Now More Than Ever, Courts Should Police Administrative Agencies

Under the Bush administration, the Labor Department interpreted a piece of the Fair Labor Standards Act as exempting mortgage-loan officers from eligibility for overtime pay. The Obama Labor Department didn’t see the law the same way, however, and issued a re-interpretation.

This was a worrying development for the Mortgage Bankers Association, which represents banks that relied on the original interpretation and whose interests were greatly affected by the re-interpretation, but were given neither notice nor the chance to comment on the change. The MBA thus sued the Labor Department, arguing that the re-interpretation violated the Administrative Procedure Act, the 1946 law that determined (among other things) the processes that agencies must go through when exercising their “interpretive” and “legislative” powers—that is, when they interpret laws and when they make their own regulations.

Under the APA, agencies have to give affected parties notice and the opportunity for comment when making legislative rules, but do not have to do so when they merely make interpretive rules. The MBA argued that the APA requires an agency to go through the notice-and-comment process when it changes its interpretation of a law or regulation to such a degree that it is effectively making a legislative rule.

The U.S. Court of Appeals for the D.C. Circuit agreed with the MBA, and now the Supreme Court has decided to review the case. The government argues that agencies are due deference when they change the application of a law through interpretive rules—so long as they come in the form of an interpretation—and that the courts don’t get a say regarding when this action becomes a legislative rulemaking.

Cato disagrees with the government’s position—if there’s anything our country needs, it’s not fewer checks on the administrative state—and has filed a brief supporting the MBA, joined by the Competitive Enterprise Institute and the Judicial Education Network, and with former White House Counsel Boyden Gray as co-counsel. In our brief, we examine the APA’s framers’ goal of rebutting the government’s assertion of administrative power. We argue that the boundary between “interpretive” and “legislative” rules is a blurry one that should be policed by the courts. The APA’s architects assumed that the courts would play such a role; they wouldn’t have made interpretive rulemaking so procedurally easy otherwise. Scholarly sources and legislative history agree that judicial review is necessary—for example, determining when “interpretive” flip-flopping necessitates greater due-process protection—to protect those whose livelihood depends on relying on and complying with agency interpretations.

In sum, our brief looks to history to make clear a few important points that only the government would dispute. In a time when more people’s lives are staked on administrative rulings than ever before, we shouldn’t weaken the APA’s due-process protections. This case boils down to the government’s desire for agencies to more easily exercise power and for the subjects of regulations to have a harder time challenging that awesome authority. We, with the APA’s framers, think it should be the other way around.

The Supreme Court will hear oral argument in Perez v. Mortgage Bankers Association on December 1.

This blogpost was coauthored by Cato legal associate Julio Colomba.

How to Stop Wasting Money on Science

In Thursday’s Wall Street Journal, former Energy Secretary (and Stanford professor) Steven Chu and his colleague Thomas R. Cech penned an opinion piece entitled How to Stop Winning Nobel Prizes in Science, in which they argue for better long-term planning and consistency in the public funding of science. Cato adjunct scholar Dr. Terence Kealey agrees, suggesting the right amount would be consistently $0.

In August, 2013, Kealey wrote precisely about this in that month’s edition of Cato Unbound. Since then, he has stepped down after a long and successful tenure as vice-chancellor (the equivalent of college president in the U.S.) of the University of Buckingham in the United Kingdom.

First, Kealey considers the notion that science is a “public good,” i.e., something that should rightly be funded by government because scientific developments would otherwise be underprovided from the perspective of society as a whole.  

The myth [that Science is a public good] may be the longest-surviving intellectual error in western academic thought, having started in 1605 when a corrupt English lawyer and politician, Sir Francis Bacon, published his Advancement of Learning.

Kealey went on to document that there is no evidence the public good model (as opposed to laissez faire) is more efficient at providing for the betterment of the public:

More Censorship Will Hardly Save Xi’s Dictatorship

In recent days, I’ve received messages from several groups on WeChat (a popular social media network in China) reporting on the arrest of more than 40 Chinese activists who support the protests in Hong Kong, as well as on an official order to ban the publication or sale of books written by authors considered to be supporters of the Hong Kong protests, human rights and the rule of law. The crackdown was also reported this week in the Washington Post.

