Policy Institutes

An Amtrak locomotive caught fire yesterday on its way from Chicago to Milwaukee. Fortunately, all 51 passengers were safely evacuated from the six-car train.

At about the time the locomotive was burning, a reporter was telling me that “everyone” in Washington was saying that the Philadelphia accident proves that Amtrak needs more money. No doubt the Wisconsin incident will add to those calls for more funding.

But go back and read the first paragraph: There were only 51 passengers on that train. All of them could have fit on one motorcoach, many of which have 52 or more seats. The Horizon coaches used on this train typically have 60 seats, which means the train was less than one-sixth full. According to Amtrak’s performance report for fiscal year 2014, the Chicago-Milwaukee Hiawatha trains filled an average of 36 percent of their seats in 2014, or about two-and-one-half buses worth.

Amtrak fares for its seven daily trains each way between Chicago and Milwaukee start at $24. According to Busbud, Greyhound and Megabus together offer 13 trips per day each way between Chicago and Milwaukee, and their fares are often as low as $7 and never higher than $10.

While intercity bus operators pay a discounted fuel tax, the buses otherwise operate without subsidy. Amtrak’s Hiawatha trains produced $16.8 million in ticket revenues in 2014 against $24.5 million in operating costs, for a net loss of $5.7 million (not counting amortized capital costs). The trains carried slightly less than 800,000 riders, for an average subsidy of slightly more than $7 per trip.

In other words, the subsidy alone would have been enough to give every single Hiawatha rider a free trip on Greyhound or Megabus (at the low cost of $7 per trip).

Rail proponents say we need to have trains because some people prefer trains over buses. Apparently, there aren’t very many such people, or the Hiawathas would fill more seats. But there are a few people willing to pay $24 for a trip that would only cost them $7 to $10 on a bus. I suspect most of them bill the fare to their employers.

If Amtrak were to disappear tomorrow, I’m sure Greyhound, Megabus, and other bus companies would be glad to take up the slack. For those who are too snobbish to take an ordinary bus, someone like Limoliner or Vamoose Gold would be happy to charge them two or three times ordinary bus fares to get a luxury ride with wider seats, more legroom, on-board food services, and other amenities.

Until that happens, now you know why you’re supposed to be happy that your tax dollars are going to subsidize Amtrak: so a few snobs who won’t ride ordinary buses can get subsidies to ride expensive and mostly empty trains.

Defying a demand from the federal government to stop publicizing his case, today Lyndon McLellan was told the IRS is abandoning its efforts to keep more than $107,000 it took from his bank account without ever charging him with a crime.

The case received national attention and outrage, including from a member of Congress, which led to this threatening message from an Assistant U.S. Attorney to McLellan’s lawyers:

Whoever made [the case file] public may serve their own interest but will not help this particular case. Your client needs to resolve this or litigate it. But publicity about it doesn’t help. It just ratchets up feelings in the agency. My offer is to return 50% of the money. 

So much for that; Mr. McLellan will be receiving 100% of his money back.  

That said, the government is still attempting to keep the interest earned by Mr. McLellan’s seized funds and refuses to reimburse Mr. McLellan for the costs of getting his money returned. The Institute for Justice insists the case isn’t over until that is remedied as well:

Yesterday, just two weeks after the Institute for Justice took on the case and brought it to the attention of the nation, the IRS and Department of Justice moved to voluntarily dismiss the case and give Lyndon back 100% of his hard-earned money. 

“I’m relieved to be getting my money back,” said Lyndon McLellan. “What’s wrong is wrong, and what the government did here is wrong. I just hope that by standing up for what’s right, it means this won’t happen to other people.” 

Even after he recovers his bank account, Lyndon is still out tens of thousands of dollars, thanks to the government’s actions. Lyndon paid a $3,000 retainer to a private attorney before IJ took the case on pro bono, and he also paid approximately $19,000 for an accountant to audit his business and to provide other services to help convince the government he did nothing wrong. The government is refusing to pay those expenses. And the government also is refusing to pay interest on the money. 

“The government cannot turn Lyndon’s life upside down and then walk away as if nothing happened,” said Robert Everett Johnson, an attorney at the Institute for Justice who represents Lyndon. “Lyndon should not have to pay for the government’s lapse in judgment. And the government certainly should not profit from its misbehavior by keeping the interest that it earned while holding Lyndon’s money. We’ll continue to litigate this case until the government makes Lyndon whole.”

Score another one for the good guys in the fight for a restoration of property rights and respect for due process, and kudos to Lyndon McLellan for not being cowed by the federal government’s threatening offer.  Public scrutiny of this abusive practice and the willingness of victims to fight for their property are both essential elements of vital reform efforts.

This week, people in Maryland got the news of Gov. Larry Hogan’s signature of HB 235, the so-called “Tesla Bill.” The law allows, for the first time, makers of electric cars to sell directly to consumers, bypassing traditional auto dealerships.

During the last few years, a number of states have prevented Tesla Motors from selling cars directly to consumers.  They have enforced laws that require the use of independent dealers to complete sales.

In the Summer 2014 issue of Regulation professor Daniel Crane explained that these laws are a legacy of past battles between dealers and legacy automakers like GM and Ford over the distribution of wealth losses during recessions and the number of dealerships whose fixed costs must be supported relative to Toyota and Honda.

This history has little to do with niche manufacturers like Tesla that do not want to use dealers.  But dealers do not want the possibility of non-dealer sales to spread to traditional manufacturers.     HB 235 codifies this sentiment. It allows Tesla and other electric car makers to sell directly to consumers.  But it preserves the status quo for all other traditional cars and trucks, whose dealers understood that not allowing a Tesla exception would focus undue attention on their regulatory protection and perhaps cause voters to demand more fundamental reform.

