Archive for August, 2010
Privacy-Protective Incentives and the Corporation
Many privacy advocates take corporate mendacity as a premise. From there, it’s easy to reach the conclusion that companies won’t protect privacy. For these privacy advocates, the fight for privacy is a fight against business.
In a sense, their conclusion about corporate behavior is true. Businesses won’t protect privacy beyond what they perceive consumers to want—doing so would just give away profits. Businesses will protect privacy when it’s a consumer demand they’ve promised to fulfill. Companies and their executives take considerable risks when they fail to meet that demand.
The exceptions are what get noticed, and Prudence Chan is an example for others to learn from. She was the head of Hong Kong cashless payment operator Octopus Holdings Ltd. until she resigned this week. Under her watch, the company sold data about users of the system for marketing purposes. Octopus will forfeit to charity the money it made on the sales. (Should be given to the affected users, but anyway…)
Hong Kong is debating whether its legal privacy protections are sufficient. But privacy officers and executives in companies around the world are looking at this story and considering how they would tolerate losing their jobs, status, and reputations. Their self-interest will drive them to protect privacy as demanded by their customers.
Sure, it might be nice for them to do it out of altruism or kindliness, but the result is the same.
The State of Social Security: Maybe a Little Better, Maybe a Little Worse?
The Social Security Trustees released their annual report yesterday, showing a small improvement in the system’s finances over the long-term. That’s rather surprising given that the recent recession has reduced the program’s revenues and brought forward the date when the program begins to drain money from the general budget — from 2016 last year to 2015 in the new report. The Trust Fund exhaustion date is 2037, the same as it was in last year’s report.
The new health care law is likely to increase the program’s revenues as employers reduce payroll-tax-free health insurance coverage and offset the reduction in employee compensation through higher wages that would be subject to payroll taxes. This sets up a competition between the health care law–induced increase in Social Security revenues and declines in revenues and increases in outlays for other reasons — a sluggish economy, improving longevity, the addition of another year at the end of the 75-year projection horizon, and changes in economic and demographic data, assumptions, and methods.
The positive revenue effect of the health care law (14 basis points) more than offsets the negative effects of all of the other factors (6 basis points) on the system’s long-range actuarial balance. That yields a total improvement of the program’s actuarial balance from –2.00 percent of taxable payroll to –1.92 percent. In next year’s report, however, this year’s “legislative” effects may be folded into changes from technical adjustments and incoming data. We may never know whether today’s assumptions on the revenue effects of the health care law are correct or not.
It could be that those assumptions are too large, especially if Congress postpones the tax on Cadillac health care plans because of pressure from unions. It could also be too small if many employers decide to eliminate health insurance coverage and opt to pay the less costly penalty. On balance, I’ve concluded that, faced with such wide uncertainty about future outcomes, the Social Security trustees have chosen to be relatively conservative in their estimates of the health care law’s revenue effect.
Another curious item is that the program’s long-range imbalance increased from $15.1 trillion to $16.1 trillion. However, the report states that “the near-term negative effects on employment of the slightly deeper recession than assumed last year are offset by higher than expected real growth in the average earnings level” (Section D: Projections of Future Financial Status). As a result, the program’s total (infinite-horizon) imbalance ratio declines from 3.4 percent in 2009 to 3.3 percent today.
Note that a deeper recession and higher unemployment than was assumed last year does not necessarily justify a correspondingly faster recovery, with unchanged long-term equilibrium unemployment and earnings growth rates. The trustees are discounting the possibility that the unemployment rate may remain higher than was assumed last year and that, therefore, earnings may not rebound any faster compared to last year’s assumptions. It appears that that incoming data on unemployment and GDP growth played little if any role in informing assumptions about future earnings growth rates.
Finally, it should be noted that this year there were no public trustees to oversee and modulate the report as it was being produced.
Maryland Attorney General Sides with Anthony Graber
You may remember the case of Anthony Graber, the Maryland motorcyclist charged with violating the state’s wiretapping statute for recording his traffic stop and posting it on YouTube. I’ve said several times over the last few months that these charges are based on a misreading of the law; minus a “reasonable expectation of privacy,” recording an oral communication does not violate the wiretapping statute.
