Archive for June, 2011
Sorrell vs. IMS Health: Not a Privacy Case
The Supreme Court’s decision in Sorrell vs. IMS Health is being touted in many quarters as a privacy case, and a concerning one at that. Example: Senator Patrick Leahy (D-VT) released a statement saying “the Supreme Court has overturned a sensible Vermont law that sought to protect the privacy of the doctor-patient relationship.” That’s a stretch.
The Vermont law at issue restricted the sale, disclosure, and use of pharmacy records that revealed the prescribing practices of doctors if that information was to be used in marketing by pharmaceutical manufacturers. Under the law, prescription drug salespeople—”detailers” in industry parlance—could not access information about doctors’ prescribing to use in focusing their efforts. As the Court noted, the statute barred few other uses of this information.
It is a stretch to suggest that this is a privacy law, given the sharply limited scope of its “protections.” Rather, the law was intended to advance the state’s preferences in the area of drug prescribing, which skew toward generic drugs rather than name brands. The Court quoted the Vermont legislature itself, finding that the purpose of the law was to thwart “detailers, in particular those who promote brand-name drugs, convey[ing] messages that ‘are often in conflict with the goals of the state.’” Accordingly, the Court addressed the law as a content- and viewpoint-oriented regulation of speech which could not survive First Amendment scrutiny (something Cato and the Pacific Legal Foundation argued for in their joint brief.)
What about patients’ sensitive records? Again, the case was about data reflecting doctors’ prescribing practices, which could include as little as how many times per year they prescribe given drugs. (They probably include more detail than that.) The risk to patients is based on the idea that patients‘ prescriptions might be gleaned through sufficient data-mining of doctors prescribing records (no doubt with other records appended). That’s a genuine problem, if largely theoretical given the availability and use of data today. Vermont is certainly free to address that problem head on in a law meant to actually protect patients’ privacy—against the state itself, for example. Better still, Vermonters and people across the country could rely on the better sources of rules in this new and challenging area: market pressure (to the extent possible in the health care area) and the (non-prescriptive, more adaptive) common law.
Whatever the way forward, Sorrell vs. IMS Health is not the privacy case some are making it out to be, it’s not the outrage some are making it out to be, and it’s not the last word on data use in our society.
Individualism in Legal Process and the Wal-Mart Case
Monday’s high court decision in Wal-Mart v. Dukes has predictably drawn a strong reaction from legal academia, much of it critical of the Court. Of particular interest are the comments of Richard Primus (Michigan) at the New York Times‘s “Room for Debate” and Alexandra Lahav (Connecticut) at Mass Tort Litigation Blog. According to Primus and Lahav, the decision is the latest sign that the current Supreme Court leans toward a principle of “individualism” in applying the rules of civil litigation. Lahav in particular appears to view this as a shame, since “a more collectivist view” would carry with it more “potential for social reform.”
What does a term like “individualism” mean in the context of litigation procedure? One of its implications is that legal rights to redress on the one hand, and legal responsibility or culpability on the other, are ordinarily things that appertain to individual litigants, and ought not (absent clear authorization by statute or Constitution) be submerged into group claims on the one hand or group guilt on the other. In particular, we should be wary of proposals to deprive litigants of the choice to obtain individualized consideration of their claims or defenses on the grounds that society can accomplish more if it processes litigation in batches while accepting, say, statistical as distinct from personalized proofs.
Lahav and other scholars such as Samuel Issacharoff offer as examples numerous cases in which the Court has insisted on individualized process, often thereby frustrating the advocates of social reform in one or another area. The Court’s scruples on this matter have run into much adverse comment in the academic literature, and that’s hardly a surprise; as I argue in my book Schools for Misrule, today’s legal academy is far more keen on things like group rights and social engineering (as some of us might call it) than is the wider society.
