Topic: Regulatory Studies

William H. Peterson, RIP

We’re saddened to note that William H. Peterson, a longtime friend of the Cato Institute, died this week at 91.

Bill was a student of Ludwig von Mises at New York University, where he received his Ph.D. in economics in 1952. He was later professor of economics in the Graduate School of Business Administration at NYU;  Scott L. Probasco. Jr. Professor of Free Enterprise and director of the Center for Economic Education at the University of Tennessee at Chattanooga; and Lundy Professor of Business Philosophy at Campbell University in North Carolina. He also worked in business, consulted with governments around the world, and wrote a book review column for the Wall Street Journal. In 1982, he lectured on free-market economics in Romania, East Germany, Ireland, and Canada. He wrote an essay on Mises that appeared in the 1971 book Toward Liberty: Essays in Honor of Ludwig von Mises, edited by F. A. Hayek.

In recent years he reviewed books, including many Cato Institute books, for the Washington Times. I’m pleased to have published his article “Is Business ‘Administration’?” in Cato Policy Report in 1983, in which he made the case that business is “dynamic, competitive, synergistic, literally wealth-creating”—entrepreneurial, not merely administrative—and therefore the coveted MBA degree is misnamed and perhaps wrongly taught.

Bill’s wife of 62 years, Mary Bennett Peterson, died last year. She also studied with Mises at NYU. She worked as a stockbroker, a foundation officer, and a lobbyist for General Motors. She also wrote a book, The Regulated Consumer, that was ubiquitous among libertarians and conservatives in the 1970s. She criticized such agencies as the Interstate Commerce Commission and the Civil Aeronautics Board for harming consumers, helping to set in motion a policy agenda that resulted in deregulation of both airlines and trucking.

The Decision Is Whether We Will Reform Health Care with Our Eyes Open

Donald Berwick may have mastered the science of health care management and delivery. (I for one would jump at the chance to enroll my family in the Berwick Health Plan.) But his recent oped in the Washington Post shows he has yet to absorb the lessons that economics teaches about government planning of the economy, such as through ObamaCare.

Berwick, whom President Obama recess-appointed to be administrator of the Centers for Medicare & Medicaid Services (CMS), sets out to defend ObamaCare from a fairly devastating critique by Robert Samuelson a few days earlier. Berwick responds, in essence, nuh-uh:

I saw how this law is helping tens of millions of families and is finally putting our health-care system on the right track…I have seen how improving care can reduce costs dramatically.

Berwick fails to see the world of difference between those two statements. Yes, in his private-sector work, Berwick has helped hospitals save more lives, kill fewer people, and save money in the process. I’m pretty sure he has saved more lives than I ever will.

But all he saw from his perch at Medicare’s helm was people happy to receive checks from the government, and a bunch of well-meaning bureaucrats setting goals. He did not see the costs imposed by those subsidies. As for goal-setting, this one sentence captures it all:

The CMS, for example, has set ambitious goals to reduce complications that, if met, would save 60,000 lives and $35 billion in just three years.

If. Met. A recent Congressional Budget Office review of Medicare pilot programs showed that Medicare bureaucrats set goals all the time. They never achieve them.

Berwick’s claim that ObamaCare “cracks down hard on waste and fraud” because “Last year the government recaptured a record $4 billion” is even more ridiculous. The official (read: low-ball) estimates are that CMS loses $70 billion per year to fraud and improper payments. The best evidence suggests that wasteful spending approaches $200 billion per year in Medicare alone. All that money that comes from you, John Q. Taxpayer. Berwick knows all these things. Yet he thinks you should be impressed that recovering a measly $4 billion is the best the government has ever done.

Berwick would never tolerate such willful blindness, shoddy reasoning, and (surprise!) poor results if it were his own money on the line. Which is exactly the point. In a free market, people spend their own money. At Medicare, Berwick spent, and ObamaCare continues to spend, other people’s money.

That is the main reason why markets are smart and government is stupid. And why otherwise smart people like Berwick can afford to keep their eyes shut.

