Archive for July, 2011
If Air Travel Worked Like Health Care
A fantastic video based on this fantastic article by Jonathan Rauch:
And it would work like this, if the government made travel arrangements for one third of the population and penalized anyone else who didn’t let an employer make theirs.
SB 1070: Constitutional But Bad Policy
That’s the title of an essay I wrote for SCOTUSblog as part of their symposium on United States v. Arizona. This is the big immigration case that will hit the Supreme Court’s doorstep later this month when Paul Clement, recently hired by Arizona, files his cert petition.
Here’s an excerpt:
…state governments, feeling tremendous pressure from their citizens to address the consequences of the federal failure to meet this nation’s immigration needs, are acting for themselves. Arizona happens to be the “tip of the spear,” but we’ve also seen various other immigration-related laws passed in states as different as Utah, Georgia, and California. Whether related to enforcement, expanded work permits, sanctuary cities, or other types of policy innovations, Congress’s abdication of its duty to manage our immigration system has spawned a host of federalism experiments.
And so we come to S.B. 1070 (as amended by H.B. 2162), which exemplifies the crucial distinction between law and policy that both liberals and conservatives tend to forget. A law that is good policy might be unconstitutional or preempted by some higher law. Here we see the converse: while S.B. 1070 is (with the exception of one provision) constitutional, it’s bad policy.
Obama Administration Fights Privacy Act Liability
In February 2004, privacy advocates were put off by a Supreme Court case called Doe v. Chao, in which the Court found that the Privacy Act requires a victim of a government privacy violation to show “actual damages” before receiving any compensation. The Act appeared to provide for $1,000 per violation in statutory damages, but the Court interpreted the legislation to require that actual damages be proven, after which the victim would be entitled to a minimum award of $1,000. (Statutory damages are appropriate in privacy cases against the government because government bureaucrats pay little price themselves when their agency gets fined. A penalty is required to draw oversight and political attention to violations of the law.)
Doe v. Chao was a close call given the statutory language, and the Court chose the outcome that would limit the government’s exposure to Privacy Act liability. Doing so marginally weakened the government’s attentiveness to the already insubstantial protections of the Privacy Act.
A companion case to Doe v. Chao has now reached the Supreme Court. FAA v. Cooper, which the highest court recently agreed to hear, involves a victim of a government privacy invasion who alleges “actual damages” based on evidence of mental and emotional distress. Cooper, a recreational pilot who was HIV-positive, had chosen to conceal his health status generally, but revealed it to the Social Security Administration for the purposes of pursuing disability payments. When the SSA revealed that he was HIV-positive to the Department of Transportation, it violated the Privacy Act. Cooper claims in court that he suffered mental and emotional distress at learning of the disclosure of his health status and inferentially his sexual orientation, which he had kept private.
In the Ninth Circuit Court of Appeals and now in the Supreme Court, the Obama Administration has argued that it doesn’t have to pay the victim of this privacy violation because mental and emotional distress do not qualify as “actual damages.” No one disputes that Cooper has to present objective proof of harm as a check on the truth of his claims. But the government isn’t saying that Cooper is faking distress at having his health status and sexual orientation illegally exposed by the government. The government is arguing that the court should limit “actual damages” to economic injury simply because it’s the government being sued.
Did Dodd-Frank End Too-Big-To-Fail?
With the one-year anniversary of the Dodd-Frank Act approaching, it seems a reasonable time to ask if the Act achieved one of its primary stated goals: ending the too-big-to-fail status of our largest banks. After all, we are beyond the financial panic and the Act has had a year to work.
Now one could simply ask, what does the law say? Well, to give its proponents some due, Dodd-Frank does suggest in a few sections that large banks, or other companies, will not be rescued. But then previous laws also said that Fannie Mae and Freddie Mac wouldn’t be rescued either. So much for the letter of the law. And of course there are various holes in Dodd-Frank that do allow bondholders to be rescued. Section 204 is very clear that the FDIC can buy the outstanding debt of a failing firm. If they buy such debt at par, then that sounds like a bailout to me.
Ultimately the success of Dodd-Frank will depend upon whether the law convinces market participants that bailouts are over. For if they believe otherwise, the largest firms will be able to borrow at cheaper rates and grow at the expense of their rivals, becoming even more “too-big-to-fail”. Just look at the history of Fannie Mae to see how this could play out.
