Archives: 05/2012

Judge: Flashing Headlights To Warn of Speed Trap Is Protected Speech

Florida cops have made a practice of ticketing drivers who warn others about speed traps by flashing their lights, despite uncertainty as to whether state law actually does prohibit such flashing. Now a judge in Sanford, Fla. has ruled that Ryan Kintner of Lake Mary not only was within his rights under state law when he flashed his headlights, but was engaging in speech protected by the First Amendment. [Orlando Sentinel; cross-posted from Overlawyered]

Canada’s Economic Reforms

The lead article in the new Cato Policy Report is entitled “We Can Cut Government: Canada Did.” The article reviews Canada’s economic reforms since the 1980s, which have included free trade, privatization, spending cuts, sound money, large corporate tax cuts, personal tax reforms, balanced federal budgets, block grants, and decentralizing power by cutting the central government.

Those all sound like things we ought to pursue in America. The political systems of the two countries are different, but Canada’s pro-market reform lessons are universally applicable.

Canada’s reforms, for example, refute the Keynesian notion that cutting government spending harms economic growth. Canadian federal spending was cut from 23.3 percent of GDP in 1993 to 16.5 percent by 2000. Keynesians and their macro models would predict a crushing economic blow from such a spending reduction. They would argue that the “austerity” would slash “aggregate demand” and “take money out of the economy.”

Yet Canada’s spending cuts of the 1990s were coincident with the beginning of a 15-year economic boom that only ended when the United States dragged its neighbor into recession in 2009. As the government shrank in size during the 1990s, the Canadian unemployment rate plunged from more than 11 percent to less than 7 percent.

Canada still has a large welfare state, and its provincial governments are prone to overspending. However, its experience shows that even a modest dose of public sector austerity combined with pro-market reforms can lead to substantial gains in private-sector prosperity. American and European leaders still under the Keynesian spell should take note.

For more, see here and here.

Diversity & Choice or Regulation & Monopoly?

Stephanie Saul’s anecdote-driven smear piece in yesterday’s NYT has perhaps had one positive effect; a serious discussion of good education tax credit bill design.

John Kirtley, chairman of the only active scholarship organization in Florida and father of the state’s credit program, used the NYT piece as a jumping-off point for legislative guidelines. Kirtley has done tremendous things in Florida for low income children and educational choice, but several of his policy recommendations (shared by others) are either unsupported or contradicted by the evidence.

I’ll use Saul’s brief description of the positive aspects of Florida’s credit program (which Kirtley praises) and his own guidelines as a structure for discussion. (See here for legislative guidelines and model legislation.)

Academic and Fiscal “Accountability”

This is the area in which the guidelines proposed by Kirtley and organizations such as the American Federation for Children are most at odds with research on education markets and government regulation. For decades, policymakers have desperately tried to improve education through accountability to the government. Their efforts have clearly failed. And it would be disastrous to involve the government, which has failed so dismally for so long, more directly in the private education sector and the private decisions of families and taxpayers. As Neal McCluskey showed for Florida specifically, fraud, waste and abuse in the public education system is much more widespread and pervasive than in private school choice programs.

Below are the reasons it is unnecessary and harmful to increase government regulation on education decisions made by families and taxpayers.

Education tax credits automatically impose three layers of accountability; 1) The parents who choose the school, 2) the scholarship organization that provides funds to parents, and 3) the taxpayer who donates or directly spends their own money on education. Additional government regulations are therefore unnecessary and interfere with the choices of those directly affected by the program.

Andrew Coulson’s international literature review of the school choice/education market research shows that the least regulated education markets had the greatest margin of superiority over state school systems.

The use of vouchers, as government funds, can only be held accountable to the taxpayers whose money is used through the government, which disburses those funds. By contrast, credit funds are private funds, disbursed to students or scholarship organizations directly by the taxpayers who earned them. There is already direct accountability to the taxpayers who fund the credit program.

