October 30, 2014

Public roads to nowhere [Contributor]

  [Benjamin Lusty is a lawyer and an occasional contributor to Publius Online]

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Democrats love talking about roads when they are actually talking about something else.  Listen to Massachusetts senate candidate (and progressive heart-throb) Elizabeth Warren:  “There is nobody in this country who got rich on his own.  Nobody.  You built a factory out there—good for you!  But I want to be clear.  You moved your goods to market on the roads the rest of us paid for.”  Hear this echo from President Obama:  “If you were successful, somebody along the line gave you some help.…  Somebody invested in roads and bridges.  If you’ve got a business—you didn’t build that.  Somebody else made that happen.”

The uninitiated may think that Democrats are actually talking about roads, which only they support, and without which we’re relegated to the anarchic Republican blood sport of “you’re on your own” economics.  Democrats, in their humble public spiritedness, plead for just a few more tax dollars, taken from just a few more rich people, to build just a few more miles of road so we can all share in the wealth they mysteriously generate.  Conservatives, they insinuate, cosset capitalist barbarians who loot our collective infrastructure.

This is obfuscation.  Democrats aren’t talking about roads.  They’re talking about entitlements and the taxes to fund them.  President Obama’s reelection wouldn’t herald a new age of aqueducts, Great Walls, and Hoover Dams.  It will aggrandize the welfare state.  Democrats retain power by distributing cash to special interests within their electoral coalition.  Seniors get social security and Medicare, college students get subsidized loans and Pell grants, and civil servants enjoy “Ferrari” health plans and gilded pensions.  In exchange, they vote Democrat.  It is simple entitlement politics.  Democrats’ political survival depends upon funding it all without asking sacrifices of their supporters.  Although road building grabs some votes, entitlements grab more.

Math, however, gets in the way.  Protracted recession and escalation of federal spending threaten both the treasury and Democrats’ electoral prospects.  This in turn necessitates a prolonged campaign to raise taxes to sustain current benefit spending.  But rather than honestly call for higher taxes, Democrats dress their politico-fiscal paradigm in the camouflage of “public investments” while simultaneously accusing conservatives of anti-social thuggery.  Raising taxes to pay for somebody else’s health care is a hard sale, particularly when higher taxes hurt the families that pay.  It is far easier to eulogize roads and hope that most people believe that’s the actual subject of the ploy.

Consequently, Democrats deliberately misuse the concept of public goods as a campaign strategy.  Public goods are simply those things that everybody can enjoy equally.  One person’s use of a road or a park does not necessarily limit access to the benefit it generates.  Similarly, everybody enjoys national defense, fire protection, and policing.  Government funding of public goods makes economic sense because private markets generally do not provide sufficient incentive for investment.

The same is not true, however, of entitlements which are only privately enjoyed.  One person’s Medicaid benefits cannot be consumed by another, even though the costs are shared by all taxpayers.  Further, entitlements do not lead to the creation of new goods.  Entitlement spending simply funds private consumption of things which the private market already creates.

Although the interstate freeway system may not exist without the Department of Transportation, Pennsylvania Hospital (the nation’s oldest) existed long before Medicaid selectively distributed health care benefits.  Unlike public goods, entitlements do not contribute to social wealth; instead they shift consumption from one group to another.

Democrats’ political survival, however, depends on their ability to convince voters that private consumption of public funds is actually a positive good to the rest of society that justifies elevated taxation.  This is only rhetorically possible if Democrats convince others that their spending program is simply nothing more than making everybody chip in their “fair share.”  The rhetoric used, however, is inherently deceptive and fails to convey honest information about the fundamentally differing economic qualities of public goods and entitlements.

Ironically, Democrats’ confusion of public goods and entitlements jeopardizes the ongoing vitality of public goods far more than any perfidy which they attribute to Republicans.  Entitlement funding dwarfs all other expenses and engrosses an escalating share of public revenue.  Absent comprehensive reform, entitlement politics will bankrupt the state, stalling every core public function upon which Americans rely.  Democrats are travelling a rhetorical public road to nowhere on the racecar of unreformed entitlements.

The Obamacare saga encourages political dishonesty [Contributor]

[Benjamin Lusty is a lawyer and an occasional contributor to Publius Online]

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Political dissemblance over the nature of taxes and regulatory architecture looms as an inevitably dark truth of post-Obamacare government.  Through the tortuous legislative course of Obamacare’s genesis, Democrats continually denied that the individual mandate was a tax, the heaviest word in America’s political lexicon.  Instead, the mandate was a “penalty,” or a “shared responsibility payment.”  (A chillingly Orwellian turn-of-phrase).  The Democrats knew that truth in taxation would slay Obamacare and scuttle their century-long obsession with state-directed flu shots and hip replacements.  So they prevaricated.  What do congressmen call a law that amends the Internal Revenue Code, is enforced by the Internal Revenue Service, and forces families to pay up to 2.5% of their incomes into the federal treasury?  Anything but a tax.

Unless you’re in court—there, any word will do.

