Archives: June, 2010

Change? We Don’t Need No Stinkin’ Change

Today Politico Arena asks:

Can the DISCLOSE Act, with exemptions carved out for large special-interest groups, effectively rein in the influence of spending in campaigns?

My response:

It’s been a bad week for Barack Obama. His Tuesday night Oval Office speech, the first of his presidency, was panned by left and right alike, not least on the comedy channels. And now at week’s end congressional Democrats have had to pull their answer to the Supreme Court’s Citizens United decision that he so ridiculed during his State of the Union Address – because Blue Dog Democrats and the Congressional Black Caucus have balked. Still worse, although it looks like nothing will come of this latest effort by Democrats to rig campaign finance law in their favor, the damage has been done by the union and NRA carve-outs in the DISCLOSE bill – shades of ObamaCare’s Cornhusker kickback. Democrats don’t seem to get it. The voters want change, not this.
But how could it be otherwise? This mostly Democratic campaign finance crusade over several decades, resulting in an incomprehensible body of regulations replete with draconian sanctions for missteps, has been an utter failure on its own terms. Designed nominally to get the corrupting influence of money out of politics, every restriction has been followed by ever more money in politics, because the real aim has nothing to do with corruption and everything to do with incumbency protection – by making it ever-more difficult to mount a challenge to congressional incumbents. In this morning’s Wall Street Journal Kim Strassel gives us a glimpse of that as it has unfolded in this latest effort at “reform.” But all you really need to know is that in over half of our states we have virtually no campaign finance restrictions, and there’s no more corruption in those states than in the others. Sometimes facts settle issues, and there’s one big one.

Citizens United/Disclose Act Debate

In case you missed yesterday’s excellent Hill Briefing on the DISCLOSE Act and other recent developments in speech restrictions, next week I’ll be debating Citizens United and the future of campaign finance regulation.  The event, cutely titled “Citizens United, Republic Divided; Campaign Finance Law After Citizens United,” takes place June 24 at noon at American University’s Washington School of Law, Room 401.  That’s 4801 Massachusetts Ave. NW here in Washington. 

IJ’s Steve Simpson and I will be up against American U’s Jamie Raskin and Election Law Blog’s Rick Hasen (who has also blogged this notice).  RSVP to Michael Vasquez at mv5786a [at] student [dot] american [dot] edu so there’s enough lunch to go around.

For Cato’s take on the DISCLOSE Act, see John Samples’s latest podcast, blogpost, and op-ed.  See also NRA board member Cleta Mitchell’s stunning op-ed about that organization’s cynical Faustian bargain.  Finally, here’s the piece John and I published in January in the wake of the Citizens United decision.

Two Cheers for the U.S. Economy

Two articles in today’s Wall Street Journal deal with the housing sector.  They complement each other. Journal reporters note that “Industry Speeds Recovery, And Housing Slows It Down.”  The story notes that that “ground-breaking for new homes and applications for building permits both plunged last month.”  Meanwhile, U.S. industrial output showed strong growth in May.

Bravo for both numbers, which are inter-related.  The headline (over which reporters have no control) reflects conceptual confusion.  U.S. industrial production is strong at least in part because construction of new homes is weak.   The bloated home sector is no longer absorbing a disproportionate share of economic resources.  The new homeowners tax credit has mercifully expired, ending that bit of misguided stimulus.

David Wessel’s article, “Rethinking Home Ownership,” further clarifies the reallocation of resources taking place in the U.S. economy.  Beginning in the 1990s, the federal government adopted a number of policies to stimulate home ownership.  As Wessel makes clear, it was a bipartisan effort.  Home ownership rates rose from around 65% to a peak of 69.4% in 2004.  It was an unsustainable policy, a true asset bubble.

Home ownership rates have now fallen back to where they began, or even below.  The experience of the 1990s and early 2000s in housing demonstrates why government stimulus is not a permanent source of demand, nor the path to sustainable economic growth. Lest we forget, the folly of these programs is measured not just in housing numbers, but in shattered dreams and hopes and ruined lives. And the terrible financial crisis to which these programs contributed

Short-Sighted Rules for Affordable Housing

The state of Maryland wants more people to have affordable housing – at least if they’ve already got it. Concerned that the owners of mobile home parks might sell the land for other uses, “affordable housing advocates” succesfully lobbied Maryland legislators this year for

legislation that, they say, discourages owners of mobile-home parks from selling their properties. If the landowner does sell, it provides the homeowner with some protection.

