Archives: July, 2010

Are These Examples of Washington Corruption?

The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. A snippet:

President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout. The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year. Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times. But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall. …The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.

Why did Citigroup decide to hire Lew, a career DC political operator, for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure?

See if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.

Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to such recipients as the state’s university system. Here are some of the sordid details:

Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer. In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records. …Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.

Some people think the answer to such shenanigans is more ethics laws, corruption laws, and campaign-finance laws, but that’s like putting a band-aid on a compound fracture. Besides, it is quite likely that no laws were broken, either by Lew, Citigroup, Shelby, or his former aides. This is just the way Washington works, and the beneficiaries are the insiders who know how to milk the system. The only way to actually reduce both legal and illegal corruption in Washington is to shrink the size of government. The sleaze will not go away until politicians have less ability to steer our money to special interests — whether they are Wall Street banks or Alabama universities. This video elaborates:

ADA and the ‘Chipotle Experience’

The Chipotle Mexican Grill heralds its “Chipotle Experience,” in which customers can watch their food being made behind a glass partition. Now a Ninth Circuit panel (including famously liberal judges Stephen Reinhardt and Dorothy Nelson) has ruled that the “experience” violates the Americans with Disabilities Act, to quote the AP, “because the restaurants’ 45-inch counters are too high. The company now faces hundreds of thousands of dollars in damages.” The ruling arrives just in time for the ADA’s 20th anniversary, which, as the Washington Post notes, is serving as the occasion for a virtual binge of new regulation-making by the Obama Administration and Congress.

Online reaction to the Chipotle case is tending toward the negative if not incredulous, even at places like the San Francisco Chronicle (“Good Lord, people are complaining because they can’t see a taco, get a life.”) But it’s also worth noting this significant passage (via Ted Frank at Point of Law) from the court record that the Ninth Circuit panel had to overcome:

The [district] court found that [wheelchair-using complainant] Antoninetti had failed to show irreparable injury because he had not revisited either restaurant after Chipotle adopted its written policy and because his “purported desire to return to the Restaurants is neither concrete nor sincere or supported by the facts.” It also stated that Antoninetti’s “history as a plaintiff in accessibility litigation supports this Court’s finding that his purported desire to return to the Restaurants is not sincere. Since immigrating to the United States in 1991, Plaintiff has sued over twenty business entities for alleged accessibility violations, and, in all (but one) of those cases, he never returned to the establishment he sued after settling the case and obtaining a cash payment.”

It’s an open scandal, especially in states like California that offer enhanced penalties or liberal procedural rules, that serial complainants and their lawyers carve out profitable practices visiting dozens or hundreds of businesses and leveling ADA complaints that they then settle for cash. As a phenomenon, the ADA filing mill has much in common with other forms of baleful legal “entrepreneurship” such as patent trollery, mass “citizen suit” filings against small businesses and school districts over paperwork lapses, and – the most recent to emerge – copyright mills such as the recently formed RightHaven, which has begun to acquire the rights to old newspaper articles and then mass-file lawsuits demanding thousands of dollars from bloggers, mom and pop businesses, and others who’ve ill-advisedly reprinted the articles online without permission.

Note that the objection to the litigation-mill model does not in itself depend on there being anything improper about the underlying rights being asserted (even those who think patents and copyrights in general a fine thing are free to disapprove of their use as a troll predicate). Instead, conditions are often propitious for abuse when 1) statutory damages or fines are far out of line with actual damage to a complainant; 2) the cost of legal defense can much exceed the damages at issue; 3) oft-recurring fact patterns make it easy to mass-produce plausible fill-in-the-blank complaints; and 4) the law either awards “one-way” attorney’s fees to successful complainants, as does the ADA, or at least refuses to stop the award meter at the point when a defendant proffers a change in the offending practice and adequate compensation for the complainant’s actually sustained damages, if any. Promising avenues for reform may include redefining statutory damages down to non-jackpot levels; assessing attorneys’ fees against whichever side makes trial necessary by spurning a settlement in line with actual damages; and introducing “demand before suit” procedural stages meant to put defendants on notice of a claimed infringement.

Inadvertently or not, the new ruling does afford the public a clear look at one particular kind of assembly line, presided over by lawyers rather than restaurant employees. And unlike the kind you can watch behind the glass partition at Chipotle, there’s nothing appetizing about seeing this one in action.

Foundations Need to Invest More in Private Education and Choice

Charter schools are the hot new thing.

OK, they aren’t all that new. But many people who used to have blanket objections to any increase in school choice now support (some form of) charter schools. President Obama, and even AFT President Randi Weingarten, say they support “charter” schools. The guy who made Al Gore’s documentary, Sinners in the Hands of an Angry Planet, will soon release a film about choice and charter schools.

In the midst of the charter school hype, we need to remember that the private school system has been educating low-income kids longer, better, and more efficiently than charter schools. And charter schools are now sapping this tiny remaining redoubt of civil-society success and freedom in education.

