Archives: 11/2015

New York Times Assails Arbitration

Back in 2002, Stephen Ware wrote a policy analysis for Cato entitled “Arbitration Under Assault: Trial Lawyers Lead the Charge.” That assault – endorsed by the New York Times in a two-part series that is getting some attention – depends crucially on both an attack on freedom of contract and a refusal to take seriously what consumers vote for with their marketplace choices.

As has come to be widely acknowledged in recent years, most class action litigation over consumer financial claims goes on for the benefit of lawyers. It produces scanty benefits for customers but does drive up the costs of providing common services, which is passed along in the form of higher fees and rates. Given a chance, as a result, almost every company will seek to draft “fine print” substituting low-cost, relatively fast arbitration for forms of litigation whose transactional cost greatly exceeds the value to customers of eventual relief given. Even where there is strong competition in a market (among affluent credit card users, for example), it is exceedingly rare for consumers to switch accounts because one provider shunts claims into arbitration while another invites class action litigation.

What does this signify about consumer preferences? Consumers willingly switch all the time from one airline loyalty card to another in quest of better miles-and-points rewards, baggage allowances, pre-boarding policies, and so forth – but not to avoid arbitration policies. Why not? To the experts the Times prefers to speak to – and as the U.S. Chamber of Commerce points out, every single judge and law professor the Times spoke to was hostile to arbitration, which is hardly true of the universe of all distinguished law professors and judges  – it must be inattention or false consciousness; consumers don’t realize that they’ve giving up terribly valuable rights. The other possibility is that consumers rationally place little before-the-fact value on a future benefit that is expensive to provide and mostly pays off for the lawyers who – as Daniel Fisher points out – mostly manage to stay in the background of the Times piece. 

I’ve got more on the story at Overlawyered this morning, where I’ve been covering the Litigation Lobby’s war on arbitration since I launched the site in 1999.  Other Cato legal scholars have agreed with a Supreme Court majority (but not with the Times) that the role of the government is ordinarily to enforce, not substitute its judgment for, clearly worded private contracts generating terms announced and known to the parties.  And I’ll give the last word for the moment to blogger Coyote, writing about a recent California anti-arbitration bill so extreme that even liberal Gov. Jerry Brown saw fit to veto it: “Here is how you should think about this proposed law: Attorneys are the taxi cartels, and arbitration is Uber. And the incumbents want their competitor banned.”

E-Verify’s Standing in the States

The Arizona Republic and the Associated Press (AP) used Cato’s recent work to highlight the failure of E-Verify to turn off the jobs magnet that attracts unauthorized immigrants to the United States. Arizona has a shaky record on immigration enforcement, despite its laws and reputation to the contrary. Maricopa County Attorney’s Office has had zero E-Verify related cases since 2010 and the state Attorney General’s office has failed to update a list of E-Verify compliant businesses since at least 2012 – a requirement under state law.

Other states’ recent experiences also point to problems with E-Verify.

In Ohio, an unauthorized worker at a dairy company was charged on October 20th with identity fraud, after having been discovered to be using the Social Security number of a (legal) Arizona resident.  The fraud only came to light after the Arizonan discovered that his Social Security number was being used in Ohio. The fraud was not discovered by the routine E-Verify check that the unauthorized Ohio worker underwent in 2013. E-Verify confirmed the worker, who was utilizing the stolen SSN and fraudulently obtained documents based off of said number, as work-authorized and legal. The use of a valid number and fraudulent (but on the surface valid) documents by migrants is a problem with E-Verify that we’ve highlighted in the past.

California passed legislation to prevent employer misuse of E-Verify. Their law effectively duplicates federal restrictions on re-verification of employees, bars selective verification (targeting certain applicants over others), punishes use of E-Verify as an interview screening tool, and imposes a $10,000 fine for misuse. The intent of the new law is positive but it will be impossible to enforce. 

Finally, a controversial immigration bill has become law in North Carolina (I wrote about this in May). The new law lowers the threshold for mandated E-Verify to businesses with five or more employees, limits the types of identification that migrants can present (effectively banning use of Mexican consular identification cards), and prevents local and county governments from adopting so-called “sanctuary city” policies.

