I did the above interview recently with ChoiceMedia.tv on the subject of education tax credits and vouchers, in which I argued that credits are a better way of ensuring universal access to the education marketplace. Credits can either directly reduce the taxes owed by families who pay for their own children’s education (as in Illinois and Iowa), or they can offset donations taxpayers make to non-profit k-12 scholarship programs that provide tuition assistance to the poor (as in Pennsylvania, Arizona, Florida, and several other states).

The interview elicited an important question from a commenter: If financial assistance for the poor comes from scholarship programs, isn’t there a risk that those programs will impose restrictions on how the scholarships can be used, thereby curtailing poor families’ educational options?

Minimizing that problem is actually one of the many reasons to prefer education tax credits over vouchers. Any time someone other than the parents is footing the bill for a child’s education, there is the risk that this third party is going to limit parents’ choices. The worst case, historically, has been when that third party is the government. When governments pay for schooling, there is a single set of regulations on what choices parents can make, and there is no way to avoid those regulations short of rejecting the financial assistance altogether—which the poorest families have difficulty doing. Vouchers bring with them this single set of government rules (and it is often an extensive one as I discovered in this study).

By contrast, scholarship tax credit programs, like the one in Pennsylvania, give rise to a multitude of different organizations that provide tuition assistance to poor families. If any one of those organizations decides to impose a particular set of restrictions on the use of its scholarships, it has no effect on any of the other organizations. Parents looking for financial assistance are thus free to seek it from a scholarship organization that aligns with their needs and values. The multiplicity of different sources of funding is instrumental—in fact it is essential—in ensuring that poor parents’ choices are not curtailed.

I’ve made this argument in a variety of places, most recently in a U.S. Supreme Court brief in the Arizona tax credit case ACSTO v. Winn.

Government, Education, and Freedom is a post from Cato @ Liberty - Cato Institute Blog

In my Encyclopedia Britannica column this week, I take a look at “the responsibility of judges to strike down laws, regulations, and executive and legislative actions that exceed the authorized powers of government, violate individual rights, or fail to adhere to the rules of due process.”

Certainly they don’t always live up to those expectations, as Robert A. Levy and William Mellor wrote in The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom. 

The column might have been more timely last summer, when Judge Andrew Napolitano concluded one of his Freedom Watch programs on the Fox Business Channel by hailing four federal judges who had courageously and correctly struck down state and federal laws:

• Judge Martin L. C. Feldman, who blocked President Obama’s moratorium on oil drilling in the Gulf of Mexico;
• Judge Susan Bolton, who blocked Arizona’s restrictive immigration law;
• Judge Henry Hudson, who refused to dismiss Virginia’s challenge to the health care mandate; and
• Judge Vaughn Walker, who struck down California’s Proposition 8 banning gay marriage.

That was a good summer for judicial protection of liberty. But as I note, there have been more examples this year, reminding us of James Madison’s predictions that independent judges would be “an impenetrable bulwark against every assumption of power in the legislative or executive.”

How Judges Protect Liberty is a post from Cato @ Liberty - Cato Institute Blog

A huge school choice opportunity has been lost for the moment in Pennsylvania. But that lost opportunity is not the voucher program that has  drawn so much attention.

The political conflagration touched off by the push for a targeted, failing-schools voucher program incinerated along with it a massive expansion of an existing, popular, successful, bipartisan-supported, and better program; the Educational Improvement Tax Credit (EITC). The House passed this expansion of credit program by a massive margin. And when I say “massive,” I mean 96 percent in favor to 4 percent opposed. Unfortunately, a stand-alone credit bill was not considered in the Senate, and the expansion fell by the wayside as the voucher battle raged.

In the next session, it would be good policy and politics to consider vouchers and credits separately. They are substantively different means of fostering choice, and the public deserves a clear debate and vote on both policies in separate bills.

The Educational Improvement Tax Credit program is vastly superior to all of the voucher bills. Vouchers are open to credible legal challenges, afford no accountability directly to taxpayers, and government money brings stifling government regulations. Furthermore, giving vouchers only to kids in or around “failing schools” won’t produce a dynamic market because there is an ambiguous, limited, and potentially shifting customer base. A failing-schools voucher program is a terrible policy design.

The EITC should not be legislatively handcuffed to vouchers. Vouchers are an inferior policy and a proven political liability. For once the popular, politically smart, most principled, and most effective thing to do are all the same; drop the voucher drama and expand the education tax credit program.

School Choice Murder-Suicide in Pennsylvania is a post from Cato @ Liberty - Cato Institute Blog

On July 8th, Sheila Bair will step down as Chair of the Federal Deposit Insurance Corporation (FDIC).  While I believe she’s gotten a lot wrong (such as not preparing the fund for the coming crisis), she has been about the only voice among senior bank regulators for actually ending too-big-to-fail.  With her departure, we might lose that one voice.  Later this year, Kansas City Fed President Tom Hoenig is also scheduled to leave his current position.