Sen. Marco Rubio might fancy himself as a new type of leader for a new era, but his speech yesterday to the Council on Foreign Relations was trapped in the past. Invoking John F. Kennedy’s final speech as president, more than 50 years ago, was bad enough. But Rubio’s overarching message – the Rubio Doctrine – amounts to warmed over Cold War dogma, sprinkled with the language of benevolent global hegemony favored by so many Washington elites, but disdained by most Americans beyond the Beltway. It is difficult to understand the depths of his political and strategic myopia.

Rubio misperceives the American public’s willingness to sustain the current model indefinitely, and therefore fails to appreciate the need for a genuinely new approach to U.S. global affairs. He minimizes the costs and risks of our current foreign policies, and oversells the benefits. He ignores the way in which U.S. security assurances to a host of some-of-the-time allies have discouraged these countries from taking reasonable steps to defend themselves and their interests. And he fails to see any reasonable alternative to a world in which the United States acts – forever, it seems – as the sole guarantor of global security. Specifically, Rubio pledged: “As president, I will use American power to oppose any violations of international waters, airspace, cyberspace, or outer space.” (Any? Whew!) 

To be sure, many people around the world may be happy to allow U.S. soldiers, sailors, airmen, and Marines to attempt such an ambitious undertaking, and to have American taxpayers pick up the tab. It is reasonable to guess that most foreign leaders are anxious to preserve the current order – so long as the U.S. government provides for their defense, they are free to spend their money on other things. But the fact that foreigners like this arrangment doesn’t explain why most Americans would. When Rubio calls for huge increases in the Pentagon’s budget, he is telling Americans that they should be content to accept higher taxes, more debt, and less money to spend here at home, so that U.S. allies elsewhere can neglect their defenses, and feed their bloated welfare states.

Americans, unsurprisingly, and by a wide margin, favor something else. A poll taken last year by the Chicago Council on Global Affairs, for example, found a mere 38 percent of Americans who considered “defending our allies’ security” to be a “very important” foreign goal, below “combating world hunger” and “limiting climate change.” Several of Rubio’s other major foreign policy goals, including “promoting human rights abroad,” “protecting weaker nations against foreign aggression,” or “helping to bring a democratic form of government to other nations” ranked even lower.

To be sure, Rubio is hardly alone in his embrace of the decades-old status quo. A parade of politicians, Republicans and Democrats alike, routinely speak of the United States as the indispensable nation, and celebrate the U.S. miltary’s role as a global constabulary. But it seriously undermines Rubio’s claim to represent the hopes and aspirations of a new generation when he invokes the policies of the same-ol’ generation, and the one before it. His relative youth and stirring personal narrative will appeal to some, including possibly younger voters turned off by a cast of familiar names and has-beens. But Rubio’s fresh face alone is unlikely to compensate for his strangely stale foreign policies.  

It is not often I get a chance to latch on to someone as high profile as the President of the United States saying that public schools “draw us together.” But in his appearance at Georgetown University a couple of days ago, President Obama blamed, among other things, people sending their children to private schools for breaking down social cohesion and reducing opportunities for other children.

First, let’s get our facts straight: Private schools are not the main way better-off people, or people with high social capital, isolate themselves from poor families. Only 9 percent of school children attend private schools, and as Matt Ladner points out in a great response to the President, that percentage has been dropping over the years. No, the main way the better-off congregate amongst themselves is buying houses in nice places, which translates into access to good school districts. Even the large majority of the mega-rich appear to send their children to public schools, but rather than paying school tuition, their tuition is the far-steeper, far more exclusive price of a house. And let’s not pretend – as the President hinted – that we’ve seen anything close to long-term decreased funding for public schools. Even with a slight dip during the Great Recession, inflation-adjusted, per-pupil spending in public schools has well more than doubled since 1970.

On the deeper point, do we really know that public schools “draw us together,” and more importantly, do so better than private schooling? No, we don’t. That’s the accepted wisdom, but basic history doesn’t necessarily bear it out. Roman Catholics ended up starting their own school system – which at its peak in 1965 enrolled about 12 percent of all students – because the de facto Protestant public schools could not accommodate them. African-Americans, of course, were long legally excluded from public schools, especially white public schools. Similar situations existed for Asians and Mexican-Americans in some parts of the country. And, of course, public schools reflected the communities they served, which were often small and homogeneous. Finally, public schooling forces diverse people into a single system, which has led to seemingly incessant, cohesion-tearing clashes over values, personal identities, and much more.

It is also not the case, as President Obama’s critique implies, that private schools don’t build social capital within communities. As discussed in the book Lost Classroom, Lost Community: Catholic Schools’ Importance in Urban America, Roman Catholic schools – the most numerous of private schools – have often been hubs of their communities, and when they have closed it has contributed to major losses of social capital ultimately resulting in community disintegration and all the ills that go with that. And as I wrote when the latest NAEP exam results in geography, U.S. History, and civics came out a few weeks ago, private schools also appear to do a better job than public schools of inculcating good civic values in their students, including political knowledge and a proclivity to volunteer in one’s community.

Private schooling is not what’s pulling Americans apart, Mr. President. Indeed, it may be a powerful tool for bringing us together.

In the wake of the terrible train crash near Philadelphia, people are asking whether Amtrak budget cuts could have been a contributing factor. The short answer is that federal rail spending has not been cut. The longer answer is that rail spending has been greatly misallocated by Congress. Rather than being spent on maintenance along heavily used corridors (particularly in the Northeast), the federal rail budget has been frittered away on uneconomical rural routes and high-speed rail schemes.

In the federal budget, Amtrak is within the Federal Railroad Administration (FRA). The president estimated that fiscal 2015 outlays on the FRA would be $3.6 billion. Of that, $250 million is for Amtrak operating subsidies, $1.1 billion is for Amtrak capital grants, $1.8 billion is for high-speed rail grants, and the rest is for safety, research, and other rail activities.  

