Archives: May, 2011

On Pins and Angels

The focus of the debate over a national curriculum has shifted to the illegality of the federal government extorting states to homogenize their standards and paying for national tests. It’s an important point, but let’s remember another one that Neal McCluskey has been at pains to make: these are bad ideas irrespective of their legality.

There is no consistent body of evidence supporting national standards and testing schemes, while there is a vast and consistent body of evidence that the least regulated, most market-like education systems around the world outperform those blessed with the careful oversight of bureaucrats and regulators.

The push for homogenized national education standards is so unscientific and anti-empirical, so purely based on the faith its proponents have in the rightness of what they are doing, as to evoke medieval scholasticism.

NY-26 Post Mortem

Today POLITICO Arena asks:

Reacting to yesterday’s NY-26 election results, Paul Ryan this morning said, “I saw the ads. I saw burning people’s Medicare cards. If you can scare seniors into thinking that their current benefits are being affected, that’s going to have an effect. And that is exactly what took place here.” Do Republicans have a messaging problem on Medicare?

My response:

Some Republicans have a messaging problem – that partially explains the NY-26 result. Others, like Paul Ryan, are telling it straight, for which they should be commended.

Medicare “as we know it” will soon end, as every honest analyst has recognized. If Democrats continue to demagogue the issue, we have a character problem on our hands. And if enough voters fall for that flim-flam, we have a national problem of lethal proportions. Hard reality doesn’t play politics.

Wednesday Links

Financial Crises as Information Problems

If you haven’t seen it already, be sure to give a read to Friedman Prize winner Hernando de Soto’s recent piece in Business Week, “The Destruction of Economic Facts.” It’s a fascinating perspective on the economic and financial turmoil that is wracking the United States and the world.

As de Soto perceives more easily from working in developing economies, an important input into functioning markets is good information—about property, ownership, debts, and so on. The “destruction of economic facts” is one of the roots of instability and uncertainty in Europe and the United States: “In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.”

The law and markets are information systems, says de Soto:

The rule of law is much more than a dull body of norms: It is a huge, thriving information and management system that filters and processes local data until it is transformed into facts organized in a way that allows us to infer if they hang together and make sense.

If you’re interested in information and transparency, it’s worth a read.

TAA Reversal on Grand Bargain

On Monday, a group of 41 Senate Democrats, led by Sen. Debbie Stabenow (MI) sent a letter to President Obama, praising his administration’s recent decision to abandon its erstwhile promotion of the three pending trade deals as “job creators” and instead warn Congress it won’t submit the pacts for a vote unless they can be assured that a stimulus-enhanced version of trade adjustment assistance will be renewed.

The letter contains much about the benefits of the program, with little mention of its costs to taxpayers and even less concern shown for the innocent consumers whose pockets have been picked for decades to maintain the jobs lost when trade is allowed to flow more freely. That’s pretty standard fare for protectionists, who rely on the hidden and dispersed nature of the costs to get support for their policies. What’s new about this situation is the ratchet effect – the base TAA program is still in place, so what they are asking for is a renewal of part of the stimulus as a pre-condition for supporting trade liberalization. Note that the stimulus changes included a removal of the requirement that job losses be linked to a trade agreement (a feature, not a bug of the program, according to the Senators).

Wait, did I say a renewal of TAA-plus would be a pre-condition for supporting trade agreements? Not necessarily. Note this telling paragraph of the letter:

While we the undersigned may have differing views on elements of the trade agenda - with some of us looking forward to supporting the pending trade agreements with South Korea, Colombia, and Panama, and others skeptical of the impact of the agreements -we are unified in our belief that the first order of business, before we should consider any FTA, is securing a long-term TAA extension.  [emphasis added]

As I’ve said repeatedly, I understand (even if I don’t support) the political calculation that TAA is necessary – and worth it– if it secures votes for trade liberalization. But reading between the lines, some of the letter signers have no intention voting for the trade agreements, even if the mega-TAA is approved.  What we have here is a reversal of the grand bargain on trade liberalization, that gave extra welfare to workers who lost their job because of freer trade in exchange for support for trade agreements that lowered trade barriers. That ‘grand bargain’ has been tenuous for years now, of course – witness the complete lack of movement on the trade agreements even after the 2009 enhancement of TAA, at least until recent months. But now, rather than using TAA to buy votes for trade liberalization, the administration and their allies appear to using pretty-much-assured votes for trade liberalization to buy TAA. As a Wall Street Journal editorial said on Friday, it’s extortion.

