any person who, pursuant to this section, is permitted to inspect any report or return or to whom a copy, an abstract or a portion of any report or return is furnished, or to whom any information contained in any report or return is furnished, to divulge or make known in any manner the amount of income or any particulars set forth or disclosed in any report or return required under this article.

If you follow state policy issues, you may think that there has been a lot of tax cutting recently because of high-profile reforms by Mike Pence, Sam Brownback, and a few other governors. I examine those reforms in Cato’s 13th biennial fiscal report card on the governors, released tomorrow.

However, a chart from NASBO shows that recent tax cutting across the 50 states has been limited and mainly offset by tax hiking. The chart shows net state revenue changes from legislated cuts/​hikes since 1979. In 2017, for example, the dollar value of hikes is expected to outweigh cuts.

That is a disappointing because there is usually a trend toward tax cutting during economic expansions, or at least there was during the 1990s. Recent tax cuts in places such as Florida, Indiana, Maine, New York, North Carolina, and Texas have been offset by hikes in places such as Alabama, Connecticut, Delaware, Nevada, Pennsylvania, and South Dakota.

What makes the current dearth of tax cuts odd is that state legislatures have become more Republican since the 1970s. The Wall Street Journal had a chart yesterday showing that the share of state legislature seats held by the GOP has risen from 40 percent in the 1980s to 55 percent today. 

Republicans are supposed to be the tax-cutting party. That is the core of their “brand.” So why isn’t there more tax-cutting? One reason is that some Republican governors start siding with special interests over taxpayer interests after they have been in office a while. They forget that they are supposed to work for all the citizens, not just the ones lobbying for more government spending. Nevada’s Governor Brian Sandoval seems to be a good example, as I discuss in the report tomorrow.

Another problem is that in some state legislatures that are nominally Republican, some of the members have chosen that label only because it was advantageous for election and reelection. In South Carolina, Governor Mark Sanford and then Nikki Haley long pursued major tax reforms, but to little avail.

A final problem is that the Democratic Party has moved to the left on fiscal issues. Andrew Cuomo of New York is about the only Democratic governor in recent years who has been amenable to substantial tax reductions.

Learn what grades Cuomo, Haley, Sandoval, and the others earn on their recent fiscal performance in tomorrow’s report.

The Sunday Washington Post had a long, hagiographic article about Senator Mark Warner’s critique about how capitalism “isn’t working” for the masses and his heroic attempts to fix it that left me thinking I’m in an alternate reality.

The problem he sees is that the growing tendency of people to change jobs throughout their career has left people unprepared for retirement, and that we need to do more to make sure that workers have some sort of safety net to provide them with health care and income in their golden years.

That this was largely addressed decades ago with the introduction of Social Security and Medicare was completely missing from the article. Social Security is an incredibly progressive retirement program that provides everyone with a work history of at least ten years with a decent-sized benefit that doesn’t go up all that much for wealthier people who contributed much more. And Medicare is the largest government program there is, covering hospitalization costs, basic health costs and drug benefits for tens of millions of senior citizens. The government spends about $1.5 trillion each year on these two programs, and they make up the majority of our federal budget. There’s also plenty of evidence that they prevent seniors from indigence: the poverty rate for seniors is well below that of other age groups. 

The current Administration also added an expensive entitlement that makes it much easier for people under age 65 who do not receive health insurance to obtain it, along with a healthy subsidy. For a family of four in Washington DC there is still a subsidy for an income of $80,000, which is well above the mean household income, and Medicaid completely covers those who don’t make enough money to buy their own health insurance. What more can we possibly do to make health insurance more affordable for the working poor?

The latest push of the Administration–and one that Senator Warner is leading–is to create some sort of government 401k. The idea is an awful one–the rationale is that since we move around to so many jobs, and since many employees do not provide a retirement plan, the government should do it for them. Earlier this year the Department of Labor made it much easier for the states to set up retirement accounts for their workers that would be administered by the state as an option for workers at firms without a retirement plan.

