Big-Gov Bush and America’s Ivory Tower

Today the House of Representatives is debating a terrible bill to reauthorize the Higher Education Act (HEA), the primary federal law governing America’s ivory tower. The legislation would, among other things, force states to keep up their higher ed spending to get federal money, forgive loans for people in myriad “public service” jobs, and interfere with private student loan markets.

The good news in all of this could be that the Bush administration opposes the measure. But then we see why that isn’t a silver lining: As Secretary of Education Margaret Spellings makes clear in an op-ed in today’s Politico, the administration dislikes the law because it would prohibit the Department of Education from forcing standards and testing requirements on the nation’s diverse colleges and universities. In other words, it would prevent Spellings from imposing No Child Left Behind on the Ivy League.

It’s the overall tragedy of the Bush administration in microcosm. Sure, they’re fighting the Democrats, but to get more government interference, not less. And this push is extra sad because No Child Left Behind has, if anything, made matters worse in K-12 education, and in trying to blame higher ed for our problems Spellings herself actually hints that government-dominated elementary and secondary schooling is our real crippler:

They “get” where the U.S. is lagging behind, and they know the culprits: rising tuition costs, a burgeoning debt load and the fact that only half of all minorities get out of high school on time [italics added] and fewer than half of all adults have a college certificate or degree, when 90 percent of the fastest-growing jobs in America require post-secondary education.

No matter how much Spellings and Bush inveigh against it for being “unaccountable,” in very stark contrast to K-12 schooling American higher education is the envy of the world, and it got that way precisely because it is not very accountable to government. Rather than answering to a central authority and teaching what politicians think best, our colleges and universities are autonomous, our students are able to choose the schools that are right for them, and competition and innovation are unleashed.

Of course, there are significant problems with America’s ivory tower, such as rampant tuition inflation and great inefficiency driven by government subsidies, but they are actually minor in comparison to the troubles in countries with centralized higher ed. But rather than fix the problems we do have, unfortunately, the Bush administration wants to give us new ones that are much, much worse.

Mr. Regnery’s Advice to John McCain

In today’s Wall Street Journal (Feb 7), Alfred S. Regnery opines as follows (with my comments) on “How McCain Can Convince the Right”:

1. “Take a firm no-new-taxes pledge. Mr. McCain … needs to promise that he won’t increase Social Security taxes – especially by lifting the earnings cap – or increase hidden taxes in regulatory schemes, and that he will try to eliminate the death tax.”

That seems to be asking too much in some respects and too little in others. Regnery is suggesting that McCain do nothing to improve the tax system (as though it’s perfect as is) other than to try to do something he cannot possibly accomplish with this congress. The best defense is a good offense. That doesn’t mean taxing less, in terms of lost loot, but taxing smarter.

McCain’s top economist told me that McCain favors taxing estates (after a large exemption) at the same rate as long-term capital gains. If so, he should not be shy about that – it’s a great idea. That would be much more effective than tilting at windmills until 2011, when the estate tax comes back in full force.

Lifting the earnings cap is indeed a huge threat, adding about 10 percentage points to marginal rates for everyone earning more than $100,000. Expiration of the 2003 tax rates would add another 5 points to that. That would bring the top tax rate to 50%, not to mention state taxes and surtaxes Congressional Democrats have proposed to pay for more health insurance subsidies and easing the alternative minimum tax.

If Democrats want to raise the Social Security tax rate to pay for rising benefits, let them have the courage to propose that. In terms of potential damage to the economy, that would be better than tapping general revenues – which means switching from a flat-rate payroll tax that exempts income from savings to a progressive income tax that applies higher tax rates to both labor and capital.

2. “Get specific on spending. Mr. McCain talks a lot about pork barrel projects, earmarks and the need to get spending under control, but so does everybody. He needs to release a bold, Reaganesque proposal with specific reductions he would pursue as president, what programs he will try to eliminate, and how he will attempt to control a spendthrift Congress… .By getting specific, Mr. McCain would endear himself to a lot of fiscal conservatives.”

Absolutely right. And McCain would also endear himself to a lot of libertarians. It would be risky for Republicans to ignore how much money Ron Paul has pulled up from the grass roots, not to mention votes. That is not just because of Dr. Paul’s good looks and charming wit.

3. “Pick a fight with the press.” That’s bad advice. Let others start any fights. That rule also happens to be good foreign policy, as Ron Paul has observed.

4. “Pick a conservative running mate early. Mr. McCain needs a young vice president with stellar conservative credentials so that conservatives can know that an acceptable successor is being trained and waiting in the wings.”

