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March 31, 2015 4:40PM

Eric Holder Issues New Asset Forfeiture Restrictions for Structuring Offenses

Today Attorney General Eric Holder issued new guidelines to federal prosecutors tightening the rules for seizing assets for so-called "structuring" offenses.

Under the Bank Secrecy Act, structuring occurs when someone is suspected of arranging their financial transactions as to avoid triggering a report to the federal government by the financial institution.  Some of civil asset forfeiture's most egregious abuses are the result of federal prosecutors utilizing this nebulous statute to empty the bank accounts of unwitting citizens and small businesses who are never charged with any crime or even aware that their transactions are considered illegal. 

The new rules require:

1. That structuring seizures against people for whom there is no criminal charge be based upon probable cause that the funds were either generated by unlawful activity or intended for use in anticipated unlawful activity.  Alternatively, prosecutors must procure a warrant from a court and with the approval of either the U.S. Attorney (for Assistant U.S. Attorneys) or the Chief of the Asset Forfeiture and Money Laundering Section (AFMLS) (for Criminal Division trial attorneys).

2. That when the prosecutor determines subsequent to a structuring seizure that the government lacks the necessary evidence to succeed at either a civil or criminal trial, the seizing agency must return the full amount.

3. That when a prosecutor seizes property pursuant to suspicion of structuring, the prosecutor must file either a criminal indictment or a civil complaint, or receive an exception from either a U.S. Attorney or Chief of AFMLS within 150 days or else return the seized assets.

4. That all settlements must be complete and in writing.  Informal settlements are expressly prohibited.



Time will tell how impactful these reforms are, and they certainly stop well short of the abolition of civil forfeiture advocated by civil liberties advocates like Cato and the Institute for Justice.  The reforms are also limited to seizures made under suspicion of structuring, which represent only a portion of civil asset forfeiture abuses.

However, much like Eric Holder's previous reforms to the federal government's equitable sharing program, this memo can be taken as yet another signal that even the federal government is concerned about the increasingly publicized abusive nature of the government's asset forfeiture regime. In that sense, these common sense reforms represent another step in the right direction, toward a legal system that respects due process and property rights.

March 31, 2015 3:24PM

Over‐​Budget Hospitals

The Veterans Health Administration (VHA) is plagued with problems. Veterans wait months for medical care and have few options for accessing non-VHA providers. In addition to all of the issues relating to providing health care, construction of VA medical facilities is mismanaged, which burdens taxpayers with billions of dollars in extra costs.

However, the VHA might be trying to change direction. Glenn Haggstrom, the individual who oversees VHA construction, “stepped down” last week after being put under internal investigation. Hopefully, he will be replaced by a reform-minded leader. In 2013 the Government Accountability Office (GAO) found a host of problems at the four largest VHA construction projects, which are located in Denver, Orlando, New Orleans, and Las Vegas. All four projects had major cost overruns and schedule delays.



GAO discovered that the combined costs for the projects have doubled, from $1.5 billion to $3 billion. Construction of the Denver facility was 144 percent over budget and the Orlando facility was 143 percent over budget. The New Orleans facility was only 59 percent over-budget. The construction projects are also taking much long than planned. The Denver and New Orleans projects were 14 months behind schedule. The Las Vegas project was 74 months behind scheduled. GAO put much of the blame for these problems on the VHA: “Our review of VA’s four largest projects indicates that weaknesses in VA’s construction management processes…contributed to cost increases and schedule delays.” These sorts of problems have continued since GAO’s 2013 analysis, and costs at the Denver facility have continued to skyrocket. The most recent estimate in 2015 put total costs at $1.73 billion, five times greater than its original projected cost of $328 million, and $900 million more than GAO’s 2013 estimate.

Members of Congress were furious with the latest cost estimate. Many called for all VHA construction to be shifted to the Army Corps of Engineers, which handles construction for many federal agencies. The Chairman of the House Armed Services Committee said, “One thing is certain: Congress will not authorize another dime until VA gets its construction affairs in order.” These problems increased the pressure on Haggstrom. The VHA launched an investigation into the agency’s handling of construction issues. Haggstrom decided to step down, but not before collecting $64,000 in bonuses over the last several years. Since Haggstrom left voluntarily, he will continue to be eligible for his federal pension.

