The Defense Authorization Bill: Still Troubled

Posted by Benjamin H. Friedman at http://www.cato-at-liberty.org/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.
The most odious aspect of this bill is its detention provisions. These sections of the bill are confusing because they seem to say various things that they then unsay. Section 1021 requires the president to place al Qaeda members and their associates, with the exception of American citizens, in military custody and deny them civilian trial. It then destroys this “requirement” by letting the president waive it and claim that it serves “national security interests.” Section 1022 affirms that the president has the authority under the 2001 Authorization of Military Force to detain without trial anyone who belongs to al Qaeda or the Taliban, or associates of those groups who are engaged in hostilities with the United States. Language further down in the section insists that this affirmation does not “limit or expand” the president’s authority or endorse his claimed power to seize suspected terrorists in the United States and deprive them of trials.
What that compromise language section leaves us with—beyond a further muddying of the legal waters—is a punt. The offense to civil liberties is less what the bill does than what it doesn’t: deny that the president can arbitrarily detain without trial anyone he decides is al Qaeda or its helper. So when congressional leaders dismiss civil liberty concerns about the legislation by saying it “merely codifies current law,” one response is that that’s exactly the problem.
But as I noted the other day, it isn’t clear that Congress’s efforts here to keep its hand off current law will entirely succeed. Federal courts hearing cases questioning the constitutionality of war powers, including the president’s right to detain people, tend to consider whether Congress has endorsed or rejected the power in question. Judges may take all this throat-clearing as a tacit endorsement of the president’s claims, making them more likely to survive constitutional scrutiny. The question is not whether there is damage to civil liberties here, but how bad it is.

USPS Gives Congress More Time to Kick Can

Posted by Tad DeHaven at http://www.cato-at-liberty.org/usps-gives-congress-more-time-to-kick-can/


Last week, the U.S. Postal Service filed a plan with its regulator to close half of its mail processing facilities and reduce delivery standards in order to reduce costs. I called the move a message to Congress because “the USPS is running on financial fumes and Congress is still trying to figure out how to kick the can down the road.”
This week, the USPS said that it’s delaying the closure of mail processing facilities and post offices by a few more weeks in order to give Congress more time to come up with “comprehensive postal legislation.” According to the press release, the delay comes “in response to a request made by multiple U.S. Senators.”
That’s hardly a surprise. Here’s what I wrote last week:

The biggest obstacle standing in the way of the proposal is, of course, Congress. I would venture a guess that legislation will be introduced to stymie the plan—if it hasn’t already. After all, members of Congress have consistently fought USPS efforts to shutter post offices. Naturally, the postal employees unions aren’t happy and will make sure that policymakers know it.

According to the Washington Post, “a group of 21 senators from mostly rural states led by Bernie Sanders, an independent from Vermont, signed a letter to congressional leaders asking them to add language to legislation that would halt closings for six months.” Sen. Sanders also sponsored legislation in November that would hand the USPS a bailout and preserve the status quo. Well, Sanders calls himself a socialist so I suppose it would make sense that he’d want to do whatever it takes to preserve the government’s floundering mail business.
And in other postal news, the House passed legislation on Tuesday to name a post office.

The Debates and Gary Johnson

Posted by David Boaz at http://www.cato-at-liberty.org/the-debates-and-gary-johnson/


Karl Rove writes in the Wall Street Journal that “the debates have allowed every potentially serious candidate to be seen by large audiences.” One thing that has generally made presidential candidates serious is experience in executive office, especially as governor. After voters elected Carter, Reagan, Clinton, and Bush minor over a period of 30 years, it became conventional wisdom that governors make much stronger presidential candidates than senators. After senators swept the field in 2008, and Sen. Barack Obama won, that preference seemed in doubt. But now voices on both left and right are asking whether President Obama’s lack of executive experience is indeed a problem.
So it’s worth asking how much executive experience the Republican candidates have. Here’s what I come up with:

Rick Perry                          11 years
Gary Johnson                     8 years
Jon Huntsman                    5 years
Mitt Romney                      4 years
Michelle Bachmann             0
Newt Gingrich                    0
Ron Paul                            0
Rick Santorum                    0

So Rove thinks “the debates have allowed every potentially serious candidate to be seen by large audiences.” And yet the Republican party and the big media have excluded the candidate with the second-most experience as governor. And so I wonder again, how does the establishment exclude a Republican governor who got elected twice—and served his full terms—in a Democratic-leaning swing state, had a successful record, vetoed more bills than all other governors combined, proposed the boldest policies in the country on both school choice and drug policy reform, and then left the state with a budget surplus?
As James Peron wrote at Huffington Post,

Johnson sees himself as socially liberal and fiscally conservative. Most polls show that a large percentage of voters fall into this category. A majority of voters supports depoliticized markets and balanced budgets, a majority supports gay marriage, and half the public wants to legalize marijuana, which is a plurality. A majority thinks sending troops to Iraq was a mistake and wants out. You’d think Gary Johnson would be a natural choice for them.

And you’d think that even Karl Rove would agree that a two-term Republican governor with that potential appeal would be a “potentially serious candidate” who ought to have a chance to debate the other candidates.

How Would SOPA Be Used?

Posted by Julian Sanchez at http://www.cato-at-liberty.org/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.
We might also look to some of the seizures of U.S.-registered sites by Immigration and Customs Enforcement. The sports site Rojadirecta—registered in the U.S. but based in Spain—was seized on the theory that linking to infringing video of sporting events hosted elsewhere on the Internet is enough to trigger forfeiture, even though Spanish courts have repeatedly ruled that such conduct (however shady it might seem) is legal in Spain. As lawyers for the government argued, invoking the very same statute that would provide the basis for SOPA censorship:

“[A]ny property used … in any manner or part to commit or facilitate the commission of an offense [such as criminal copyright infringement]” is subject to forfeiture…. Moreover, it is “[i]rrelevant whether the property’s role in the crime is integral,essential or indispensable,”… and a single incident of facilitating criminal activity is sufficient to trigger forfeiture.

The government further notes that they’re not directly charging Rojadirecta with criminal infringement (nor indeed do they ever have to bring such charges), which means no need to meet that pesky “beyond reasonable doubt” standard—or even “probable cause”. All the government needs for forfeiture, they assert, is a “reasonable belief” that a domain is being used to “facilitate” criminal infringement. This despite the fact that, in the context of obscenity laws, the Supreme Court has held that “Mere probable cause to believe a violation has transpired is not adequate to remove books or film from circulation.” Now, Rojadirecta’s business model is certainly shady, and maybe they’re even guilty of criminal infringement. But are we really comfortable with an entire domain, including vibrant discussion forums that clearly enable protected, non-infringing speech, being blocked pursuant to a “reasonable belief” standard, forcing the company to hire U.S. lawyers and prove their innocence to win the right to speak to U.S. users?
Then there’s the case of Dajaz1.com, a hip hop blog seized for over a year by the government for hosting infringing music files. Except it turned out that those files had actually been provided by PR firms, working for the music labels, who hoped blogs like Dajaz1 would circulate them to create buzz for up-and-coming artists.  Oops!
As legal scholar Jason Mazzone has amply documented, the use of dubious copyright claims to chill legitimate speech is depressingly common. The voting machine manufacturer Diebold has tried to use copyright to shut down whistleblower sites that published internal e-mails highlighting security vulnerabilities in software that could determine the outcome of elections. The Church of Scientology has similarly invoked copyright to stifle criticism. In Russia, political opposition groups are routinely raided under the pretext of searching for copyrighted software. Research suggests that most copyright takedown claims to search engines like Google are issued by companies targeting their competitors, and that nearly a third of takedown notices under the Digital Millennium Copyright Act lack a clear basis.
I could easily fill a dozen long blog posts with examples, but let’s cut to the chase. Major movie studios and music labels draw a lot of water in D.C.: The fact that a bill as massively unpopular as SOPA is even being seriously considered, let alone likely to pass, is proof of that. They will effectively control which foreign domains the Justice Department chooses to block directly, and shop around for friendly judges amenable to rubber-stamping orders in civil litigation that require payment providers and ad networks to cut off disfavored sites.  The likely targets are their competitors, whether the copyright claims are valid or not. Sites like YouTube that provide entertaining user-generated videos are one less reason to pony up for the next lackluster Adam Sandler movie. Sites that give musicians a way to gain exposure to fans and market their albums without giving a cut to the increasingly redundant middleman threaten to make the labels  obsolete.  And if open platforms invariably end up hosting some infringing content uploaded by users? Well, that’s as good a pretext as any for shutting down the competition.
Why do critics of SOPA worry that the bill will threaten legitimate speech and innovation?  Because its supporters have spent three decades providing overwhelming justification for that fear at every opportunity.  If I may end by making a bit of “fair use” of the genius of former Smiths front-man Morrisey:

He was a sweet and tender hooligan, hooligan
He said that he’d never, never do it again
And of course he won’t, oh, not until the next time

Empowered with the ability to threaten blocking of entire domains, I’d rather not see what the copyright hooligans do “next time.”