In short, no new requirements for or regulations on private schools or home schooling should be imposed. If accreditation is not required for existing private educational options, then none should be imposed on private choices backed by private credit funds.

Scholarships are strictly controlled to make sure they go to poor families.

All other donation credit programs besides Georgia are means-tested.

However, there are serious problems with hard income cut-offs for any program meant to help those who need help. What about the family that has a child with special needs, perhaps not rising to the level of an IEP, but requires more resources than a typical child? Or the family that loses one income earner, but can’t qualify because of their most recent tax return?

In a decentralized credit scholarship system, such flexibility can be built into means-testing regulation. In New Hampshire, scholarship organizations are allowed to use up to 20 percent of their funds for families who fall outside the strict income cutoff.

Strict, hard income cutoffs may be easy for governments and large organizations to process, but they come at a serious cost in flexibility and responsiveness to the diverse needs of individual children and families.

Only corporations are eligible for the tax credits.

Individual-level tax credits are relatively difficult in Florida because there is no individual income tax. However, sales tax credits can be allowed for individuals at the point of sale.

From a larger perspective, however, this is an unfortunate flaw, not a feature, and including individual taxpayers is a huge positive for any program.

Corporate tax liabilities are subject to very large fluctuations year-to-year, there are far fewer corporate than individual taxpayers, and decisions must be made within an often-complex and time-consuming process.

All of this means that corporate-only credit programs are more volatile, uncertain, and costly.

Donations from individual taxpayers broaden and stabilize the revenue stream for credits, invest real human beings in supporting education with their personal funds, and thereby create greater accountability to a more diverse and attentive donors base.

Eliminating the chance of parents donating for their own benefit.

The problem of parents donating for the benefit of their own child is an issue created by poor policy design in the first instance.

What sense does it make to force parents with a tax liability, who also need assistance for their child, to 1) donate to a scholarship fund and then 2) apply to that non-profit for a scholarship funded with the money that they earned and donated in the first place?

This absurd circular-donation system can be easily fixed by allowing parents to claim a credit for their own child’s education—as is already done in Illinois and Iowa. It can be made even better by allowing grandparents, uncles, aunts, friends, and neighbors to claim a credit for money they spend on a specific child they know and want to help. Allowing those with a direct personal interest in the success of a child to help support their education creates yet more accountability and more direct involvement in education from extended families and communities.

All scholarships are handled by one nonprofit organization, and its fees are limited to 3 percent of donations.

Florida’s education tax credit program is run entirely by a single non-profit organization largely due to the fact that scholarship organizations are not able to use any credits funds for the significant overhead involved in running such an organization for the first three years, and then only 3 percent thereafter, which is inadequate for meeting reasonable costs.

This hyper-centralization is the single most concerning flaw in Florida’s education tax credit program.

Taxpayers have no choice among scholarship organizations, and therefore their only choice if they are unhappy with the current SO is to not donate money to support needy children at all.

By all accounts, the single SO in Florida is a model non-profit. However, what happens should the current leadership move on or pass away? The character and performance of large organizations does not continue in perpetuity, and the evidence on the performance of monopolies long-term is grim indeed.

In the case of malfeasance or even an innocent but serious mistake at this single scholarship organization, the results could be devastating. Without other SOs to turn to, allowing donors to immediately de-fund the underperforming SO in favor of better ones, there will be intense political pressure to shut down or take over the system. Indeed, even absent a scandal, the centralization of all scholarships in one SGO makes it a tempting and easy target for state takeover.

Furthermore, is it wise or right in a larger sense for a single, private non-profit to control and administer hundreds of millions of dollars, potentially more than $1 billion within seven years, on behalf of tens of thousands of children and all the taxpayer who want to help them?

A diverse array of scholarship organizations ensures beneficial competition among non-profits, provides choices to families and taxpayers, and allows the development of organizations more intimately connected with and integrated into local communities and more flexible and responsive to the needs of individual families and children.