The giant elephant in this room, the one polite people are not supposed to mention, is that McCain is a cancer survivor and no spring chicken. He is unlikely to serve a second term, and incumbent Vice Presidents have often won the next race. All voters will take his V.P. choice far more seriously than usual.

Regnery likes Gov. Mark Sanford of South Carolina, but national voters don’t know him and there is little time for an introduction. One name they are belatedly beginning to know very well is Mitt Romney. He came close enough in key places like California to have earned the V.P. nod if he’ll take it. In the campaign, I’d send Mitt on tour to focus on economics, where he’s more comfortable than McCain, but ask him to downplay that “competitiveness with China” stuff.

Romney has a few good ideas McCain could borrow, particularly exempting working seniors from the payroll tax. I have minimized the combined income and payroll tax by deliberately minimizing work and salary. But encouraging premature retirement ends up costing the Treasury a lot of income tax revenue, and deprives the economy of skilled labor.

5. “Conservatives … will never forgive him for what they perceive as his abuse of the First Amendment in McCain-Feingold, for his stand on immigration, and for his initial opposition to the Bush tax cuts.”

Regnery is right about McCain-Feingold, for reasons George Will explains better than anybody. But that fight can go on in the legislature and the courts, regardless of who is president. McCain’s positions on immigration and the 2001 tax law are not something that can so easily be dismissed by referring to some checklist of conservative orthodoxy (e.g., must we call a Catholic socialist a “conservative” if he or she wants to allow states to make abortion a crime?).

The American right is diverse, not monolithic or unchanging. In the 1970s I was on the masthead of the magazine Regnery now edits, The American Spectator, as well as those of National Review and Reason. Human Events ran my syndicated column in recent years. Yet that doesn’t mean I feel obligated to agree with Rush Limbaugh on every single topic, or that a Republican candidate has to measure up to some somewhat arbitrary standard of purity. If he’s good on A, B and C, but not so good on X, Y and Z, voters have to think clearly about how to set their own priorities among those issues. Since the president has no authority over “social issues,” and conservatives should fear granting such authority, such choices will often put more weight on good economics, without which costly military spending could soon prove highly problematic.

On complex topics like immigration and taxes, reasonable people can disagree and sometimes they should.

The U.S. labor force is getting old and growing slowly, which is just one reason I think McCain and George W. Bush were both right that we need many more temporary work visas to provide a legal alternative to illegal residence. Nearly half the illegal residents do not sneak across the southern border but arrive here legally by the millions as tourists, students and business travelers.

I was no enthusiast for the 2001 tax bill (although not because the measures threatened Iraq funding or were too kind to the rich). In a Wall Street Journal article on May 30, 2001 I wrote that “the primary objective of the $1.35 trillion cut … seems to have been to maximize revenue loss rather than to minimize tax distortions and disincentives.” I noted that only 31% of the estimated static revenue loss from original Bush tax bill was devoted to reducing the four highest marginal tax rates. Cutting all of the top four rates combined risked less revenue loss than the foolish gesture of reducing the lowest tax rate to 10% from 15% on the first few thousand. Not everything in that bill made sense, even after the worst glitches were fixed in 2003, and no tax law is ever perfect or permanent (least of all one that was designed to self-destruct in 2010).

Mr. Regnery ends by saying “John McCain needs conservatives more than conservatives need John McCain.” That sounds right.

Musical Chairs

How much will Russia change when Vladimir Putin hands over the presidency to Dmitry Medvedev in the spring?  Putin’s chosen successor has suggested in campaign speeches this month that his regime will be different. Medvedev has eschewed the anti-Western rhetoric of his boss and promised to crack down on corruption. He has even made nice noises about non-government organizations. Putin, of course, imposed tough restrictions on NGOs, especially those of foreign origin or funded by foreign sources, a policy he adopted after seeing the crucial role NGOs played in the Orange Revolution in neighboring Ukraine.

Last month, two government officials appeared to break ranks with Putin’s Kremlin and called for a change in the country’s strident foreign policy. Finance Minister Alexei Kudrin, the deputy prime minister in charge of economic policy, told an investment conference in Moscow that the government “should adjust [its] foreign policy goals in the nearest future to guarantee stable investment.” His comment was supported by Anatoly Chubais, head of state utility Unified Energy System.

So, will there be a Moscow Spring after the foregone presidential election puts Medvedev in the Kremlin?