Hoenig has actually gone beyond Bair in trying to address too-big-to-fail, having called for the largest banks to be broken up.  While I don’t believe that should be our first approach, having an advocate for both the taxpayer and the overall economy at the helm of the FDIC could make a significant difference.

Given that Section 2 of the Federal Deposit Insurance Act requires the FDIC to have a bipartisan board, President Obama is faced with the choice of either appointing a non-Democrat or asking Vice-Chair Marty Gruenberg to leave.  While I have no idea as to Hoenig’s politics, he’d likely be able to pass that test.

Hoenig has also been willing to publicly challenge Bernanke on a number of issues.  Given the narrow group-think among regulators that contributed to the crisis, having a loud, credible, independent voice among bank regulators is solely needed.  Hoenig again fits that bill.  His appointment would also offer Obama a chance to show that he is not completely beholden to the Geithner “never seen a bailout I didn’t like” worldview.

Perhaps with Hoenig at the helm, we can actually begin a debate about reducing the moral hazard created by the Federal Reserve.  While Bair was all too willing to see both insurance coverage and regulatory powers of the FDIC expanded, Hoenig strikes me as open-minded to the very real excess bank risk-taking that is encouraged by the existence of the FDIC.

Hoenig for FDIC is a post from Cato @ Liberty - Cato Institute Blog

Self-anointed elites have been relentless in prodding government planners to apply their enlightened solutions for the purported benefit of the ignorant masses. As a result, the federal government has become a Super Nanny monitoring and guiding the intimate activities of the nation’s 300 million inhabitants. However, the government is not altruistic and does not have the solutions for how people should live their lives.

The amalgamation of programs and regulations that constitute the federal government is basically a reflection of the myriad special interests that have won a seat at Uncle Sam’s table. Government consists of fallible men and women who are naturally susceptible to pursuing policies that have less to do with the “general welfare” and more to do with rewarding the privileged birds incessantly chirping in their ears.

One result is that government programs often work at cross purposes. A perfect illustration is the confused U.S. Department of Agriculture, which spends taxpayer money subsidizing fatty foods while at the same time setting nutritional guidelines with the purported aim of getting Americans to eat healthier.

The New York Times explains:

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

Your tax dollars are being used by the USDA to help Domino’s Pizza (and Taco Bell, Pizza Hut, Wendy’s, and Burger King according to the article) sell its product. Of course, the government isn’t trying to help these fast food giants so much as it’s trying to help a particularly favored special interest: farmers.

While calls to get rid of subsidies for Dairy Management would obviously be on target, the better move would be to get rid of the entire USDA, which the New York Times comically refers to as “America’s nutrition police.” The USDA has been around for almost 150 years, and yet Americans have never been fatter. If there’s a solution to America’s obesity “problem,” it won’t be found in Washington. In a free society, the only solution is to make individuals responsible for the consequences of their own decision-making.

See these essays for more on downsizing the U.S. Department of Agriculture.

Government Cheese is a post from Cato @ Liberty - Cato Institute Blog

Today POLITICO Arena asks:

Is it worrisome that Americans spend on political advocacy – determining who should make and administer the laws – much less than they spend on potato chips, $7.1 billion a year?

My response:

For decades among modern liberals it has been an article of faith — devoid of evidence — that money corrupts politics and that there is too much money in politics — “unconscionable” amounts, we’ve been told, repeatedly. Thus the crusade to restrict and regulate in exquisite detail every aspect of campaign finance, beginning in earnest with the Federal Election Campaign Act of 1971 and culminating with the Bipartisan Campaign Reform Act of 2002 (McCain-Feingold). Yet after every new restriction along that tortuous course, ever more money has flowed into our political campaigns. But for all that, they’re no more corrupt than they’ve ever been. In fact, the best evidence of the fool’s errand that campaign finance “reform” has been all along is found in comparisons between states with little and states with extensive campaign finance regulations: When it comes to corruption, there’s not a dime’s worth of difference between the regulated and the unregulated states.

But all those regulations have accomplished two things that should give liberals pause. First, by virtue of their sheer complexity and cost, they pose a serious impediment to those who would challenge incumbents, who already have a major leg up on reelection. And second, because we cannot limit private campaign contributions and expenditures altogether, thanks to the First Amendment, the regulations have led to money being diverted away from candidates and parties and into other, often unknown, hands, over which the candidates and parties have no control — by design. As a result, we see candidates today having to disavow messages underwritten by people who would otherwise, but for the regulations, have given directly to the candidate or the party. But that outcome was absolutely predictable – and was predicted. Two good reasons to end this campaign finance regulation folly and let individuals and organizations contribute and spend as they wish. What are we afraid of, freedom?

