After reading the few details provided on the mortgage settlement, it could be easy to forget that this whole thing was supposed to be about compensating families who lost their homes to foreclosure due to “robo-signing” and other foreclosure process abuses.

Out of the $25 billion settlement, guess how much goes to borrowers who “lost” their homes to foreclosure?  $1.5 billion.  That’s correct, only 6% of the settlement actually could go to the victims it was all supposed to be about.  What’s worse is that the settlement does not even require that money to go to parties actually harmed.  The money can go to any borrower that had a foreclosure, harmed or not.  In fact, as far as I can tell, a borrower could get the money even if he got into the house via fraud, like over-stating his income.

While coverage has been a little loose on details, it appears that about $3 billion of the settlement is going into the coffers of state governments.  You read that right: state governments are looking to get about twice what the actual victims might get.  But then that doesn’t sound too far off from the typical class-action: lawyers make out like bandits and victims get peanuts.

If you’re wondering where the rest of the money is going, it is headed to homeowners who are still in their homes, and hence  by defintion not victims of foreclosure abuse.  So much for actually helping victims.  But then, since the state AGs apparently never bothered to look for any real victims, it should not be too surprisingly that they completely forgot about them when crafting the settlement.

Where’s the Compensation for Victims in the Mortgage Settlement? is a post from Cato @ Liberty - Cato Institute Blog

“White House compromise still guarantees contraceptive coverage for women,” reads the Washington Post headline coming out of President Obama’s press conference this afternoon. Trying to tamp down the escalating political storm his administration created three weeks ago when it ruled that, under Obamacare, employers with religious objections to providing contraceptive and abortifacient coverage must do so anyway, his team has come up with a “compromise.”

Here it is, as reported by the Post – read carefully:

Women still will be guaranteed coverage for contraceptive services without any out-of-pocket cost, but will have to seek the coverage directly from their insurance companies if their employers object to birth control on religious grounds.

Religiously-affiliated non-profit employers such as schools, charities, universities, and hospitals will be able to provide their workers with plans that exclude such coverage. However, the insurance companies that provide the plans will have to offer those workers the opportunity to obtain additional contraceptive coverage directly, at no additional charge.

Got that? Then who’s going to pay for that additional coverage? (It’s not “free.”) The insurance companies? They’ll simply pass the costs back to the religious employer – insofar as the employer picks up at least part of the cost of covering his employees’ health insurance premiums, as most do. So we’re right back where we started from.

This is a fig leaf, which is why progressives have quickly rallied behind the “compromise.” It’s just another example of the something-for-nothing mindset that drives their agenda. Stay tuned. We haven’t heard the end of this.

Obama’s Political Prophylactic is a post from Cato @ Liberty - Cato Institute Blog

Libertarianism.org keeps adding new stuff, so if you’re not a regular reader, now’s a great time to become one. This week we added the following:

• George H. Smith gave us a glance at economic regulations from the past in his new Excursions essay, “Monopolies, Mercantilism, Illegal Buttons, and Saltpeter Men.”
• Jason Kuznicki published a review of Charles Murrary’s new book, Coming Apart: The State of White America, 1960-2010. Kuznicki concludes, “I’ll admit to doubting the problem, and to doubting the solution, and in particular to doubting whether a book by Charles Murray could possibly bring it about (sorry).  But is it objectionable? Eh. No. It just isn’t.”
• I published three new blog posts, the first two expanding on my piece from last week about the lessons the tech community should have learned from SOPA. In “How Absolute is Libertarian Skepticism,” I clarified what exactly skepticism in the face of government action looks like. In “Why Should We Be Skeptical About Government?” I explained why skepticism is the proper response to most government proposals. Finally, today I published “‘Why does the stupid government get to take some of my money?’” discussing bad arguments for increasing taxes.
• Libertarianism.org’s media section grew with the addition of the Cato Home Study Course. This 30-hour audio series explores the major ideas and figures in the history of libertarianism.
• We released another short video featuring Douglas Rasmussen, this time on what libertarians can learn from Aristotle.
• Finally, we released two more talks from our archives: Richard Ebeling on the intellectual roots of spontaneous order and David Kelly on the Objectivist movement.

This Week at Libertarianism.org is a post from Cato @ Liberty - Cato Institute Blog

On the basis of no discernible evidence, Sherman is determined to believe that literally millions of Internet users who spoke out against online censorship—to say nothing of the scores of eminent constitutional scholars, network engineers, security specialists, and entrepreneurs—were little more than dupes of a few big tech companies.  This was a widely-condemned, lobbyist-scripted proposal whose political viability was so plainly purchased that Hollywood all but demanded a refund when it didn’t pass—yet in Sherman’s mind, incredibly, it was the immense popular backlash against this that “raised questions about how the democratic process functions in the digital age.”

There is a perverse logic to this: What Sherman has in mind is the familiar  “democratic process” where policy is ultimately crafted and debated behind closed doors by powerful institutional stakeholders.  Broader public involvement—should it become an unpleasant necessity—consists exclusively of being roused to enthusiasm or opposition, as necessary, by the stakeholders’ competing marketing campaigns. The defining principle of the modern Web—that users are not passive consumers of ideas, but the source of whatever value and creativity the platform enables—is alien to the model.

