Topic: General

I Beg My Pardon?

If you’re looking for an upside to the Trump presidency, there’s this at least: it promises to be endless fun for executive-power geeks. That “this is not normal” means there’s plenty of opportunity to consider constitutional questions that rarely come up in periods of relative normalcy.

Case in point: the current debate over whether the president has the power to pardon himself, sparked by Friday’s Washington Post report that President Trump “has asked his advisers about his power to pardon aides, family members and even himself” in connection with the special prosecutor’s Russia investigation. Trump himself chimed in over Twitter Saturday:

 

 

On ABC’s “This Week” Sunday, Trump attorney Jay Sekulow denied that any such discussion had taken place, but told George Stephanopolous that “with regard to the issue of a president pardoning himself…. from a constitutional, legal perspective you can’t dismiss it one way or the other.” 

It’s true that the president’s power to self-pardon isn’t clear. What is clear, however, is that if he misuses the pardon power, he can be impeached for it. 

FY18 Intelligence Authorization Bill Calls For New Russian Meddling Assessments

On Monday, July 24, the House will consider the Fiscal Year 2018 Intelligence Authorization Act under suspension of the rules in an attempt to fast-track the legislation, which contains some significant “Russiagate”-related provisions. 

Section 501 calls for a new Intelligence Community assessment “of the most significant Russian influence campaigns, if any, conducted during the 3-year period preceding the date of the enactment of this Act, as well as the most significant current or planned such Russian influence campaigns, if any.” Significantly, the classified report, which is due 60 days after enactment, is to also have an unclassified summary, meaning the public may learn still more about exactly when alleged Russian efforts to influence the 2016 presidential election began.

What may be lacking, as was the case with the IC assessment published in January 2016, is any new or meaningful, specific declassified intelligence that actually validates IC claims that the Russians were, in fact, responsible for the interference. Ironically, it has been yet another IC leaker—Reality Winner—who has provided us with the most interesting technical assessment of alleged Russian election-related activities. 

Section 502 of the bill mandates interagency reports on potential future threats:

(1) IN GENERAL.—As provided in paragraph (2), for each Federal election, the Director of National Intelligence, in coordination with the Under Secretary of Homeland Security for Intelligence and Analysis and the Director of the Federal Bureau of Investigation, shall make publicly available on an internet website an advisory report on foreign counterintelligence and cybersecurity threats to election campaigns for Federal offices. Each such report shall include, consistent with the protection of sources and methods, each of the following:

(A) A description of foreign counterintelligence and cybersecurity threats to election campaigns for Federal offices.

(B) A summary of best practices that election campaigns for Federal offices can employ, in seeking to counter such threats.

(C) An identification of any publicly available resources, including United States Government resources, for countering such threats.

To be truly effective, such an approach would almost certainly require the declassification of some fairly specific intelligence on alleged or actual Russian practices. It will very interesting to see exactly how much push-back this provision gets from the ODNI, DHS, and FBI.

Section 503 calls for a classified report on “containing an assessment of the financing of threat activity by the Russian Federation” which is also due 60 days after enactment.

Given how legislatively dysfunctional Congress has been this year overall (the annual National Defense Authorization Act was nearly two months behind its usual House floor schedule this year), it’s unclear whether the House and Senate will be able to agree on these provisions and actually get the Intel Auth bill to Trump for his signature before the year is out—or whether Trump will threaten a veto over any Russia-related provisions in any final bill. One thing is clear: that this bill is on the suspension calendar means that GOP House Intelligence Committee “Russiagate” investigative lead Mike Conaway (R-TX) and his Democratic counterpart, Adam Schiff (D-CA) are apparently on the same page about these issues. And for a president desperate to move past the “Russiagate” quagmire, that’s bad news indeed.

The International Monetary Fund Accidentally Provides Strong Evidence for the Laffer Curve

As a general rule, the International Monetary Fund is a statist organization. Which shouldn’t be too surprising since its key “shareholders” are the world’s major governments.