The chart shows total FRA outlays from 1990 to 2015 in current dollars (not adjusting for inflation). Outlays have soared in recent years, partly due to rising high-speed rail spending. During 2009 to 2015, high-speed rail grants were $2 million, $16 million, $304 million, $513 million, $768 million, $1.1 billion, and $1.8 billion. But even aside from that spending, FRA outlays were up modestly over the past decade.

 

The problem with Amtrak is that many of its routes do not make economic sense. Because of politics, the company is forced to run services through low population regions that have few passengers. Passenger rail makes sense in the Northeast corridor, but few other places in America—at least within today’s costly and unionized rail structure. The distance from Boston to Washington, D.C. is less than 500 miles, yet Amtrak operates a 21,000-mile system through nearly all the states. Money that should be used on maintenance and upgrading in the Northeast is being used on services elsewhere in the country that lose hundreds of dollars per passenger.

Amtrak’s pathologies are described in this essay by Tad DeHaven. The solution is to privatize Amtrak and deregulate passenger rail. Privatization and deregulation worked brilliantly for freight rail, and there is no reason why it could not work for passenger rail. Let’s take government out of passenger rail, and allow America’s entrepreneurs take another crack at it.

Notes:

Almost every news article I read about new foreign investment in the U.S. starts off very positive and exciting.  Here’s one from earlier this week:

Volvo Cars will build a factory in South Carolina, the company said on Monday, making it the first time a Chinese-owned automaker will have an auto assembly plant in the United States.

Volvo will invest $500 million in the new factory, which will be in Berkeley County, S.C., outside Charleston. The company estimated that the plant — its first in the United States since entering the market 60 years ago — would employ 2,000 people in its early years and eventually be closer to 4,000. Construction will begin this fall and the factory will begin producing vehicles in 2018.

Volvo, which remains based in Sweden, has gone through a number of owners in recent years. In 2010, Zhejiang Geely Holdings, its current owner, bought it from Ford, which acquired it in 2000 from the Volvo Group.

It’s good news that the U.S. is so welcoming to foreign investors, including those from China.  That kind of openness is great for our economy.

But then, inevitably, the article says something like this:

South Carolina officials lined up sizable incentives to lure the Volvo plant. The automaker will receive about $200 million in combined incentives. That includes $120 million in economic development bonds, $30 million in state grants and an additional $50 million of incentives from a state-owned utility company, Santee Cooper.

Foreign investment is great, but governments competing for it with massive subsidies makes absolutely no sense.  One of the most important issues related to foreign investment right now is how to rein in these subsidies.

Unfortunately, the actual debate over foreign investment rules focuses on special provisions in trade and investment agreements that let foreign investors sue governments.  We are debating the issue right now at Cato Unbound; I’m one of the two critics of such provisions, and two others are writing in support of these provisions.  One of the points I make is that subsidies to foreign investors are the real problem, and any international rules in this area should focus on that.  We’ll see how the supporters respond.

It appears that the Amtrak crash that killed seven people Tuesday resulted from speeding, but big-government advocates are already using this accident to make their case for more infrastructure spending. In fact, the problem is not too little money, but too much money going to the wrong places.

In 2008, President George Bush signed a law mandating that most railroads, including Amtrak, install positive train control (PTC) by December of 2015. PTC would force trains to slow or stop if the operator ignored signals or speed limits.

In 2009 and 2010, President Obama asked a Democratic Congress to give him $10 billion to spend on high-speed trains, and Congress agreed. Not one cent of that money went to installing PTC in Amtrak’s Northeast Corridor.

PTC would have prevented this accident. There was plenty of money available to install it, but the Obama administration, in its infinite wisdom, chose to spend it elsewhere. Two days ago, it would have been embarrassing to think that the government-run Amtrak hadn’t yet completed installation of PTC on its highest-speed corridor. Today, it’s a tragedy. But how is it the fault of fiscal conservatives?

This accident is just one more example of a political fact of life: Politicians are more likely to put dollars into new construction, such as high-speed rail, than to spend them on safety and maintenance of existing infrastructure. As John Nolte says on Breitbart, “Amtrak is not underfunded; it is criminally mismanaged.”

Transportation journalist Don Phillips presents one example of Amtrak mismanagement in the June issue of Trains magazine: instead of promoting a culture of safety, Amtrak has a culture of don’t care. Phillips points to a February report from Amtrak’s Inspector General that found that Amtrak has the least-safe working environment of any major railroad. Amtrak employees are more than three times as likely to be injured or killed on the job as employees of BNSF, CSX, Norfolk Southern, or Union Pacific.

This poor record, says the report, is a direct result of a lack of accountability “at all levels.” Employee injuries in 2013 were only one-twelfth as likely to result in disciplinary action as in 2009, resulting in employees who believe today that they “can ignore rules and safe practices with impunity.” Safety is of so little importance in the organization that three out of four of the employees interviewed by the inspector general believed that Amtrak’s safety record was better, not worse, than other railroads.

One reason why Amtrak has a poor safety culture may be that Congress has legally limited Amtrak’s liability for any single crash to $200 million. Imagine the outrage if Congress limited the liability of oil companies, pipeline companies, Monsanto, or other private corporations. Yet the progressives who wrote Amtrak legislation considered such a liability limit perfectly acceptable.

If Congress were to respond to this crash by increasing federal infrastructure spending, it is all too likely that much if not most of that money would go for useless new projects such as new high-speed rail lines, light rail, and bridges to nowhere. We don’t need intercity trains that cost several times as much but go less than half as fast as flying; we don’t need urban trains that cost 50 times as much but can’t carry as many people per hour as buses; we don’t need new bridges if bridge users themselves aren’t willing to pay for them.

As I’ve documented elsewhere, infrastructure that is funded out of user fees tends to be better maintained than infrastructure that is funded out of tax dollars. User fees also give transportation managers signals for where new infrastructure is really needed; if people won’t pay for it out of user fees, it probably isn’t necessary.

