Archives: July, 2011

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this past week:

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EPA Gives Millions to Enviro Groups That Sue it

It’s all a happy circle of funding, as John Merline reports at Investor’s Business Daily: the Environmental Protection Agency gives millions in grants to green organizations that perennially sue it demanding that it regulate more things. When the EPA settles or loses those suits, it then awards the groups millions more in attorneys’ fees under the federal Equal Access to Justice Act and other “one-way” attorney’s fee provisions (called “one-way” because they allow winning plaintiffs to collect fees from defendants, but not vice versa).

“The EPA isn’t harmed by these suits,” said Jeffrey Holmstead, who was an EPA official during the Bush administration. “Often the suits involve things the EPA wants to do anyway. By inviting a lawsuit and then signing a consent decree, the agency gets legal cover from political heat.”

Holmstead called this kind of litigation “sweetheart suits.”

As blogger Coyote puts it, “Our rulers are pretty good at finding tricky ways to expand their power.”

I go into much more detail on collusive public-sector litigation in chapter 8 of my new book Schools for Misrule. Other government agencies, much like the EPA, use settlements of pressure-group lawsuits as a way to go along with desired expansions of power; corrections and foster-care systems commit to step up program offerings and (no! anything but that!) seek higher funding to accomplish their missions; union-allied public-sector managers give away the store on employee benefits disputes, and so forth (scroll to “Consent of the Governors”). From New York to Alabama, state education departments have covertly or even openly assisted lawsuits against themselves intended to force spending expansion. And once sweetheart negotiations result in an adverse consent decree, with little or no formal input from taxpayers, parents, or other affected constituencies, the locked-in big-government policies can be nearly impossible to unlock later on, should voters’ moods change.

With a few exceptions, as with Prof. Ross Sandler and David Schoenbrod’s superb critique Democracy by Decree, these methods of agency governance are virtually uncontroversial and indeed highly popular in legal academia — and no wonder, since they transfer much power over public policy to a corps of “public-interest” litigation professionals who tend to be products of the finer law schools. But others, particularly Western land activists and Republicans in Congress, are skeptical. Rep. Cynthia Lummis (R-Wyo.) points out that since a rules revamp in 1995 the federal government no longer even tracks EAJA fee payouts in any organized manner, which makes it harder to catch double payments as well as suggestive patterns in which (critics have charged) certain environmental groups have filed hundreds of suits, assembly-line style, and cashed them in for fees. Lummis and home-state colleague Sen. John Barrasso (R-Wyo.) have introduced a bill called the Government Litigation Savings Act that would, among other provisions, reinstitute data collection regarding EAJA outlays, limit the size of awards to $200,000 per case and the number of annual awards to a given group to three, and cap hourly attorneys’ fee awards at an inflation-indexed $175/hour. (Sen. Orrin Hatch, another co-sponsor, summarizes the provisions here.) Whatever the merits of individual details, the bill furnishes a jumping-off point for a public debate that’s long overdue.

Demonization vs. the Constitution

Yesterday, Rep. John Kline (R-MN), chairman of the House Education and the Workforce Committee, introduced the first new legislation aimed at breaking down the prescriptiveness of the No Child Left Behind Act. It’s a small step in the right direction, but there are two serious problems with it:

  1. It doesn’t come nearly close enough to the reform we need.
  2. Democratic reaction to it illustrates why it is so hard for politicians to obey the Constitution.

First the insufficiency of the bill. The State and Local Funding Flexibility Act would, essentially, allow states and districts to take federal funding that comes through numerous streams and apply it to different streams. For instance, if a state wanted to take dollars slated for the 21st Century Community Learning Centers program and apply them to Teacher Quality Grants, it could do so without seeking Washington’s permission.

That’s good as far as it goes; it makes sense, at least in theory, to let state and local authorities manage money according to their superior understanding of the needs of their communities.  But that’s in theory.

The first serious problem is that, ultimately, Washington would still be dictating outcomes to states and districts. As the summary for Kline’s bill states:

The State and Local Funding Flexibility Act will maintain monitoring, reporting, and accountability requirements for states and school districts under existing ESEA programs.

That suggests, at least as far as this bill goes (Kline has promised more legislation to come), that states will still have to meet all of NCLB’s rigid standards, testing, and “adequate yearly progress” requirements.   

The next big failure of the bill is that it trusts state and local bureaucrats to do what’s best for kids and handle taxpayer funds efficiently. As many people have pointed out, that’s about as likely to happen as your winning the Powerball.  