Court Should Pull FCC Into 21st Century

by Ilya Shapiro and Trevor Burrus

This article appeared in USA Today on January 8, 2012. 

Should one of our most important sources of information and entertainment — television broadcasts — receive less First Amendment protection than newspapers or the Internet? This term, in the case of FCC v. Fox, the Supreme Court will take up this question and ultimately decide who controls our airwaves: parents or bureaucrats.

It seems un-American to have teams of unchecked government officials peering over our shoulders to ensure that what we say and see is family-friendly. Unless TV shows receive full constitutional protection, those who produce them will produce bland content out of a fear that the censors will either abuse their authority or enforce vague restrictions that don't tell people what's allowed and what's prohibited.
Unfortunately, broadcasters don't enjoy the same First Amendment rights as other media producers: The Federal Communications Commission stands behind them and evaluates their content for family suitability, according to nebulous standards such as, "I know it when I see it."
And the FCC is living in the past, based on a decades-old Supreme Court ruling. In 1978, the court gave it the power to regulate broadcast content because of its pervasiveness in the American home (comparing it to an unwanted intruder) and its relatively uninhibited access to children as well as public ownership of the airwaves. It was a ruling based, more or less, on the nature of that era's technology: three channels, little cable and no VCRs, much less Internet, DVDs and satellite TV.
That has little relevance in today's world.
We now live in a world of media options that would have been unimaginable to even the most far-looking science-fiction writer. Video on-demand services such as Netflix and Amazon Prime stream more content to our televisions and computers than was available in even the most well-stocked video store in years past. We DVR our favorite shows to watch them when we want and keep libraries of DVDs on hand — or at least we used to, until direct streaming and cloud computing eliminated the need even for capacious hard drives, let alone physical discs.
Moreover, all TVs bigger than 13 inches have a "V-Chip" that can block content based on ratings. Parental controls are available in most cable and satellite boxes, specialized remote controls can be purchased for children, and there is even a service called "TV Guardian" that filters profanity from live broadcasts based on closed-captioning signals.
Traditional broadcast media have gone the way of the eight-track or audio cassette. What the court once called unwanted "intruders" are now mostly invited guests, guests who can be easily monitored to ensure they're on their best behavior.
Yet because the law is stuck in 1978, the medium through which we receive most of our information receives less First Amendment protection than other media. Parents and other consumers are not making judgments about which guests to invite, at what time and for what purpose. Instead, government officials set the standard for all of us, regardless of our values, tastes, or whether children are likely to be present.
Now, in a case that began with Bono slipping the F-word into a live broadcast of the Golden Globes in 2003, the court will have to decide whether technology has changed enough for over-the-air broadcasters to get the same speech protections as their cable counterparts. Because the old rule was based on 1970s technology, isn't it time for a new rule?
The FCC may have a place regulating the content of broadcasts, but in doing so it must be held to the important First Amendment standards that apply to cable, satellite, Internet and all other media: Controls must be narrowly tailored to avoid infringing more speech than necessary, and the interest of the state must be "compelling."
Such a standard would be useful not just for 2012, but for the rest of the 21st century.

Changing Times

by Steve H. Hanke and Richard Conn Henry

This article appeared in the January 2012 issue of Globe Asia. 

For more than five hundred years, the most popular and influential book, after the Bible, was The Golden Legend by Jacques de Voragine.* At the end of the 13th century Voragine grappled with the sacralization of time and its usage. Following the Council of Trent in the 16th century, the rules of time that, for the most part, have ruled Western civilization, were established.

