Friday, January 22, 2010

Free Speech Lives

The days are few and far between where I am made genuinely happy by something coming out of Washington, and this has been truer the last few years than most. But yesterday's decision in Citizens United v. FEC was positively electrifying. The language is sweeping:

"The First Amendment’s protections do not depend on the speaker’s financial ability to engage in public discussion.”

“When Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.”

“Our Nation’s speech dynamic is changing, and informative voices should not have to circumvent onerous restrictions to exercise their First Amendment rights.”

“The First Amendment does not permit laws that force speakers to retain a campaign finance attorney, conduct demographic marketing research, or seek declaratory rulings before discussing the most salient political issues of our day.”

Yes indeed. The arguments against the decision fall into several categories, none of which withstand much scrutiny:

Unlimited corporate speech leads to corruption. Fearing a torrent of corporate cash to achieve their election defeat, Congressman will knuckle under to corporate demands. Alternatively, Congressmen can reap the benefits of corporate money spent in their favor. Here, Congressmen are basically saying "stop me before I take a bribe again." There is no corruption problem if Congressmen are not corrupt, and the solution to that problem is to punish corruption or, much more saliently, to remove the opportunities for corruption by ending Congress's capacity to take loot from one party and give it to another. The implied contempt for John Q. Public -- that public opinion can be rolled by the expenditure of enough cash -- is also striking.

Corporations will drown everyone else out. Corporations have money, and no other voices will be heard. Senator Menendez of New Jersey opined that "We must look at legislative ways to make sure the ledger is not tipped so far for corporate interests that citizens' voices are drowned out." Alas, the First Amendment oes not read "Congress will make sure everybody gets a turn, because otherwise it's no fair." Instead, it reads, movingly in its simplicity, "Congress shall make no law abridging freedom of speech." So Senator Menendez's "legislative ways" will have to take account of that.

Indeed, the speech that is backed by the most resources is not the speech of large corporations, but the speech of Congressmen themselves. The media crave interviews with politicians, who also use public resources to communicate with constituents. Every blowhard senator or representative who rushes to a microphone to condemn this decision needs to realize that what it is about is the power of people argue for their defeat, and that campaign-finance law is one big incumbency-protection racket.

Corporations ain't people. No, but the people who compose them are. A group of citizens who unite for a particular purpose and call themselves "Citizens against Corporate Slavery” certainly has the right to issue a statement and to give money to politicians in the name of that group. So does a group of citizens who unite for a particular purpose and call themselves "Google." The First Amendment makes no distinction among for-profit associations and associations formed for other purposes. Period. It is true that some shareholders or employees may object to a statement issued in the name of the group of citizens who unite to call themselves “Google,” but that is true of any group. In a free society, they may exit the group, issue a dissenting statement, or just swallow hard and ignore it. That is no rationale for shutting down the power of the group to speak collectively at all.

Corporations are generally not formed to speak, but when citizens choose to associate that way, and to speak on behalf of that association, their First Amendment rights are not affected in any way. The First Amendment has no asterisks.

Special interests will hijack the legislative process. Tell me another one. President Obama actually used this argument after the decision came down, saying the decision has “given a green light to a new stampede of special interest money in our politics." In short, his agenda is the public interest, and opposition to it is the special interests. This is the oldest rhetorical trick in the collectivist playbook. People who think drug companies should fund the health care of third parties are the public interest, but the companies objecting to it (and people who object to it philosophically) are something else.

As a final aside, Googling "corporate power" and "Citizens United” already yields over 10,000 hits. Sen. Schumer in particular has already said, "The bottom line is this: The Supreme Court has just pre-determined the winners of next November's elections. It won't be Republicans, it won't be Democrats, it will be corporate America." As far as I know he is more or less in the mainstream of current progressive thought. And so the corporations-run-the-world trope appears to be firmly ensconced on center stage in progressive thinking.

So overall, a fabulous day. The only disappointment is the realization, given the accelerating politicization of the law, that this decision is only as good as the next Justice's retirement.

Monday, January 18, 2010

Our Descent into Madness

In One Flew over the Cuckoo's Nest , Ken Kesey tells the story of a man anything but mad, but who suffers the consequences of being labeled mad because of his rebellion against the petty tyranny of those who run the asylum. Think about that as you think about the course of health-care legislation, which is now perilously close to passing.

