Archives: 10/2008

The End of American Capitalism?

At the top of today’s front page, the Washington Post joins other Big Media in dancing on the grave of capitalism and smaller government. And compared with such past headlines as “A Fresh Look at the Apostle of Free Markets” or “Crisis Turns Free Marketeers into Regulators,” the Post goes all the way: “The End of American Capitalism?” It does have a question mark.

But what is the Post’s evidence that “American-style capitalism” is a casualty of the financial crisis? Well, for one, “The Bush administration is considering a partial nationalization of some banks.” I’m not sure that an administration that has given us nationalized schools, expanded entitlements, burdensome Sarbanes-Oxley securities regulations (how’d those work out, by the way?), nation-building around the world, and a trillion-dollar increase in federal spending is exactly an example of free-marketers finally giving in to the lure of big government.

But it’s not just American politicians, the Post tells us, who have lost faith in capitalism. “European leaders … are calling for broad new international codes to impose scrutiny on global finance.” So the people who run the U.S. government and the people who run European governments are united in seeking more power for governments.

But wait, there’s more. “To some degree, those calls are even being echoed by the International Monetary Fund.” So even an intergovernmental organization devoted to forced wealth transfers also wants more power for governments.

Also Nobel laureate Joseph Stiglitz: “We told them if you wanted to be like us, here’s what you have to do — hand over power to the market. The point now is that no one has respect for that kind of model anymore given this crisis.” So the most left-leaning Nobel laureate thinks our policies should move to the left. But if reporter Anthony Faiola had interviewed such recent laureates as Vernon Smith, Ed Prescott, Robert Mundell, Gary Becker, Myron Scholes, Douglass North, or James Buchanan, he might have gotten a different answer.

There’s no question that the global financial crisis is causing people to question how well capitalism works. But we’re still not in any Great Depression. And the evidence in this article is almost entirely that governments are — as usual — taking advantage of a crisis to expand their scope and power.

Of course, if this crisis leads us to question “American-style capitalism” — the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans — well, it might be a good thing to reconsider that “American-style capitalism.”

More Eavesdropping

Brian Ross of ABC News is reporting allegations from two whistleblowers who say the federal government eavesdropped on hundreds of international phone calls between Americans. The surveillance continued even when there was no indication of espionage or terrorism.

Question for the White House: Is this another disgraceful news report? After all, it reminds the terrorists that the NSA listens in on calls.

Questions for CIA director Michael Hayden and NSA director Lt. General Keith Alexander: When you say the ‘law’ is always followed, would you remind us as to what, exactly, constitutes illegal eavesdropping? And how many government officials and employees have been disciplined, discharged, or prosecuted for illegal surveillance over the past 10 years?

Question for Congress: What does Sen. Jay Rockefeller (D-WV) mean when he says an oversight hearing may be necessary? How many whistleblowers have to come forward to warrant a hearing?

For more, read Glenn Greenwald. For related Cato scholarship, go here.  

Litigating the 4th Amendment in the Supreme Court

In this first week of the new term, the Supreme Court heard two Fourth Amendment cases.  The first, Herring v. United States, asked whether evidence obtained based on an erroneous arrest warrant (called in by a police clerk from a neighboring county) should be suppressed.  The second, Arizona v. Gant, looked into whether the long-standing “Belton“ rule that a police officer may search the passenger compartment of an arrested person’s car should be set aside when the the search – typically justified on “officer safety” grounds – occurs after the arrested person is handcuffed and locked in the back of a squad car.  The easy legal answers would seem to be yes and yes (though I have qualms about the exclusionary rule – which is fairly unique to America – as a matter of policy), but then it’s hard to craft a readily administrable legal rule that would get you there without creating an equally unjust result in other circumstances.  Hard cases, as they say, make bad law.

But my point is not to argue the finer points of Fourth Amendment doctrine.  Instead,  it is to highlight the difficulty of arguing those points in the rarefied air of the Supreme Court.  As the SCOTUSblog analysis of the arguments in the above cases concluded:

The arguments in these cases illustrate the complexity of arguing Fourth Amendment cases before this Court.  It is not simply a question of appealing to Justices’ support for, or skepticism of, the exclusionary rule or broad discretion for law enforcement officers.  Many of the Justices are also concerned about need for clear, administrable rules, while others simultaneously resist the inflexibility and illogical results a bright-line rule inevitably gives rise to.  And while some Justices are more than ready to abandon old decisions and doctrines they believe were wrongly adopted or no longer make sense (be it the exclusionary rule or Belton) others feel strongly about the Court’s obligation to adhere to its prior precedent absent strong justification for departure.  And to make matters worse, these various considerations often point in different directions and cut across the traditional liberal-conservative lines on the Court: Justices Breyer and Alito worry about stare decisis, while Justice Thomas is much less concerned; Justice Kennedy wants a rule that makes pragmatic sense, while Justice Scalia doesn’t care if the rule is nonsensical if it has a historical pedigree; Scalia worries about a vague standard for applying the exclusionary rule, but the Chief Justice not so much.  In the end, the cross-currents can sometimes give advocates more to work with in crafting arguments that can attract five votes.  But at the same time, it sometimes makes the task of holding together a coalition quite complicated.

In short, separating out death penalty cases, it is in criminal law where the justices can be the least predictable.

No, It Wasn’t Joe Biden

But I couldn’t help thinking of him when I read this Washington Post headline:

Ex-Sailor Guilty of Pretending to Be an Admiral
Delaware Man Gave Speech to Vietnamese American Group in Va.

And I was transported back to 1987, when Biden withdrew from the presidential race after appropriating the details of British Labor Party leader Neil Kinnock’s life in his speeches, falsely claiming to have three college degrees, and boasting of a much higher rank in his law school class than he actually achieved.