Recently, an interesting change occurred. On 28 March 2010, Russian President Medvedev eliminated two of Russia's eleven time zones. Russia circles almost half the globe. Using our present nineteenth-century method of marking the time, the clocks in Kaliningrad, far west of Moscow, read ten hours differently (9 hours differently, after Medvedev's change) than do clocks across the Bering Sea from Alaska. But, time, as measured by atomic clocks, is exactly the same in those two Russian locations. The time is the same everywhere, but the sun can be at very different locations in the sky — something that mattered in the nineteenth century far more than it does today.
Why did Medvedev make these changes? Imagine Washington, D.C. on our West Coast, and the U.S. stretched over eleven time zones. If that were the case, when President Obama began work at 6 AM, it would already be 4 PM on our (hypothetically stretched) East Coast, and all government workers would be going home in 30 minutes. Hard to keep in touch. That gives us a feeling for what Russia has to cope with. But, Medvedev's solution, while mitigative, clearly does not totally solve the problem.
Yet, the problem is solvable for Russians, as well as for the rest of us, who are trapped both in temporal and calendrical messes. Our calendar is largely the product of disputes among churches — disputes important to those churches, but which should not be allowed to impact commerce and efficient business organization today. The dates of Easter and of Christmas in Russia will always, of course, be set by the Russian Orthodox Church, but the Russian business calendar should be specified by Moscow, not by the Church.
There have been previous attempts to modernize and fix the calendar: George Eastman, founder of the Eastman Kodak Company in 1892 and a consummate man of business, was a strong advocate of calendar reform in the interest of business and commerce. Eastman favored 13 identical months of 28 days. Writing in The Nation's Business (May 1926), Eastman complained that, with reference to the present Gregorian calendar, "There can be a difference of three days in the two half-years, and of two days in two quarters of the same year. Holidays occur on various days of the week, changing each year; shutdowns for holidays occurring in the middle of the week are expensive in certain plants. Complications arise in setting regular dates for meetings, in providing for holidays that fall on Sunday and in reckoning the passage of time, as for instance, in interest calculations." But, Eastman's calendar drifted relative to the seasons, which is unacceptable. He suggested fixing that problem by adding occasional extra days that would not bear weekday names.
Eastman's effort at calendar reform failed because his proposed calendar did not respect the Sabbath. We propose a new calendar that preserves the Sabbath, with no exceptions. That calendar is simple, religiously unobjectionable, business-friendly and identical year-to-year. There are, just as in Eastman's calendar, 364 days in each year. But, every five or six years (specifically, in the years 2015, 2020, 2026, 2032, 2037, 2043, 2048, 2054, 2060, 2065, 2071, 2076, 2082, 2088, 2093, 2099, 2105, ..., which have been chosen mathematically to minimize the new calendar's drift with respect to the seasons), one extra full week (seven days, so that the Sabbath is unaffected) is inserted, at the end of the year. These extra seven days bring the calendar back into full synchrony with the seasons. In place of Eastman's 13 months of 28 days, we prefer 4 identical quarters, each having two months of 30 days and a third month of 31 days (see the accompanying permanent calendar**).
That modern calendar would simplify financial calculations and eliminate the "rip-off factor." To determine how much interest accrues for a wide variety of instruments — bonds, mortgages, swaps, forward rate agreements, etc. — day counts are required. The current calendar contains complexities and anomalies that create day count problems. In consequence, a wide range of conventions have evolved in an attempt to simplify interest calculations. For U.S. government bonds, the interest earned between two dates is based on the ratio of the actual number of days elapsed to the actual number of days between the interest payments (actual/actual). For convenience, U.S. corporates, municipals and many agency bonds employ the 30/360 day count convention. These different conventions create their own complications, inefficiencies and arbitrage opportunities.
Specifically, discrepancies between the actual/ actual and 30/360 day count conventions occur with all months that do not have exactly 30 days. The best example comes from calculating accrued interest between February 28th and March 1st in a non-leap year. A corporate bond accrues three days of interest, while a government bond accrues interest for only one day. The proposed permanent calendar — with a predictable 91-day quarterly pattern of two months of 30 days and a third month of 31 days — eliminates the need for artificial day count conventions.
What will it take to produce regular dates and times throughout Russia and the rest of the world? Nothing but the will to do so. With regard to the regularization of times and dates, Russia has the most to gain, particularly when it comes to time.
Moving on from the calendar to time, we recommend the abolition of all time zones, as well as of daylight savings time, and the adoption of atomic time — in particular, Greenwich Mean Time, or Universal Time, as it is called today. Like the adoption of a modern calendar, the embrace of Universal Time would be beneficial.
For example, the adoption of Universal Time would give new flexibility to economic management in the vast East-West expanse of Russia: everyone would know exactly what time it is everywhere, at every moment. Opening and closing times of businesses could be specified for every class of business and activity. If thought desirable, banks and financial institutions throughout the country could be required to open and to close each day at the same hour by the world time. This would mean that bank employees in the far East of Russia would start work with the sun well up in the sky, while bank employees in the far west of Russia would be at their desks before the sun has risen. But, across the country, they could conduct business with one another, all the working day. (This would have a second benefit: at least in the far east and far west, the banks would be open either early, or late, convenient for those who are working "sunlight hours," such as farmers.)
With Universal Time, agricultural workers, critically dependent on the position of the sun, could rise with the sun, without producing any impact on other aspects of cultural and economic life. The readings on the clocks, and the date on the calendar, would be the same for all. But, times of work would be attuned with precision to Russia's local and national needs. China already has adopted a single time zone for the same purposes. And all aircraft pilots, worldwide, use Universal Time exclusively, for exactly the same reason that we are advocating its broad adoption — plus avoiding collisions.
Moscow could introduce both a simplified calendar, identical each year (harmonized with the seasons by rare full-week adjustments at year's end), and Universal Time, which would abolish the International Date Line, making the date and the time identical everywhere, including Alaska and the farthest eastern regions of Russia. There, and also in the center of the Pacific Ocean, the date would change at 00:00:00, just as the sun passed overhead. The natural date for the introduction of these changes is 1 January 2012, because it is a Sunday in both the current Pope Gregory calendar and the simple, new calendar. That does not give us time to change over computer programs to the new, simpler system, of course. But, that does not matter — the change worldwide will take some time, politically, with a natural completion date of 1 January 2017, when Sunday will, once again, fall on January 1st for both the old and the new calendars. This gives a more than ample five-year transition for adjustments to computers. There is nothing magic about these dates; anyone can transition today, if they wish.
But, absent national and international agreements, that could be confusing. We should not worry about confusion, however. Again, look to Russia: in addition to abolishing time zones, daylight savings time was abolished in 2011. There was some disorder, as with iPhones ringing at "wrong" hours, but this passed!
Our proposed temporal and calendrical changes would eliminate the sources of an untold number of errors and generate immense benefits. Conference calls would be unambiguously scheduled. At present, a conference call is, say, scheduled for 3 PM Central Daylight Time, and conferees across the U.S. have to figure out when to pick up the phone. All that would be history — no more time zones, no more daylight savings time. One time throughout the world, one date throughout the world. Refill dates for prescription drugs would be the same day of the month, every month, every year. Business meetings, sports schedules and school calendars would be identical every year. Today's cacophony of time zones, daylight savings times, and calendar fluctuations, yearafter- year would be over. The economy — that's all of us — would receive a permanent "harmonization dividend."

Super PACs: Money Well Spent

by John Samples

This article appeared in The New York Daily News on January 11, 2012. 

In the Iowa caucuses, a super PAC associated with Mitt Romney spent millions charging Newt Gingrich with ethical lapses and hypocrisy. Now a Gingrich-supporting super PAC plans to use a $5 million donation from a billionaire casino owner to accuse Mitt Romney of destroying jobs.

It's all too much for some people. Super PACs have been called "slush funds" that do the "dirty work" of candidates, "a new political animal that is ugly, loud, anti-democratic."
To the contrary, the Iowa caucuses and New Hampshire primaries — the first two contests in which this new form of pricey political speech had its closeup — showed that super PACs enhance democratic decision-making.
To understand, we first need some legalese. A traditional political action committee raises and contributes limited sums to candidates for office. Super PACs are not limited in how much money they can raise or spend during an election.
Why not? Because super PACs do not contribute directly to candidates. While they may vigorously support or oppose a given candidate, they do so independently, not officially as part of a campaign.
Hence, the U.S. Supreme Court ruled in the landmark Citizens United case that Congress could not prohibit spending on speech by corporations or labor unions, even when they are championing one candidate or attacking another. Consistent with the First Amendment, individuals and groups have rights to make their opinions known, and money is a key mechanism for doing that.
So are super PACs shaping up to be a disaster for democracy in 2012? Hardly. The $14 million in Iowa super PAC spending funded an assault on Gingrich for committing ethics violations, being soft on illegal immigrants and teaming with Nancy Pelosi on global warming issues. The Gingrich ad to come apparently says Romney's company, Bain Capital, looted companies and left people unemployed.
Are these charges true? That's the wrong question. If government could suppress "false" speech, the First Amendment would be meaningless. Those in power would find that their critics are lying and suppress their criticisms.
We should rather ask: Do these ads constitute legitimate political speech? Wouldn't voters want to know if Gingrich had violated ethics rules, received large payments from Freddie Mac despite claiming to be against big government and had supported positions contrary to the views of most Iowa Republicans? Romney says he is a businessman who knows how to create jobs. Should voters hear claims to the contrary? Of course.
And who cares that the onslaught of commercials are overwhelmingly negative in tone? Far from being anti-democratic, harsh TV ads — no matter who's funding them — offer needed criticisms of candidates that help inform voters. John Coleman, a political scientist at the University of Wisconsin-Madison, found that spending on negative ads increased voter information about candidates, especially among those who were least informed prior to the ads.
Other political scientists have found that, contrary to the caricature, negative advertising increases voter turnout and reduces the advantages normally held by incumbent officials. Perhaps it is not surprising that Republican turnout in Iowa was higher than experts expected.
But doesn't the flood of spending give too much influence to wealthy donors who can try to remain anonymous while funding below-the-belt blows?
Well, the alternative is greatly restricting the rights of outside individuals to fund speech criticizing politicians (a right that many paid commentators on television, the radio and online, many of them wealthy, already happen to have, by virtue of being members of the media).
This seems to me to be a far scarier outcome.
So why not at least require disclosure of those who contribute to super PACs? The First Amendment probably allows that, and some voters want to know. Well, the pro-Gingrich donor's name was leaked, and an aggressive media can put pressure on candidates to disclose. But publicity will discourage some well-meaning donors. It also diverts voters' attention from relevant questions (Did Gingrich get rich from Freddie Mac?) to less relevant ones (Who funded the ad saying Gingrich got rich from Freddie Mac?).
Denouncing money in elections is a hardy perennial in America. But the early Republican primaries, far from being an embarrassment to democracy, are something to be proud of. Voters need to hear the worst about candidates to make the best choice on Election Day.

Newt's Constitutional Confusions

by Roger Pilon

This article appeared in Daily Caller on December 14, 2011. 

If the tea party stood for anything when it upset conventional politics a year ago, it was to revive debate about restoring limited constitutional government. Newt Gingrich seems to be tapping into that effort, but the tea party folks better look more closely before they buy what Newt is selling. In his voluminous 21st Century Contract with America he has a long section entitled “Bringing the Courts Back Under the Constitution.” A mass of constitutional confusions, laced with several good points, it’s a throwback to some of the worst elements of Nixonian conservatism. And if its proposals were implemented, far from limiting government, they’d do just the opposite.