Philanthropists who care about long-term, sustainable and dynamic improvement in the education system need to refocus. They need to pull back from the charter school mirage and invest in private school choice programs and private schools that are a proven, established success with at-risk children.

Fortunately, many philanthropists see the need to save private, often Catholic, schools for the poor:

Among his many achievements, [Robert W.] Wilson is the single largest benefactor of Catholic schools in the Archdiocese of New York. Since 2007, he has donated over $30 million to inner-city Catholic education. He is also an atheist… Wilson belongs to an elite order: non-Catholic donors who are the patron saints of inner-city Catholic schools.

Read the whole article by Christopher Levenick in Philanthropy magazine. Public charter schools are often better than the regular ones. But charter systems are a pale government reflection of the legacy and possibilities found in private education.

The Power of One Entrepreneur

The Institute for Justice has launched a new economic liberties program called “The Power of One Entrepreneur.”  They have five detailed reports produced by successful local writers, highlighting five individual entrepreneurs. 

The power of one entrepreneur, the reports explain, is the key to helping our nation recover from this economic slump and to restoring our inner cities and countless lives through honest enterprise.  Together, they showcase the importance of economic liberty and the fact that countless people are fighting Big Government to secure their American Dream. 

These reports do two important things:

First, they document the positive impact one single entrepreneur can have on those around him or her, not only by offering employment, but through charitable work and mentoring to grow other entrepreneurs in the community, thereby growing the economic pie.

Second, through tangible examples, they make the point that if the government wants to do something to help Americans in this “jobless recovery,” it can do one simple thing:  Get out of the way so entrepreneurs like these can be free to create jobs for themselves and for others.

This is part of IJ’s laudable long-time effort to put a human face on the issue of economic liberty — the right to earn a living free from arbitrary and unnecessary government regulation.

One Step Closer to Legally Gambling Online?

The House Financial Services Committee voted 41-22 yesterday to report a bill legalizing online gambling out of committee and onto the House floor for a vote, should the Democratic leadership choose to pursue it (Wall Street Journal [$]). This is heartening news.

As I’ve written before, though, the ability to spend your time and money as you choose doesn’t come without a price, and indeed one of the reasons the bill is having more success than previous efforts is the realization by lawmakers (following the lead of their European brethren) that gambling could be a lucrative source of revenue in these fiscally frightening times.  Tuesday’s New York Times had a good story on the EU experience, with one quote from a European gambling analyst making an excellent point about the true gambling addiction in society:

“I think the penny has dropped,” said Simon Holliday, an analyst at H2 Gambling Capital. “They deregulate a little bit, like what happens and deregulate more. The governments get more addicted to the tax than the players to the games.

Some lawmakers also support this legislation because they recognize that many leading online gambling firms are European – partly because of fewer restrictions that have allowed the firms to flourish–  and seek to create “American jobs for American workers” by promoting a domestic online gaming industry. The NYT article offers some sobering words for them, too, by pointing out that the Europeans are way ahead in this field. Not that the national origin of the gaming firm should matter, of course.

HTs: Radley Balko and my colleague Kurt Couchman

The Half-a-Loaf National Export Initiative

In his State of the Union address this year, President Obama announced a goal of doubling U.S. exports in five years.  The “National Export Initiative” has since become the centerpiece of his administration’s trade policy, complete with its own Executive Order, organizational structure, and dedicated website.

Although I would be happy to see exports double in five years, I am skeptical of efforts to enshrine that goal as a national imperative.  I worry that Five Year Plans and the setting of export targets puts the United States on the slippery slope to industrial policy, which is being touted nowadays with growing vim and vigor by columnists, politicians and other analysts who wish the United States were more like China.

But the economic straight jacket of industrial policy is not an imminent outcome of the NEI.  And some of the reforms under consideration are sensible.  For example, efforts to clarify, simplify, and streamline U.S. export control procedures are likely to reduce regulatory obstacles and spur meaningful export growth without imposing new burdens or diverting resources from elsewhere in the economy.  Likewise, the administration’s discovery of the virtues of passing the long-pending bilateral trade agreements with South Korea, Colombia, and Panama could lead to the reduction or elimination of artificial barriers to U.S. exports in a variety of economic sectors.