Knox v. SEIU: An Important Free Speech Victory

It may not get the attention of the impending Obamacare decision, but today’s Court’s decision in Knox v. SEIU is an important and somewhat unexpected victory for the First Amendment.

In 2005, the SEIU initiated a mid-year campaign against two California ballot measures, one that would cap state spending and another that would restrict the use of union dues for political purposes. In states such as California that do not have “right to work” laws, unions are allowed to take dues from non-union workers to finance collective-bargaining activities that, arguably, benefit all employees. Since 1977, however, unions have not been allowed to take dues from non-union members to pay for pure political advocacy without adequate protections for possible dissenters. In order to distinguish political money from collective-bargaining money, the Supreme Court requires that a “Hudson notice” be given to all non-union workers. This notice gives non-members the opportunity to challenge political expenditures.

The narrowest question in Knox was whether the notice given by the SEIU Local 100 complied with the Supreme Court’s requirements. There was a broader question, however, pushed by Cato in our brief (joining the Pacific Legal Foundation, the Center for Constitutional Jurisprudence, and the Mountain States Legal Foundation), on whether only having the ability to “opt-out” of political spending (rather than to “opt-in”) violates the First Amendment (Tim Sandefur of PLF offers his thoughts here).  Opting-out presumes that the non-members want to engage in the union’s political advocacy, and this seems to place the burden on free speech on the wrong party.

In a decision that rings with a chastising tone directed at the union, Justice Samuel Alito affirmed that opting-out can be a First Amendment violation. In his words: “Our cases have tolerated a substantial impingement on First Amendment rights by allowing unions to impose an opt-out requirement at all.”  Justice Alito also adopts our argument that balancing the rights of individuals with the “rights” of unions is the wrong way to look at the issue. Unions have long argued that complying with administrative requirements to give notice to non-union members impinges on their ability to be effective political advocates. Moreover, the unions argue, sometimes it is not possible to accurately determine what percentage of their funds will be used for political advocacy and “there is at least a risk that, at the end of the year, unconsenting nonmembers will have paid either too much or too little.” “Which side should bear the risk?” asks Justice Alito. “The answer is obvious: the side whose constitutional rights are not at stake.”

In this case, the First Amendment violation was particularly troubling because the union exacted money from nonmembers in order to defeat a California proposition that would have bolstered nonmembers rights. “If Proposition 75 had passed,” writes Alito, “nonmembers would have been exempt from paying for SEIU’s extensive political projects unless they affirmatively consented. Thus the effect of the SEIU’s procedure was to force many nonmembers to subsidize a political effort designed to restrict their own rights.”

Although the decision does not go so far as to require that unions must always use an opt-in procedure when extracting political war-chest money from nonmembers, it takes a very strong step in that direction, as Justice Stephen Breyer argues in dissent. Opting-in will only be required for such “special assessments” as in this case or for a general “dues increase.”

But Justice Breyer is correct that the majority opinion offers few reasons why opting-in should not be required for all union political dues taken from nonmembers, not just special assessments. In making the strong argument that forced speech without affirmative consent is a First Amendment evil, Justice Alito leaves little room for even the existing opt-out system. Alito and the justices who joined his opinion seem very friendly to the idea that all union political dues for nonmembers require opt-in procedures. Hopefully that case will hit the Court soon. For now, congratulations to Jim Young and National Right to Work Legal Foundation on an important victory.

Uruguay Aims to Legalize Marijuana: The Good, The Bad and The Ugly

The good: José Mujica, Uruguay’s president, announced that he will send a bill to Congress to legalize the production and sale of marijuana. Consumption was already decriminalized in the South American nation. If the bill is approved, and it seems to have enough support in Congress to pass, Uruguay would become the first country to fully legalize marijuana.

The bad: The bill stipulates that the government will be in charge of the production and sale of marijuana. Even though having a marijuana state-owned monopoly is better than prohibition, it would be far better to have the private sector run the business under an appropriate tax and regulatory regime. Governments should not be involved in the drug business.