In fact, the most striking feature of Newt’s manifesto is its failure even to notice that. Its focus is on what he sees as an out-of-control judiciary that’s frustrating the popular will, which he’d remedy with everything from judicial impeachments to abolishing whole circuits. Yet as his first example of what he calls “judicial supremacy” — the power of the court to say what the law is, which Marbury v. Madison made explicit in 1803 — he offers the Supreme Court’s 2005 decision in Kelo v. New London, which upheld, as a “public use,” the city’s transfer of Ms. Kelo’s home to a private developer. Mistaken as the court’s reading of the Constitution’s Takings Clause was in that case, the decision hardly frustrated popular government. Indeed, it upheld the city’s actions.
But the confusion doesn’t end there. In fact, here’s how Gingrich states his point broadly: “Since the New Deal of the 1930s the power of the American judiciary has increased exponentially at the expense of elected representatives of the people in the other two branches.” Really? To be sure, during Franklin Roosevelt’s first term the court, consistent with its understanding of constitutionally limited government stretching back to the founding, held several New Deal schemes to be unconstitutional. But after Roosevelt’s infamous court-packing threat of 1937, which Gingrich praises, the court collapsed and the modern welfare state poured through. That’s the regulatory and redistributive Leviathan that gave rise to the tea party. Yet there’s Newt, right behind the process that brought that state about.
And as he refines his thesis, it doesn’t get any better. Ever since Cooper v. Aaron in 1958, he claims, the political branches “have largely acted as if the Constitution empowered the Supreme Court with final decision making authority about the meaning of the Constitution.” Cooper v. Aaron, recall, was the Little Rock school desegregation case — federal troops and all — where a unanimous court told state officials that they couldn’t nullify Supreme Court rulings — hardly a decision to find wanting as one vies for the presidency.
Nor does Gingrich rest his case against the courts on that decision alone, which he treats simply as the font of the modern problem. Ever the historian, he reaches back for other examples of popular resistance to the court’s “finality,” landing especially on some of Thomas Jefferson’s more intemperate comments about the court. Here again, however, his contention that Jefferson faced “a judicial branch that exceeded its authority” is utterly confused. The Federalists opposing Jefferson’s rise, he writes, “had used the federal judiciary to enforce the Alien and Sedition Acts of 1798 to imprison Jeffersonian activists.” Well yes, they had: that’s how the acts, like all statutes, were enforced. How, then, had the judiciary “exceeded its authority”? To the contrary, if anything the courts had shirked their authority — their power to find the infamous acts unconstitutional. As in Kelo, they deferred to the political branches, which had passed the acts and, in doing so, had themselves exceeded their authority.
We come, then, to the heart of the problem with Gingrich’s thesis: Nowhere, not once in his entire discussion about the courts, do we find him recognizing even the problem of overweening government, much less the source of that problem in the political branches. The Supreme Court didn’t give us the New Deal; Congress and the Roosevelt administration did. Nor did it give us the Great Society — or Obamacare. Gingrich is stuck in the era when conservatives, decades ago, were reacting to the admitted excesses of the Warren and Burger Courts with cries of “judicial activism.”
We’ve since come to have a more sophisticated view of these matters. The irony is that to support his attack, Gingrich cites contemporary critics of the conservative Rehnquist Court like Dean Larry Kramer at Stanford and Professor Mark Tushnet at Harvard, men of the left who’ve opposed the court’s modest recent efforts to revive enumerated powers federalism — the idea that Congress’s powers are limited, especially its commerce power through which it enacted Obamacare. In the challenge to that act now before the court, would Newt urge judicial deference to Congress? That’s not what the tea party stands for.

The Income-Inequality Myth

by Michael D. Tanner

This article appeared on National Review (Online) on January 10, 2012. 

As we listen to President Obama, Occupy Wall Street, and much of the mainstream media working themselves into a lather over inequality in America, one thinks of Harrison Bergeron, the 1961 short story by Kurt Vonnegut that posited a society based on perfect equality, "not only equal before God and the law ... equal every which way." The government employed a "Handicapper General" to ensure that no one was smarter, more athletic, or more productive than anyone else. Beautiful people were forced to wear masks, athletic people had to carry weights, and intelligent people wore radios in their ears to interrupt their thoughts with loud noises.

Yet for all the sound and fury — and beating drums in Zuccotti Park — almost everything that people presume about inequality in America is wrong.
For example, nearly all reporting on income inequality in America has suggested that the incomes of the rich have been rising, while incomes for the rest of us have been stagnant or even declining. But that may represent a significant misreading of the data.
Most studies of inequality, including the recent widely reported study by the Congressional Budget Office, rely on IRS-reported taxable income. But, as studies by the Cato Institute's Alan Reynolds and others show, reports of skyrocketing incomes among the top 1 percent of earners may be distorted by changes in the tax code that have resulted in more wealth being reported as taxable income. These tax changes caused businesses to switch from filing under the corporate tax system to filing as individuals, and executives to switch from accepting stock options taxed as capital gains to nonqualified stock options taxed as salaries. Simultaneously, the reductions in income-tax rates in 1986 caused much previously unreported income to show up on tax returns.
At the same time, incomes among lower- and middle-income workers have been shifting from cash wages to non-cash benefits such as health insurance and pensions. These non-cash benefits frequently do not show up as taxable income even though they have value to the worker. In fact, a recent study by Mark Warshawsky of the Social Security Advisory Board suggests that nearly all of the recent increase in earnings inequality "can be explained by the rapid increase in the cost of health insurance employee benefits, and that therefore [there] has not been as significant increase, if any, in inequality of compensation."
Similarly, many studies looking at low-income Americans fail to account for non-cash social-welfare benefits such as food stamps, housing subsidies, and Medicaid. Fully accounting for all of these factors suggests that the gap between rich and poor may not be nearly as large as thought, and that inequality may not be growing at all.
Studies also show that what inequality does exist is not the result of the Bush tax cuts or a failure to spend more on social-welfare programs, but on the transformation of the American economy from a focus on manufacturing to information and technology. This change puts a greater premium on education. As a result, the incomes of high-school dropouts or those with just high-school degrees have stagnated while incomes for many college graduates and those with graduate-level educations have increased significantly. The unfortunate fact is that despite massive increases in education spending, large segments of our society remain unprepared for a 21st-century economy. That is a tragedy, but it has nothing to do with tax cuts for the rich.
In the end, however, one has to ask a more basic question. Why do we care about inequality at all?
Poverty, of course, is a bad thing. But is inequality? After all, if we doubled everyone's income tomorrow, we would eliminate an enormous amount of economic hardship. Yet, inequality would actually increase. As Margaret Thatcher said about those who obsess over inequality, "So long as the [income] gap is smaller, they would rather have the poor poorer."
In what way does someone else's success harm me? Such a viewpoint stems from the misguided notion that the economy is a pie of fixed size. If one person gets a bigger portion of the pie, others of necessity get smaller pieces, and the role of government is to divide up the slices of that pie. In reality, though, the size of the pie is infinite. But to make it grow, we need people who are ambitious, skilled risk-takers. We need people to be ever striving for more. That means that they must be rewarded for their efforts, their skills, their ambitions, and their risks. Such rewards inevitably lead to greater inequality. But as Nobel Prize–winning economist Gary Becker pointed out, "It would be hard to motivate most people if everyone had the same earnings, status, prestige, and other rewards."
Another Nobel Prize winner, F. A. Hayek, concluded, "The rapid economic advance that we have come to expect seems to be in large measure a result of this inequality and to be impossible without it. Progress at such a fast rate cannot take place on a uniform front but must take place in an echelon fashion, with some far in front of the rest."
We should all seek a prosperous, growing economy, with less poverty, and where everyone can rise as far as their talent and drive will take them. Equality? Who needs it?

Do We Need Big Government?

by Michael D. Tanner

This article appeared in National Review (Online) on December 14, 2011. 

