Topic: Government and Politics

Will the Third Time Be the Charm as the Supreme Court Again Takes Up a Controversial Theory of Racial “Discrimination”?

Title VIII of the Civil Rights Act, also known as the Fair Housing Act (FHA), makes it illegal to deny someone housing on the basis of race and other protected characteristics. Applicable to governments, private entities, and individuals, the FHA prohibits racially discriminatory practices in most if not all transactions relating to housing.

For example, a landlord can’t refuse to rent an apartment to an otherwise qualified tenant, solely on the basis of race. Similarly, banks and credit unions can’t take a borrower’s race into account when deciding whether and on what terms to extend credit for the purpose of buying a home.

While it’s clear that the FHA bars such discriminatory intent, it remains an open question whether it covers claims of “disparate impact,” where a neutral policy disproportionately harms members of the protected class. Under this theory, a landlord insisting that all applicants pass a credit check could be held liable if it turns out that applicants from one protected group are disproportionately unlikely to have a sufficiently high credit score. That landlord would be held liable even though a satisfactory credit score is required of all potential tenants, regardless of race, and the landlord’s only intent was the (perfectly legal) desire to avoid tenants who would get behind on their rent—not to deny housing to any particular group.

In the decades since the FHA was passed, disparate impact has been used by the government and private litigants to exact tens of millions of dollars in fines and settlements from banks and developers whose facially neutral policies were alleged to have excluded members of a protected class from the housing market. The problem is that unlike with other anti-discrimination laws, such as the Americans with Disabilities Act—which expressly prohibits policies that have a disparate impact—the text of the FHA explicitly forbids only intentional discrimination.

Why Do Some Advocates of Small Government Want to Keep a Democrat Appointee at CBO?

Since I’ve accused the Congressional Budget Office of “witch doctor economics and gypsy forecasting,” it’s obvious I’m not a big fan of the organization’s approach to fiscal analysis.

I’ve even argued that Republicans shouldn’t cite CBO when the bureaucrats reach correct conclusions on policy (at least when such findings are based on bad Keynesian methodology).

So nobody should be surprised that I think the incoming Republican majority should install new leadership at CBO (and the Joint Committee on Taxation as well).

So why, then, are some advocates of smaller government - such as Greg Mankiw, Keith Hennessey, Alan Viard, and Michael Strain - arguing that Republicans should keep the current Director, Doug Elmendorf, who was appointed by the Democrats back in 2009?

Before answering that question, let’s look at some of what was written today for the Washington Post’s Wonkblog.

Today in Cato’s Growth Forum

There are five new essays today in the Cato Institute’s online growth forum:

1. Ryan Avent argues against restrictive zoning.

2. Jagadeesh Gokhale makes the case for tax and entitlement reforms.

3. Michael Strain wants to put America back to work.

4. Karl Smith thinks about how to counter slowing labor force growth.

5. Robin Hanson calls for the meta-policy of decision markets.

Iran’s Economy, With and Without a P5+1 Agreement

The haggling between Iran and the so-called P5+1—the permanent members of the United Nations Security Council, plus Germany—is scheduled to come to a close on Monday, November 24th. The two parties each want different things. One thing that Iran would like is the removal of the economic sanctions imposed on it by the United States and its allies.

After decades of wrongheaded economic policies, Iran’s economy is in terrible shape. The authoritative Economic Freedom of the World: 2014 Annual Report puts Iran near the bottom of the barrel: 147th out of the 152 countries ranked. And the “World Misery Index Scores” rank Iran as the fourth most miserable economy in the world. In addition to economic mismanagement, economic sanctions and now-plunging oil prices are dragging Iran’s structurally distorted economy down. So, it’s no surprise that Iran would like one of the weights (read: sanctions) on its economy lifted.

Just how important would the removal of sanctions be? To answer that question, we use the Institute of International Finance’s detailed macroeconomic framework. The results of our analysis are shown in the table and charts below the jump.

Government Must Honor Its Contracts

Virtually every aspect of government’s work depends on contracts, whether they be with manufacturers of naval ships, civilian contractors, the companies that sell office supplies, or the landlords who lease the office space that houses the vast bureaucracy. These contracts, like any contract, only work when both parties have legal certainty; each must be able to depend on the promises made by the other.

That said, federal contractors do have to assume less certainty when dealing with the government because the Supreme Court has held that contracts can’t bind Congress from passing new legislation, or agencies from adopting new regulations. For example, while the government could enter into a contract promising to buy 100 widgets, Congress could pass a law making it illegal to manufacture or sell widgets—effectively voiding the agreement.