Federal judges are not elected, and the politicians who voted for the law did not appear to defend themselves.  That task fell to elite lawyers who parsed language with forensic care, while insulated from the heat of constituents’ calls, donors’ demands, and lobbyists’ lists.  Those lawyers were high partisans engaged in definitive legal warfare.  Of necessity, they adopted the tactics of expediency:  prevail at all cost and regardless of any incongruity between the facts of the legal case and those of the political case.  When the stakes are command of an entire industry, and control over 16% of the economy, a favorable outcome justifies all political carnage.

Partisan achievement of controversial policy goals, however, is not the purpose of representative government.  Instead, representative government seeks consensus and accommodation of divergent political aspirations.  It only works when legislative process affords principled dissenters all reasonable opportunities to prevail on the merits.  This is impossible, however, when the agents of government cannot even agree to the meaning of the words they use to engage that process.  When a law is a “tax” for constitutional purposes, but a “penalty” for political purposes, the terms of the debate shift underfoot, confounding the discipline that elective politics is supposed to instill.

Some may counter that this is mere wrestling over words, and that the mechanisms of the law are unchanged by the language used to describe it.  But this begs the question over whether it is desirable for officials to tell constituents one thing and judges another.  Is it really acceptable for politicians to soothe the masses while winking to the legal elites who patrol the boundaries of the political system?  Besides, in its essence, government is simply words.  The miracle of self government by words, however, cannot continue if the words themselves are subject to abuse.

In result, Justice Roberts’ opinion sanctioned deception.  President Obama told the public that Obamacare was not a tax, but he told the court that it was.  The outcome of the affair is that “by-any-means” legislation is entrenched in our government, our constitution, and our political reality.  Now, neither political party has any real incentive to discuss tax policy honestly.

By any measure, Obamacare is the most expansive legislation in at least two generations.  It fundamentally alters the relationship between the federal government, the states, and the people.  It significantly amends the tax code, creates a new class of liabilities, and pours every man, woman, and child into a new, mandated, order of economic transaction.  It should not have passed the scrutiny of all three branches of the federal government through variable solipsism.  It should have been subject to the most exacting standards of honesty, procedural fairness, criticism, and consistency.  It was not.  It is the wreckage of political expediency, and the leading edge of continual obfuscation and cynicism.  Repeal may spare us bad policy, but not bad politics.

 

Manufacturing Bad Ideas

 [Benjamin Lusty is a lawyer and an occasional contributor to Publius Online]

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Presidential elections invariably turn out half-thought economic proposals.  One current hot policy ticket is lavish tax advantages for manufacturers, presumably in hope of priming employment growth (and votes).  President Obama, for example, proposes to reward manufacturing companies with a mix of tax credits and subsidized loans (i.e., politically directed credit).  On the other side, Rick Santorum would absolve manufacturers from federal income tax altogether (i.e., politically directed credit, but through the US Treasury’s back door).  Mitt Romney vows that “getting tough” on China will bring more work back to the shop floor (i.e., diplomatic bluster punctuated by a few WTO arbitrations).  Slick stuff.  But none of the contenders bother to articulate why singling out manufacturing for special treatment makes economic sense, especially for the rest of us.

Most of the political class uncritically assumes that jolting manufacturing is an unquestionable good.  But inconvenient questions arise:   Why does manufacturing merit the “remedial education” of protective tax advantages?  Why should tax policy favor a company that builds airplanes over a company that sells bird seed?  Does Boeing really need a leg up on the local pet shop?

Sweater subsidies under a Santorum Administration?

Some argue that manufacturing deserves special attention because it is in crisis, as evidenced by historical decline in assembly-line employment.  The pro-manufacturing faction asserts that the mere fact that fewer people work in factories than in the past proves that the sector is failing.  This argument has intuitive political appeal, but it confuses the overall health of manufacturing with the raw number of only one of its inputs—labor.

In truth, American manufacturing is not in crisis.  America is still the largest manufacturer in the world, out-producing China (yes, China) by some 40%, a major gulf considering the massive disparity between China’s and America’s respective working populations.  Further, American manufacturing output soared over the recent decades, more than doubling since 1975—even as employment in manufacturing fell.  Contrary to signaling decline, the fact that American manufacturers can make far more with far less is a sign of underlying strength, leading both to lower consumer prices (which expand the breadth of potential demand) and better investment of labor and capital.

Besides, in our modern innovative economy, manufacturing isn’t even where the money is anymore.  Indeed, it’s relatively worthless.  Consider the iPhone and iPad—among two of the most in-demand products on the market.  Research indicates that final assembly only accounts for 1.8% and 1.6% of the retail prices of these “iProducts,” respectively.  The value of design, marketing, and distribution, by contrast, equates to roughly 58% and 30% of their retail prices.  In other words, an iPhone’s design and marketing is 33 times more valuable than its assembly (at least as measured by the input cost).

Manufacturing is becoming even less valuable for more traditional and less technologically intensive products, such as automobiles.  French carmaker Renault posits that assembly only accounts for 15% of the value of their cars.  The money then, isn’t in twisting the steel that constructs these products, but in shaping the concepts that design them.  If that’s the case, why subsidize the worthless stuff?

