Georgia Has it Right on School Choice—though on too Small a Scale

Georgia has a schoalrship donation tax credit program that makes it easier for lower-income families to afford private schooling—if that’s what they think is best for their children. The program is so popular that the cap imposed upon it by the legislature was reached within the first few hours of January 1st, this year. Over at Education Next I argue today that raising the cap would do a lot of good for Georgia children.

Conflicted on 529s

If you like feeling conflicted, you’ll love being a libertarian thinking about President Obama’s recent proposal – and even more recent rescinding of that proposal – to essentially end 529 college savings plans. The President proposed killing the ability to use funds saved under a 529 plan tax free to pay for college, which would have gutted the program’s real value.

On one side, a libertarian should be aggravated by such a proposal. The goal certainly seemed to be income redistribution, generating new revenues from relatively well-to-do Americans and giving it to (presumably) less well-to-do Americans with free community college and expanded “refundable” tax credits. It also seemed intended to support a divisive, rhetorical war of the “middle class” vs. “the rich” (though certainly many people who use 529s consider themselves middle class). And unlike federal grants, loans, and those refundable credits that are often essentially grants for people who don’t owe much in taxes, 529s are about people saving their own money to pay for college, not taking it from taxpayers.

On the other side, libertarians – heck, everyone – should want a simple tax code that isn’t riven with special breaks, loopholes, and encouragements to do things politicians decide are worthy but which have massive negative, unintended consequences. And when it comes to higher education, those consequences are huge, including rampant tuition inflation, awful completion rates, major underemployment, serious credential inflation, and a burgeoning academic water park industry. And where does the federal government get the authority to incentivize saving for college in the first place? Not in the Constitution.

So how should libertarians feel about the demise of the President’s 529 plan? I guess a little sad, because the Feds simply shouldn’t be in the business of encouraging college consumption. Even more, though, they should feel angry, because we are so deep in a federally driven, college-funding quagmire.

Ukraine’s Fight With Russia Isn’t America’s Business

Ukraine’s military has lost control of the Donetsk airport and the rebels have launched another offensive. Fortune could yet smile upon Kiev, but as long as Russia is determined not to let the separatists fail, Ukraine’s efforts likely will be for naught.

As I point out on Forbes online:  “Only a negotiated settlement, no matter how unsatisfying, offers a possible resolution of the conflict. The alternative may be the collapse of the Ukrainian state and long-term confrontation between the West and Russia.”

Ukraine’s most fervent advocates assume anyone not ready to commit self-immolation on Kiev’s behalf must be a Russian agent. However, there are numerous good reasons for Washington to avoid the fight.

1) Russia isn’t Serbia, Iraq, Afghanistan, or Libya.

While the Obama administration has resisted proposals for military confrontation with Moscow, a gaggle of ivory tower warriors has pushed to arm Ukraine, bring Kiev into NATO, and station U.S. men and planes in Ukraine. These steps could lead to war.

Americans have come to expect easy victories. However, Russia would be no pushover. In particular, Moscow has a full range of nuclear weapons, which it could use to respond to allied conventional superiority.

2) Moscow has more at stake than the West in Ukraine.

Ukraine matters far more to Moscow than to Washington. Thus, the former will devote far greater resources and take far greater risks than will the allies. The Putin government already has accepted financial losses, economic isolation, human casualties, and political hostility.

Employers Aren’t Mind-Readers and Shouldn’t Be Forced to Pry Into Employees’ Religious Beliefs

The Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws against employment discrimination. Along with enforcing these laws—most notably, Title VII of the Civil Rights Act, which outlaws discrimination on the basis of race, color, religion, sex, or national origin—the EEOC tells employers how not to discriminate. For example, the EEOC’s Best Practices for Eradicating Religious Discrimination in the Workplace instructs that an employer should “avoid assumptions or stereotypes about what constitutes a religious belief” and that managers “should be trained not to engage in stereotyping based on religious dress and grooming practices.” 

It’s passing strange, then, that the government is now arguing before the Supreme Court not only that employers can do these things, but that they must, or face liability under Title VII, in the context of reasonable accommodations that companies have to make for religious practice. Discerning when such accommodations are necessary can be difficult because people practice religion differently—and often in their own personal, non-obvious way. 

Title VII has thus traditionally been understood to leave it to the employee to determine when a company policy conflicts with his or her religious practice and then to request an accommodation. This interpretation leaves employers free to pursue neutral policies up to the point that they have actual knowledge of such a conflict. 

In the last several years, however, the EEOC has apparently taken the position that employers must pry into their employees’ religious practices whenever they have an inkling of suspicion that an accommodation may be needed. Abercrombie & Fitch is one company that has found out just how impossible a situation this puts employers into. When Abercrombie decided not to hire Samantha Elauf as a sales associate based on her violation of the company’s “Look Policy”—a branding guide that, among other things, prohibits the wearing of clothing generally not sold by the store, like Elauf’s black headscarf—the company found itself on the wrong end of a government lawsuit. 

