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March 25, 2013 3:35PM

Hayek v. Krugman – Cyprus’ Capital Controls

Nobelist Paul Krugman has a propensity to spin and conceal. This allows for deception – the type of thing that hoodwinks some readers of his New York Times column. While deception doesn’t qualify as lying, it also fails to qualify as truth-telling.

Prof. Krugman’s New York Times column, “Hot Money Blues” (25 March 2013) is a case in point. Prof. Krugman sprinkles holy water on the capital controls that will be imposed in Cyprus. He further praises to the sky the post-1980 capital controls that were introduced in a number of other countries.

Prof. Krugman then takes a characteristic whack at all those “ideologues” who might dare to question the desirability of capital controls:

But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

Fine. But, not once did Prof. Krugman mention that there just might be a significant cost associated with the imposition of capital controls – a cost with which Prof. Krugman is surely familiar.

Before more politicians fall under the spell of capital controls, they should take note of what another Nobelist, Friedrich Hayek, had to say in his 1944 classic, The Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

When it comes to capital controls, I think the Cypriots – even the non-ideologues – might be inclined to agree with Hayek over Krugman.

March 25, 2013 3:33PM

Why School Choice Programs Should Not Require Testing

As Georgia’s legislature considers a bill to expand the state’s scholarship tax credit (STC) program and increase transparency, some are calling for additional regulations. Writing in yesterday’s Atlanta Journal-Constitution, Adam Emerson of the Thomas B. Fordham Institute argued that the Peach State should require private schools that accept scholarship students to administer standardized tests. That would be a mistake.

Emerson argues that parents, educators, and policymakers “deserve to compare the gains that students make in different school environments.” Test scores can be a useful, albeit limited and incomplete, method of comparing the academic effectiveness of different schools. Under the current system, parents are free to choose private schools that administer standardized tests and avoid those that do not or vice-versa. Likewise, donors are free to direct their money to scholarship organizations that only fund schools that do or do not administer standardized tests.

By contrast, a testing mandate would severely limit or even eliminate these choices. Parents who are concerned about the “teach to the test” phenomenon or whose child reacts negatively to testing, and educators who believe that standardized testing gets in the way of real learning will have little to no choice but to participate in the standardized testing regime, as even Emerson agrees.

Emerson argues that the vast majority of private schools would still participate in the STC program even with a standardized testing mandate. He cites a recent Fordham study of the impact of regulation in school choice programs showing that “only 3 percent of non-participating schools cited governmental regulations as the most important reason to opt out.” That’s exactly the problem. The mandate would force private schools to choose between eschewing both the tests and all the students who need school choice scholarships to attend their school, or accepting both. Unsurprisingly, the vast majority of schools succumb to the financial pressure.

Researchers tend to support testing mandates because they allow them to evaluate the effectiveness of certain reforms, at least to an extent. But the very act of measurement itself can distort the very thing they are trying to measure. Even aside from the cheating scandals, the tests create strong incentives for teachers to teach differently in order that their students perform well on the test.

Of course, some will argue, “that’s not a bug, that’s a feature!” They support standardized tests as a means of increasing accountability. “If you want to move something, you have to measure it,” they argue, and they have a point. But standardized tests are not the only way to measure learning. Supporters of standardized testing know that, but they want a uniform measures so that they can compare apples to apples. The problem is that uniform measures create a powerful incentive to move toward uniform behavior. As James Shuls of the Show-Me Institute wrote recently:

The fact is that curriculum standards don’t tell teachers how to teach in the same way that a high jump bar doesn’t tell a jumper how to jump. You could theoretically jump over a high jump bar in whatever way you would like; but because of how the jump is structured there is a clear advantage to doing the old Fosbury Flop.

While standardized tests are not as imposing as curriculum standards, what’s on the test can drive what is taught in the classroom, when it is taught, and how it is taught. Professor Jay P. Greene argued along similar lines regarding national standards:

Such uniformity would only make sense if: 1) there was a single best way for all students to learn; 2) we knew what it was; 3) we could be sure the people running this nationalized education system would adopt that correct approach; and 4) they would remain in charge far into the future. But that isn't how things are. There is no consensus on what all students need to know. Different students can best be taught and assessed in different ways.

