge today” …
Until extraordinary action is taken, Rakoff said little will change.
“We have hundreds, or thousands, or even tens of thousands of innocent people who are in prison, right now, for crimes they never committed because they were coerced into pleading guilty. There’s got to be a way to limit this.”
For related Cato work, go here.
One of the several failures of the Articles of Confederation was the incapacity of the central government to deal with trade disputes among the states. The Constitution resolved this problem by empowering the federal government to regulate interstate commerce. It has since become a basic principle of American federalism that a state may not regulate actions in other states or impede the interstate flow of goods based on out-of-state conduct (rather than on the features of the goods themselves).
That principle was axiomatic until the U.S. Court of Appeals for the Ninth Circuit upheld one particular extra-territorial California regulation. California recently established a Low Carbon Fuel Standard (“LCFS”) that attempts to rate the “carbon intensity” of liquid fuels, so that carbon emissions can be reduced in the Golden State. California considers not only the carbon emissions from the fuel itself being burnt, however, but also the entire “lifetime” of the fuel, including its manufacture and transportation.
This has led to complaints from Midwestern ethanol producers, whose product—which is in all other ways identical to California-produced ethanol—being severely disadvantaged in California’s liquid fuel markets, simply because it comes from further away. Groups representing farmers and fuel manufacturers sued, arguing that the LCFS constitutes a clear violation of the Commerce Clause (the Article I federal power to regulate interstate commerce) by discriminating against interstate commerce and allowing California to regulate conduct occurring wholly outside of its borders. The Ninth Circuit recently upheld the LCFS, finding the regulation permissible because its purpose was primarily environmental and not economic protectionism (although judges dissenting from the court’s denial of rehearing pointed out that this is the wrong standard to apply).
The farmers and fuel manufacturer groups have now submitted a petition to have their case heard by the Supreme Court. Cato has joined the Pacific Legal Foundation, National Federation of Independent Business, Reason Foundation, California Manufacturers & Technology Association, and the Energy & Environmental Legal Institute on an amicus brief supporting the petition.
We argue that the lower court’s ruling provides a template for other states to follow should they want to evade Supreme Court precedents barring obstruction of interstate commerce and extraterritorial regulation. As the Founders fully recognized, ensuring the free flow of commerce among the states is vital to the wellbeing of the nation, and California’s actions—and the Ninth Circuit’s endorsement of them—threaten to clog up that flow. Not only does the appellate ruling allow California to throw national fuel markets into disarray, it invites other states to destabilize interstate markets and incite domestic trade disputes—precisely the type of uncooperative behavior the Constitution was designed to prevent.
The Supreme Court will likely decide whether to take Rocky Mountain Farmers Union v. Corey before it recesses for the summer. For more on the case, see this blogpost by PLF’s Tony Francois.
This blogpost was co-authored by Cato legal associate Julio Colomba.
Should Companies Do What’s Best for Government, or Should They Do What’s Best for Workers, Consumers, and Shareholders?
Daniel J. Mitchell
I’m in favor of free markets. That means I’m sometimes on the same side as big business, but it also means that I’m often very critical of big business. That’s because large companies are largely amoral. Depending on the issue, they may be on the side of the angels, such as when they resist bad government policies such as higher tax rates and increased red tape. But many of those same companies will then turn around and try to manipulate the system for subsidies, protectionism, and corrupt tax loopholes.
Today, I’m going to defend big business. That’s because we have a controversy about whether a company has the legal and moral right to protect itself from bad tax policy. We’re dealing specifically with a drugstore chain that has merged with a similar company based in Switzerland, which raises the question of whether the expanded company should be domiciled in the United States or overseas.
Here’s some of what I wrote on this issue for yesterday’s Chicago Tribune.
Should Walgreen move? …Many shareholders want a “corporate inversion” with the company based in Europe, possibly Switzerland. …if the combined company were based in Switzerland and got out from under America’s misguided tax system, the firm’s tax burden would drop, and UBS analysts predict that earnings per share would jump by 75 percent. That’s a plus for shareholders, of course, but also good for employees and consumers.
Folks on the left, though, are upset about this potential move, implying that this would be an example of corporate tax cheating. But they either don’t know what they’re talking about or they’re prevaricating.
Some think this would allow Walgreen to avoid paying tax on American profits to Uncle Sam. This is not true. All companies, whether domiciled in America or elsewhere, pay tax to the IRS on income earned in the U.S.
The benefit of “inverting” basically revolves around the taxation of income earned in other nations.