Unsurprisingly, Sherman’s op-ed doesn’t really read as though it’s aimed at the general public, but rather as a last desperate pitch over their heads to members of Congress: Pay no attention to the folks in front of the curtain! Since Sherman never takes seriously the possibility that opposition was grounded in well-informed concerns, it is little surprise that he makes scant attempt to seriously address them.

Instead, the piece is an extended exercise in stroking the wounded egos of legislators: You understood the severity of the online piracy problem, having diligently examined our fabricated statistics. You “studied the problem in all its dimensions, through multiple hearings”—only one of which actually concerned SOPA specifically, and all of which were transparently stacked with handpicked supporters of the legislation. Congress heard from Floyd Abrams, commissioned by the film lobby to give the legislation his constitutional seal of approval, but not from more than 100 eminent legal scholars who explained why it was an affront to the First Amendment.  Nor did they hear from the 83 respected network engineers, or the government’s own cybersecurity experts, who warned that it would interfere with efforts to secure the Internet’s Domain Name System against malicious hackers. Indeed, online opposition truly exploded after a session of the House Judiciary Committee where it became embarrassingly clear to the tech community how imperfectly legislators truly understood the network they were regulating, in no small part because the bill’s sponsors had steadfastly resisted holding a hearing with real technical experts. When Rep. Darrell Issa finally scheduled such a hearing, SOPA boosters rapidly retreated on the previously non-negotiable question of DNS blocking, perhaps because they realized how poorly it would reflect on their own process.

What, then, is Sherman’s evidence that opponents were misinformed?  Apparently because they thought a system requiring ISPs to block access to entire web domains—including protected speech along with copyright infringing content—and forcing search engines to redact their results might plausibly be described as “censorship.” Of course, it is so glaringly obvious that this is censorship that Sherman can’t quite bring himself to describe it in literal terms, falling back instead on strained physical analogies and the strange premise that censorship isn’t censorship if you only intend to block bad speech. On this definition, I suppose, censorship only occurs when the authorities approve of the information they are demanding be filtered out.

Beyond that, there’s precious little effort to substantiate the claim that companies opposed to SOPA “drowned out” accurate information by blasting their users with propaganda.  Indeed, the media companies backing the legislation seemed conspicuously uninterested in doing much of anything to inform their own enormous audiences about the legislation—perhaps because they harbored no illusions about how ordinary people would react once they started looking into the proposals. Like Sherman, they weren’t really seeking better informed public participation; they preferred not to have to worry about public participation at all. That suited the copyright lobbies quite nicely for decades as they steamrolled through one bill after another aimed at impoverishing the public domain and swelling corporate coffers, with no compensating benefit in additional creative output.

Hence this editorial, in which Sherman does his best Grima Wormtongue impression, reassuring members of Congress that their wisdom (fed by his solicitous guidance) is unimpeachable, and that any complaints from the masses—even masses taking their cues from legal and technical experts—can only demonstrate the enemy’s willingness to resort to lies and manipulation.  It’s an appealing pitch because it ties into the fiction most legislators will find psychologically necessary to do their jobs: that a few hundred sufficiently wise men and women can aspire to such universal competence that they’re able to make rules on every topic under the sun, however complex, for a vast nation of millions. But uncomfortable as it must be to contemplate that this may not be true, such humility—as Socrates first taught us—is the beginning of true wisdom.

SOPA’s Last Gasp: Was the Internet Misinformed? is a post from Cato @ Liberty - Cato Institute Blog

Each January the Congressional Budget Office provides updated projections of the federal budget for the coming decade. Let’s compare the January 2011 projections to the January 2012 projections to see whether the switchover of the House to Republican control during 2011 has made a dent in spending.

We will look at CBO projections for the three basic components of federal spending: discretionary, entitlements, and interest. The three figures below are CBO “baseline” projections of fiscal year outlays, with historical data back to 2007.

Figure 1 shows that discretionary outlays jumped from $1.04 trillion in 2007 to $1.35 trillion in 2011. The CBO’s new projection (red line) for spending in 2012 is $44 billion below what the CBO projected for 2012 last year (blue line). That small reduction is partly attributable to GOP spending restraint efforts.

Looking ahead to 2021, spending is now projected to go down significantly from what was projected last year. That is the result of the budget caps that the Republicans negotiated with the Democrats in the Budget Control Act enacted last summer, and it includes the further reduction in caps stemming from the failure of the “supercommittee.”

If the caps hold, discretionary outlays will be 16 percent lower in 2021 than they might otherwise have been. However, that’s a giant “if” given the track record of Congress. And even if the caps do hold, it would only be a cut of $256 billion in 2021, which would be less than 5 percent of total federal spending that year of more than $5 trillion.

Figure 2 shows that entitlement outlays soared from $1.45 trillion in 2007 to $2.06 trillion in 2011, a giant 42 percent leap in just four years. (I’ve excluded TARP spending, which has distorted the figures in recent years). Note that within a few years entitlement spending (in Figure 2) will be more than twice as large as discretionary spending (in Figure 1).

Looking ahead, CBO’s new projections show entitlement spending rising to $3.27 trillion by 2021. This is the spending explosion that is threatening to enslave young Americans with debt, but ironically it is the part of the budget that policymakers are doing the least to control. This year’s projection for 2021 is down a tiny $61 billion from last year’s projection, partly from the scheduled “sequester” cuts resulting from the failure of the supercommittee.