As it turns out, the Maryland Attorney General agrees.
The Maryland Attorney General has released an opinion advising a state legislator that, contrary to the claims of Harford County State’s Attorney Joseph Cassilly, a traffic stop is probably not an instance where a police officer can claim a reasonable expectation of privacy.
The AG’s opinion provides a thorough survey of Maryland’s and other states’ decisions on the issue, giving three possible interpretations of the wiretap statute as applied to a citizen recording a traffic stop.
First, a court might agree with the theory that police encounters are private conversations, but the AG found that this “seems an unlikely conclusion … particularly when they occur in a public place and involve the exercise of police powers.” That sounds familiar.
Second, a court might conclude that the Maryland statute forbids only the surreptitious recording of a police stop. The opinion deems this an unlikely outcome due to differences between the language of the Maryland law and the wiretapping statutes of Massachusetts and Illinois.
The opinion settles on its third possible outcome, agreeing with what I, Radley Balko, Carlos Miller, the Maryland ACLU, the Maryland courts, other Maryland State’s Attorneys, and the Maryland Attorney General’s previous opinions have said: the Maryland wiretap statute does not permit the prosecution of citizens for recording the actions of public officials in public places.
Graber’s court date is set for October. The AG’s opinion should halt his prosecution and further abuse of the Maryland wiretap statute.
Sunlight Before Signing—Pre-Posting Is Not OK
A regular, established practice of posting bills online when they’re sent him by Congress would fulfill President Obama’s Sunlight Before Signing promise, made to roars of applause on the campaign trail. It would allow Americans easy access to the most important part of what Congress and the president do.
But posting bills before Congress passes them, getting a jump on the five days of public review the president promised, seriously undercuts the value of Sunlight Before Signing.
This morning, Whitehouse.gov is displaying on its pending legislation page a link to “H.R. 1586 – To impose an additional tax on bonuses received from certain TARP recipients.” This bill has not been passed by both houses of Congress nor presented to the president.
H.R. 1586 is a “shell bill” that Congress has been batting back and forth, and it has covered various subject matters in its busy life. It indeed started out as a bill to tax the bonuses of executives in TARP-subsidized firms. When it passed the House, though, it had become the “Aviation Safety and Investment Act of 2010.” And this week it was amended in the Senate to contain a potpourri of spending and revenue programs. (WashingtonWatch.com cost estimate: $125 per U.S. family.)
Lets say a high schooler has been assigned by her teacher to monitor the bills President Obama receives from Congress. From the White House’s pending legislation page, she clicks on a link to find a bewildering hodgepodge of bill versions on the Thomas page for the bill. (Click on the image at right to see a screen capture.)
And none of the bill versions has passed Congress! Thomas, the Library of Congress’ legislative tracking service, tells visitors that the last bill listed is most recent. But the current version of the bill is item four of six, referred to as the “XXXXXXAct ofXXXX.” Thanks to Whitehouse.gov, our high schooler is misled into believing that President Obama will soon sign a tax on bonuses given to TARP-slurping executives when in fact a variety of other policies may soon pass.
The promise to post bills online for five days was a simple, common-sense transparency rule. It’s flabbergasting to find that it can’t be carried out in a simple, methodical way to give life to the idea that the people are entitled to oversee the government.
You get a bill from Congress, you post it. You wait five days, you sign it. Promise fulfilled! It’s not rocket science. Pre-posting is not OK.
We Aren’t Exaggerating When We Rail Against Threats to Economic Liberty
Oregon officials told a 7-year-old with a lemonade stand that she needed to obtain a temporary restaurant license or incur a fine.
I’m rendered speechless, but Josh Blackman exploits the “teaching moment”:
If you are generally opposed to any notion of the right to pursue an honest living, ask yourself, why does it bother you so much that this little girl cannot sell lemonade. Then, ask yourself what you think about other regulations that stifle the entrepreneur. This story does not tug on our heart strings simply because she is adorably selling lemonade for 50 cents a cup (suggested price) at a fair. It tugs on our heart strings because the state is unnecessarily clamping down on this little girl’s ability to make some money.
