Freeze That Slush: DoJ Cuts Off Flow of Settlement Cash To Private Groups

In a memo dated June 5, Attorney General Jeff Sessions has ended the practice by which the Department of Justice earmarks legal settlement funds for non-governmental third-party groups that were neither victims nor parties to the lawsuit. This is terrific news and a major step forward in respecting both the constitutional separation of powers and the private rights that litigation is meant to vindicate.

The use of surplus or unclaimed settlement money for causes allegedly similar to those served by the litigation (“cy près,” in the legal jargon) is not itself new. In recent years, however, law enforcers at both state and federal levels have developed it as a way to direct funds to a wide variety of causes, from private charities and advocacy groups to legal aid programs, law schools, and an assortment of other causes that legislatures and their appropriations committees have shown no interest in funding.

Not surprisingly, officials tend to designate as beneficiaries recipients they find ideologically congenial. “With control over big money flows,” as I noted in a piece two years ago, “smart AGs can populate a political landscape with grateful allies.” The Obama administration came under justified criticism for using the mortgage settlement to funnel tens of millions of dollars to “housing counseling” often carried on by left-leaning community-organizing groups.

The problems with this practice begin at the level of constitutional structure. It is the legislative branch, not some combination of executive and judiciary in connivance, that is supposed to wield exclusive power to appropriate public moneys, and moneys extracted by government enforcement and not otherwise owned (as by parties or victims) are a species of public moneys. In the recent D.C. Circuit decision of Keepseagle v. Perdue, arising from the settlement of a lawsuit by Indians shortchanged by agriculture programs, Judge Janice Rogers Brown wrote a slashing and readable separation-of-powers critique of the practice in her dissent (the panel majority dismissed the issue as having been raised too late.)

There are other constitutional issues at stake as well. Cato has argued as amicus, in cases involving settlements by Facebook and Duracell, that the use of cy près endangers the constitutional rights of individual members in class litigation, both as to due process rights protected by the Fifth Amendment and to First Amendment rights of expression (since the practice uses members’ money to advance causes with which they may strongly disagree). Courts including the Eighth Circuit have voiced misgivings as well, and Chief Justice John Roberts has flagged the constitutional status of cy près as an issue that could soon be ripe for Supreme Court consideration. Members of Congress led by Rep. Robert Goodlatte (R-Va.) have proposed the Stop Settlement Slush Funds Act (H.R. 732), and as I note in a chapter of the new Cato Handbook for Policymakers, state lawmakers in places like New Mexico have pursued similar ideas.

A follow-up question is whether the Department of Justice will follow the same logic by moving against the diversion of funds from entered judgments (as distinct from future settlements) to outside groups, as in the Keepseagle case. Logically, there is good reason for it to pursue this further step.

In the mean time, we should applaud Attorney General Jeff Sessions for one of the big wins for constitutional principle so far in the new administration.

Two Kinds of Diversity

Diversity is and has been at the center of many of our debates about higher education and related issues, including freedom of speech. I see two different meanings of diversity, one compatible with free speech and one perhaps incompatible.

The ordinary meaning of diversity can be found in a dictionary, for example the online Oxford Living Dictionaries (is there an Oxford Originalist Dictionary?). There we find that diversity means “the state of being diverse” and diverse in turn means “showing a great deal of variety; very different.” This definition comports with freedom of speech. The First Amendment prevents public officials from imposing a single view on the governed, thereby protecting advocacy of diverse views. Diversity in this sense and free speech go together.

But diversity has another meaning which I think of as “diversity-as-recognition.” Imagine you see  the world divided into two groups: oppressors and the oppressed. The speech of the oppressor dominates the society and the beliefs of its members; speech in this society is both unequal and unitary, not diverse. What should be done? Government officials (or for that matter, university administrators) should seek “true diversity” by promoting recognition of the equality of the oppressed. If this task were accomplished, all groups would speak from an equal place, and diversity of speech would truly exist.

But achieving this change might require censorship. The oppressor tends to utter speech that asserts the inequality of the oppressed. Such speech is incompatible with achieving equality and true diversity. Put otherwise, to just allow “a great deal of variety” in speech is not equal to the task of achieving “diversity-as-recognition.” Public officials or university administrators thus are required to censor extreme speech to achieve diversity-as-recognition. To allow the speech of the oppressor is to endorse oppression. Diversity-as-recognition thus seems to imply the return of “repressive tolerance.”

Some questions follow for me. Should all speech contrary to “diversity-as-recognition” be censored? Or should only extreme and unargued words be suppressed? In other words, should the advocate of diversity-as-recognition seek to suppress both Charles Murray and racial epithets or just the latter? And if the latter only, why?

Contrary to those questions, a second thought. Might diversity-as-recognition be interpreted in a way compatible with freedom of speech?

HT: Donald Downs for prompting thinking about the compatibility of diversity and free speech. 