Figure 3 shows that federal interest costs have hovered around $200 billion in recent years, but are set to blast off due to rising federal debt levels and rising interest rates. The CBO has sharply cut its projections of interest costs and interest rates compared to last year’s projections. The more optimistic forecast apparently stems partly from Fed chairman Ben Bernanke’s claim that he will keep interest rates low in coming years. Over nine years (2012-2021) the new projections cut interest costs by $1.6 trillion compared to last year’s projections. It’s not a stretch to say that there is a lot of upside risk to the CBO’s new interest cost projections.

The data in these figures are based on the CBO’s budget baseline, which is an optimistic scenario for what spending may look like without any budget changes. The baseline assumes that the discretionary caps hold, that the scheduled sequester comes into force, and that the “doc fix” cut to Medicare is imposed. It also assumes that Congress doesn’t add any more programs or expand existing ones.

Nonetheless, the new discretionary budget caps and planned sequester are tiny steps toward reducing projected spending growth. Fiscal conservatives in Congress now need to focus on eliminating discretionary programs and permanently reducing benefit levels in entitlement programs. See www.DownsizingGovernment.org.

CBO Spending Projections, Then and Now is a post from Cato @ Liberty - Cato Institute Blog

New research by Harvard professor David J. Deming studied the crime rates of young adults who participated in a random lottery at the middle or high school level. The lotteries decided whether students were able to attend a school of their choice or whether they were forced to attend their assigned public school. Students who won the lottery committed significantly fewer crimes as young adults than those who lost it. So here is another in the long list of educational outcomes improved by market freedoms and incentives.

Send this to a friend who is still on the fence about the merits of educational freedom.

School Choice Lowers Crime is a post from Cato @ Liberty - Cato Institute Blog

The three-week battle over ObamaCare’s contraceptive-abortifacient ruling isn’t letting up. Catholics for Choice has a full-page ad in this morning’s Washington Post, urging the president to stay firm. And it’s the lead story today on NPR’s Morning Edition, which in printed form devotes fully 2 of 16 paragraphs—the last 2—to the other side (not bad for NPR). The gist of the piece is, what’s the big deal? “The only truly novel part of the plan is the ‘no cost’ bit,” says NPR’s Julie Rovner.

“Now millions more women and families are going to have access to essential health care coverage at a cost that they can afford,” says Sarah Lipton-Lubet, policy counsel with the ACLU. “But as a legal matter, a constitutional matter, it’s completely unremarkable.”

Unfortunately, they’re right: our modern anti-discrimination law has been so extended that today it undermines religious liberty on many fronts. Two terms ago, for example, a bitterly divided Supreme Court ruled that the Christian Legal Society, a student group at the Hastings Law School, had to admit “all comers,” not only as members but as officers. (See Cato’s amicus brief defending the group’s right to discriminate in the name of religious liberty and freedom of association.)

Here, the federal Equal Employment Opportunity Commission ruled in 2000 that failure to provide contraceptive coverage violates the 1978 Pregnancy Discrimination Act, an amendment to Title VII of the 1964 Civil Rights Act that outlaws, among other things, discrimination based on gender. And 26 states today have similar “contraceptive equity” laws on the books, Rovner reports, which state courts have upheld in suits brought by Catholic Charities and others. She quotes from the 2006 decision of New York State’s top court:

When a religious organization chooses to hire non-believers, it must, at least to some degree, be prepared to accept neutral regulations imposed to protect those employees’ legitimate interests in doing what their own beliefs permit.

Right there, of course, is the problem. As I wrote over the past two days, no one on the other side is asking employees to do anything contrary to their religious beliefs—or not do “what their own beliefs permit.” Employers are not “imposing their religious beliefs” on their employees, as some have argued. Those employees are still perfectly free to use contraceptives and abortifacients. They just shouldn’t expect their employers, through the group health insurance plans the employers offer, to provide and pay for such measures if doing so violates their religious beliefs. But that would be to discriminate against women, the courts have held, since only women get pregnant. Thus does our antidiscrimination law, as found in statutes, trump religious liberty, as once protected by the Constitution. “To each his own” falls by the wayside when “we’re all in this together,” as ObamaCare requires us to be.

Under ObamaCare, Anti-Discrimination Law Trumps Religious Liberty is a post from Cato @ Liberty - Cato Institute Blog

Cato’s third Supreme Court brief in the Obamacare litigation concerns the issue of whether the federal tax Anti-Injunction Act prevents federal courts from timely reviewing Congress’s most egregious attempt to exceed its power to regulate interstate commerce. The AIA bars courts from enjoining “any tax” before that tax is assessed or collected.

One would think that such a law would have no application to the penalty that enforces the individual health insurance mandate, which is not a tax but rather a punishment for not complying with the mandate. Accordingly, most of the courts to consider the issue have found the AIA to be inapplicable to individual mandate challenges. Moreover, the government itself has long conceded that the AIA does not bar these suits.

A Fourth Circuit majority and the dissenting Judge Brett Kavanaugh in the D.C. Circuit, however, reached a contrary conclusion, reasoning that the AIA applies to all exactions assessed under the Internal Revenue Code, including “penalties.” Out of an abundance of caution, and because the AIA may be a jurisdictional bar, the Supreme Court appointed an amicus curiae to argue for the position that the AIA bars these suits.