Let me offer a few observations in defense or at least explanation of the Court’s approach:
1) The individualist leaning is by no means confined to the “conservative” justices; all nine members of the current Court partake of it to varying extents, and it is one major reason why the Court’s liberal justices joined in to make the Wal-Mart decision unanimous on one of its most practically significant issues, relating to the handling of claims for back pay.
2) Like so many other aspects of the Court’s work, this one does not fit well into simplistic accounts from some quarters about the Court’s supposed “pro-business” stance. In many circumstances business defendants actually prefer some degree of collectivization of claims, because their main practical concern is to put an end to litigation, and group resolution can do that. In the Court’s landmark 1997 Amchem Products v. Windsor decision, six of eight voting justices (Breyer and Stevens dissenting in part) struck down a giant batch settlement of asbestos litigation that had been ardently pursued by many of the nation’s biggest businesses, as well as many plaintiff advocates, on the grounds that it improperly denied claimants their right to individualized justice.
3) If the question is one of faithfulness to the constitutional vision of law held by the Founders, there really isn’t much of a question: like other Anglo-Americans of Blackstone’s era those Founders saw the courts as dispensers of individualized justice if they were to be anything at all. Much else in American law has changed beyond recognition in the intervening two-plus centuries. Fortunately, as the result in Wal-Mart v. Dukes suggests, that hasn’t.
For more commentary on the Wal-Mart case, check out (e.g.) editorials at the Washington Post, New York Daily News and Omaha World Herald (favoring the court’s view), and the New York Times and USA Today (opposing), as well as my contributions in the Philadelphia Inquirer and at Overlawyered.
One Generation of Oliver Wendell Holmes, Jr. Is Enough
Today, the Charlotte Observer reports on the ongoing attempts to find restitution for the 3,000 living North Carolinians who were victims of the state’s forced sterilization program. It may surprise many readers, but forced sterilization has a long and shameful history in the United States. In North Carolina, the last forced sterilization was performed as late as 1974.
The most famous case of forced sterilization was the 1927 Supreme Court case of Buck v. Bell. Carrie Buck, a “feeble minded” woman from Virginia who was deemed the “probable potential parent of socially inadequate offspring,” challenged the state’s attempt to forcibly sterilize her. In an opinion that even his colleagues called “brutal,” Justice Oliver Wendell Holmes, Jr. curtly did away with Buck’s pleas, ramming home his decision with one of the most heartless and ignominious lines in all of the Supreme Court history:
We have seen more than once that the public welfare may call upon the best citizens for their lives. It would be strange if it could not call upon those who already sap the strength of the State for these lesser sacrifices, often not felt to be such by those concerned, in order to prevent our being swamped with incompetence. It is better for all the world if, instead of waiting to execute degenerate offspring for crime or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind. The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes. Three generations of imbeciles are enough.
Amazingly, Justice Holmes’s original draft of the opinion contained worse language. He later wrote to Harold Laski that he was “amused” that his fellow justices suggested rhetorical changes when he “purposely used short and rather brutal words… that made them mad.” Nevertheless, despite his desire to use crueler language, Justice Holmes was satisfied with himself, once telling a friend, “One decision that I wrote gave me pleasure, establishing the constitutionality of a law permitting the sterilization of imbeciles.”
Sen. Scott Brown, the SBA, and Discrimination
I recently testified before the Senate Small Business Committee on the topic of the Small Business Administration. GovExec.com mentioned that there was a “bit of drama as the hearing ended” when Sen. Scott Brown (R-MA) “upbraided” me for comments I had made in an exchange with Sen. Rand Paul (R-KY). Having watched a recording of the hearing, I think I should comment.
Proponents of the SBA argue that a “market failure” exists because some otherwise worthy applicants are unduly denied credit under the standard criteria used by private lenders. Therefore, the federal government should correct this alleged “failure” by incentivizing private lenders to issue loans to less credit-worthy applicants. The SBA does this by “guaranteeing” up to 85 percent of the loan’s value in the event of a default.