Federalism and Med-Mal Reform

Thanks to star libertarian lawprof and Cato senior fellow Randy Barnett for pointing out something that has needed saying for a while: most proposals in the U.S. Congress to address medical malpractice law run into serious federalism problems.

Most medical malpractice suits go forward in state courts under state law. If the U.S. Congress wishes to impose a nationwide rule on these suits, such as by limiting damages for pain and suffering, it first needs to answer the question: under which of the federal government’s constitutionally prescribed powers is it acting? Even if it can identify such authority, it should also ask: is it a wise idea—consistent with what one might call a prudential federalism—to gather yet more power in Washington at the expense of the states?

Unfortunately, the backers of the current federal med-mal bill have chosen to rely on the Supreme Court’s very expansive “substantial effects” doctrine, which as Barnett explains:

allows Congress to regulate any economic activity in the country that can be said, in the aggregate, to have a “substantial effect” on interstate commerce. This doctrine was unknown before the 1940s, and goes far beyond the original power to regulate trade between states. This is how most of Congress’ regulatory power has been justified since then.

Although it is followed even by conservative justices, Justice Clarence Thomas has long criticized the Substantial Effects Doctrine on the ground that it exceeds the original meaning of the Constitution.

Let’s step back for a moment to review what’s not at issue here. First, this is not an argument over whether liability reform of some sort is a good idea: in fact Prof. Barnett “strongly support[s] reforming our malpractice laws to protect honest doctors from false claims and out-of-control state juries.” (So do I.)

Nor is this an argument over whether the federal government should simply leave the state courts alone as a general proposition, as some late-blooming friends of federalism on the left side of the aisle seem to suggest. Our constitutional scheme of government is entirely consistent with federal-level supervision of state courts when those courts behave in certain ways, as by violating litigants’ due process, impairing the obligation of contract, or abridging the privileges and immunities of citizens of other states, to name but a few. Article IV, Section 1 confers on Congress a broad charter to prescribe to states “by general Laws” how they are to accord full faith and credit to other states’ enactments. That’s not even counting Congress’s genuine interstate commerce power (as opposed to the on-steroids New Deal version) or various other powers.

But observe the pattern. Again and again, the Constitution contemplates federal supervision of state courts when they reach out to assert power over transactions and litigants outside their own boundaries. It has far less to say about intruding upon the authority of those courts over disputes that arose between their own residents and are unmistakably under their own law. That general game plan—oversee the interstate but mostly not the intrastate doings of state courts—comports well with the insight of public choice scholars who point out that states face an ongoing temptation to stack liability proceedings so as to enrich their own citizens at the expense of out-of-state litigants obliged to appear in their courts.

Where does this leave federal-level liability reform? It suggests a very real difference between areas like product liability and nationwide class actions—in which suits ordinarily cross state lines, and the majority of runaway verdicts are against out-of-state defendants—and more conventional kinds of tort litigation arising from car crashes, slip-and-falls, and medical misadventure, where cases are mostly filed against locally present defendants. As a rough rule of thumb, it’s worth presuming that most of the local suits do not externalize heavy costs across state lines and should accordingly be left alone by Congress unless it is itself vindicating some constitutional right or coordinating the functioning of some constitutionally authorized federal government activity.

That doesn’t mean federal policymakers are to be left with no role at all. For example, if Washington is paying for a large share of hospital stays, it may make sense as a cost containment measure for it to steer beneficiaries into lower-cost ways of resolving disputes over care quality, or even to ask beneficiaries as a condition of treatment to agree not to file certain suits at all. But that would require stepping back toward a more careful—and more Constitutionally appropriate—view of the federal role.