Archives: October, 2006

WSJ Weighs in Against ‘REAL Bad ID’

This morning’s Wall Street Journal opinion page blasts Republicans for passing the REAL ID Act.  [subscription required] 

Keyed to a recent report showing the costs of compliance at $11 billion, the piece notes that all Americans will have to reapply for their drivers’ licenses and ID cards if states go along with this unfunded federal surveillance mandate.  It also addresses whether a national ID protects against terrorism or provides effective immigration control and finds REAL ID wanting on both counts.  My book Identity Crisis shows why.

Sooner rather than later, Congress will recognize its error in passing the REAL ID Act.  Most likely it will try to kick the can down the road.  Look for a quiet attempt to change the deadline for getting a national ID in everyone’s hands. 

But that is not the solution.  If Congress wants a national ID, it should have hearings, markup and pass legislation, then fund and implement a national ID itself. 

Congress didn’t have a single hearing or up-or-down vote on the REAL ID Act.  This much exposure would kill a national ID plan, of course.

Be(trade)

As we enter the last quarter of what feels like the tenth year of a two-term presidency, the Bush administration’s trade apologists have yet another setback to rationalize. Last week, in an effort to overcome limited opposition to a bill that would grant Vietnam “permanent normal trade relations” (PNTR) status ahead of that country’s accession into the World Trade Organization, the administration announced it would “self-initiate” antidumping cases against Vietnamese exporters of clothing should conditions warrant.

Under the law, only domestic industries producing the product in question, unions representing workers producing the product in question, or the Commerce Department itself can initiate antidumping investigations. Rarely has the executive branch—and never has this administration—initiated an antidumping case on behalf of an industry or its workers. Almost every one of the thousands of U.S. antidumping cases over the years was initiated by industry, and that is why last week’s concession is significant.

Opposition to the bill was mostly confined to the textile industry, which is always opposed to measures that would expand the freedom of Americans to engage in commerce with the world at large. That opposition was expressed as a hold over a vote on the PNTR bill by two Republican senators from textile states, Elizabeth Dole of North Carolina and Lindsey Graham of South Carolina. Their opposition could have been overcome with a far less intrusive concession, if the administration was unwilling to stand on principle. After all, Senator Jim DeMint (R-SC) won his seat by a vast margin in 2004, running unapologetically on a free trade ticket against a candidate hand-picked and financed by South Carolina’s textile magnates.

Instead, the administration delivered to the textile industry it’s most coveted prize. You see, the U.S. textile industry does not have standing in antidumping cases involving imported clothing. Textile producers make the threads, yarns, and fabrics that are used in the manufacture of clothing, but they don’t make clothing. In fact, other than high-end fashion and uniforms made for the military, there isn’t much of a domestic clothing industry to speak of. Apparel producers left long ago, setting up shop in the Caribbean, Mexico, and Central America. Producers remaining in the United States generally don’t compete with imports, and most of those that do are also importers of clothing, and have no interest in impeding access of foreign producers to the U.S. market. In other words, there is no industry in the United States that could actually bring a consequential antidumping case against foreign producers.

The administration’s concession changes all that. If the administration is willing to initiate such cases, U.S. textile producers are that much closer to cordoning off the U.S. market for their own customers and keeping the Vietnamese, the Chinese, and other Asian suppliers at bay, while Americans pay more than they should have to for clothing.

Tongue in cheek, Bush apologists will argue that the administration outsmarted the opposition by agreeing only to take antidumping actions without specifying the conditions that would trigger such actions. But by even indulging in talk of self-initiating antidumping actions, the Bush administration makes crystal clear the insincerity of its own rhetoric about the virtues of free trade. And, it has set a terrible precedent that future administrations and policymakers will have a tougher time disavowing. You can bet your last dollar that presidential candidates stumping through textile country over the next two years will be pressed to honor this unforgivable commitment made by the Bush administration. And as the textile industry’s recourse to special safeguard measures against Chinese clothing imports expires at the end of 2008, it’s a virtual guarantee that its lobby will push for a similar antidumping commitment with respect to Chinese imports. And who knows, other industries might also line up for such treatment.