Campaign Finance: Don’t Confuse Me with the Evidence is a post from Cato @ Liberty - Cato Institute Blog

Yesterday, FoxNews.com posted a story on what appears to be a growing problem for public school systems across the country: accommodating Muslim holidays. Unfortunately, the report didn’t contain the solution to the problem. It did, though, contain a very succinct discussion of the root of the problem; an example of the good intent that causes people to ignore the problem; and the kind of “solution” that is ultimately at odds with the most basic of American values.

A quote from New York City mayor Michael Bloomberg captured the essence of the problem:

One of the problems you have with a diverse city is that if you close the schools for every single holiday, there won’t be any school.

There you have the basic conundrum in a nutshell: Whenever you have a diverse population — whether in a hamlet, city, state, or nation — and everyone has to support a single system of government schools, you cannot possibly treat all people – or even most of them — equally. Either there are winners and losers, or nobody gets anything.

Understanding why public schooling  can’t handle diversity — why, simply, one size can’t fit all — is really basic common sense. So why isn’t there more outrage over, or even just recognition of, the utter illogic of our education system? Mohamed Elibiary, President and CEO of the Freedom and Justice Foundation, illustrated the attitude that likely causes lots of Americans to wear blinders:

I’m a little torn. I want Muslims to be getting the same recognition as other Americans, but at the same time I don’t want to see public education systems be a battleground between religious identities, because then we’re missing the point of why we have a public education system to begin with.

No doubt many people truly believe as Elibiary does: that a major purpose of public schooling is to bring diverse people together and, by doing so, unify them. It’s a fine intention, but also a classic case of intent not matching reality. Indeed, the reality is often very much the opposite. Rather than unifying people, public schooling has repeatedly forced religious conflict (as well as conflict over race, ethnicity, political philosophy, curriculum, and on and on).

It started almost on Day One, when Horace Mann, a Unitarian, was locked in conflict with Calvinists over what kind of Protestantism the state’s nascent “common schools” would teach. When Roman Catholics began arriving in America in large numbers, battles — sometimes deadly – erupted over who would get what kind of Christianity in the public schools. When Tennessee outlawed the teaching of evolution, the Scopes “Monkey Trial” fired the first big blast in the war over the teaching of human origins, a fight we are still very much in. In the latter part of the twentieth century, the fighting moved to what, if any, religious expression is permissible in public schools. And now, we’re getting fired up over whose holidays will get the most deference from government schools. It almost seems like war without end.

Finally, the article gropes at – but doesn’t grab — the solution to our education and diversity problem. Says Georgetown University professor Bradley Blakeman:

That’s the beauty of having a school district responsive to the localities as opposed to blanket rules that affect multiple jurisdictions, states or even countries. One size doesn’t fit all when it comes to these kinds of rules and regulations. We’re not a homogeneous nation, which makes us so great.

Blakeman is heading in the right direction (even as federal policy pushes us the opposite way): The closer that control of education gets to individual people, the more easily it can be tailored to unique needs, values, and desires. Unfortunately, Blakeman fails to identify the obvious last step: completely decoupling government funding from provision of education. In other words, instituting universal educational choice. Making matters worse, Blakeman for all intents and purposes concludes that as long as decisions are made at the local level, and the majority gets its way, everything is fine:

A school should reflect the beliefs and practices of the community that they serve. And if school boards are sensitive to their populations, that’s fine, provided the decisions of the board reflect the majority opinion of its community.

It may sound harsh, but one way to describe this is simply ”tyranny of the majority” — whatever the majority wants, it gets, as long as it is the local majority. It’s a solution that completely ignores that ours is not supposed to be a nation of majority rule, but rule of law that protects individual freedom. And, of course, one of the most basic protections is the prohibition on government tipping the scales in favor of one religion, two religions, or no religion at all. 

This solution also fails, by the way, to address the problem at hand: School districts — not states or Washington — having to accommodate diverse populations. In other words, ”local control” is ultimately no solution at all.

Universal choice is, quite simply, the only system of education compatible with the most basic of American values — individual liberty – and the only way to avoid constant, divisive battles over who will get what out of the schools. Hopefully, people will come to realize that before our conflicts get even worse.

Take Off the Blinders: Diversity Demands Educational Freedom is a post from Cato @ Liberty - Cato Institute Blog

Christopher Weaver of Kaiser Health News has an excellent article in today’s Washington Post on the various government agencies that will now be deciding what health insurance coverage you must purchase, and how many of those decisions will ultimately fall to lobbyists and politicians:

For years, an obscure federal task force sifted through medical literature on colonoscopies, prostate-cancer screening and fluoride treatments, ferreting out the best evidence for doctors to use in caring for their patients. But now its recommendations have financial implications, raising the stakes for patients, doctors and others in the health-care industry.