And when you realize who controls the purse strings, it’s no surprise to learn that the bureaucracy is a persistent advocate of higher tax burdens and bigger government. Especially when the IMF’s politicized and leftist (and tax-free) leadership dictates the organization’s agenda.

Which explains why I’ve referred to that bureaucracy as a “dumpster fire of the global economy” and the “Dr. Kevorkian of global economic policy.”

I always make sure to point out, however, that there are some decent economists who work for the IMF and that they occasionally are allowed to produce good research. I’ve favorably cited the bureaucracy’s work on spending caps, for instance.

But what amuses me is when the IMF tries to promote bad policy and accidentally gives me powerful evidence for good policy. That happened in 2012, for example, when it produced some very persuasive data showing that value-added taxes are money machines to finance a bigger burden of government.

Well, it’s happened again, though this time the bureaucrats inadvertently just issued some research that makes the case for the Laffer Curve and lower corporate tax rates.

No ‘Freedom Option’ in the Revised Senate Health Care Bill

The other day, I wrote a piece lauding an amendment Sen. Ted Cruz (R-TX) was proposing to add to the Senate GOP’s health care bill. Cruz called it the Consumer Freedom Amendment. If insurers offered two ObamaCare-compliant plans to all comers, the Cruz amendment would have freed them to sell–and freed consumers to purchase–health-insurance plans that did not comply with those regulations. The legislative language I saw appeared to free consumers, not from all the regulations I would like, but from enough that it would have made the Senate bill a step in the right direction. It also included more restrictions on the use of this “freedom option” than I would like, but same thing. The changes would have dramatically reduced premiums for consumers. Perhaps more important, it would have offered more comprehensive and more secure coverage to people who develop expensive illnesses than ObamaCare does.

Today, Senate GOP leaders released an updated draft of their health care bill. 

This draft imposes ObamaCare’s “single risk pool” price controls on “freedom option” plans. Long story short, that means there is no “freedom option” in this bill. Insurers probably would not even offer non-compliant plans. If they did, ObamaCare’s “single risk pool” price controls would make secure, guaranteed-renewable health insurance impossible by taxing such plans to death. Here’s how.

  • The “single risk pool” price controls would require insurers to increase premiums for both ObamaCare-compliant plans and non-compliant plans by the same percentage. If claims in the compliant market necessitate a 10 percent increase, while claims in the non-compliant market necessitate only a 6 percent increase, the insurer would have to increase premiums in the former market by too little and/or increase premiums in the latter market by too much.
  • Let’s say insurers split the difference by increasing premiums in both markets by 8 percent. In the second year, insurers would be over-charging consumers in the non-compliant market. The problem would only get worse with time. By year five, the insurer would be overcharging consumers in the non-compliant plans by almost 10 percent. That creates an incentive for the insurer or a competitor to issue new, appropriately priced non-compliant plans that lure the healthy people out of the old non-compliant plans.
  • Consumers who developed expensive illnesses in the first year could not switch to the new non-compliant plans, because insurers would underwrite them and charge them an even higher premium. So those folks would stay in the old non-compliant plans until the hidden tax imposed by the “single risk pool” price controls made those plans a worse deal than the heavily subsidized ObamaCare-compliant plans. At that point, those consumers would switch to the ObamaCare-compliant plans. Actually, the effect would be a lot like that of the MacArthur waivers in the House’s health care bill. [Update: Astute reader Doug Badger notes that because the non-compliant plans do not qualify as creditable coverage, people in those plans could not automatically switch to ObamaCare-compliant plans. “They would either have to renew their existing policy, buy another non-ACA-compliant policy, or remain uninsured for a period of six months before enrolling in a policy sold through the Exchange,” he writes. Another option would be for the enrollee (or a parent or spouse) to take a job with health benefits for twelve months and then switch to an ObamaCare-compliant plan. Since employer-sponsored insurance would count as creditable coverage, there would be no waiting period, and while employers may impose waiting periods of up to 90 days for health benefits, the enrollee could keep her non-compliant plan until she is eligible to enroll in the employer plan. To the extent these strategies are feasible, newly sick enrollees in old non-compliant plans would and could migrate to compliant plans. To the extent such strategies are infeasible, the “single risk pool” price controls would create a trifurcated market of (1) healthy people hopping among non-compliant plans and (2) newly sick people stuck in increasingly overpriced non-compliant plans that subsidize (3) people with preexisting conditions in ObamaCare plans. Presumably, however, at a certain point, the costs of remaining in increasingly overpriced non-compliant plans would exceed the costs of those switching strategies.]
  • In other words, secure, long-term, guaranteed-renewable coverage would be impossible, because the “single risk pool” price controls would tax those plans to death.
  • This dynamic would happen even faster if insurers increase both the compliant and noncompliant plan premiums by 10 percent, which they probably would.

