Archive for December, 2011
Pension Problems — for Rick Perry and the Taxpayers
At the Huffington Post I write about the news that Rick Perry is currently collecting both a salary and a pension from the taxpayers, and about a worse pension claim by a former Maryland governor. But I note that the real problem for taxpayers is not a few governors’ pensions but rather unfunded liabilities in the trillions facing state and local governments. And I suggest why legislators let pensions get so out-of-control:
Why do pensions get so lavish? A 2009 study by the Cato Institute argued that in negotiations between elected officials and government unions, nobody really represents the taxpayers. Elected officials are far more responsive to organized interests like unions than to the unorganized citizen-taxpayers. In effect, the principal-agent problem that analysts of the corporation worry about is far worse in government because it is very difficult for taxpayers to control their theoretical agents, the elected officials and appointed managers of government.
Whole thing here.
How Would SOPA Be Used?
Proponents of the Stop Online Privacy Act (SOPA) and its Senate counterpart PROTECT-IP often affect incredulity that anyone would “defend piracy” by describing their valiant attempts to stamp out “rogue sites” as a threat to free speech or innovation. Recording Industry Association of America head Cary Sherman, for instance, recently insisted to The New York Times that the bills are “specifically designed to focus on the worst of the worst sites whose model is predicated on theft.” This would be more convincing if the content industries weren’t so clearly continuing their long, proud tradition of making aggressive and overbroad copyright claims that would impede speech and innovation.
In the 80s, Universal Studios famously sued Sony to block the sale of Betamax VCRs, which could be used to “facilitate” the infringement of copyrights in shows and movies aired on broadcast television. Blocking VCR sales, of course, might also have strengthened the market position of the DiscoVision laserdisc system being developed by MCA, Universal’s parent company. The Supreme Court eventually vindicated Sony, but Universal did manage to persuade one lower court to rule in their favor. If SOPA’s blocking provisions could be implemented in the physical world, every VCR (and maybe every Sony product) would have stopped working after that first favorable ruling, until Sony could meet the burden of proving its innocence in a U.S. court. Of course, under a rule like that, consumers might have been wary of buying a VCR in the first place.
And today? It’s the Universal Music Group heading to court, after using a dubious copyright claim to take down an embarrassing video in which pop stars sing the praises of the site Megaupload. Megaupload, you see, is a file locker site, and the recording industry has made it crystal clear that it’s at the top of the industry’s list of “rogue sites” that should be targeted under SOPA. Indeed, when the content industries talk about why SOPA is needed, they invariably cite file lockers generally as the very epitome of a “rogue site.” It is, therefore, a little awkward to have their own artists pointing out the obvious: File lockers can be used by pirates to share infringing files, but also host an enormous amount of perfectly legitimate content, uploaded by users who would be effectively silenced (and cut off from their own files) if the entire site were blocked. Similarly, the recording industry thinks copyright gives it the power to veto cloud-based music storage services, which serve as a kind of virtual hard drive from which users can remotely access and play their own legally purchased and uploaded music. It’s a great convenience for consumers—but the labels think they can use copyright to stop it unless they’re paid a cut.
Published: So What If Corporations Aren’t People?
Six months ago, I wrote about a law review article I had just co-authored with former Cato legal associate Caitlyn McCarthy regarding corporate rights post-Citizens United. Well, now it’s officially published, in The John Marshall Law Review. Here’s the abstract:
Corporate participation in public discourse has long been a controversial issue, one that was reignited by the Supreme Court’s decision in Citizens United v. FEC, 130 S. Ct. 876 (2010). Much of the criticism of Citizens United stems from the claim that the Constitution does not protect corporations because they are not “real” people. While it’s true that corporations aren’t human beings, that truism is constitutionally irrelevant because corporations are formed by individuals as a means of exercising their constitutionally protected rights. When individuals pool their resources and speak under the legal fiction of a corporation, they do not lose their rights. It cannot be any other way; in a world where corporations are not entitled to constitutional protections, the police would be free to storm office buildings and seize computers or documents. The mayor of New York City could exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he’d like to move his office there. Moreover, the government would be able to censor all corporate speech, including that of so-called media corporations. In short, rights-bearing individuals do not forfeit those rights when they associate in groups. This essay will demonstrate why the common argument that corporations lack rights because they aren’t people demonstrates a fundamental misunderstanding of both the nature of corporations and the First Amendment.
Go here to download “So What If Corporations Aren’t People?”
Kim Jong-il Is Dead
The AP and others are reporting that North Korean leader Kim Jong-Il has died at the age of 70. This has long been expected, but what comes next is unclear. The best case scenario would be a smooth transition to new leadership, one that is committed to opening up North Korea’s ossified political system and reforming its decrepit economy. That is unlikely, however. If a power struggle ensues, the North Korean people will be caught in the middle. The countries with the most at stake in the event of a complete collapse of the DPRK — especially South Korea and China — should take the lead in helping the North Koreans to sort out their future.
