Archives: March, 2011

Schools for Misrule at Cato Tomorrow

Yesterday was the publication date for my new book, Schools for Misrule: Legal Academia and an Overlawyered America, and tomorrow afternoon (Thursday, March 3) at 4 p.m. you can catch me in person talking about it at Cato’s headquarters or watch online at the above link. Commenting will be the Hon. Douglas Ginsburg, distinguished federal judge on the U.S. Court of Appeals for the D.C. Circuit, and Cato’s Roger Pilon will be moderating. Registration is required for the in-person version and seating not guaranteed.

From Cato’s description:

The ideas that emanate from the nation’s law schools in one generation often wind up shaping law and national policy in the next. But as Cato senior fellow Walter Olson argues in this new book, for more than four decades the nation’s law schools have been a hatchery of bad ideas, from tort and contract theories to class actions, environmental law, racial reparations, the recasting of domestic policy differences as questions of international human rights, and more. Yet the common theme is to confer power and status on the schools’ own graduates and faculty, as law pervades ever wider areas of life. The pipe dream of training up philosopher-monarchs, Olson says, distracts law schools from their genuinely useful function of training competent, ethical, and suitably humble practitioners of the law.

Publisher’s Weekly calls the book “hard-hitting,” “witty,” “cutting-edge commentary,” and “astute.” Commentary magazine runs a lengthy excerpt in its new (March) issue, available here (subscribers or individual purchase). A different excerpt is online at Minding the Campus (free). You can read about some of the early reaction to the book here and here, catch Cato’s audio podcast interview with me, or see whether I’m visiting your city on my spring speaking tour.

GAO Report on Duplicative Programs

A Government Accountability Office report on duplicative federal programs is prima facie evidence that the government is a bloated mess. For example, there are 82 federal programs involved in teacher quality, 80 programs involved in economic development, and over 100 programs involved in surface transportation.

Sen. Tom Coburn (R-OK) summed it up best in his press release on the GAO report:

This report confirms what most Americans assume about their government. We are spending trillions of dollars every year and nobody knows what we are doing. The executive branch doesn’t know. The congressional branch doesn’t know. Nobody knows.

Nobody knows because no human being could possibly keep sufficient tabs on thousands of programs in a $3.8 trillion federal budget. Compounding the problem is the fact that policymakers devote much of their time to fundraising, campaigning, and other distracting activities.

The report’s takeaway, therefore, should be that the federal government’s scope needs to be drastically curtailed. Unfortunately, a typical response to the report has been to cite it as further evidence that policymakers must “eliminate waste” and “make government more efficient.” Coburn says “This report also shows we could save taxpayers hundreds of billions of dollars every year without cutting services. And, in many cases, smart consolidations will improve service.”

No, no, no.

Most of the “services” discussed in the report need to be eliminated, not consolidated. Turning 82 teacher quality programs into, say, 10 doesn’t change the fact that the federal government should not be involved in education in the first place. (Not to mention that the federal government’s involvement in education has been a failure.)

Throughout the decades, numerous efforts have been undertaken to clean up the federal bureaucracy (e.g., Hoover Commission, Grace Commission, and Al Gore’s “Reinventing Government”). None of these house cleaning endeavors curbed the federal government’s expansion, let alone tamed the bureaucratic wilds.

James Madison wrote in Federalist 45 that the powers delegated to the federal government by the Constitution “are few and defined.” However, the federal government gradually assumed powers that are now many and undefined. Excessive bureaucracy is a natural, and inevitable, result. Thus, those policymakers who are sincerely concerned with bureaucratic duplication and waste should focus their efforts on reinstituting limits on the government’s capacity to spend. Policymakers who pretend otherwise are just wasting their time — and that of taxpayers.

Congressional Republicans May Be Understating the Cost of ObamaCare

Yesterday, the Senate Finance and House Energy & Commerce committees released a joint report on the costs that ObamaCare’s Medicaid mandate will impose on states.  That report, which is based on other reports, likely understates the cost of that unfunded mandate.

In a new Cato Working Paper, “Estimating ObamaCare’s Effect on State Medicaid Expenditure Growth,” senior fellow Jagadeesh Gokhale constructed cost projections for the five largest states – California, Florida, Illinois, New York, and Texas – which account for 40 percent of the nation’s population.  Gokhale carefully decomposed and organized micro-data and state-specific administrative data on Medicaid eligibility, enrollments, benefit recipiency, and average benefits per recipient.  Gokhale found much larger cost burdens than the committees’ projections.  

For example, Gokhale projects that ObamaCare will force Florida to spend an additional $20.4 billion between 2014 and 2023. That is almost double the committees’ estimate of an additional $12.9 billion in spending by Florida between 2013 to 2023.