More from Tim Sandefur.
When Keynesians Attack
If I was organized enough to send Christmas cards, I would take Richard Rahn off my list. I do one blog post to call attention to his Washington Times column and it seems like everybody in the world wants to jump down my throat. I already dismissed Paul Krugman’s rant and responded to Ezra Klein’s reasonable criticism. Now it’s time to address Derek Thompson’s critique on the Atlantic‘s site.
At the risk of re-stating someone else’s argument, Thompson’s central theme seems to be that there are many factors that determine economic performance and that it is unwise to make bold pronouncements about Policy A causing Result B. If that’s what Thompson is saying, I very much agree (and if it’s not what he’s trying to say, then I apologize, though I still agree with the sentiment). That’s why I referred to Reagan decreasing the burden of government and Obama increasing the burden of government — I wanted to capture all the policy changes that were taking place, including taxation, spending, monetary policy, regulation, etc. Yes, the flagship policies (tax reduction for Reagan and so-called stimulus for Obama) were important, but other factors obviously are part of the equation.
The biggest caveat, however, is that one should always be reluctant to make sweeping claims about what caused the economy to do X or Y in a given year. Economists are terrible forecasters, and we’re not even very proficient when it comes to hindsight analysis about short-run economic fluctuations. Indeed, the one part of my original post that causes me a bit of regret is that I took the lazy route and inserted an image of the chart from Richard’s column. Excerpting some of his analysis would have been a better approach, particularly since I much prefer to focus on the impact of policies on long-run growth and competitiveness (which is what I did in my New York Post column from earlier this week and also why I’m reluctant to embrace Art Laffer’s warning of major economic problems in 2011).
But a blog post is no fun if you just indicate where you and a critic have common ground, so let me identify four disagreements that I have with Thompson’s post:
(1) To reinforce his warning about making excessive claims about different recessions/recoveries, Thompson pointed out that someone could claim that Reagan’s recovery was associated with the 1982 TEFRA tax hike. I’ve actually run across people who think this is a legitimate argument, so it’s worth taking a moment to explain why it isn’t true.
When analyzing the impact of tax policy changes, it’s important to look at when tax changes were implemented, not when they were enacted (data on annual tax rates available here). Reagan’s Economic Recovery Tax Act was enacted in 1981, but the lower tax rates weren’t fully implemented until 1984. This makes it a bit of a challenge to pinpoint when the economy actually received a net tax cut. The tax burden may have actually increased in 1981, since the parts of the Reagan tax cuts that took effect that year were offset by the impact of bracket creep (the tax code was not indexed to protect against inflation until the mid-1980s). There was a bigger tax rate reduction in 1982, but there was still bracket creep, as well as previously-legislated payroll tax increases (enacted during the Carter years). TEFRA also was enacted in 1982, which largely focused on undoing some of the business tax relief in Reagan’s 1981 plan. People have argued whether the repeal of promised tax relief is the same as a tax increase, but that’s not terribly important for this analysis. What does matter is that the tax burden did not fall much (if at all) in Reagan’s first year and might not have changed too much in 1982.
Kagan’s Confirmation Could Be High-Water Mark for Big Government
Elena Kagan’s confirmation represents a victory for big government and a view of the Constitution as a document whose meaning changes with the times. Based on what we learned the last few months, it is clear that Kagan holds an expansive view of federal power — refusing to identify, for example, any specific actions Congress cannot take under the Commerce Clause. She will rarely be a friend of liberty on the Court.
It is thus telling that Kagan received the fewest votes of any Democratic nominee to the Supreme Court in history, beating the record set only last year by Sonia Sotomayor. Even several senators who had voted for Sotomayor voted against Kagan, including Democrat Ben Nelson — as did Scott Brown, the darling of these high-profile Senate votes.