Standardized tests create an incentive for uniformity when we should be fostering a diversity of traditional and innovative pedagogical methods. To the extent that researchers, policymakers and some educators believe that standardized tests are useful, they should make their case in the free marketplace of ideas and encourage parents to choose the schools that administer them. What they shouldn’t do is use the coercive power of government to fashion a top-down system of testing that could squelch diversity and innovation. 

March 25, 2013 11:16AM

Still Contemptuous of the Court, TSA Doesn’t Even Try to Justify its Strip‐​Search Machine Policy

It took the Transportation Security Administration 20 months to comply with a D.C. Circuit Court of Appeals order requiring it to issue a justification for its policy of using strip-search machines for primary screening at airports and to begin taking comments from the public.

In that time, it came up with a 53-page (double-spaced) notice of proposed rulemaking. That's 2.65 double-spaced pages per month.

This may be the most carefully written rulemaking document in history. We'll be discussing it next week at an event entitled: "Travel Surveillance, Traveler Intrusion." Register now!

The TSA's strip-search machine notice will be published in the Federal Register tomorrow, and the public will have 90 days to comment. The law requires the agency to consider those public comments before it finalizes its policies. If the comments reveal the TSA's policies to be arbitrary or capricious, the policies can be struck down.

But what is there to comment on? The TSA's brief document defends a hopelessly vague policy statement instead of the articulation that the court asked for. And as to the policy we all know it's implementing, TSA hides behind the skirts of government secrecy.

When the court found that the TSA was supposed to take comment from the public, it wanted a clearer articulation of what rules apply at the airport. The court's ruling itself devoted several paragraphs to the policy and how it affects American travelers.

[T]he TSA decided early in 2010 to use the scanners everywhere for primary screening. By the end of that year the TSA was operating 486 scanners at 78 airports; it plans to add 500 more scanners before the end of this year.

No passenger is ever required to submit to an AIT scan. Signs at the security checkpoint notify passengers they may opt instead for a patdown, which the TSA claims is the only effective alternative method of screening passengers. A passenger who does not want to pass through an AIT scanner may ask that the patdown be performed by an officer of the same sex and in private. Many passengers nonetheless remain unaware of this right, and some who have exercised the right have complained that the resulting patdown was unnecessarily aggressive.

The court wanted a rulemaking on this policy. In the jargon of administrative procedure, the court demanded a "legislative rule," something that reasonably details the rights of the public and what travelers can expect when they go to the airport.

Instead, the TSA has produced a perfectly vague policy statement that conveys nothing about what law applies at the airport. In the regulations that cover screening and inspection, the TSA simply wants to add:

(d) The screening and inspection described in (a) may include the use of advanced imaging technology. For purposes of this section, advanced imaging technology is defined as screening technology used to detect concealed anomalies without requiring physical contact with the individual being screened.

Not a word about the use of strip-search machines as primary screening. Nothing about travelers' options. Nothing about signage. Nothing about the procedures for opt-outs. Nothing about what a person can do if they have a complaint. It's not a regulation. It's a restatement of "we do what we want."

That's contemptuous of the court's order requiring TSA to inform the public, take comments, and consider those comments in formulating a final rule. TSA is doing everything it can to make sure that the airport is a constitution-free zone, and this time it's lifting a middle finger to the D.C. Circuit Court of Appeals.

It is possible, even in a relatively short document, to articulate how billions of dollars spent on exposing the bodies of millions of law-abiding Americans makes the country better off. What's amazing about the document is how little it says. TSA doesn't even try to justify its strip-search machine policy. Instead, it plays the govenment secrecy trump card.

Here is everything TSA says about how strip-search machines (or "AIT" for "advanced imaging technology") make air travel safer:

[R]isk reduction analysis shows that the chance of a successful terrorist attack on aviation targets generally decreases as TSA deploys AIT. However, the results of TSA's risk-reduction analysis are classified.

Balderdash.

Under Executive Order 135256, classification is permitted if "disclosure of the information reasonably could be expected to result in damage to the national security, which includes defense against transnational terrorism."