Haggstrom’s investigation and departure is a good first step to remedying the problems surrounding VHA hospital construction, but much more reform is needed. The failures with VHA construction projects are endemic. The inefficiencies related to the construction of VHA hospitals is another reason why veterans health care should be shifted to a system based on private providers.

March 31, 2015 1:43PM

How Will the TPP Impact Vietnam’s “Nonmarket Economy” Designation?

When deciding whether to impose antidumping duties on imports from Vietnam, the United States uses what’s known as nonmarket economy (NME) methodology.  That is, instead of comparing a product’s U.S. price with the price for the same or similar product in Vietnam, U.S. authorities compare it with a fictitious price constructed using surrogate values from third countries.

The use of NME methodology is prohibited under the rules of the World Trade Organization.  But when Vietnam and China joined the WTO, they each agreed that the use of NME methodology would be permitted against them for an additional 15 years.  For China that’s until the end of 2016, and for Vietnam it’s until the end of 2018.

Vietnam, however, is also a negotiating party to the Trans-Pacific Partnership, a 12-member free trade agreement that may be concluded this year.  Last week, Vietnam’s Ambassador to the United States implied that Vietnam was seeking to have its NME status revoked as part of those negotiations.  As reported at Inside U.S. Trade ($):

"I think on the question of the market economy status, we can do it together. Vietnam has been doing it with other countries and I think about three dozen or something countries have recognized that," said Pham Quang Vinh, Vietnam's ambassador in Washington. Vinh added that he hopes "when we reach a conclusion of the TPP, then everything [with regard to this issue will] be resolved."

It certainly makes sense that Vietnam would hope to negotiate the end of NME treatment.  As the Ambassador explained, they’ve already secured market economy status in other countries.  The TPP is a natural vehicle for getting a similar commitment from the United States .  But there’s no guarantee they’re going to get it:

But his counterpart, U.S. Ambassador to Vietnam Ted Osius, seem to tamp down those expectations. Speaking at the same event, Osius indicated that while TPP might put Hanoi on strong footing to make the economic reforms necessary to become a market economy, a change in its status would be likely be further down the road. Both officials spoke at March 24 event at the Center for Strategic and International Studies (CSIS).

Osius said that the U.S. Commerce Department process to determine a country's market economy status is non-political, and that Vietnam still needs to fulfill certain requirements, such as having a convertible currency.

The U.S. official’s characterization is telling.  The U.S. government has consistently argued that NME status is a factual question.  That is, if Vietnam or China meets the criteria under U.S. law for market economy treatment, their NME status will be revoked accordingly. 

This characterization is misleading and troubling for a number of reasons.  First, NME status is very much a political decision.  There are factors for evaluating nonmarket economy status under U.S. law, but those factors are not especially relevant to the problem a genuinely nonmarket economy poses for the use of regular antidumping methodology.  “Currency convertibility” is an excellent example.  Moreover, the factors ask regulators to evaluate “the extent of” certain interventionist policies without giving guidance on how extensive they must be.  And a determination of whether a country “meets” the factors is explicitly not reviewable by any court. 

Second, the important question is not about Vietnam’s economy but about when the U.S. will end this abusive antidumping practice.  As I explained in a policy analysis paper last year, the NME designation is merely an excuse for lawless protectionism.  Whatever factors the U.S. government wants to come up with, the fact remains that Vietnam and China both are sufficiently market-oriented that authorities can use domestic prices to determine whether goods are being sold in the United States at “dumped” prices.

Finally, it’s particularly repugnant for the United States to impose NME treatment on imports from a country it has a free trade agreement with.  The TPP should eliminate barriers to trade between the United States and Vietnam and further integrate their markets, so that increased competition can effectively drive economic growth.  Singling out Vietnam for discriminatory antidumping treatment is entirely incompatible with that goal.

Vietnam is right to demand an end to abusive NME treatment by the United States.  If U.S. negotiators are serious about making the TPP an “ambitious, 21st Century agreement,” they should welcome that demand without objection.

March 31, 2015 11:36AM

Tim Cook’s Moral Confusion — and Intolerance

Few recent battles have seized the nation’s moral compass quite as emotionally as the one going on in Indiana right now, pitting defenders of religious liberty against opponents of discrimination based on sexual orientation. But Apple’s chief executive Tim Cook brings the moral confusion surrounding the battle to a head this morning with his op-ed in the Washington Post. Lumping together both legitimate and illegitimate “religious freedom restoration acts,” he writes, “they go against the very principles our nation was founded on.”