I’m not saying there’s no way Senate Republicans can redeem their bill. I have offered ideas that might. But at this point, the Cruz amendment does not redeem or even add to the bill.

I don’t get Republicans’ sudden infatuation with price controls

An All-Too-Common Misunderstanding of How Health Insurance Markets Work

I receive lots of daily health-policy newsletters. This morning, one of them exhibited an all-too-common misunderstanding and bias about how health-insurance markets work.

The setting is the “Consumer Freedom Amendment” Sen. Ted Cruz (R-TX) has offered to the Senate GOP’s bill to rewrite ObamaCare. Contrary to what the Republican Party has pledged for seven yearsa pledge that presidential candidate Donald Trump even put in writingthe Senate bill would not repeal the health-insurance regulations that are behind ObamaCare’s rising premiums, race-to-the-bottom coverage, and collapsing insurance markets. The Cruz amendment would keep those regulations on the books, but allow consumers to purchase insurance that does not include all of ObamaCare’s hidden taxes and coverage mandates. In effect, it would separate the market. Currently healthy enrollees would opt for the lower-cost “Freedom Option” coverage, which would stay with them once they developed expensive illnesses. Currently sick enrollees would opt for ObamaCare-compliant plans. Premiums for ObamaCare-compliant plans would rise even more than they already have, essentially turning ObamaCare’s Exchanges into high-risk pools that would require lots of government subsidies to keep afloat.

Enter one of my daily newsletters, which matter-of-factly reported:

Of course, everyone paying into the system for those who most need care is the way insurance is fundamentally supposed to work.

Of course! I hear this sort of thing all the time. Now, there is a charitable interpretation that would render this particular phrasing just barely true, but I am fairly sure that interpretation is not what the author intended to convey. Instead, the sentence glosses over a distinction so crucial that entire insurance markets hang in the balance. And it does so in a way that presents the (legitimately disputed and controversial) pro-ObamaCare ideology as an of-course-this-is-fundamentally-true fact.

Fundamentally, insurance markets are a system of subsidies. People with the same ex ante (i.e., before-the-fact) risk of needing medical care pay into the system to subsidize the few in that group who will develop expensive medical needs. We know insurance is supposed to work this way, because of what happens when you try to pool together people with different ex ante health risks at the same premium: the system of subsidies collapses. (See: state-level experiments with community rating, ObamaCare’s CLASS Act, the child-only market under ObamaCare, U.S. territories under ObamaCare, and Exchanges in dozens of counties). Risk-based premiums, exclusions for preexisting conditions, and other measures that ObamaCare supporters hate are actually consumer protections. They exist to keep that system of subsidies stable, so it can keep doing the most good possible by subsidizing people who become sick.