Under the new health-care overhaul law, health insurers will be required to pay fully for services that get an A or B recommendation from the U.S. Preventive Services Task Force…[which] puts the group in the cross hairs of lobbyists and disease advocates eager to see their top priorities — routine screening for Alzheimer’s disease, diabetes or HIV, for example — become covered services.

And it’s not just the USPSTF that will be deciding what coverage you must purchase:

[P]lans must also cover a set of standard vaccines recommended by the Advisory Committee on Immunization Practices, as well as screening practices for children that have been developed by the Health Resources and Services Administration in conjunction the American Academy of Pediatrics. Health plans will also be required to cover additional preventative care for women recommended under new guidelines that the Department of Health and Human Services is expected to issue by August 2011.

The chairman of the USPSTF says the task force will try “to stay true to the methods and the evidence… the science needs to come first.”  A noble sentiment, but as my colleague Peter Van Doren likes to say, “When politics and science conflict, politics wins.”  Witness how industry lobbyists have killed or neutered every single government agency that has ever dared to produce useful comparative-effectiveness research.  (You’re next, Patient-Centered Outcomes Research Institute!)

When government agencies are making non-scientific value judgments–e.g., are these studies reliable enough to merit an A or B recommendation? what should be the thresholds for an A or B recommendation? will the benefits of mandating this coverage outweigh the costs?–politics does even better.  Witness Sen. Barbara Mikulski (D-Md) overruling a USPSTF recommendation when she “inserted an amendment in the [new] health-care law to explicitly cover regular mammograms for women between 40 and 50. ”

Speaking of value judgments, the one flaw in Weaver’s article is that it inadvertently conveys a value judgment as if it were fact.  He writes that the mandate to purchase coverage for preventive services is “good news for patients” and that 88 million Americans “will benefit.”  Whether the mandate is good news for patients depends on whether patients value the added coverage more than the additional premiums they must pay.  (The administration estimates that premiums for affected consumers will rise an average of 1.5 percent.  One insurer puts the average cost at 3-4 percent of premiums.  Naturally, some consumers will face above-average costs.)  Whether the benefits outweigh the costs is ultimately a subjective determination. (The best way to find out, as it happens, is to let consumers make the decision themselves.)

Your Health Insurance, Designed by Lobbyists is a post from Cato @ Liberty - Cato Institute Blog

In a recent speech to real estate interests, former Clinton HUD secretary Henry Cisneros preposterously claimed that the recent housing meltdown “occurred not out of a governmental push, but out of a hijacking of the homeownership process by some unscrupulous interests.”

The only criticisms Cisneros could muster for the government’s housing policies over the past 20 years were that regulations weren’t tough enough and it should have focused more on rental subsidies.

The reality is that Cisneros-era HUD regulations and policies directly contributed to the housing bubble and subsequent burst as a Cato essay on HUD scandals illustrates:

• Cisneros’s HUD pursued legal action against mortgage lenders who supposedly declined higher percentages of loans for minorities than whites. As a result of such political pressure, lenders begin lowering their lending standards.

• On Cisneros’s watch, the Community Reinvestment Act was used to pressure lenders into making more loans to moderate-income borrowers by allowing regulators to deny merger approvals for banks with low CRA ratings. The result was that banks began issuing more loans to otherwise uncreditworthy borrowers, while purchasing more CRA mortgage-backed securities. More importantly, these lax standards quickly spread to prime and subprime mortgage markets.

• The Clinton administration’s National Homeownership Strategy, prepared under Cisneros’s direction, advocated “financing strategies, fueled by creativity and resources of the public and private sectors, to help homebuyers that lack cash to buy a home or income to make the payments.” In other words, his policies encouraged the behavior that he now calls “unscrupulous.”

• Cisneros’s HUD also put Fannie Mae and Freddie Mac under constant pressure to facilitate more lending to “underserved” markets. It was under Cisneros’s direction that HUD agreed to allow Fannie and Freddie credit toward its “affordable housing” targets by buying subprime mortgages. Fannie and Freddie are now under government conservatorship and will cost taxpayers hundreds of billions of dollars.

Cisneros now serves as the executive chairman of an institutional investment company focused on urban real estate. Might that explain why Cisneros is now a fan of subsidizing rental housing?

“Unscrupulous” would be a good word to describe the millions of dollars Cisneros has made in the real estate industry following his exit from government.