Really? Let’s see if that claim stands up. We find those principles in the nation’s founding document, the Declaration of Independence. And Cook himself invokes them: freedom and equality. Rightly understood, they hold that we’re all born free, with equal rights to remain free. That means—to cut to the chase—that we may associate with anyone who wishes to associate with us; but we are equally free to decline to associate with others, for any reason, good or bad, or no reason at all. That right to discriminate is the very essence of freedom. That’s why people came to this country, to escape forced associations—religious, economic, political, or otherwise.

Cook turns those principles on their head. He says religious freedom bills “rationalize injustice” by, for example, allowing a baker to decline to bake a cake for a same-sex wedding. He would compel the baker to accept that request, by force of law. That’s the very opposite of the freedom of association—the right to be left alone—that the nation was founded on.

Just to be clear, I’m as offended as Cook is by that kind of discrimination. But I’m even more offended by the belief that we can force people to conform to our values when they’re asking simply to be left alone to enjoy their right to pursue their values. And precisely there is the source of Cook’s confusion, his conflation of rights and values, two very different moral notions. True liberalism recognizes that distinction. It’s the epistemic foundation of a free society, absent which not only intolerance reigns—ironically, what Cook charges even as he practices it—but intolerance coupled with the force of law.

There are many related issues, of course—too many for a mere post. (See here, here, and here.) These religious freedom restoration acts arose, for example, only because of an erroneous 1990 Supreme Court decision. More deeply, our anti-discrimination law, inconsistent as it is with freedom of association, arose understandably from the ashes of slavery and Jim Crow; and its spill-over to private discrimination was probably necessary to break the back of institutional racism in the South. More immediately, the discrimination permitted here, as Cook says, is “bad for business” and therefore will likely arise only in rare cases. But the principle at issue is crucial. If we lose that, as this battle suggests we’re doing, it will fall ever more to government to determine what values will and will not be tolerated, and that will be the end of liberty—including the liberty to offend, which a free society must tolerate.

March 31, 2015 9:06AM

Colorado Pushes Back against Oklahoma and Nebraska Marijuana Suit

In 2012, the people of Colorado voted to legalize marijuana through a state constitutional amendment, which went into effect in January of 2014.  Two of Colorado’s neighbors, Nebraska and Oklahoma, subsequently filed a lawsuit urging the U.S. Supreme Court to prohibit the state of Colorado from constructing a regulatory regime for the marijuana industry.  Last Friday, Colorado filed its response.

The Nebraska/Oklahoma argument: because the federal government, through the Controlled Substances Act, has banned marijuana, states are not allowed to contradict that ban by creating a regulatory framework for legalization.  Further, Colorado’s official regulation of recreational marijuana imposes a nuisance burden on surrounding states due to an alleged increase in drug trafficking.  While Nebraska and Oklahoma disclaim any intent to force Colorado to “re-criminalize” marijuana, the suit argues that Colorado’s official efforts to regulate the legal marijuana industry bring the state into conflict with federal and international drug laws.

Colorado’s response: there is no conflict.  Federal marijuana prohibition is still in effect, and the decision not to prioritize enforcement in states that legalize marijuana came from the federal government, not Colorado.  If Nebraska and Oklahoma object to the manner in which the federal government is discharging its law enforcement duties in Colorado, they should be suing the federal government.  Colorado’s regulation of the marijuana industry is within its prerogatives under the CSA. As to the nuisance claim, Colorado argues that mere policy differences between states that don’t directly injure the sovereignty of other states are not actionable nuisances.

The legal basis for the lawsuit has been questionable from the beginning, with legal commentators both challenging its merits and pointing out the irony in two of America’s “reddest” states taking a legal posture that overruns state sovereignty in favor of federal power.

And, of course, if prohibition states are concerned with the costs, they could always legalize and regulate marijuana themselves and spare their justice systems the immense costs of prohibition.  

While some notable conservatives appear to be coming around in favor of a federalist experiment on drug legalization, it is a testament to the unfortunate power of the drug war that two state governments that routinely invoke the merits of federalism would abandon it in favor of federal prohibition.  As discussed previously, federalism would hardly be the only cherished principle to be left in the drug war’s wake.