Because of an accident of World War II, many Americans get their health care through their employers, as tax-free compensation. Because of wartime wage controls, companies looked for ways to solicit workers, and offering fringe benefits like health insurance was one way. The authorities long ago declared that such benefits are not taxable income. If employers bought us houses in lieu of paying higher wages, our houses would be really big. And because they buy us health-insurance in lieu of paying higher wages, our health insurance tends to be gold-plated. Like any subsidy, a tax subsidy of health insurance has led to higher demand for health insurance, and therefore people relying on others to pay for their own routine, perfectly predictable health expenses.

In response to those higher costs, which plague all third-party payer systems, but seem to affect ours more than most, we are now apparently resolved to control costs by taxing the pretax plans that have premiums that are too high. In other words, we don't tax the insurance to begin with, as we would for any other form of compensation, but then decide to compound the sin when people then choose to demand a lot of healthcare, which then claims a lot of resources at high social cost.

The Wall Street Journal indicates the current state of play:
Under the Senate bill, health insurers would have paid a 40% tax on premiums that exceed $8,500 annually for individuals or $23,000 for family plans. That would have affected 19% of existing policies. The new agreement raises those thresholds slightly, to $8,900 for individuals and $24,000 for families, so fewer workers would be affected.

Of course no one knows the "right” amount to spend on health care. Anyone who says we spend too much is obligated to give a number of what healthcare should cost -- 16.378% of GDP, an appendectomy should cost $2130.62, something along those lines. But of course no one knows that answer. Like any other good, those numbers are the result of interplay between millions of competing buyers and millions of competing sellers, with the sellers themselves buyers of the resources needed to sell their services, and everyone possessing information invisible to the planner. There is no imposing a bureaucratic solution on that. The result of cost controls will inevitably be some combination of rationing, people lobbying to get their special health-care needs or role in society declared exempt from cost controls, black markets, increasing the attractiveness of health-care services by ways other than improving the quality of the care but billable to the user (e.g., more luxurious hospital rooms), and other ways that we can never predict but which the planner is always expertly quick to find someone to blame for.

Cost targets are the weapon of the slave master. That we have gotten to this point -- we are prepared to give bureaucrats and politicians control over costs that are created because of the decisions of past bureaucrats and politicians -- is essentially planning in a nutshell. The proper solution to this problem is simply to tax health-insurance compensation like any other.

But we have long since left the moment when good sense was an option. During the early years of the Great Depression President Hoover consented to legislation authorizing farm subsidies, because he wanted farmers to make more money. Alas, subsidies encourage overproduction, and farm prices fell at an even faster rate than they otherwise would have. Thus, Hoover supported the Smoot-Hawley tariff’’s ability to raise farm prices, with catastrophic consequences. This is where our health care is headed, if this isn't stopped.


Saturday, January 16, 2010

The Californian Union

The Economist magazine reports that the European Union, long under criticism for its democracy deficit, has without publicizing it given to citizens in Europe significantly enhanced power to pass laws through referenda:

Thanks to a barely debated clause in the Lisbon treaty, the EU is about to embark on an experiment in direct democracy. Within a year, the European Citizens’ Initiative will come into effect. One million EU citizens from a “significant number” of countries will be able to ask the European Commission to put forward new draft laws.

As with so many bits of the Lisbon treaty, which came into force in December, it is not clear how the citizens’ initiative will work in practice, or even if it is a good idea. Euro-cheerleaders spent years banging on about the need for Lisbon, saying its new rules would make Europe simpler, more efficient and more democratic. Now they have the treaty, many of the same people are muttering and wailing about unresolved problems hidden in its leaden prose. Interview senior Brussels types about Lisbon, and the same phrases come up again and again: “we have no idea how this bit will work” and “of course, national leaders had no real idea what they were signing.”

Well, leave that last bit aside; this we have come to expect. What is likely to happen in an environment of empowered democracy like this? I suspect that the wall that the Eurocrats have built against the rampaging democratic mob will not hold. Anything that Europeans vote in a referendum to ask the European commission to do, the European commission will ultimately have to do.