So what do the debt markets say (if they could speak)? The accompanying chart shows the difference between funding costs for the largest banks ($10 billion plus) and the smallest ($100 million and less), the dotted line shows the same relationship for the largest over mid-sized banks, to help determine how much of this advantage might be driven by economies of scale.
First one of the more interesting facts: historically the largest banks have had to pay more for borrowing, an average of 61 basis points more, over the last 30 years. During the financial crisis and even since the passage of Dodd-Frank, that relationship was turned on its head and the largest banks enjoyed a funding advantage, currently around 30 basis points. These numbers may sound small but an advantage of around 30 bp allowed Fannie and Freddie to basically take over the mortgage market.
Despite whatever Dodd-Frank intended, the debt markets are speaking pretty loudly: too-big-to-fail is still with us.
I Hope I’m Wrong, But Here’s Why Republicans Will Lose the Debt-Limit Fight
There are three reasons why I’m not very hopeful about the outcome of the debt-limit battle.
1. There is no unity in the GOP camp.
Republicans have been all over the map during this fight. Some of them want a balanced budget amendment. Some want a one-for-one deal of $2 trillion of spending cuts in exchange for a $2 trillion increase in the debt limit. Others want some sort of spending cap, akin to Senator Corker’s CAP Act. Some want to mix all these ideas together in a cut-cap-balance package. Others want Obamacare repeal. And the latest proposal is Sen. McConnell’s proposal to let Obama unilaterally raise the debt limit.
These are mostly good ideas, but the failure to coalesce around one proposal – preferably one that is easy to understand – has made the Republican position difficult to define, defend, or advance.
2. The fear of demagoguery is high.
As I explained months ago, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner are trying to spook financial markets with hyperbolic warnings about a risk of default. This is blatant dishonesty and demagoguery, but Republicans are nervous that this tactic might be successful if there is a high-stakes showdown as the government’s borrowing authority runs out.
For those with short memories, this is what happened with TARP back in 2008. The initial bailout proposal was rejected, leading to short-run market gyrations, and many Republicans panicked and switched their votes to yes.
3. Republicans don’t control the Senate or the White House.
I’m stating the obvious, of course, but people seem to forget that any debt limit increase will need to get through the Senate and get signed by Obama.
Imagine you are Harry Reid or Barack Obama. Is there any reason why you would acquiesce to Republican demands? Yes, you need to at least pretend to care about big government, wasteful spending, and red ink, but why not hold firm and then strike a deal based on make-believe spending cuts? That’s exactly what happened during the “government-shutdown” debate earlier this year.
This post, incidentally, is not an attack on Republicans. I’m very willing to attack GOPers when they do the wrong thing, but I’m not sure they deserve to get hammered in this case.
Simply stated, I don’t think there’s a winning strategy, so I don’t see any point in going nuclear.
If nothing else, at least Republicans resisted the siren song of tax increases, which is not a trivial achievement since Democrats clearly were hoping to trick GOPers into giving up one of their strongest political positions.
One Difference between Statists and Non-statists
A non-statist would never write something like this:
We had a big surplus. It was time to do something with it. Brad DeLong, a former Clinton administration official and an economist at the University of California at Berkeley, didn’t want to see the surplus spent on tax cuts. He wanted to see it spent on public investments.
To a statist, all resources belong to the state. The government doesn’t tax 40 percent of your earnings; it magnanimously spends the other 60 percent on you. When the government reduces your taxes, it isn’t taking less money from you; it’s spending more of its money on you.
The above quote comes from an article titled, “We Have a Taxing Problem, Not Just a Spending Problem.” But since statists believe that not taxing equals spending, both halves of that title actually mean the same thing: “We Have a Not-Taxing-You-Enough Problem.”
Relegate Mandatory Data Retention to the Dustbin of History
Greg Nojeim of the Center for Democracy and Technology reports on yesterday’s hearing in the House Judiciary Committee on H.R. 1981, the Protecting Children from Internet Pornographers Act of 2011. (I lamented the bill earlier this week, as did Julian Sanchez last week.)