Under the law, which was passed earlier this year, a mobile-home park owner who wants to sell and change land use must give written notification to the residents and provide displaced homeowners with a relocation plan and relocation assistance that equals 10 months’ worth of rent. The legislation applies to mobile parks with more than 38 sites.

Now the first thing to be said about this is that it is theft. That’s become so common in legislatures that we’ve become accustomed to it. But we shouldn’t lose sight of what happened here: Some people spent their own money to buy land. They rented that land to people with mobile homes, who knew that they were not buying the land, they were just renting a place to park their mobile homes. (The word “mobile” might be a tipoff that they’re made to move.) And then the government took away the owner’s right to change the use of his land. The owner could still sell it, of course, as long as he gives written notification of his plans, provides the renters with a “relocation plan,” and pays them 10 months’ rent to leave his land. That’s a huge burden; the government has simply appropriated much of the value of the owner’s land.

But there’s an obvious long-term consequence here, too, one that the Washington Post didn’t get to in its 1000-word story. What’s going to occur to a landowner as she reads this story? She’s going to think, if I allow anyone to park a mobile home on my property, I’ll be permanently harnessed to that tenant, like a medieval serf. So maybe I’d better not rent any space to a mobile home owner. But then she’s going to think a bit further: What about other kinds of affordable housing? If I build inexpensive apartments or bungalows, and rent them to people who need affordable housing, will the state of Maryland decide that I shouldn’t be allowed to change the use of the land or sell it? After all, wealthy Montgomery County, Maryland – which doesn’t have many mobile homes – does have a 20-page handbook of rules and restrictions for any owner who might want to convert an apartment building to condominiums, including the county’s right to buy the land and a guarantee of lifetime tenancies for low-income elderly tenants. William Tucker pointed out in a 1997 Cato paper how rent control laws usually had to be followed by condo conversion restrictions, as building owners tried to find some way to make a profit on their buildings. And then of course the whole series of attempts to “protect” affordable housing leads to housing shortages and sky-high rents.

If you want people to supply affordable housing, it’s probably a good idea not to pile taxes, restrictions, and threats of confiscation on the backs of those who do.

Mixed Result in Complicated Property Rights Case

Today the Supreme Court came down with its ruling in Stop the Beach Renourishment v. Florida Department of Environmental Protection, a case I previously blogged about here and here, and in which Cato filed a brief.

While the Court’s 8-0 ruling against the Florida oceanfront (now ocean-view) property owners was not the result we wanted, the part of the decision that was unanimously unfortunate turned on a narrow and probably mistaken interpretation of state property law.  Much more importantly, the remainder of Justice Scalia’s opinion makes clear that judicial takings are just as much a violation of the Fifth Amendment as any other kind.  “If a legislature or a court declares that what was once an established right of private property no longer exists,” Scalia writes for a four-justice plurality, “it has taken that property, no less than if the State had physically appropriated it or destroyed its value by regulation.”   And the test for whether the government—any part of it—has committed a taking turns on “whether the property right allegedly taken was established.” 

Moreover, that the Court ultimately found no taking here should provide no succor to courts and other state actors who wish to abuse property rights in the future.  The case could have easily swung the other way in a non-oceanfront circumstance or under a different state’s laws.  Indeed, two justices (Kennedy and Sotomayor) said that federal courts can still police judicial takings—under a different name—by using the Fourteenth Amendment’s Due Process Clause, while the remaining two (Breyer and Ginsburg) decided to leave the question for another day.  Nobody accepted outright the idea that courts cannot be held accountable for subverting property rights!

In short, state courts are now on notice that they violate long-held property rights at their peril.