But there is a big tax advantage if Walgreen becomes a Swiss company. The U.S. imposes “worldwide taxation,” which means American-based companies not only pay tax on income earned at home but also are subject to tax on income earned overseas. Most other nations, including Switzerland, use “territorial taxation,” which is the common-sense approach of only taxing income earned inside national borders. The bottom line is that Walgreen, if it becomes a Swiss company, no longer would have to pay tax to the IRS on income that is earned in other nations.
It’s worth noting, by the way, that all major pro-growth tax reforms (such as the flat tax) would replace worldwide taxation with territorial taxation. So Walgreen wouldn’t have any incentive to redomicile in Switzerland if America had the right policy. And this is why I’ve defended Google and Apple when they’ve been attacked for not coughing up more money to the IRS on their foreign-source income. But I don’t think this fight is really about the details of corporate tax policy.
Some people think that taxpayers in the economy’s productive sector should be treated as milk cows that exist solely to feed the Washington spending machine.
…ideologues on the left, even the ones who understand that the company would comply with tax laws, are upset that Walgreen is considering this shift. They think companies have a moral obligation to pay more tax than required. This is a bizarre mentality. It assumes not only that we should voluntarily pay extra tax but also that society will be better off if more money is transferred from the productive sector of the economy to politicians.
Needless to say, I have a solution to this controversy.
…the real lesson is that politicians in Washington should lower the corporate tax rate and reform the code so that America no longer is an unfriendly home for multinational firms.
For more information, here’s the video I narrated on “deferral,” which is a policy that mitigates America’s misguided policy of worldwide taxation.President Obama’s Deferral Proposal: Hamstringing American Companies, Reducing American Jobs
P.S. Many other companies already have re-domiciled overseas because the internal revenue code is so punitive. The U.S. tax system is so bad that companies even escape to Canada and the United Kingdom!
P.P.S. It also would be a good idea to lower America’s anti-competitive corporate tax rate.
Michael D. Tanner
Last week, the New York Times reported that the Census Bureau would be significantly changing the questions and methods it uses to determine who has health insurance. The redesign is an attempt to address some of the flaws in the current design that have long troubled the agency. A working paper from the Census Bureau had found that it provided an “inflated estimate of the uninsured” and was prone to “measurement errors” that diminished the reliability and usefulness of the measure.
The timing of this change could hardly be worse. The massive coverage provisions of the health care reform have just taken effect, and these new changes could make comparisons to past years difficult, or meaningless. Another document from the agency explains that the questions would elicit such different responses that “it is likely the Census Bureau will decide that there is a break in the series for the health insurance estimates.”
As the Times reports, the differences in responses between the two sets of questions are significant; in a trial run last year, the percentage of people without health insurance was 10.6 percent with the new questionnaire, compared with 12.5 percent using the old version, with similar effects across all demographic groups.
Some defenders of the decision have pointed out that these new questions will also give data for 2013, so there will be at least one year of pre-ACA data to compare to. This is true, and having at least one data point will be helpful to some extent, but what we really want to evaluate when analyzing the law would be the longer term trend, for two reasons. One, there is a decent amount of variation in these surveys that make single data points less informative. Two, while the major coverage provisions of the law take effect in 2014, the law has already been influencing the insurance market in smaller ways since its passage, and more than half of the reduction in the uninsured will occur after 2014, according to the Congressional Budget Office. This is why having a stable baseline would be useful, so we could examine the longer term trends in insurance coverage, and why now is close to the worst time to incorporate this change. The Census Bureau acknowledged as much in a paper, admitting that “[i]deally, the redesign would have had at least a few years to gather base line and trend data.”
Some critics of the law have voiced some suspicion as to possible political motivations for the timing of this change, seeing it as an attempt to obscure the effects of the law and make it harder to get reliable estimates. They cite the fact that some of the new questions were requested by the administration, and that senior officials had knowledge and approved of these pending changes.
I do not think conspiracy is the answer, but the real reason for this Census change is just as troubling, if not more so: incompetence.
The sheer amount of negative attention that these planned changes have gotten likely outweighs whatever political gains the administration could have hoped to capture in the first place. Aside from that, there are numerous other organizations, like Gallup, that measure health insurance coverage, so skeptics of the law will have other sources of data to turn to. If anything, it would appear that the White House was trying too hard to make sure they did not appear to be meddling in the affairs of the Census Bureau, which had unwisely planned to roll out these changes at an inopportune moment. Why this change was the line in the sand that the administration dared not cross when it has shown no such restraint in delaying many aspects of the law itself, such as the employer mandate, is hard to comprehend, but paints a picture more of an administration flailing to put out fires as they arise, rather than one even capable of pulling of the long term planning and coordination required for such a scheme.
While it appears the administration could have intervened and delayed the rollout of the new questions, they were not the driving force behind the changes. If anything, this was a mistake of what they chose not to do, rather than what they did.