Why I Am Boycotting ABC News and Disney

Sensation and hyperbole have become staples of the mainstream media, as they struggle to compete for an American attention span increasingly committed to blogs, Facebook, Twitter, and other social media. Even the venerable ABC World News has decided to indulge its worst instincts by airing—every night this week—a reality-based series called “Made in America.” Caveat Emptor: ABC is selling dangerous, nationalistic propaganda.

The gist of the series is that Americans don’t buy many U.S.-made products anymore and are therefore responsible for the persistent and relatively high rate of unemployment in the country. Last night’s episode featured a family that couldn’t find a single item in their home that was manufactured in the United States. To accentuate the point, the family takes a day trip, while movers are brought in to rid the house of all foreign-made items. Of course, at the end of the day, the family returns to a cavernous echo chamber, where they are amazed and ashamed by how much they’ve contributed to the hardships of their unemployed fellow citizens. By spending a little more on U.S.-made products, the storyline goes, Americans can put their countrymen back to work.

Here’s part of the series description from the ABC World News website:

In the coming weeks, “ABC World News with Diane Sawyer” is launching a groundbreaking series, “Made in America,” focusing on American manufacturing and our economy.

The facts show that our nation is addicted to imports. In 1960, foreign goods made up just 8 percent of Americans’ purchases. Today, nearly 60 percent of everything we buy is made overseas.

On air and online, we’ll tackle the key questions: Is buying American-made more expensive? What staples are no longer manufactured in the U.S. at all? And what difference would it make if everyone promised to buy more American-made product?

There’s no question that manufacturing still has a major impact on our economy and on the nation’s workforce. The United States has fewer manufacturing jobs now than we did in 1941, the same year as the attack on Pearl Harbor, but if every American spent an extra $3.33 on U.S.-made goods, it would create almost 10,000 new jobs in this country.

Ugh. Where to begin? Back in the “golden age” of 1960, when imports were oddities to marvel over in a disdainful way, the per-capita U.S. income was $2,914. In 2009, with imports ubiquitous, per-capita income was $46,411. (Economic Report of the President, 2010, Tables B-1 and B-34). In real, inflation-adjusted terms, even with a U.S. population increase from 181 million to 307 million, per-capita incomes in 2009 were almost triple what they were in 1960 ($42,277 vs. $15,669 in 2005 dollars—ERP, 2010, Tables B-2 and B-34). Oh, if only we could replicate the relative poverty, the limited consumer choices, the inefficient production processes, the massive trade barriers that compelled Americans to buy American, and the uneconomic work rules and wages commanded by once-powerful private sector labor unions. In 1960, before real economic liberalization spawned cultural and social liberalization, Diane Sawyer would never have dreamed of being a network news anchor, if she even dared to entertain the concept of working outside of the home. How can she pine for such an era?

It’s frustrating that so much research refuting the myth of manufacturing decline and supporting the conclusion that U.S. manufacturing is thriving—and is in fact leading the world in terms of value of output—is simply neglected by a media that is more committed to scaring than informing. Today Americans are less likely to find in their homes products manufactured in the United States because U.S. manufacturers have moved on to producing higher value products. American manufacturing isn’t focused on products that consumers find in retail stores, like furniture, hand tools, sporting goods, flatware, draperies, carpeting and clothes. American factories produce more value than any other country’s factories by focusing on producing the highest value products: pharmaceuticals, chemicals, airplanes, sophisticated componentry, technical textiles, and other items often sold directly to other businesses.

I and others have been making these points for several years, as U.S. manufacturing continues to thrive in every metric…except employment. Manufacturing employment peaked in 1979 and has been on a downward trajectory ever since. But that is the point that eludes ABC and everyone else who thinks U.S. manufacturing’s best days are in the past. Making more with less is the goal! That’s how an economy grows! The political imperative of “putting people back to work” regardless of the economic value of that work–remember the so-called stimulus?– spits in the face of economics. The fact that Americans are unemployed speaks to a mismatch of skills demanded and skills available, as well as to a business and regulatory environment that dissuades investment and hiring.

ABC’s proposition that Americans would support 10,000 new jobs by spending just $3.33 more (per year?) on U.S.-made goods obviously fails to consider the jobs lost by switching from imports to domestic or switching from savings (which is just money used for investment, which already supports jobs) to spending. Depriving foreigners of U.S. dollars just deprives U.S. producers of export sales.

There is so much that is wrong about the theme and tone of ABC’s odyssey, from its assumption that Americans are gullible idiots to its reckless nationalism. So, here’s my plan.  Unless and until ABC agrees to provide some balance and air a series devoted to the truth that U.S. manufacturing is thriving in a globally interdependent economy, my family (which includes big Disney fans) and I will not watch another ABC show nor will we purchase a single product or service from ABC’s parent company, Disney. That, and the fact that most products sold in Disney stores are made in China, should give Disney extra cause to reconsider ABC’s dangerous crusade.

