Archives: 03/2012

Lower Courts Have to Comply with Supreme Court Orders

In the 2009 case of Ricci v. DeStefano (also known as the “New Haven firefighters case,” in which Cato filed a brief), the Supreme Court declared that an employer that did not certify race-neutral promotion-exam results could be liable to the candidates who were not promoted as a result (because those candidates would have been discriminated against based on their race, or “disparate treatment” in violation of Title VII of the Civil Rights Act). A corollary to that holding is that an employer that did certify such results would be immune from liability for any resulting racial disparities in promotion (known as “disparate-impact” claims under Title VII).

As Justice Anthony Kennedy wrote for the Court majority, “If, after it certifies the results, the City faces a disparate-impact suit, then in light of our holding today it should be clear that the City would avoid disparate-impact liability based on the strong basis in evidence that, had it not certified the results, it would have been subject to disparate–treatment liability.”

Despite this clear guidance from the Supreme Court, one of the black New Haven firefighters who did not gain promotion as a result of the test certification sued the city, alleging disparate-impact discrimination. The district court dismissed his claim but the Second Circuit inexplicably reversed that ruling and reinstated the lawsuit – considering Ricci’s corollary holding (quoted above) to be non-binding.

Cato has now filed a short brief supporting New Haven’s request that the Supreme Court review that decision – and perhaps even reverse it summarily – arguing that Title VII’s provisions are complex and onerous enough, such that employers should not be subject to liability for following court orders.

The Court will decide later this spring what to do with this case of City of New Haven v. Briscoe.

DOT Moves to Support Even More Wasteful Transit Projects

The Department of Transportation (DOT) is proposing new rules that would allow it to fund exceedingly wasteful rail transit projects that do nothing to relieve congestion. While the existing rules require transit agencies to demonstrate that proposed new rail lines are at least minimally cost effective, the proposed rules focus instead on such vague criteria as “livability” and “environmental justice.”

This rule goes back to 1991, when Congress created the “New Starts” fund to provide grants to transit agencies that want to build new rail lines or other fixed transit lines (such as busways). There were no limits on how much transit agencies could ask for, and the agencies quickly discovered that cities that proposed the most expensive projects got the most money. This sent the cost of rail projects soaring.

For example, in 1986–before New Starts–Portland completed a 17-mile light-rail line that cost about $200 million. In 1998, after New Starts, it completed a 13-mile light-rail line that cost $950 million. Both received the same percentage of federal matching funds, but the second line was “gold plated” as part of Portland’s effort to capture “its share” of the New-Starts pot. Predictably, the city is now working on a 7-mile line that will cost $1.5 billion.

In an effort to put a cap on this wasteful spending, the Bush administration passed a rule in 2005 requiring that New Starts projects meet a minimum test of cost effectiveness. That test required that projects cost no more than $24 for every hour of time that the transit project saved travelers, including both transit riders and highway travelers who enjoyed congestion relief from the project. Even $24 an hour is pretty wasteful considering that most bus improvements save time at a cost of only $1 to $6 an hour, but the rule did put a damper on some excessively wasteful rail proposals.

Also in 2005, Portland Congressman Earl Blumenauer persuaded Congress to create a “Small Starts” program for streetcars and similar projects costing less than $100 million. Blumenauer and others were angered when the Bush administration wrote a rule requiring transit agencies to prove that streetcars were cost effective relative to improved bus service. Since a single streetcar costs ten times as much as a bus, there is no way streetcars can be more cost effective than buses, so no streetcar projects were funded out of Small Starts.

Unlike the Bush administration, the Obama administration has drunk the Kool-Aid of streetcars and rail transit. In 2010, Secretary of Transportation–or, as I prefer to call him, Secretary of Immobility–Ray LaHood announced that he was changing the rules so that he could fund streetcars and other wasteful projects out of Small Starts and New Starts. (Funds for the streetcar grants that LaHood provided to Atlanta, Cincinnati, Dallas, Tucson, and other cities came out of stimulus monies, not Small Starts.) LaHood has freely admitted that his goal is to “coerce people out of their cars.”

Ironically, soon after LaHood’s announcement, the head of the Federal Transit Administration (FTA), Peter Rogoff, gave a speech castigating transit agencies for seeking funds for new rail projects when existing rail transit lines suffer from a $60 billion maintenance backlog. “Paint is cheap, trains are expensive,” Rogoff said, observing that agencies that paint buses a special color and call them a special bus often gain as many new riders as agencies that build expensive rail line. The DOT soon removed Rogoff’s speech from its web site, but copies have been preserved here.

Cato’s 2010 comments on LaHood’s proposal pointed out that a true cost-effectiveness analysis, which is required by law, requires transit agencies to compare rail proposals with a full range of alternatives. The draft rules that the FTA released in January, 2012, however, only require agencies to compare the cost effectiveness of rail against doing nothing.