"If there is significant doubt about the need to classify information," the order continues, "it shall not be classified."

Assessing the costs and benefits of TSA's policies cannot possibly result in damage to national security. The reason I know this? It's already been done, publicly, by Mark G. Stewart of the University of Newcastle, Australia, and John Mueller of the Ohio State University. They published their findings in the Journal of Homeland Security and Emergency Management in 2011, and national security is none the worse.

Walking through how well policies and technologies produce security can be done without revealing any intelligence about threats, and it can be done without revealing vulnerabilities in the policy and technology. But the TSA is playing the secrecy trump card, hoping that a gullible and fearful public will simply accept their authority.

I anticipated that the agency might try this tactic when the original order to engage in a public rulemaking came down in mid-2011. In a Cato blog post, I wrote:

Watch in the rulemaking for the TSA to obfuscate, particularly in the area of threat, using claims to secrecy. “We can’t reveal what we know,” goes the argument. “You’ll have to accept our generalizations about the threat being ‘substantial,’ ‘ever-changing,’ and ‘growing.’” It’s an appeal to authority that works with much of the American public, but it is not one to which courts—a co-equal branch of the government—should so easily succumb.

If it sees it as necessary, the TSA should publish its methodology for assessing threats, then create a secret annex to the rulemaking record for court review containing the current state of threat under that methodology, and how the threat environment at the present time compares to threat over a relevant part of the recent past. A document that contains anecdotal evidence of threat is not a threat methodology. Only a way of thinking about threat that can be (and is) methodically applied over time is a methodology.

The TSA published nothing, and it hopes to get past the public and the courts with that.

Its inappropriate and undeniably overbroad use of secrecy will be in our comments to the agency and the legal appeal that will almost certainly follow.

Crucially, agency actions like this are subject to court review. When the TSA finalizes its rules, a court will "decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action." Sooner or later, we'll talk about whether TSA followed the court's order, the lawfulness of wrapping its decision-making in secrecy, and the arbitrary nature of a policy that has no public justification.

March 25, 2013 10:37AM

California’s ObamaCare Exchange Costs 56 Times More to Launch than Facebook

Robert Laszewski notes that launching California's ObamaCare "Exchange" is so far costing taxpayers 56 times as much as it cost to launch Facebook, while its marketing budget is 8 times what Sen. Barbara Boxer (D-CA) spent on her reelection bid (adjusted for inflation):

So far California has received $910 million in federal grants to launch its new health insurance exchange under the Affordable Care Act ("Obamacare").

The California exchange, "Covered California," has so far awarded a $183 million contract to Accenture to build the website, enrollment, and eligibility system and another $174 million to operate the exchange for four years.

The state will also spend $250 million on a two-year marketing campaign. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million...

Privately funded Esurance began its multi-product national web business in 1998 with an initial $5.5 million round of venture fund investment in 1999 and a second round of $34 million a few months later.

The start-up experience of other major web companies is also instructive. Facebook received $13.7 million to launch in 2005. eBay was founded in 1995 and received its first venture money in 1997––$6.7 million in 1997.

Even doubling these investments for inflation still leaves quite a gap.

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 millionagain just to set up an enrollment and eligibility process.

I thought it was notable that the Obama Administration has issued grants totaling $174 million to a non-profit group––Freelancers––for the purpose of setting up a new full service health plan in New York under the Affordable Care Act's health insurance co-op program.

So, the Obama administration thinks it costs $174 million to set up a full service health insurance company in New York (including the significant cost of premium reserves) compared to $340 million to set up just a statewide insurance exchange to do eligibility and enrollment?

As many as 17 states are going to be setting up their own health insurance exchanges under the new law and the feds have so far released $3.4 billion to the states to build them. Little Vermont has received $124 million so far, Kentucky $253 million, and Oregon $242 million, for example. I wonder what the per person cost of exchange enrollment in Vermont will be?

Read the whole thing.