As Congress nears approval on a series of 2011 appropriations bills (only three months late, a near-record for recent history), Rep. Sander Levin (D., Mich.) told Fox News that he was encouraged by progress on the bills because “we’re dealing with the lives of people. Those appropriation bills relate to the daily lives of people in middle class of America, and that’s really what this is all about.”

Yet, if that is true, and so many Americans have become dependent on the decisions of federal appropriators in Washington, there seems to be something distinctly wrong.
During the 2011 debate over raising the debt ceiling, President Obama noted that the U.S. federal government sends out 70 million checks every month. Unfortunately, that is probably an underestimate. According to the Washington Post, the president’s estimate included Social Security, veterans’ benefits, and spending on non-defense contractors and vendors. But he did not include reimbursements to Medicare providers and vendors, or electronic transfers to the 21 million households receiving food stamps. (Nor did he include most spending by the Defense Department, which has a payroll of 6.4 million active and retired employees and pays nearly 1 million invoices and 660,000 travel-expense claims per month.) The actual number of monthly federal checks might be closer to 200 million.
Government payouts now account for more than a third of all wages and salaries in the United States. Worse, if one includes government employees’ salaries, more than half of Americans receive a substantial portion of their income from the government. The government provides welfare to the poor, of course — 126 separate anti-poverty programs. But it also provides corporate welfare to the rich. The Cato Institute estimates that the federal government provides at least $92 billion in direct grants and subsidies to businesses each year. It even provides regular welfare to the rich. According to a new report from Sen. Tom Coburn, 2,362 millionaires received unemployment benefits in 2009.
Our federal government taxes money from young people to provide for the retirement of old people. And then takes money from old people to provide for the education of young people. We pay subsidies to everyone from farmers to solar-panel manufacturers. People talk about America’s free-market health-care system, but government pays for more than half of all health-care spending in this country.
Federal-government spending now consumes roughly a quarter of all the goods and services produced in this country over the course of a year. Throw in state- and local-government spending, and it’s more than a third. And, according the Congressional Budget Office, unless there is a drastic change in our current policies, we are on course for government to consume nearly 60 percent of GDP by mid-century.
And President Obama believes that government is still too small?
Worse, all this is just on the spending side. It doesn’t even begin to look at how the federal government regulates our lives. Last year alone the federal government issued 3,573 new rules and regulations. The Federal Register now stands at an all time high of 81,405 pages. Nearly every product you buy and everything you do is regulated by the federal government in some way.
Increasingly, government is seen as the source of prosperity and the solution to all problems. Government creates jobs. Government provides medical care, food, shelter, even an income. Government regulates our morals and defines our virtues. Every good idea becomes a call for a new government program. Civil society, including business and private charity, is relegated to the sidelines, treated with suspicion at best, and often outright hostility.
But, at some point, one has to ask: Has our national character become so degraded that farmers cannot farm, businesses cannot innovate, doctors cannot treat you, and charities cannot care for those in need without some sort of government intervention? And at what point do we simply cease to be a society of free individuals and instead become little more than wards of the state?
Perhaps this is why, according to a Gallup poll taken earlier this month, 64 percent of Americans believe that big government is a bigger threat to the future of this country than big business (26 percent) or big labor (8 percent).
And it certainly is something that might be worth thinking about the next time a political candidate says that he or she has a great new idea for how the federal government can do something else for us.

But Don’t We Really Need Government Research?

Posted by Jim Harper at http://www.cato-at-liberty.org/but-dont-we-really-need-government-research/


It’s a valuable public good, research is, isn’t it? Think of where we’d be without it! I mean, it was government research that came up with the Internet, for heaven sake.
That’s a response to the argument I made last week against government funding of scientific research. Moving away from public funding of scientific research would solve the problem of private companies capturing publication spoils from research that taxpayers funded.
The Defense Advanced Research Projects Agency did indeed come up with and popularize the protocol called TCP/IP, which the Internet uses. (Everyone’s use of the protocol really makes the Internet what it is, of course, but nevermind that.)
To take the Internet as proof that the government is a necessary producer of research and innovation, you have to reject the scientific method. Unfortunately, there are rarely controls in public policy. We can’t find out what would have happened if government policy had taken a different course, so we don’t know anything more about who should fund research from the fact that government-funded research has produced good things in the past.
But what would have happened if U.S. public policy had taken a different course? I’ve thought about the impossible-to-answer question of where we would have been without DARPA and other government influences on telecom. What most people don’t consider, I believe, is the restraining influence the government-granted AT&T monopoly had on telecommunications for most of the 20th century. AT&T developed a “Teletypewriter Exchange” system in 1931, for example, but had no need to develop it, there being little or no competitive pressure to do so. (Its patent on attaching devices to phone wires undoubtedly helped as well, preventing anyone using AT&T’s wires for modem service.)
Had there been competition, I suspect that someone would have come up with the idea of packet-switched networks—that’s what the Internet is—before Leonard Kleinrock did in 1962. Kleinrock was a student at MIT—he wasn’t at DARPA, which didn’t get into packet-switching until about 1966. (Then again, MIT was almost certainly awash in government money—specifically military money—so there you go. Maybe we owe all the good things we’ve got to war, but I doubt it.)
My guess—and it’s only that—is that we would have had the Internet some decades earlier if not for government interventions in telecommunications. We probably would have had multiple, competing “Internets,” actually, adopted more slowly than the Internet we got. (In a chapter of Privacy in America: Interdisciplinary Perspectives, I explored how government has accelerated the development of computing and communications, overpowering society’s capacity to adjust, with negative consequences for privacy.)
Support for government-funded research requires one to elide opportunity costs, the things foregone when one thing is chosen. As I said before, tradeoffs are ineluctable: Money spent on government research takes away from private research, or from other priorities such as reducing debt. In the absence of taxation to support research, the money would go to the public’s priorities as determined directly by the public in manifold spending and investing decision. Taxation and spending on government research is merely the substitution of centralized, political decision-making for a distributed, direct decision-making system. Its supporters are generally going to be beneficiaries of that system—elites, in short.
Even these beneficiaries of the status quo tend to agree that political decisions about funding for scientific research are warped. The solution to that problem, they’ll say, is fixing the political system—that is, creating a political system that is not so political.
Such a breakthrough is as unlikely as the invention of water that is not wet. Perhaps we can put DARPA on both projects.

Feds Want To Ban Phone Use — Even Hands-Free — While Driving

Posted by Walter Olson at http://www.cato-at-liberty.org/feds-want-to-ban-phone-use-even-hands-free-while-driving/

For quite a while Obama transportation officials have been campaigning against the safety hazard of “distracted driving,” but they must regard the American public as slow learners, because now the National Transportation Safety Board (NTSB) is proposing something truly radical: a ban on drivers’ use of cellphones and other personal electronic devices even when they’re hands-free and thus don’t require taking anyone’s eyes or hands off the road or steering wheel. The only exceptions the agency would permit would be “emergency” phone use and “devices designed to assist the driving task,” such as GPS devices. NTSB chairman Deborah Hersman said the problem is “cognitive” distractions as well as the “visual” and “manual” kind. The agency cannot adopt such a ban directly, but it’s calling on the states to fall into line and to enlist in a campaign of “high-visibility enforcement.”
And there’s more. NTSB is also, to quote PC World, “encouraging electronics manufacturers — via recommendations to the CTIA-The Wireless Association and the Consumer Electronics Association — to develop features that ‘disable the functions of portable electronic devices within reach of the driver when a vehicle is in motion.’” In the perfect Nannyland of the future, your phone will turn itself off when the government wants it to — even if you were in the middle of placing one of those emergency calls (“Honey, get out of the house, the flood waters are rising”) that will supposedly still be permitted.
Tech commentators are blasting the agency for jumping the gun on the evidence, to say nothing of ignoring values of personal liberty. A PC Magazine writer points out that while there is a safety case to be made against texting behind the wheel — a practice that encourages the driver to look away from the road for extended periods — the NTSB is short of statistics (as opposed to scary anecdotes) to show that phone conversation itself is a dire problem. Ars Technica notes that even the board’s own (disputable) statistics link the hazards of “conversation with passengers” to more than twice as many fatal accidents as the hazards of device use — and no one has yet proposed banning passenger conversations with the driver. (Don’t give Washington ideas, though.) Among devices, the sort of touch-screen car entertainment systems that you can fiddle with for ten seconds at a stretch — which are apparently okay with NTSB — would seem to pose considerably more distraction than one-button phone-answering. And speaking of statistics, the Federal Highway Administration website reports the lowest per-mile auto fatality rate ever, and the lowest in absolute numbers since the year 1950 — even though, to quote the NTSB itself, device use has seen “exponential growth” in the past few years.
Something doesn’t add up here. Commercial drivers, since the early-1980s CB radio craze and long before, have been using mobile communications for purposes other than emergencies and driving assistance, and their safety record is not notably atrocious. Hang up on this bad idea now, please.

