July 2, 2012 4:42PM

Misleading Congress on Surveillance History (and Why It Matters)

About a month ago, former DOJ attorney Ken Wainstein testified at a congressional hearing to urge reauthorization of the controversial FISA Amendments Act of 2008. For "background" purposes, he provided a brief history of the Foreign Intelligence Surveillance Act that we've heard a number of times from intelligence officials, suggesting that Congress had always intended to leave surveillance of communications between Americans and foreigners unregulated. According to this narrative, it was a sort of technological accident that FISA increasingly required judicial approval for this international traffic, and the broad spying power established by the FAA represented nothing more than a tweak or upgrade designed to restore FISA to its original scope. If you buy Wainstein's history—as it seems many in Congress have—you'd naturally see the FAA as no big deal, and the civil libertarian backlash against it as misplaced or confused. The trouble is, Wainstein's history is clearly wrong—and gives a highly misleading impression of how radically FAA changed the rules.

First, let's look at what Wainstein says about how the original FISA statute—we'll call it FISA Classic—was meant to operate:

In crafting [FISA], Congress recognized that it had to balance the need for a judicial review process for domestic surveillance against the government’s need to freely conduct surveillance overseas. It accomplished that objective by clearly distinguishing between surveillances directed against persons located within the United States – where constitutional protections apply – and those directed against persons outside the United States, where the fourth amendment [sic] does not apply. It then imposed the court approval requirement on surveillances directed against persons within the United States and left the Intelligence Community free to surveil overseas targets without the undue burden of court process. [...]

The statute required the examination of a number of factors – such as location of target, location of interception and nationality of target – in determining whether a particular surveillance falls within that definition and the coverage of the statute. Among those factors was the type of communications technology being used by the target – i.e. whether he was communicating by “wire” or by “radio.” Given that “radio” (or satellite) technology was commonly used for international calls at the time and “wire” technology was the norm for domestic calls, it arguably made sense that FISA distinguished between “radio” and “wire” communications in designating which surveillances were sufficiently domestic in character that they would be subject to the court approval requirement and which would be excluded because they targeted foreign communications that did not enjoy fourth amendment [sic] protection. The result was a technology-based carve-out for surveillances targeting foreign-based communications.

With the change in technology over the intervening years, however, that carve-out started to break down. In particular, the development of the world-wide network of fiber optic wire communications resulted in an increasing number of phone calls and emails passing through the United States, whose interception in the United States required court review under the definition of “electronic surveillance.” As a result, the government found itself expending significant manpower generating FISA Court applications for surveillances against persons outside the United States – the very category of surveillances that Congress specifically intended to exclude when it imposed the FISA Court approval process in 1978.

To understand why this is wrong, we need to consider FISA's somewhat convoluted four-part definition of "electronic surveillance" requiring judicial approval—three parts of which are directly relevant to the wire/radio distinction. The first definition covers the interception of any communication obtained by intentionally targeting an American within the United States, wherever that interception occurred. The third definition covers interception of radio communications—including international satellite traffic, and again, regardless of where the interception occurred—where all parties were in the United States. But the second definition, 50 U.S.C. §1801(f)(2), explicitly covers any wire communication where any party is in the United States, if the interception is conducted domestically. If Wainstein were right that Congress had "specifically intended to exclude" foreign-directed surveillance from the FISA regime, this section would make no sense at all: If the goal had been only to regulate surveillance of purely domestic conversations, then language of this section could simply have mirrored that of the definition covering radio communications. The first definition already covers surveillance targeting specific U.S. persons, which would make the other definitions superfluous if that was all Congress cared about prohibiting. Moreover, if there were any doubt, the legislative history presented in the House Report on FISA Classic makes it explicit:

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July 2, 2012 4:11PM

Another Subsidized Solar Company Goes Dark

Solyndra received some company late last week when Abound Solar filed for bankruptcy and announced that it was shutting down operations. Abound, which received $70 million from taxpayers, is the third company backed by a Department of Energy loan program to go belly up.