It was Scott Brown’s election, after all, that signaled that last year’s elections in Virginia and New Jersey were no fluke, that whether people lived in a Red, Blue, or Purple state, they were tired of bailouts, “stimulus,” re-regulation, and, especially, the government takeover of one-sixth of our economy. This anger has only grown since then, making itself felt most recently in Missouri voters’ overwhelming (71-29) rejection of the individual health insurance mandate.
“Where does the government get the constitutional authority to do this?” the cry goes up across the land. Elena Kagan won’t give a satisfactory answer but the American people are right to continue asking.
An Australian Lesson about Capital Gains Tax Rates and Revenues
A decade ago, amid much controversy, I persuaded the Australian government to cut the capital gains tax rate in half.
Stephen Kirchner, an economist from Australia’s leading think tank, the Center for Independent Studies, reviewed the results last November.
This a brief summary:
The introduction of capital gains tax discounts for individuals and funds as part of the 1999 Ralph business tax reforms has received a lot of bad press, but much of this commentary is ill-informed. . . .
Those who called for reform of Australia’s capital gains tax regime 10 years ago argued that the Ralph reforms would likely raise more revenue because of the increased incentive they provided for taxpayers to realise capital gains that would otherwise go untaxed. Supply-side economist Alan Reynolds predicted that the reforms would raise twice as much revenue in the long run. He was right. The capital gains tax share of Commonwealth tax revenue nearly doubled between the introduction of the Ralph reforms and 2006–07. In absolute terms, CGT revenue rose from $4.6 billion in 1998–99 to $17.3 billion in 2006–07. CGT revenue growth has been strongest among individuals, who received the larger discount of 50%, followed by funds, which received a 33% discount. The slowest CGT revenue growth has been from companies, which received no discount.
The data suggest that the Ralph CGT reforms have resulted in more tax revenue through increased realisations of capital gains. They have thus strengthened rather than weakened the ability of the tax system to serve equity objectives. The Ralph reforms demonstrate the basic supply-side insight that lower effective tax rates lead to faster growth in the tax base and tax revenue.
Grigori Rasputin Bailout
Sending billions of federal taxpayer dollars to teachers and other public school employees is the bailout that just won’t die. It’s been sliced, shot up in a firefight between Democrats, and even had a battle with food stamps, but it just can’t be killed!
Now, let’s be clear: This is not some wonderful crusade all about helping ”the children.” It is pure political evil, a naked ploy to appease teachers’ unions and other public school employees that Democrats need motivated for the mid-term elections. It has to be, because the data are crystal clear: We’ve been adding staff by the truckload for decades without improving achievement one bit. Since 1970 (see the charts below) public school employment has increased 10 times faster than enrollment, while test scores have stagnated.
But suppose there were some rational reason to believe that we need to keep staffing levels sky-high despite getting no value for it. Lots of teachers’ jobs could be saved without a bailout if unions would just accept pay concessions like millions of the Americans who fund their salaries. But all too often, they won’t.
Sadly, this is all just part of the one education race that Washington is always running, and it absolutely isn’t to the top. It is the incessant race to buy votes. And guess what? Despite its reputation even among some conservatives, the Obama administration, just like Congress, is running this race at record speeds.
The Two GOPs
As the fall elections approach, two factions within the congressional GOP have emerged. The first faction, which generally controls the Republican leadership, is short-term oriented and just wants to return the GOP to power in Congress. Riding the wave of voter discontent over the government’s finances is a means to an end — the end being power.
The second, and considerably smaller faction, is more ideas driven and views the upcoming election as an opportunity to push for substantive governmental reforms. Whereas the “power first faction” offers platitudes about smaller government, the “ideas first faction” isn’t afraid to offer relatively bold suggestions for confronting the federal government’s unsustainable spending.
The ideas first faction is willing to publicly recognize that runaway entitlement spending must be reigned in and offer solutions to address the problem. Representatives Ron Paul, Michelle Bachmann, and Paul Ryan, for example, aren’t shying away from advocating a phase-out of the current Social Security system, which is headed for bankruptcy. In contrast, the power first faction lambasted Democrats for wanting to “cut Medicare” during the recent legislative battle over Obamacare.