Sen. Paul asked me to comment on the alleged “market failure” in small business lending. In my response, I stated that the SBA’s loan guarantee programs are “inherently discriminatory” because the government backs loans for some businesses but not others. I noted that businesses that do not receive an SBA-backed loan are put at a disadvantage when the government backs the loan of a competitor.
In an attempt to simplify my point for the audience, I gave an example. Upon moving to the Indianapolis area several years ago, I went to a pizza shop. On the wall was a newspaper clipping about the shop, which mentioned that it had gotten started with an SBA-backed loan. There are innumerable places to get pizza in the Indianapolis area. So it struck me as being unfair that the federal government had assisted a particular pizza shop and therefore advantaged it against competing pizza shops that did not receive government support, or pizza entrepreneurs who might have entered the market without government support.
A visibly bothered Sen. Brown claimed that I said that “I wondered how they [the pizza shop] got the loan.” However, I never said that I wondered how the pizza shop got the SBA-backed loan. I thought that my anecdote illustrated a very simple point: the government had effectively favored one pizza shop over others. But Brown apparently didn’t get it, and instead proceeded to question how I could talk about discrimination when I knew nothing about “the facts” of how the pizza shop came to get the loan.
The entire exchange was bizarre – particularly Brown’s closing comments before he cut me off (my transcription):
I find it kind of inappropriate that you would make a statement as discriminatory for that pizza place to get a loan without having the facts … and I think this kind of rhetoric like that as you throw it around … and we hear those things in a whole host of areas in Washington … it doesn’t help solve the problem and basically step up, and you know, make it better and encourage people to take a shot in business.
Maybe it’s best that he cut me off because the hearing was a week ago and I still don’t know what to make of those comments. (Those interested can go to the 122 minute mark to watch my full exchange with Sen. Brown.)
Perhaps my use of the word “discriminatory” got Sen. Brown agitated. I admit that if I could do it over again, I would chose a different word or phrase given that the ruling class in Washington is particularly sensitive when you’re on their turf. Regardless, it’s a sad commentary on the size and scope of the federal government that I would be arguing with a senator over federally-backed loans to a pizza shop.
The Road to Greece Runs Through Basel
At the heart of Europe’s bailout of Greece is concern over the solvency of European banks, particularly those in France and Germany. The largest holders of Greek sovereign debt include BNP Paribas, with over a 5 billion euro exposure, and Societe Generale (didn’t we bail them out of their AIG exposure too?). Perhaps it is lucky timing that international bank regulators begin meeting Friday to negotiate a revised set of standards for bank capital, under the Basel Committee on Banking Supervision.
The previous standards, known as Basel II, played a central role in encouraging European banks to load up on Greek debt. Under Basel II the amount of capital a bank has to set aside to cover the default risk of any given asset is supposed to be “risk-based.” So higher risk assets require more capital than lower risk assets. Sounds reasonable in concept. But once the government gets involved, reason is too often thrown aside in favor of politics. Basel II ended up taking the position that government debt, including that of Greece, would be treated, for capital purposes, as essentially risk-free. So for a bank deciding whether to lock its capital up in business lending or use that capital to hold government debt, the choice became obvious, with the result being massive leverage on the part of the banks and a huge exposure to Greece (among other supposed safe assets like Fannie Mae debt).
So while I believe Greece should not be bailed out, and the banks should take their losses despite the fact that the regulators helped create the problem, the regulators must fix the perverse incentives under Basel. Again, any capital regime that treats Greece (and Fannie Mae) as riskless is a regime designed to fail.
Bolivia Withdraws From UN Drug Convention
I never thought I would say this, but Evo Morales is right (this time). The Bolivian president asked the nation’s Congress to pass a law that would take his country out of the United Nations Single Convention on Narcotic Drugs. The bill already passed the lower chamber of Congress and is likely to be approved by the Senate where Morales enjoys a two-thirds majority.