Cato’s Andrei Illarionov warned recently that Putinism will not end with Putin relinquishing the presidency. “I don’t think so, because we are talking about the policy and philosophy of aggression against Russian people, against Russia’s neighbors, against other countries in the world,” he told the BBC’s Hard Talk program.  “It does not and should not be attributed to one particular person. This is the philosophy and ideology of a group of people, of the Corporation, of the organizations that exist in the country for a long period of time, almost for a century.”

And news out of Russia suggests that the “Corporation” – constituted predominantly by former state security officials and others linked to the so-called “power ministries” – is tightening its grip on Russia business, government agencies and the media with a host of new appointments and nominations to company boards being announced. For example, Igor Sechin, the deputy chief of staff at the Kremlin, has been nominated for the board of Rosneft, the massive state oil company. Viktor Zubkov, the prime minister, has been nominated for the board of Gazprom, and he is likely to become the next chairman of the natural gas business when Medvedev relinquishes the post on becoming the Russian President.

The list goes on and the flurry of appointments is reminiscent of the early days of Putin’s presidency when the neo-KGB state started to form. Medvedev may not come from a KGB background but the state security men will be all around him with their hands on key levers of power. Even if he is independent minded, how can he withstand the interests of the security services and of his likely Prime Minister, one Vladimir Putin?

Our Big, Fat Defense Budget

I suppose I should be happy to live in a country that can afford to spend nearly three quarters of a trillion dollars a year on defense even though we are relatively safe, historically speaking. But the defense spending that the President proposed to Congress Monday is so excessive that I can only manage outrage. Everyone complains about earmarks, but they cost $17 billion across the government last year. That’s just two months in Iraq; pocket change in the Pentagon.

Hawks, like Admiral Mike Mullen, the new Chairman of Joint Chiefs of Staff and Secretary of Defense Robert Gates, argue that, hey, it is only 4 percent of GDP. After all, they say, we used to spend far more of our wealth on the military, especially during wars – 35 percent of GDP in World War II and 9 percent in Korea.

That argument, popular as it is, baffles me. The US is about six and half times as rich it was in 1950, adjusting for inflation. Economic growth means that devoting a pegged portion of GDP to the Pentagon is to annually increase defense spending, whatever happens with foreign threats. That’s a silly way to spend tax dollars, to put it mildly. The sensible way to provide defense is look at your enemies’ capabilities and likely scenarios for defeating them and back spending out from that – whether that amounts to one percent of GDP or 30.

And it is not just the waste that offends. According to Steve Kosiak of the Center for Strategic and Budgetary Assessments, the budget will leave the Pentagon short – by $10 to 20 billion a year – of the cash it needs to meet its own requirements. That’s because the budget avoids choice, the essence of strategy. As Fred Kaplan noted the other day, instead of selecting a method of providing defense that would create winners and losers among military services and their platform communities, the non-war budget basically gives the services what they want under a topline. It also gives each service roughly the same relative share of the total as they received in each year since the Kennedy administration, with only a slight uptick this year for the ground forces. That tells you a great deal about George Bush’s claim to have transformed the military.

The worst thing about the budget is that it is bipartisan. No one influential complains. Congressional Republicans on the defense committees are either for it or want more. Democrats knock the Iraq funds, but accept the other $560 billion. History says that the defense budget – at least the non-war portion – that emerges as law next fall will deviate only slightly from what the President submitted.

Why is no one opposed? For one (and I could go on), both parties embrace brands of militaristic hegemony – the idea that that we are better off with massive military predominance over all other powers and that there is a military solution to most foreign policy concerns. Want a liberal world? Buy enough carriers and F-22s so that we can dominate it. China’s growing? Arm so heavily that they cannot compete. Pakistan troubles you? Draw up an invasion plan. Africa is disorderly? Create Africa Command.

But really you can’t blame politicians, who have to get elected. You have to blame the intellectuals who shape public opinion. Blame my field, political science, which has largely decided to avoid studying such unsophisticated questions as the requirements of our defense (and hiring those who do), leaving security debates short of truly independent experts. Blame the beltway pundits who avoid challenging the post September 11 explosion of militarism or lead the parade.

The good news is that bad things, the Iraq war and the growth of entitlements’ cost, are waking people up to the idea that maybe this isn’t the best use of tax dollars. DoD plans and insiders say FY 2009 will be a peak year for defense spending, and that we are about to hit a downward trend. Here’s hoping.

Patents, Injunctions, and Uncertainty

There’s some fantastic back and forth between Chicago law professor Richard Epstein (a Cato adjunct scholar) and Berkeley law professor Peter Menell about the similarities and differences between physical property and what’s often called intellectual property—patents and copyrights. The exchange is a response to Menell’s previous contribution to Regulation.