Parents – not individual schools or scholarship organizations – should own the decision of where their children attend school. In Florida, the scholarship can be used at any one of the 1,350 private schools whose participation has been approved by the state.

The centralized bureaucracy of Florida’s education tax credit program means that taxpayers have no choices in directing their money where they think it will do the most good, and families have no choices of scholarships organizations to which they apply.

In this situation, there is little choice but to standardize the process and ensure equal access with no regard to the quality of the school or need of the child beyond the statutory minimum. Indeed, should the sole scholarship organization decide to make distinctions – even reasonable, well-intentioned distinctions – among schools or applicants, they would be vulnerable to charges of unfair treatment because there is literally no alternative in the state.

The diversity of scholarship organizations in other states means that taxpayers and families can choose to work with organizations and schools they think perform well and comport with their values. Taxpayers and families in Florida are not afforded those options, and taxpayers are forced to fund all schools chosen by families, from good to bad and from fundamentalist Christian to Catholic to secular liberal if they wish to participate in the program at all.

Parents and taxpayers should have a diverse array of choices, and a large and diverse collection of scholarship organizations is essential for achieving that.

What’s ‘Wacky’ About Wanting to Eliminate the USDA?

Over at the Washington Post’s PostPartisan blog, Jonathan Bernstein discusses the rising influence of the “Ron Paul crowd” on Republican state party platforms. Bernstein cites a derisive piece from Ed Kilgore on a draft platform being considered by the Iowa Republican Party:

Now, a new group — the Ron Paul crowd — is taking over some formal GOP structures, including in Iowa. Ed Kilgore has a great post detailing some of the wackier things they’ve put in the official Iowa Republican Party platform — for example, eliminating the Agriculture Department. In Iowa. Oh, there’s plenty more, including phasing out Social Security and Medicare; overall, it has called for a federal government half the size of what Paul Ryan has advocated.

I don’t take issue with Bernstein’s contention that a platform like the one being proposed by the Iowa GOP would be a problem for most Republican politicians because the overall program “is just spectacularly unpopular with the general public.” I quickly scrolled through the hundreds of proposed “planks” in the platform and, as a libertarian, often found myself shaking my head and rolling my eyes. So it struck me as odd that of all the ideas in the platform that one could deem to be “wacky,” Bernstein chose to focus solely on planks that would cut – admittedly, dramatically – federal spending.

Bernstein continues:

Many libertarians have fooled themselves into believing that the American people are with them on their basic program, but if that were the case, Ron Paul would have been a viable presidential candidate, not someone who finds it hard to break 15 percent in primaries. Nor would the polling on government spending be mixed, with majorities for cutting spending overall (good for libertarians!) and for increasing spending on most programs (disaster for libertarians!).

I could be wrong, but I think most libertarians are aware that the average American favors spending cuts in general but is often less enthusiastic when the cuts are specified. And while Paul isn’t going to be the next president of the United States, his campaign has been successful in getting a lot more Americans to understand that the federal government needs to be downsized. Younger people in particular have been drawn to Paul’s limited government message. Paul was never going to win over the older folks who at the end of the day are primarily concerned with making sure that their Social Security and Medicare benefits aren’t touched. But the younger crowd is becoming increasingly aware that they’re eventually going to take it on the chin in order to maintain the federal government’s intergenerational redistribution schemes. Perhaps that’s what concerns people like Bernstein.

Circling back, proposing to eliminate the U.S. Department of Agriculture could be called a lot of things: provocative, controversial, dramatic, etc. But dismissing it as “wacky” is lazy. If Bernstein thinks that it’s a bad idea, then he should just say so (of course, my colleagues and I would argue otherwise).

For more “wacky” ideas, check out Downsizing the Federal Government.

In the Lake Wobegon Fantasy World, All Investments Make Money

I sometimes wonder whether journalists have the slightest idea of how capitalism works.