From the Cato essay:

In 2001, Cisneros joined the board of Fannie Mae’s biggest client: the now notorious Countrywide Financial, the company that was center stage in the subprime lending scandals of recent years. When the housing bubble was inflating, Countrywide and KB took full advantage of the liberalized lending standards fueled by Cisneros’s HUD. In addition to the money he received as a KB director, Cisneros’s company, in which he held a 65 percent stake, received $1.24 million in consulting fees from KB in 2002.

When Cisneros stepped down from Countrywide’s board in 2007, he called it a “well-managed company” and said that he had “enormous confidence” in its leadership. Clearly, those statements were baloney—Cisneros was trying to escape before the crash. Just days before his resignation, Countrywide announced a $1.2 billion loss, and reported that a third of its borrowers were late on mortgage payments. According to SEC records, Cisneros’s position at Countrywide had earned him a $360,000 salary in 2006 and $5 million in stock sales since 2001.

Cisneros Rewriting HUD History is a post from Cato @ Liberty - Cato Institute Blog

Arguably the most troubling aspect of the push for national education standards has been the failure — maybe intentional, maybe not — of standards supporters to be up front about what they want and openly debate the pros and cons of their plans. Unfortunately, as Pioneer Institute Executive Director Jim Stergios laments today, supporters are using the same stealthy approach to implement their plans on an unsuspecting public.

Standing in stark contrast to most of his national-standards brethren is the Fordham Institute’s Mike Petrilli, who graciously came to Cato last week to debate national standards and is now in a terrific blog exchange with the University of Arkansas’s Jay Greene. Petrilli deserves a lot of credit for at least trying to answer such crucial questions as whether adopting the standards is truly voluntary, and if there are superior alternatives to national standards. You can read Jay’s initial post here, Mike’s subsequent response here, and Jay’s most recent reply right here.

I’m not going to leap into most of Jay and Mike’s debate , though it covers a lot of the same ground we hit in our forum last week, which you can check out here. I do want to note two things, though: (1) While I truly do appreciate Mike’s openly grappling with objections to what might be Fordham’s biggest reform push ever, I think his arguments don’t stand up to Jay’s, and (2) I think Mike’s identifying national media scrutiny as what will prevent special-interest capture of national standards is about as encouraging as BP telling Gulf-staters ”we’ve got a plan!”

Let’s delve into #2.

For starters, how much scrutiny does the national media give to legislating generally? Reporters might hit the big stuff and whatever is highly contentious, but even then how much of the important details do they offer? Think about the huge health care debate that just dominated the nation’s attention. How many details on the various bills debated did anybody get through the major media? How much clarity? Heck, sometimes legislators were debating bills that even they hadn’t seen, much less reporters. Of course, the health care bill was much bigger than, say, the No Child Left Behind Act, but remember how long after passage of NCLB it was before the Department of Education, much less the media, was able to nail down all of its important parts?

Which brings us to a whole different layer of policy making, one major media wade into even less often than legislating: writing regulations. How many stories have you read, or watched on TV news, about the writing of regulations for implementing anything, education or otherwise? I’d imagine precious few, yet this is where often vaguely written statutes are transformed into on-the-ground operations. It’s also where the special interests are almost always represented — after all, they’re the ones who will be regulated — but average taxpayers and citizens? Don’t go looking for them.

Finally, maybe it’s just me, but I feel like I keep hearing that daily newspapers are on their way out. Of course they might be replaced by cable television news, but those outlets almost always fixate on just the few, really big stories of the day — war, economic downturns, murders, golfers’ affairs, celebrity arrests – and education can rarely compete for coverage. And that seems likely to remain the case even if the education story is as scintillating as, say, federal regulators reducing the content of national standards by five percent. Indeed, education is so low on the reporting totem poll that the Brookings Institution has undertaken a crusade to save its life, and has noted that right now “there is virtually no national coverage of education.”

Wait, virtually none? Uh-oh. If national media scrutiny is supposed to be the primary bulwark protecting national standards from the special-interest capture that has repeatedly doomed state standards, the fact that almost no such coverage actually takes place really doesn’t give you a warm-fuzzy, does it? And if special-interest capture can’t be prevented — if standards can’t be kept high – then the entire raison d’etre of national standards crumbles to the ground.  

Which helps explain, of course, why national standards supporters are typically so eager to avoid debate: Their proposal is hopelessly, fatally flawed.

Plowing Through the Defenses of National Education Standards is a post from Cato @ Liberty - Cato Institute Blog

As recent posts in this space indicate, advocates of individual liberty have a variety of views on the proper policy response to illegal immigration. Whatever the disagreements, I suspect there’s some degree of consensus that certain proposed remedies are entirely too Draconian. From the California Labor and Employment Law Blog:

The U.S. Attorneys Office in San Diego has recently criminally prosecuted a French bakery for allegedly engaging in an intentional pattern and practice of hiring unauthorized workers. As part of the indictment, the Government is seeking hefty monetary fines, prison time for the owner and management, and asset forfeiture of the entire business to the Government. While the Government does not have experience running a French bakery, they are getting very serious about enforcing I-9 regulations.