The plaintiffs here — the 26 states, the National Federation of Independent Business, and several individuals — have advanced several strong arguments for why the AIA doesn’t apply. Cato’s brief expands on one of those arguments: that the words “any tax” in the AIA do not include “penalties” simply because they may be codified in the Code.

First, we demonstrate that the Supreme Court has always held that “taxes” and “penalties” are not interchangeable for AIA purposes. Second, we show that, with one exception, all of the cases cited in the amicus briefs filed by two former IRS commissioners, Mortimer Caplin and Sheldon Cohen — which appear to have heavily influenced the Fourth Circuit and Judge Kavanaugh — concerned penalties that were statutorily defined as taxes. This refutes the commissioners’ erroneous claim that those cases concerned penalties that were not defined as taxes. As we say in our brief, “the influence of Amici Caplin & Cohen’s [D.C. Circuit] brief is surpassed only by its misdirection.” The one exception is the Mobile Republican case (Eleventh Circuit 2003), which we explain is properly understood as applying the AIA to penalties that enforce substantive tax provisions.

In short, the AIA cannot bar suits to enjoin the individual mandate penalty because that penalty neither is defined as a tax nor enforces a substantive tax provision.

Thanks very much to Cato legal associate Chaim Gordon for taking the lead in drafting this brief and helping me with this blogpost.

Obamacare Challenge Not Barred By a Weird Technicality is a post from Cato @ Liberty - Cato Institute Blog

We’ve often deplored the continued push of criminal prosecution into matters that were once considered more suitable for regulation or for the operation of civil law. A little-noted report a few weeks back in the Los Angeles Times may indicate the next milestone in overcriminalization:

The U.S. attorney has launched a fraud investigation to determine whether Los Angeles city officials ignored federal laws designed to protect the disabled when building or fixing up housing. …

The investigation spans January 2001 to the present, the letters said. If violations are uncovered, city agencies that used federal housing funds could face financial penalties, lose out on future grants or possibly become the subject of a criminal investigation, said [city official] Bill Carter…

Disabled activists sought an investigation because, to quote the LAT again,

In testimony and in person, activists alleged that doors were sometimes too heavy for wheelchair users to open, elevators were not working in at least one city-funded building, and managers either refused to rent to wheelchair users or did not have apartments available for them, [advocate Becky] Dennison said.

The activists also felt ignored because various management recommendations they made to local officials had been ignored. They already have a right to file civil suits over their grievances: indeed, shortly after the U.S. Attorney’s investigation came to light three advocacy groups did file a civil suit against the city.

There are very real problems of fraud — plain old graft and money-raking — on the L.A. public housing scene. But the idea of redefining fraud to include ADA noncompliance is a different matter. If taken seriously, it would mean exposing ordinary as well as dishonest local officials across the country to the specter of criminal liability. It’s notoriously hard to assure that either new or renovated buildings are 100% compliant with ambitious interpretations of the law; a design fix that satisfies three ADA consultants may displease a fourth. Criminal liability should arise from very clear, preannounced standards of conduct. That’s not the ADA.

Maybe the U.S. Attorney’s office is just raising the criminal issue as a bit of bravado to please its friends in the advocacy world and strong-arm the city into settling. But as playwrights know, if a shotgun is shown above the fireplace in Act I, by the middle of Act III a shot will ring out. This misguided extension of federal fraud law is worth challenging now.

Prison Terms for Not Installing ADA Ramps? is a post from Cato @ Liberty - Cato Institute Blog

If you missed the news (Obama actually made a “big” speech about it), the federal government, along with 49 state AGs, reached a settlement with the largest mortgage servicers over servicing violations.  In some ways, what little detail has been offered raises more questions than answers.

Perhaps the biggest question is how much of the actual losses will be borne by the banks and how much will be passed along to investors, who were not even represented at the table.  One hears that both first and second mortgages would be written down “in proportion” so that if the first loan is reduced 10%, then the second is also reduced 10%.  Obviously this flies in the very face of what a first and second loan are.  The first shouldn’t take any loss until the 2nd is completely wiped out.  But since investors often hold the first while banks hold the second, it looks like Obama has blessed the banks sticking a good deal of their losses to the investors, which include pension funds, retirement accounts etc.

And while I was of course moved by the touching picture of a couple and their child featured so predominantly on the settlement’s website, I was also left wondering, what is the process for determining which foreclosed homeowners receive assistance.  The settlement is actual quite clear that  “$1.5 billion will be distributed nationwide to some 750,000 borrowers” but that such borrowers need not have actually been harmed.  This really seems little more than a lottery trying to pass as consumer protection.  But then I suspect your chances for getting a piece are bigger if you happen to live in a swing state (sorry California).

What really worries me is the massive payment to states.  Of course they claim this is going to help “fund consumer protection” but then we also told that the tobacco settlements would help smokers; it instead turned into state government slush funds.  Even more troubling is the high probability that such funds will flow to various non-profits, whatever the current incarnation of ACORN is calling itself.

Fortunately the entire settlement has to be approved by a federal judge.  Given that these issues really should have been decided in the courts in the first place (separation of powers, anyone?), this is the opportunity for the courts to ask for the AGs and Obama to actually produce some evidence of wrong-doing.  And also to ask that parties actually harmed be the ones compensated.  Anything else would be a perversion of justice.

