One Year after Kelo, Good News and Bad News

June 23rd was the anniversary of the Supreme Court’s infamous Kelo decision, allowing local governments to transfer property from one private owner to another so long as there is some perceived public benefit. And, of course, there always is some benefit; as Justice Sandra Day O’Connor wrote in dissent, “Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory” — because in each such case the city would get more tax revenue, and the city council would regard that as a public benefit.

On the anniversary of the decision, homeowners Susette Kelo and Pasquale Cristofaro finally settled with the city of New London on the terms of their eviction.

Also on the anniversary, President Bush signed an executive order that, in the words of a Washington Post headline, “Limits Eminent-Domain Seizures.” The Post and the AP should have learned by now to be more skeptical of Bush administration claims. The executive order really does very little. It says the federal government will only take property from its owners “for the purpose of benefiting the general public.” But the Supreme Court has just said that virtually anything goes under that standard.

Cato author Timothy Sandefur says that the executive order likely means nothing, but it’s good that the president issued it anyway, considering that the administration didn’t file a brief in the Kelo case.

Cato author Ilya Somin disagrees, saying, “Bogus reform efforts such as this one create a danger that the public will be falsely persuaded that the problem has been solved.” And he agrees that “this language validates virtually any economic development condemnation that the feds might want to pursue. Officials can (and do) always claim that the goal of a taking is to benefit ‘the general public’ and not ‘merely’ the new owners.”

If you don’t believe these churlish libertarians, you can listen to dedicated land-grabber Douglas Kendall of the Community Rights Counsel (a private nonprofit organization formed to assist governments in their efforts to take their citizens’ property), who told the AP, “This order appears to apply to a null, or virtually null, set of government actions.” He noted with relief that the order did not include a ban on funding for state and local development projects that employ eminent domain.

So where’s the promised good news? Well, it may pale next to the news that Kelo and her neighbors are finally being forced out and the news that the Kelo decision opened the floodgates for more property seizures than ever. But it’s still good news that Cato has just published Cornerstone of Liberty: Property Rights in the 21st Century by Timothy Sandefur, the first post-Kelo book on why property rights matter, how they’re protected in the Constitution, how local governments and the Supreme Court are ignoring the Constitution, and how to protect property rights after Kelo. Buy it now. Read it. Send it to your legislator and your member of Congress. And keep an extra around to give to the next neighbor whose property is threatened with seizure.

Protecting Your Privacy

As I purchased $10 worth of trinkets at the Container Store, the clerk began the transaction by saying, “May I have your phone number?” I replied, “Uh, no.” And that was that; without any objection he rang up the transaction. 

One way people can protect their privacy is by saying “no” more often. Companies ask for information, but they often don’t require it.

A couple of years ago, a guard at the White House looked at my driver’s license and told me, “You shouldn’t use your Social Security number as your driver’s license number.” So there’s another tip: ask the DMV to assign you a random number for your license.

None of this, of course, will stop your bank or phone company from giving up your information when the feds ask. But there are steps everyone can take to keep our lives just a little more private.

AMA: We’ll Cure Those Market Forces

It should have been an invigorating story for free-marketers.

Saturday’s New York Times describes how competition from health care clinics in retailers such as Wal-Mart and CVS is pushing traditional doctor offices to be more responsive to customer needs:

Professional societies for family doctors and internists are urging their members to break with tradition by making it easier to schedule appointments — or even making appointments unnecessary in the case of walk-in patients who need immediate attention.

“It’s a big trend,” said Amanda Denning, a spokeswoman for the American Academy of Family Physicians, which has about 94,000 members.

The academy is spending $8 million on consultants who visit doctors nationwide to suggest improvements in patient care. The advice is meant to “keep them from going to an in-store clinic,” Ms. Denning said, while also benefiting doctors by making office procedures more efficient.

Speedier appointments for patients who need immediate attention, more efficient office operations, and (the article later states) increased doctor office revenues as more (satisfied) patients are treated. American health care would certainly benefit from such a shot-in-the-arm.

So, naturally, the American Medical Association wants to perform a competition-ectomy. The Times goes on to report:

At its annual meeting this month, the American Medical Association called on the clinics to accept a list of principles that would limit their scope to simple services and ensure that a physician oversees the operations.