March 31, 2015 8:46AM

If Poor Nations Want Economic Convergence and Capital Accumulation, They Need Good Policy

There’s a “convergence” theory in economics that suggests, over time, that “poor nations should catch up with rich nations.”

But in the real world, that seems to be the exception rather than the rule.

There’s an interesting and informative article at the St. Louis Federal Reserve Bank which explores this theory. It asks why most low-income and middle-income nations are not “converging” with countries from the developed world.

…only a few countries have been able to catch up with the high per capita income levels of the developed world and stay there. By American living standards (as representative of the developed world), most developing countries since 1960 have remained or been “trapped” at a constant low-income level relative to the U.S. This “low- or middle-income trap” phenomenon raises concern about the validity of the neoclassical growth theory, which predicts global economic convergence. Specifically, the Solow growth model suggests that income levels in poor economies will grow relatively faster than developed nations and eventually converge or catch up to these economies through capital accumulation… But, with just a few exceptions, that is not happening.

Here’s a chart showing examples of nations that are – and aren’t – converging with the United States.

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The authors analyze this data.

The figure above shows the rapid and persistent relative income growth (convergence) seen in Hong Kong, Singapore, Taiwan and Ireland beginning in the late 1960s all through the early 2000s to catch up or converge to the higher level of per capita income in the U.S. …In sharp contrast, per capita income relative to the U.S. remained constant and stagnant at 10 percent to 30 percent of U.S. income in the group of Latin American countries, which remained stuck in the middle-income trap and showed no sign of convergence to higher income levels… The lack of convergence is even more striking among low-income countries. Countries such as Bangladesh, El Salvador, Mozambique and Niger are stuck in a poverty trap, where their relative per capita income is constant and stagnant at or below 5 percent of the U.S. level.

The article concludes by asking why some nations converge and others don’t.

Why do some countries remain stagnant in relative income levels while some others are able to continue growing faster than the frontier nations to achieve convergence? Is it caused by institutions, geographic locations or smart industrial policies?

I’ll offer my answer to this question, though it doesn’t require any special insight.

Simply stated, Solow’s Growth Theory is correct, but needs to be augmented. Yes, nations should converge, but that won’t happen unless they have similar economic policies.

And if relatively poor nations want to converge in the right direction, that means they should liberalize their economies by shrinking government and reducing intervention.

Take a second look at the above chart above and ask whether there’s a commonality for the jurisdictions that are converging with the United States?

Why have Hong Kong, Singapore, Taiwan, and Ireland converged, while nations such as Mexico and Brazil remained flat?

The obvious answer is that the former group of jurisdictions have pursued, at least to some extent, pro-market policies.

Heck, they all rank among the world’s top-18 nations for economic freedom.

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Hong Kong and Singapore have been role models for economic liberty for several decades, so it’s no surprise that their living standards have enjoyed the most impressive increase.

But if you dig into the data, you’ll also see that Taiwan’s jump began when it boosted economic freedom beginning in the late 1970s. And Ireland’s golden years began when it increased economic freedom beginning in the late 1980s.

The moral of the story is – or at least should be – very clear: free markets and small government are the route to convergence.

Here’s a video tutorial.

And if you want some real-world examples of how nations with good policy “de-converge” from nations with bad policy, here’s a partial list.

Gee, it’s almost enough to make you think there’s a relationship between good long-run growth and economic freedom!

March 30, 2015 9:16AM

Disagreement over Chile’s National School Choice Program

A week ago, the Atlanta Journal Constitution published an on-line op-ed critiquing Chile's nationwide public-and-private school choice program. In a letter to the editor, I objected to several of the op-ed's central claims. The authors responded, and the AJC has now published the entire exchange. A follow-up is warranted, which I offer here:

Comment on the Gaete, Jones response to my critique:

Their response consists chiefly of “moving the goalposts”—changing the issue under debate rather than responding to the critique of the original point. The first claim in their original op-ed to which I objected was that “there is no clear evidence that [Chilean] students have significantly improved their performance on standardized tests.” In contradiction of this claim I cited the study “Achievement Growth” by top education economists and political scientists from Harvard and Stanford Universities. That study discovered that Chile is one of the fastest-improving nations in the world on international tests such as PISA and TIMSS—which were specifically designed to allow the observation of national trends over time. It is hard to conceive of clearer evidence that Chilean students “have significantly improved their performance”, contrary to the claim of Gaete and Jones.