It is a supremely bad idea. For starters, there is no evidence that a public option is better than a private option, and plenty of data showing the contrary. For instance, the college savings accounts run by the states are no different than what people would get if they went to their local Fidelity or Vanguard office and opened their account, save for the fact that the latter would not come with a tax break, and the money in the government account has a sharply higher management fee than are found in the private funds. The Department of Labor just spent a year trying to drive down management fees in retirement accounts and they’re embarking on a new plan that would invariably create millions of accounts with higher management fees than they could get elsewhere.

Until recently liberals were in full defense of defined benefit pensions despite the fact that they disadvantaged people who had shorter job tenure and were more likely to change jobs, both of which tend to be truer for women than men. That they realize these don’t work in today’s economy is gratifying, but their insistence that the government create a vehicle to replace it is nonsensical.

If we want to nudge people to get a retirement account, we can do that without the state of Massachusetts inserting itself as a middleman. And politicians should stop pretending that there’s a senior citizen poverty crisis, no matter how flattering the Post may treat such efforts.

You Ought to Have a Look is a regular feature from the Center for the Study of Science. While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic. Here we post a few of the best in recent days, along with our color commentary. 

—

With last week’s news dominated by the debates—both in front of the American people (Trump v. Clinton) and in front of the American courts (West Virginia v. EPA)—we figured we’d highlight a couple of other stories that may have not have gotten the attention that they deserved. 

First up is a piece that left us slack-jawed. “How the FDA Manipulates the Media” is an investigative journalism article Charles Seife of Scientific American that reveals a seamy world of backroom press manipulation by scientific bodies (in this case, the federal Food and Drug Administration) through a practice known as a close-hold embargo. While some organizations, including major scientific journals like Science and Nature, employ an embargo system that allows some members of the press access to articles before they are officially “published” so that they can prepare news stories, the only condition is that no one releases the story before a set date. This is why a bunch of news stories, all covering the same piece of scientific information, all hit the airwaves/​intertubes at the same time. While this type of embargo is a bit unfair to anyone who perhaps wants to comment on the story but is blindsided by it – the procedure only biased by the well-known predilections of the mainstream press. However, the close-hold embargo is an (almost mythical) horse of a different color. Its intent is to generate loads of press, but only good press. 

Here’s a taste from Scientific American:

The deal was this: NPR, along with a select group of media outlets, would get a briefing about an upcoming announcement by the U.S. Food and Drug Administration a day before anyone else. But in exchange for the scoop, NPR would have to abandon its reportorial independence. The FDA would dictate whom NPR’s reporter could and couldn’t interview.

…This kind of deal offered by the FDA—known as a close-hold embargo—is an increasingly important tool used by scientific and government agencies to control the behavior of the science press. Or so it seems. It is impossible to tell for sure because it is happening almost entirely behind the scenes. We only know about the FDA deal because of a wayward sentence inserted by an editor at the New York Times. But for that breach of secrecy, nobody outside the small clique of government officials and trusted reporters would have known that the journalists covering the agency had given up their right to do independent reporting.

Documents obtained by Scientific American through Freedom of Information Act requests now paint a disturbing picture of the tactics that are used to control the science press. For example, the FDA assures the public that it is committed to transparency, but the documents show that, privately, the agency denies many reporters access—including ones from major outlets such as Fox News—and even deceives them with half-truths to handicap them in their pursuit of a story. At the same time, the FDA cultivates a coterie of journalists whom it keeps in line with threats. And the agency has made it a practice to demand total control over whom reporters can and can’t talk to until after the news has broken, deaf to protests by journalistic associations and media ethicists and in violation of its own written policies.

By using close-hold embargoes and other methods, the FDA, like other sources of scientific information, are gaining control of journalists who are supposed to keep an eye on those institutions. The watchdogs are being turned into lapdogs. “Journalists have ceded the power to the scientific establishment,” says Vincent Kiernan, a science journalist and dean at George Mason University.