EPA Actions Should Be Subject to Judicial Review

Posted by Ilya Shapiro at http://www.cato-at-liberty.org/epa-actions-should-be-subject-to-judicial-review/


Michael and Chantelle Sackett bought some Idaho land and began placing gravel fill on the site to prepare for laying a foundation for their dream home. Then they got something from the EPA: a “Compliance Order,” declaring that they were in violation of the Clean Water Act, because their land had been deemed a “wetland” subject to federal jurisdiction.
By beginning construction without a federal permit, the Sacketts were breaking the law and exposing themselves to civil and possibly criminal penalties, according to the Order. The Order instructed them to stop their construction and restore the property to its “original state” — it even told them what type of shrubbery to plant on the site, and exactly where to plant it. If they failed to comply with the order, they were subject to $37,500 fines per day.
The Sacketts were, understandably, shocked: they had no reason to think their property was a wetland; their neighbors had been allowed to build homes, and there was no indication in their title documents that the land was subject to federal control. So they asked for a hearing — and that was when they learned that the Compliance Order process does not entitle them to a hearing. They must either comply with the Order immediately to avoid the fines, or play chicken with the EPA — waiting until the EPA decides to file an “enforcement action.” At that time, they would be allowed to present their arguments that the land is not actually a “wetland.” But of course, by that time, the fines would have accumulated to hundreds of thousands or millions of dollars.
Worse, these Compliance Orders are issued by a single EPA bureaucrat, on the basis of “any evidence.” That’s the language of the statute itself — and federal courts have interpreted “any evidence” to mean even an anonymous phone call or a newspaper story.
And a Compliance Order doesn’t just demand that you obey EPA’s orders or face fines — ignoring a Compliance Order is a separately punishable offense against federal law, aside from the liability for any environmental damage. In other words, you can face penalties for violating the Clean Water Act and also for ignoring a Compliance Order. Worse still, ignoring a Compliance Order can serve as the basis of a finding of “wilfulness,” and thus the basis of criminal charges.
Pacific Legal Foundation represents the Sacketts and argues that they should have their day in court — either under federal statutes like the Administrative Procedure Act or under the Due Process Clause — without having to face the possibility of devastating penalties.  PLF lawyer Damien Schiff argued the case today before the Supreme Court; while the justices were active in probing the weaknesses of both sides, the government’s lawyer didn’t do the EPA any favors.  So today may have ended being a very good day for the Sacketts, even if the New York Times editorial page took the alarmist stance that allowing them to seek pre-enforcement judicial review would be a ”big victory to corporations and developers who want to evade the requirements of the Clean Water Act.”
The case is Sackett v. EPA; read the argument transcript here and the briefs here.
This blogpost was coauthored by adjunct scholar Timothy Sandefur, who is a principal attorney at PLF and wrote about the case in Regulation magazine.

The Golden Post-War Years of Government and the Economy?

Posted by Mark A. Calabria at http://www.cato-at-liberty.org/the-golden-post-war-years-of-government-and-the-economy/


I spent the afternoon debating, among others, Rick Perlstein, on the economy.  The debate was being taped for Aljazeera TV (set to air tonight some time in the 7 pm hour EST).  Rick claimed that since both government and the economy were getting bigger between World War II and the 1970, then growing federal expenditures couldn’t be bad for the economy.  The economist in me, was thinking, well what does the data say?  Obviously we didn’t have the data at hand, so the issue was not explored any further.
I’ve tried to reproduce the core of the question in the graph below, which shows on the left axis federal spending as a share of GNP and on the right axis the real increase in GDP, both measures on a quarterly basis.  If the visual trend is not enough for you, the correlation between the two is a negative 0.4.  Keeping in mind that correlation isn’t causality, it does appear that as the federal government increased as a percentage of the economy, the growth rate of the economy slowed.
During most of this period federal spending to GNP averaged around 16% (can’t we at least get back to the magical 1960s level of government?), while the annual growth rate in GDP averaged 3.9 percent.  I find the pattern starting around 1966 to be particularly interesting as we witnessed both a sharp increase in the size of government and a dramatic fall in the growth rate of the economy.  Of course I don’t expect those wedded blindly to a faith in big government to find any of this convincing, but for those of us with an empirical fact-based bent, it does suggest to me that had we restrained the late 1960s growth in government, our economy would be a lot bigger today (but then who cares about the size of the pie when you can fight over the pieces?).

Mitt Romney and Bain Capital Were Right to Utilitize So-Called Tax Havens

Posted by Daniel J. Mitchell at http://www.cato-at-liberty.org/mitt-romney-and-bain-capital-were-right-to-utilitize-so-called-tax-havens/


I’m not a big fan of Mitt Romney. I hammered him the day before Christmas for being open to a value-added tax, and criticized him in previous posts for his less-than-stellar record on healthcare, his weakness on Social Security reform, his anemic list of proposed budget savings, and his reprehensible support for ethanol subsidies.
But I also believe in being intellectually honest, so I’ll defend a politician I don’t like (even Obama) when they do the right thing or when they get attacked for the wrong reason.
In the case of Romney, some of his GOP opponents are criticizing him for job losses and/or bankruptcies at some of the companies in which he invested while in charge of Bain Capital. But I don’t need to focus on that issue, because James Pethokoukis of AEI already has done a great job of debunking that bit of anti-Romney demagoguery.
In this post, I want to focus on the issue of tax havens.
Regular readers know that I’m a big defender of these low-tax jurisdictions, for both moral and economic reasons, and I guess that reporters must know that as well because I’ve received a couple of calls from the press in recent weeks. But I suspect I”m not being called because reporters want to understand international tax policy. Instead, based on the questions, it appears that the establishment media wants to hit Romney for utilizing tax havens as part of his work at Bain Capital.
As far as I can tell, none of these reporters have come out with a story. And I’m also not aware that any of Romney’s political rivals have tried to exploit the issue.
But I think it’s just a matter of time, so I want to preemptively address this issue. So let’s go back to 2007 and look at some excerpts from a story in the Los Angeles Times about the use of so-called tax havens by Romney and Bain Capital.

While in private business, Mitt Romney utilized shell companies in two offshore tax havens to help eligible investors avoid paying U.S. taxes, federal and state records show. Romney gained no personal tax benefit from the legal operations in Bermuda and the Cayman Islands. But aides to the Republican presidential hopeful and former colleagues acknowledged that the tax-friendly jurisdictions helped attract billions of additional investment dollars to Romney’s former company, Bain Capital, and thus boosted profits for Romney and his partners. …Romney was listed as a general partner and personally invested in BCIP Associates III Cayman, a private equity fund that is registered at a post office box on Grand Cayman Island and that indirectly buys equity in U.S. companies. The arrangement shields foreign investors from U.S. taxes they would pay for investing in U.S. companies. …In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital’s Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans. Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer’s office in downtown Hamilton, capital of the British island territory. … Investing through what’s known as a blocker corporation in Bermuda protects tax-exempt American institutions, such as pension plans, hospitals and university endowments, from paying a 35% tax on what the Internal Revenue Service calls “unrelated business income” from domestic hedge funds that invest in debt, experts say. …Brad Malt, who controls Romney’s financial trust, said Bain Capital organized the Cayman fund to attract money from foreign institutional investors. “This is not Mitt trying to do something strange,” he said. “This is Bain trying to raise some number of billions from investors around the world.”