According to Politico, Abound’s failure is an opportunity for Republicans to score some political points:

Thursday’s news is likely to rally Republican critics of the DOE loan program, who, citing the collapse of Solyndra, have argued that the administration is putting billions of taxpayer dollars on the line by investing in risky renewable‐​energy companies.

According to me, there are three reasons why Republicans would be hypocrites if they try to:

1) In 2010, Indiana Republican Gov. Mitch Daniels pledged $12 million in tax incentives for a new Abound facility in Tipton, IN. From the Indy Star:

“Abound Solar showed a lot of promise,” said Indiana Economic Development Corp. spokeswoman Katelyn Hancock, “and it is unfortunate for Hoosiers that the company’s plans in Tipton have not come to fruition.”

In Tipton, the news was disappointing, although, at this point, not so unexpected — and, unfortunately, not the first time this town about 35 miles north of Indianapolis has been dealt such a blow. The German auto parts maker Getrag also rolled into town with promises of plans to employ 1,400 people in the same $530 million manufacturing plant, about four miles west of downtown Tipton.

But after a financial dispute with Chrysler, Getrag backed out. So in the summer of 2010, state officials announced Abound’s impending arrival as a way to make good use of what had been a bad situation.

“While the loss of Getrag was disappointing after so much work, the region will now add 850 new jobs,” Gov. Mitch Daniels said in a statement on July 3, 2010. “What a great way to celebrate Independence Day.” (Daniels’ office on Thursday deferred comment to the IEDC, where he is chairman of the board.)

2) Four Republican members of Congress from Indiana pestered the Department of Energy to give Abound a federal handout. From the New York Times:

The Energy Department released letters it received in 2009 from members of Congress from Colorado and Indiana urging it to grant the loan guarantee. Four Indiana Republicans — Senator Richard G. Lugar and Representatives Dan Burton, Mike Pence and Mark Souder — were among the signers, as were Indiana’s Democratic senator, Evan Bayh, and several Colorado Democrats.

3) The Republican‐​controlled House of Representatives recently had a chance to shut down the Department of Energy loan program that subsidized Solyndra and Abound. The majority of House Republicans voted to keep it alive.

[See this Cato essay for more on Department of Energy’s poor track record when it comes to energy subsidies.]

July 2, 2012 2:19PM

Chief Justice Roberts Sold Out the Constitution for Less Than Wales

In the 1966 film A Man for All Seasons (an Oscar-winning adaptation of a play about the life of Sir Thomas More), an ambitious young lawyer named Richard Rich perjures himself so that the Crown can secure More's conviction for treason.  (Sir Thomas More was the 16th-century Lord Chancellor of England who refused to sign a letter asking Pope Clement VII to annul King Henry VIII's marriage to Catherine of Aragon and resigned rather than take an oath declaring the king to be the head of the Church of England.)  Rich is promoted to Attorney General of Wales as a reward.  Upon learning of Rich's connivance, More plaintively asks, "Why Richard, it profits a man nothing to give his soul for the whole world . . . but for Wales?"

So it is with John Roberts, who like his namesake Justice Owen Roberts changed his vote on Obamacare in service to political considerations.  (That's actually unfair to Owen Roberts because his so-called "switch in time that saved nine," which provided the decisive vote to uphold the New Deal after years of reversals, came before FDR announced his Court-packing scheme.)

That is, at some point between the justices' initial conference the Friday of Obamacare-argument week in late March and when the first opinions were circulated in early June, Chief Justice Roberts changed from striking down the individual mandate, and with it the whole law, to upholding on the flimsy reed of the taxing power.  Roberts's opinion rewriting the law "construing" the mandate as a tax is unconvincing, to say the least -- even the liberal justices weren't so enthusiastic about it, though they were happy to go along with any ratification of federal power -- but it's now apparent that he was simply grasping at any way to uphold Obamacare while not expanding the Commerce Clause.