Rep. Sensenbrenner [(R-Wis.)], Chair of the Crime Subcommittee, opened the hearing with an extraordinarily strong attack on the bill. Saying the Committee should relegate mandatory data retention to the dustbin of history, he attacked the data retention provision on economic and privacy grounds. “I believe this bill is bad policy and I will do my best to kill it.” He also said, “This bill runs roughshod over the privacy rights of people who use the Internet for thousands of lawful purposes … this bill should be defeated and put in the dustbin of history.” He also lashed out at the provision in the bill (Section 7) that would give the U.S. Marshals administrative subpoena authority to investigate unregistered sex offenders, reminding the Subcommittee that as Chairman of the full Committee during the debates about reauthorizing the Patriot Act in 2005 or 2006, he had examined the issues surrounding administrative subpoenas and determined that admin subpoena authority would be too much a risk to privacy to confer on the gov’t.
Kudos to Rep. Sensenbrenner for considering the privacy consequences of this bill and the risks in conferring too much power on the government. I’d be in favor of his keeping these concerns in mind with policies well beyond data retention.
‘The Government Would Really Like for You to Have a Wheelchair’
USA Today’s Kelly Kennedy is going to town on Medicare & Medicaid fraud. Today, she writes:
In California, as English-as-a-second-language Medicare recipients line up for other services, a person will approach them in line and “They’ll say, ‘The government would really like for you to have a wheelchair,’” said Julie Schoen, director of special projects for California’s Senior Medicare Patrol. Then, she said, the scammer will take the Medicare recipient to a “clinic” for an exam.
The patient will often receive a wheelchair, but not a motorized wheelchair worth about $3,600 for which Medicare will be billed, Schoen said…
“It’s a big problem,” Schoen said. “The scammers really know how to do it well, but the guy with Parkinson’s who needs a chair has to fight for it.”…
In South Dakota, people fall victim to television ads, said Melissa Wood, program director for Senior Medicare Patrol in South Dakota. The ads show seniors using electric wheelchairs to fish or visit a shopping mall, and tell them that, as Medicare recipients, they qualify for free.
“The people have no idea it’s fraudulent,” Wood said. “I think in the past year or so, it’s picked up because of all the advertisements.”
The scammers also collect people’s Medicare numbers, which they then use fraudulently or sell to another company to use, Wood said.
But never fear. Your trusty public servants are on the job:
The federal government is cracking down on medical-equipment providers who either overcharge Medicare for motorized wheelchairs or obtain them for people who don’t need them, Medicare and Justice Department records show.
Medicare plans to almost triple the number of anti-fraud strike forces it operates nationwide, from seven to 20, U.S. Health and Human Services Department budget documents show.
Almost triple! Too bad fraud experts say Medicare would have to increase its anti-fraud efforts 10- or 20-fold to address fraud in a serious way.
Congress will never do that, of course, because the game is rigged — not just to allow fraud, but to protect fraud.
Filed under: Cato Publications; General; Government and Politics; Health Care
A Medicare Reform Model Everyone Can Love
That’s the title of this week’s column for Kaiser Health News. An excerpt:
As luck would have it, we have a home-grown model for Medicare reform that would contain spending and improve the quality of care. This model appeals to both Republican and Democratic ideals: it satisfies the Republican desire for individual ownership and control, but emulates a social insurance program revered by Democrats. The key to improving health care for seniors is … to make Medicare look more like Social Security.
With this column, I have finally managed to work my favorite Seinfeld quote into my professional writing.
McConnell’s Cave-In and Boehner’s Opportunity
Senate Minority Leader Mitch McConnell has offered the president a way to raise the debt ceiling by $2.5 trillion without having to cut spending. The WaPo reports that “McConnell’s strategy makes no provision for spending cuts to be enacted.”
This appears to be an epic cave-in and completely at odds with McConnell’s own pronouncements in recent months that major budget reforms must be tied to any debt-limit increase.
House Republicans should obviously reject McConnell’s surrender, and they should do what they should have done months ago. They should put together a package of $2 trillion in real spending cuts taken straight from the Obama fiscal commission report and pass it through the House tied to a debt-limit increase of $2 trillion. Then they shouldn’t budge unless the White House and/or the Senate produce their own $2 trillion packages of real spending cuts, which could be the basis of negotiating a final spending-cut deal.
For those who say that House tea party members won’t vote for a debt increase, I’d say that $2 trillion in spending cuts looks a lot better than the alternative of having Democrats and liberal Republicans doing an end-run around them with McConnell’s no-cut plan.