I think Menell has the better of the argument. They both devote a considerable amount of ink to the eBay v. MercExchange, which centered around the question of when it’s appropriate to grant injunctions for patent infringement. Epstein has generally advocated a rule that grants injunctions more freely, arguing that this creates more certainty for the patent holder. Menell, in contrast, has argued that damages are often more appropriate.

The reason this matters is that if an injunction is granted, it can often drive the losing party into bankruptcy. In 2006, for example, Research in Motion, makers of the popular BlackBerry mobile device, was forced to pay $612 million to a company called NTP that had no employees, no products, and patents that were subsequently ruled invalid by the patent office. By rights, NTP shouldn’t have gotten a dime (because there was ample prior art for its “inventions”) but because RIM would have been forced to shut down its BlackBerry network before it had exhausted its appeals, NTP was able to extort hundreds of millions of dollars from the firm.

Interestingly, Epstein alludes to the biggest flaw in his argument, but doesn’t stop to ponder its implications. He writes:

This set of institutional arrangements [from real property] does not carry over perfectly to patent cases where the fact of infringement is harder to determine outside the piracy context, owing to the lack of clear boundaries that surround any patent.

This is a gross understatement. The boundaries of many patents—especially those relating to software, which is what the MercExchange case was focused on—are so fuzzy that it’s basically impossible for even the most experienced patent lawyer to predict accurately which of the hundreds of thousands of software patents in existence might be related to a given software product. Microsoft, for example, has darkly hinted that the Linux operating system had infringed several hundred software of its patents, but the company has refused to say which patents they are and the Linux develop community hasn’t been able to figure it out.

I share Epstein’s goal to create “a system of secure property rights that allows people to transact at low cost and high reliability,” but I think he fails to appreciate how completely our current patent system fails that test. In many cases, an inventor wishing to identify the patents his new invention might infringe has no low-cost or high-reliability means of doing so. This introduces uncertainty and litigation that greatly reduces the potential rewards for inventive activity. Strengthening these vague patents even further by making injunctions even easier to obtain will only make the problem worse, because the disincentives created by the patent system will be magnified.

It’s also worth noting the important contrast between patents and physical property: if a court fails to grant you an injunction against someone who’s using your land, you are thereby deprived of the opportunity to use the land yourself. In contrast, if the court fails to grant an injunction against a patent infringer, you have lost nothing other than potential licensing revenues. This means that unlike with physical property, there’s no compelling reason to impose the potentially devastating remedy of an injunction any earlier than absolutely necessary.

Just How Much Is This Online Gambling Ban Costing Us?

My friend Radley Balko has a post over at Reason’s Hit & Run blog about a recent attempt to discover the terms of a trade deal reached in December between the United States and the European Union. The negotiations started because of America’s wish to withdraw its prior commitment to open its market to overseas gambling service providers. (WTO members are within their rights to do that, but they must offer compensatory market openings in other areas). Recall that the details of that deal were, to put it charitably, vague at the time it was announced.

In an effort to shed some light on the agreement, a fellow named Ed Brayton submitted a Freedom of Information Act request to the Office of the United States Trade Representative asking for the details. No joy – the USTR refused his request on the grounds that the “information…is properly classified in the interest of national security pursuant to Executive Order 12958.”

Presumably the USTR would need to publicly disclose the terms of the deal when (if?) it is ratified by the WTO, but in the meantime Mr Brayton is appealing. Also in the meantime, Antigua and Costa Rica have filed (separate) arbitration requests to the WTO over their compensation package (more here, and a warning – some of the ads on this site are possibly not safe for work).

I will be speaking at a panel event at the Institute for Economic Affairs in London on Tuesday on this very subject.

Voters Refuse to Bear Teddy

Michael Tanner’s list of winners and losers from last night seems spot-on but it is incomplete in one regard – his list of losers leaves out the Kennedy clan. Despite the endorsement of Ted Kennedy, Massachusetts went for Clinton, surely one in the eye for the Bay State’s senior senator.

But then Ted Kennedy endorsements have never fared well in recent times. Since 1982 the Senator has had an unerring ability to back the loser when it comes to presidential races: those he supports either fail to win the party nomination or are beaten subsequently in the general election. Kennedy’s endorsements since 1982 have been: Dukakis, Mondale, Tsongas, Gore and Kerry. However, he did get it right in 1996, but that was an easy one.

The Kennedy clan was also dispatched to deliver latino votes in California for Barack Obama. A notable failure there, as well.