Bolivia is withdrawing from the UN Convention over the country’s failed efforts to have the coca leaf removed from the list of international illicit drugs. Chewing coca leaf is an ancestral and common practice in Bolivia and neighboring Andean countries. It helps people cope with fatigue and high altitude (I’ve tried it myself during a visit to the province of Jujuy in Argentina). The Bolivian amendment to the UN Convention was defeated after strong opposition from the United States and other developed countries.
This is precisely the kind of “drug control imperialism” that was recently denounced by the groundbreaking report of the Global Commission on Drug Policy. It rightly states that the UN (as a result of pressure from the U.S. government in particular), has “worked strenuously over the past 50 years to ensure that all countries adopt the same rigid approach to drug policy –the same laws, and the same tough approach to their enforcement.”
Given the obstinate resistance of Washington to allow even the most timid and sensible changes in international treaties such as declassifying the coca leaf as an illegal substance, one must applaud the decision of the government in La Paz to denounce the UN Nations Single Convention on Narcotic Drugs.
CBO Report Reveals Spending Disaster
New projections from the Congressional Budget Office show that without reforms rising federal spending will fundamental reshape America’s economy, and not in a good way. Under the CBO’s “alternative fiscal scenario,” the federal government will consume an 86 percent greater share of the economy in 2035 than it did a decade ago (33.9 percent of GDP compared to 18.2 percent).
The CBO report and many centrist budget wonks focus more on the problem of rising federal debt than on rising spending. As a result, many wonks clamor for a “balanced” package of spending cuts and tax increases to solve our fiscal problems. But CBO projections show that the long-term debt problem is not a balanced one—it is caused by historic increases in spending, not shortages of revenues.
This chart shows CBO’s alternative scenario projections, which assume no major fiscal policy changes. All recent tax cuts are extended and entitlement programs are not reformed.
Let’s look at federal revenues first (blue bars). In President Clinton’s last year of 2001, revenues were abnormally high at 19.5 percent of GDP as a result of the booming economy. Over the last four decades, federal revenues as share of GDP have fluctuated around about 18 percent of GDP. The tech boom a decade ago helped generate large capital gains realizations. CBO data show that capital gains tax revenues were $100 billion in 2001, or 1 percent of GDP (see page 85). By contrast, the CBO expects capital gains taxes to be $48 billion in 2011, or just 0.3 percent of GDP (see page 93).
In 2011, revenues are way down because of the poor economy. Some people complain that the Bush tax cuts drained the Treasury, but note that revenues were 18.2 percent of GDP in 2006 and 18.5 percent in 2007, when the economy was growing and the Bush cuts were in place.
Looking ahead, the CBO projects that with all current tax cuts in place and AMT relief extended, revenues will rise to 18.4 percent of GDP by 2021, or a bit above the normal levels of recent decades. For 2035, the CBO assumes that revenues would be fixed at the same 18.4 percent, but their discussion reveals that “real bracket creep” would actually keep pushing up revenues as a share of the economy beyond 2021.
In sum, CBO projections reveal no shortage of revenues. The problem is on the spending side, as the red bars in the chart illustrate. As a result of the Bush/Obama spending boom, federal outlays soared from 18.2 under President Clinton to 24.1 percent this year. With no reforms to entitlement programs, outlays will be 33.9 percent of GDP by 2035, which is 86 percent higher than the Clinton level.
By the way, the CBO nets Medicare premiums out of outlays, which makes spending look a little smaller than it really is. Using gross Medicare spending, total federal outlays will be 35 percent of GDP by 2035.
Also note that CBO data (and other U.S. government data) low-ball government spending in other ways compared to OECD measurement standards. The OECD puts federal/state/local government spending in the United States at 41 percent of GDP in 2011. More than four out of ten dollars we earn are already being gobbled up by our governments.
If the federal government grows by 10 percentage points of GDP by 2035 per CBO, American governments will be consuming more than half of everything produced in the nation.
To fix the problem, see here.