Vaclav Havel, RIP
Vaclav Havel, the playwright who led the Velvet Revolution that ended communism in Czechoslovakia, has died at 75. At a conference in Prague in 1995, Cato research fellow Stanley Kober drew on Havel’s writings to discuss civil society, the spirit of humility, and the case for limited government. He quoted Havel on the essential quality of a free government:
I am in favor of a political system based on the citizen, and recognizing all his fundamental civil and human rights in their universal validity, and equally applied. The sovereignty of the community, the region, the nation, the state–any higher sovereignty, in fact–makes sense only if it is derived from the one genuine sovereignty, that is, from human sovereignty, which finds its political expression in civic sovereignty.
Although Havel sometimes found himself at odds with his successor, Vaclav Klaus, on the extent of the market economy, Cato vice president Jim Dorn related Havel’s commitment to markets at a conference in Shanghai in 1997:
Though my heart be left of centre, I have always known that the only economic system that works is a market economy, in which everything belongs to someone–which means that someone is responsible for everything. It is a system in which complete independence and plurality of economic entities exist within a legal framework, and its workings are guided chiefly by the laws of the marketplace. This is the only natural economy, the only kind that makes sense, the only one that can lead to prosperity, because it is the only one that reflects the nature of life itself.
Vaclav Havel helped Czechoslovakia make the transition from one of the most repressive Communist regimes to one of the most successful post-Communist countries. RIP.
Christopher Hitchens on Audio
Earlier today I posted an edited transcript of Christopher Hitchens’s talk “Mayor Bloomberg’s Nanny State.” The only thing better than reading Hitchens is listening to him. So here’s an 8-minute excerpt from his talk:
This Week in Government Failure
Over at Downsizing the Federal Government, we focused on the following issues this past week:
- Extending the extra unemployment insurance benefits would be bad for the federal budget and bad for the economy, and there is a better long-term solution for unemployment than the current UI system.
- All of the massive speculation in the housing market didn’t “just happen”—it was the result of massive government distortions in our housing and financial markets.
- The Obama administration and Gov. Mitch Daniels team up to help build a technology park for defense contractors with taxpayer dollars.
- One would think just the sheer lunacy of federal education policymaking would make it clear to all that Washington should get out of education.
- The U.S. Postal Service gives Congress more time to inevitably kick the can down the road.
Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.
The DATA Act and Cato’s Transparency Work
In his final “Chairman’s Corner” blog post as head of the White House’s Recovery Act Transparency and Accountability Board, Earl Devaney highlights the need for orderly publication of data about government spending.
There is bi-partisan legislation now in the Congress—it’s called the Digital Accountability and Transparency Act, or DATA Act—that could accomplish this mission. But the reform bill faces an uphill battle, primarily because some in the bureaucracy prefer the status quo—a hodgepodge of data collection and display sites that, frankly, makes no sense at all unless you believe your government should confuse you.
The DATA Act would establish an independent board within the executive branch to track federal spending, and it would require federal agencies and recipients of federal funds to comply with reporting requirements set up by the board.
The board would “designate common data elements, such as codes, identifiers, and fields, for information required to be reported by recipients or agencies” (section 102 of the reported version, adding a new §3611 to title 31 of the U.S. code). The bill’s author, Rep. Darrell Issa (R-CA), spoke at our September Capitol Hill briefing, rolling out our legislative data model.
On Wednesday, another Cato Capitol Hill briefing highlighted the results of our work the last few months to model federal budgeting, appropriating, and spending. Should the DATA Act become law, the model we’ve been working on can illuminate the work of the proposed board. Use of our model will help ensure that the structure of government spending data supports public oversight use cases.
I don’t know that there needs to be a board—certainly not a permanent one. The bill authorizes more money than I think is required for the board, and the Congressional Budget Office’s cost estimate for implementing the requirements of the DATA Act seems wildly high. But the dynamics set in motion by making government spending more transparent may well reduce government spending by well more than even these high estimated costs.
The Defense Authorization Bill: Still Troubled
Both Houses have now passed the 2012 Defense Authorization Bill. The president, having dropped his veto threat, will sign it today. That’s too bad.
Authorization bills, keep in mind, are essentially a collection of restrictions and permissions slips for appropriations. In practice, however, budgeteers and appropriators have more say over how we spend. So while authorizers share responsibility for our bloated military spending, I’ll save my customary complaints on that topic for the appropriations bill and focus here on the new policies this bill sets.
On the positive side, the bill creates several reporting requirements that slightly aid future efforts to trim our military ambitions and spending. It requires the Pentagon to look at accelerating the minor drawdown in nuclear weapons required by the New Start Treaty. Another report is to examine options for shrinking our ballistic missile submarine fleet, which could save several hundred billion dollars annually. The bill also requires the administration to produce “independent” studies of overseas basing costs and opportunities for savings. These reports are not likely to themselves promote much change, but they might serve as ammunition for those that do.