In recent weeks, we’ve seen breathless reporting on the $2 billion loss at JP Morgan Chase, and now there’s a big kerfuffle about the falling value of Facebook stock.

In response to these supposed scandals, there are all sorts of articles being written (see here, here, here, and here, for just a few examples) about the need for more regulation to protect the economy.

Underlying these stories seems to be a Lake Wobegon view of financial markets. But instead of Garrison Keillor’s imaginary town where “all children are above average,” we have a fantasy economy where “all investments make money.”

I don’t want to burst anyone’s bubble or shatter any childhood illusions, but losses are an inherent part of the free market movement. As the saying goes, “capitalism without bankruptcy is like religion without hell.”

Moreover, losses (just like gains) play an important role in that they signal to investors and entrepreneurs that resources should be reallocated in ways that are more productive for the economy.

Legend tells us that King Canute commanded the tides not to advance and learned there are limits to the power of a king when his orders had no effect.

Sadly, modern journalists, regulators, and politicians lack the same wisdom and think that government somehow can prevent losses.

But perhaps that’s unfair. They probably understand that losses sometimes happen, but they want to provide bailouts so that nobody ever learns a lesson about what happens when you touch a hot stove.

Government-subsidized risk, though, is just as foolish as government-subsidized success.

Gov. Romney, Federal ‘Incentives’ Mean Federal Power

In a speech today, presumptive GOP presidential nominee Mitt Romney will lay out the foundations of his education platform. Based on an outline of his proposals released by Education Week this morning, Gov. Romney seems just a little less disinterested in the Constitution – and the 40-plus years of proven federal education failure – than the man he seeks to replace. And no, calling what you want federal “incentives” neither absolves them of being unacceptable federal intrusions, nor makes them any less coercive.

The heart of what Mr. Romney wants in elementary and secondary education is federal enticements to get states to implement everything from “open-enrollment” policies for schools, to individual school “report cards,” to encouraging “talented individuals to become teachers.”

As I wrote last week, while “incentive” sounds kinda harmless, an incentive program is really all that No Child Left Behind is. No state has to do anything in NCLB. It only has to follow the law if it wants the federal money attached to it. The funding is only an incentive, but it is so big an incentive it is irresistible, even with the law being a huge millstone around the neck of American education. And, of course, taxpayers had no choice about furnishing the ducats to begin with. (Well, I suppose they were incentivized by a trip to prison…)

Where Romney’s K-12 offering is most enticing is his proposal that federal money be attached to low-income and special-needs children and made portable even to private schools. (Portable, that is, “in accordance with state guidelines,” a proviso the outline doesn’t flesh out.) But the very real threat, as with all federal funding , is federal control. What Washington funds it will regulate – though usually for political show, not efficiency or effectiveness – and that is something we should strenuously avoid for  private schools when states can implement more varied – and less regulation prone – choice mechanisms such as education tax credits. And, of course, the Constitution gives the federal government no more authority to deliver school choice than to dictate curricula. That is, except in Washington itself, and to his credit Mr. Romney is proposing to save the D.C. voucher program that Mr. Obama, for whatever shoddy reason, seems determined to suffocate.

The good news about Gov. Romney’s outline is that it directly addresses the primary problem in higher education, and one of its primary causes: insane tuition inflation fueled by massive federal student aid. Indeed, though he will no doubt get flayed for it by the higher ed establishment, who will publically deny it like so many naked emperors, Mr. Romney’s outline is refreshingly straightforward in identifying the root problem:

Governor Romney realizes that more spending will not solve the problem of tuition increases – to the contrary, it has helped fuel the problem. When Washington puts more money into student aid programs to help families and individuals pay for higher education, colleges and universities raise tuition rates.

So what grade does Mr. Romney get on education, at least from this initial outline? About a 30 percent for K-12, and a 90 percent for higher ed. That works out to 60 percent – a woeful D-minus – but that’s probably a tad bit better than most presidents would have gotten since the 1960s.