Attorneys General Aim at New Targets, Who Respond as Expected

The New York Times launches a series of investigative reports on corporate lobbying of state attorneys general. But you have to read fairly far down in the story to find the “nut graf” on why this is happening now. Radley Balko summed it up in a tweet: “As prosecutors get increasingly powerful, lobbyists will increasingly spend money to try to influence them.” And the article does note that: 

A robust industry of lobbyists and lawyers has blossomed as attorneys general have joined to conduct multistate investigations and pushed into areas as diverse as securities fraud and Internet crimes….

The increased focus on state attorneys general by corporate interests has a simple explanation: to guard against legal exposure, potentially in the billions of dollars, for corporations that become targets of the state investigations.

It can be traced back two decades, when more than 40 state attorneys general joined to challenge the tobacco industry, an inquiry that resulted in a historic $206 billion settlement.

Microsoft became the target of a similar multistate attack, accused of engaging in an anticompetitive scheme by bundling its Internet Explorer with the Windows operating system. Then came the pharmaceutical industry, accused of improperly marketing drugs, and, more recently, the financial services industry, in a case that resulted in a $25 billion settlementin 2012 with the nation’s five largest mortgage servicing companies.

The trend accelerated as attorneys general — particularly Democrats — began hiring outside law firms to conduct investigations and sue corporations on a contingency basis.

I wrote about this 30 years ago in the Wall Street Journal, citing Hayek’s assessment from 40 years before that:

Nobel laureate F.A. Hayek explained the process 40 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

As the size and power of government increase, we can expect more of society’s resources to be directed toward influencing government.

Those who work to increase the size, scope, and power of government need to recognize: This is the business you have chosen. If you want the federal government to tax (and borrow) and transfer – and reallocate through prosecution – $3.8 trillion a year, if you want it to supply Americans with housing and health care and school lunches and retirement security and local bike paths, then you have to accept that such programs come with incentive problems, politicization, corruption, and waste. And that special interests will find ways to influence such momentous decisions, no matter what lobbying restrictions and campaign finance regulations are passed.

Posted on October 29, 2014  Posted to Cato@Liberty

It Was Fifty Years Ago Today

Fifty years ago today, the actor Ronald Reagan gave a nationally televised speech on behalf of the Republican presidential nominee, Senator Barry Goldwater. It came to be known to Reagan fans as “The Speech” and launched his own, more successful political career.

And a very libertarian speech it was: 

This idea that government was beholden to the people, that it had no other source of power is still the newest, most unique idea in all the long history of man’s relation to man. This is the issue of this election: Whether we believe in our capacity for self-government or whether we abandon the American Revolution and confess that a little intellectual elite in a far-distant capital can plan our lives for us better than we can plan them ourselves.

You and I are told we must choose between a left or right, but I suggest there is no such thing as a left or right. There is only an up or down. Up to man’s age-old dream – the maximum of individual freedom consistent with order – or down to the ant heap of totalitarianism. Regardless of their sincerity, their humanitarian motives, those who would sacrifice freedom for security have embarked on this downward path. Plutarch warned, “The real destroyer of the liberties of the people is he who spreads among them bounties, donations and benefits.”

The Founding Fathers knew a government can’t control the economy without controlling people. And they knew when a government sets out to do that, it must use force and coercion to achieve its purpose.

Video versions of the speech here.

For libertarians, Reagan had his faults. But he was an eloquent spokesman for a traditional American philosophy of individualism, self-reliance, and free enterprise at home and abroad, and words matter. They change the climate of opinion, and they inspire people trapped in illiberal societies. And these days, when people claiming the Reagan mantle push for wars or military involvement in Iraq, Iran, Syria, and other danger spots, we remember that Reagan challenged the Soviet Union mostly in the realm of ideas; he used military force only sparingly. George W. Bush, whom some call “Reagan’s true political heir,” increased federal spending by more than a trillion dollars even before the financial crisis. We watch the antigay crusading of today’s conservative Republicans and remember that Reagan publicly opposed the early antigay Briggs Initiative of 1978 (featured in the movie Milk).