Moreover, instead of measuring cost effectiveness by the number of hours of time the projects save travelers, the proposed rules would measure it by the number of new transit riders the project is projected to gain. This means that projects that increase congestion (by, for example, building streetcar lines in streets or running frequent trains across grade crossings), wasting most people’s time, will actually score higher because planning models assume congestion leads more people to ride transit.

Cato’s comments on the proposed rules also point out that the law requires the FTA to account for the effect of projects on congestion and mobility. However, the law does not allow the FTA to consider livability, environmental justice, or the other new criteria proposed in the rules. The draft rules therefore violate the law in several places.

Comments on the proposed rules are due March 26 and can be submitted on line. While it is uncertain whether LaHood will pay any attention to your comments, what is clear is that the Obama administration is more interested in imposing its utopian view of how people should live on American cities than it is in increasing people’s freedom and mobility.

Happy Birthday, James Madison

Today marks the 261st birthday of James Madison, the politician and theorist who had more to do with the design of the United States Constitution than anyone else.

The morning also brings a sharp critique of judicial elections from the editorial staff of The New York Times. So I am led to wonder: What might Madison have thought of judicial elections?

Article II of the Constitution provides that Supreme Court judges shall be appointed by the president with the advice and consent of the Senate. Article III states that judges shall “hold their Offices during good Behavior.” In the national government, judges are neither elected nor directly responsible to the people. Despite being called “the father of the Constitution,” Madison did not initially support every part of the basic law drafted in Philadelphia. Perhaps he favored judicial elections.

His writings offer little guidance to his views about the judiciary. Alexander Hamilton wrote the essays in The Federalist Papers that dealt with the courts. Kevin R. C. Gutzman, the author of the recent book James Madison and the Making of America, notes that Madison objected at the convention to the proposal that Congress appoint judges. Madison said of Congress: “[M]any of the members were not judges of the requisite qualifications. The Legislative talents which were very different from those of a Judge, commonly recommended men to the favor of Legislative Assemblies.”

I share the intuition intimated by Madison. The legislature and the courts are different in kind. The one, charged with making the laws, should be much more political and directly responsible to the people in a republic. The other, charged with applying the laws including the basic law, should be less responsive to passing public opinion. But the judiciary is a republican institution, not an aristocratic imposition on American government. The people have delegated some of their sovereign power to the courts. In applying the law, the courts act on behalf of the people as sovereign rather than the people as voters.

Might the judiciary become corrupt and begin making laws? Yes. The people’s representatives may then impeach the justices or limit their jurisdiction. Such are the checks this generation of voters has on an imperial judiciary. An elected judiciary, on the other hand, would be neither checked nor separated from the legislature. It would, as Madison remarked, attract legislators who then exercise something like legislative power.

Agree with him or not, you have to admit: Madison was a remarkable individual who was called upon to think through basic political questions and then act on his answers. His answers were not always correct, but we profit by engaging his thinking. I suspect this conversation with “little Jemmy” will continue as long as the United States remains a constitutional republic.

This Week at Libertarianism.org

This week at Libertarianism.org, we posted new videos on self-esteem and libertarianism, the morality of drug use, and separating school and state. The week also saw an essay from George H. Smith and blog posts on Charles Murray and Michael Sandel.

Nathaniel Branden on Self-Esteem and Libertarianism

Nathaniel Branden is a psychotherapist and writer known for being both the founder of the self-esteem movement in psychology and a former associate of Ayn Rand. In this lecture given at a Libertarian Party of California event in 2000, Branden talks about the connection between the workings of free-market capitalism, the self-esteem movement, and the Information Age. In his words, “entitlement robs people of the sense of self-reliance” and the self-esteem that comes with that sense of independence.

Jacob Sullum: In Defense of Drug Use

Jacob Sullum is a senior editor at Reason magazine and Reason.com and is a nationally syndicated columnist. In this lecture from a Libertarian Party of California event in 2000, Sullum goes beyond utilitarian arguments for repealing drug prohibition, saying that the nature of the act itself—using chemicals to alter one’s mental state—does not justify prohibition.

Sheldon Richman on Separating School and State

Sheldon Richman is the editor of The Freeman (a magazine published by the Foundation for Economic Education), a senior fellow at the Future of Freedom Foundation, and a research fellow at the Independent Institute. In this lecture from one of the Future of Freedom Foundation’s conferences in 1995, Richman describes the state of public education in modern America. He makes note of state education’s Spartan origins, and refers to Israel Kirzner’s work on entrepreneurship. Opening up public schools to competition, Richman says, would put the power to decide what and how their children learn back into parents’ hands.