At first blush this seems like a substantial improvement over the standard European practice of rerunning referenda until they get the results they like, of European leaders expressing contempt over the stupidity of the people they rule, etc. In fact though, the European referendum process is likely to be a problem. The most informative example is probably California. There, democracy is direct; people vote, and they make law immediately. In Europe, that is not the case, but again this is unlikely to be much of a meaningful barrier.

And results in California have been none too reassuring. Californians have repeatedly voted to reserve certain portions of the budget for specific purposes, imposing major constraints on future legislatures trying to balance budgets. They have repeatedly enacted measures driven primarily by special-interest advertising, and have shown a marked propensity to heavily discount the future in pursuit of the interests of the selfish present. The referendum process in California, which my high school-history teachers assured me was designed to break special-interest control of the California legislature, has in fact enhanced the ability of pressure groups to rent-seek. Few serious observers contend that the current California referendum pattern – where a small group of people hire signature gatherers, and then blitz the airwaves with 30-second advertisements designed to roil the emotions, has led to better governance.

Added to this effect is the fact that a prime target of European referenda is likely to be the thing that European officials don’t let Europeans talk about – immigration and cultural assimilation in particular. None of this will be good for European social cohesion. But at least it’s democratic.


Tuesday, January 12, 2010

What the Buzzards Saw Atop the Republic

Former Alaska Gov. Sarah Palin starts her new TV work tonight. She has evidently decided that scripted appearances, where she picks the topic and questions, better prepares her to face the electorate than, say, continuing to govern Alaska.

Meanwhile, the President of the United States is having a hard time scheduling his annual set-piece speech, the State of the Union, because of...television. The Hill has the story:

For all you Lost fans out there, don’t worry. The White House has promised that the upcoming State of the Union speech by President Barack Obama won’t cut into the premiere of the show’s final season on Feb. 2.

White House Press Secretary Robert Gibbs recently said, “I don’t foresee a scenario in which the millions of people that hope to finally get some conclusion in Lost are preempted by the president.” But he didn't say when the SOTU will take place.
Lost fans created Facebook pages and tweeted to beg the White House not to cut into the three-hour time slot for the show that ABC set aside for that Tuesday.

The SOTU is typically delivered in late January, triggering speculation it will occur on Jan. 26. That's the same date as one of the popular first few audition episodes of American Idol.

At a time when the American military is openly fighting in two countries (and sub rosa, in who knows how many), the federal deficit as a percentage of GDP is reaching levels that would make Argentina blush, unemployment is at the highest level in a generation, and we are seriously debating whether or not the federal government should take over the most important one-sixth of the economy, it is, apparently, a question of priorities.

If You Walk Awy, I Will Follow

Roger Lowenstein has some arresting advice for people who are underwater in their mortgages - walk away:
White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.

Precisely. Government officials have been urging people, Lowenstein recounts, to "do the right thing" and pay if they can afford to. In fact, underwater borrowers are parties to contracts that state the penalties for nonpayment, and if those penalties exceed the cost of continuing to make mortgage payments, not only do borrowers have the right to walk away, they arguably should walk away. By doing so, they are conveying the message that lenders overestimated what houses would be worth, and made loans to people who shouldn't have gotten them. Borrowers who walk away will pay costs, as they should, in the form of worse credit ratings. How much worse is up to lenders, who will have to decide if a walkaway is a bad credit risk. The sooner the information about the wisdom of past lending practices gets into the price system, the better.

Lowenstein notes that a Bush Administration official dismissed walkways as "speculators," which is true. All market traders -- people deciding whether or not to go to college, whether or not to take a particular job, whether to lend to someone to buy a house, whether to walk away from a loan to buy a house -- are speculating. They are using the information they have and the prices they face to make the best decision they can, thus injecting that information into the price. Given the pejorative meaning it has taken on, "speculation" is not even economically meaningful, and financial reporters should probably refrain from using it.
It is true also that a walkaway commits a negative externality by lowering property values on his street. But a person who moves into a neighborhood and makes a bid on a house also commits a positive externality, and in any event many of these externalities are properly internalized because a single person has built the subdivision to begin with. So that is not much of an argument either.

