Topic: Regulatory Studies

Are These Examples of Washington Corruption?

The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. A snippet:

President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout. The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year. Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times. But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall. …The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.

Why did Citigroup decide to hire Lew, a career DC political operator, for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure?

See if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.

Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to such recipients as the state’s university system. Here are some of the sordid details:

Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer. In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records. …Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.

Some people think the answer to such shenanigans is more ethics laws, corruption laws, and campaign-finance laws, but that’s like putting a band-aid on a compound fracture. Besides, it is quite likely that no laws were broken, either by Lew, Citigroup, Shelby, or his former aides. This is just the way Washington works, and the beneficiaries are the insiders who know how to milk the system. The only way to actually reduce both legal and illegal corruption in Washington is to shrink the size of government. The sleaze will not go away until politicians have less ability to steer our money to special interests — whether they are Wall Street banks or Alabama universities. This video elaborates:

The Power of One Entrepreneur

The Institute for Justice has launched a new economic liberties program called “The Power of One Entrepreneur.”  They have five detailed reports produced by successful local writers, highlighting five individual entrepreneurs. 

The power of one entrepreneur, the reports explain, is the key to helping our nation recover from this economic slump and to restoring our inner cities and countless lives through honest enterprise.  Together, they showcase the importance of economic liberty and the fact that countless people are fighting Big Government to secure their American Dream. 

These reports do two important things:

First, they document the positive impact one single entrepreneur can have on those around him or her, not only by offering employment, but through charitable work and mentoring to grow other entrepreneurs in the community, thereby growing the economic pie.

Second, through tangible examples, they make the point that if the government wants to do something to help Americans in this “jobless recovery,” it can do one simple thing:  Get out of the way so entrepreneurs like these can be free to create jobs for themselves and for others.

This is part of IJ’s laudable long-time effort to put a human face on the issue of economic liberty — the right to earn a living free from arbitrary and unnecessary government regulation.

Obama Tells It Like It Is

The New York Times reports:

President Obama signed into law on Wednesday a sweeping expansion of federal financial regulation….

A number of the details have been left for regulators to work out, inevitably setting off complicated tangles down the road that could last for years…complex legislation, with its dense pages on derivatives practices….

“If you’ve ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print,” Mr. Obama said.

Baptists and Pot-Growers

The L.A. Times reports that the city of Oakland has approved an ordinance paving the way for the industrial production of marijuana. There is more to this than simply a victory for liberty in the drug war.  As the story describes and Josh Blackman analyzes, the episode demonstrates “Baptists and Bootleggers”-style public choice economics in action: existing small-time growers are displeased at the competition, barriers to entry are high, the approved pot factories engaged in serious rent-seeking, and the city profits from a new stream of tax revenue.

And so, as liberty expands, government reserves the power to decide who gets to benefit most – after taking a slice for itself off the top.

Schools on Film

AEI’s Rick Hess worries that school choice advocates are moving into the public messaging arena with “brazenly manipulative” flicks that rely on shallow “sound bites.” He cites the screening of five documentaries at an upcoming national conference in San Franscisco to argue his point.

I can’t comment on them as a whole–I haven’t seen them all–but I would like to point out that there will actually be at least eight screenings at next month’s conference. Among them will be a brief sample of a proposed six-part documentary series called School, Inc.  Taking Educational Excellence from Candle to Flame. This series, inspired by James Burke’s Connections and Carl Sagan’s Cosmos, would take viewers on a world-wide quest to answer one very important question: why is excellence routinely replicated and spread on a massive scale in every field except education?

The series hasn’t been shot yet, and perhaps distributors today won’t think viewers are still interested in the kind of challenging, thought-provoking documentary series that so captivated me (and millions of others) in my teen years. But the project’s advisory board includes Jay Mathews, Paul PetersonJames Tooley, and Michael Horn, my co-producers and co-writers (Patrick Prentice and Tim Baney) have more than half-a-century of documentary filmmaking experience between them, and I’ve been studying school systems around the globe and across history for the better part of two decades. We’re confident that this series will be both substantive and entertaining, and think that American (and foreign) audiences are very interested in the subject matter. As we start to pitch to distributors in the coming months, we’ll find out if they agree.

Stay tuned….

Dear Health Care Journos, There’s Nothing Free about ObamaCare

The Obama administration announced yesterday its plans for implementing ObamaCare’s mandate that consumers purchase first-dollar coverage for preventive services.  The press release reads (emphasis added):

Administration Announces Regulations Requiring New Health Insurance Plans to Provide Free Preventive Care

Of course the administration would emphasize that consumers will pay nothing for these services at the moment of service, and elide the fact that this mandate will increase their health insurance premiums. The administration’s use of the word “free” is what we call spin.

What’s surprising–and more than a little disappointing–is that journalists and headline writers at major media organizations would repeat the administration’s spin, as if the government really is giving away free stuff:

  • New York Times: “Health Plans Must Provide Some Tests at No Cost…free coverage…free screenings…free preventive services…”
  • Los Angeles Times: “Healthcare law offers preventive care at no cost”
  • Politico: “New rules: Free preventive care…free under new federal guidelines.”
  • Reuters: “Healthcare overhaul mandates free preventive care…no extra cost to consumers…Medicare patients will have access to free prevention services…”
  • Wall Street Journal: “White House Unveils Free Preventative Services…services that will be free to consumers…free preventive care…free preventive care…”

Each use of “free” and “no cost” in these excerpts is false, even within its original context.  There’s no such thing as a free lunch. Everything has a cost.  No government can change that.  Mandating that insurers cover certain services does not magically make them free.  Consumers still pay, just in the form of higher health insurance premiums and lower wages.