And if you think this taste is bad, the whole article will make you ill. Sickening, but eye-opening. Perhaps take an alka seltzer first, but you really ought to have a look.

Next up is a provocative piece by Andrew Gelman, Professor of Statistics and Political Science, at Columbia University. In his post “What has happened down here is the winds have changed” Gelman contrasts the traditional peer-review system of scientific reportage with the new social-media-review system. While there are many scientists who are desperate to hold onto the old system which is controlled more by scientific “insiders,”Gelman documents how that system has become faulty and unreliable. It seems perhaps that scientific “outsiders” can, or even must, help save the day:

When it comes to pointing out errors in published work, social media have been necessary. There just has been no reasonable alternative. Yes, it’s sometimes possible to publish peer-reviewed letters in journals criticizing published work, but it can be a huge amount of effort. Journals and authors often apply massive resistance to bury criticisms.

Gelman’s post, although lengthy, is well-worth the effort—especially interesting is his timeline of events that have transpired, rapidly, over the past 5–6 years that have illuminated the “replication crisis” in today’s science. While Gelman’s post is aimed more specifically to the field of psychology, it is much more generally applicable. It’s a great companion piece to the many others that we have recently been documenting in these pages that illustrate that something is rotten in the state of Science.

And finally is a blog post by Blair King, author of the blog “A Chemist in Langley.” Blair is a self-affirmed “lukewarmer” pointing out that “I agree with the fundamental science of climate change. I acknowledge that the anthropogenic addition of Tyndall gases into the atmosphere will have an effect on global climate. As such, I agree with consensus (as presented by the IPCC) on the topic of climate change. “ but that “As a Lukewarmer my primary difference with the alarmists is that I believe that the climate’s sensitivity to carbon dioxide is on the lower end of the consensus scale presented by the IPCC. “

In his post, “On Lukewarmism, denial and a look at the state of the environmental movement,” Blair describes how nasty life can be for lukewarmers—or anyone else for that matter—who doesn’t toe the activist line that climate change is a huge threat to mankind and drastic steps must be immediately taken in attempt to mitigate it. Blair writes:

This blog post started as a light lark about the internecine battles between climate activists but has ended up as a state-of-the-union sort of piece that refutes a lot of malicious slander being directed my way by the likes of Miriam (SouBundanga) O’Brien and her acolytes who have filled my twitter feed with their rubbish, lies and insults. It puts some thoughts together in one place and describes where my mind is on the topic of Lukewarmism, climate change “denial” and the current state of the environmental movement.

Be sure to read the whole thing to get an idea of how climate activists can go off the rails.

“Bad behavior” it seems, should be included in the list of things “consistent with” anthropogenic climate change.

After spending some years in both legislative and regulatory policy roles, I’ve come to even more strongly believe that almost everything you really need to understand regulation can be found in Peltzman’s classic 1976 extension of Stigler’s original economic model of regulation. Almost everything. What I find lacking is recognition of the importance of both outright ignorance of the “correct” policy solution, along with cognitive biases on the part of policymakers. While I reach slightly different conclusions for the structure of policy implementation, I follow Rachlinski and Farina(2002) in framing the inquiry around two models of government error: Public Choice and Cognitive Failure.

While still largely ignored within mainstream academia, the central framework of Public Choice theory, that actors in the political realm pursue rational self-interest, appears to have been largely embraced by popular political commentators from Senator Elizabeth Warren to Presidential Candidate Donald Trump. The notion that “the system is rigged” clearly resonates with the public. For some the obvious solution has been to further insulate regulators from the political process: witness the structure of the Consumer Financial Protection Bureau (CFPB) created by the Dodd-Frank Act.

The “protecting” of regulators from the political process is, however, based upon the belief that the “correct” policy is obvious and is simply being blocked because regulators are “captured” by those they regulate. Insulate the regulators, and like magic, you get the right policy.