E-Verify imposes an economic cost on American workers and employers, does little to halt unlawful immigration because it fails to turn off the “jobs magnet,” and is an expansionary threat to American liberties.  During the housing collapse and Great Recession, Arizona enacted the Legal Arizona Workers Act (LAWA), which mandated E-Verify for all new hires in the states.  In its early days, E-Verify had a reputation of effectiveness that, combined with the crashing economy, resulted in a large exodus of unlawful immigrants from Arizona.  After the economic recovery and E-Verify’s flaws were made clear, subsequent states like Alabama, Mississippi, and South Carolina have had far less success in using E-Verify to decrease the numbers of unauthorized immigrants in their states.  E-Verify’s bark was worse than its bite.   

This post was written with the help of Scott Platton

Transatlantic Regulatory Cooperation: Possible, But Don’t Bet the House

As the prominence of tariffs in the transatlantic relationship has receded and transnational supply chains and investment have proliferated, regulatory barriers to transatlantic trade have become more evident. Reducing duplicative regulations that increase production and compliance costs without providing any meaningful social benefits is a chief aim of the Transatlantic Trade and Investment Partnership negotiations. Indeed, most of the economic gains from the TTIP are expected to come from this exercise.

But that is easier said than done.  According to University of California-Irvine law school professor Gregory Shaffer, “regulatory barriers to trade can be more pernicious and more difficult to reduce than tariff barriers because they often reflect certain cultural values and preferences, and there are often more interests vested in the status quo.” In his Cato Online Forum essay, submitted in conjunction with last month’s TTIP conference, Shaffer describes five different approaches to regulatory coherence/harmonization (with pros and cons) that could be undertaken by U.S. and EU negotiators.

Depsite vastly different approaches to regulation on opposite sides of the Atlantic, Shaffer points to examples of successful cooperation in recent years as evidence that the TTIP’s regulatory coherence discussions could bear fruit. But he doesn’t bet the house on that outcome. Instead, he writes:

We should nonetheless be cautious in our optimism given the serious impediments to achieving regulatory coherence. Removing regulatory barriers to trade and investment while continuing to reflect local preferences and retain democratic accountability is, and always has been, a challenging undertaking.

Read Shaffer’s essay here.  Read the other Cato Online Forum essays here.

Associated Press Reports A Thousand Cases of Sexual Misconduct by Law Enforcement

On Sunday, the Associated Press released the results of a year-long investigation into sexual misconduct by police officers across the country. They found that about 1,000 officers were decertified for some type of sexual misconduct—consensual sex on duty, sexual assault, coercion, child molestation/pornography, statutory rape, inter alia—over a six year period. The Morning Call listed the general rules governing misconduct and decertification—where applicable—in each state.

The AP story reported that the 1,000 number is “unquestionably an undercount” of offenders because of the scattershot nature of police misconduct reporting, prosecution, and internal administrative discipline across states and departments. Indeed, such is the nature of tracking any kind of police misconduct.

At the National Police Misconduct Reporting Project (NPMRP), we track all kinds of police misconduct from sexual misconduct to domestic violence to DUI and drug related corruption. Looking at the preliminary data through October 30, NPMRP has tracked at least 130 news reports of sexual misconduct* by American law enforcement personnel in 2015. Almost all were criminal in nature. Many cases had multiple victims and happened over a period of years, supporting the AP claim that many cases go unreported.

You can look at the cases we’ve tracked below the fold. You can read more about NPMRP at, follow the @NPMRP Twitter feed, and like our facebook page.

China Persists in the Myth of Planning

The government of China has launched its 13th five-year plan (known as 13.5), sticking with the form if not the substance of Stalinism. But in our modern and networked world, China wants the world to understand its planning process, so it released this catchy video in American English:

The video explains how comprehensive the planning process is: 

Every five years in China, man
They make a new development plan!
The time has come for number 13.
The shi san wu, that’s what it means!

There’s government ministers and think tank minds
And party leadership contributing finds.

First there’s research, views collected,
Then discussion and views projected.
Reports get written and passed around 

As the plan goes down from high to low,
The government’s experience continues to grow.
They have to work hard and deliberate
Because a billion lives are all at stake!

It must be smart: note the picture of Einstein along with Chinese leaders such as Mao Zedong (around 0:50).