Cisneros Rewriting HUD History

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

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

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

  • Cisneros’s HUD pursued legal action against mortgage lenders who supposedly declined higher percentages of loans for minorities than whites. As a result of such political pressure, lenders begin lowering their lending standards.
  • On Cisneros’s watch, the Community Reinvestment Act was used to pressure lenders into making more loans to moderate-income borrowers by allowing regulators to deny merger approvals for banks with low CRA ratings. The result was that banks began issuing more loans to otherwise uncreditworthy borrowers, while purchasing more CRA mortgage-backed securities. More importantly, these lax standards quickly spread to prime and subprime mortgage markets.
  • The Clinton administration’s National Homeownership Strategy, prepared under Cisneros’s direction, advocated “financing strategies, fueled by creativity and resources of the public and private sectors, to help homebuyers that lack cash to buy a home or income to make the payments.” In other words, his policies encouraged the behavior that he now calls “unscrupulous.”
  • Cisneros’s HUD also put Fannie Mae and Freddie Mac under constant pressure to facilitate more lending to “underserved” markets. It was under Cisneros’s direction that HUD agreed to allow Fannie and Freddie credit toward its “affordable housing” targets by buying subprime mortgages. Fannie and Freddie are now under government conservatorship and will cost taxpayers hundreds of billions of dollars.

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

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

From the Cato essay:

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

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

Unfortunately, One Man’s “Paranoia” Is Everyone Else’s “Reality”

Finished with my woman
‘Cause she couldn’t help me with my mind
People think I’m insane
Because I am frowning all the time

- Black Sabbath, “Paranoid”

According to the Fordham Institute’s Chester Finn, I and others like me are “paranoid.” So why, like Ozzy Osbourne, am I “frowning all the time?” Because I look at decades of public schooling reality and, unlike Finn, see the tiny odds that “common” curriculum standards won’t become federal standards, gutted, and our crummy education system made even worse.

Finn’s rebuttal to my NRO piece skewering the push for national standards, unfortunately, takes the same tack he’s used for months: Assert that the standards proposed by the Common Core State Standards Initiative are better than what most states have produced on their own; say that adopting them is “voluntary;” and note that we’ve got to do something to improve the schools.

Let’s go one by one:

First, as Jay Greene has pointed out again and again, the objection to national standards is not that the proposed CCSSI standards are of poor quality (though not everyone, certainly, agrees with Finn’s glowing assessment of them). The objection is that once money is attached to them – once the “accountability” part of “standards and accountability” is activated – they will either be dumbed down or just rendered moot by a gamed-to-death accountability system. 

This kind of objection, by the way, is called “thinking a few steps ahead,” not “paranoia.”

It’s also called “learning from history.” By Fordham’s own, constant admission, most states have cruddy standards, and one major reason for this is that special interests like teachers’ unions – the groups most motivated to control public schooling politics because their members’ livelihoods come from the public schools – get them neutered. 

But if centralized, government control of standards at the state level almost never works, there is simply no good reason to believe that centralizing at the national level will be effective. Indeed, it will likely be worse with the federal government, whose money is driving this, in charge instead of states, and parents unable even to move to one of the handful of states that once had decent standards to get an acceptable education.

Next, let’s hit the the “voluntary” adoption assertion. Could we puh-leaze stop with this one! Yes, as I note in my NRO piece, adoption of the CCSSI standards is technically voluntary, just as states don’t have to follow the No Child Left Behind Act or, as Ben Boychuk points out in a terrific display of paranoia, the 21-year-old legal drinking age. All that states have to do to be free is “voluntarily” give up billions of federal dollars that came from their taxpaying citizens whether those citizens liked it or not! 

So right now, if states don’t want to sign on to national standards, they just have to give up on getting part of the $4.35 billion Race to the Top fund. And very likely in the near future, if President Obama has his way, they’ll just have to accept not getting part of about $14.5 billion in Elementary and Secondary Education Act money.

Some voluntarism….

Finally, there’s the “we’ve got to do something to fix the schools” argument. I certainly agree that the education system needs fixing. My point is that it makes absolutely no sense to look at fifty centralized, government systems, see that they don’t work, and then conclude that things would be better if we had just one centralized, government system. And no, that other nations have national standards proves nothing: Both those nations that beat us and those that we beat have such standards.

The crystal clear lesson for those who are willing to see it is that we need to decentralize control of education, especially by giving parents control over education funding, giving schools autonomy, and letting proven, market-based standards and accountability go to work. 

Oh, right.  All this using evidence and logic is probably just my paranoia kicking in again.