Before 1970, America’s transportation system was almost entirely funded out of user fees and it was the best in the world. Since then, funding decisions have increasingly been made by politicians who are more interested in getting their pictures taken cutting ribbons than in making sure our transportation systems run safely and smoothly.

This country doesn’t need more infrastructure that it can’t afford to maintain. Instead, it needs a more reliable system of transport funding, and that means one based on user fees and not tax subsidies or federal deficit spending.

Caleb’s latest podcast is an interview with Charles Murray on his new book, By the People: Rebuilding Liberty without Permission. You can watch the podcast below or download the audio here. Be forewarned: if you’re like me, you’ll be Kindle-ing the book before the interview ends.

The word “provocative” is applied to far too many books these days, and often to books that should instead be called “wacky.” Murray’s thesis fully earns the former adjective, and perhaps a touch of the second–and I write that as high praise.

He argues that American government today is so far divorced from the nation’s founding principles of limited government and individual liberty that it can’t be returned to those principles through normal political action. No presidential administration, congressional turnover, or set of SCOTUS appointments will restore the Commerce and General Welfare clauses. Thus, he writes, supporters of liberty should try to effect change through carefully chosen but broadly adopted acts of civil disobedience against publicly unpopular regulations. Some examples that come to my mind: people could become part-time Uber drivers, or cash businesses could routinely make deposits of $9,999, or parents could include cupcakes in their schoolchildren’s packed lunches.

Of course, public officials will try to punish the participants. But that’s good, Murray argues, for two reasons: First, it’ll consume a lot of the regulators’ surprisingly scarce resources in order to punish even a small percentage of the participants. Second, it opens the way for challenging the regulations in court–where, in recent years, they’ve had trouble surviving judicial scrutiny.

To fund those challenges and financially protect participants, he proposes the participants create a legal defense and compensation fund prior to any disobedience. In essence, the fund would be an insurer with a muscular legal wing, reducing regulatory violations to mere insurable events.

This last bit is what gives Murray’s book a touch of wackiness–but then, perhaps not. If the targets of civil disobedience are well chosen and participation is large, the participants as a group could benefit financially even though they’d pay the “insurance premium.”

I’m interested in reading parts of the book that Murray briefly mentions in the interview: how to select “stupid and pointless” regulations that would be good targets of civil disobedience, how exactly the insurance fund would operate, how to rally public opinion and attract support from non-libertarians, and perhaps most importantly, why does he think the general public–and not just libertarians–are tired of being hassled by regulators and government officials.

Could Murray’s idea spark a large wave of civil disobedience? Perhaps–with the help of insurance.

In 2010, the Federal Trade Commission approached an Atlanta-based medical testing company, LabMD, with accusations that it had wrongfully left its customer data insecure and vulnerable to hackers. LabMD’s owner denied that the company was at fault and a giant legal battle ensued. To quote my post last year at Overlawyered:

…according to owner Michael Daugherty, allegations of data insecurity at LabMD emanated from a private firm that held a Homeland Security contract to roam the web sniffing out data privacy gaps at businesses, even as it simultaneously offered those same businesses high-priced services to plug the complained-of gaps.

Last week, finally, after five years, the case reached an administrative hearing at the FTC, which heard “bombshell” testimony given under immunity by former Tiversa employee Richard Wallace:

After LabMD CEO Michael Daugherty refused to buy Tiversa’s services, Tiversa reported false information to the FTC about an alleged security incident involving LabMD’s data, Wallace claimed in his testimony.

CNN headlined its story “Whistleblower accuses cybersecurity company of extorting clients” – that is, by threatening to turn them in to the feds if they spurned its vendor services.

To be sure, allegations are merely allegations, and we haven’t heard Tiversa’s side of the story, except for a statement from its CEO Bob Boback: “This is an overblown case of a terminated employee seeking revenge. Tiversa has received multiple awards from law enforcement for our continued efforts to help support them in cyber activities.” The advisory board of the Pittsburgh-based security services company includes former four-star Army general and former Democratic presidential candidate Wesley Clark.

Two years ago, Daugherty wrote up his experience in a book, The Devil Inside the Beltway. Tiversa tried to stop its publication, saying it had been defamed. While the book got write-ups in various places – by our friend Edward Hudgins at the Atlas Society, for example – and while the story has drawn the interest of a House oversight committee and the group Cause of Action, the threatened litigation probably did chill some media coverage.

As for last week’s surprise testimony, it’s not clear the FTC was prepared for it:

FTC attorneys declined to cross-examine Wallace at the May 5 FTC administrative session, but they could still introduce a rebuttal witness later.

And per CNN:

If Wallace is telling the truth, the FTC aggressively prosecuted a company based on bogus evidence.

The FTC declined to comment, citing an ongoing lawsuit against LabMD, which still hasn’t reached its conclusion.

I was a little surprised that the FTC declined to comment. Should they change their mind, I’ve dashed off a comment that they might consider giving:

Much of our enforcement process against businesses is driven by complaints filed with us by jealous competitors, spurned vendors, and other vengeful or disappointed parties–often of some sophistication–as opposed to the consumers and small businesses who are frequently depicted as the beneficiaries of our work. We take very seriously the danger that such complaints will be used as a weapon or will be false themselves in whole or part. In all our investigations, we intend to respect a presumption of innocence; at the same time, we will not rest until we have uncovered the truth about the serious allegations Mr. Wallace has raised.

As for Mr. Daugherty’s business and its 40 employees, the news comes too late. Unable to sustain the business amid the legal battle, he stopped testing specimens and wound down LabMD last year.

According to opinion polls, Americans think the federal government is too big and too powerful. On average, people think that more than half of the tax dollars sent to Washington are wasted. When Gallup asked people what the most important problem facing the nation was, more people identified “government” than any other concern, including the economy, immigration, health care, and terrorism.

The people are right. The federal government is too big, too powerful, and too wasteful. Rather than defending our rights to life, liberty, and the pursuit of happiness, the federal government often abuses those rights. The bigger it is, the more it abuses, and less well it functions.