I suspect that most of the economic argument against walking away boils down to macroeconomics -- the fear that an epidemic of walkaways will cause the housing market to once again spiral down, delaying macroeconomic recovery. But this macroeconomic idea -- the idea that "the economy" is a single organism -- is bunk. What we ought to be concerned about is whether the microeconomics are right -- whether the price system is incorporating all the information it needs to to function properly. Given the contracts that were written, and the rules of the game for breaking them, underwater borrowers would be doing society a service by giving up homes that do not serve their interests.

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Thursday, January 07, 2010

A Leader in Search of Followers

Two stories from the current American administration at first seem to have little in common, but in fact are collectively very revealing.
The first involves the presidential adviser Rahm Emanuel, as recounted in the Israeli newspaper Ha'aretz:
Emanuel met with Jacob Dayan, consul general of Israel in Los Angeles, about two weeks ago, after which Dayan briefed the Foreign Ministry.

According to reports, Emanuel told Dayan the U.S. is sick of the Israelis, who adopt suitable ideas months too late, when they are no longer effective.

The U.S. is also sick of the Palestinians who never miss an opportunity to miss an opportunity, Emanuel reportedly said.

The second comes from the President himself, as recounted in a Fox News blog:
The bottom line is this: The U.S. government had sufficient information to have uncovered this plot and potentially disrupt the Christmas Day attack, but our intelligence community failed to connect those dots, which would have placed the suspect on the no-fly list.

In other words, this was not a failure to collect intelligence, it was a failure to integrate and understand the intelligence that we already had. The information was there, agencies and analysts who needed it had access to it, and our professionals were trained to look for it and to bring it all together.

I will accept that intelligence by its nature is imperfect, but it is increasingly clear that intelligence was not fully analyzed or fully leveraged. That's not acceptable, and I will not tolerate it.

Time and again we've learned that quickly piecing together information and taking swift action is critical to staying one step ahead of a nimble adversary. So we have to do better, and we will do better, and we have to do it quickly. American lives are on the line.

So I made it clear today to my team I want our initial reviews completed this week. I want specific recommendations for corrective actions to fix what went wrong. I want those reforms implemented immediately so that this doesn't happen again and so we can prevent future attacks.

The common theme in the two stories is the belief of the President's chief of staff and the President himself about why bad things happen. The Arabs and the Israelis cannot have failed for over 60 years to come to a mutually satisfactory peace agreement because they have deeply conflicting interests, political constraints, a fundamental unwillingness to make peace given what they have to give up to get it, or anything as discouragingly complicated as that. Instead, the failure lies in the personal shortcomings of Palestinian and Israeli leaders. If only the right men were in charge, peace would flow like floodwaters.

So too with the failure to detect the would-be airline bomber on Christmas Day. Our vast intelligence apparatus was not up to the job until President Obama scolded them and told them to do a better job, as if the intelligence agencies were not already profoundly dedicated to preventing terrorists blowing up airplanes, and merely required a kick in the pants from their boss. Again, the complexities of our world do not seem to enter the picture. That any large organization is going to be prone from time to time to bad decision-making, to an inability to get information flowing to where it needs to go, that we are an open society subject to moral and legal constraints while the terrorists are not, that (as the Irish Republican Army once mockingly told Mrs. Thatcher after barely failing to kill her) terrorists only have to get lucky once while the government has to get lucky every time, these things are foreign to the President.

The belief that a great leader can make progress happen, and can make political systems work better, is deeply ingrained in the progressive mind. While it is true that conservatives are also likely (perhaps even more likely) to subscribe to the great-man theory of history, and lionize people like Ronald Reagan and Winston Churchill, their heaviest thinkers are more likely to accept than their progressive counterparts that the world is complicated, that things happen for reasons. The belief in the great man changing history by moving human society forward has led at a minimum to willful ignorance of and frequently to support for some of the most wicked leaders of our bloodiest century, the twentieth. The fetishization, as opposed to the mere admiration, of the great leader (and I am reminded of the presidential adviser who with rarefied ignorance for someone in a position of such responsibility invoked Mao Zedong as one of her heroes) tends to come from the belief that the way forward is obvious, and only stubborn individuals block it. There is no reason based on clashes of human interests, in other words, for politics to be difficult. This article of faith has a childlike quality to it that would be adorable were the issues at stake not so serious.