Prospects for significant trade liberalization were already hanging on by a thread, and the best we could hope for was for the administration holding the line. Last week’s “compromise” constitutes a colossal breach in that line. And none of it makes any sense from a political or diplomatic perspective anyway. The concession was made to improve prospects that the Vietnam PNTR bill would pass in a lame duck session ahead of the president’s visit to Hanoi next month. But does anyone in the White House think the Vietnamese are going to roll out the red carpet for a president bearing such a tainted gift: unfettered access to the U.S. market for all but their most important exports?

Rock Against Intolerance

The Washington Post recently ran an inspiring article, “Rock Star Rattles Radical Islam,” about Ahmad Dhani and the Indonesian popular music group Dewa. Their popular song “Warriors for Love” is a counter to radical political Islamism and a call for peace and social harmony.

Dewa work closely with an outstanding group based in Indonesia, LibForAll. They have published in Bahasa Indonesia a book on Islam, the State, and Civil Society. My colleagues at the Lamp of Liberty are working with LibForAll to produce a full edition in Arabic, thus taking an Islamic message of toleration and freedom from Indonesia to the Arab world.

Amnesty? What Amnesty?

Here’s an interesting and under-remarked, cert. petition involving separation of powers claims pending before the Court: Stolt-Nielsen S.A. v. USA. Stolt presents a minor key in a major symphony: the ongoing debate over the boundaries of judicial control over the executive branch. Here, the Department of Justice claims courts lack the power to enjoin the Department of Justice from breaching immunity agreements entered with corporate defendants in the cross-hairs of federal antitrust investigators.

A bit of background: The federal government operates an amnesty program, called the Corporate Leniency Program, under which DOJ covenants not to prosecute firms that cooperate with antitrust investigators, so long as a series of conditions are met.

In 2002, Stolt-Nielsen contacted the DOJ Antitrust Division with an offer to cooperate in the investigation of collusive trading practices between Stolt and two competitors. DOJ executed a conditional amnesty agreement, prompting Stolt to turn over a series of incriminating documents to DOJ attorneys, waiving, in the process, attorney-client privilege. Four months after entering the agreement, DOJ notified Stolt it was suspending the government’s obligations under the agreement because Stolt had misrepresented the termination date of its own anticompetitive practices. In 2004, the DOJ announced its intention to indict Stolt. Stolt sued to enjoin, contending it deserved an evidentiary hearing on the DOJ’s claims prior to indictment.
The government argues that its leniency agreements do not offer immunity from indictment. As the Chamber of Commerce’s amicus brief in support of Stolt’s petition points out, that’s rather different from the representations DOJ has used to induce corporate cooperation:

The [DOJ Antitrust] Division defines “leniency” as “not charging such a firm criminally for the activity being reported” … The Antitrust Division’s Grand Jury Practice Manual expressly states that the term of art “lenient treatment” “means not indicting such a firm.” … . Representatives of the Antitrust Division have described the Leniency Policy as “a complete pass from criminal prosecution or total immunity for a company and its cooperating employees,” and have observed that “ … the grant of amnesty is certain and is not subject to the exercise of prosecutorial discretion.”

Even so, Stolt’s case faces a number of barriers: (1) the settled rule that due process does not require a pre-indictment hearing on breaches of plea agreements entered by natural persons, coupled with (2) the fact that courts (wrongly, in my view) have refused to extend Fifth Amendment protection to a corporate entity’s interests against self-incrimination. For more, see this pro-government article on the case.