Among the authors now banned is economist Mao Yushi, the 2012 recipient of the Milton Friedman Prize for Advancing Liberty.

This is not the first time Mr. Mao has suffered unfair and illegal treatment (an official, public written notice is often not even issued to carry out censorship; sometimes an “anonymous” phone call understood to be from an authority or from an official agency to the publisher will suffice). Mr. Mao’s books were also banned, although not for the first time, in 2003 when he signed a petition at a conference in Qingtao appealing to the government to exonerate the students’ protests and democratic movement which was ended with the June 4th massacre on 1989.

In my own experience, a couple of articles in one of my books were deleted without an official explanation, while the deletion of phrases, sentences and even paragraphs from my columns and commentaries in journals and newspapers were quite common.

Another very respected author is Mr. Yu Ying-shih, an 84-year-old emeritus professor of history at Princeton who has taught at Ivy League universities since the 1950s. Mr. Yu supports the Hong Kong protests and has criticized the tyranny of the Chinese Communist Party (CCP) for more than five decades. In his books he develops analytical critiques of traditional culture and classical philosophy in China, and advances universal values based on Western scholarly traditions. The books have sold well and contain no direct reference to contemporary political issues, yet his books were officially considered critical of CCP rule and deemed damaging to social stability.

Another banned scholar is Prof. Zhang Qianfan, one of my former colleagues at Peking University (a professor at the School of Government as well as the School of Law). He is a very cautious and prudent scholar (we have disagreements on several issues in which he suggests my opinions are too radical and aggressive against the current regime) who focuses on constitutional studies, and serves as vice president for the China Society for Constitutional Studies. He opposes the Hong Kong protests – in what seems to me to be a contradiction of his own views – for fear that the June 4th Massacre might happen again if the students and civilians in Hong Kong do not withdraw.

Therefore I presume that the banning of Prof Zhang’s books is not a result of his views on the Hong Kong protests, but is rather aimed at his research in Constitutional Studies.

The arrest of famous activist and human rights advocate Guo Yushan is not a surprise to most of us since he has been involved in so many so-called sensitive issues in the past decade, with the most politically irritating one being his role in the escape of the world-famous blind activist Chen Guangcheng. Yet the timing of his arrest is troubling since the 4th plenary session of the CCP’s 18th National Congress will be held next week while the plenary session will purportedly focus on the Rule of Law or “Governing the State with Law” even if the majority of Chinese is suspicious about the possibility of implementing that agenda.

The treatment of dissidents outside and inside China is abhorrent. Many dissidents have not been able to visit their parents, brothers, sisters or relatives for two or three decades. Even many scholars, researchers and even businessmen who sympathize with human rights ideas in China or have expressed different views than those of the CCP have been denied visas or have had them cancelled. Among those who are still not allowed into China, for example, are former Princeton professor Perry Link and Andrew Nathan of Columbia University.

Chinese citizens should be free to exit and enter their homeland no matter what political positions or beliefs they maintain.  The refusal to allow the exit or entry of a dissident without a legal justification is an obvious violation of modern law and international norms, and is inhumane.

I hereby wish to call the attention of the international community to this new round of crackdowns and violations of freedoms of speech, publication, assembly, association and movement unfolding in China.

Oil Price Blues (Read: Dangers) for Some

As the price of crude oil continues its downward tumble towards $80 per barrel, I am reminded of a similar scenario from near the end of the Cold War in the 1980s. When Saudi Arabia announced in 1985 that protecting oil prices was no longer its main priority, oil production surged and prices fell off a cliff, briefly plunging below $10 per barrel, as I had correctly predicted.

Lower prices delivered a fatal blow to the Soviet economy, which ended up seeing $20 billion per year in oil revenues evaporate. The resulting fiscal shortfalls proved to be a dagger in the heart of the U.S.S.R.