Questions and Thoughts on the Mortgage Settlement is a post from Cato @ Liberty - Cato Institute Blog

My Cato colleague John Cochrane – who is way smarter than I am — has a generally excellent op-ed in today’s Wall Street Journal on ObamaCare’s contraception mandate:

Salting mandated health insurance with birth control is exactly the same as a tax—on employers, on Catholics, on gay men and women, on couples trying to have children and on the elderly—to subsidize one form of birth control…

The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates…

The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society…

Sure, churches should be exempt. We should all be exempt.

My only quibble is with his claim, “Insurance is a bad idea for small, regular and predictable expenses.”

That’s generally true. But medicine is an area where, potentially at least, small up-front expenditures (e.g., on hypertension control) could prevent large losses down the road. So it may be economically efficient for health plans to cover some small, regular, and predictable expenses. Both the carrier and the consumer would benefit. In fact, that would be the market’s way of telling otherwise uninformed consumers, “Hey! Controlling your hypertension is a really good for you!” And really, if someone is so risk-averse that they want health insurance with first-dollar coverage of everything – and they’re willing to pay the outrageous premiums that would accompany such coverage — why should we take issue with that?

ObamaCare’s contraceptive-coverage mandate demonstrates that government does  a horrible job of picking only those types of “preventive” services for which first-dollar coverage will leave consumers better off. But I also think advocates of free-market health care generally need to let go of the idea that health insurance exists only for catastrophic expenses.

Cochrane on ObamaCare’s Contraceptive-Coverage Mandate is a post from Cato @ Liberty - Cato Institute Blog

When Ronald Reagan said that big government undermined the economy, some people dismissed his comments because of his philosophical belief in liberty.

And when I discuss my work on the economic impact of government spending, I often get the same reaction.

This is why it’s important that a growing number of establishment outfits are slowly but surely coming around to the same point of view.

• The European Central Bank published a study showing “…a significant negative effect of the size of government on growth.”
• A study by two Harvard economists found that “large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions.”
• The Organization for Economic Cooperation and Development noted in recent research that welfare programs are economically destructive because they lure people into dependency because “net disposable income would increase despite putting in fewer hours.”
• A study from the International Monetary Fund concluded that “Cuts to pension and health entitlements had the most beneficial effect on economic growth.”

This is remarkable. It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance.

That’s an exaggeration, of course. There are still holdouts pushing for more statism in Pyongyang, Paris, Havana, and parts of Washington, DC.

But maybe they’ll be convinced by new research from the World Bank, which just produced a major report on the outlook for Europe. In chapter 7, the authors explain some of the ways that big government can undermine prosperity.

There are good reasons to suspect that big government is bad for growth. Taxation is perhaps the most obvious (Bergh and Henrekson 2010). Governments have to tax the private sector in order to spend, but taxes distort the allocation of resources in the economy. Producers and consumers change their behavior to reduce their tax payments. Hence certain activities that would have taken place without taxes, do not. Workers may work fewer hours, moderate their career plans, or show less interest in acquiring new skills. Enterprises may scale down production, reduce investments, or turn down opportunities to innovate. …Over time, big governments can also create sclerotic bureaucracies that crowd out private sector employment and lead to a dependency on public transfers and public wages. The larger the group of people reliant on public wages or benefits, the stronger the political demand for public programs and the higher the excess burden of taxes. Slowing the economy, such a trend could increase the share of the population relying on government transfers, leading to a vicious cycle (Alesina and Wacziarg 1998). Large public administrations can also give rise to organized interest groups keener on exploiting their powers for their own benefit rather than facilitating a prosperous private sector (Olson 1982).

In other words, government spending undermines growth, and the damage is magnified by a poorly designed tax policies.

The authors then put forth a theoretical hypothesis.

…economic models argue that the excess burden of tax increases disproportionately with the tax rate—in fact, roughly proportional to its tax rate squared (Auerbach 1985). Likewise, the scope for self-interested bureaucracies becomes larger as the government channels more resources. At the same time, the core functions of government, such as enforcing property rights, rule of law and economic openness, can be accomplished by small governments. All this suggests that as government gets bigger, it becomes more likely that the negative impact of government might dominate its positive impact. Ultimately, this issue has to be settled empirically. So what do the data say?

These are important insights, showing that class-warfare tax increases are especially destructive and that government spending undermines growth unless the public sector is limited to core functions.

Then the authors report their results.

Figure 7.9 groups annual observations in four categories according to the share of government spending in GDP during that year. Both samples show a negative relationship between government size and growth, though the reduction in growth as government becomes bigger is far more pronounced in Europe, particularly when government size exceeds 40 percent of GDP. …we provide new econometric evidence on the impact of government size on growth using a panel of advanced and emerging economies since 1995. As estimates can be biased due to problems of omitted variables, endogeneity, or measurement errors, it is necessary to rely on a broad range of estimators. …They suggest that a 10 percentage point increase in initial government spending as a share of GDP in Europe is associated with a reduction in annual real per capita GDP growth of around 0.6–0.9 percentage points a year (table A7.2). The estimates are roughly in line with those from panel regressions on advanced economies in the EU15 and OECD countries for periods from 1960 or 1970 to 1995 or 2005 (Bergh and Henrekson 2010 and 2011).

These results aren’t good news for Europe, but they also are a warning sign for the United States. The burden of government spending has jumped by about 8-percentage points of GDP since Bill Clinton left office, so this could be the explanation for why growth in America is so sluggish.