March 25, 2013 9:10AM

Honoring Harriet Tubman

President Obama is expected to issue an executive order today creating five new national monuments, including the Harriet Tubman Underground Railroad National Monument on Maryland's Eastern Shore. Leaving aside the questions about whether such decisions should be made unilaterally by the president, without input from Congress, Harriet Tubman is certainly deserving of national recognition. Cato senior fellow Jim Powell, author of The Triumph of Liberty: A 2,000-Year History Told Through the Lives of Freedom's Greatest Championswrote about Tubman two weeks ago on the 100th anniversary of her death:

Few freedom fighters were more tenacious than petite Harriet Tubman, the African-American slave-turned-abolitionist who died March 10, 1913 when she was about 92. She escaped to freedom, then was reported to have gone back into the Confederacy 19 times, risking capture as she “conducted” some 300 slaves to freedom....

She heard that her sister — a slave with children — was going to be sold away from her husband, who was a free black. Tubman decided she would return to Maryland and guide them to freedom. That was her start as a “conductor” on the Underground Railroad.

Then in 1850, the Fugitive Slave Act empowered Southern slave hunters to capture alleged runaways without a jury trial, and Tubman began conducting slaves hundreds of miles farther north — across the Canadian border. She knew the abolitionist orator Frederick Douglass, whose three-story house in Rochester, N.Y., was the last stop for many slaves on the Underground Railroad before they boarded a steamer across Lake Ontario.

Harriet Tubman risked her life time after time to lead people out of slavery to freedom. She's a libertarian heroine.

March 25, 2013 9:08AM

Same‐​Sex Marriage at the Supreme Court: A Scorecard

On Tuesday and Wednesday the Supreme Court will hear oral argument in Hollingsworth v. Perry, the challenge to California’s Proposition 8, and U.S. v. Windsor, the challenge to Section 3 (federal definition of marriage) of the Defense of Marriage Act. A Ninth Circuit panel, with liberal Judge Stephen Reinhardt writing, had invalidated Prop 8 on relatively narrow grounds; a Second Circuit panel, with conservative Chief Judge Dennis Jacobs writing, had invalidated Section 3 of DOMA on Equal Protection grounds.

The range of possible outcomes for the two cases is quite wide. At one end, the Court could reverse both appellate decisions, restoring the California ban on gay marriage and confirming the legal definition of marriage as opposite-sex-only for purposes of federal programs such as taxation (at issue in Windsor) and federal employee pensions. At the other end, the Court could apply Equal Protection Clause principles to declare that marriage licenses must be available in all states to all otherwise qualified couples regardless of sex. In between are many intermediate outcomes. Both cases, especially Perry, raise issues of litigant standing that might enable or require the Court to set aside the ultimate merits and render a decision with little or no precedential impact on future cases.

The Cato Institute has filed amicus briefs in both cases. In its active amicus program Cato has long taken a broad view of Equal Protection Clause protections, and in this case joined with the Constitutional Accountability Center to file briefs in Perry and Windsor urging that marriage be made available without distinction of sex on Equal Protection grounds. (It’s an “odd-couple” alliance in that CAC is known for its progressive view of the Constitution and regularly winds up on the opposite side from Cato on other high court issues such as ObamaCare and campaign finance.) Ilya Shapiro discusses Windsor and Perry; Constitutional Law Prof Blog provides an analysis of the Cato/CAC Windsor brief. The Daily Press (Hampton Roads, Va.) cites our arguments in its new editorial.

The Heritage Foundation, which of late has crusaded against same-sex marriage on both legal and substantive grounds, collects and summarizes some of the many briefs filed by those on its side of the controversy.

Quite a few scholars and public commentators have invoked federalism and called attention to possible resolutions that defer to the various states. A “federalism scholars’ brief” in DOMA (described here by Ilya Shapiro) signed by, among others, four law professors who blog at Volokh Conspiracy (Jonathan Adler, Dale Carpenter, Randy Barnett, and Ilya Somin) supports striking down section 3 of DOMA not directly on Equal Protection grounds, but because of its attempt to inject federal policy into a field (domestic relations) historically occupied by state law. [More: Jonathan Adler exchange with Nicholas Rosenkranz and Ed Whelan.]