A challenge to this argument is the performance of the Federal Reserve, arguably the most independent of regulators. Yet its performance before and during the crisis has been widely criticized. The creation of the CFPB was in part a reaction to the perceived failures of the Fed in the area of consumer protection (for a counter argument, see Bernanke’s recent book). Capture at the Fed is often invoked as resulting from having bankers on the regional bank boards, but the consumer protection rules were not written by the regionals but by the Washington-based Fed board.

If not direct capture, then invoked is the notion of “cognitive capture” in explaining the Fed’s (in)action. In this instance the Fed comes to identify with the values and world view of Wall Street and/​or economists. There is much merit in this view, and I certainly see it as a fact that “regulatory capture has resulted in an excess sensitivity of the Fed to financial market and financial sector concerns and fears and in an overestimation of the strength of the link between financial market turmoil and financial sector deleveraging and capital losses on the one hand, and the stability and prosperity of the wider economy on the other hand (Buiter 2008).”

But this type of capture does not seem to come from a “revolving door” or Congressional pressure or any of the standard avenues. It appears to come from the transmission of information.

Regulators rely on external parties, often industry, to gather information about the health of the economy and about the impact of regulation on the economy, as well as on specific industries. The problem of representativeness bias, however, arises in determining whether the information is indeed reflective of the overall economy. The NY Fed, for instance, heavily interacts with a small number of banks that are “primary dealers.” Such is a function of how monetary policy is currently conducted. If a primary dealer is experiencing problems and asking the Fed for assistance, the Fed may well conclude many other banks also need assistance. I would suggest this was indeed the case in 2008.

Bankers and economists are not the only parties subject to cognitive capture, nor the only parties able to project it. As there appears to be little evidence that America is suffering from a mandated arbitration crisis, one has to wonder why the CFPB has spent so much effort trying to eliminate it. Perhaps we shouldn’t be surprised that an agency staffed by lawyers is subject to cognitive capture by the general legal profession. The point is not that lawyers are any better (or worse) than economists, the point is that all of us are subject to potential cognitive capture. No one is immune.

Given that everyone is subject to capture, cognitive and otherwise, what structures can reduce this? One solution is, as Stephan Bainbridge has suggested, a board structure. Such could help bring diverse voices to bear on a problem, forcing policymakers to consider alternative viewpoints and recognize their own biases. In this sense, we should follow Cass Sunstein’s call for encouraging more dissent.

Recently Schnakenberg and Turner (2016) have formalized a model where attempts to eliminate capture by limiting influence (the CFPB model) results in less informed policymaking. Are our only choices biased, ignorant policymaking versus captured policymaking? Again here is where checks-and-balances can improve regulatory outcomes. For instance, the President’s Council of Economics Advisors has often stood as an independent voice within the executive branch against agency proposals favoring the constituents of said agency (for example see Hargrove and Morley 1984). The Office of Management and Budget has often served a similar role. External review of agency decision-making, whether by the Courts or independent bodies such as the GAO, offer some potential for reducing cognitive capture (See Seidenfeld 2002).

Attempts to require greater agency accountability have often been opposed as favoring special interests. Yet the notice and comment process under the Administrative Procedures Act (APA) has greatly leveled the playing field in terms of influencing agencies. Prior to the APA, agency rule-makings often looked like the machinations of an industry cartel. While the APA has undoubtedly increased the length of the rule-making process, it has also improved it, without inhibiting government’s ability to act. Ultimately expediency in government is the friend of special interests, not the public.

I’ve argued above that the most fruitful avenue for reducing regulatory capture is to impose more checks-and-balances on our agencies, reversing recent trends toward expediency. Of course in many cases, Fred McChesney had it right when he wrote, “the one unambiguous solution for reducing rent extraction is reducing the size of the state itself and its power to threaten, expropriate, and transfer.”