The solution is a major downsizing. I have posted an updated plan to cut spending and balance the federal budget by 2020. The plan includes cuts to low-value and harmful programs across the government. Whether or not the government was running deficits, the proposed cuts would make sense because they would generate growth and expand freedom.

Political leaders should listen to the public’s concerns about big government. They should help lead a national discussion on programs to eliminate, devolve to the states, and privatize. They can start with the items in my new plan, including cuts to subsidies, entitlements, and state aid.

Why cut? Because Americans would gain more net benefits from the federal government if it were much smaller.

The Wall Street Journal today reports a policy shift that I had predicted and recommended 20 years ago. Rachel Emma Silverman writes:

Amid a push that has made same-sex marriage legal in 37 states and the District of Columbia, some employers are telling gay workers they must wed in order to maintain health-care coverage for their partners. About a third of public- and private-sector employees in the U.S. have access to benefits for unmarried gay partners, according to a federal tally, but employment lawyers say the fast-changing legal outlook is spurring some employers to rethink that coverage.

“If the Supreme Court rules that suddenly there is marriage equality in 50 states, the landscape totally changes,” says Todd Solomon, a law partner in the employee-benefits practice group at McDermott Will & Emery in Chicago, who has been tracking domestic partnership benefits for nearly two decades.

Such a decision will likely result in more employers dropping same-sex partner benefits in favor of spousal benefits, according to Mr. Solomon.

Over the past decade, a growing share of companies has offered coverage for gay employees and their partners as a way to provide equal benefits for couples who couldn’t legally wed. Others companies offer coverage more broadly to unmarried domestic partners, regardless of sexual orientation. 

Now, some employers who offer benefits targeting same-sex partners say it is only fair to require those couples to marry where legal, just as their straight co-workers must do to extend coverage.

I anticipated that eventuality in a January 4, 1995, op-ed in the New York Times, as the movement for marriage equality, civil unions, and domestic partnership was just beginning:

In 1992 Stanford University extended benefits to domestic partners of homosexuals (but not heterosexuals) because “their commitment to the partnership is analogous to that involved in contemporary marriage,” said Barbara Butterfield, a university vice president.

Governments invariably get this wrong, while businesses usually get it right. Every city that has adopted domestic partnership laws has included both same-sex and heterosexual couples, and in almost every case more heterosexuals than homosexuals have filed for partnership status.

But many private organizations—including Stanford, Montefiore Medical Center, Lotus Development Corporation and the Public Broadcasting Service—have extended benefits only to same-sex couples. Most of these companies have said that if homosexual couples are allowed to legally marry, these policies would be ended—which is as it should be.

Actually, I had made the point somewhat more bluntly a year earlier in Liberty magazine (not online apparently, but cited here):

Once again, businesses get it right and governments get it wrong:  Businesses are taking the appropriate position that “if you want the benefits of marriage, get married; but if the state won’t let you get married, we’ll be more progressive.”  Governments just see domestic partnership as one more goodie to hand out; businesses see it as a way of remedying an unfairness, not to mention retaining valued employees.

I was wrong about businesses. Eventually, most large businesses did offer partnership benefits to same-sex couples, but a large percentage of them also made the benefits available to heterosexual couples. There are no doubt more unmarried heterosexual partners working at most businesses than unmarried gay partners, so eventually the “marry if you can” standard didn’t hold out. 

But now, as the Journal notes, if marriage equality becomes universal, companies are likely to start returning to the policy of offering spousal benefits only to actual spouses.

That, some of you may recall, was the name of a November 1, 2013 conference put on by the Mercatus Center. (The full name was actually “Instead of the Fed: Past and Present Alternatives to the Federal Reserve System”). The proceedings of that conference–or most of them, at any rate–are now available in a special issue of the Journal of Financial Stability, edited by yours truly.

Although online access to the articles is by subscription only, individual contributors have temporary, open links to their own articles. Here is mine on “Synthetic Commodity Money.”

The controversy over the upcoming military exercise called “Jade Helm 15” is unfortunate.  It is unfortunate because there really are some alarming trends underway here in the United States, but instead of finding common ground, the Right and the Left too often talk past each other.  Some examples:

Recall the militaristic raid to snatch Elian Gonzales?

The Right said, “That’s outrageous!”

The Left’s reply was, “What are you talking about?  That’s just law enforcement.”

Recall the militaristic police response in Ferguson last summer?

The Left said, “That’s outrageous!”

The Right’s reply was, “What do you mean?  That’s just law enforcement.”

***********************************************

Let’s take a step back from specific incidents and look at some of the broader trends that have been underway.  First, the line between the police and the military has become badly blurred.  The military itself is more involved in policing and the civilian police are now more militarized.  This is worrisome because the military does not typically concern itself with rights of persons on the other side of the battlefield.  Second, the National Security Agency’s powers used to be directed outward, but we now know those powers are directed inward, on the communications of Americans.  Third, presidents (red & blue) claim the power to take our country to war, and that when we are at war, presidential power trumps constitutional rights.  High-ranking officials tell us that America–from Seattle to Miami (and all the tiny towns in between)–is a “battlefield.”  That’s a bold and disturbing claim since there are no rights on the battlefield, only raw power.

As the next presidential contest gets underway, let us hope these important matters get the attention they deserve. 

Not entirely unsurprisingly, the Senate failed to reach cloture on Tuesday, falling eight votes shy of the 60 needed to start the timer on debate over Trade Promotion Authority (TPA), which will be needed to conclude the Trans-Pacific Partnership (TPP) negotiations and bring it to a timely vote in Congress.  The cloture vote concerned two of four pieces of trade legislation voted out of the Finance Committee two weeks ago (TPA and Trade Adjustment Assistance).  Senate Majority Leader Mitch McConnell excluded the other two bills, which contain language that would attract Democratic support. So, while I wouldn’t bet the ranch on TPA’s passage, there’s still room for horse trading.