Wednesday, December 30, 2009

When Worlds Divide

So the governor of the Indian state of Andhra Pradesh resigned after a fairly juicy sex scandal. Times Now has the details:

Breaking his silence, former Andhra Pradesh Governor N D Tiwari, who resigned in the wake of alleged sex scandal, today rubbished reports against him as "fabricated and false" and said he will continue to be in public life. On return to his home state, Uttarakhand, 86-year old Tiwari told reporters at the Jollygrant Airport near here that some people in Andhra Pradesh had hatched a conspiracy against him and levelled "false" allegations.

Declining to name anyone, he said some people associated with Telangana statehood agitation wanted to meet President Pratibha Patil during her proposed visit to Hyderabad, but he had refused to entertain their request. These people got angry with him and hatched a conspiracy against him, he claimed. Tiwari had resigned on Saturday on "health grounds" in the wake of a raging controversy after a sting operation by an Andhra TV channel purportedly showed him in a compromising position with three women in Raj Bhavan. The Raj Bhavan had dismissed the allegations as a "tissue of lies."

I confess I am a little embarrassed to set up a post this way, but stay with me. The interesting details are not those of the governor's energy (he is well into his 80s), but those of the state of Andhra Pradesh itself. Andhra was created out of a portion of the independence-era state of Madras, and merged years later with part of the state of Hyderabad to form Andhra Pradesh. In the last few weeks, there has been agitation to create a separate state out of portions of Andhra Pradesh, to look after the interests of some of the people who live there. The BBC has the latest.

This is not the first time India has broken states up. In fact, it has happened numerous times since independence. This is striking, because it has never happened in the United States, another very large country, since West Virginia split off from Virginia amid the turmoil over slavery.

Why so much jurisdictional fission? Some years ago I wrote a paper in Economic Development and Cultural Change arguing that since India at independence already had a series of ready-made pressure groups in the form of castes and tribes, it became very easy to organize on those principles when rent-seeking. It is much easier, in other words, to use caste and tribal identity to agitate for special privileges from the government than, for example, class identity. At independence, India correspondingly created a list of what were called the Scheduled Castes and Scheduled Tribes, which were given (by current American standards) extremely generous forms of affirmative action, or reservations as they are known there. Legislative seats, university positions, and jobs in state-owned enterprises were reserved for people on these lists.

The list was designed to clear up the residual discrimination of Hindu society (in the case of caste) and isolation (in the case of tribe). As a compromise, it was agreed that no castes or tribes would be added to the list once it was drafted. However, governors in each state got to create the list, and politicians soon learned that splitting up a state allowed the creation of new lists, which meant new groups of dependent voters. The ability to create such utterly dependent citizens was enhanced once Indian politicians came up with the impolitely named category of Other Backward Classes, which unlike scheduled castes and tribes could be expanded without limit.

And so in some states upwards of 80% of the population is now eligible reservations, which is absurd on its face. And reservations have become, election in and election out, the consistently most important issue across the nation in Indian politics. Even India's world-renowned technological institutes may soon be subject to them.

My article also contended that the desire to create new lists in order to gain votes was the primary incentive for breaking states up. Every time I have mentioned this in the past to Indian friends they have scoffed. But the journalistic description of the current Andhra Pradesh episode -- in particular of the alleged need to "protect" certain groups -- makes me believe more than ever that I am right.

This is the unavoidable outcome of state-mandated preferences on grounds of race, caste, sex, or other non-meritocratic categories. The original justification expands to cover more and more alleged sins and kinds of people, and the beneficiaries are never satisfied that the problem has been solved. (In the US the only obstacle has been direct referenda, and some of them, for example in California several years ago, might not pass in a few years given rapidly changing demographics.) Those who lose out in such preferences find either that their options are limited or that they must leave, as many Indians from non-protected groups have done. In the meantime, look for the number of Indian states to rise over time, and look for people to continue to hide the reasons why.


Tuesday, December 29, 2009

My Anti-Corporate Blog

I'm starting a new blog whose purpose is to keep track of anti-corporate thought in the broader culture. I will not abandon this one, but the new one (which will be updated whenever I find something worth writing about there) can be found here. The first post on it was the post below about Avatar.