The Supreme Court Helps Out the Economy

Today the Supreme Court, in one of the most important securities law rulings in years, Stoneridge Investment Partners v. Scientific-Atlanta, decided that fraud claims are not allowed against third parties who did not directly mislead investors but were business partners with those who did. Investors, the Court said in a narrow 5-3 ruling (Justice Breyer took no part in the case), may only sue those who issued statements or otherwise took direct action that the investors had relied upon in buying or selling stock – whether that involved public statements, omissions of key facts, manipulative trading, or other deceptive conduct. One impact of the decision is likely to be the end of a $40 billion lawsuit against financial institutions growing out of the Enron scandal.

Although this was the result expected by Court-watches, the split decision – along the usual “liberal/conservative” lines, with Justice Kennedy writing the opinion as he has tended to in such situations – was a bit of a surprise. The opposite result would have been disastrous for Wall Street, with massive ramifications on the economy as a whole. It would also have greatly expanded the court-created private right of action that is not expressly spelled out in the relevant securities laws. Ultimately, the Court’s ruling in Stoneridge wisely prevents an implied cause of action against the whole marketplace in which those who do directly mislead investors do business.

NATO’s New Troubles

The North Atlantic Treaty Organization is beginning to fracture. Its members have taken on burdens that have proved more difficult than expected, and increasingly, they are failing to meet the challenges confronting them. In “Cracks in the Foundation: NATO’s New Troubles,” Cato scholar Stanley Kober argues that the future of the alliance is unclear and the United States should begin discussions with our allies about what a post-NATO world would look like.

It’s Not My Fault They’re Kissing

My friend Blake Hounshell (he’s actually a friend, not “my friend” in the Washington sense) has a post up at FP Passport observing President Bush’s and Saudi dictator King Abdullah’s latest canoodling. In that post, Blake argues that

if you’re a gasoline-consuming American, you’re deeply complicit in this marriage, too. So laugh all you want at Bush, but he kisses Saudi cheek for thee—just as U.S. presidents have done for decades.

To which I would respond “baloney!” There’s nothing about the fact that we–or Europe, or China, or Japan–consume oil that mandates that we play kissy-poo with Abdullah or anybody else. There are a few theories why we would want to kiss up to the Saudis, and none of them hold water. The first is that the Saudis, who control 25% of the world’s proven oil reserves, make production decisions based on political relationships rather than economic considerations, and therefore when we kiss up to them, we increase the likelihood that they’ll make production decisions that are in our interests (and in contravention of their own). Like now, for example, the president is pleading that OPEC members increase production so as to tamp down the price of gasoline in the U.S.

As my colleague Jerry Taylor is wont to point out, however, “no amount of ‘get tough’ rhetoric or ‘pretty please’ diplomacy has ever affected OPEC production decisions, despite what American politicians would have you believe.” So that theory needs reworking.

There’s also the belief that we need to keep a close relationship with the Saudis to shore up our position in the region and resume the pursuit of our *ahem* traditional goal in the region of “promoting stability.” But this theory, too, leaves a lot to be desired. Our traditional posture in the Middle East has essentially amounted to a transfer payment from U.S. taxpayers to the Saudi Royal Family and the oil companies it runs. (Kuwait and the GCC countries, too.) Essentially we cover a substantial amount of the cost that it takes to defend these countries from prospective predators. But one has to ask “What would the Arabs do in the absence of an American security commitment?” 75% of the Saudi government’s revenue comes from oil. 45% of the country’s GDP comes from oil. Are we to assume that, absent a U.S. security commitment, the Saudi royal family is just going to cower in a defensive crouch and leave that money on the table for any rogue actor in the region to swoop in and take? Seems unlikely. The royal family seems much more interested in preserving itself and expanding its wealth than that.

To the contrary, it seems more likely that they would spend more, and get more serious about defending themselves from outside threats. Now, one could make the argument at this point that the Arabs in recent years have not proved themselves to be particularly formidable opponents on the battlefield, which is persuasive to a point. But even if, say, Iran made the remarkably rash move of launching a war against Saudi Arabia, Saudi’s defense budget dwarfs Iran’s and Saudi’s military technology is decades ahead of Iran’s. Even if they were to begin losing a conventional conflict against (hypothetically, again) Iran, standoff forces like long-range U.S. bombers could zoom in to restore the status quo ante without batting an eyelash.

So I’m left wondering why, exactly, it’s American gasoline consumers who are forcing U.S. presidents to suck up to Abdullah and the Saudi Royal Family. Any theories are hereby welcomed. In the meantime, please do give a read to Eugene Gholz’s and Daryl Press’s Policy Analysis titled “Energy Alarmism: The Myths that Make Americans Worry about Oil” for much more detail, and data that informed my arguments above.

Et Tu, City Journal? A Terrible Argument for Dismissing School Choice

In a forthcoming City Journal article, Manhattan Institute senior fellow Sol Stern suggests that school choice is failing to measure up, and that choice supporters need to find a “Plan B.” The New York Sun covers Stern’s essay here.

While Stern has done some excellent writing on education in the past, this particular piece is confused and at times factually incorrect. There are many other problems with Stern’s article, but it seems best to begin with the basic facts.