More details on the French Gourmet prosecution can be found at the San Diego Union-Tribune and Restaurant Hospitality.

When government began pushing for asset forfeiture powers, some imagined that the formidable power would remain mostly confined to use in, say, illegal drug or money laundering prosecutions. But that’s not how it has worked. And immigration is hardly the only area in which employers should be worried about the expanding bounds of criminalization. Bills pending in Congress would criminalize “misclassification” of employees — which commonly consists of disagreeing with the government or with labor unions as to whether particular employees should count as independent contractors not covered by overtime and similar federal labor laws. Are we far from the day when prosecutors will start proposing forfeitures against employers over such infractions?

Feds Propose Forfeiture as Immigration Employer Sanction is a post from Cato @ Liberty - Cato Institute Blog

Last week Paul Krugman seized on the Gulf oil spill as another occasion to bash libertarians in general and the great Milton Friedman in particular. On Friday David skewered the Times columnist over his odd rhetorical ploy of treating politicians’ failure to follow Friedman’s principles as a refutation of those principles. Now economist Alex Tabarrok at Marginal Revolution reports that Krugman also completely misunderstands the current set of laws governing oil spill liability:

The Oil Pollution Act of 1990 (OPA), which is the law that caps liability for economic damages at $75 million, does not override state law or common law remedies in tort (click on the link and search for common law or see here). Thus, Milton Friedman’s preferred remedy for corporate negligence, tort law, continues to operate and there is no doubt that BP’s potential liability under common law alone would be in the billions of dollars.

…The point of the OPA was not to limit tort law but to supplement it.

Tort law, as traditionally understood, could only be used to recover damages to people and property rather than force firms to pay cleanup costs per se. Thus, in the OPA as I read it — and take the details with a grain of salt since I’m not a lawyer–there is no limit on cleanup costs. Moreover, the OPA makes the offender strictly liable for cleanup costs which means that if these costs are proven the offender must pay them regardless (there are a few defenses, such as an act of war, but they are unlikely to apply). The offender is also strictly liable for up to $75 million in economic damages above and beyond cleanup costs. Thus the $75 million is simply a cap on the strictly liable damages, the damages that if proven BP has to pay regardless. But there is no limit, even under the OPA, on economic damages in the event that BP failed to follow regulations or is otherwise shown to be negligent (same as under common law).

The link Krugman supplies, and perhaps the source of his error, was this Talking Points Memo item baldly describing “the maximum liability for oil companies after a spill” as “a paltry $75 million.” Even the most passing acquaintance with the aftermath of real-world oil spills should have been enough for Krugman and TPM author Zachary Roth to realize that liability for assessments to this one federal rainy-day fund is but one component, perhaps but a minor one, of liability for overall spill damage. And even as regards this one specialized federal fund, Krugman and Roth got it wrong, as a glance at the May 1 edition of Krugman’s own paper would have revealed:

When a rich and well-insured company like BP is responsible for the spill, the government will seek reimbursement of what it spends on cleanup from the company and its insurers.

So Krugman’s post not only strained to take a cheap shot at libertarians, but also thoroughly botched a factual background that it would have been easy enough for him to have looked up. Other that that, it was fine.

Krugman and Oil Spills, cont’d is a post from Cato @ Liberty - Cato Institute Blog

The Wall Street Journal has an important editorial today on how the financial “reform” bill being considered by Congress could help kill the angel investment industry in the United States.

Burying angels under new regulations would be part of a one-two knock-out blow for this group of more than 300,000 higher-income Americans who invest directly into start-up companies. The Obama administration’s tax-increase policies would be the other blow, as I testified to the Senate earlier this year. 

Angels have played a crucial role in America’s dynamic job-creating economy over the decades. Policymakers would be absolutely crackers to screw up such a successful part of our innovation economy.

Angel Investors is a post from Cato @ Liberty - Cato Institute Blog

The Obama administration thinks it has discovered the perfect formula to cram legislation through in a hurry:  Demonize some prominent firm within an industry you plan to redesign, and then pass a law that has nothing to do with the accusation against the demonized firm.  They did this with health insurance and now they’re trying it with finance.

With health insurance, the demon was Anthem Blue Cross Blue Shield of California, which Obama accused of raising premiums by “anywhere from 35 to 39 percent.” Why didn’t some curious reporter interview a single person who actually paid 39% more, or quote from a letter announcing such an increase?  Because it didn’t happen.  Insurance premiums are regulated by the states, and California wouldn’t approve such a boost.  Yet the media’s uncritical outrage over that 39% rumor helped to enact an intrusive, redistributive health bill that has nothing to do with health insurance premiums (which remain regulated by the states).