In more surprising (and disappointing) news, one senator who will say “no” if TPA makes it to the floor for a vote is Rand Paul, who explained his reasoning on a New Hampshire television news broadcast:

We give up so much power from Congress to the presidency, and with them being so secretive on the treaty, it just concerns me what’s in the treaty.

Let me take Paul’s issues with power, secrecy, and content in order.

Certainly, this president has accelerated the trend toward executive aggrandizement and that warrants concern and correction. But it’s a stretch to conclude that TPA (despite containing the word “Authority”) gives the president power at the expense of Congress.  TPA is a compact between the legislative and executive branches, each of which has distinct constitutional authorities in the formulation of trade policy.  The way TPA works is as follows: Congress delegates the president as the point person responsible for conducting negotiations and requires him or her to fulfill a long list of congressional trade policy objectives in the course of those negotiations.  If the president brings back an agreement that satisfies Congress’s requirements, the agreement is given fast track consideration, which means a guaranteed up-or-down vote with no amendments within a set number of days after the signed agreement is announced. If the trade agreement is found to have not met the congressional objectives spelled out in the TPA legislation, it can be taken off of the fast track by way of a majority vote in the Senate Finance or House Ways and Means Committees.  Sen. Paul doesn’t seem to be invoking objections on any specific constitutional grounds, though he laments what he characterizes as a transfer of power from Congress to the president. 

The claim that the administration has been secretive about the negotiations and related processes has some merit, but access to the details of ongoing trade negotiations has always been limited.  Allegations of excessive secrecy have been thematic in the Far Left’s hyperbolic narrative that the TPP is about President Obama selling out labor, the environment, product safety, access to medicines, and regulating in the public interest for the benefit of those evil multinational corporations.  But as the president has belatedly and clumsily attempted to assuage the Left’s fears with assurances that the TPP is the most progressive trade agreement in history, complete with the most robust environmental and labor protections, including guaranteed minimum wages in partner countries, he has raised concerns among conservatives and libertarians about what exactly the president plans to spring on us.  That, I believe, justifies Paul’s reticence.

But the bottom line is this: Congress and the public will have the opportunity to scrutinize the TPP for 60 days before the agreement is signed, up to another 135 days during the “Reporting and Mock Markup” period, and up to another 90 days during the “Congressional Consideration and Implementation” period.  If Sen. Paul and his colleagues don’t like the contents of the agreement, they can vote “no.” 

So, if I were a senator and an advocate of economic freedom who happened to be understandably suspicious about the president’s agenda, I would vote “yes” for TPA, which opens the door to the possibility of even seeing a completed TPP.  Then, if after evaluating the TPP’s contents my worst fears were confirmed (or, more succinctly, if it were not net liberalizing), I’d vote “no” on its implementing legislation.  The error in voting “no” on TPA, though, is that if TPA fails to pass, we won’t see the TPP and we forgo the opportunity to pass a potentially good, net liberalizing trade agreement, which doesn’t come around all too often.

That’s why Rand Paul has it backwards.

The SEC has come under fire lately for its use – some might say overuse – of internal administrative proceedings.  The SEC’s use of administrative proceedings and administrative law judges (ALJs) is by no means unique within the federal government.  Thirty-four agencies currently have ALJs.  Nor is the SEC the heaviest user of administrative proceedings or ALJs; the Social Security Administration has that distinction, with more than 1,300 ALJs according to the most recent data available.  The SEC, by comparison, has only five ALJ positions, two of which are recent additions. 

The SEC’s ALJs have been in the spotlight due to a provision in Dodd-Frank that expands their ability to impose fines.  In the past, the SEC could impose monetary sanctions only on individuals and entities registered with the Commission – typically brokers, investment advisors, and similar entities and their employees.  By registering with the SEC, it was reasoned, these individuals and organizations had submitted to the SEC’s jurisdiction.  Others could be brought before the SEC’s tribunals for violating federal securities laws, and the ALJs could make findings of fact (that is, decide which side’s version of the facts was correct) and issue cease and desist orders, but could not impose fines.  Instead, the SEC’s lawyers would have to bring a separate case in federal district court.  Under Dodd-Frank, registered and unregistered persons are treated the same.

Administrative proceedings have their advantages.  Like a federal judge, an ALJ can issue subpoenas, hold hearings, and decide cases.  Because an ALJ’s cases deal with a very narrow area of law – only that related directly to the ALJ’s agency – the ALJ’s knowledge of that area tends to be deeper than that of a federal judge who hears a broad range of civil and criminal cases.  The proceedings before ALJs tend to be somewhat truncated, with fewer procedural requirements than federal district court, allowing the case to be decided more quickly. 

While administrative proceedings have some advantages, there are also disadvantages, especially for defendants. There are no juries, which raises questions about the constitutional right to a trial by jury, especially if ALJs impose quasi-criminal sanctions such as imposing fines.  (There are, more generally, also constitutional questions about whether there is appropriate separation of powers between the judicial and executive function in agency hearings, and whether the current method of selecting ALJs violates the appointments clause.)  The speed with which administrative proceedings move can also disadvantage a defendant; by the time the SEC has filed charges, it has already prepared its case, leaving the defendant to play catch-up.  In addition, because the discovery process in administrative proceedings is limited, defendants’ ability to obtain exculpatory documents from the SEC is also limited.  Finally, although ALJs are expected to remain neutral in fulfilling their duties, they are a part of the agency whose case they are hearing.  Justice demands not only actual impartiality from the court, but the appearance of impartiality as well.  As an agency’s ALJs approach a win rate of 100 percent, the appearance of impartiality fades.