[This article originally appeared on Pro-Market, the blog of the Stigler Center at the University of Chicago Booth School of Business.]

Megau​pload​.com was once the 13th most popular website on the internet, with more than 82 million unique visitors and a billion total page views during its seven-year operation. The site allowed people to store files on the cloud for later use—and some users inevitably stored copyrighted TV shows, films, songs, and software. In 2012, the U.S. government charged the site’s owner, Kim Dotcom, and its operators with conspiracy to commit copyright infringement. The defendants are currently resisting extradition to the United States (Dotcom lives in New Zealand), as is their right under extradition treaties.

In 2014, the seemingly frustrated government moved to seize the defendants’ considerable assets in a civil-forfeiture action, claiming that the assets are probably connected to the alleged criminal activity. The government had a major problem, however, as the assets that they were seeking to seize were not located in the United States, but in Hong Kong and New Zealand. Under traditional rules of in rem jurisdiction—a legal theory that allows courts to gain jurisdiction over property—the court must have “control” over the property to entertain the claims, which the district court did not have in this case.

The district court, however, ignored fundamental principles of statutory construction, and agreed with the government’s argument that a federal statute—conferring only venue to the district courts in cases where property was located outside of the United States—also expanded the court’s jurisdiction and fundamentally altered the traditional requirement that courts have control over the property to assert jurisdiction over it.

This misreading of the statute also created a serious constitutional issue under Article III. It is a fundamental constitutional rule that federal courts can’t issue mere “advisory” opinions. When a court lacks control over property located in a foreign country, it necessarily relies on another sovereign to enforce that order, making it advisory as to how the other sovereign should enforce the judgement.

To make matters worse, the court here also “disentitled” the defendants from presenting evidence that their property was not subject to seizure. Under civil-forfeiture laws, the government can take property without an underlying criminal conviction based only on the allegation of a crime. Those whose property has been seized can get it back by proving that their property is “innocent.” The government, however, is preventing the defendants from even making that argument. Using the “fugitive disentitlement” doctrine, the government is blocking the defendants from challenging the forfeiture.

Fugitive disentitlement has historically been applied only to criminals who escaped custody while appealing a conviction, the idea being that a court could decide to dismiss the appeal because any judgment would be unenforceable against an absent defendant. Here, the government has decided that, because the Megaupload defendants aren’t coming to the United States to defend their property, they are “fugitives” who have lost the ability to defend against that seizure—and the district court agreed. The U.S. Court of Appeals for the Fourth Circuit then wrongly upheld the district court’s holding, so Cato, along with the Institute for Justice, have filed an amicus brief asking the court to hear the case en banc (all the judges on the court).

We argue that the district court’s reading of the federal statute was not in line with fundamental statutory construction principles and that it’s unconstitutional for the government to use fugitive disentitlement in civil forfeiture proceedings against non-fugitives. The Fifth Amendment’s Due Process Clause requires an opportunity to be heard and an opportunity to defend against government-initiated actions against your property—even if you’re a dotcom millionaire living abroad.

The Fourth Circuit will decide whether to rehear United States v. Batato later this fall. If it declines to do so, the Supreme Court will have an opportunity to take the case — possibly before the end of the new term that just started today.

While still largely ignored within mainstream academia, the central framework of Public Choice theory, that actors in the political realm pursue rational self-interest, appears to have been largely embraced by popular political commentators from Senator Elizabeth Warren to Presidential Candidate Donald Trump. The notion that “the system is rigged” clearly resonates with the public. For some the obvious solution has been to further insulate regulators from the political process: witness the structure of the Consumer Financial Protection Bureau (CFPB) created by the Dodd-Frank Act.

The “protecting” of regulators from the political process is, however, based upon the belief that the “correct” policy is obvious and is simply being blocked because regulators are “captured” by those they regulate. Insulate the regulators, and like magic, you get the right policy.