Before calling for a Plan B, one should be aware of the successes of Plan A.

Stern writes, “In 2002, after a decade of organizing by school choice activists, only two programs [for poor children] existed: one in Milwaukee, the other in Cleveland …” In fact, there were three programs that targeted disadvantaged students.

Florida’s voucher program was passed in 1999 and available to students in failing schools, which was used as a proxy or “poor children” (though it was later overturned by that state’s supreme court).

Stern then turns from this very specific accounting to a broad discussion of “proposals for voucher programs” and private school choice in general. But he fails to mention the other voucher programs passed and still in existence; special needs vouchers in Florida, Ohio, Utah, and Georgia and for foster-care children in Arizona.

And although Stern seems most interested in choice programs meant only for disadvantaged children, he fails to mention any of the many education tax credit programs passed in recent years. Five states – Arizona, Florida, Iowa, Pennsylvania, and Rhode Island – have donation tax credit programs. Nearly $150 million in scholarship funds support close to 100,000 low-income children. And that’s not counting the most recent business-donation programs in Arizona and Rhode Island, or Arizona’s personal-donation tax credit program which serves primarily low-income families.

Stern’s article is simply not an accurate reflection of the significant and accelerating legislative success school choice has seen in recent years.

Ethanol Program Milks Consumers Dry

Have you noticed how the price of milk has shot up in the past year? A big chunk of the blame lies with Congress and the ethanol program.

In its effort to promote the fantasy known as “energy independence,” the U.S. Congress favors the ethanol industry with a 51-cent-per-gallon exemption from the federal gasoline tax, and a 54-cent-per-gallon tariff on imported ethanol. By artificially stimulating the domestic ethanol industry, the program has created an insatiable demand for corn, driving up feed grain costs for dairy farmers, leading to higher prices for milk.

I’ve often disagreed with Sen. Chuck Schumer (D-N.Y.) on trade issues, especially his threat to slap tariffs on imports from China, but on this issue, the senator has positioned himself as the American consumer’s best friend. According to a story this week in the New York Daily News:

“Ethanol has increased the average American’s grocery bill $47 since July,” said Sen. Chuck Schumer, citing figures from Iowa State University.

Schumer (D-N.Y.) is pushing for an immediate end to the 54-cent-per-gallon tariff on ethanol imports as a way to increase the supply of the federally mandated fuel additive, reduce pressure on the corn market and bring down milk prices.

“Bring the cheaper ethanol in, reduce the price of corn, and then reduce the price of milk,” he said.

The senator is on to something. While were at it, let’s eliminate remaining U.S. tariffs on imported shoes, clothing, sugar, rice, cheese and, yes, milk.

Irrational Voters

Analyzing exit polls from last week’s New Hampshire primary, E.J. Dionne observes in today’s Washington Post that “an astonishing 42 percent of McCain’s voters disapproved of the Iraq war”

Maybe Bryan Caplan is onto something?

On a related note, Sen. McCain boasts of his fiscal conservatism, and one of his most reliable applause lines on the campaign trail comes from his strident criticism of wasteful government spending. His favorite example is the infamous “bridge to nowhere” in Alaska, one of thousands of earmarks tucked into the 2006 transportation bill. As McCain tells it, the bridge would have cost $233 million to build and would have served about 50 people. (David Boaz spelled out the gory details here. There were actually going to be two bridges costing a total of $454 million. In September 2007, Alaska officials dropped plans to build the bridge, but kept the money.)

To take nothing away from that particularly egregious misuse of taxpayer funds, it is worth noting that the war in Iraq is costing at least $10 billion a month, with some estimates placing the total costs closer to $12 or $13 billion. In other words, in one month’s time, we are spending the equivalent of 42 $233 million bridges. I doubt that we need that many bridges, and I’d much prefer that they be paid for by user-fees, but presumably some of these would go to somewhere?

The voters who oppose the Iraq war but who support the leading advocate for the war seem to be saying that fiscal conservatism stops at the water’s edge. Then again, it could just be cognitive dissonance.

Data Security for Me But Not for Thee

At his press conference announcing the REAL ID Act last week, Department of Homeland Security Secretary Michael Chertoff said:

We are not going to have a national database. REAL ID does not require that states start to collect additional information from applicants that they have not already created. We are not going to wind up making this information available willy-nilly. In fact, the steps we are taking under REAL ID will enhance and protect privacy rather than degrade and impair privacy.

…[A]mong the things we’re doing under REAL ID is requiring that state motor vehicle agencies have in place background checks and security plans for their databases at – in terms of the motor vehicle information. Traditionally, again and again we have seen corruption at motor vehicle agencies leading to people improperly disseminating personal information. These security plans and these background checks will actually minimize the risk that employees will improperly take that information and disseminate it.

Meanwhile, Section 508 of the Court Security Improvement Act of 2007, signed into law by President Bush last week, allows federal judges and Supreme Court Justices to withhold their addresses from the REAL ID database system, giving the addresses of their courts instead.

The federal judiciary evidently doesn’t trust Secretary Chertoff’s assurances.