Governments Shouldn’t Even Fund Schools

Education reporters frequently make the claim that government ought to fund and operate educational institutions because schooling is a public good. However, since schooling fails both conditions required for a public good to exist, schools should not be publicly operated.

Schooling is Not a Public Good

According to the economic definition, a public good is non-rival in consumption and non-excludable. The first condition means that one individual’s consumption of the good does not hinder others’ abilities to use the product. Schooling fails this condition since students take up seats when receiving an education. The second condition means that the producer of the good is unable to exclude non-payers. Schooling fails this part of the definition since school leaders can prevent students from attending their institutions, if necessary.

Since schooling is not a true public good, the basic free-rider problem does not exist. This is important because it means that government does not need to operate schools or force residents to pay for them.

A Merit Good?

When journalists claim that schooling is a public good, I believe they actually mean to say that education is a merit good since it produces positive externalities. When an educational product is purchased, both the consumer and the provider benefit, as in all other voluntary transactions. However, the rest of society may also benefit if schooling actually creates citizens that are more educated. This argument leads many scholars to support government subsidization of schooling.

The Problem

Obviously, schooling is only one channel through which people can achieve an education. Since children can learn in various settings, the current system of schooling may actually harm their overall educational levels. In other words, schooling may impose negative externalities on society through providing a less than optimal level of education to all children.

Similarly, schooling likely creates a more obedient citizenry. This generates positive externalities, through less criminal activity, and negative externalities, through less creativity and technological innovation.

Since there are large positive and negative externalities that result from schooling, in theory, it is impossible to determine the overall sign of the net spillover. Consequently, it is unclear whether we ought to tax or subsidize schooling; and even if we could somehow figure out the overall sign, we would not be able to determine the optimal magnitude of the intervention.

We should recognize the fact that externalities do exist in education. However, as the founder of externalities conceded, we must also realize that attempting to reach the socially optimal level of schooling through government intervention may ironically result in much harm. Instead, we ought to limit this probable detriment by allowing individual families to seek ideal educational experiences for their own children.

#Russiagate Update: Winner Leak Implications

Megyn Kelly is probably kicking herself for not delaying her interview of Vladimir Putin. Had she waited just a few days, she could’ve brought a leaked copy of the latest NSA estimate of the timeline, motivations, and targets of alleged Russian hackers during the 2016 election cycle to her chat with Putin and asked a lot of pointed questions about it. Even though that opportunity never materialized, she and other journalists still have the chance to ask some equally important questions of American officials about this rather interesting document and the young woman responsible for sharing it with the world. What follows are some of my suggested lines of inquiry for our friends in the Fourth Estate.

The Leaker: Reality Leigh Winner

As I read The Intercept’s story, I kept asking myself one question, over and over: did this young woman learn nothing from Ed Snowden? 

This extract from the arrest warrant affidavit contains details that, if accurate, speak to a total lack of awareness of or concern for the kind of “insider threat” detection measures that now exist in most, if not all, Intelligence Community components:

Extract of arrest warrant affidavit in the case of Reality Leigh Winner

Why did Winner not use a truly secure means of contacting The Intercept? Why did she select this particular document? Why did she not contact a whistleblower advocacy organization for legal advice before even contemplating such a rash act?

The Media Outlet: The Intercept

In a statement published a short time ago, The Intercept claimed that

On June 5 The Intercept published a story about a top-secret NSA document that was provided to us completely anonymously. Shortly after the article was posted, the Justice Department announced the arrest of Reality Leigh Winner, a 25-year-old government contractor in Augusta, Georgia, for transmitting defense information under the Espionage Act. Although we have no knowledge of the identity of the person who provided us with the document, the U.S. government has told news organizations that Winner was that individual.

That statement is at odds with the search warrant affidavit quoted above, which claims that Winner was in “email contact” with the “News Outlet” (The Intercept).

Who’s telling the truth here vis a vis Winner’s alleged email contact with The Intercept–the Department of Justice or the paper? Could Winner have emailed the wrong reporter at The Intercept, and the actual story authors were in the dark that she’d contacted the paper? Did Winner’s email bounce? And why did Intercept staff share an exact copy of the purloined document with NSA officials in the first place? Why didn’t they simply read key passages of the document over the phone, or include extracts in an email to NSA officials?

Given the fact that Winner printed the document and thus left investigators a digital trace of her actions, perhaps The Intercept’s decision to share a scanned version of the document wouldn’t have mattered–but maybe it would have, and why endanger a source (annonymous or otherwise) by behaving in such an irresponsible way with the document?

How Is Revenue Neutrality to Be Judged?

Any serious efforts to improve the tax system inevitably comes up against dubious assertions that such changes won’t improve economic growth or reduce tax avoidance, and will therefore not be “revenue neutral” but will simply increase deficits and debt for no reason.