A challenge to this argument is the performance of the Federal Reserve, arguably the most independent of regulators. Yet its performance before and during the crisis has been widely criticized. The creation of the CFPB was in part a reaction to the perceived failures of the Fed in the area of consumer protection (for a counter argument, see Bernanke’s recent book). Capture at the Fed is often invoked as resulting from having bankers on the regional bank boards, but the consumer protection rules were not written by the regionals but by the Washington-based Fed board.

If not direct capture, then invoked is the notion of “cognitive capture” in explaining the Fed’s (in)action. In this instance the Fed comes to identify with the values and world view of Wall Street and/​or economists. There is much merit in this view, and I certainly see it as a fact that “regulatory capture has resulted in an excess sensitivity of the Fed to financial market and financial sector concerns and fears and in an overestimation of the strength of the link between financial market turmoil and financial sector deleveraging and capital losses on the one hand, and the stability and prosperity of the wider economy on the other hand (Buiter 2008).”

But this type of capture does not seem to come from a “revolving door” or Congressional pressure or any of the standard avenues. It appears to come from the transmission of information.

Regulators rely on external parties, often industry, to gather information about the health of the economy and about the impact of regulation on the economy, as well as on specific industries. The problem of representativeness bias, however, arises in determining whether the information is indeed reflective of the overall economy. The NY Fed, for instance, heavily interacts with a small number of banks that are “primary dealers.” Such is a function of how monetary policy is currently conducted. If a primary dealer is experiencing problems and asking the Fed for assistance, the Fed may well conclude many other banks also need assistance. I would suggest this was indeed the case in 2008.

Bankers and economists are not the only parties subject to cognitive capture, nor the only parties able to project it. As there appears to be little evidence that America is suffering from a mandated arbitration crisis, one has to wonder why the CFPB has spent so much effort trying to eliminate it. Perhaps we shouldn’t be surprised that an agency staffed by lawyers is subject to cognitive capture by the general legal profession. The point is not that lawyers are any better (or worse) than economists, the point is that all of us are subject to potential cognitive capture. No one is immune.

Given that everyone is subject to capture, cognitive and otherwise, what structures can reduce this? One solution is, as Stephan Bainbridge has suggested, a board structure. Such could help bring diverse voices to bear on a problem, forcing policymakers to consider alternative viewpoints and recognize their own biases. In this sense, we should follow Cass Sunstein’s call for encouraging more dissent.

Recently Schnakenberg and Turner (2016) have formalized a model where attempts to eliminate capture by limiting influence (the CFPB model) results in less informed policymaking. Are our only choices biased, ignorant policymaking versus captured policymaking? Again here is where checks-and-balances can improve regulatory outcomes. For instance, the President’s Council of Economics Advisors has often stood as an independent voice within the executive branch against agency proposals favoring the constituents of said agency (for example see Hargrove and Morley 1984).  The Office of Management and Budget has often served a similar role. External review of agency decision-making, whether by the Courts or independent bodies such as the GAO, offer some potential for reducing cognitive capture (See Seidenfeld 2002).

Attempts to require greater agency accountability have often been opposed as favoring special interests. Yet the notice and comment process under the Administrative Procedures Act (APA) has greatly leveled the playing field in terms of influencing agencies. Prior to the APA, agency rule-makings often looked like the machinations of an industry cartel. While the APA has undoubtedly increased the length of the rule-making process, it has also improved it, without inhibiting government’s ability to act. Ultimately expediency in government is the friend of special interests, not the public.

I’ve argued above that the most fruitful avenue for reducing regulatory capture is to impose more checks-and-balances on our agencies, reversing recent trends toward expediency. Of course in many cases, Fred McChesney had it right when he wrote, “the one unambiguous solution for reducing rent extraction is reducing the size of the state itself and its power to threaten, expropriate, and transfer.”

[This article originally appeared on Pro-Market, the blog of the Stigler Center at the University of Chicago Booth School of Business.]