More Ground-Breaking Constitutional Theories
Last year I blogged about a fascinating new approach to constitutional interpretation that Georgetown law professor Nicholas Quinn Rosenkranz was developing, in a Stanford Law Review article called “The Subjects of the Constitution.” Now Nick has a sequel, titled, naturally, “The Objects of the Constitution.” Here’s an excerpt from the abstract:
In short, this Article and its predecessor, The Subjects of the Constitution, amount to a new model of constitutional review, a new lens through which to read the Constitution. This approach begins with a grammatical exercise: identifying the subjects and objects of the Constitution. But this is hardly linguistic casuistry or grammatical fetishism. The subjects and objects of the Constitution are not merely features of constitutional text; they are the pillars of constitutional structure. The very words “federalism” and “separation of powers” are simply shorthand for the deep truth that the Constitution empowers and restricts different governmental actors in different ways. To elide the who question is to overlook the central feature of our constitutional structure. And it is this structure, above all, that is the object of the Constitution.
Josh Blackman (on whom more shortly) called the piece a “gem” and Larry Solum of Legal Theory Blog labeled it a Download of the Week. Given that this approach takes seriously constitutional text and structure, it’s quite libertarian-friendly. And if these two articles aren’t enough, Nick has an expanded treatment coming out as a book to be published by the Oxford University Press. Pre-order yours today!
But that’s not all; like last year, I’d like to offer Josh Blackman’s latest article as the undercard in the same post as the one covering Nick Rosenkranz’s latest. “The Constitutionality of Social Cost,” to be published in the Harvard Journal of Law & Public Policy, looks at “the constitutional dimensions of the social cost of liberty.” Here’s a bit of the abstract:
Although some have suggested that courts should look to the First Amendment for interpretational guidance for the Second Amendment, I propose a more holistic approach: look to the entire Bill of Rights. Liberty interests certainly vary by type, but the Court’s precedents balancing those interests against society’s need for safety and security coalesce into different schools. By reconceptualizing the right to keep and bear arms through the lens of social cost, in light of over a century of Supreme Court jurisprudence, one can see that despite its dangerous potential, the Second Amendment is not so different from all other rights; accordingly, it should not be treated differently.
Josh (my sometime co-author and a friend of Cato) asks why the right to keep and bear arms, for example, just because its abuse can harm people and impose costs on society, is any different from any number of constitutional protections for liberty that also impose social costs. (The most obvious example is that we tolerate a certain number of guilty people going free to maintain the Fourth Amendment, due process, the presumption of innocence, etc.) It isn’t, he concludes.
Good stuff! And ground-breaking constitutional theory!
Vouchers in Education and Health Care Reform
E.D. Kain has a post up here (and here) comparing and contrasting vouchers in education and health care. It’s an interesting post that manages both insight and remarkable oversights in a very short space.
And the insight and oversights are bound up with each other:
I think it’s a consistent position to support both single-payer health care – something many progressives advocate – and single-payer education – something many libertarians advocate. . .
[Medicare] is a lot like what many school choice advocates want. They want government to foot the bill, but they don’t want them to provide the service, or at least not exclusively. This approach works for Medicare, and it could work for schools also. What we really need is single-payer education – not single-provider education. Anyways, the point is that we think about these programs in somewhat inconsistent ways. . . Even people advocating single-payer want to be able to go to a private doctor. And yet, these same people are terrified of the government paying for education but not actively providing the schooling.
Kain is right that many school choice advocates want a single-payer, government voucher system. But he’s absolutely wrong to imply the libertarian preference is for a single-payer, government voucher system in education. [Note: I look at ideologies as structures reflecting what people think is valuable, what works and why in politics and society.]
In education, we begin with an almost fully socialized system unlike anything else in American society. So its no surprise that education reform discussions produce ideological confusion.
Vouchers, because they move the means of production out of the hands of the government, into the hands of private providers, and afford the consumer some decision-making powers, are improvements from a perspective that advantages individual liberty. But the single-payer, government funding, and regulation inherent in a voucher program remain massive defects from the libertarian perspective.