It’s questionable, though, whether ordinary plea agreements are an exact analogy to indictment of a corporate entity, since indictment can literally destroy companies as a going concern: witness Arthur Andersen, which melted down upon indictment, not conviction. As such, the corporate interests at stake here arguably far greater, from a due process standpoint, than a natural person’s interests at the similar stage of proceedings.

Even so, I hold out little hope for Supreme Court attention: It has already rejected two motions to stay the Third Circuit’s order. Moreover, judicial tolerance for misrepresentation in the context of prosecutorial bargaining is, unfortunately, both wide and deep—and, alas, likely to be wider and deeper in the corporate white collar context. Cf. Donald G. Gifford, Meaningful Reform of Plea Bargaining: The Control of Prosecutorial Discretion, 1983 U. Ill. L. Rev. 37 (In the criminal plea bargain, “[d]efendants assume they are receiving substantial sentence reductions in exchange for their guilty pleas. This benefit is often more illusory than real… . The prosecutor’s recommendations, which appear attractive compared to maximum possible sentences, may in fact only correspond with the court’s typical sentencing practices… . [L]ike parties victimized by unconscionable contracts, [defendants] do not understand the terms of the bargain.”).

Was Lt. Cmdr. Charles Swift Too Zealous?

One of the nagging questions about the use of military tribunals has been the role of military defense counsel. If military lawyers report to Defense Secretary Donald Rumsfeld and President Bush (and they do), how can they zealously defend the legal rights of a person that the President has already declared an “enemy combatant” who must be punished for war crimes? Isn’t that a classic conflict of interest? The response has been that the defense counsel for these tribunals would not be under any “command influence.”

Lt. Cmdr. Charles Swift was among the first group of military lawyers that were assigned to represent prisoners facing war crimes charges at Guantanamo. As it happened, Swift’s client, Salim Hamdan, was selected to be the first prisoner that would go before the new military tribunals.

Swift promptly challenged the legality of the commission system–and took the case all the way to the Supreme Court and prevailed. Two weeks after his high court victory, the Navy informed Swift that under its “up-or-out” promotion system, he must leave the Navy.

It is a bit peculiar for the Navy not to retain and promote Swift. After all, Swift was recently named by the National Law Journal as among the nation’s top 100 lawyers. When the tribunals were first proposed, the argument was “we have to do this because otherwise Johnnie Cochran will enter the picture and muck everything up.” Now it seems the feds can’t have Charlie Swifts either.

Lt. Cmdr. Swift participated in a debate here at Cato on military tribunals last March. To view that debate, go here. Swift’s co-counsel in the Hamdan case was Georgetown University law professor Neal Katyal. And Prof. Katyal summarized his critique of the tribunal system in this article (pdf) in the Cato Supreme Court Review.

A not-at-all-Disguised Attempt to…

New Jersey officials have filed a motion for dismissal in that state’s school voucher lawsuit. The suit is seeking the creation of a voucher program for children in “failing” schools on the grounds that New Jersey has not delivered the quality education promised in its constitution.

The state attorney general’s office calls this proposed remedy a “thinly disguised attempt to have the court legislate a school voucher system.”

Nonsense. It is a not-at-all-disguised attempt to do that, and it should fail for that reason. A more plausible remedy that plaintiffs could ask for would be financial restitution for the wasted years of “education” to which their children have already been subjected by the state school monopoly.

If a child had been through five years of public schooling and not learned to read proficiently, the family should receive five years worth of the per-pupil cost of that education so that they could obtain effective educational services outside the government sector. The difference between this and the voucher program sought is that 1) it would apply only to the plaintiffs in the case (but there’s no reason they couldn’t seek class action status), and 2) it would not create an on-going program, just a one-time payment.

The plaintiffs’ lawyers might think that’s insufficient because they want to create an ongoing program right away, but their approach violates the separation of powers. It’s also unnecessary. If the plaintiffs win this suit and the remedy is the one described above, the legislature will act quickly – very, very quickly – to create some sort of new educational program to forestall similar suits all over the state.