Last but not least, they report that social welfare spending does the most damage.

Governments are big in Europe mainly due to high social transfers, and big governments are a drag on growth. The question is whether this is because of high social transfers? The answer seems to be that it is. The regression results for Europe, using the same approach as outlined earlier, show a consistently negative effect of social transfers on growth, even though the coefficients vary in size and significance (table A7.4). The result is confirmed through BACE regressions. High social transfers might well be the negative link from government size to growth in Europe.

The last point in this passage needs to be emphasized. It is redistribution spending that does the greatest damage. In other words, it’s almost as if Obama (and his counterparts in places such as France and Greece) are trying to do the greatest possible damage to the economy.

In reality, of course, these politicians are simply trying to buy votes. But they need to understand that this shallow behavior imposes very high costs in terms of foregone growth.

To elaborate, this video discusses the Rahn Curve, which augments the data in the World Bank study.

As I argue in the video, even though most of the research shows that economic growth is maximized when government spending is about 20 percent of GDP, I think the real answer is that prosperity is maximized when the public sector consumes less than 10 percent of GDP.

But since government in the United States is now consuming more than 40 percent of GDP (about as much as Spain!), the first priority is to figure out some way of moving back in the right direction by restraining government so it grows slower than the private sector.

Data in New World Bank Report Shows that Large Public Sectors Reduce Economic Growth is a post from Cato @ Liberty - Cato Institute Blog

Cato adjunct scholar John H. Cochrane has a terrific piece in the Wall Street Journal today on the Obamacare vs. religious freedom brouhaha. In particular, though it’s not Cochrane’s main point, I thought this was spot-on:

Our nation is divided on social issues. The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society.

For those of you who don’t follow education very closely this might seem like a fairly novel point. Unfortunately, this also probably seems novel for many who do follow education, even many who do so professionally. But it shouldn’t, because unlike in health care, government has been the dominant provider of education for well over a century, and social conflict and division have been its constant companions.

Welcome to our war-torn world, health care. Better bring a helmet.

Welcome to Our War-torn World, Health Care is a post from Cato @ Liberty - Cato Institute Blog

One of the issues discussed in my new essay on the Bureau of Indian Affairs (BIA) is the lobbying by groups of American Indians seeking official tribal status. The BIA has the power to confer tribal status, and it does so in a non-transparent manner. With official status comes tribal access to a wide range of federal subsidy programs plus the ability to earn monopoly profits with a casino. The gaining of official status for tribes was one of Jack Abramoff’s specialty services.

The most recent BIA decision to confer tribal status is a classic case. The 221-member Tejon tribe in California received a thumbs up from the BIA in January 2012. The group’s reservation and its tribal status had been dissolved decades ago, but it hired some powerful Washington lobbyists to work their magic. An article in the Bakersfield Californian notes, “In their quest to gain recognition, the Tejons had the help of an unnamed ‘financial backer’ who had paid $300,000-plus to the tribe’s attorneys.” This financial backer was “banking on a casino.”

A Mountain Enterprise story says that once the Tejon tribe’s status was official, “speculation began almost immediately about the tribe’s plans to affiliate with Tejon Ranch Corporation and Las Vegas investors to establish a casino facility.” Famous D.C. lobby shop Patton Boggs earned $120,000 in fees on the deal.

For the Tejons, the lobbyists produced results. There are hundreds of Indian groups who have petitioned the BIA for tribal status, and the BIA only confers status to a few tribes a year. Yet somehow the Tejons managed to jump to the front of the queue. This list (and this one) appear to show that the tribe ranked low on the recognition waiting list at #230 (but I admit I’m not an expert on how the system works).

The tribes who hire lobbyists don’t always win. Here’s a story about the 450-member Muwekma Ohlone of California:

Financed by their own casino sugar daddy, Florida real estate tycoon Alan Ginsburg and his associates, as well as with proceeds from the tribe’s own archaeological consulting firm, the otherwise humble Muwekma have spent millions of dollars on the effort. Much of that money has gone toward procuring the aid of a high-powered Washington, D.C., law firm…. [R]ecognition would open the door for the tribe… to place land in federal trust as a ‘reservation’ on which it could open a casino. Indeed, should they attain recognition, the Muwekma almost assuredly will become the envy of non-gaming tribes from outlying regions of the state who’ve tried and thus far not succeeded at ‘reservation shopping’ — that is, attempting to set up casino operations in urban areas far from their aboriginal homeland.

The Muwekma Ohlone tribe lost an important court ruling last year, which has set back their search for official recognition. In this case, the only winners were the lawyers and lobbyists, who apparently pocketed huge fees from the tribe. This data source shows that lawyers and lobbyists gain about $20 million a year in fees on Indian gaming-related issues. Jack Abramoff alone raised $80 million from half a dozen tribal clients in the early 2000s for lobbying on a wide range of tribal issues.

Indian gaming and other complex regulatory schemes usually generate “rent” or monopoly privileges that groups vie for a manner that is unproductive to society as a whole. When the government confers special benefits through regulation, wealth is channeled to lawyers and lobbyists but the overall economy shrinks due to the misallocation of resources.

The best policy for gaming would be to repeal all government restrictions and to treat gaming like any other industry. That would eliminate rents and the related lobbying, and it would create an equal and competitive playing field for Indians and non-Indians alike.