Our health care system is crippled by government regulation and single-payer (private employer and government) distortions. But it is not fully socialized or government-funded like our education system. A single-payer government health system would make matters worse from the libertarian perspective.
Think of these policy scenarios on a Left-to-Right ideological scale running from 1 on the far Left to 7 on the far Right, with 4 in the middle. Our standard government-financed, government-run, socialized education system is a 1, as far Left as one can go. Voucherizing the entire system would push it to a 2.
Kain is correct that ”it’s a consistent position to support both single-payer healthcare . . . and single-payer education,” because both are completely and comfortably on the Left side of the policy spectrum. Vouchers can’t solve all of our problems in education policy.
CBO’s Long-Term Budget Outlook
The Congressional Budget Office released the latest edition of its annual forecast of where the federal government’s budget is headed. The numbers are new but the message is the same: the budget is on an unsustainable path. According to the CBO’s more politically-realistic “alternative scenario,” federal debt as a share of GDP will hit 109 percent in 2021 and would approach 190 percent in 2035.
For those mistaken souls who believe that merely eliminating “waste, fraud, and abuse” in government programs can solve the problem, the CBO has news for you:
In the Congressional Budget Office’s (CBO’s) long-term projections of spending, growth in noninterest spending as a share of gross domestic product (GDP) is attributable entirely to increases in spending on several large mandatory programs: Social Security, Medicare, Medicaid, and (to a lesser extent) insurance subsidies that will be provided through the health insurance exchanges established by the March 2010 health care legislation. The health care programs are the main drivers of that growth; they are responsible for 80 percent of the total projected rise in spending on those mandatory programs over the next 25 years.
Others believe that “tax cuts for the rich” are the source of the problem. But according to the CBO’s alternative scenario, if the Bush tax cuts are extended and the Alternative Minimum Tax continues to be patched, federal revenues as a share of GDP will still exceed the post-war average by the decade’s end. Under the CBO’s standard baseline, which assumes that those policies will not be continued, federal revenues as a share of GDP will go zooming by the historic average. That might be good for politicians, bureaucrats, and other “tax eaters,” but it wouldn’t be good for the country’s economic welfare.
The problem is clearly spending and the GOP has rightly made spending cuts a key condition to lifting the debt ceiling. The magic number being reported is $2 trillion in cuts. That sounds like a lot of money – and it is – but it’s likely that those cuts are to be achieved over 10 years. According to the CBO’s most recent estimates, the federal government will spend almost $46 trillion over the next 10 years. And as Chris Edwards has been repeatedly warning (see here, here, and here), there’s a possibility that the cuts will be of the “phony” variety.
Are We Building Enough Housing?
One of the primary reasons the labor market remains weak is that construction activity is relatively low, resulting in a reduced demand for construction workers. My friends in the building industry argue that because housing starts are at historic lows, we are actually not building enough housing. While I’m open to that as a possibility, and believe it to be the case in select markets, nationally the evidence suggests otherwise.
First of all, the monthly supply of new homes — that is the time that would be required to sell off the current inventory — is still relatively high at just under seven months, as shown in the following figure. Granted this is significantly below the 12 month peak we saw at the beginning of 2009. So without a doubt this number is moving in the right direction, but it still has a little ways to go. I will be far more optmistic about the housing market when we get to around five months’ new supply.
Why Fed Ed Fails, and Proposals to Stop the Madness
On Monday, we took the word right to Capitol Hill: The federal government has been an abject education failure, and the only acceptable solution to the problem is for Uncle Sam to leave our kids alone.
At the briefing in which the word was issued, Heritage’s Lindsey Burke and I also examined congressional proposals that could move us closer to the ultimate solution — especially the LEARN and A-PLUS acts — and explained why Washington, even if its interference were authorized by the Constitution, will never make education better by staying involved.
Unfortunately, lots of people couldn’t make the briefing. That’s why we are so happy to be able to present the briefing right here, to view in the comfort of your own computer chair.
Enjoy!
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