And in those moments libertarians are tempted to paraphrase the theme song of All in the Family and say, “Mister, we could use a man like Ronald Reagan again.”

Would that the current assault on economic freedom would turn up another presidential candidate with Reagan’s values and talents. More on Reagan here and here. 

Posted on October 27, 2014  Posted to Cato@Liberty

OMB Director Sets a Low Bar for Deficit Reform

Jonathan House reported [$] in the Wall Street Journal:

The U.S. government’s budget deficit narrowed in its 2014 fiscal year to its lowest level in six years, as an improving economy boosted tax revenues.

The annual deficit for fiscal year 2014 fell 29% to $483.35 billion, the Treasury Department said Wednesday… the lowest deficit since 2008. …

The 2014 deficit fell to 2.8% of the country’s gross domestic product, the broadest measure of economic output. This measure, preferred by economists because it offers greater context, was at its lowest level since the fiscal year ending Sept. 30, 2007.

“This is not only a reduction of the deficit, it’s also a return to fiscal normalcy,” said White House budget director Shaun Donovan.

The Obama administration’s definition of “fiscal normalcy” is a deficit just under half a trillion dollars, larger than in any year before 2009.

The national debt, which was about $5.7 trillion when George W. Bush entered office and $11 trillion when he turned the White House over to Barack Obama, is now at just a shade under $18 trillion. And the director of the Office of Management and Budget declares that a “return to fiscal normalcy.” Where is Warren Harding now that we need him? 

But hold on, there’s more: Donovan also noted that the federal government has abandoned its “harmful excessive budget austerity.” So we can expect more spending, and more deficits, and more debt, in the years to come.

Posted on October 21, 2014  Posted to Cato@Liberty

Cato Policy Forum and Luncheon 2014

John Allison will discuss “The Philosophical Fight for the Future of America”—the battle of ideas and morality between Progressive collectivism and free market capitalism that will define the future well being of America. These divergent world views are not reconcilable and lead to radically different public policy outcomes. Cato’s president will examine the threat posed by the proliferation of statist ideas, as well as ways to increase public understanding of the merits of individual liberty and limited government.

Next, Michael Cannon will discuss the important Halbig v. Burwell decision—a ruling that could lead to the ultimate repeal of Obamacare. In the landmark decision, the D.C. Circuit ruled the president has no authority to tax, borrow, and spend tens of billions of dollars to mask from consumers in 36 states the true cost of the Patient Protection and Affordable Care Act’s overpriced health insurance. If the court’s ruling stands, millions of Americans will feel the full cost of their Obamacare coverage and will demand that Congress reopen and possibly repeal the law.

Finally, David Boaz will discuss the future for freedom in America. From the rapid rise to prominence of first-term Senator Rand Paul to the state-level movements to legalize gay marriage and marijuana, the philosophy of fiscal conservatism, social liberalism, and restrained foreign policy seems to be gaining currency in American politics. In light of recent setbacks for individual liberty, Cato’s executive vice president will discuss how we can get back on the path to freedom, free markets, limited government, and peace at this auspicious “libertarian moment.”

Posted on October 16, 2014  Posted to Cato@Liberty

Libertarian Choices in Colorado

Karen Tumulty asks in the Washington Post

what label do you put on the political philosophy of a state that one year would legalize marijuana for recreational use and the next year recall two state senators who voted for stricter gun laws?

Readers of this blog might have an answer. So, it turns out, does Sen. Mark Udall:

“We’re a libertarian state — small ‘l’ — when it comes to privacy issues, issues of reproductive freedom, gun ownership, who you worship, who you spend your life with,” Udall said. “We’re a pro-environment state. We self-identify with environmentalists more than any other state in the nation. But we’re also very pro-business.”

So now those small-l libertarian voters will have to decide whether they prefer a not-so-libertarian Democrat, a not-so-libertarian Republican, or a big-L Libertarian.