To the extent that Gaete and Jones address this evidence at all it is by saying: “it is true that Chile has shown a certain improvement in [its] relative position in PISA scores. But (1) this may say less about Chilean improvements and more about other countries’ relapse.” That is an empirically testable claim. It has been tested, and it is false. As I pointed out in my original letter, prof. Gregory Elacqua has shown that the same pattern of improvement in academic performance is visible on Chile’s own national SIMCE test, which is entirely unaffected by the performance of foreign nations (see chart 1). Moreover, the improvement in Chilean academic achievement noted in the "Achievement Growth" study is not purely relative to other countries but is an objective gain compared to Chile's own earlier performance.

Chart 1:  Same trend in national tests (SIMCE language and math, 4th grade)

[caption]

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Source: Gregory Elacqua, “Factors contributing to achievement growth in Chile.”[/caption]

Even if that were not the case and Chile were only improving relative to the entire rest of the world because the whole rest of the world was suffering a decline, it would beg the question: what is Chile’s secret that is allowing it to buck this worldwide slump? Certainly it would be wrong to dismiss Chile’s education system out of hand as part of the explanation.

But rather than spending much time trying to dispute this evidence that contradicts their original claim, the authors try to change the subject, proposing that “testing is neither the only nor the best way or criterion to determine the quality of an educational system, it is simply the way favoured by market-oriented systems.” It was also, recall, the very first way in which Gaete and Jones themselves proposed to evaluate Chilean education in their op-ed, with their mistaken claim about a lack of test score improvement. But rather than seriously confronting the evidence that refutes them, the authors choose to change the subject, asserting that: “there are no big differences between the private and public system in the [domestic Chilean] SIMCE [test].” This new claim is entirely beside their original point, which was the trend in academic performance for the nation’s students as a whole.

But, having addressed the authors’ original claim, I have no objection to addressing this new one. The effects of a competitive education system are not limited to—or even chiefly comprised by—differences in performance between the sectors. One the contrary, it is the overall performance of all schools and children that is of interest. Alas, Gaete and Jones seem unaware that increased competition from private voucher schools improves the performance of nearby government schools. This has been shown empirically by Francisco Gallego in his study “When does Inter-School Competition Matter? Evidence from the Chilean `Voucher' System.”

Next, Gaete and Jones attack Chile’s education system on the grounds that it suffers from an educational gap between its wealthier and poorer students. That it does, but so do other nations. It is more meaningful to ask how Chile compares in this respect to its peer Latin American nations. Inequality can be measured using several different metrics, one of which is to look at differences in test scores between wealthier and poorer students. These results vary somewhat by subject, grade, and test, but as an example we can look at the PISA test of reading among 15-year-olds. Here, Chile’s achievement gap is statistically indistinguishable from the overall average of all participating countries and significantly smaller than the gaps in most other Latin American countries. Chile’s achievement gap is also significantly smaller than the gaps in the United States, France, Belgium, and several other rich nations ("PISA 2009 Results: Learning to Learn," Vol. III, Table III A, 2010).

Another way of measuring educational inequality is the average number of years of schooling completed by the wealthiest versus the poorest students. On this point, professor Claudio Sapelli summarizes the evidence for El Mercurio: “Chile has the lowest average educational inequality in Latin America. To measure inequality using the education gap between quintile 5 (richest) and 1 (poorest). In terms of change in this gap in the last 20 years, Chile is among the few countries in Latin America to decrease it.” So, here again, the data on Chile’s education system seem encouraging.

Looking beyond the education system to the broader economy, income inequality has also been falling in recent decades, as has poverty. “The fraction of the population living under the poverty line in Chile fell from 45.1% to 13.7% between 1987 and 2006” (Eberhard & Engel, 2008). Meanwhile, “from 1990 onwards the wage of the 10th percentile [poorest] and the median wage [middle class] grew faster than [that of the] the 90th percentile [the wealthy]” (Eberhard & Engel, 2008).

As for public sentiment toward the program, to which Gaete and Jones make reference, I leave explaining that to the political scientists and sociologists.