Almost certainly in response to the recent criticism, this past Friday the SEC released guidance on how its enforcement division chooses whether to pursue a case in federal district court or before an ALJ.  The guidance is vague.  In general, the SEC tells us:

There is no rigid formula dictating the choice of forum.  The Division considers a number of factors when evaluating the choice of forum and its recommendation depends on the specific facts and circumstances of the case.  Not all factors will apply in every case and, in any particular case, some factors may deserve more weight than others, or more weight than they might in another case.  Indeed, in some circumstances, a single factor may be sufficiently important to lead to a decision to recommend a particular forum.   

These factors include: (1) the availability of the desired claims, legal theories, and forms of relief in each forum; (2) whether any charged party is a registered entity or an individual associated with a registered entity; (3) the cost‐, resource‐, and time‐effectiveness of litigation in each forum; and (4) fair, consistent, and effective resolution of securities law issues and matters.  Absent from the guidance is the recognition that it is the “availability of the…claims, legal theories, and forms of relief” that the SEC desires that factors into the determination. 

This “guidance” is troubling.  The fact that it is unlikely to be unique among federal agencies is also troubling.  The agency should not be able to choose to bring the case in the venue where it’s more likely to win (i.e., because it can use “desired…legal theories”).  It should not be able to choose a venue because certain “forms of relief” (i.e., punishments) are unavailable in the other venue.  To be sure, such “forum shopping” happens even outside of administrative proceedings.  A criminal case may be brought in federal court instead of state court because prosecutors believe they are more likely to prevail in federal court.  But such concurrent jurisdiction between state and federal court pits two sovereigns – the state and the federal government – against one another, creating certain checks on each other’s power.  In the case of an agency’s attorneys choosing an ALJ over a federal district court, you have simply increased the ways in which the government can win.

On November 20, 2014, President Obama unveiled DAPA, an executive policy that would defer the deportation of up to four millions illegal aliens and afford them work authorization. One week later, Texas, joined by 25 other states, filed a lawsuit against this unprecedented expansion of executive power.

Cato, joined by law professors Josh Blackman, Jeremy Rabkin, and Peter Margulies, filed an amicus brief supporting the challenge. While we broadly support comprehensive immigration reform, we argued that DAPA violated the president’s constitutional duty to take care that the laws were faithfully executed because this action went far beyond merely setting priorities on who will be pursued and deported given finite enforcement resources. It was highly unusual for Cato to file in a district court—amicus briefs of any kind are rare at this level—but this was a highly unusual situation.

On February 16, 2015, Judge Andrew Hanen blocked DAPA from going into effect, finding that the executive branch did not follow the proper administrative procedures—such as seeking comments from the public—before implementing what is effectively a substantive change in established immigration law.

The federal government appealed this judgment to the U.S. Court of Appeals for the Fifth Circuit (my old stomping grounds). It also filed for an “emergency stay,” arguing that Judge Hanen’s ruling causes irreparable damage to the United State and asking the appellate court to put it on hold. This was a cheeky maneuver given that Hanen’s ruling was itself a “temporary injunction” justified by the irreparable damage to the states that the judge determined would flow from DAPA’s operation. In effect, the government was asking for an “emergency” reversal of the district court, to which the Fifth Circuit panel didn’t seem particularly sympathetic at a hearing last month.

In any event, Cato has now filed a brief on the underlying appeal that again supports the 26 states and argues that President Obama’s action amounts to an illegal expansion of executive authority. While the lower court did not reach this constitutional issue, the president’s duty to faithfully execute the laws is a cornerstone of our separation of powers and provides the background architecture upon which the administrative state has been constructed.

Our message is simple: the implausible defense of the president’s unilateral executive action requires a level of legal sophistry that puts Humpty Dumpty to shame. As Justice Robert H. Jackson recognized six decades ago in the seminal case of Youngstown Sheet & Tube Co. v. Sawyer (the “Steel Seizure Case”), presidential lawmaking that lacks congressional support “must be scrutinized with caution.”

Such scrutiny will reveal that, even though Congress has previously authorized deportation deferrals and accompanying work permits, DAPA amounts to a deliberate effort to bypass Congress and conflicts with five decades of congressional immigration policy. The government implores the judiciary to believe that DAPA is a humdrum exercise of prosecutorial discretion based on modest new policy guidance that enable the Department of Homeland Security to prioritize resources. Don’t believe it. 

The Fifth Circuit has yet to set a hearing date for Texas v. United States but, assuming as expected that it denies the government’s motion for emergency stay, will likely hear argument this summer.

Former Arkansas Governor Mike Huckabee launched his presidential campaign last week. Huckabee highlighted his fiscal successes as governor during his announcement. He claims that he cut taxes 94 times while governor, and he promised to bring his tax-cutting experience to Washington, D.C. Huckabee’s statements do not tell the full story. While Huckabee cut some taxes, his time in office also included a rapid increase in Arkansas state spending and multiple tax hikes. 

Huckabee took office in July 1996 after Governor Jim Guy Tucker was convicted for his involvement in the Whitewater scandal. Shortly after taking office,  Huckabee signed a $70 million  package of income tax cuts. It eliminated the marriage penalty, increased the standard deduction, and indexed tax brackets to inflation. The broad-based tax cut was Arkansas’s first in 20 years.  Huckabee followed it with a large cut to the state’s capital gains tax. These tax cuts were popular, and they improved Arkansas’s economic climate.

Huckabee’s fiscal policies then changed direction. Huckabee used the state’s tobacco settlement money to expand Medicaid, and he supported a large bond initiative to increase spending for infrastructure. These and other spending policies came with a hefty price tag.

When Huckabee was in office during fiscal year 1997, Arkansas general fund spending was $2.6 billion, according to data from the National Association of State Budget Officers. By 2007, Huckabee’s last year in office, general fund spending had grown by 54 percent to $4 billion. Total state spending–which includes spending from federal aid and other non-general sources–grew even faster. Over the same period, it rose from $8.3 billion to $16.1 billion, an increase of 94 percent.