The good thing about Indian gaming is that it has shown that Indians are every bit as entrepreneurial as other Americans. But gaming is not likely to be a stable platform for long-term Indian economic development. That’s because as tribal and nontribal gaming continues to expand, profit levels in tribal gaming are likely to decline.

A more durable strategy for Indian prosperity is to make institutional reforms on reservations to encourage broad-based investment in a range of industries, as discussed here.

Indian Gaming: The Lobbyists Always Win is a post from Cato @ Liberty - Cato Institute Blog

Regarding legislation to create an ObamaCare “Exchange” in Virginia, the Richmond Times-Dispatch explains:

Republicans at the General Assembly are falling prey to the fallacy of the false alternative…

[H]ere are the real options facing Virginia: (a) federal bureaucrats determine the form of our exchange, or (b) federal bureaucrats determine the form of our exchange. There is no (c)…

Running a health-insurance exchange would cost a lot of money — money Virginia does not have. Since Washington will dictate how it will be run, Washington should pick up the tab.

RTD: ‘Insurance Exchange: Just Say No’ is a post from Cato @ Liberty - Cato Institute Blog

Today the Obama administration will announce, according to early press reports, that ten states (of eleven that applied) will be receiving waivers from key provisions of the No Child Left Behind Act. That’s right, the 2002 education law passed by Congress and signed by President Bush that absurdly insisted that all children will be proficient in mathematics and reading by 2014. Now President Obama, unilaterally, is telling states that they can forget all that as long as they adopt — or at least have ”plans” to adopt – reforms to his liking, such as national curriculum standards and teacher evaluations based on student standardized testing progress.

At this point, it is almost impossible to keep track of the federal savaging of the Constitution in supposed service of education. First there was the federal expenditure of money, allowed by none of the enumerated powers, largely starting in the 1960s. Then there was the growing attachment of controls to that money — again, with no Constitutional authority — culminating in NCLB. Now there is the blatant disregard for the separation of  powers by a President who just decided he didn’t like waiting for Congress to reauthorize the law, and a Congress that exhibits no spine whatsoever when it comes to this power grab because, well, no one seems to like NCLB.

Within this fiasco is all the evidence anyone should need to see why the Feds must be extracted from education. While Washington can drop humongous sacks of taxpayer dough on states and districts, and impose lots of bureaucratic rules and regulations, it can’t actually make education much better. Indeed, the whole point of NCLB was to end decades of Washington spending billions for no return. And what happened? Exactly what state, district, and school-level bureaucrats and unions expected: “accountability” swerved off the road before the 2014 deadline. It took longer than expected — it was a slightly more nerve-wracking game of political chicken than usual — but in the end the entrenched interests won because they’re the most motivated to bring the political pain. After all, their very livelihoods are at stake.

Aside from desegregation — which it has Constitutional authority to compel — the federal government has done no meaningful good in education. Why? Because the special interest-driven reality of politics ensures it can’t do any good. Yet we not only let it continue to trample the Constitution by meddling in education, we are allowing it to shred the Constitution into ever-smaller bits in order to “fix” the destruction it has wrought. And for this, all who turn a blind eye to the Constitution in the name of “the children” are to blame.

Waiving Goodbye to the Constitution is a post from Cato @ Liberty - Cato Institute Blog

Today POLITICO Arena asks:

Will the GOP win the birth-control fight?

My response:

The GOP will win the current contraceptive-abortifacient battle going away, because the average American understands the essence of religious freedom: government cannot force people to do things that violate their religious beliefs. The administration may try to frame this as a defense of women’s rights, but that’s pure sophistry. As I wrote yesterday, if the administration’s decision is reversed, women will still be perfectly free to use contraceptives, to seek abortions, and to do whatever else their beliefs permit. They just won’t be able to force others who object to such practices to pay for them.

There’s a bigger issue here, however. This is just the latest example of the perils of ObamaCare. When health care is thus “collectivized,” when we’re “all in this together,” we’re forced to fight for every “carve-out” of liberty. Those progressive Catholics who supported ObamaCare, who are now appalled by this move, should have thought of that before they worked to throw us all in the common pot. This incident is simply an early example of the many battles to come if ObamaCare survives the litigation and the elections ahead.

ObamaCare’s Coercive Essence is a post from Cato @ Liberty - Cato Institute Blog

FantasySCOTUS.net, a project of the Constitution-educating Harlan Institute (on whose non-profit board I sit), has been tracking its 12,000+ members’ predictions in the Obamacare case before the Supreme Court.  You can read more in-depth about the current state of the prediction market — with fancy graphs! – but here’s a summary:

• 90.6% predict that the lawsuit can proceed, overcoming the Anti-Injunction Act;
• 51.7% predict that the Court will strike down the individual mandate;
• 73.5% predict that the Court will then sever the mandate from the rest of the legislation (though this response isn’t very meaningful becuase the severability issue, unlike the others, isn’t a binary up-down choice for the justices);
• 77.2% predict that the Court will uphold the constitutionality of the Medicaid expansion.

The FantasySCOTUS managers caution that these predictions are still preliminary, particularly because most members don’t offer predictions until after oral arguments.  To learn more about FantasySCOTUS and its crowdsourcing techniques (“wisdom of the crowds”), see this recent article from the Northwestern Journal of Technology and Intellectual Property.