“Patients want quick and easy access to health care services, but they shouldn’t have to worry about the safety and quality of care provided in these clinics,” said Dr. Rebecca J. Patchin, an A.M.A. board member.

Once again, the AMA is making sure health care providers will do no harm … to AMA members’ bottom lines.

Clive Crook on the Massachusetts Plan

Clive Crook writes (note: link probably will expire in a month),

How to do national health reform worthy of the name? First, and most important, create a level playing field tax-wise for individuals and firms, so that nobody has a financial incentive to prefer employer-provided insurance to the individually purchased kind. You could do this by extending Connector-style tax relief to all taxpayers, or by abolishing it for employers. Abolition would be better. It would raise a lot of revenue (which will be needed in my plan) and would jolt people into changing their insurance arrangements.

Second, the free-rider problem makes the case for an individual mandate compelling, in my view. Massachusetts is right about that. And the mandate, in turn, makes health subsidies for the poor, which would be desirable in any case, unavoidable… . But to avoid the enormous problems of enforcing and administering the mandate … give everybody a voucher sufficient to buy stripped-down, Connector-style coverage.

Third, impose one other global restriction on insurance companies: If they offer a policy to anyone, they must offer that same policy to everyone, regardless of age, sex, current health, and other risk factors. Again, the Connector has provisions of this kind. This would preserve the risk-pooling feature of private insurance, while still allowing vigorous competition on price and offering.

I strongly disagree with the third point. As I pointed out here, it is these sorts of regulations that aggravate the problem of the uninsured in the first place. Force insurance companies to offer the same policy to everyone at the same price, and naturally health insurance will be a bad deal for young, low-risk people. Like Massachusetts, you will end up with a problem of such people being uninsured. As I said in my talk, the Massachusetts plan at best solves a problem that was created by regulation in the first place. Listen to the talk.

It’s Not Just Wages

Why do U.S. companies set up shop in countries such as China? Aside from trying to penetrate foreign markets, most people assume it’s the relatively low-cost labor abroad.

But the head of Intel Corporation, Craig Barrett, testified to Congress yesterday that relative tax costs are crucial to their choices regarding global investment locations.

Barrett said that “a critical issue we must now consider when deciding where to locate a new wafer fabrication plant is that it costs $1 billion more to build, equip, and operate a factory in the U.S. than it does outside the U.S. The largest portion of this cost difference is attributable to taxes.”

Why are taxes the biggest cost for Intel? As Barrett pointed out, “Semiconductor manufacturing is extremely capital intensive,” thus taxes on profits are a more important issue than wage levels.

Barrett noted that when Intel builds a plant in China, the firm get “a five-year tax holiday, followed by 50% of the normal tax rate for five more years. These are in comparison to the U.S., with its 35% corporate tax rate, lack of investment incentives, and relatively uneconomic and uncompetitive depreciation treatment.”

A story in the Wall Street Journal yesterday (sorry, subscriber-only site) noted that even Germany is now planning to sharply cut its corporate tax rate because of competitive pressures. That would leave United States with easily the highest corporate rate in the industrial world.

Conservatives on Executive Abuses

Here’s an interesting anecdote bearing on the dangers of unchecked surveillance powers. And it comes from a somewhat unlikely source: the Heritage Foundation’s Lee Edwards, a historian of the conservative movement and biographer of Barry Goldwater. 

Edwards tells the story of the FBI, at Lyndon Johnson’s request, placing bugs on Barry Goldwater’s campaign plane:

The bureau’s illegal surveillance was confirmed by Robert Mardian, when he was an assistant attorney general in Nixon’s first term. During a two-hour conversation with J. Edgar Hoover in early 1971, Mardian asked about the procedures of electronic surveillance. To Mardian’s amazement, Hoover revealed that in 1964 the FBI, on orders from the Oval Office, had bugged the Goldwater plane. Asked to explain the blatantly illegal action, Hoover said, “You do what the president of the United States orders you to do.”