For those who say that House members are scared of voting for specific spending cuts, I’d say that they’ve already done it by passing the Paul Ryan budget plan. I’d also say that you can’t claim to be the party of spending cuts without voting for spending cuts.
Obama’s Fiscal Commission handed Republicans ready-made spending cuts on a silver platter—Republicans will never get better political cover for insisting on spending cuts than now.
Copyright Monkey Business
Given enough time, a monkey sitting at a typewriter will type out the complete works of William Shakespeare. Believe it or not, it’s called the infinite monkey theorem. A thousand monkeys at a thousand typewriters would cut the time in half … or something.
But would the monkey hold the copyright?
We may soon find out. Or at least we’ll be entertained by the tiff between TechDirt‘s Mike Masnick and a person claiming to represent the owner of a photograph taken by, yes, a monkey.
The short answers are: 1) A photograph taken by a monkey probably isn’t copyrighted, and 2) if it were, displaying the photo in a discussion of its copyright status is probably fair use. The lesson is: many, many people don’t understand what the copyright laws are, or why they are.
Mike participated in our “Copyright Controversies” conference some years ago. Should there be a sequel, we’ll invite the monkey.
Strong Cities, Strong Communities: Bad Idea
When government officials come up with what they claim to be a wonderful new idea, I often think of an old Saturday Night Live skit from 1990 poking fun at commercials for blue jeans. The skit’s scene is a group of middle-aged buddies getting ready to play basketball in their new “Bad Idea Jeans.” Each guy optimistically announces a plan to do something that is actually a “bad idea.” For example, a character says “I don’t know the guy but I’ve got two kidneys and he needs one, so I figured…” and “BAD IDEA” flashes across the screen. (The skit can be watched here.)
The White House’s new “Strong Cities, Strong Communities” initiative had that BAD IDEA screen shot flashing repeatedly in my mind as I read the press release:
Today, the Obama Administration launched Strong Cities, Strong Communities (SC2), a new and customized pilot initiative to strengthen local capacity and spark economic growth in local communities while ensuring taxpayer dollars are used wisely and efficiently. To accomplish this, federal agencies will provide experienced staff to work directly with six cities: Chester, PA; Cleveland, OH; Detroit, MI; Fresno, CA; Memphis, TN; and New Orleans, LA. These teams will work with local governments, the private sector, and other institutions to leverage federal dollars and support the work being done at the local level to encourage economic growth and community development.
Additionally, communities nationwide will be eligible to compete for comprehensive economic planning assistance through a grant competition designed to spark local innovation. By integrating government investments and partnering with local communities, SC2 channels the resources of the federal government to help empower cities as they develop and implement their vision for economic growth.
The Wall Street Journal reports that federal officials from HUD, Labor, Commerce, Transportation, and the Small Business Administration will be “deployed” to the cities. In other words, the Obama administration wants to send bureaucrats from federal agencies that are notorious for wasting other people’s money to help local bureaucrats do a more “efficient” job of spending other people’s money. That’s like asking Anthony Weiner to fix your Twitter account.
A couple of the cities chosen by the administration are ironic. Seriously, hasn’t the federal government done enough to New Orleans already? Detroit is an example of why decades of federal subsidies to urban centers in decline have been a failure. As I note in a Cato essay on HUD community development subsidies, of which Detroit has been the fifth largest recipient since 2000, federal handouts create a disincentive for local officials to pursue sound policy reforms:
Despite all the abuses, perhaps policymakers believe that Community Development Block Grants are nonetheless effective at stimulating growth. After 30 years and more than $100 billion it should be easy to demonstrate the program’s success, but it’s hard to find any examples of city rejuvenation created by the program. Instead, numerous cities, such as Detroit, which have been major CDBG recipients, have fallen further into decline. The reality is that no amount of federal money can overcome the local hurdles to growth in cities such as Detroit—including political corruption and destructive tax and regulatory policies. Indeed, just like international development aid, federal aid to the cities likely increases corruption and stalls much-needed local reforms.
Some people will view this initiative as a crass effort to shore up urban support for the president’s reelection campaign. There’s probably a good bit of truth to that criticism. But both parties have been using subsidies to state and local government to curry political support for decades. Therefore, Republicans who raise a stink over the administration’s initiative should be prepared to work for the involved programs to be abolished. Otherwise, the complaints will amount to little more than political hot air.
See this Cato essay for more on federal subsidies to state and local government.
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