Read more on libertarian voters, especially in the Mountain West.

Posted on October 15, 2014  Posted to Cato@Liberty

Les Miserables in Hong Kong

As the police move in to tear down the barricades built by the protesters in Hong Kong, I am reminded of scenes from the musical “Les Miserables,” and of this song:

Do you hear the people sing?
Singing the song of angry men?
It is the music of the people
Who will not be slaves again!

Will you join in our crusade?
Who will be strong and stand with me?
Beyond the barricade
Is there a world you long to see?

Then join in the fight
That will give you the right to be free!

I hope that the students of Hong Kong will be more successful than the French students were in June 1832. This time, of course, the whole world is watching, and that may make some difference.

Posted on October 15, 2014  Posted to Cato@Liberty

In Big Government, Breaking Up Is Always Hard to Do

Hewlett-Packard, the nation’s ninth-largest manufacturing company, is splitting itself into two companies. Executives say the company’s units are just too different to be managed in the same way.

Think about that. Hewlett-Packard is a very big company, with annual sales of about $115 billion. It’s nowhere near as big as the U.S. government, though, which will spend almost $4 trillion this year. It’s not even as big as the state governments of New York and California, which spent $132 billion and $215 billion, respectively, in 2011.

Those governments are engaged in far more disparate lines of work, and yet their executives never seem to downsize, spin off noncore businesses, close down non-performing units, or split into smaller, more manageable entities. Do corporate executives know something that political officials don’t?

Bureaucrats know how to add programs, but not to subtract them.”

Hewlett-Packard isn’t alone. Two weeks ago, eBay announced it would spin off its PayPal division.

Lots of large companies have decided to split up because they have become too large and diverse to be managed efficiently. ITT and AT&T both did that in 1995. Viacom and CBS split in 2006, as did Time-Warner and AOL in 2008 and Rupert Murdoch’s News Corp. in 2012.

However, this never seems to happen in government, which just keeps on growing and adding new programs.

One reason that government grows too big is what Milton and Rose Friedman called “the tyranny of the status quo.” That is, when a new government program is proposed, it’s often the subject of heated debate. (At least if we’re talking about big programs, such as farm subsidies or Medicare. Plenty of smaller programs get slipped into the budget with little or no debate, and some of them get pretty big after a few years. “Emergency” measures, such as the Patriot Act of 2001 and the 2009 stimulus bill, may pass with little real deliberation.) Once it has passed, debate over the program virtually ceases.

After that, Congress just considers every year how much to increase its budget. There’s no longer any debate about whether the program should exist. Reforms like zero-based budgeting and sunset laws are supposed to counter this problem, but they haven’t had much effect.

When the federal government moved to shut down the Civil Aeronautics Board in 1979, it found that there were no guidelines for terminating a government agency. It just never happens. President Clinton’s “reinventing government” project said, “The federal government seems unable to abandon the obsolete. It knows how to add, but not to subtract.” You could search any president’s budget for a long time and not find a proposal to eliminate a program.

One element of the tyranny of the status quo is what Washingtonians call the Iron Triangle, which protects every agency and program. The Iron Triangle consists of the congressional committee or subcommittee that oversees the program, the bureaucrats who administer it, and the special interests that benefit from it. There’s a revolving door between these groups: A congressional staffer writes a regulation, then he goes over to the executive branch to administer it, then he moves to the private sector and makes big bucks lobbying his former colleagues on behalf of the regulated interest group. Or a corporate lobbyist makes contributions to members of Congress in order to get a new regulatory agency created, after which he’s appointed to the board of the agency — because who else understands the problem so well?

Corporations face a different test; namely, the bottom line, as decided by consumers. Companies that don’t constantly improve their ability to satisfy consumers will lose out in the marketplace. Particular products or divisions may fall out of favor. The incumbent management may be so flawed that a board of directors will decide to sell the division and let new management make changes.