There are a couple of things worth noting about these excerpts.

1. Nobody has hinted that Romney did anything illegal for the simple reason that using low-tax jurisdictions is normal, appropriate, and intelligent for any business or investor. Criticizing Romney for using tax havens would be akin to attacking me for living in Virginia, which has lower taxes than Maryland.

2. Jurisdictions such as Bermuda and the Cayman Islands are good platforms for business activity, which is no different than a state like Delaware being a good platform for business activity. Indeed, Delaware has been ranked as the world’s top tax haven by one group (though American citizens unfortunately aren’t able to benefit).

3. America’s corporate tax system is hopelessly anti-competitive, so it is quite fortunate that both investors and companies can use tax havens as vehicles to profitably invest in the United States. This helps protect the economy and American workers by attracting trillions of dollars of investment to the U.S.

These three points are just the tip of the iceberg. Watch this video for more information about the economic benefit of tax havens.
Last but not least, here’s a prediction. I think it’s just a matter of time until Romney gets attacked for utilizing tax havens, though the press may wait until after he gets the GOP nomination.
But when those attacks occur, I’m extremely confident that the stories will fail to mention that prominent Democrats routinely utilize tax havens for business and investment purposes, including as Bill Clinton, John Kerry, John Edwards, Robert Rubin, Peter Orszag, and Richard Blumenthal.
It’s almost enough to make you think this cartoon is correct and that the establishment press is biased.

One-Click Christmas Shopping

Posted by David Boaz at http://www.cato-at-liberty.org/one-click-christmas-shopping/


The Cato Institute offers lots of great Christmas gifts — Pocket Constitutions (also a good gift for Bill of Rights Day!), books, apparel, even Cato-branded Lands’ End merchandise. But I have my own holiday recommendations that I’ve made before.
I decided one year to give a young colleague a post-graduate course in political science and economics — P. J. O’Rourke’s books Parliament of Whores and Eat the Rich. So I went to my local Barnes & Noble to search for them. Not in Current Affairs. Not in Economics. No separate section called Politics. I decided to try Borders (RIP). But first — to avoid yet more driving around — I went online to see if my local Borders stores had them in stock. Sure enough, they did, in a couple of stores just blocks from the Cato Institute. Checking to see where in the store I would find them, I discovered that they would both be shelved under “Humor–Humorous Writing.” Oh, right, I thought, they’re not books on economics or current affairs, they’re humor.
Yes, P.J. is one of the funniest writers around. But what people often miss when they talk about his humor is what a good reporter and what an insightful analyst he is. Parliament of Whores is a very funny book, but it’s also a very perceptive analysis of politics in a modern mixed-economy democracy. And if you read Eat the Rich, you’ll learn more about how countries get rich — and why they don’t — than in a whole year of econ at most colleges. In fact, I’ve decided that the best answer to the question “What’s the best book to start learning economics?” is Eat the Rich.
On page 1, P. J. starts with the right question: “Why do some places prosper and thrive while others just suck?” Supply-and-demand curves are all well and good, but what we really want to know is how not to be mired in poverty. He writes that he tried returning to his college economics texts but quickly remembered why he hated them at the time–though he does attempt, for instance, to explain comparative advantage in terms of John Grisham and Courtney Love. Instead he decided to visit economically successful and unsuccessful societies and try to figure out what makes them work or not work. So he headed off to Sweden, Hong Kong, Albania, Cuba, Tanzania, Russia, China, and Wall Street.
In Tanzania he gapes at the magnificent natural beauty and the appalling human poverty. Why is Tanzania so poor? he asks people, and he gets a variety of answers. One answer, he notes, is that Tanzania is actually not poor by the standards of human history; it has a life expectancy about that of the United States in 1920, which is a lot better than humans in 1720, or 1220, or 20. But, he finally concludes, the real answer is the collective “ujamaa” policies pursued by the sainted post-colonial leader Julius Nyerere. The answer is “ujaama—they planned it. They planned it, and we paid for it. Rich countries underwrote Tanzanian economic idiocy.”
From Tanzania P. J. moves on to Hong Kong, where he finds “the best contemporary example of laissez-faire….The British colonial government turned Hong Kong into an economic miracle by doing nothing.”
You could do worse than to take a semester-long course on political economy where the texts are Eat the Rich and Parliament of Whores. So, bookstore owners, leave them in the Humorous Writing section for sure, but also put copies in the Economics, Politics, and Current Affairs sections.
Still time to buy them for Christmas and educate all your family and friends while they think they’re just being entertained!

There’s No Machine-Readable Government Org Chart

Posted by Jim Harper at http://www.cato-at-liberty.org/theres-no-machine-readable-government-org-chart/


At a recent Cato event on transparency, I emphasized that there is no federal government “organization chart” published in a way computers can use.
Here’s what I mean:
Appendix C of the Office of Management and Budget’s Circular A-11 is the White House’s definitive public listing of agencies and bureaus, along with their OMB and Treasury codes—unique identifiers for the agencies and bureaus of the federal government.
First problem: It’s a PDF document. To be computer-usable this should be represented in digital form as a lookup table.
But beyond that, it doesn’t follow a coherent organization. There’s an agency code (“200″) called “Other Defense Civil Programs,” for example. There’s obviously no agency called “Other Defense Civil Programs.” That’s a catch-all description, not an agency.
With most agencies, the bureau codes refer to bureaus, such as the Bureau of Land Management (bureau code: “04″) in the Department of the Interior (agency code: “010″), but with respect to the Department of Defense (agency code: “007″), the bureau codes become functional descriptions such as “Military Personnel” (“05″). There is no bureau in the Department of Defense called “Military Personnel.”
Even the most basic organizational information is a hash, and it’s published in PDF, unusable for computer-assisted oversight of the government!
The House appears committed to improving its publication practices. If the administration wants to advance the ball on transparency for its part, it will begin to publish coherent information—starting with basic information about the organization of the executive branch—in machine-readable form, using standardized identifiers. An edict from OMB to harmonize on identifiers down to the program level could be implemented in months, if not weeks.
My recent paper “Publication Practices for Transparent Government” talks about what to do. Our data model for budgeting, appropriating, and spending articulates how government agencies, bureaus, programs, and projects—and the relationships among them—should be represented.

One out of Four Ain’t Bad?

Posted by Neal McCluskey at http://www.cato-at-liberty.org/one-out-of-four-aint-bad/


Last week I was critical of a New York Times op-ed by AEI’s Rick Hess and Stanford’s Linda-Darling Hammond. Yesterday, Hess graciously replied to my critiques, basically saying that it would be good if we could get the feds out of education, but since that’s highly unlikely, lets see how Washington can help.
That’s a modest and sensible stance, and I don’t think Hess is “endorsing big government.” (At least relative to most edu-analysts—admittedly a lopsided scale.)  But even if you accept that few in Washington are willing to boot themselves out of schools—and few are—it’s still critical to explore whether or not the things you’d have them do would be of net benefit.
Like last time, we’ll take the four proposals in order, this time based on Hess’s rebuttal. But first, one pet peeve:
Hess writes that he’d be happy to end “two centuries” of federal education meddling, noting that it all started with “the Continental Congress’s Northwest Ordinance of 1787.” I don’t know if this was his intent, but that factoid is usually invoked to suggest that even the Founders believed the federal government should advance education. This is not an impression that should be given: the Constitution is very clear in ceding Washington no authority to govern education outside of federal lands and civil rights enforcement. That the states have jurisdiction over education was, in fact, explicitly acknowledged as recently as the 1940s by a commission overseen by none other than Franklin Delano Roosevelt. And, while there was some federal education activity largely during and after the Civil War, it was not until the 1960s that Washington got heavily involved.
On to the four points:

First, when it comes to transparency, states have a collective action problem. There is both the problem of providing parents, taxpayers, and voters with meaningful transparency and the fact that state officials in each state have an incentive to manipulate performance results to their own advantage. More standards accounting and linking results to NAEP is a case of the feds providing a public good that only Washington is equipped to provide.