In Ryan’s case, he has given the power first faction heartburn by pushing his “Roadmap for America’s Future,” which confronts the entitlement crisis head-on. Although Ryan’s Roadmap is not the ideal from a limited government standpoint, it’s a credible offering with ideas worth discussing. Even though the Ryan plan has received some favorable notice by the mainstream media, the power first faction would probably prefer Paul and his Roadmap went away.
From the Washington Post:
Of the 178 Republicans in the House, 13 have signed on with Ryan as co-sponsors.
Ryan’s proposals have created a bind for GOP leaders, who spent much of last year attacking the Democrats’ health-care legislation for its measures to trim Medicare costs. House Minority Leader John A. Boehner (R-Ohio) has alternately praised Ryan and emphasized that his ideas are not those of the party.
Ryan has not helped to make it easy for his leaders. He is a loyal Republican, but he is also perhaps the GOP’s leading intellectual in Congress and occasionally seems to forget that he is a politician himself.
At a recent appearance touting the Roadmap at the left-leaning Brookings Institution, someone asked Ryan why more conservatives weren’t behind his budget plan. “They’re talking to their pollsters,” Ryan answered, “and their pollsters are saying, ‘Stay away from this. We’re going to win an election.’”
His remarks illustrate the tension among Republicans over their fall agenda. Some strategists say the GOP should focus on attacking the Democrats; others want the party to offer a detailed governing plan.
Ryan’s ideas can be contrasted with those of the House Republican Conference Committee, which is a key power first organization. The HRCC just released a platitude-filled August recess packet for Republican House members to recite in talking to their constituents. Entitled “Treading Boldly,” the cover prominently features Teddy Roosevelt, which should immediately send chills down the spines of anyone believing in limited government.
The document is not “bold.” Take for example the five proposals to “Reduce the Size of Government”:
Reagan-Appointed Judge Strikes Down Gay Marriage Ban
Chuck Donovan of the Heritage Foundation denounces Judge Vaughn Walker for “extreme judicial activism” and “judicial tyranny” in striking down California’s Proposition 8, which barred gay people from marrying. And of course he doesn’t fail to note that Judge Walker sits in . . . San Francisco. Robert Knight of Coral Ridge Ministries ups the ante: Judge Walker has “contempt for the rule of law” and is part of “the criminalization of not only Christianity but of the foundational values of civilization itself.” National Review allows the head of the National Organization for Marriage to mutter about the judge’s “personal bias.” Blog commenters rail against the “left-wing liberal judge.”
In fact, Judge Walker was first appointed to the federal bench by President Ronald Reagan in 1987, at the recommendation of Attorney General Edwin Meese III (now the Ronald Reagan Distinguished Fellow in Public Policy and Chairman of the Center for Legal and Judicial Studies at the Heritage Foundation). Democratic opposition led by Sen. Alan Cranston (D-CA) prevented the nomination from coming to a vote during Reagan’s term. Walker was renominated by President George H. W. Bush in February 1989. Again the Democratic Senate refused to act on the nomination. Finally Bush renominated Walker in August, and the Senate confirmed him in December.
What was the hold-up? Two issues, basically. Like many accomplished men of the time, he was a member of an all-male club, the Olympic Club. Many so-called liberals said that should disqualify him for the federal bench. People for the American Way, for instance, said in a letter to Judiciary Committee chair Joe Biden, “The time has come to send a clear signal that there is no place on the federal bench for an individual who has, for years maintained membership in a discriminatory club and taken no meaningful steps to change the club’s practices.”
The second issue was that as a lawyer in private practice he had represented the U.S. Olympic Committee in a suit that prevented a Bay Area group from calling its athletic competition the Gay Olympics.
Because of those issues, coalitions including such groups as the NAACP, the National Organization for Women, the Human Rights Campaign, the Lambda Legal Defense Fund, and the National Gay and Lesbian Task Force worked to block the nomination.