The easiest way to block growth-oriented tax reforms is to insist that any such changes must be “revenue neutral” even in the short run.  However, that goal typically relies on uncritical acceptance of dubious estimates of (1) how much “baseline” revenue the existing system will bring in over 10-20 years, and (2) how much revenue a better tax system would bring in under the conventional and official assumption that higher or lower marginal tax rates on added income have no significant effect on anything.

As Harvard economist Greg Mankiw importantly notes, “A key question is how revenue neutrality is to be judged.” 

Before Congress could even attempt to be “revenue neutral” they must first have credible estimates of future revenue under the current tax regime.  Unfortunately, the Congressional Budget Office and Joint Committee on Taxation have so far provided only incredible projections.  

Here are links to my critiques of official revenue projections for corporate and individual income taxes. 

For Congress to judge “revenue neutrality” on the basis of these extremely flawed hyper-static CBO/JCT estimates would be economically and fiscally irresponsible.

Was the Rise of ISIS Inevitable?

In the latest issue of Survival, Hal Brands and Peter Feaver address an important debate in American foreign policy circles. Was the rise of ISIS inevitable, or was it the result of misguided U.S. policies? Most agree it is the latter, but the dispute gets fraught on the question of whether it was U.S. military interventionism or inaction that deserves the blame. Some say it was the invasion of Iraq that led to the rise of ISIS. Others insist it was Obama’s decision to withdraw from Iraq in 2011.

Brands and Feaver use counterfactual analysis to assess whether different U.S. policy decisions at four “inflection points” could have nipped the rise of ISIS in the bud. The first of these points was the Bush administration’s decision to invade Iraq in 2003. The other three occurred during the Obama administration and include the decision not to press Iraq to allow the United States to leave behind a significant number of U.S. troops, the decision not to intervene aggressively early on in the Syrian civil war, and the decision not to intervene more forcefully to help the government of Iraq defeat ISIS before it took the city of Mosul.

The authors take a middle road, arguing that, “the rise of ISIS was indeed an avertable tragedy,” but that both restraint and activism share the blame. Had U.S. policymakers not invaded Iraq in 2003, or been more aggressive in Iraq and Syria from 2011-2014, they argue, “ISIS might not have emerged at all.”

With suitable analytic humility, however, the authors warn against overconfidence that any of the alternatives would have made a decisive difference to the eventual outcome:

We find, for instance, that limited intervention in Syria in 2011-13 might have had benefits, but it probably would not have shifted the course of the conflict so fundamentally as to head of ISIS’s rise. Likewise, not invading Iraq in 2003 would have left the United States saddled with the costs of continuing to contain that country, whereas striking ISIS militarily in late 2013 or early 2014 might have weakened that organization militarily while exacerbating the political conditions that were fueling its rise. Intervening more heavily in Iraqi politics in 2010 in order to bring about a less sectarian government than that which ultimately emerged, and leaving a stay-behind force in Iraq after 2011, represent a fairly compelling counterfactual in the sense that such policies could have had numerous constructive effects. But even here, choosing a different path from the one actually taken would have meant courting non-trivial costs, liabilities, uncertainties and limitations (p. 10).

We applaud Brands and Feaver, who served in the Obama and George W. Bush administrations, respectively, for their attempt to “move away from polemical and polarized assessments focused on assigning blame, and toward more granular, balanced analysis based on a fairer-minded view of what went wrong (p. 10).” At the same time, there is plenty of room for disagreement over their interpretation of the “what ifs” of such a complex historical question.

Marijuana Licensing

If libertarians were in charge of legalizing marijuana, their first instinct would be to reach for an eraser.

That is, libertarians would simply eliminate existing laws that outlaw marijuana, rather than “design” the marijuana market by establishing a licensing board, capping the number of legal marijuana retailers, and the like.

Actual state marijuana legalizations, however, have generally capped the number of retail establishments and put a government board in charge of doling out the lucrative licenses to run them.

Predictably, this means that well-connected, white entrepreneurs benefit at the expense of African-Americans: 

Darryl Hill, hailed for integrating college football in his youth half a century ago, was a successful entrepreneur with no criminal record and plenty of capital when he applied for a license to grow marijuana in Maryland — a perfect candidate, or so he thought, to enter a wide-open industry that was supposed to take racial diversity into account.

To his dismay, Hill was shut out on his first attempt. So were at least a dozen other African American applicants for Maryland licenses. They were not told why.

The good news is that, in this instance, Hill seems to have circumvented the apparent bias:

… the 73-year-old great-grandfather who was the first black football player at the University of Maryland sought an ally in his quest to help other minorities — and himself — break into the closed ranks of cannabis cultivation and sales.

Hill’s new business partner, Rhett Jordan, happens to be a groundbreaker in his own right. The 33-year-old Colorado industry pioneer, who is white, founded one of the largest legal marijuana operations in the nation.

But Hill’s success should not obscure licensing’s harm: restricted supply, higher prices, and crony capitalism.