Critics of State Education Part 2: The British Voluntaryists

With his new essay in his Excursions series, George H. Smith turns to the philosophy of Voluntaryism, discussing how its proponents fought against state control of education in the nineteenth century.

One important Voluntaryist was Herbert Spencer (1820-1903), a leading libertarian philosopher of his day. Although Spencer became an agnostic, he was home-schooled in Dissenting causes by his father and uncle. “Our family was essentially a dissenting family,” Spencer wrote in his Autobiography, “and dissent is an expression of antagonism to arbitrary control.” Much of Spencer’s first political article, written in his early twenties and published in The Nonconformist in 1842, was devoted to a critique of state education, and it possibly influenced the birth of the Voluntaryist movement in the following year.

Gary Gutting on Charles Murray’s Coming Apart

Jason Kuznicki, who reviewed Murray’s new book Coming Apart: The State of White America 1960-2010 for Libertarianism.org back in February, looks at a critique of the book by Gary Gutting at the New York Times. Kuznicki writes,

It is, in short, a misreading to say that the message of the book is that poor people need to shape up.  Instead it’s a lot more nuanced: rich and poor people alike might do better, but right now the government works very hard to make sure that they can’t.

But he does think Gutting raises an interesting question about how much support the rich get from government.

Michael Sandel Thinks Markets Make Us Worse—But He Can Make Us Better

I take aim at an article the philosopher Michael Sandel wrote in The Atlantic on the moral limits of markets.

And here’s his first—of many—missteps. Because of course we did arrive at this condition through deliberate choice. Every item bought and every item sold in his preamble was bought and sold through deliberate choice on the part of those doing the buying and the selling. Sandel’s argument thus is not that there wasn’t any deliberate choice involved but that the deliberative chooser wasn’t who Sandel thinks it should’ve been—and the choices made weren’t what Sandel himself would’ve chosen.

National Surveillance Programs and Their State Impediments

Having originally come to Washington to defend federalism, I am always delighted to see the division of powers among the states and the federal government have its proper effect: to protect liberty and limited government.

As with REAL ID, the E-Verify federal background check system is meeting up with state resistance. The Republican Liberty Caucus of New Hampshire reported yesterday:

This afternoon, the House passed HB 1549, which would prohibit the state’s participation in the E-Verify system, with a nearly unanimous voice vote. The House also killed HB 1492, which would require employers to verify an employee’s eligibility to work in the United States using the E-Verify System, with a 226-59 vote.

E-Verify is essentially a national identification system that requires employers to verify all job applicants’ citizenship in a national database system before they can employ them. If the state agreed to participate, all citizens would have to be listed in this national database as a U.S. citizen in order to get a job.

You want to fix immigration, feds? You do it without putting American citizens into a national ID system. Good message.

Here’s the clear language of HB 1549, which the New Hampshire House has approved to govern release of motor vehicle records. It embraces legitimate law enforcement while rejecting national identification schemes.

III. Motor vehicle records may be made available pursuant to a court order or in response to a request from a state, a political subdivision of a state, the federal government, or a law enforcement agency for use in official business. The request shall be on a case-by-case basis. Any records received pursuant to this paragraph shall not be further transferred or otherwise made available to any other person or listed entity not authorized under this paragraph. No records made available under this section shall be used, directly or indirectly, for any federal identification database. (New language in bold.)

To learn more about E-Verify and its role as a nascent national identification scheme, read my Cato Policy Analysis: “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration.”

What Is Causing Drug Shortages?

A number of people have asked me what is causing the current shortages in certain types of drugs. Here’s what I’ve been able to discern so far:

In general, there are two reasons why shortages might appear in a market. The first is high fixed costs. These include regulatory costs, the costs of converting a manufacturing plant to a new use, or the costs of creating a new factory. Industries with high fixed costs will see temporary shortages after either supply shocks (e.g., a factory goes offline) or demand shocks (e.g., an increase in the population needing a drug). The price mechanism eventually resolves such shortages. The duration of the shortage is related to the size of the fixed costs.

Shortages also appear when something interferes with the price mechanism’s ability to resolve a shortage. The classic example is government price controls (i.e., a binding price ceiling). Such shortages persist as long as the price controls (e.g., rent control) remain in place and binding.

From my study of the current spate of drug shortages, the best accounting for these shortages appears in this publication by the U.S. Department of Health and Human Services: “Economic Analysis of the Causes of Drug Shortages,” Issue Brief, October 2011.

I initially suspected these drug shortages were caused by Medicare’s Part B drug-payment system. Others, including Scott Gottleib and the Wall Street Journal, have made that claim. However, this study and a lengthy discussion with the U.S. Department of Health and Human Services’ assistant secretary for planning and evaluation have persuaded me that not only is Medicare’s Part B drug-payment system not the cause, that system doesn’t even impose binding price controls. Rather, it controls the margins that physicians earn for administering a drug.  (If Medicare did impose binding price controls, would we see mark-ups of 650 percent or more for the shortage drugs?)