Of course, companies sometimes merge or buy other companies as well. Managers constantly seek to find the best combination of resources to meet consumer demand. So far this year, companies around the world have made just over $2 trillion worth of mergers and acquisitions. Meanwhile, they have also sold or spun off $1.6 trillion worth of subsidiaries and business lines, according to The Wall Street Journal. Investors are getting more aggressive in demanding that firms “right-size” themselves, whether that means expanding, shrinking or rearranging their lines of business. Global markets are fast-paced, and managers are constantly challenged to keep up with changing consumer demand and improvements by competitors.

Very little of that happens in government, which just keeps on adding new projects — from retirement plans to child care to the Iraq war to the Transportation Security Administration to the Wall Street bailout to municipal golf courses — and hardly ever shuts them down. If corporate managers and investors with their own money at stake find that businesses can get too big to be run effectively, can it really be possible for Congress and 2 million federal bureaucrats to effectively manage a $4 trillion government — to say nothing of a $17 trillion economy?

Posted on October 14, 2014  Posted to Cato@Liberty

Greg Abbott Tells Fifth Circuit Court That Gay Marriage Won’t Stop Heterosexual Irresponsibility

In a brief filed to the Fifth Circuit Court of Appeals on Friday, Texas attorney general Greg Abbott says that the state’s gay marriage ban may help to reduce out-of-wedlock births:

Texas’s marriage laws are rationally related to the State’s interest in reducing unplanned out-of-wedlock births. By channeling procreative heterosexual intercourse into marriage, Texas’s marriage laws reduce unplanned out-of-wedlock births and the costs that those births impose on society. Recognizing same-sex marriage does not advance this interest because same-sex unions do not result in pregnancy.

As I’ve written before, this is a remarkably confused argument. There are costs to out-of-wedlock births. Too many children grow up without two parents and are less likely to graduate from high school, less likely to find stable jobs, and more likely to engage in crime and welfare dependency. All real problems. Which have nothing to do with bans on same-sex marriage. One thing gay couples are not doing is filling the world with fatherless children. Indeed, it’s hard to imagine that allowing more people to make the emotional and financial commitments of marriage could cause family breakdown or welfare spending.

The brief repeatedly says that “same-sex marriage fails to advance the State’s interest in reducing unplanned out-of-wedlock births.” Well, that may be true. But lots of state policies fail to advance that particular interest, from hunting licenses to corporate welfare. Presumably Abbott doesn’t oppose them because they don’t serve that particular purpose.

The brief does note that same-sex marriage may very well produce other societal benefits, such as increasing household wealth or providing a stable environment for children raised by same-sex couples [or] increasing adoptions.” But the attorney general wants to hang the state’s ten-gallon hat on the point that it won’t reduce out-of-wedlock births by opposite-sex couples.

In a previous case, Judge Richard Posner declared that the states of Indiana and Wisconsin had not produced any rational basis for banning gay marriage. Attorney General Abbott seems determined to prove him right.

Posted on October 13, 2014  Posted to Cato@Liberty

Newsweek: Back in Print, Confused as Ever

Dumb arguments against libertarianism are increasing, as guardians of the expansive state begin to worry that the country might actually be trending in a libertarian direction. This may not be the dumbest, but as Nick Gillespie said of a different argument two weeks ago, it’s the most recent:

‘You Ready to Step Up?’

The deadly drug war in Long Island’s Hempstead ghetto is a harrowing example of free-market, laissez-faire capitalism, with a heavy dose of TEC-9s
To be fair, author Kevin Deutsch never uses the terms “laissez-faire” or “free-market” in his detailed article, so we should probably direct our disdain at Newsweek’s headline writers. Deutsch does portray the second-ranking guy in the Hempstead Crips as a businessman seeking to “recruit talent, maximize profits and expand their customer base.” But even the drug dealer gets the difference between selling prohibited substances and doing business in a free market:
“We’re looking to market, sell and profit off drugs the way any business would handle their product,” Tony says. “Only our product is illegal, so more precautions need to be taken. It’s all systematic and planned, all the positions and responsibilities and assignments. All of that’s part of our business strategy. It’s usually real smooth and quiet, because that’s the best environment for us to make bank. But now, we at war, man. Ain’t nothing quiet these days.”
Deutsch describes the competition between the local Crips and Bloods in terms not usually seen in articles about, say, Apple and Microsoft or Ford and Toyota:
As for strategies, they seem to have settled on a war of attrition, aiming to kill or maim as many of their enemies as possible….
 