Finally, the bill fails because it keeps the same basic, unconstitutional model we’ve had for decades: federal funding of education — and associated rules — despite Washington having no constitutional authority to do so. That’s why the LEARN Act, sponsored by Rep. Scott Garrett (R-NJ), is superior to both what Kline has proposed and the A-PLUS Act that continues to make the rounds. LEARN would simply allow states to declare that they will not be dictated to by Washington, and let their taxpaying citizens, not education bureaucrats, reap the rewards by getting back the “education” dollars Washington took from them.

Unfortunately, a revolting tactic commonly employed by Democrats — but little different in odor quotient from, say, GOP attacks on war critics as unpatriotic — threatens to chill any effort to impose rationality on education policy. It’s the all-too-standard implication that if you’re for cutting federal education spending or even just making it more efficient, you’re at best indifferent to civil rights and, at worst perhaps, secretly a pre-Brown v. Board segregationist. As Education Week reports:

Rep. George Miller, D-Calif., the top Democrat on the House education committee, said the measure is “an offensive, direct attack on civil rights” that is sure to weaken efforts to ensure that disadvantaged and minority kids get access to educational opportunities.

“This back-door attempt at fulfilling campaign promises to dismantle the federal role in education will turn back the clock on civil rights and especially harm low-income and minority students,” Miller said.

This sort of rhetoric is designed to do but one thing: defeat reform efforts by all-but-directly accusing supporters of racism, or at least inhuman callousness. But notice what gets no mention: the Constitution, the thing that gives the federal government its only powers and includes no authority over education. Well, almost no authority: under the 14th Amendment Washington does have a responsibility to ensure that states and local districts do not discriminate in their provision of education, but the amendment in no way authorizes federal spending on education.  

And let’s not pretend that current federal intervention is doing any good. National Assessment of Educational progress math scores for African-American 17-year-olds — the schools’ “final products” — did rise markedly from 1973 to 1990, which could very well be at least partially a product of proper federal intervention: ending de jure segregation. But from 1990 to 2008, which includes the age of federal “accountability,” we’ve seen at-best stagnation, with the 1990 average score at 289 (out of 500) and the 2008 score at 287. Reading is the same story: healthy increases until 1988 (but fastest in Reagan’s anti-fed-ed 1980s) and stagnation after that. Indeed, the average score for African-American 17-year-olds dropped from 274 to 266 between 1988 and 2008. Meanwhile, real federal K-12 spending more than doubled, rising from $32.6 billion in 1988 to $73.2 billion in 2008.

There is, frankly, no good argument for keeping the federal government in education. But we can’t even have a reasoned debate about that as long as thinly veiled assertions of racism and callousness are the the standard response to any downsizing proposal.

New Paternalist Surprises

The front pages of Thursday’s Wall Street Journal and Washington Post (links below) both featured stories on the unexpected consequences of the sort of “nudging” policies recommended by so-called “libertarian paternalists.” Mario Rizzo, an economist at New York University who often blogs at ThinkMarkets, sent along this commentary to share with C@L readers:

As Glen Whitman and I have repeatedly argued, new paternalism faces a knowledge problem similar to that uncovered by F.A. Hayek in his critique of socialist calculation. In our view, paternalists cannot acquire the knowledge they need to implement policies that are effective according to their own standards.

The new paternalism purports to nudge people toward the better satisfaction of their own preferences than people can achieve themselves. We are too ignorant, too weak-willed, and computationally too incompetent to satisfy our real or underlying preferences. We save too little for our retirement because we are overly impatient and cannot postpone spending.  We eat too many calories because we underweight the costs of future illness due to obesity.

The new paternalists thought they had at least a partial solution to the first problem of undersaving. For those people who have employer-sponsored retirement savings programs we can use a common “defect” in decisionmaking to help them out.  People are prone to status-quo bias, that is, they tend to leave in place whatever situation they may find themselves in. So when employees are automatically enrolled in retirement savings unless they opt out, more people are enrolled than when the default is non-enrollment unless they opt in. What could be simpler?  Make the default automatic enrollment, and voila more retirement savings!

Now comes the annoying data.

According to a recent study commissioned by the Wall Street Journal more people are indeed enrolled in 401k programs as predicted. However, those who would have chosen enrollment under the old opt-in system (around 40% of new workers) tended to remain in a lower salary allocation in the default (frequently 3%) than they would have chosen on their own. So instead of using the status-quo bias to increase savings it turned out that the automatic enrollment decreased savings among this group.

