Topic: Regulatory Studies

Truth Is, All of Higher Ed Is Broken

Over at the New America Foundation’s “Higher Ed Watch” blog, Stephen Burd purports to know “the truth behind Senate Republican’s boycott of the Harkin hearing.” And what is that truth? Republicans are trying to “discredit an investigation that has revealed just how much damage their efforts to deregulate the industry over the past decade have caused both students and taxpayers.”

Really?

Okay, it is possible that Republicans are trying to save themselves some sort of blame or embarrasment – I can’t read their minds – but if so they’ve done a terrible job. Every time Harkin holds one of his hearings the bulk of the media coverage treats it like it has revealed shocking abuse by the entire for-profit sector. And don’t forget the damage done by the now-discredited – at least for those wonks who have followed it – GAO “secret shopper” report that was baised against for-profits enough on its own, but Sen. Harkin abused even beyond what the GAO wrote was reasonable.  So Harkin has defintiely gotten his message across, and he certainly hasn’t hidden past Republican efforts to reduce regulatory burdens on for-profit schools.

The fact remains, however, that the whole Ivory Tower – every floor and staircase – is loaded down with luxurious but crushing waste, and the crumbling foundations are being propped up with huge amounts of taxpayer dough and student debt. Not addessing that, as the boycotting Senators have stated, is what has been blaringly wrong with Harkin’s crusade. (Not that I think either party is likely to do what needs to be done: phasing out federal student aid.)

So absolutely, let’s stop forcing taxpayers to prop up the for-profit part of the tower. But let’s also stop pretending that that part isn’t just one rotten level in a much bigger, buckling edifice.

Are Even Dems Getting Tired of Anti-Profit Crusade?

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Yesterday, Sen. Tom Harkin (D-IA) held his fifth – and perhaps final – Health, Education, Labor, and Pensions committee show-hearing lambasting for-profit colleges. As usual, it was a decidedly one-sided affair, with no profit-defenders apparently invited to testify, and Republican committee members boycotting. Perhaps the only interesting thing that occurred was Sen. Al Franken (D-MN), who has never given any indication he doesn’t support Harkin’s obsessive whale hunt, saying the proceedings could have benefitted from more than one point of view. According to MarketWatch, Franken lamented that “it would have been nice to have someone here to represent the for-profit schools.” Now, he might have only wanted a for-profit rep there to receive the beating, but even that would have been preferable to no rep at all.

Could this indicate that even Senate Democrats are getting tired of Harkin’s tedious grandstanding against for-profit colleges, especially now that the Education Department has issued its “gainful employment” rules? Maybe, and there are lots of Dems in the House who have opposed the attack on for-profit schools for some time. But don’t expect this to be over quite yet: Harkin still gets a lot of negative media coverage for proprietary schools with each hearing, while the scandals surrounding people he’s had testify; the decrepit GAO “secret shopper” report that turned out to be hugely inaccurate; and potentially dirty dealings behind the gainful employment rules seem only to get real ink from Fox News and The Daily Caller. And Harkin keeps indicating that he will introduce legislation – doomed to failure though it may be – to curb for-profits even further.

Of course, what should be the biggest source of outrage in all of this is that while Harkin fixates on for-profit schools, Washington just keeps on enabling all of higher education to luxuriate in ever-pricier, taxpayer-funded opulence. Indeed, as a new Cato report due out next week will show, putatively nonprofit universities are likely making bigger profits on undergraduate students than are for-profit institutions. Of course, they don’t call them “profits” – nonprofits always spend excess funds, thus increasing their “costs” – but that’s probably just plain smart. Be honest about trying to make a buck, and Sen. Harkin has shown just what’s likely to befall you.

Don’t Tread on My Plate

Last week First Lady Michelle Obama and the U.S. Department of Agriculture unveiled “ChooseMyPlate.gov,” an updating of the federal government’s ongoing efforts to lecture us on how to eat. While the idea of nutrition recommendations from Washington, D.C. isn’t itself new, the past couple of years have seen a lurch toward a more coercive approach, especially under the Obama administration, under pressure from a burgeoning “food policy” movement, as I explain in a new Daily Caller op-ed:

All sorts of nannyish and coercive ideas are emerging from that [movement] nowadays: proposals at the FDA to limit salt content in processed foods; mandatory calorie labeling, which poses a significant burden on many smaller food vendors and restaurants; new mandates on food served in local schools; advertising bans; and on a local level efforts to ban things like Happy Meals at McDonald’s. No wonder many parents, local officials and skeptics in Congress are beginning to say: Back off, guv. It’s my plate.

The fact is that the federal government’s dietary advice has changed often through the years—the Washington Post had a great feature on past federal dietary guidelines, under which sweets and even butter held their place as food groups—and that government’s recommendations have regularly proved wrong and even damaging, a point that Steve Malanga elaborates on in this City Journal piece (“Following the government’s nutritional advice can make you fat and sick.”)