Today, the new demon de jour is Goldman Sachs, a handy scapegoat to promote hasty financial rejiggering schemes  The SEC’s suspiciously-timed civil suit against Goldman looks as flimsy as the last month’s health insurance story.  It also looks unlikely to win in court.

As Washington Post columnist Sebastian Mallaby explains, “This is a non-scandal. The securities in question, so-called synthetic collateralized debt obligations, cannot exist unless somebody is betting that they will lose value.”  In such a zero-sum contest, big investors who went long knew perfectly well that other investors had to be taking the other side of the bet.  Goldman lost $90 million by betting this CDO would go up; John Paulson went short.

Columnists have moralized about the unfairness of the short investor (Paulson) negotiating the terms of this deal with a long investor, ACA Management, which had the last word. This too, notes Mallaby, “is another non-scandal.  An investor who wants to bet against a bundle of mortgages is entitled to suggest what should go into the bundle. The buyer is equally entitled to make counter-suggestions.  As the SEC’s complaint states clearly, the lead buyer in this deal, a boutique called ACA that specialized in mortgage securities, did precisely that.”

Like the earlier fuming about Anthem California, this new SEC publicity stunt is likewise irrelevant to the pending legislation.  Congress hopes to get standardized derivatives traded on an exchange. But synthetic collateralized debt obligations dealing with a customized bundle of securities could not possibly be traded on an exchange, and would therefore be untouched by reform.

Losses sustained by a few financial speculators on one exotic derivative had nothing to do with starting a global recession in December 2007 or the related financial crisis of September 2008. The core of the latter crisis was mortgage-backed securities per se, yet Goldman was only the 12th largest private MBS issuer in 2007.  Fannie Mae and Freddie Mac were and are the biggest risk; any reform that excludes them is a fraud.

The SEC’s dubious civil suit against Goldman is a wasteful diversion at best. It has nothing to do with the Obama administration’s suicidal impulse to impose more tough regulations and taxes on banks to encourage them to lend more.

[Cross-posted at NRO's The Corner]

SEC vs. Goldman Sachs: Legislation by Demonization is a post from Cato @ Liberty - Cato Institute Blog

Alex Nowrasteh and Ryan Young of the Competitive Enterprise Institute make the case for immigration reform in an especially appealing way in a fresh op-ed this week in the Detroit News.

In a commentary article titled, “Fix immigration rules to crush black market,” they dissect a well-meaning but flawed Obama administration effort to fix the dysfunctional H-2A visa program for temporary farm workers. Instead of fine tuning an unworkable law, Nowrasteh and Young advocate liberalization:

That means making H-2A visas inexpensive, easy to obtain, and keeping the related paperwork and regulations to a minimum. That means no minimum wage hike. No costly background check requirements. People rarely break laws that are reasonable and easy to obey.

When legal channels cost too much in time and money, people will turn to illegal channels every time. That’s how the world works. Getting rid of immigration’s black market begins with admitting that fact.

Hear, hear.

Ending the Black Market in Low-skilled Labor is a post from Cato @ Liberty - Cato Institute Blog

• Countdown: A quick rundown of some of the best (and worst) ideas for health care reform.

• The case for high-deductible health insurance:  “Of every dollar spent on health care in this country, just 13 cents is paid for by the person actually consuming the goods or services….As long as someone else is paying, consumers have every reason to consume as much health care as is available….This all but guarantees that health care costs and spending will continue their unsustainable path. And that is a path leading to more debt, higher taxes, fewer jobs and a reduced standard of living for all Americans.”

• McDonald v. Chicago: A new Supreme Court battle over the right to bear arms.

• Reality: The real housing crisis was the bubble, not the bust. “Washington must stop and re-learn basic economics. First, when you’re in a hole, stop digging. In the case of housing, as a country, we built too much. The cure is to build less.”

• Podcast: “Charge Back, Forward on Financial Regulations” featuring Mark A. Calabria.

Monday Links is a post from Cato @ Liberty - Cato Institute Blog

Yesterday the Washington Post ran a nice profile about Tom Palmer and other DC residents who are challenging the constitutionality of regulations that make it a crime for people to bring their firearm outside of their residence for purposes of self-defense.  Most criminal attacks occur outside the home (around 87%) and the criminals are armed and always have the advantage of choosing when they’ll strike — and that’s usually when there are no cops around.

Related Cato scholarship here.  More here.

New Lawsuit against DC Government is a post from Cato @ Liberty - Cato Institute Blog

Last night, after the SOTU, Politico Arena asked:

State of the Union:  How did he do?