There are many theories on why he did this -- I don't think it's because Jeffrey Rosen wrote an op-ed, or even because President Obama and Senator Pat Leahy (D-VT) made speeches -- but they mainly boil down to the idea of wanting to preserve the Supreme Court's reputation as an impartial arbiter, one that doesn't get involved in highly charged political disputes during a presidential election year.

Now, let's set aside the issue of whether Roberts's split-the-baby opinion actually helps the Court's institutional integrity -- some polls already show a decline in approval for the Court from what was already a near-historic low -- and consider why this sort of reputation-preservation matters and whether it's worth torturing the law to accomplish it.  The way I see it, the federal judiciary (with the Supreme Court at its apex) is our system of government's premier counter-majoritarian institution, holding the political branches' feet to the constitutional fire.  Courts are supposed to decide the law and let the political chips fall where they may.  Implicit in the Constitution's careful separation of powers --and made explicit in the foundational case of Marbury v. Madison -- is the idea of judicial review, that federal courts have the obligation, when "cases or controversies" are brought before them, to review them against the Constitution and, if they go beyond enumerated federal power or violate protected rights, to strike them down.

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July 2, 2012 1:16PM

What Sequestration Might Mean for San Diego (and Other Places)

A few days ago, I wrote about the fight looming between taxpayer advocates and defense contractors over whether Congress should scrap the Budget Control Act (BCA) and allow the Pentagon’s budget to grow. The contractors and their allies, led by the Aerospace Industries Association (AIA), contend that cuts in military spending will have a harmful (some say devastating) impact on the sluggish economy; taxpayers groups point out that the Pentagon’s budget has risen dramatically over the past decade and object to suggestions that we should raise taxes or incur more debt to pay for additional increases.

In my earlier post, I focused on the politics of this fight, here I focus on economics. I’m not convinced — and neither are a number of others—by the AIA’s claims that sequestration will wreck the economy.

For starters, we should keep an eye on the bottom line. If there is no deal to undo the BCA, the Pentagon’s base budget in 2013 will be about the same as in 2007. The budget, in short, is not being gutted, slashed, cut to the bone, etc. (pick your favorite metaphor). In real, inflation‐​adjusted terms, Pentagon spending will remain near historic highs and well above the spending levels of the 1990s. As for the economic effects of the spending cuts contemplated under sequestration, these are likely to be small because the cuts are tiny relative to the economy as a whole, less than three tenths of 1 percent of GDP per year over the next decade.

Those small cuts are likely, in the big picture, to generate overall benefits. It’s easy to focus exclusively on the companies and individuals hurt by the cuts and forget that the taxed wealth that funded them is being employed elsewhere. Provided that defense‐​spending cuts allow for lower taxes, people will have more disposable income to spend. If they spend it wisely (and even if they don’t), that will generate new economic activity that will offset the job losses elsewhere.

Of course, regions disproportionately dependent upon military spending are more likely to feel squeezed. Even in these defense‐​heavy localities, however, the effects of military‐​spending cuts are likely to be temporary, and the eventual transition of workers out of the defense industry into other fields should have beneficial effects. That goes for areas with sufficient economic activity — especially diversification — to help ease the transition.

That is what we hope will happen. But it is more than just hope; my attitudes toward the economic effects of military spending cuts are also shaped by personal experience, especially a trip that I took to San Diego in the summer of 1997.

I was there to do some research on the missile gap and the presidential election of 1960. John F. Kennedy and Richard Nixon had both campaigned in Southern California, and both alleged that their opponent’s decisions with respect to military spending would drive thousands of people out of work. I located some interesting information at UC‐​San Diego and San Diego State. The most memorable moment, however, occurred during a visit to General Dynamics’s Convair facility, not far from the San Diego Airport (aka Lindbergh Field).