They’re far better armed and willing to use violence than the smaller neighborhood cliques scattered throughout Nassau County….
 
They’re also able to keep out other competitors through use of brute force….
 
It’s one of hundreds of similar conflicts being fought by Bloods and Crips sets throughout the country. These battles breed shootings, stabbings and robberies in gang-plagued, low-income neighborhoods each day. 
These are, of course, just the sorts of consequences that libertarians and economists expect from prohibition. As Tim Lynch and I wrote in the Cato Handbook on Policy a decade ago,

drug prohibition creates high levels of crime. Addicts commit crimes to pay for a habit that would be easily affordable if it were legal. Police sources have estimated that as much as half the property crime in some major cities is committed by drug users. More dramatic, because drugs are illegal, participants in the drug trade cannot go to court to settle disputes, whether between buyer and seller or between rival sellers. When black-market contracts are breached, the result is often some form of violent sanction, which usually leads to retaliation and then open warfare in the streets.

Jeffrey Miron of Harvard’s economics department and Cato made similar points in his book Drug War Crimes, as have such economists as Milton Friedman and Gary Becker. Miron also noted that prohibition drives up the prices of illegal drugs, making the trade attractive to people with a high tolerance for risk. And so in that sense, it’s true that some people will usually enter the prohibited trade – in alcohol, gambling, prostitution, crack, or whatever – and will employ some techniques that are also used in normal business enterprises. As Tyler Cowen says, there are markets in everything. Given our natural propensity to truck, barter, and exchange in order to improve our own situation, we can expect people to step into any trade, prohibited or not. Better that such trade should take place legally, within the rule of law, than underground, where violence may be the only recourse in disputes.

When the government bans the use and sale of a substance, and imprisons hundreds of thousands of people in an attempt to enforce that prohibition, that’s not “laissez-faire, free-market capitalism.” Duh. 

Posted on October 13, 2014  Posted to Cato@Liberty

Bush, Obama, and the Expansion of Government

A John Allison who is not the president of the Cato Institute makes a pretty good point in today’s Washington Post letters column:

Charles Krauthammer, in his Oct. 3 op-ed column, “Why winning the Senate matters,” wrote proudly about the “power of no,” which he advanced as key to blocking President Obama’s ideological agenda since 2010. “And Republicans should not apologize for it,” he said. “With an ideologically ambitious president committed instead to expanding entitlements, regulation and government itself, principle alone would compel the conservative party to say stop.” Whoa, Nellie. Let’s go to the tape.

Rewind to 2006, when Republicans controlled both houses of Congress. Here is the same sentence modified to reflect the 2006 reality: With an ideologically ambitious president (George W. Bush) committed instead to expanding entitlements (Medicare Part D, the largest expansion of the welfare state since the creation of Medicare and an unfunded program), regulation (under Mr. Bush, regulatory budget and staffing levels increased while the total regulatory burden continued to increase in absolute terms) and government itself (total government employment and total obligation authority both rose significantly under Mr. Bush), principle alone didn’t compel the conservative party to say stop at all. In fact, conservatives were behind the expansion in all three areas.

I am not sure what principle means to conservatives. Perhaps Mr. Krauthammer can define it for us in a later column.

John Allison, Williamsburg

Mr. Allison has a point about conservatives at the time, but my libertarian colleagues and I did point out President Bush’s offenses against the Constitution and the Republican Party’s professed principles a few times.

Posted on October 7, 2014  Posted to Cato@Liberty

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