These problems of coordination and competence within the government, where one government agency appears to be proceeding along with little to no regard or understanding for the broader context in which it operates, is in some ways more troubling, especially when we are talking about the massive new government foray into a sector that consumes almost 18 percent of our economy.
If they cannot even coordinate the measurement of health insurance effectively, how can they implement the law itself?
The administration has a chance to partially remedy their mistake. Republicans in both chambers have already introduced legislation to either delay the new questions or to use both sets concurrently for the next few years to establish a better baseline to look at the effects of the law on health insurance coverage.
Government, as inefficient and incompetent as it often is, can sometimes make honest mistakes, which I think this likely is; however, these mistakes should raise serious concerns about government’s abilities as it seeks to spread into even more aspects of the economy and our lives.
In an attempt to prove that Virginia is indeed for lovers, two couples have recently gone to federal court to get their marriages recognized in their home state. One of the couples has been together for more than 20 years and the other got married in California and have a teenage daughter together, yet the Commonwealth of Virginia will not recognize their marriages because the couples are—you guessed it—same-sex.
These couples don’t see why their sexual orientation should keep them from enjoying the equal right to marry a partner of their choice, so they filed suit in federal district court to challenge the Virginia’s anti-gay-marriage state constitutional amendment. They argued that the provision violates both equal protection and the fundamental right to marriage, as protected by the Fourteenth Amendment. This February, the district court agreed with them, and now they’re defending that ruling before the U.S. Court of Appeals for the Fourth Circuit.
Following on the heels of last term’s Supreme Court ruling in United States v. Windsor—which struck down the part of the Defense of Marriage Act that denied federal benefits to lawfully married same-sex couples—this case adds Virginia to the list of states (which now includes Utah, Oklahoma, Texas, Kentucky, Michigan, and Ohio, and seems to grow with each passing week) that have the constitutionality of their marriage laws before a federal appeals court.
Reprising our collaboration in Perry v. Hollingsworth—the California Prop 8 case in which the Supreme Court avoided ruling on the merits—and the Tenth Circuit gay marriage cases Kitchen v. Herbert and Bishop v. Smith, Cato and the Constitutional Accountability Center have filed a brief supporting the plaintiffs’ fight for equality under the law in the Old Dominion. We argue that the Fourteenth Amendment’s Equal Protection Clause protects against the arbitrary and invidious singling-out that the Virginia gay marriage ban effects, that the clause’s original meaning confirms that its protections are to be interpreted broadly, and that the clause provides every person the equal right to marry a person of his or her choice.
We believe that the Virginia constitutional amendment conflicts with the equal rights of those same-sex couples whose unions are treated differently than those of opposite-sex couples. To the extent that states recognize marriage, every person has the right to choose whom to marry and to have that decision respected equally by the state in which they live.
Especially in the wake of Windsor, it is becoming clearer that laws that force same-sex unions into second-class status have no place in a free society. After the Fourth Circuit hears argument in Bostic v. Rainey later this spring, it should affirm the district court’s decision.
Ilya Shapiro and Trevor Burrus
Remember broadcast television? Amid the avalanche of new streaming services, DVRs, and Rokus, not to mention cable TV, some people may have forgotten—or, if they’re under 25, never known—that there are TV shows in the air that can be captured with an antenna. The Supreme Court certainly hasn’t forgotten, given that it maintains an outdated rule that broadcast TV gets less First Amendment protection than cable, video-on-demand, or almost anything else–a rule dating to the 1969 case of Red Lion Broadcasting Co. v. FCC.
That lower standard of protection comes from the belief that the broadcast-frequency spectrum is scarce, and thus that the Federal Communications Commission is properly charged with licensing the spectrum for the public “interest, convenience, and necessity.” But if newspapers or magazines were similarly licensed, the First Amendment violation would be obvious to all but the most hardened censor.
Hence the case of Minority Television Project v. FCC. Minority Television Project is an independent, noncommercial license-holding TV station in San Francisco. Unlike most noncommercial license holders, Minority TV receives no PBS money. Because it’s an over-the-air broadcaster, however, it must comply with the restrictions placed on the licenses by Congress and the FCC, including prohibitions on paid commercials and political ads. Minority TV challenged these restrictions as violating the First Amendment.
Applying Red Lion’s lower First Amendment standard, the district court, a panel of the U.S. Court of Appeals for the Ninth Circuit, and even the en banc Ninth Circuit (11 judges rather than the usual 3) all ruled against Minority TV. On petition for certiorari to the Supreme Court, Minority TV argues that Red Lion’s rationale for reducing broadcasters’ rights is outdated and should be overruled.