A little-noted problem with the bill is that it authorizes the shift of base Pentagon spending to the Overseas Contingency Operations account—the war account. Because the Budget Control Act caps military spending but not war funding, costs shifted from the former to the latter reduce the cuts needed to get under the caps, creating an illusion of savings. Appropriators are trying to protect around $10 billion in base defense costs for 2012 using this ploy. Analysts are still figuring how big a shift in funds the authorization bill endorses. But as Taxpayers for Common Sense has noted, the answer is at least several billion.
Russia’s WTO Membership Approved, But Will U.S. Companies Benefit?
At their ongoing ministerial meeting in Geneva, the World Trade Organization’s 153 members earlier today unanimously approved Russia’s accession as a member. The ball is now in the court of the U.S. Congress to effectively ratify this historic development or to forfeit significant benefits for the U.S. economy.
Russia will officially become a member 30 days after its legislative Duma gives its final approval, which is expected to occur in March, April, or May of next year. But U.S. companies will enjoy enhanced access to the Russian market only after Congress votes to repeal application of the 1974 Jackson-Vanik amendment.
The Cold-War-era amendment bars normal trade relations from applying to communist and formerly communist nations that restricted the emigration of Jews. Although that issue disappeared decades ago, the amendment still requires an annual exemption for Russia. As long as the amendment applies, Russia can withhold the more liberal access to its market that it agreed to extend to all other WTO members upon its accession. As Reuters reports today:
The Jackson-Vanik amendment, a 1974 provision linking trade to emigration rights for Soviet Jews, would have to be revoked for Washington to be able to apply so-called “permanent normal trade relations” to Russia.
Failure to do so would allow Russia to deny the United States preferential access to its markets in what would amount to an own-goal for U.S. businesses such as Pepsico or Alcoa that have already invested billions of dollars in Russia.
With Washington and Moscow exchanging reproaches over the conduct of Russia’s parliamentary vote, repealing Jackson-Vanik will be a challenge as Republicans, who control the House, gird for next year’s U.S. presidential election.
“Russia’s membership in the WTO marks an important milestone in its history, but there is hard work yet to be done on the American side,” said Edward Verona, head of the U.S.-Russia Business Council, a business lobby that backs Russian WTO entry.
“If Jackson-Vanik still applies to Russia once it accedes, then U.S. companies and farmers will be at a disadvantage to their global competitors and will not have access to the preferential trade regime negotiated over the last 18 years.”
As for our take on why Congress should repeal Jackson-Vanik as soon as possible, you can read the long and the short of it on our website.
The Political Dynamics of Vouchers and Credits
The battle over school choice in Pennsylvania is instructive in many ways. The most obvious lesson is that education tax credits are easier to pass than are vouchers, ceteris paribus.
But why? The results of a recent poll from UnitePA and the Independence Hall Tea Party make the basic answer fairly plain: education tax credits are substantially more popular than vouchers. More than mere popularity is important, however. Credits are supported, on balance overall, by Democrats, and by a massive 30 points by Republicans. Both liberals and conservatives support credits overwhelmingly.
Vouchers are opposed on balance overall and by Republicans in particular. Unfortunately, this means that Republican legislators who may support vouchers for ideological reasons face a Republican electorate that is decidedly opposed to them. This has consequences; we saw a major rift among the Tea Party groups in PA this year over the issue, with many groups opposing the voucher bill. Between the flak he is sure to get from the government-school lobby and the instinctive opposition to vouchers from many Republican voters who like the public schools and dislike government handouts (which is how vouchers are perceived), a Republican legislator might well put his seat at risk by voting for a voucher.
SEC Claims Fannie and Freddie Were Deep into Subprime Lending
One of the regular claims from Fannie Mae and Freddie Mac apologists (you know who you are) is that the two entities were blameless as they weren’t involved in subprime. Back in 2008, Paul Krugman went so far as to say, “they didn’t do any subprime, because they can’t.” Just taking 10 minutes to read the actual statute and regulations would have revealed to him that they actually could. Krugman went on to say, “Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.” Of course, just reading Fannie’s 10-K would have revealed that claim to be false. But why let facts get in the way?
Fortunately, the Securities and Exchange Commission has decided that not only could the GSEs buy subprime, but they did in fact do so and, even worse, they lied about it. The SEC’s complaints can be found here, and despite all the legal jargon, they make for quite an interesting read. If you’d like something with a little less legalese, my analysis of the GSEs’ role in subprime reaches similar conclusions.
Now of course, just like anyone else, former Fannie and Freddie executives deserve their day in court and should be assumed innocent until proven guilty. I hope that, in this instance, the SEC abandons its usual flawed practice of reaching settlements and avoiding trials. The public policy issues are simply too important here to let the executives just pay a settlement and bury the agreement. After having spent, so far, $160 billion bailing out these entities, the public has a right to know what was happening inside them. And of course, if the executives are innocent, they have the right to see that displayed before the public in a court of law.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