A federal district court ruled for the EEOC even though Elauf never informed them that she would need a religious accommodation.  The U.S. Court of Appeals for the Tenth Circuit reversed, holding that an employer must actually know about a religious practice before it can be held liable for discriminating on that basis. The Supreme Court took the case at the EEOC’s request and Cato has now filed a brief in support of Abercrombie. 

We argue that employers must have actual knowledge of the potential need for a religious accommodation before they can be held liable for violating Title VII because the EEOC hasn’t offered any coherent alternative and because employers already know how to use this tried-and-true actual-knowledge standard. In addition, the burden of identifying the need for accommodations has to be on the employee because, after all, it’s their religion, and thus they are in a significantly better position to identify conflicts than employers—who aren’t mind-readers and shouldn’t have to rely on crude stereotypes or pry into employees’ personal lives. 

An opposite rule would create an awkward and uncomfortable scenario all-around. The EEOC’s position is short-sighted; if the agency somehow prevails, it will have done what federal agencies do best: turn minimal burdens for some people into heavy burdens for everyone.

The Supreme Court will hear argument in EEOC v. Abercrombie & Fitch Stores, Inc. on February 25.

Uber Provides Case Against Occupational Licensing

By now we have all heard of the disruptive force that is the ridesharing company Uber. The company, which is beating traditional taxi companies at their own game, has caused headaches for competitors and regulators alike. Moreover, as Eduardo Porter argues in his New York Times column, Uber also brings the entire regime of occupational licensing into question.

Porter notes that Uber has made the public much more aware of the anti-consumer inefficiencies in the regulated taxicab industry. The medallion system limits the number of taxis on the roads.  Thus, the supply of cabs is much less than demand, which reduces the incentives for taxi owners to innovate and care about consumers.  Uber, outside of this licensing regime, has thrived while providing wages that are on par with (or more than) licensed taxi drivers.  This is possible because drivers (which are not in short supply) do not benefit from the limited number of medallions; only the medallion owners benefit.    

Porter cites the research of University of Minnesota economist and occupational licensing expert Morris Kleiner. Kleiner’s work describes how the labor market has changed since the early 1950s from blue collar and unionized to white collar and licensed. Protectionism has not declined. It has been transformed.   

The mischief created by occupational licensing appears to be a concern even for Democrats. The Obama administration has sought to streamline the licensing process nationwide, and the president’s Council of Economic Advisors seeks to subject licensure to cost-benefit analysis. 

For more from Morris Kleiner, see his recent essay from the Cato Reviving Economic Growth forum, or my other blog posts on his work.

Greeks Vote Against Euro and For Democracy

Greece’s parliamentary elections could reshape Europe. In voting for the radical left the Greek people have reinvigorated home rule and democracy across the continent.

Greece has been in economic crisis seemingly for eternity. Even in the Euro the system could not generate the growth necessary to repay the debt:  the economy was hamstrung by enervating work rules, corrupting political influences, profiteering economic cartels, and debilitating cultural norms.

The inevitable crisis hit in 2009. Athens couldn’t make debt payments or borrow at affordable rates. Nor could Greece devalue its currency to make its products more competitive. The European “Troika” (European Central Bank, European Commission, and International Monetary Fund) developed a painful rescue plan.

Syriza, meaning Coalition of the Radical Left, arose to challenge the two establishment parties. Headed by Alexis Tsipras, Syriza won 36.2 percent and 149 seats, two short of a majority, on Sunday.

Syriza offered dreamy unreality:  free health care and electricity along with food subsidies, pension increases, salary hikes, and more public sector jobs. Billions in new revenue is to magically appear.

Rethinking Currency Manipulation

Interest groups in the United States have focused on the possibility of including provisions in trade agreements with the intent of countering currency manipulation.  The concern is that another country may choose to reduce the value of its currency relative to the U.S. dollar in order to encourage its businesses to export more goods to the United States.   Such currency realignment also would tend to make it more expensive for the devaluing nation to import products from this country.

It’s true that an adjustment in currency exchange rates – regardless of the reason for the adjustment – can have an effect on trade flows.  U.S. industries that export to foreign customers, or compete with imported goods in the domestic marketplace, understandably would prefer that currency relationships not become skewed against their commercial interests.  Currency stability improves the business climate by making it easier to build long-term relationships with customers and suppliers. 

However, currency exchange rates have fluctuated throughout recorded history.  Sometimes those changes may be driven by a government’s conscious desire to devalue its currency.  More often the variability in exchange rates reflects fundamental economic realities.  Economies that experience growing productivity and rising prosperity should not be surprised to find that market pressures cause their currencies to strengthen.  The reverse is true for countries that are growing slowly or not at all. 

A shift in exchange rates changes a country’s “terms of trade,” which is a term  used by economists to describe the ratio of a country’s export prices to its import prices.  From a U.S. perspective, if another country sets its currency at an artificially low level relative to the dollar, the U.S. terms of trade will improve.  The United States will be able to obtain a greater value of imports for the same value of exports.  Exporting the same number of airplanes and soybeans as before will pay for the importation of larger quantities of shoes, coffee, and automobiles. 

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