Yesterday, C-SPAN’s Washington Journal had me on opposite Maya Rockeymoore of the group Leadership for Healthy Communities to discuss issues that ranged from the school lunch program to whether Washington should serve as an “arbiter” of contending dietary claims, an idea I didn’t much care for. You can watch here.

Government Control of Language and Other Protocols

It might be tempting to laugh at France’s ban on words like “Facebook” and Twitter” in the media. France’s Conseil Supérieur de l’Audiovisuel recently ruled that specific references to these sites (in stories not about them) would violate a 1992 law banning “secret” advertising. The council was created in 1989 to ensure fairness in French audiovisual communications, such as in allocation of television time to political candidates, and to protect children from some types of programming.

Sure, laugh at the French. But not for too long. The United States has similarly busy-bodied regulators, who, for example, have primly regulated such advertising themselves. American regulators carefully oversee non-secret advertising, too. Our government nannies equal the French in usurping parents’ decisions about children’s access to media. And the Federal Communications Commission endlessly plays footsie with speech regulation.

In the United States, banning words seems too blatant an affront to our First Amendment, but the United States has a fairly lively “English only” movement. Somehow, regulating an entire communications protocol doesn’t have the same censorious stink.

So it is that our Federal Communications Commission asserts a right to regulate the delivery of Internet service. The protocols on which the Internet runs are communications protocols, remember. Withdraw private control of them and you’ve got a more thoroughgoing and insidious form of speech control: it may look like speech rights remain with the people, but government controls the medium over which the speech travels.

The government has sought to control protocols in the past and will continue to do so in the future. The “crypto wars,” in which government tried to control secure communications protocols, merely presage struggles of the future. Perhaps the next battle will be over BitCoin, an online currency that is resistant to surveillance and confiscation. In BitCoin, communications and value transfer are melded together. To protect us from the scourge of illegal drugs and the recently manufactured crime of “money laundering,” governments will almost certainly seek to bar us from trading with one another and transferring our wealth securely and privately.

So laugh at France. But don’t laugh too hard. Leave the smugness to them.

Unanimous Supreme Court Vindicates Market-Based Fees for Civil Rights Claims

It hasn’t happened that much under my watch, but it’s gratifying when the Supreme Court overwhelmingly endorses Cato’s position in a given case.  Not a 5-4 split dependent on what Justice Kennedy had for breakfast or some narrow “win” that doesn’t reach the issues we care most about, but a solid across-the-board victory for our first principles.

But such was the case in Justice Kagan’s (!) opinion for a unanimous Court in Fox v. Vice, in which Cato filed a brief last December that I discussed here:

Private lawsuits challenging government violation of civil rights are notoriously difficult and expensive to bring and win. To address such impediments to the vindication of civil rights, Congress passed a law that, among other things, awards attorneys’ fees to the prevailing parties in certain cases. As noted by the House Judiciary Committee, this was necessary because “a vast majority of the victims of civil rights violations cannot afford legal counsel, they are unable to present their cases to the courts …. [the law at issue, 42 U.S.C. § 1988] is designed to give such persons effective access to the judicial process.” Congress thus harnessed market principles, creating an economic incentive for citizens to vindicate their civil rights directly rather than relying exclusively on enforcement actions by the federal government itself.

In the case of Fox v. Vice, however, the Fifth Circuit ruled that an unsuccessful result on a threshold or procedural matter relating to part of a lawsuit could justify a court order requiring the plaintiff to pay all of the defendants’ attorney’s fees — even those expended to address other, meritorious claims. Such a rule departs from the market-oriented legal structure Congress designed and, if allowed to stand, would significantly harm the ability of plaintiffs to bring private civil rights claims.

Today the Supreme Court essentially agreed 9-0 with our view that (1) the Fifth Circuit’s decision imposes prohibitive costs on civil rights enforcement of civil rights; (2) by prematurely deeming a suit frivolous and ordering the plaintiff to pay the defendant’s fees, the lower court imposed penalties that would shut down legitimate lawsuits midstream; and (3) the Court should not permit fee awards in situations where a plaintiff dismisses a federal claim in order to secure a remand of related state-law claims to state court, contrary to the law’s purpose here.

In short, when a plaintiff’s lawsuit is for both frivolous and non-frivolous claims, a court may grant reasonable fees but only for the costs that a defendant would not have incurred but for the frivolous claims – so no fee awards even for work that goes towards both frivolous and non-frivolous claims.  You can read the opinion here

Thanks to our pro bono counsel at WilmerHale and to the organizations who joined us on our brief: the Liberty Institute, the Independence Law Center, the Institute for Justice, and the James Madison Center for Free Speech.

Whitewashing the Auto Bailouts

With his appearance at a Toledo factory today, President Obama seems to want to make the auto bailout a campaign issue. Let’s welcome that. Americans should understand what transpired.

Fancying himself “Savior of the Auto Industry,” the president deserves credit only for choosing to insulate two companies (and the UAW) from the consequences of their decisions. But with that credit he must accept responsibility for sluggish U.S. business investment, limited job creation, and the anemic economic recovery, which is due in no small measure to the regime uncertainty that descends from his intervention in the auto industry.