New Video Explains that Tax Competition Is a Powerful Mechanism to Restrain the Greed of the Political Class

Here’s a new mini-documentary from the Center for Freedom and Prosperity, narrated by Natasha Montague of Americans for Tax Reform, that explains why the process of tax competition is a critical constraint on the propensity of governments to over-tax and over-spend.

The issue is very simple. When labor and capital have the ability to escape bad policy by moving across borders, politicians are more likely to realize that it is foolish to impose high tax rates. And they oftentimes compete for jobs and investment by lowering tax rates. This virtuous form of rivalry helps explain why so many nations in recent years have lowered tax rates and adopted simple and fair flat tax systems.

Another great feature of the video is the series of quotes from winners of the Nobel Prize. These economists all recognize competition between governments is just as desirable as competition between banks, pet stores, and supermarkets.

The video also discusses how politicians are attacking tax competition. It mentions a privacy-eroding scheme concocted by governors to tax out-of-state purchases (how dare consumers buy online and avoid state sales tax!).

And it also discusses a very destructive tax harmonization effort by a Paris-based bureaucracy (the Organization for Economic Cooperation and Development, subsidized with American tax dollars!), which would undermine fiscal sovereignty by punishing jurisdictions that adopt pro-growth tax systems that attract labor and capital.

The issues discussed in this video generally don’t get a lot of attention, but they are critical for the long-run battle to restrain government. Please share widely.

P.S. This speech by Florida’s new Governor is a good example of how tax competition encourages policy makers to do the right thing.

Should America ‘Liberate’ Libya?

In 2008, the election of President Barack Obama was widely touted as a repudiation of President George W. Bush’s messianic vision that “Our common prosperity will be advanced by allowing all humanity—men and women—to reach their full potential.” In the years following America’s failed democratic experiment in Iraq, many Americans began to spurn the Bush era’s presumptuous conviction that “We have the power to make the world we seek.” Liberals in particular roundly rejected the supposed “unyielding belief” that America is called to lead the cause of “rule of law” and “the equal administration of justice” around the world. Such pious declarations are in keeping with Bush’s neo-Wilsonian foreign policy.  Does it surprise you then, that all of the quotes above were made by President Obama in his June 2009 speech at Cairo University?

Americans who favor establishing a no-fly zone over Libya hope that such an effort will save lives. What Americans have not learned is exactly what transgressions warrant the use of American force. The primary constitutional function of the U.S. Government is to defend against threats to the national interest. However, because the definition of “interest” has expanded by leaps and bounds, the United States now combats an exhausting proliferation of “threats” even in the absence of discernable enemies. Hence, the proposal of a no-fly zone over Libya is merely the latest iteration of a long-standing grand strategy that implicitly endorses an interventionist foreign policy.

Despite the fact that humanitarian assistance to Libya remains, in principle, morally defensible, the primary question is whether military action is best suited to such a task. As Christopher Coyne, Assistant Professor of Economics at West Virginia University argues, its the “Nirvana Fallacy.”

The Nirvana Fallacy is the false assumption that in the face of weak, failed or illiberal governments, external occupiers can provide a better outcome than what would exist in the absence of those efforts. But what authority does President Obama have to embark upon a mission to change the very structure of societies on the other side of the earth?

As a libertarian, I believe that intangible variables such as values, traditions, and belief systems, go beyond a U.S. policymaker’s ability—and jurisdiction—to control. Yet with worldwide attention now on Libya, it seems that once again the extension of freedom abroad is being subsumed under the mantle of America’s legitimate self-defense. Don’t believe the hype.

As George Kennan, American diplomat and “father of Cold War containment” strategy once said:

“Anyone who has ever studied the history of American diplomacy, especially military diplomacy, knows that you might start in a war with certain things on your mind as a purpose of what you are doing, but in the end, you found yourself fighting for entirely different things that you had never thought of before…In other words, war has a momentum of its own and it carries you away from all thoughtful intentions when you get into it.”

Kennan continues: “Today, if we went into Iraq, like the president would like us to do, you know where you begin. You never know where you are going to end.”

Now imagine if a politician wanted to build a bridge and said “I don’t know how much it will cost. I don’t know how many engineers I need. I don’t know how long it will take. And I don’t know whether it’ll even get built or stay up if it is. But give me the money and I’ll build the bridge anyway.” Yet this is exactly what we do when it comes to intervention. Never mind how long a no-fly zone will last, how many soldiers we would commit, or how whether it may precipitate a ground invasion and possibly regime change. We apply more stringent criteria to domestic policy than to proposals to pacify a foreign population.

