An Unnecessary, Expensive, and Probably Unconstitutional Board

Congress should pay attention to what is happening with one of their recent creations.  The Securities and Exchange Commission will soon appoint two members of the Public Company Accounting Oversight Board (PCAOB), a private monopoly that was created by the Sarbanes-Oxley Act of 2002. This board is unnecessary, expensive, and probably unconstitutional.

This board was created to establish auditing standards for all public accounting firms and to monitor the performance of these firms, based on the presumed failure of Arthur Andersen, one of the formerly Big 5 public accounting firms, to adequately audit the financial reports of Enron. The Sarbanes-Oxley Act, however, left in place a major conflict of interest affecting these firms: The public accounting firms continue to be paid by the companies that they audit. Instead of correcting this conflict of interest, Congress established a new board to regulate all of the public accounting firms, although only a few such firms have ever been charged with a major breach of auditing standards. Congress could have corrected this conflict of interest by shifting the payment for audits from the audited firms to the stock exchanges on which the firms are listed; the stock exchanges would then recover the audit payments in their listing fees.  In this case, the PCAOB would be unnecessary, an overreaction to what was apparently a rare breach of the existing auditing standards.

The PCAOB is outrageously expensive. The chairman is paid an annual salary of $615,000, and each of the other four members are paid an annual salary of $500,000 – in both cases, a multiple of the salary of the President of the United States who has many more serious problems to worry about.

Moreover, all of the candidates for the two open positions are current or former federal officials for whom a much lower salary was a sufficient incentive.

As a private monopoly with both regulatory powers and taxing powers, the PCAOB is probably also unconstitutional. The PCAOB sets its own budget that is financed by a mandatory fee on all public listed corporations. A case has already been filed that challenges the constitutionality of the PCAOB, which if successful would probably invalidate the whole of the Sarbanes-Oxley Act. So much the better.

For an update, see here.

Public Education: Social Napalm

Perhaps the most pernicious myth about American public education is that it is the “foundation of our democracy,” the great unifying force that has taken millions of diverse peoples and shaped them into a cohesive, happy whole.

It’s a fantasy. The ugly truth is that our one-size-fits-all public school system, for which everyone must pay but only the most politically powerful can control, has been forcing American communities into ruinous social conflict for almost two centuries. The latest casualty is Miami, where efforts to ban school library books that portray post-communist revolution Cuba in a flattering light have set the community ablaze. From the Miami Herald:

The emotional and political storm surrounding the debate became impossible to ignore in a community so deeply steeped in Cuban culture. It bared the exile community’s considerable political heft as well as persistent suspicion that other groups remain ignorant of – or even hostile to – the deep sensitivity toward Cuba’s image and struggles….

Board member Robert Ingram voted for the ban, but only to invite the ACLU’s lawsuit so the issue could be resolved by the courts, he said. In an impassioned speech, he said threats from the exile community left him thinking board members “might find a bomb under their automobiles” if they voted to keep the book.

“There’s a passion of hate,” Ingram said. “I can’t vote my conscience without feeling threatened – that should never happen in this community any more.”

Tragically, all across the country conflicts like Miami’s occur constantly. Battles over Intelligent Design, school budgets, dress codes, student speech rights, race, and sex education all are symptoms of the same problem: Monolithic systems of public education will only reflect the values of those people with enough political strength to impose their will. This results in either nonstop political warfare or subjugation of the politically weak, neither of which is the foundation of any kind of desirable society. Only freedom, which in education means school choice, can form such a foundation.

Build a Wall around the Welfare State, Not around the Country

Most of the members of the conference committee on the immigration bill seem to have forgotten our own heritage.

Compared to the present, the United States had a higher rate of immigration just prior to World War I when we had no significant immigration controls (except against the Chinese) and no federal welfare programs. Most of these immigrants were from Ireland, Italy, Hungary, Poland, and other poor European countries; most spoke no English and had only crude manual skills. Many Americans from families who had been here for more than a few generations were prone to speak disparagingly about the status and prospect of the new immigrants. For all that, almost all of these new immigrants (including my grandfather) were work-oriented, family-oriented, no burden to others, and, within a generation, fully assimilated Americans.

Most current immigrants, other than being Hispanic, are very much like those who chose to make their future in the United States a century ago. The record of recent immigrants is impressive: a relatively high employment rate, a relatively low rate of birth to single mothers, and an unusually low incarceration rate. So far, the one major difference from prior immigrants is that the Hispanics are less education-oriented. Given the opportunity, there is every reason to expect them to be good workers, good neighbors, and fully assimilated Americans within a generation. 

The one major difference from a century ago that affects this issue is that the United States is now a substantial welfare state. Illegal immigrants appear to be net taxpayers to the federal government but net tax burdens to state and local governments, especially if they have children in school. 

The primary solution to this problem is to build a wall around the welfare state, not the U.S. nation-state. For new immigrants, access to social services could be limited to emergency health care. Access to public schooling could be limited to those children born in the United States. Access to the full range of social services could be limited, for example, to those who have four years of legal work experience, a record of full payment of taxes, and no felony conviction. 

A supplementary solution to this problem would be a federal transfer to those states and local governments with an unusual number of immigrants. This approach should substantially reduce the opposition to immigration by residents of the border states.

Building a wall around the country, in contrast, is unnecessary, futile, and offensive.

The Buying of America

According to USA Today, the Democrats are preparing a platform called a “New Direction for America” in which they will promise to “reduce the cost of student loans and prescription drugs, raise the minimum wage and launch an effort to develop alternative fuels if they win back control of Congress.”

Is there anyone in their right mind who could possibly think that this is anything other than a shameless effort to buy American voters? No way! Too bad the Republicans have been doing the same things for years.


Spending Limits Are Not the Answer

David Primo and Jeff Milyo have just published an op-ed in Roll Call. Advocates have long argued that restrictions on campaign spending, which can be direct spending or contributions, enhance electoral competition. In Vermont they convinced the state legislature to pass spending limits, the constitutionality of which are now before the U.S. Supreme Court. Primo and Milyo correctly note “the most current and best scientific evidence flies in the face of the promises” made by these advocates. Indeed, “the court jurisprudence upholding campaign finance laws is built on a shaky empirical foundation.” They continue: “In fact, we are aware of no scholarly studies that yield consistent evidence of large and statistically significant effects of campaign finance regulations on electoral competitiveness.”

I go into the shaky philosophical and empirical foundations of campaign finance law in my upcoming book, The Fallacy of Campaign Finance Reform.

Supreme Court Gets it Wrong in Hudson

The Supreme Court just ruled 5-4 that police who conduct an illegal “no-knock” raid on a citizen’s home can use evidence seized from that raid against the suspect at trial.

Taken with the high degree of immunity from lawsuits courts and lawmakers have given to police officers in these cases, there is now no real penalty for police who ignore the legal requirement to knock and announce themselves before forcibly entering a private home.

We can expect the already disturbing trend of military-style police raids on American citizens to get substantially worse.

Last April, I wrote a synopsis of what’s at stake in the Hudson case for Slate.