It’s true that state officials have a big incentive to manipulate performance results so that they stay out of trouble with voters and, especially, the teachers, administrators, and others who would be held accountable. The problem is that once you connect real consequences to NAEP—currently there are none—it will become a target for manipulation just like state tests and standards. Don’t attach consequences, however—including having no consequences attached to the state tests you’d audit with NAEP—and there’s no real impetus for schools to change. At best, then, this is a very limp proposal, and that’s before you get into big questions about whether the public really knows what NAEP assesses, whether one set of tests is a useful measure of education, and others I’ll save for another day.

Second, when it comes to basic research, the market tends to underprovide. Basic research is a public good…and is tough to monetize. The result is that, while the private sector is terrific at funding applied research, it tends to invest little in basic research.

As I mentioned last time, I hear this a lot but rarely see meaningful evidence to support it. And by “meaningful” I mean research looking at both the successes of government-funded basic research and the costs. Is it a net gain? Does the private sector steer clear of much of it because it’s an unjustifiable risk? Does it steer clear because government enables end users to rent-seek? There might be such research, but I’ve not seen it cited by those who assert that government must fund basic research. And then there’s the research I have seen that shows much of the funding translates not into innovation, but higher researcher salaries.

Third, even hard-charging state officials get tangled in decades of entrenched rules, regulations, and practices. The feds can help untangle this status quo by supporting officials seeking to throw off anachronistic routines but who must find ways to persuade skeptical constituents or union leaders to go along.

This if great if the goal is to clear out federal regulations, but state and local? There’s nothing in the Constitution authorizing Washington to manipulate state and local education systems, and perhaps more importantly: Why should anyone think it will work? The overwhelming, long-term track record for Washington is to add efficiency killing rules and regulations, and do the bidding of teachers unions and other school employees. Plus, why should we assume that the feds are able to pick the right routines to throw off or add on?

Finally, the federal government is obliged to ensure that constitutional guarantees of equal protection are observed. That said, this will ideally be pursued far less prescriptively than is the case today.

Here we agree, if Hess means Washington must stop clear state discrimination. And I guess one out of four ain’t bad.

The Supremes vs. the Supremes

Posted by Trevor Burrus at http://www.cato-at-liberty.org/the-supremes-vs-the-supremes/


Corporations, corporate speech, and the 2010 Supreme Court decision in Citizens United v. Federal Elections Commission are a new Mason/Dixon line in American politics. In late December, in true antebellum fashion, the Montana Supreme Court, in Western Tradition Partnership, Inc. v. Attorney General of Montana, tried to nullify the case by ruling that Citizens United doesn’t apply to Montana’s “unique” electoral system. Because the Montana Supreme Court’s actions were in blatant disregard of the Citizens United decision, the Supreme Court will likely overturn the opinion summarily—that is, without briefing or argument. Montana will not be a First Amendment-free zone for long.
Some who vehemently oppose the Citizens United decision have come out against the Western Tradition Partnership opinion as unsupportable judicial overreaching. Ian Millhiser of the Center for American Progress writes that, just as “it is wrong when Newt Gingrich plots a campaign of massive resistance against judges he disagrees with… Montana’s justices act no less illegitimately when they fail to follow a binding Supreme Court precedent.” Absolutely.
Mr. Millhiser is also correct in citing Justice James C. Nelson’s vigorous dissent as an admirable example of judicial modesty. While Nelson is very clear that he does not support Citizens United, he is even clearer in admonishing the majority of the court for ignoring binding precedent from the highest court in the land. The issue for Justice Nelson is clear, and it does not hinge on whether he disagrees with the Supreme Court’s opinion. Instead the question is simple: “Has the State of Montana identified a compelling state interest, not already rejected by the Supreme Court, that would justify the outright ban on corporate expenditures for political speech?” “Having considered the matter,” Justice Nelson writes, “I believe the Montana Attorney General has identified some very compelling reasons for limiting corporate expenditures in Montana’s political process. The problem, however, is that regardless of how persuasive I may think the Attorney General’s justifications are, the Supreme Court has already rebuffed each and every one of them.”
With criticisms like this coming from ideological compatriots, one has to wonder what the five justices in the majority were thinking. When reading the opinion, however, what they were thinking is abundantly clear: they wanted to register their dissent with Citizens United as well as cling to a distant hope that the Supreme Court might review the scope of their decision. Unfortunately for them, because of the method in which they chose to do so, coupled with the recentness of Citizens United and a blistering dissent that catalogs their errors, the Supreme Court will not seriously examine their reasoning.
The only remaining question is whether the Supremes will unanimously vote to reverse the Montana court and thus resolutely affirm the status of SCOTUS within the judicial hierarchy. There remains a possibility, however, that one or more of the justices who disagree with Citizens United (and recall that Justice Kagan argued the case before the Court as solicitor general) will use the case to voice their opposition to the decision. This would be unwise, and it would only contribute to the perception of the Court’s fractured nature. The justices should not be fractured on condemning a lower court that blatantly ignores controlling precedent.
Yet the opinion is still worth reading for anyone interested in campaign finance law generally or in Citizens United itself. Not only does the majority opinion make a woefully inadequate attempt to distinguish Montana’s “unique” situation from facts already addressed by the Supreme Court, but it highlights fundamental differences in political philosophy that Citizens United has brought to the surface.
Contrary to popular opinion, including the opinion of President Obama voiced in his 2010 State of the Union address, Citizens United did not overturn a “century of law” or dramatically break with existing First Amendment doctrine. Instead, the Court merely logically extended what it said in the foundational campaign finance case of Buckley v. Valeo (1976): the government’s only compelling interest in regulating campaign finance comes from preventing the corruption or the appearance of corruption of elected officials. “Corruption” here means quid pro quo corruption—that is, “you give money to my campaign and I’ll vote the way you want me to, a way that I wouldn’t have voted otherwise.” It does not mean “corrupting” the supposed purity of the campaign process by letting one speaker have a louder voice than other speakers. Nor is it “corruption” for representatives to respond to the demands of their constituency. That’s democracy. The Court in Buckley ruled that the dangers of quid pro quo corruption are only substantially present when direct contributions are given to candidates. Those dangers are not as present when parties do not give money directly to the candidate but instead spend money independently of the campaign. Citizens United merely extended this reasoning to corporations.
This intuitively compelling distinction is consistently ignored by critics of Citizens United. Throughout the majority opinion, the Montana Supreme Court also ignores this distinction (which it is legally bound to enforce) and instead uses the term “corruption” to describe both bribery and disproportionate influence. In one particularly telling passage, the court explains how a corporation “willing to spend even hundreds of thousands of dollars, much less millions, on a Montana judicial election could effectively drown out all other voices.” This idea—the idea that the government should regulate the electoral marketplace of ideas in order to ensure that voices are not drowned out by louder voices—is not just wholly repugnant to the First Amendment, it is a dangerous power to give to government officials who depend on elections to keep their jobs.
Perhaps no one has put this idea better than Justice Scalia in the opening lines to his dissent in Austin v. Michigan Chamber of Commerce, which Citizens United overruled:

“Attention all citizens. To assure the fairness of elections by preventing disproportionate expression of the views of any single powerful group, your Government has decided that the following associations of persons shall be prohibited from speaking or writing in support of any candidate: ___.” In permitting Michigan to make private corporations the first object of this Orwellian announcement, the Court today endorses the principle that too much speech is an evil that the democratic majority can proscribe. I dissent because that principle is contrary to our case law and incompatible with the absolutely central truth of the First Amendment: that government cannot be trusted to assure, through censorship, the “fairness” of political debate.

Instead of focusing on quid pro quo corruption, the Montana court’s central worry is that corporate speech will be effective, that is, that people might actually believe it. It’s hard not to see some measure of paternalism in this idea, as well as an implicit assumption that corporations only try to deceive and brainwash rather than inform. Thus, a majority of Montana’s Supreme Court would empower the government to ensure that citizens are protected from these devious forces by benevolent officials who will in no way try to control the process for their own ends. This much faith should never be placed in elected officials. Thankfully, a majority of the Supreme Court of the United States agrees.