In the case of Century Exploration v. United States, an energy company leased the rights to an oil field in the Gulf of Mexico owned by the government for $23 million dollars up front, and $50,000 per year of the lease. Because oil drilling is a heavily regulated industry, Century only felt safe spending that kind of money because the lease contained a promise that Century wouldn’t be subject to any changes to the law that the government might make in the future, except for a specific class of regulations created under the authority of a single statute, the Outer Continental Shelf Lands Act (OSCLA). Without this promise, there would have been nothing to stop the government from taking Century Exploration’s money and then outlawing drilling in the Gulf of Mexico, or passing new regulations that would make it prohibitively expensive for Century to make use of the leased plot.

Unfortunately, the government did the very thing it promised not to. Under the Oil Pollution Act (OPA), drilling companies have to calculate the volume of oil that would be released in a “worst case scenario” and prove that they have the financial resources to fund cleanup efforts. The method for calculating the amount of oil, and the cost of cleanup, are governed by regulations issued under the OPA. Two years into Century’s lease, however, a civil servant in the Interior Department sent the company an email demanding a recalculation of the “worst case scenario” using a more extreme methodology contained in an attached FAQ. Using that new method, the cost of cleaning up a hypothetical spill increased from $4.5 million to $1.8 billion. Because Century couldn’t prove that it would have $1.8 billion on-hand in the event of a disaster, it could no longer operate on the leased plot.

Century appealed to the courts, relying on a 2000 case called Mobil Oil in which the Supreme Court interpreted a nearly identical lease to mean that the government would breach its contract if it tried to apply new laws or regulations to the leaseholders (except, again, for regulations under OSCLA). Under Mobil Oil, unilaterally changing the method of calculating the volume and cost of a spill would be just such a breach; the regulatory changes were made under the OPA, not OSCLA, and the changes were made by email, not by formal regulation. The government insisted it had done no wrong and, remarkably, the U.S. Court for the Federal Circuit agreed.

Cato has filed an amicus brief urging the Supreme Court to review this case and make clear that the government can’t violate contractual obligations with impunity. We make two key points:

There’s Room for Direct Democracy in a Republic

Not many people know that there’s a clause in the Constitution that charges Congress with guaranteeing every state a “republican form of government.” Even fewer people are aware of exactly what that means.

Historically, the Guarantee Clause is considered to have been a measure the Framers included to ensure that the governments of the states—which used to have far greater autonomy—didn’t devolve into monarchies or other despotic forms. But the clause’s legal effect has never been fully fleshed out. Not that there haven’t been opportunities; claims based on the Guarantee Clause are peppered throughout U.S. history. Courts have typically disposed of them by invoking the political question doctrine, which they use to avoid deciding an issue they believe is more appropriately left to the elected branches. Since there’s no legally binding definition of “republican,” a court applying the Guarantee Clause has little to work with, also contributing to the tendency to treat such cases as non-justiciable.

Accordingly, when a group of legislators and citizens groups supporting big government banded together to attack Colorado’s Taxpayer Bill of Rights (TABOR) based on a Guarantee Clause claim, it seemed like a longshot. Their theory was that the state no longer had a republican form of government because the TABOR—a voter-approved state constitutional amendment—restricts the legislature’s ability to raise taxes without approval from the people of Colorado.

Colorado Gov. John Hickenlooper (D), defending the state’s constitution, moved to dismiss the case in federal district court but, surprisingly, lost the motion. Even more surprisingly, a panel of the U.S. Court of Appeals for the Tenth Circuit affirmed that denial, which meant that the plaintiffs’ claims could go to trial and jeopardize the continued existence of the state’s popular anti-tax measure. Colorado has one more chance, however, to prevent poorly constructed Guarantee Clause claims from being heard in federal courts and thus jeopardizing the dozens of state constitutional measures that use popular input: the Supreme Court.

Governor Hickenlooper has filed a petition for certiorari requesting that the Supreme Court, among other things, put to bed the erroneous notion that elements of direct popular participation and direct democracy can’t exist in a republican government. Joined by the Independence Institute, Reason Foundation, and Individual Rights Foundation, Cato has filed a brief supporting Colorado’s petition. We argue that the Court should hear the case so it can inform the lower courts that pretextual Guarantee Clause claims don’t belong in federal courts.

We give three reasons for this position. First, the plaintiffs’ complaint fails to provide a court with legal standards coherent enough to decide the case under the Guarantee Clause. Second, under Supreme Court precedent, the idea that initiatives and referenda are incompatible with republican government was resolved (and rejected) when Congress admitted states that used these popular procedures into the union. Third, even a brief look at the history of the Founding Era’s understanding of the words “republic” and “republican” dispels the myth on which the plaintiffs base their claim: that direct popular participation is incompatible with the republican form. Our brief provides that historical context.

In sum, the suggestion that the Guarantee Clause—meant to ensure that state governments would remain governments “of the people” and wouldn’t revert to despotic monarchies—could be used to wrest greater control of the taxing power from the people makes the plaintiffs’ claims risible. The Supreme Court should take this opportunity to hear Hickenlooper v. Kerr and put an end to this case.