Cato has filed an amicus brief in support of Minority TV, agreeing that it’s time to give broadcast TV full First Amendment protection. Just as we argued in 2011’s FCC v. Fox Television Stations—where the Court chose to evade the question—it’s time to update our law to fit current realities. The way that people consume information and entertainment has changed dramatically since 1969. Rather than three broadcast networks, we have hundreds of channels of various kinds, and increasingly people are forgoing traditional TV altogether. The FCC can still license broadcasters—that system isn’t going away anytime soon regardless of the next mind-boggling innovation—but the conditions it places on those licenses have to satisfy strict First Amendment scrutiny, especially when they pertain to political speech.
The Supreme Court should take this case in order to update its treatment of broadcasters’ speech rights, including a requirement that the government offer a truly compelling justification any time it wants to restrict them.
This week, the U.S. Patent and Trademark Office and the National Telecommunications and Information Administration announced four upcoming hearings on issues raised in the Department of Commerce Internet Policy Task Force’s July 2013 paper, “Copyright Policy, Creativity, and Innovation in the Digital Economy.” The hearings will be held in or near Nashville, Boston, Los Angeles, and San Francisco in May, June, and July.
Cato will host its own hearing early next month on Tom W. Bell’s new book Intellectual Privilege. That event will occur May 7th at the Cato Institute in Washington, D.C.
In the book, Bell treats copyright as a statutory privilege that threatens not just constitutional rights, but natural rights, too. He argues for a new libertarian view of copyright that reconciles the desire to create incentives for creators with our inalienable liberties. Bell’s vision is of a world less encumbered by legal restrictions and yet richer in art, music, and other expressive works.
Register now for what is sure to be a lively discussion of this perennially interesting issue on May 7th!
It seems every week or two another federal agency gets smacked down in court for trampling the rights of regulated parties in enforcement litigation. This week it’s the Labor Department’s turn:
The U.S. Department of Labor must pay more than $565,000 in attorney fees to an oilfield services company it accused of wage-and-hour violations totaling more than $6 million, a federal judge has ruled….
Officials, who opened their investigation in 2010, alleged the business [Texas-based Gate Guard Services, LLC] improperly classified 400 gate attendants as independent contractors.
The agency would have learned that the guards weren’t employees had it talked to more than just a few of them, [federal judge John] Rainey wrote in a 24-page order. Because the probe was not “substantially justified,” Gate Guard was entitled to recover its attorney fees, he said.
“The DOL failed to act in a reasonable manner both before and during the course of this litigation,” Rainey wrote.
Goaded by labor unions and other interested parties, the Obama Labor Department has made wage-and-hour law a big priority, with the President himself pushing the law into new ways of overriding private contractual choice. As for the overzealous enforcement, it’s coming to look less like inadvertence and more like systematic Administration policy. Last year we noted an Eleventh Circuit decision rebuffing as “absurd” a Labor Department claim of authority regarding the H-2B guest worker program. The pattern extends to agency after agency, from the EPA (ordered to pay a Louisiana plant manager $1.7 million on a claim that hardly ever succeeds for defendants, malicious prosecution), to white-collar enforcement, to a series of Justice Department prosecutions under the Foreign Corrupt Practices Act.
Probably the agency to suffer the most humiliating reversals is the Equal Employment Opportunity Commission, nominally independent but in fact reshaped in recent years into a hyperactive version of its already problematic self. You can read here about some of the beatings the EEOC has taken in court in recent years, including a case last summer where the federal judge dismissed the commission’s lawsuit over a Maryland company’s use of criminal and credit background checks using words like “laughable,” “unreliable,” and “mind-boggling.” And just last week, as reported in this space, the Sixth Circuit memorably slapped around the commission’s amateurish use of expert testimony in another credit-check case, this time against the Kaplan education firm. As I noted at Overlawyered:
The Sixth Circuit has actually been one of the EEOC’s better circuits in recent years. For example, it reversed a Michigan federal judge who in 2011 had awarded $2.6 million in attorneys’ fees to Cintas, the employee-uniform company, and reinstated the lawsuit. In doing so, the appellate panel nullified what had been the lower court’s findings of “egregious and unreasonable conduct” by the agency, including a “reckless sue first, ask questions later strategy.” The commission hailed the reversal as one of its big legal wins — although when one of your big boasts is getting $2.6 million in sanctions against you thrown out, it might be that you don’t have much to brag about….
If you wonder why the commission persists in its extreme aggressiveness anyway, one answer may be that the strategy works: most defendants settle, and the commission hauled in a record $372 million in settlements last year.
Perhaps it is time for defendants to start settling less often.