And what sort of reform might they adopt? Well, the most popular school choice reform by far in New Jersey is the education tax credit – 74% of the public supported such programs in a recent poll.

If NJ created a large-scale version of Arizona’s or Pennsylvania’s schoalrship donation tax credit programs it could easily provide real public and private school choice to every low-income family in the state. While they’re at it, they could add a personal use tax credit for low and middle-income families with tax liabilities, ensuring universal access to schools of choice. And that, incidentally, is the only way the state will have any hope of living up to its constitutional promises on education.

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Medicaid & the Free-Market Movement

This weekend, something pretty important happened, at least with regard to how the free-market movement approaches Medicaid and medical care for the needy. 

Saturday was the final day of the State Policy Network’s 14th annual meeting in Milwaukee. The State Policy Network provides guidance to 48 state-focused free-market think tanks in 42 states. Part of the annual meeting was a panel on Medicaid, the joint federal-state program originally created to provide medical care to the truly needy. 

Of course, Medicaid has swelled well beyond that goal. The program now covers 52 million people even though there are only 36 million U.S. residents below the poverty line. Medicaid also destroys private markets for health insurance and medical care, and induces low-income Americans to become dependent on government. For example, policymakers universally acknowledge that a welfare check induces dependence on government. Yet average Medicaid benefits for the program’s least expensive enrollees (the non-elderly) are worth twice as much as the average welfare check. Moreover, there are 10 times as many people who receive Medicaid benefits.

For years, several market-oriented groups have advanced Medicaid reforms that, in the name of empowering Medicaid enrollees or improving their quality of care, would expand enrollment and make Medicaid’s problems even worse. Principally, the reforms involve introducing health savings accounts and vouchers into Medicaid. Those groups have fed the rest of the free-market movement a steady diet of those bad ideas, often with some success. A few states have even experimented with those reforms.

On Saturday, I sat on a panel with one of the leading advocates of those proposals. We each presented our side to an audience comprised of the leaders of dozens of state-focused think tanks. I think one audience member probably spoke for many in the room when he said he felt conflicted. My paraphrase: “Part of me wants to improve Medicaid, but that would increase enrollment. And part of me wants to blow it up, but that’s a tough sell politically.” 

He’s right. That is a tough political sell. But it would be substantially easier were the free-market movement to abandon the fool’s errand of trying to improve the program and instead educate the public about the full range of harms Medicaid causes:

  • A per-capita tax burden that is currently over $1,100 and growing
  • An annual deadweight economic loss of some $70 billion
  • Crowd-out of private efforts to provide medical care for the poor, including private insurance, private charity, and self-help
  • Increased dependence on government
  • Higher prices for private health coverage and medical care, which makes Medicaid dependence more likely
  • Lower-quality care than is provided through private markets
  • The indignity of states having to beg Washington for permission to spend their own money as they wish

(For what it’s worth, free-market think tanks should acknowledge that Medicaid does a lot of good: it provides medical care to many who desperately need it. Yet that fact will hardly carry the day, considering that researchers have difficulty finding where Medicaid has any positive overall effect on health.)

Only after we prepare the ground will we be able to achieve serious reform, which should emphasize three things: block grants, block grants, and block grants. Replacing Medicaid with a system of block grants was a component of the 1996 welfare reform law until President Clinton insisted on its removal. Nowadays, no politicians are talking about block-granting Medicaid, largely because free-market groups have abandoned the field. (Until we get block grants, state-level reforms will not make much difference, though free-market groups should oppose those that make Medicaid more attractive and support those that make it less attractive.)

In short, this emperor has no clothes. If the free-market movement does not carry that banner, no one will. 

This weekend’s SPN meeting should be the start of a debate within the movement over how to approach Medicaid. (More details on my approach can be found here.) Thanks to Tracie Sharp of SPN and Mary Katherine Stout of the Texas Public Policy Foundation for getting the ball rolling.