But while we might rejoice in export-led economic growth, the National Export Initiative suffers from myopia, as it institutionalizes public misperceptions about how trade bestows its benefits on consumers and businesses.  Just take a look at the program’s eight focus priorities:

(a) Exports by Small and Medium-Sized Enterprises (SMEs). Members of the Export Promotion Cabinet shall develop programs, in consultation with the TPCC, designed to enhance export assistance to SMEs, including programs that improve information and other technical assistance to first-time exporters and assist current exporters in identifying new export opportunities in international markets.
(b) Federal Export Assistance. Members of the Export Promotion Cabinet, in consultation with the TPCC, shall promote Federal resources currently available to assist exports by U.S. companies.
(c) Trade Missions. The Secretary of Commerce, in consultation with the TPCC and, to the extent possible, with State and local government officials and the private sector, shall ensure that U.S. Government-led trade missions effectively promote exports by U.S. companies.
(d) Commercial Advocacy. Members of the Export Promotion Cabinet, in consultation with other departments and agencies and in coordination with the Advocacy Center at the Department of Commerce, shall take steps to ensure that the Federal Government’s commercial advocacy effectively promotes exports by U.S. companies.
(e) Increasing Export Credit. The President of the Export-Import Bank, in consultation with other members of the Export Promotion Cabinet, shall take steps to increase the availability of credit to SMEs.
(f) Macroeconomic Rebalancing. The Secretary of the Treasury, in consultation with other members of the Export Promotion Cabinet, shall promote balanced and strong growth in the global economy through the G20 Financial Ministers’ process or other appropriate mechanisms.
(g) Reducing Barriers to Trade. The United States Trade Representative, in consultation with other members of the Export Promotion Cabinet, shall take steps to improve market access overseas for our manufacturers, farmers, and service providers by actively opening new markets, reducing significant trade barriers, and robustly enforcing our trade agreements.
(h) Export Promotion of Services. Members of the Export Promotion Cabinet shall develop a framework for promoting services trade, including the necessary policy and export promotion tools.

Beside the amorphous, bureaucratese task descriptions — and the fact that several of the eight priorities seem to be redundant (really, what are the substantive differences between priorities (b), (c), (d), and (h)?) — the NEI systemically neglects a broad swath of opportunities to facilitate exports because it only contemplates the export-oriented activities of exporters.  It’s as if the administration believes that U.S. exporters are born exporters and never experience life as producers or as consumers of input.  It’s as if they incur no costs until their goods reach foreign ports — after which they face a gauntlet of taxes, regulations, and other barriers abroad.

The NEI enshrines the fallacy that it is exclusively foreign-borne obstacles that inhibit U.S. export potential, when it should be obvious that U.S. policies also undermine U.S. competitiveness.  Before U.S. companies are exporters, they are producers.  And as producers of goods, they are consumers of capital equipment, industrial components, other raw materials, energy, capital and labor.  And as consumers of all of those inputs, our producers face a host of U.S. taxes, tariffs, regulations, mandates, and other U.S. government-imposed impediments that reduce their competitiveness at home, and as exporters.  If the administration wants to get serious about doubling U.S. exports by 2015, everything should be on the table.  The scope of potential reforms should be broadened to include policies that affect the pre-export activities of U.S. exporters.

Otherwise, what’s the point of squandering resources on “export promotion,” “federal export assistance,” “trade missions,” or “commercial advocacy” when the exporters in question are getting hammered as manufacturers by U.S. policies that limit their access to imported materials?  What’s so great about the Secretary of Commerce accompanying prospective U.S. exporters of magnesium die-cast auto parts on a marketing trip to Asia when the cost structures of those companies are uncompetitive because antidumping restrictions render the U.S. price of magnesium more than double the world price?

U.S. producers account for over half of the value of U.S. imports, which means there is great potential to increase their competitiveness by improving their access to imports.  It also explains the strong correlation between imports and exports, between imports and GDP, and between imports and job growth — facts that too many politicians wish to expunge from the record.  But during the depths of the recent recession, both the Mexican and Canadian governments moved decisively to cut tariffs across the board on industrial inputs and capital equipment in an effort to make their producers more competitive.

The Obama administration, as part of the NEI, should press Congress to take a similar initiative to increase U.S. competitiveness by eliminating tariffs on all industrial inputs — not just those “non-controversial” tariff items in the Manufacturing Enhancement Act (also known as the Miscellaneous Tariff Bill) that just passed both chambers of Congress — for the purpose of making U.S. manufacturers more competitive.

Furthermore, the NEI should include a strong effort to compel Congress to change the U.S. antidumping and countervailing duty laws to require the International Trade Commission to consider the impact of trade restrictions on downstream U.S. industries.  Under the current statutes, the ITC is forbidden from considering such impact even though most of the approximately 300 existing U.S. antidumping and countervailing duty orders restrict imports of upstream raw materials and other industrial inputs required by downstream U.S. industries.  That statutory bias clearly undermines U.S. export competitiveness, particularly since downstream, consuming industries are much more likely to export than are firms in those industries that seek relief under the trade remedies laws.

Let’s change the name to the National “Economic” Initiative and make its mission the elimination of all political impediments in the international supply chain.

Compare and Contrast

Fourth Amendment:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

Supreme Court (Katz v. U.S.):

“[S]earches conducted outside the judicial process, without prior approval by judge or magistrate, are per se unreasonable under the Fourth Amendment—subject only to a few specifically established and well delineated exceptions.”

Washington Post:

“The Obama administration is seeking to make it easier for the FBI to compel companies to turn over records of an individual’s Internet activity without a court order if agents deem the information relevant to a terrorism or intelligence investigation.”