Consolidated Vultee Aircraft Corporation (Convair) had been a major manufacturer of manned aircraft during World War II and then later moved into the design and manufacture of missiles and rockets. Operated as a division of General Dynamics after the two companies merged in 1954, Convair was one of the largest civilian employers in San Diego for several decades. Convair employment in San Diego peaked at more than fifty thousand in 1961, fell to less than six thousand by 1976 and then spiked again in the 1980s to more than twelve thousand employees. But orders for Convair products collapsed following the collapse of the Soviet Union. By June 1995, GD’s Convair Division counted a mere 1,432 workers in its San Diego facility. When I arrived at the Convair plant, two years later, in June 1997, I found a single construction trailer that served as the office for Convair’s final two employees. As I explained in the epilogue to my book, John F. Kennedy and the Missile Gap, “I witnessed a dying company breathing its last.”

Although it was just one company, one might expect Convair’s demise to have had a devastating ripple effect, given its signal importance to the San Diego economy over the years. It didn’t. Likewise, the other Pentagon cuts of the early 1990s (holding constant for inflation, DoD outlays fell by 29 percent from the peak in 1987 to the trough in 1999) did not do irreparably harm. For example, San Diego’s unemployment rate was the same as the national average in 1996 (5.4 percent), and well below that of the rest of California (7.3 percent) at the time. By 1999, San Diego’s unemployment rate had fallen to just 3.1 percent, more than a full point below the national average (4.2 percent), and more than two points below California state‐​wide (5.3 percent).

Why did San Diego fare so well? As one study of the region observed in May 2001:

the defense engineers and managers diverted, by the loss of their jobs, into entrepreneurial pursuits … helped the region emerge from the severe economic challenge posed by defense cutbacks at the beginning of the 1990s. Today, San Diego’s economy is growing and contains a more diverse set of industries.

Of course, we will never know if San Diego might have experienced even stronger economic growth in the absence of defense cutbacks in the early 1990s. Nor can we be certain that it will respond to the looming defense drawdown under sequestration as well as it did to the far deeper cuts of the late 1980s and early 1990s. But this one case study shows that even defense‐​heavy localities can adapt to lower levels of defense spending. At a minimum, the story serves as an important counterpoint to the AIA’s claims of impending doom.

Cross‐​posted from the Skeptics at the National Interest.

July 2, 2012 12:39PM

Is the Individual Mandate a Tax?

From my 2010 paper “Obama’s Prescription for Low‐​Wage Workers; High Implicit Taxes, Higher Premiums”:

President Obama argues that a legal requirement for individuals to purchase health insurance is not a tax. Yet many economists, including some of President Obama’s economic advisers, consider it to be a type of tax.

Princeton University health economist Uwe Reinhardt writes, “[Just because] the fiscal flows triggered by [the] mandate would not flow directly through the public budgets does not detract from the measure’s status of a bona fide tax.”

MIT health economist Jonathan Gruber writes, “Suppose … the government mandated that everyone buy full insurance at the average price.… This would not be a very attractive plan to careful consumers … who could view themselves as essentially being taxed in order to support this market, by paying higher premiums than they should based on their risk.”

President Obama’s National Economic Council chairman Larry Summers writes, “Essentially, mandated benefits are like public programs financed by benefit taxes.”

Sherry Glied, President Obama’s appointee to assistant secretary for planning and evaluation at the Department of Health and Human Services, writes, “The individual mandate … is in many respects analogous to a tax. It requires people to make payments for something whether they want it or not.”

When the Clinton administration proposed an individual mandate in 1993, the CBO went so far as to treat the mandatory premiums that Americans would pay as federal revenues and include them in the federal budget. So far, the CBO has not done the same for the mandates in the House and Senate bills. (As Reinhardt suggests, that does not imply that those mandates are not a tax.)

Each bill would also impose penalties on individuals (and employers) who do not comply with the health‐​insurance mandates. Those penalties would be paid to the Internal Revenue Service along with one’s income taxes.