In other words, this “liberal San Francisco judge” was recommended by Ed Meese, appointed by Ronald Reagan, and opposed by Alan Cranston, Nancy Pelosi, Edward Kennedy, and the leading gay activist groups. It’s a good thing for advocates of marriage equality that those forces were only able to block Walker twice.
Josh Green of the Atlantic notes a pattern: the federal judge in Boston who struck down a significant portion of the Defense of Marriage Act, ruling that it denied gay and lesbian couples the federal benefits afforded to straight couples, was appointed to the bench by President Richard Nixon. And the chief judge of the Iowa Supreme Court who wrote the unanimous decision striking down that state’s marriage ban was appointed by Republican governor Terry Branstad, who was just renominated for governor by Iowa Republican voters. Of course, Nixon and Branstad don’t have the conservative cred of Reagan and Meese.
California’s Gay Marriage Ban Lacks a Rational Basis
I haven’t even begun to dig into Judge Walker’s 138-page (!) opinion that strikes down Proposition 8 on both due process and equal protection grounds, but here are three key excerpts. First, the conclusion that government lacks a “rational basis” for preventing same-sex couples from marrying:
Proposition 8 fails to advance any rational basis in singling out gay men and lesbians for denial of a marriage license. Indeed, the evidence shows Proposition 8 does nothing more than enshrine in the California Constitution the notion that opposite-sex couples are superior to same-sex couples.
Then the equal protection conclusion:
Because Proposition 8 disadvantages gays and lesbians without any rational justification, Proposition 8 violates the Equal Protection Clause of the Fourteenth Amendment.
And finally the due process conclusion:
As explained in detail in the equal protection analysis, Proposition 8 cannot withstand rational basis review. Still less can Proposition 8 survive the strict scrutiny required by plaintiffs’ due process claim. The minimal evidentiary presentation made by proponents does not meet the heavy burden of production necessary to show that Proposition 8 is narrowly tailored to a compelling government interest. Proposition 8 cannot, therefore, withstand strict scrutiny. Moreover, proponents do not assert that the availability of domestic partnerships satisfies plaintiffs’ fundamental right to marry; proponents stipulated that “[t]here is a significant symbolic disparity between domestic partnership and marriage.” [citation omitted] Accordingly, Proposition 8 violates the Due Process Clause of the Fourteenth Amendment.
In short, the court found none of the government’s asserted interests — including tradition, moving slowly on social change, and promoting different-sex parenting — to be “legitimate.” This is obviously a big deal and will be appealed – and no gay marriages will be allowed until the appellate process will have run its course (most likely up to the Supreme Court). Currently, same-sex couples can only legally wed in Connecticut, Iowa, Massachusetts, New Hampshire, Vermont, and Washington, D.C.
Cato’s chairman Bob Levy, also co-chair of the advisory board to the American Foundation for Equal Rights (which sponsored the suit) had this to say:
The principle of equality before the law transcends the left-right divide that so often defines issues in this country. Today, people from across that divide came together to fight a law that cut to the very core of our nation’s character. Prop. 8 attempted to deny people an indispensable right vested in all Americans. This Judge and this Court bravely confronted wrongful discrimination and came down on the right side – defending and enforcing equal protection, as demanded by the Constitution.
I too think this was the correct decision — reserving, of course, the right to criticize parts once I’ve done more than skim it — though I fear it will poison our politics in a way not seen from a legal decision since Roe v. Wade. Roe v. Wade is not what today’s ruling should be compared to, however — both because this was only one district judge and because Roe v. Wade was a tortured fabrication of constitutional law that no legitimate constitutional scholar really defends (not even Justice Ruth Bader Ginsburg). I would liken it more to one more step in the civil rights movement, giving all Americans equality under the law. If you want a court case to compare it to, try Loving v. Virginia (which struck down bans on interracial marriage).
I should also add that this all could have been averted if government just got out of the marriage business entirely: have civil unions for whoever wants them — which would be a contractual basket of rights not unlike business partnerships – and let religious and other private institutions confer whatever sacraments they want. If the state provides the institution of marriage, however, it has to provide it to all people.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