On October 1st of this year, Saudi Arabia’s national oil company announced that it had abandoned a policy of price protection and would start to focus on protecting its market share. Combined with falling global demand and rising supplies elsewhere, oil prices have fallen accordingly. This has put a squeeze on eight of the world’s top oil producers. States like Iran, Venezuela, and Iraq can only balance their current budgets at oil prices ranging from $110 to $135 per barrel (so-called break-even prices).

If oil prices stay below $90 per barrel for any length of time, we will witness massive fiscal squeezes and regime changes in one or more of the following countries: Iran, Bahrain, Ecuador, Venezuela, Algeria, Nigeria, Iraq, or Libya. It will be a movie we have seen before.

Managed Trade for Sugar from Mexico?

Mexican Economy Secretary Ildefonso Guajardo was in Washington this week arguing on behalf of an agreement to suspend the U.S. antidumping/countervailing duty (AD/CVD) investigation against imports of sugar from Mexico.  The case will soon enter its final phase, with the U.S. International Trade Commission (ITC) expected to determine early next year whether the U.S. sugar industry has been injured by imports from Mexico. 

In the context of North American sugar politics, an agreement to suspend the AD/CVD process and implement a managed-trade arrangement makes some sense.  Both U.S. and Mexican sugar industries already are more or less wards of the state, or at least are very heavily guided and controlled by their respective governments.  Both governments have given indications that they are interested in settling this dispute.  The history of bilateral sugar trade has been dominated by government intervention rather than by free-market economics.  It seems almost natural to take the next obvious step by allowing Mexican sugar to enter the United States only under terms of a suspension agreement (i.e., with the quantity limited or the price set high).

It’s worth mentioning that Mexican sugar growers are the only ones in the world currently allowed to sell as much sugar as they wish in the U.S. marketplace.  Even U.S. growers are not permitted to do so.  Years ago they gave up that right in exchange for retaining an almost embarrassingly high level of price support.  That strong price incentive was inducing them to grow more sugar than the market could absorb.  Under the provisions of the U.S. sugar program, that excess sugar could end up being owned by the U.S. Department of Agriculture at considerable expense to taxpayers.  So U.S. sugar growers made the decision to sell less sugar, but keep the price high.

Mexican growers, on the other hand, obtained unfettered access to the U.S. market in 2008. That followed a contentious period of bilateral trade in sugar and high-fructose corn syrup (HFCS) dating to 1994, which was when the North American Free-Trade Agreement (NAFTA) began to be implemented.  In a nutshell, the United States adopted a much more restrictive approach to imports of Mexican sugar than Mexico thought had been negotiated, and the Mexicans reciprocated regarding imports of HFCS. 

Given that historic context, the open access to the U.S. market enjoyed by the Mexicans since 2008 seems to be rather an anomaly.  Why not go back to the good old days of closely managed trade? 

Less Is More in the Federal Government

Daniel Henninger nailed it in his article “Killer Bureaucracies,” which discussed the poor performance of so many federal agencies recently. He called for “scaled-down, distributed public responsibilities” to reduce bureaucratic failure.

To that end, Congress should pursue three reforms:

  1. Eliminate bureaucracies that we do not need. Departments that mainly pump out subsidies and intrude on properly state, local, and private activities should be terminated, including the Departments of Agriculture, Education, and Energy. Federal organizations that perform useful business functions should be privatized, including USPS, FAA, TSA, Amtrak, TVA, and the Army Corps of Engineers.
  2. When feasible, scrap department superstructures—such as Homeland Security—because they add complexity and blur responsibility. Homeland agencies, such as the Secret Service and Border Patrol, should stand on their own, have narrowly-defined tasks, and report directly to the president.
  3. Assign the oversight for each agency to a single House and single Senate committee so that citizens know which politicians are to blame for failures. Homeland Security is currently overseen by more than 90 committees and subcommittees, but that’s absurd because when every politician is responsible, none of them are.