The idea that everyone should pay the same premium regardless of risk arises because left-of-center folks want to cram additional, hidden subsidies into the insurance system. They want to do this rather than create explicit taxes and transfers because, as Jonathan Gruber taught us, there is not sufficient political support for explicit taxes and transfers. But again, when you force insurers to cover unlike risks at the same premium, insurance markets collapse. So ObamaCare throws tons of money at insurers—with everything from the individual mandate to risk-adjustment—in the hope of preventing a collapse. Sometimes it prevents a collapse. Sometimes, not so much.

The above sentence therefore amounts to saying, “Insurance is fundamentally supposed to work exactly like ObamaCare supporters want, with mandates and lots of government subsidies, not like its opponents say.”

That’s what the news tells me, anyway.

I Was Wrong on The Every Student Succeeds Act

I was wrong. When the Every Student Succeeds Act passed in late 2015, I identified two ambiguities I thought were most ripe for exploitation to keep the federal boot hovering over public schools: the requirement that states have “challenging” curricular standards and that standardized tests be given “much greater” weight in accountability systems than non-academic measures.

Certainly, DC may still seize upon these words to extend control. But according to a Friday New York Times report, it is the law’s call for “ambitious” student performance goals—a term not defined in statute—that the Trump administration, which I thought would be highly deferential to states (wrong again!), is citing to reject state plans:

In the department’s letter to Delaware—which incited the most outrage from conservative observers—[Acting Assistant Secretary for Elementary and Secondary Education Jason] Botel took aim at the state’s plan to halve the number of students not meeting proficiency rates in the next decade. Such a goal would have resulted in only one-half to two thirds of some groups of students achieving proficiency, he noted.

The department deemed those long-term goals, as well as those for English-language learners, not ambitious, and directed the state to revise its plans to make them more so.

And so we remain pretty much where we were under the Obama administration in education, and where we are with every law that leaves it to regulatory agencies to fill in the meaning of crucial terms: with states, localities, and the people at the mercy of bureaucrats and secretaries. Government increasingly of men and not laws.

Alas, this bureaucratically dictatorial state of affairs is okay with some people in DC. In an exchange this weekend, a former Obama administration spokesman lauded the regulatory process as a “transparent” and “consistent” way to “fill in the blanks left by the law”:

Really? I sure can’t see how the regulatory process is “transparent” in any meaningful sense. Here is the web page to follow the ESSA regulatory process, and here is the “Notice of Final Regulation” for just one part of the ESSA. Read it all over. Now imagine every parent—with a full-time job, soccer practices to get the kids to, maybe even a desire for some leisure time—trying to read and influence every regulation for ESSA.

Done imagining? The painful reality, of course, is that making law by regulation is even more beyond the ability of an average American to follow and influence than the writing of actual laws. The ESSA itself is almost 400 single-spaced pages long.

Loads of atrocious problems are at work here—no apparent concern for whether the governed can know and understand the laws governing them; legislators sloughing off their responsibilities to bureaucrats—but underlying it all has been widespread disregard for the Constitution and its clear delegation of only specific, enumerated powers to the federal government, none of which mention education.

I was wrong about the specific opening by which the ESSA might be used to maintain federal control over the nation’s public schools. But in stating that federal control is itself unconstitutional, and rule by bureaucrats especially egregious, I remain clearly in the right.

Another Misleading Quotation in Nancy MacLean’s “Democracy in Chains”

Everybody’s finding errors in Duke historian Nancy MacLean’s “work of speculative historical fiction” on Nobel laureate James Buchanan and the libertarian movement, Democracy in Chains. I’d feel left out if I weren’t misquoted, so I’m relieved to find my name on page 211. Here’s what MacLean says about me and some of my purported allies:

Nancy MacLean quotes David Boaz

Now: Did I actually say that the poor and working class are “intent on exploiting the rich”? Or “that they contribute nothing”? Well, here’s what I wrote on pp. 252-53 of The Libertarian Mind, which is the source MacLean footnotes:

Economists call this process rent-seeking, or transfer-seeking. It’s another illustration of Oppenheimer’s distinction between the economic and the political means. Some individuals and businesses produce wealth. They grow food or build things people want to buy or perform useful services. Others find it easier to go to Washington, a state capital, or a city hall and get a subsidy, tariff, quota, or restriction on their competitors. That’s the political means to wealth, and, sadly, it’s been growing faster than the economic means.