I remembered a purported “Joe Biden resume” that circulated widely back in 1987. Being from prehistoric days, alas, it’s not on the World Wide Web, so I have to recall it from memory. But as I recall, in standard resume fashion it recounted Biden’s achievements in life: NCAA basketball championship, Heisman Trophy, top of his law school class, chairman of the Joint Chiefs of Staff, Nobel Prize in physics, Pulitzer Price for literature, Oscar, chief justice of the United States, and so on.

Of course, if he actually had all those accomplishments, Sarah Palin would dismiss him as an elitist.

Joe Klein on Obama, McCain & Health Care

In a recap of the second McCain-Obama debate, Joe Klein offers his thoughts on the role of government generally and in health care in particular.  Excerpts and comments follow:

Obama began his response with a simple declarative sentence: “I believe that health care is a right for every American.”

Health care is a bundle of goods and services.  Treat health care like a “right,” and watch it disappear

The rest of his answer could be used as a template for how to deal with a complex issue in a town-hall debate. He began with a personal story: his mother, dying of cancer at age 53, having to fight her insurance company, trying to prove that her disease had not been a pre-existing condition.

Obama has said his mother ”had been diagnosed just as she was transitioning between jobs.”  Neither candidate can claim that their health plan would have saved her life.  But McCain can claim that the federal government created an employer-based health insurance system that routinely strips people of coverage right before and right after they get sick.  In its attacks on McCain’s health-insurance tax credit, I haven’t once heard the Obama campaign acknowledge that McCain’s plan would have spared Obama’s mother that deathbed worry.

He broadened that into a general proposition about the proper role of government: “It is absolutely true that I think it is important for government to crack down on insurance companies that are cheating their customers.”

Government should crack down on cheats.  If an insurance company commits fraud or breaches its contracts, let ‘em have it.  One senses that Obama means something else, perhaps that insurance companies “cheat” any time they deny coverage for anything?  Maybe because he thinks health care is a right? 

And finally, he transformed the issue into a metaphor for the entire campaign: “That is a fundamental difference that I have with Senator McCain. He believes in deregulation in every circumstance. That’s what we’ve been going through for the last eight years. It hasn’t worked, and we need fundamental change.”

Regarding Obama’s silly attacks on McCain’s proposal to deregulate health insurance, click here.

Obama’s gamble is that the public — worried at the beginning of the campaign, terrified now — is ready for greater government support and regulation of the health-insurance system. That assumption has always been a sure loser in American politics. Republicans have perpetually and successfully waved the bloody flag of “socialized medicine.”  But the employer-provided-health-care system is fraying, costs to average families are rising, and almost everyone has a friend with a horror story.

Indeed.  If only Klein and the Republicans recognized that socialized medicine is the root cause of those horror stories.

McCain’s plan is a half-baked vestige of Reagan-era ideology: it tilts the incentives away from employer-provided health insurance and assumes that people will act in their enlightened self-interest if they are thrust out into a free market. That’s absolutely true when it comes to buying refrigerators. But health insurance is complicated and scary; most people don’t have the time or expertise necessary to make wise choices.

Health insurance is complicated; illness is scary.  It would be nice if health insurers won customers by making health insurance simple and taking away patients’ fears of illness and financial ruin (rather than focusing on employers’ fears of absenteeism and rising labor costs).  For that, the individual customer has to control the money.

They rely on their employers to make sure they’re getting a good deal — and to fight for them if the insurance companies try to cheat them. And with many employers slouching away from that responsibility, the public seems ready to turn to the government for protection. In a collapsing economy, government regulation — forcing insurers to cover everyone at reasonable rates — sounds more comforting than stultifying.

Employers are shirking – but the government won’t?  Even when Obama gives them a jillion more things to do than enforce contracts and prosecute fraud?  And reasonable rates??  Does Klein know nothing about Medicare?

Shed No Tears for State Government Employees

The Pew Center on the States maintains an online news service called Stateline.org, which recently ran an article on the burgeoning plight of state government employees in the current economic downturn.

From Stateline:

But with the economy in a doldrums — only three years after states had emerged from the last recession — the hiring and salary freezes and benefit cuts that occurred earlier this decade are making a comeback as states struggle to meet their budgets.

The most galling aspect of this statement is the fact that it contradicts the Pew Center on the State’s own recent research.

From the Pew report:

In the late 1990s and early 2000s, when half the states’ pension plans were fully funded, many states reacted by increasing benefits…Legislatures responded in 1999 and 2000 by shortening vesting periods, increasing the multipliers used in determining benefit amounts, decreasing the age at which employees could receive full retirement benefits and shortening the years of service needed to qualify.

According to the same report, “…public sector employees are far more likely to receive retirement benefits—and the gulf between private and public sectors continues to grow.”  Pew found that (1) 90% of government employees have a defined benefit compared versus 20% in the private sector; (2) the median pension in 2005 was $17,640 (public) versus $7,692 (private); and (3) 82% of government employees have a retiree health care benefit compared with only 33% in the private sector.

Moreover, future state and local government employee benefit obligations are a ticking time-bomb for taxpayers.  See previous Cato work on this topic here, here, and here.  The Stateline article also says that state government salaries compare unfavorably with the private sector.  Cato has already pointed out that this isn’t necessarily the case either (see here).

My own experience in state government led me to conclude that much of it amounts to one big “jobs program.”  The truth is the typical state employee faces a relatively shorter work day, more generous benefits, and absurd job protections.  I would contend that one of the most dangerous places on the planet is a state employee parking garage at closing time, which in my state is 4:30 pm following a 7 1/2 hour workday.