Huckabee relied upon multiple tax increases to fund this rapid spending growth. According to data from the state of Arkansas, examined by the Washington Post, net taxes increased by $505 million during Huckabee’s tenure. Huckabee supported increases in the state gasoline, cigarette, and sales taxes. He instituted a three percent personal income surtax.

Huckabee’s scores on Cato’s Fiscal Policy Report Card show his growing embrace of big government. Cato’s report card includes various measures of tax and spending restraint, and assigns governors grades on an A through F scale. Below are Huckabee’s scores:

In 2006 Huckabee tied for the worst-rated Republican governor. The authors of the report summarized Huckabee’s fiscal record: “Like many Republicans, his grades dropped the longer he stayed in office…Huckabee’s leadership has left taxpayers in Arkansas much worse off.”

If elected president, Huckabee promises not to increase taxes and to control federal spending. However, given his proclivity for raising taxes and spending while governor, his promises ring hollow.

Note: This post is part of a series on the fiscal records of governors running for president. Previous editions covered include Martin O’Malley and Jeb Bush.

The Common Core War, over the last few months, has been fought on a largely new front: whether students can be forced to take state tests – in the vast majority of cases, Core-aligned tests – or whether parents and students can refuse. It is perhaps an even more fundamental question than whether the federal government may constitutionally coerce standardization and testing generally, and with Common Core, specific standards and tests. The testing battle is to a large extent about whether a child, in seeming opposition to the seminal Supreme Court ruling in Pierce v. Society of Sisters, is indeed a “mere creature of the State.”

The opt-out numbers are hard to pin down, though there is little question that some districts have seen very large percentages while others – probably the large majority nationwide – have seen few. It is also probably reasonable to conclude that the leader of the opt-out crusade has been New York State, where animosity toward the Core has been high since the state first rushed implementation and state officials, in an effort to calm things, actually inflamed them with a condescending approach to public engagement that launched weeks of recriminations. Last year the state saw an estimated 60,000 students opt out, which leapt to nearly 200,000 this year.

The root question, of course, is should students and parents be able to opt out without fear of punishment? And since punishment would be coming from a government institution – yes, that is what a public school is – that means without fear of punishment by the state. If children are, in part, creatures of the state – and Pierce did not say there is no legitimate state role in education – than punishment is legitimate. If, however, the public schools exist to serve fully free citizens, then punishment cannot be meted out for refusing the test; it is up to parents to freely decide whether or not their children are subjected to the tests.

So far the answer to whether students may opt out without fear of punishment has been muddled. In part this is for a good reason: federalism allows states – and within states, local control allows districts – to decide for themselves what they want their policies to be. Unfortunately, another part of the confusion lies with Washington, which has a law on the books – No Child Left Behind – that says 95 percent of students in a district must take state tests. The Obama administration, however, has issued waivers out of parts of NCLB to numerous states with various provisions, and it is unclear to whom the 95 percent requirement actually applies. Exacerbating this – and illustrating why a few clear laws beat rule by waiver, regulation, and cabinet secretaries – is that even if the 95 percent rule should technically apply, U.S. Secretary of Education Arne Duncan has mainly invoked the specter of federal force rather than stating clearly what he will do to under-95-percenters. Of course, there are likely political calculations behind this: he wants to push states and districts to force testing while being able to technically say, “Washington didn’t require anything.”

To a large extent, the opt-out conflict is no different than the seemingly endless battles over countless matters into which public schooling forces Americans. As we at CEF never get tired of saying – and politicians never get tired of ignoring – all children, families, and communities are different. They have different needs, desires, abilities, values, educational philosophies, and on and on, and no single system can possibly treat them all equally.  That is why educational freedom – connecting educational funding and decisions to individual children – is the essential reform. That said, if parents are allowed to opt their children out of government-dictated tests it would be a welcome move in the right direction. It would loosen the state’s grip on the children, at least a little bit.

Since before the Declaration of Independence, equality under the law has long been a central feature of American identity—and was encapsulated in the Constitution. The Fourteenth Amendment expanded that constitutional precept to actions by states, not just the federal government.

For example, if a state government wants to use race as a factor in pursuing a certain policy, it must do so in the furtherance of a compelling reason—like preventing prison riots—and it must do so in as narrowly tailored a way as possible. This means, among other things, that race-neutral solutions must be considered and used as much as possible.

So if a state were to, say, set race-based quotas for its construction contracts and claim that no race-neutral alternatives will suffice—without showing why—that would fall far short of the high bar our laws set for race-conscious government action.

Yet that is precisely what Montana has done. Montana’s Disadvantaged Business Enterprise (“DBE”) program implements a federal program aimed at remedying past discrimination against minority and women contractors by granting competitive benefits to those groups. While there may be a valid government interest in remedying past discrimination, in its recent changes to the program, Montana blew through strict constitutional requirements and based its broad use of racial preferences on a single study that involved weak anecdotal evidence—a study that recommended more race-neutral alternatives, not fewer.

Even worse, Montana’s federal district court upheld the new provisions. Although Montana did not show which race-neutral alternatives were considered, tried, or rejected as insufficiently addressing past discriminatory practices, the court upheld the DBE’s grant of benefits to groups that were not shown to have ever been discriminated against. The contracting company that brought the suit has appealed the case to the U.S. Court of Appeals for the Ninth Circuit.

Cato has joined the Pacific Legal Foundation and Center for Equal Opportunity in filing a brief supporting that appeal. We argue that Montana doesn’t meet the high standard of narrow tailoring in its approach to the DBE program because it (1) failed to establish that race-neutral measures were insufficient, (2) failed to seriously consider race-neutral alternatives, and (3) extended benefits to groups who never even suffered past discrimination. We point out that Montana also failed to adequately establish the very existence of the discrimination that its program purportedly intends to remedy.

By cutting corners and paying lip service to race-neutral solutions, Montana and the lower court have each done a disservice to the hard-won principle of equality under the law. We urge the Ninth Circuit to correct those mistakes when it takes up Mountain West Holding Co. v. Montana this summer.

Pages