My response:

If you don’t look behind the stirring rhetoric, this was a fine performance — and many of Obama’s supporters will leave it right there. But behind it all is a single theme: People have problems, and government’s job is to solve those problems. Obama and his people, including many in Congress, still don’t get it. The recent elections in Virginia, New Jersey, and Massachusetts were not about government doing more or better. They were not about all the subsidies or jobs programs or green initiatives Obama spoke about tonight. They were about government getting out of the way — about lowering taxes and lifting burdensome regulations so that businesses, large and small, can once again provide the jobs and the prosperity that have been crippled by the kinds of programs Obama was promoting tonight. This was micromanagement from Washington. We need management from Main Street.

Early on in his speech Obama said that many Americans don’t understand “why Washington has been unable or unwilling to solve any of our problems.” Doubtless that’s true. But many more Americans do understand why. And so, as when he said that health care reform was in trouble because he had not explained it more clearly, Obama continues to believe that the problem is with the messenger, not with the message. Fortunately, we have elections in this country. I predict that come November the people will make it clear again that we don’t need yet another round of “industrial policy.” We need less of that, and more of what this country is really about — freedom.

Obama’s ‘New’ Industrial Policy is a post from Cato @ Liberty - Cato Institute Blog

In a new study titled, “Obama’s Prescription for Low-Wage Workers: High Implicit Taxes, Higher Premiums,” I show that the House and Senate health care bills would impose implicit tax rates on low-wage workers that exceed 100 percent.  Here’s the executive summary:

House and Senate Democrats have produced health care legislation whose mandates, subsidies, tax penalties, and health insurance regulations would penalize work and reward Americans who refuse to purchase health insurance. As a result, the legislation could trap many Americans in low-wage jobs and cause even higher health-insurance premiums, government spending, and taxes than are envisioned in the legislation.

Those mandates and subsidies would impose effective marginal tax rates on low-wage workers that would average between 53 and 74 percent— and even reach as high as 82 percent—over broad ranges of earned income. By comparison, the wealthiest Americans would face tax rates no higher than 47.9 percent.

Over smaller ranges of earned income, the legislation would impose effective marginal tax rates that exceed 100 percent. Families of four would see effective marginal tax rates as high as 174 percent under the Senate bill and 159 percent under the House bill. Under the Senate bill, adults starting at $14,560 who earn an additional $560 would see their total income fall by $200 due to higher taxes and reduced subsidies. Under the House bill, families of four starting at $43,670 who earn an additional $1,100 would see their total income fall by $870.

In addition, middle-income workers could save as much as $8,000 per year by dropping coverage and purchasing health insurance only when sick. Indeed, the legislation effectively removes any penalty on such behavior by forcing insurers to sell health insurance to the uninsured at standard premiums when they fall ill. The legislation would thus encourage “adverse selection”—an unstable situation that would drive insurance premiums, government spending, and taxes even higher.

See also my Kaiser Health News oped, “Individual Mandate Would Impose High Implicit Taxes on Low-Wage Workers.”

And be sure to pre-register for our January 28 policy forum, “ObamaCare’s High Implicit Tax Rates for Low-Wage Workers,” where the Urban Institute’s Gene Steuerle and I will discuss these obnoxious implicit tax rates.

(Cross-posted at Politico‘s Health Care Arena.)

Dear Poor People: Please Remain Poor. Sincerely, ObamaCare is a post from Cato @ Liberty - Cato Institute Blog

Could it be the Washington Post? Bannered across the top of the Post‘s op-ed page today is a piece titled “Copenhagen’s political science,” titularly authored by Sarah Palin. I’m delighted to see the Post publishing an op-ed critical of the questionable science behind the Copenhagen conference and the demands for massive regulations to deal with “climate change.”

But Sarah Palin? Of all the experts and political leaders a great newspaper might call on for a critical look at the science behind global warming, Sarah Palin?

What’s even more interesting is that the Post also ran an op-ed by Palin in July. But during this entire year, the Post has not run any op-eds by such credible and accomplished Republicans as Gov. Mitch Daniels; former governors Mitt Romney or Gary Johnson; Sen. John Thune; or indeed former governor Mike Huckabee, who might be Palin’s chief rival for the social-conservative vote. You might almost think the Post wanted Palin to be seen as a leader of Republicans.

I should note that during the past year the Post has run one op-ed each from John McCain, Bobby Jindal, Newt Gingrich, and Tim Pawlenty. (And for people who don’t read well, I should note that when I call the people above “credible and accomplished,” that’s not an endorsement for any political office.) Still, it’s the rare political leader who gets two Post op-eds in six months, and rarer still the Post op-eds by ex-governors who can’t name a newspaper that they read.

Who Wants to Make Sarah Palin the Leader of the Republican Party? is a post from Cato @ Liberty - Cato Institute Blog