The Wall Street Journal (in paragraph six), The New York Times (paragraph seven), Reuters (paragraph 16), and the Los Angeles Times (paragraph 19 or so) do mention that consumers will pay for this mandate in the form of higher premiums–but that doesn’t make the untrue stuff true.  It just makes the article internally inconsistent.  Moreover, the Los Angeles Times incorrectly suggests that the higher premiums would be offset by lower out-of-pocket spending.  (The change in premiums will be larger due to moral hazard and administrative costs.)  And Reuters mentions higher premiums only vaguely, and as if insurers would bear that cost.  Each article also repeats the administration’s spin that spending more on preventive care would reduce health care costs, without mentioning that the Congressional Budget Office and other health care researchers dispute that claim.

Journalists need to be very careful with terms like “free” and “no cost.”

Don’t Look Around, Get the For-Profits!

Yesterday, I brought you up to date on the under-the-radar advance of federal K-12 education control. But that’s not the only education sector under largely silent assault. Most people are also probably unaware of the siege of for-profit colleges and universities, a group loathed because, well, they dare to be honest about trying to make a profit, and they do it in an industry utterly dependent on federal cash.

The complaint – which you might have heard before – is that for-profit enrollment is growing very fast; the schools are more expensive than taxpayer-subsidized public institutions or non-profit private schools; and for-profit students often struggle to graduate and pay back their mainly federal student loans. This story on NPR’s Marketplace is somewhat representative of the coverage afforded these schools, with its focus on a former for-profit employee accusing one school – but by implication the whole sector – of deceiving students about their employment and earning prospects after they’ve completed the school’s pricey program. Here’s the pretty standard stuff:

Garnett knows a lot about the value of education. She worked as director of graduate placement at for-profit Allied College in St. Louis. It’s now called Anthem College. Here’s a clip from one of its promotional videos.

Allied College video: We can help you break into that career you’ve always dreamed of, and your future starts right now!

It was Garnett’s job to help students start those careers as pharmacy technicians or dental assistants.

Garnett: We sent resumes on their behalf, we called potential employers on their behalf, we called the graduates every week, sometimes every day, to say “have you followed up on this, have you talked to anyone, what have you been doing?”

All that effort paid off. Garnett says more than 70 percent of graduates found the kinds of jobs they went to school for. But she says a lot of those jobs paid just $8 to $10 an hour. And the students often took on a lot of debt.

Garnett: A lot of it would depend on what program the student was in, how hard they were willing to work, the effort that they were willing to put in. But just being honest, if you’re making $10 an hour and you have $15,000 in student loans, that would be pretty difficult to pay back, for anyone.

You get the picture: The for-profit school deceived students so it could rake in cash for it’s owners. Well it’s stories like this – as well as some truly alarming statistics about for-profit costs and graduation rates – that are driving a series of Capitol Hill floggings of proprietary schools, as well as a drive to tighten regulation of the schools:

The law says career training and vocational programs have to prepare students for quote “gainful employment in a recognized occupation.” Otherwise, the programs aren’t eligible for federal student aid. But until now, no one’s defined what gainful employment means. The Department of Education is drawing up new rules meant to protect students from taking on more debt than they can expect to pay off….

New regulations could force some programs to lower their tuition or even go out of business. But the gainful employment rule doesn’t apply to traditional four-year colleges or liberal arts programs….because career colleges and vocational programs exist to train people for jobs. There may be other reasons people go to Vassar or UCLA.

Clearly, the intent is to implement regulations that will have a disparate impact on for-profit schools. Sure, some people go to UCLA or Vassar to study, say, art history, but many go to study business, or engineering, or education, or something else with a job as a final goal.

Thankfully, Marketplace had the integrity to bring in a somewhat balancing voice, one that summarized what I argue in a much more detailed way in a new op-ed defending – sort of – for-profit higher ed. Quite simply, for-profits do have lots of problems, but so do publics and non-profit privates:

Sara Goldrick-Rab teaches education policy at the University of Wisconsin, Madison. She says nonprofit colleges and public universities deserve a closer look too. Plenty of students graduate from those schools with piles of debt and slim job prospects.

Sara Goldrick-Rab: The fact is that when you talk to students these days, no matter where they are, their main focus is on getting a job – and its on getting a good-paying job. And that’s what they tell you that they’re there to do.

What Goldrick-Rab probably wouldn’t say – after all, she has publicly (and wrongly) heckled me for saying it – is that government aid likely deserves much of the blame for the overconsumption and skyrocketing prices of higher ed. By making students insensitive to costs, aid allows schools – all schools – to raise prices with impunity, and distorts students’ perceptions of the value of higher ed.

So are there problems in for-profit higher education? Absolutely! But they are the same problems we have throughout government-dominated academia. The only difference is that the for-profits are at least honest about grabbing every dollar they can get.