Separately, in a Wall Street Journal piece, widely respected Stanford law professor and former judge Michael McConnell writes that the pair of cases “offers the justices a golden opportunity to resolve these cases without setting a precedent either way, and to reaffirm the ideal of democratic, decentralized decision-making.” To do that, he suggested the Court might want to dodge Perry on standing grounds while upholding Windsor on the ground “that DOMA improperly intrudes on the reserved powers of the states.” Syndicated columnist George Will, who is critical of the attempt to invoke social science as a reason to overturn Prop 8, calls DOMA an intrusion on traditional state law and suggests that “a jurisprudence true to conservative principles, properly understood” would get rid of it.

The Federalist Society has a symposium with two defenders of Prop 8/DOMA (John Eastman and Nelson Lund) and two critics (Dale Carpenter and Ilya Shapiro). Libertarian law professor Richard Epstein finds originalism at odds with liberty in the cases. Ilya Somin, tracking Georgetown’s Marty Lederman, outlines the Court’s options in the Prop 8 case.

Some of the amicus briefs on the traditionalist side invoke the “gay marriage is bad for children” argument, which I’ve contested before. Recent revelations confirm suspicions that in the rush to publication of the extremely controversial Mark Regnerus study, often misrepresented as indicating bad outcomes from same-sex parenting, use in Supreme Court argumentation was one consideration.

In the coming week I and others at Cato will be appearing at public events in Washington, D.C., headlined by a Wednesday event with Ilya Shapiro, Ken Mehlman and Evan Wolfson (register here), as well as broadcast commentary on the unfolding story.  

[cross-posted from Overlawyered, where it ran in slightly different form]

March 25, 2013 9:06AM

The Only Ones Who Misunderstand ObamaCare More than Its Detractors Are Its Supporters

Ezra Klein has a post arguing that ObamaCare is unpopular because the public doesn't understand it. It would be more accurate to say that ObamaCare is popular with people like Klein because they don't understand it.

Klein notes an apparent negative correlation between the popularity of certain provisions of the law and public awareness of those provisions. If only more people knew about the good stuff in ObamaCare -- you know, the subsidies to seniors and the provisions forcing insurers to cover the sick -- more people would like it. But the polls showing public support for those provisions don't ask respondents whether they think the benefits of those provisions are worth the costs. They only ask about the benefits. Since none of those provisions is a benefits-only proposition, those polls tell us essentially nothing.

For example, last year a Reason-Rupe survey asked respondents about laws forcing insurers to cover the sick. What made this poll interesting is that it was the first poll in 18 years to ask respondents to weigh the costs of such laws against the benefits. The below graph (from my latest Cato paper, "50 Vetoes") displays the results.

Media Name: reason-rupe_pre-ex_graph.jpg

Reducing the quality of care is actually the most likely negative effect of banning higher premiums for people with pre-existing conditions. (Don't take my word for it. The authors of the law knew those provisions reduce the quality of care, and so included an awful lot of regulations that they hope will prevent that from happening.) When people learn about this negative effect, they oppose those provisions by a ratio of five to one. Greater public understanding of ObamaCare increases public opposition to the law.

Klein also writes:

Obamacare can have a hard implementation in 2014, but President Obama isn’t going to repeal it or even lose reelection over it (though congressional Democrats might).

If he means there is no way the law will make things so bad that Obama would have to repeal it, I again think he doesn't understand the law itself or the challenges of imposing a law like this on a hostile public. I cannot predict that President Obama will repeal his own signature domestic-policy achievement. Indeed, the odds are against it. But we cannot rule it out, and I have already predicted the president will at least sign major revisions to this law before he leaves office.

Where I agree with Klein is when he predicts that ObamaCare will become much harder to repeal if people (in particular the health care industry) get hooked on the trillions of dollars of new taxpayer subsidies that begin to flow in 2014:

My guess is the law’s top-line polling will change a bit, but the bigger change will be that the intensity of its supporters will come to match that of its detractors. All of a sudden, a lot of people will have something to lose if Obamacare is ever repealed.

It's worth noting that this isn't an argument that ObamaCare will survive because it's a good law, but because people will be dependent on it.