Like most Americans, I too have a natural desire to see human suffering alleviated.  And so the United States can and should support people’s power and other anti-government movements when possible. But Americans have become confused over what “support” really means. Not backing dictators with billions of dollars would be a start. Another would be, when feasible, resorting to economic sanctions, though they have a poor track record. But we have come to rely too heavily—almost as an option of first resort—of relying on military intervention. Luckily, the shockwave of mass protests sweeping through the Middle East finally gives America the opportunity to support freedom in the Middle East in a non-military way. Accordingly, a foreign-led effort to liberate Libya will implicitly deprive local people of their ability to deal with this political conflict on their own. As British philosopher John Stuart Mill writes in his classic text “A Few Words on Nonintervention,” the subjects of an oppressive ruler must achieve freedom for themselves:

The only test possessing any real value, of a people’s having become fit for popular institutions is that they, or a sufficient portion of them to prevail in the contest, are willing to brave labour and danger for their liberation.

But the evil is, that if they have not sufficient love of liberty to be able to wrest it from merely domestic oppressors, the liberty which is bestowed on them by other hands than their own, will have nothing real, nothing permanent.

Ditching Collective Bargaining Won’t Control Public School Costs. Here’s What Will…

Lawmakers in Wisconsin and elsewhere are seeking to eliminate collective bargaining rights for public school employees as a means of controlling runaway spending (it has tripled in real terms since 1970, despite stagnation or decline in student achievement at the end of high school–see the last chart in this post). But even if collective bargaining is forbidden to state school employees, the savings will likely be negligible.

Surprising as it may seem, that conclusion follows directly from the research on school employee unions, which I reviewed last year for the Cato Journal. Differences in spending between school districts with and without collective bargaining are modest to non-existent. Does this mean that the unions are impotent and that their members have been wasting their $600 annual dues payments? Not quite.

Though employee compensation varies little from one school district to the next, based on the presence or absence of collective bargaining, public school employees enjoy far better compensation than their private sector counterparts. The combined salary and retirement benefits of public school teachers are 42 percent larger than those of private school teachers (see link above).

Public school employees win this generous compensation premium through political action backed by monumental campaign contributions. Democrats receive the overwhelming share of these contributions (93% from the NEA; 99% from the AFT, see Cato Journal link), but many Republican lawmakers are also swayed, fearful that the unions will finance their primary opponents the next time they face voters.

To further increase their clout, union leaders have sought to grow their membership. More members mean more dues revenue with which to influence legislators. In this regard, too, they have been enormously successful: the number of public school employees has grown ten times faster than the number of students for two generations—a major factor in the system’s exploding cost and collapsing productivity (see figure below).

Public school employees clearly understand that union membership has benefitted them handsomely in both compensation and job security. Over the past forty years, union membership as a share of the public school workforce has increased from 42 percent to 70 percent. Even if collective bargaining were eliminated tomorrow, school employees would have every reason to continue funding the self-interested political action that has served them so well in the past.

So what would provide a counterbalance to unsustainable union demands?

To find the answer, it helps to know that while union membership was rising in the public sector it was falling steadily in the private sector—to just 6.9 percent of the workforce in 2010 (see figure below). The reason is simple: when a business makes excessive concessions to a union and is thereby forced to raise prices above those of its competitors, it loses customers. As it loses customers, it lays off workers. If this situation continues, the business fails. Private sector unionization is thus self-regulating to a significant degree.

Public school employee unions, by contrast, have no direct competitors. They cannot drive their employer out of business because there is only one employer in the sector and its existence is mandated by law. The only real solution to the spiraling cost of our state school monopolies is thus to open them up to private sector competition, so that both parents and taxpayers have an alternative to the no-longer-affordable status quo.

There are several ways of doing this, of which education tax credits seem the most promising. In Florida, Arizona and other states, taxpayers can claim a dollar-for-dollar credit for donations to non-profit scholarship organizations. These organizations, in turn, subsidize private school tuition for low-income families. In Illinois and Iowa, families who pay for their own children’s education are eligible for tax credits to directly offset part of the cost.

Though most of these programs currently impose tight caps on the total value of credits available, they are already generating substantial savings to taxpayers while simultaneously expanding the choices available to families. Florida’s k-12 scholarship donation credit saves taxpayers $1.49 for every dollar it reduces state revenue, and the new private sector competition has improved achievement in public schools.

So while curtailing collective bargaining won’t rein in out-of-control spending, introducing real private sector competition will. And as the final figure reveals, we have got to get spending under control….

…..

Update: I should add that, as NRO’s Rich Lowry notes, the plan for the state to stop garnishing public school employees’ wages and sending the money to the union is highly commendable. If employees want to pay union dues, they should be free to do so, but the choice should be theirs.  Of course, since public school employees benefit very handsomely from the status quo monopoly (see below), it’s likely that most will continue to pay voluntarily for the lobbying and political contributions that will preserve their above-market compensation. So it’s still the case that introducing private sector competition is the best way to control education costs.