The ugly: Marijuana users who want to legally purchase the drug would have to register with the government. Moreover, they would be limited in the number of cigarettes they can buy per month. However, there are good reasons to believe that not many people will rush to a government agency to register as a marijuana user. And imposing a limit on the amount of joints that a person can buy legally just means that any extra consumption will by provided by illegal sources. Thus, I doubt that in practice the bill will be very effective at achieving its goals of getting rid of the black market and fighting street crime.

Technically Correct, but not ‘Effin’ Brilliant’

While not “effin’ brilliant,” to paraphrase Bono in one of incidents at issue in the “fleeting obscenities” case, the Supreme Court’s overly narrow opinion in FCC v. Fox is correct as far as it goes. Levying millions of dollars of fines based on an after-the-fact policy change and a few ambiguous words from a 1960s regulatory statement clearly fails constitutional fair notice requirements.

Still, the Court missed a wonderful opportunity to expound on free speech over the airwaves and put broadcasters on the same level with respect to the First Amendment as cable companies, internet service providers, and other players on the telecommunications field. The Court also, as Justice Ginsburg noted in her concurrence, missed a golden opportunity to reconsider its unworkable Pacifica precedent. This ruling is not something Paris Hilton should sniff at, but Court watchers expected more.

Major Victory for Workers’ Rights

Today’s Supreme Court decision in Knox v. SEIU is a major victory for individual liberties and workers’ right not to be coerced by government or unions. Those workers who choose not to join unions should not be forced to fund the unions’ political activities. The Court’s decision for the worker to opt-in to paycheck deductions for political activities rather than opt-out of these payments restores the proper protection for the individual’s freedom of speech and conscience. Justice Alito wrote for the majority, “Courts do not presume acquiescence in the loss of fundamental rights.”

Taking a Stand against Nanny Grants

More than a few of the adventurous initiatives of today’s nanny state emerge from federal-local partnerships in which Washington ships federal tax money to selected local governments for the purpose of launching new campaigns or ordinances against things that are bad for us. Thus it has been with Michael Bloomberg’s anti-food and -drink activism, which the Obama Administration persistently subsidizes by way of grants from the Centers for Disease Control and other agencies.

As Michael Greve points out in his new book The Upside-Down Constitution, arrangements of this sort epitomize some of the most dysfunctional aspects of our system of federalism. They hide political accountability, since the favored local governments need not make a case to their own budgetary decision-makers for the expenditure as the highest and best use of scarce funds (hey, this is free federal money, why turn it down?). At the same time, the amounts involved are small enough in relation to the vast sea of overall federal spending that they generally escape close scrutiny in Congress. They allow federal incumbents to develop politically fruitful alliances with like-minded local political elites. And they often result in splashy, news-making local initiatives which go farther than Washington could politically permit itself to go: for example, given the importance of farm-state votes, the Obama administration has prudently avoided head-on vilification of the American diet, even as it funnels money to mayoral allies in farm-free Gotham and other cities to engage in just such vilification.

Fortunately, some in Congress are seeing through the charade. As The Hill reports, and Marc Scribner relates in more detail at CEI “Open Market,” some House members are determined to block a nascent grant program in which uber-Nanny Ray LaHood, Secretary of Transportation, would be empowered to send money to states to bribe them into taking steps against “distracted driving.” As we have argued in this space before, decentralized state and local rulemaking – un-distorted by a federal thumb on the scales – is the most promising way of figuring out which regulatory approaches to driver cellphone use genuinely improve safety at an acceptable cost in convenience, expense and other factors. Constitutionally and otherwise, it is simply not the role of the federal government to arm-twist states on their policies regarding driving on local streets and roads far from any Interstate.

Rep. Diane Black (R-Tenn.) is reportedly offering a motion to instruct conferees to stand fast on the House’s disapproval of the grant program, which will be argued today. This would make a good place to draw the line against the continued expansion of the centrally directed nanny state.