Of course, in the modern world of trillion-dollar governments handing out favors like Santa Claus, it becomes harder to distinguish between the producers and the transfer-seekers, the predators and the prey. The state tries to confuse us, like the three-card monte dealer, by taking our money as quietly as possible and then handing some of it back to us with great ceremony. We all end up railing against taxes but then demanding our Medicare, our subsidized mass transit, our farm programs, our free national parks, and on and on and on. Frederic Bastiat explained it in the nineteenth century: “The State is that great fiction by which everyone tries to live at the expense of everyone else.” In the aggregate, we all lose, but it’s hard to know who is a net loser and who is a net winner in the immediate circumstance.

On the preceding pages I introduced James Buchanan and the concept of public choice:

One of the key concepts of Public Choice is concentrated benefits and diffuse costs. That means that the benefits of any government program are concentrated on a few people, while the costs are diffused among many people. Take ADM’s ethanol subsidy, for instance. If ADM makes $200 million a year from it, it costs each American about a dollar. Did you know about it? Probably not. Now that you do, are you going to write your congressman and complain? Probably not. Are you going to fly to Washington, take your senator out to dinner, give him a thousand-dollar contribution, and ask him not to vote for the ethanol subsidy? Of course not. But you can bet that ADM’s corporate officers are doing all that and more. Think about it: How much would you spend to get a $200 million subsidy from the federal government? About $199 million if you had to, I’ll bet. So who will members of Congress listen to? The average Americans who don’t know that they’re paying a dollar each for ADM’s profits? Or ADM, which is making a list and checking it twice to see who’s voting for their subsidy?

I also wrote on page 253 about the “parasite economy,” in which

every group in society comes up with a way for the government to help it or penalize its competitors: businesses seek tariffs, unions call for minimum-wage laws (which make high-priced skilled workers more economical than cheaper, low-skilled workers), postal workers get Congress to outlaw private competition, businesses seek subtle twists in regulations that hurt their competitors more than themselves. 

Let’s be clear: when public choice economists and I talk about “rent seeking” and “concentrated benefits,” and we point to “subsidy, tariff, quota, or restriction on their competitors,” we’re not trying to protect the rich. We’re talking about ways that businesses, unions, and other organized interest groups seek to use government to gain advantages that they couldn’t gain in the marketplace. And when we suggest limiting the power of government to hand out such favors, we are arguing in the interests of workers and consumers.

I do not believe that MacLean’s two very short quotations from The Libertarian Mind and the paragraphs in which she situates them fairly depict my argument in the book. One might even say that she reversed the meaning of “the predators and the prey.” Unfortunately, selective quotation and misrepresentation seem to be MacLean’s M.O., as Steve Horwitz, Phil Magness, Russ Roberts, David Henderson, David Bernstein, Bernstein again, Nick Gillespie, Michael Munger, and others have pointed out.

By the way, Professor MacLean derides me as a writer “subsidized by wealthy donors.” Well, yes, it’s true that the Cato Institute is supported by voluntary contributions, not by tax funding. And donors to organizations – Duke University, NPR, the Sierra Club, Planned Parenthood, the Brookings Institution, the Cato Institute – tend to be well-off. But I assure Professor MacLean that I was absorbing the ideas of John Locke, Adam Smith, F. A. Hayek, the American Founders, and John Stuart Mill long before I discovered that there might be jobs available to write about such ideas.

Although James Buchanan was not involved in the founding of the Cato Institute, as MacLean writes, we are proud that he chose to write frequently for the Cato Journal, speak at various Cato events, and allow us to count him as a Distinguished Senior Fellow. And we regret that he has been so ill treated by a fellow academic.

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