The administration suggests that the entire cost of the auto bailout is captured by the outlays that haven’t or won’t be returned. Despite much smaller claims from the administration, that figure will be about $5.5 billion in Chrysler’s case (the administration is overlooking $4 billion written off when New Chrysler emerged from bankruptcy) and somewhere from $7 to $15 billion in GM’s case (depending on average share price for 500 million shares). Should that loss have to be reported to the FEC on a dollar-per-auto-worker-vote basis?

But the costs are much greater than these outlays.

The most compelling objections to the bailout were not rooted in the belief that the government couldn’t use its assumed power to help Chrysler and GM. On the contrary, the most compelling objections were over concerns that the government would do just that. It is the consequences of that intervention — the undermining of the rule of law, the confiscations, the politically driven decisions, and the distortion of market signals — that animated the most serious objections. Ford never publicly objected to the interventions to rescue its rivals. Do you think Ford may feel entitled to a future bailout if needed, having foregone the recent one? Does Ford think it has a pretty good insurance policy if it takes excessive risks that go awry?  This is a cost that’s tough to measure, but an important cost nonetheless.

Any verdict on the outcome of the auto industry intervention must take into account, among other things, the billions of dollars in property confiscated from the auto companies’ debt-holders; the higher risk premium built into U.S. corporate debt as a result; the costs of denying the other, more successful auto producers the spoils of competition (including additional market share and access to the resources misallocated at Chrysler and GM); the costs of rewarding irresponsible actors (like the UAW) by insulating them from the outcomes of what should have been an apolitical bankruptcy proceeding; the effects of GM’s nationalization on production, investment, and public policy decisions; the diminution of U.S. moral authority to counsel foreign governments against market interventions that can adversely affect U.S. businesses competing abroad; and the corrosive impact on America’s institutions of the illegal diversion of TARP funds to achieve politically desirable outcomes.

Let’s make the auto bailout a campaign issue and see if we can’t reconcile all of its costs.

Cash Rewards For Failing Schools, the Lawsuit Way

I see the editorialists of the New York Times have rhapsodically hailed last week’s 3-2 New Jersey Supreme Court opinion striking down the budget-trimming plans of Gov. Chris Christie. As the press reported, the court ordered instead that an extra $500 million in state funds be allocated to some of the state’s poorest-performing school districts – the so-called Abbott districts, named after the three-decade-running New Jersey school finance litigation, Abbott v. Burke.

It’s too bad the editorial said nothing about the report five years ago in which one leading newspaper surveyed the wreckage done by the then-25-year-old litigation, which it called an “ambitious court-ordered social experiment.” (At that point, $35 billion in state tax money had already been lavished on the Abbott districts.) The paper’s reporting made a convincing case that the orders had squandered billions on mismanaged districts that were already far outspending most others in the state and region, as with Asbury Park, which was spending 70 percent more than the typical New Jersey district. Indeed, “the highest-spending districts were making the fewest gains” in student performance. It’s especially unfortunate because the newspaper that reported all this was the New York Times itself.

As I argue at greater length in my new book, school reform lawsuits like Abbott are much more than just vehicles for inefficiency and waste of tax dollars: they’re examples of an alternative method of governance, accomplished through what is sometimes called institutional reform litigation, and quite remote from the channels of lawmaking and appropriations familiar from civics books. Typically, successful litigation of this sort transfers control over an important issue like school funding from branches of government that are accountable to taxpayers and voters to a cluster of private litigators, expert witnesses, special masters, consultants, law professors, backers in liberal foundations, and so forth. The legal basis for the power grab is often flimsy in the extreme; in the Garden State, for example, the state constitution vaguely mandates that there be a “thorough and efficient” system of public education, and “educational equity” lawyers have prevailed on the courts to erect the whole thirty-year edifice of Abbott orders on a filling in of those mysterious blanks, a process that Gov. Christie has accurately described as “legislating from the bench”. (Our friend Hans Bader at CEI has more here and here.) In New Jersey, as in many other states and cities subject to these suits, governors and legislators may come and go, but the permanent government of court orders and negotiated consent decrees grinds on and on, conferring a curiously unaccountable power on the lawyers who manage and advance the litigation and their circle of allies.

It’s worth noting that since the U.S. Supreme Court’s 1973 decision in San Antonio v. Rodriguez, the federal courts have stayed out of most school finance litigation, leaving it to state courts. For decades, outspoken voices in the law schools have been calling for Rodriguez to be overturned or at least end-run so as to confer an Abbott-like charter for social experimentation on the federal courts, which could then proceed to issue orders equalizing school finance, ordering “Robin Hood” aid to underperforming districts, and so forth. The most prominent advocate of this view in recent years has been a Berkeley law professor named Goodwin Liu – his views are summarized by admirers here and here – which may explain in part why Liu’s recent Ninth Circuit nomination raised such strong feelings.