The federal bureaucracy can work better, but only if it is much smaller.

Washington Should Back out Of Iraq’s New Civil War

George W. Bush’s foolish invasion of Iraq sowed the wind.  Now Iraq, its neighbors, and America are reaping the whirlwind.  Some Iraqi officials are calling for the return of U.S. combat troops.  Washington should say no.

American conservatives traditionally rejected domestic social engineering.  But the neoconservative takeover of the Republican Party pushed the GOP into social engineering on a global scale. 

Alas, it didn’t work out that way in Iraq.  At the cost of several thousand dead the U.S. opened a geopolitical Pandora’s Box, unleashing a sectarian-guerrilla conflict which claimed hundreds of thousands of Iraqi lives. 

Bush’s legacy was a corrupt, authoritarian, and sectarian state, friendly with Iran and Syria.  Even worse was the emergence of the Islamic State, ripping Iraq apart, seizing large chunks of Syria, threatening Kurdistan, committing murder and mayhem, and threatening to destabilize Jordan, Lebanon, and Turkey.   

The Iraq disaster’s architects, however, insisted that nothing had been their fault.  Indeed, Iraq hawks claimed, the fault for Iraq’s collapse was entirely President Obama’s since he followed the Bush withdrawal schedule

In fact, even had the administration succeeded in maintaining a garrison, little likely would have changed.  Washington’s only leverage would have been to threaten to withdraw its troops, which, of course, would have frustrated its objective of staying.

Worse would have been deploying American troops against the Maliki regime’s domestic enemies.  That would have made Washington an active combatant in sectarian conflict, tied America even closer to Maliki, and turned U.S. forces into a lightning rod for discontented Iraqis. 

How should Washington respond today?  Renewed American intervention is no less likely to again stir the whirlwind.  As I note on Forbes online:  “bombing jihadist radicals, supporting authoritarian regimes, taking sides in sectarian conflict, playing multiple sides in Syria, hectoring allied states, and pursuing new but still unattainable objectives in the Middle East offer a multitude of opportunities for bloody blowback.”

In fact, the Islamic State became a significant U.S. interest only because Washington termed it one.  ISIL’s fighters are insurgents, not terrorists.  The Islamic State stands apart from al-Qaeda because the former is seeking to become an organized government rather than a terrorist group. 

Of course, the Islamic State’s objectives could change.  But butchering two Americans who fell into its hands illustrated the group’s monstrous philosophy, not its threat potential.  Ironically, Washington’s attempt to thwart the group’s regional ambitions might push ISIL toward al-Qaeda and the terrorism business. 

Moreover, the administration’s strategy is a bust.  U.S. airstrikes have not prevented the group from advancing.  Yet Washington’s tepid intervention has discouraged the countries with the greatest interest in defeating the Islamic State, most notably Turkey, from taking action.

Worse, Washington has stepped up its commitment to overthrow Syria’s Assad regime.  President Bashar al-Assad is an ugly character, but his army is the best force currently opposing ISIL.  Aiding the so-called “moderate” insurgents in Syria could tie down government forces, enabling the Islamic State’s black flag to eventually fly over Damascus.

The only serious alternative to fully reentering the war is to step back, making clear that the Islamic State’s neighbors will bear the cost of any further advances.  Iraq desperately requires a political solution separating anti-Baghdad Sunni tribes and former Baathists from their ally of convenience, ISIL. 

Jordan and the Gulf States also have much at stake and military forces available for use.  Most important is Turkey, which alone has some 400,000 men under arms.  Washington should inform Ankara that there will be no NATO involvement in a problem Turkey should confront.

The administration’s Iraq policy has failed.  The U.S. is more entangled in war; Americans have been killed in retaliation for Washington’s intervention; the Islamic State is still advancing. 

U.S. officials should back out of Iraq, not jump in.  This may be President Obama’s final opportunity to avoid a lengthy conflict which could come to define his legacy as the 2003 Iraq War came to define that of George W. Bush.