And if you want to get in on the predicting, you can sign up here.

The Wise Crowds Say Individual Mandate Is Unconstitutional is a post from Cato @ Liberty - Cato Institute Blog

The Daily Caller reports that Senator Harry Reid (D-NV) is planning another effort at Internet regulation—right on the heels of the SOPA/PIPA debacle. The article seems calculated to insinuate that a follow-on to SOPA/PIPA might slip into cybersecurity legislation the Senate plans to take up. Whether that’s in the works or not, I’ll detail here the privacy threats in cybersecurity language being circulated on the Hill.

A Senate draft currently making the rounds is called the “Cybersecurity Information Sharing Act of 2012.” It sets up “cybersecurity exchanges” at which government and corporate entities would share threat information and solutions.

Sharing of information does not require federal approval or planning, of course. Information sharing happens all the time according to market processes. But “information sharing” is the solution Congress has seized upon, so federal information sharing programs we will have. Think of all this as a “see something, say something” campaign for corporate computer security people. Or perhaps “e-fusion centers.”

Reading over the draft, I was struck by sweeping language purporting to create “affirmative authority to monitor and defend against cybersecurity threats.” To understand the strangeness of these words, we must start at the beginning:

We live in a free country where all that is not forbidden is allowed. There is no need in such a country for “affirmative” authority to act. So what does this section do as it in purports to permit private and governmental entities to monitor their information systems, operate active defenses, and such? It sweeps aside nearly all other laws controlling them.

“Consistent with the Constitution of the United States and notwithstanding and other provision of law,” it says (emphasis added), entities may act to preserve the security of their systems. This means that the only law controlling their actions would be the Constitution.

It’s nice that the Constitution would apply</sarcasm>, but the obligations in the Privacy Act of 1974 would not. The Electronic Communications Privacy Act would be void. Even the requirements of the E-Government Act of 2002, such as privacy impact assessments, would be swept aside.

The Constitution doesn’t constrain private actors, of course. This language would immunize them from liability under any and all regulation and under state or common law. Private actors would not be subject to suit for breaching contractual promises of confidentiality. They would not be liable for violating the privacy torts. Anything goes so long as one can make a claim to defending “information systems,” a term that refers to anything having to do with computers.

Elsewhere, the bill creates an equally sweeping immunity against law-breaking so long as the law-breaking provides information to a “cybersecurity exchange.” This is a breath-taking exemption from the civil and criminal laws that protect privacy, among other things.

(1) IN GENERAL.—No civil or criminal cause of action shall lie or be maintained in any Federal or State court against any non-Federal governmental or private entity, or any officer, employee, or agent of such an entity, and any such action shall be dismissed promptly, for the disclosure of a cybersecurity threat indicator to—
(A) a cybersecurity exchange under subsection (a)(1); or
(B) a private entity under subsection, (b)(1), provided the cybersecurity threat indicator is promptly shared with a cybersecurity exchange.

In addition to this immunity from suit, the bill creates an equally sweeping “good faith” defense:

Where a civil or criminal cause of action is not barred under paragraph (1), a good faith reliance by any person on a legislative authorization, a statutory authorization, or a good faith determination that this Act permitted the conduct complained of, is a complete defense against any civil or criminal action brought under this Act or any other law.

Good faith is a question of fact, and a corporate security official could argue successfully that she acted in good faith if a government official told her to turn over private data. This language allows the corporate sector to abandon its responsibility to follow the law in favor of following government edicts. We’ve seen attacks on the rule of law like this before.

A House Homeland Security subcommittee marked up a counterpart to this bill last week. It does not have similar language that I could find.

In 2009, I testified in the House Science Committee on cybersecurity, skeptical of the government’s ability to tackle cybersecurity but cognizant that the government must secure its own systems. “Cybersecurity exchanges” are a blind stab at addressing the many challenges in securing computers, networks, and data, and I think they are unnecessary at best. According to current plans, cybersecurity exchanges come at a devastating cost to our online privacy.

Congress seems poised once again to violate the rule from the SOPA/PIPA disaster: “First, do no harm to the Internet.”

The Senate’s SOPA Counterattack?: Cybersecurity the Undoing of Privacy is a post from Cato @ Liberty - Cato Institute Blog

Some libertarians boycott CPAC because it’s “too conservative,” others embrace it to try to steer the conservative movement in a more liberty-minded direction (on which, see Reason.tv’s excellent interview of Sen. Jim DeMint).  I have no principled feelings on the subject.  I’ve never attended – wasn’t really on my radar in college, couldn’t make it to DC during grad/law school, then was too busy lawyering, and now it would feel odd just to hang out rather than be part of the program — but I know lots of folks who enjoy it.

One thing I noticed about this year’s program — other than that my colleague Neal McCluskey is on an education policy panel at 10:30am on Friday — is that there’s a panel on the constitutionality of Obamacare (1:25 on Friday).  Curiously, there aren’t any lawyers on this panel.  C’mon, CPAC, I know this isn’t a Federalist Society convention, but it would seem useful to have people actually grappling with the legal issues educating your attendees about it.  Not all of us have problems communicating with non-JDs; do I have to issue another Obamacare debate challenge?

CPAC Panel on the Constitutionality of Obamacare Has No Lawyers is a post from Cato @ Liberty - Cato Institute Blog