What was the result overall?  Savings in these plans have gone down. Vanguard estimates that half the decrease in 401k savings rates in its plans from 7.3% in 2006 to 6.8% in 2010 was due to automatic enrollment. Of course, this was not entirely unexpected, as Whitman and I pointed out in our 2009 law review article.

Moving on to obesity. Mandatory posting of the caloric content of food in chain restaurants has been another new paternalist light-touch intervention in the market. Although restaurants are coerced, consumers are simply given information. With the calorie-postings staring at people at the moment of sale it was thought that many people would cut down on calorie consumption. An article in Thursday’s Washington Post indicates that the local laws mandating calorie-postings have not had the desired effect. Instead of concluding that perhaps people simply value the pleasure of caloric food more than the projected negative consequences, paternalists conclude that a stronger policy may be necessary. Many of them stand ready to impose a heavier touch: an excise tax on “junk food.”

Each of these cases illustrates the same problem. Trying to determine what people’s true or underlying preferences are (Do they want more 401k savings? Do they want to reduce calorie consumption? Do they want to incur the opportunity costs of each?) is more difficult than it may seem at first.  Trying to engineer the appropriate response from individuals requires a detailed knowledge of the interaction of many conflicting incentives. New paternalists do not take seriously the very biases literature they often cite. For one thing they choose to analyze only one — or perhaps two — biases at a time. The reality is one of many conflicting complex-interacting biases. Biases are also very context-dependent and so they may vary in direction and quantitative magnitude from case to case and from year to year.

The moral of the story: Expect more surprises and unintended consequences from new paternalist policies.

Conservatives, Tea Partisans Still Really, Really Angry about ObamaCare

Or at least, that’s what The Daily Caller says a Republican pollster says:

A year may have passed since Obamacare passed, but conservatives are still angry as hell about it.

Expect the legislation to play a large role in the 2012 elections, according to John McLaughlin, who recently conducted a series of focus groups for the research group Resurgent Republic. The group is run by some of the country’s best-known Republicans.

“My guess it it’s going to be a big election issue next year,” McLaughlin said in an interview…

When it comes to President Obama’s health care law among these voters, the perception of these voters has hardly changed: the intensity remains strong and they still want it repealed, McLaughlin said.

ObamaCare’s overall numbers don’t look any better, either.

Free-Market Beer

The new issue of Mid-Atlantic Brewing News has a nice article about the District of Columbia’s laissez-faire rules for beer distribution. (See page 8 in the “digital edition”).

Columnist George Rivers explains that the D.C. rules encourage entrepreneurship, bring jobs and economic activity to the city, and are a big plus for consumers:

While most jurisdictions in the U.S. erect regulatory barriers to limit the sale and consumption of alcohol, DC’s legal framework encourages retailers and wholesalers to compete for consumers’ dollars through increased selection and lower prices.

Rivers notes that beer consumers flee Maryland’s red tape and higher tax burden to enjoy the lower prices in D.C. At the same time, entrepreneurial beer retailers choose D.C. to do business because they don’t have to deal with a burdensome and monopolistic wholesaling industry.

Perhaps the most celebrated beneficiary of DC’s liberal liquor laws was the legendary Brickskeller, once holder of the Guiness World Record for the largest selection of beer.

D.C.’s free-market beer environment also stimulates broader economic activity.

The District’s flexible liquor laws have helped facilitate the logistical challenges behind the pairing of 144 craft beers and food at SAVOR, the nation’s premier beer-and-food event, now in its fourth year.

So up with deregulation, up with jobs and investment, and down the chute with the beer!

Bacon, Duct Tape, and the Free Market

It’s hard to imagine how we would get through life without necessities like bacon and duct tape. But have you ever thought about how the free market gives you so much for so little?

Here’s a video that should be mandatory viewing in Washington. Too bad politicians didn’t watch it before imposing government-run health care.

And since we’re contemplating the big-picture issue of whether markets are better than statism, here’s some very sobering polling data from EurActiv:

A recent survey has found deep pessimism among European Commission staff on a wide range of issues, including the course of European integration over the past decade and the likelihood of success of the EU’s strategy for economic growth. Some 63% partially or totally agreed that “the European model has entered into a lasting crisis.”

This is remarkable. Even the statist über-bureaucrats of the European Commission realize the big-government house of cards is collapsing, yet politicians in Washington still want to make America more like Europe.