Rather, the shortages appear to be the result of a number of dynamics in the market for rare drugs:

  1. The first dynamic is that the small number of potential manufacturers for these drugs must decide which drugs to manufacture, and they must make those decisions in part based on what they expect the demand for the drugs will be and in part based on which drugs they expect their competitors will produce. You can imagine what happens if one or more manufacturers guess “wrong”: there will be too many firms making some drugs, and too few firms making other drugs. The latter drugs exhibit shortages.
  2. A second dynamic is the high fixed costs inherent to bringing a new pharmaceutical factory online, or from converting existing factories from producing the “wrong” drug to producing the “right” drug.
  3. A third dynamic is the price rigidity introduced by the contracts with middlemen (“group purchasing organizations”) that purchase these drugs from manufacturers and then sell them to providers. These GPOs typically negotiate long-term contracts for drugs, which can temporarily prevent the price mechanism from resolving a shortage by locking manufacturers into churning out an already over-supplied drug. If shortages occurred frequently, one would expect the manufacturers and GPOs to negotiate shorter-term contracts. As I understand these shortages, they are infrequent.
  4. All that said, no doubt some of the high fixed costs in this market are iatrogenic. There are fixed costs associated with getting FDA approval to (a) market a new/substitute drug in the same class as the shortage drug, (b) switch manufacturing capacity to a shortage drug, and (c) import a shortage drug from a new foreign manufacturer. No doubt, there should be some fixed costs—principally related to quality control—associated with each of these activities. But since the FDA implicitly values lives lost to unsafe drugs more highly than it values lives lost to “drug lag,” we can be confident that the fixed costs the FDA imposes on these activities are higher than optimal, and therefore unnecessarily lengthen the duration of such drug shortages.

This analysis suggests that, rather than impose reporting new requirements on manufacturers, Congress should reduce the fixed costs that the FDA imposes on drug manufacturers. Medicare’s Part B drug-payment system is no doubt encouraging physicians to switch to higher-margin drugs, but it doesn’t seem to be playing much of a role in these shortages.

I’d be interested to know if others think I’m missing something.

Are New York City Crime Stats a Sham?

The Village Voice is reporting that the New York City Police Department has confirmed the allegations of a police whistleblower that at least one precinct, perhaps more, has manipulated crime statistics in a way that makes it appear that crime is down in the city, which makes police commanders and the mayor appear good to both journalists and the electorate.  Here’s an excerpt:

For more than two years, Adrian Schoolcraft secretly recorded every roll call at the 81st Precinct in Brooklyn and captured his superiors urging police officers to do two things in order to manipulate the “stats” that the department is under pressure to produce: Officers were told to arrest people who were doing little more than standing on the street, but they were also encouraged to disregard actual victims of serious crimes who wanted to file reports.

Arresting bystanders made it look like the department was efficient, while artificially reducing the amount of serious crime made the commander look good.

In October 2009, Schoolcraft met with NYPD investigators for three hours and detailed more than a dozen cases of crime reports being manipulated in the district. Three weeks after that meeting—which was supposed to have been kept secret from Schoolcraft’s superiors—his precinct commander and a deputy chief ordered Schoolcraft to be dragged from his apartment and forced into the Jamaica Hospital psychiatric ward for six days.

In the wake of our series [reporting Schoolcraft’s allegations], NYPD commissioner Raymond Kelly ordered an investigation into Schoolcraft’s claims. By June 2010, that investigation produced a report that the department has tried to keep secret for nearly two years.

The Voice has obtained that 95-page report, and it shows that the NYPD confirmed Schoolcraft’s allegations. In other words, at the same time that police officials were attacking Schoolcraft’s credibility, refusing to pay him, and serving him with administrative charges, the NYPD was sitting on a document that thoroughly vindicated his claims.

Read the whole thing.  So, in sum, crime is worse than advertised because the government rigged the stats while also abusing an honest cop who was apparently horrified by the falsifications.   One wonders if the scandal of statistical manipulation is present at other departments around the country.

Fans of the acclaimed HBO program, The Wire, may recall the season where the Mayor responds to his city’s  crime problem by leaning on the police chief, who then, in turn,  leans on his district commanders in such a way that the crime stats will show a decline, whatever the facts may be.  That storyline no longer seems fanciful.

Robert Farago makes the point that NYC Mayor Michael Bloomberg has been an outspoken proponent of more gun control–and to make that case, he needs to assure people that they are protected by the police– so forget about all that talk about crime and the need for armed self-defense.

Kudos to the police whistleblower and to the Voice for exposing this scandal.