Here’s another such anecdote from another conservative, federal judge Laurence Silberman, by way of Robert Novak. As a deputy attorney general in 1974, when the House Judicary Committee asked him to review secret files kept by J. Edgar Hoover. Silberman discovered a cache of “nasty bits of information on various political figures — some still active.”  According to Silberman, “Lyndon Johnson was the most demanding” when it came to requisitioning FBI political intelligence. In 1964, after D.C. police arrested LBJ aide Walter Jenkins for homosexual conduct, special assistant to the president Bill Moyers ordered Hoover to find something similar on Barry Goldwater’s campaign staff. 

Conservatives may get a kick out of Moyers’ discomfort at having his gutter tactics exposed (“I was very young. How will I explain this to my children?”), but there’s a larger point here beyond schadenfreude. When presidents get to exercise unchecked power in the national interest, they tend to have a hard time telling the difference between the national interest and their own political fortunes. The post-Watergate reformers made some mistakes, but many of their reforms — FISA among them — were aimed at changing the dynamic described by Mardian: “You do what the President orders you to do.”

Unfortunately, the Bush administration’s legal theories threaten to shift it back.   

Sorry, We Can’t ‘Grow’ Our Way out of the Social Security Problem

Many economists and lawmakers — especially conservatives — argue against tax hikes as solutions to entitlement shortfalls, saying the hikes would be counterproductive. According to this argument, higher taxes would retard growth, reduce federal revenues, and worsen entitlement shortfalls. 

For example, Stephen Moore in his June 12 Wall Street Journal column “Don’t Know Much About History…” alludes to a presumed beneficial impact of faster (wage) growth on the financial problems of entitlement programs. Unfortunately, that presumption is incorrect, especially as regards Social Security.

The claim that faster wage growth would reduce Social Security’s financial shortfall is an artifact of the standard (but flawed) 75-year-ahead Social Security financial projections that count payroll taxes through that period but ignore benefit obligations those taxes would create beyond the 75th year. The projections make it look as though robust wage growth would shrink the gap between Social Security revenues and obligations. But the picture changes over a longer timeframe.

The Social Security trustees have in recent years begun publishing estimates of the present value of Social Security’s financial shortfall in perpetuity. This is the correct measure to use in assessing the impact of faster wage growth on Social Security’s financial status because it is comprehensive — it accounts for all future taxes and benefits. Unfortunately, the trustees do not provide any analysis of how sensitive the perpetuity measure is to changes in various underlying assumptions. 

Whether faster economic growth would improve or worsen Social Security’s actuarial deficit depends on the balance between two opposing forces: demographics and wage growth. 

Concerning demographics, as retirees grow more numerous relative to workers, Social Security’s finances would worsen — which is easy to see if benefits depend on current wages. 

Concerning wages, in each time period, benefits mostly depend on past wages. That’s because under current Social Security laws, once a person’s benefit level is determined at the time of retirement, its real value remains constant during the rest of the person’s retirement years because it is indexed to prices. (The real value of benefits would grow were post-retirement benefits indexed to wages instead.) Because current benefits depend mostly on past wages, faster growth in current wages won’t lead to a proportionate increase in current benefits. Benefits would begin to grow faster only after a considerable time lag. Hence, faster wage growth magnifies the financial advantage associated with this time lag and reduces Social Security’s actuarial deficit.

It has been shown that in the case of U.S. Social Security, the force of worsening demographics dominates: The system’s actuarial deficit (i.e., the ratio of the present value of the system’s financial shortfall to the present value of the payroll tax base when both are calculated in perpetuity) increases with faster wage growth — a result opposite to that obtained under 75-year-ahead calculations. 

Thus, based on a comprehensive measure, the view that faster wage growth would deliver us from our Social Security problem is misguided. But many have repeatedly cited it to argue against reforming the program, e.g., Sen. John Kerry during his 2004 presidential bid. 

The Social Security debate would be better served if we put this view in its rightful place: the trash bin.

Of course, the conclusion should not be that we should strive for slower wage growth to improve Social Security’s finances! Mr. Moore’s distaste for growth-retarding tax hikes is correct. But the negative implications of faster wage growth for Social Security’s finances do not provide any purchase for his argument. Indeed, the twin imperatives of maintaining high economic growth and resolving Social Security’s financial shortfall indicate — even more strongly — that reforms should be weighted more heavily toward future benefit cuts rather than tax hikes.