In truth, blue-collar boosting—touting plans to prop up manufacturing jobs–is better politics than it is sound economics.  Americans love manufacturing jobs, or at least the idea of manufacturing jobs.

But frankly, politicians need to lead past it.  Irrational attachment to factories, whether cynical or sentimental, only holds the country, and innovation, back.  Complicating the tax code to the marginal benefit of a few companies that happen to have Washington’s temporary approval is a shoddy excuse for an economic policy.  America needs manufacturing jobs no more than it needs any other job, and bending the economy to subsidize manufacturing will only cause real, long-term damage.

 

 

Corporations are people, too

[This guest post is by Benjamin Lusty, an attorney and an occasional contributor to Publius Online. The opinions are his own.]

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Among the flotsam and jetsam of misguided political ideas and non sequiturs that washed ashore on the nation’s consciousness after the wreck of Occupy Wall Street is the previously obscure movement to end corporate personhood, a legal doctrine that affords corporations certain rights such as the ability to own property, make contracts, and file lawsuits.  Although OWS was a swirl of inarticulate rage (and recognizing the unfairness of expecting a disparate movement to crystallize all of its demands into a neat two page executive summary), it is clear that everybody who occupied anything this autumn hates corporations.  Their catchiest slogan read something like this:  “I’ll believe corporations are persons when Texas executes one.”  Another more strident slogan declared that “corporations aren’t people and Money isn’t speech.”

Doubtless, the root of anti-corporate sentiment is the apprehension that corporations wield outsized power.  Particularly galling to the Moveon.org set was the Supreme Court’s decision in Citizens United v. FEC, a case that held that it was unconstitutional for Congress to restrict corporations (and labor unions) from advocating for or  against a particular candidate so long as that advocacy is not coordinated with any individual campaign.  This feeds the narrative that for-profit corporations brandish their supposedly vast and limitless resources to subvert the free operation of our otherwise happy and just republic.

Regardless of the merits of their arguments, however, OWS succeeded in kindling a debate on the nature of corporations, the basis of their existence, and their role in society.  Disquiet with corporate power, or for that matter, corporate personhood, is not new.  Nor is the doctrine of corporate personhood novel—to the contrary, it is quite old.  But now a constitutional amendment to revoke corporate personhood has emerged, the goal of which is to prevent corporations from engaging in political speech or donating money to political organizations.  Admittedly, the chance that this proposed amendment would actually run the constitutional gauntlet of ratification is nil.  But the ideas espoused in the proposal are serious enough to merit a serious response.

The justification for limiting corporate personhood largely rests upon two uncontroversial observations:  1) our Constitution and society exist to protect the rights of actual living human beings; and 2) because corporations are artificial legal creations, they should be subject to law and regulation in the public interest.  These do not, however, by themselves support the conclusion that corporate personhood, or even the corporate form of organization, damage society.  But even assuming that corporations flagrantly and routinely abuse their personhood status (which I do not assume), simple calls for revocation of personhood ignore the constitutional cost inherent in diminishing expressive rights.

To begin with, despite leftish revulsion, corporations really are people too.  Corporations are nothing more than voluntarily created groups of human beings consisting of shareholders and employees; quite simply, they are people, organized.  Revoking or limiting corporate personhood, although it has a populist “us versus them” appeal, would grievously wound existing constitutional rights to speech and freedom of assembly for no real purpose.

Consider the case against corporate speech.  All sorts of hyperventilated criticisms are charged against the supposed power of corporations to manipulate the legislative process.  Keep in mind, however, that the terrible corporate activity that the left wants to squelch is talking (always fear one who claims the solution to a problem is to stop somebody else from talking).  If one believes, however, that these nefarious enterprises can bend the will of the government through talking to legislators, the problem is not corporate speech but elected officials who do not represent their constituents’ interests.  In that case, the solution is not jeopardizing constitutional rights but holding free elections.  If, however, the left worries that corporations can change voting patterns through speech (or persuasion), their argument is essentially that the people are not smart enough to determine their own interests.

But if the state abridged a corporation’s ability to speak, whose rights would really be affected?  If, for example, we banned Apple from communicating to Congress about technology policy, we would essentially prevent its shareholders from acting collectively.  This in turn would mean that we would have to abridge the right of each shareholder to participate in collective speech on political issues.  Individual shareholders, however, are real people with names, and constitutional rights.  Does the mere fact that they assembled themselves together through a corporation mean they lose their First Amendment rights?  If you say yes, then should we also prevent labor unions from talking to the government as well?

And that question exposes the flaw that arises from diminishing corporate personhood.  It cuts directly against the grain of the right of assembly.  The First Amendment has no exception clause for corporations, or even for people assembling to grasp at filthy lucre.  If a group of unshaven grad students has the right to encamp and demand legalization of marijuana, why should a group of investors not have the right to form a corporation and argue for changes to consumer electronics sales policy?

Ultimately, because constitutional rights are categorical, it is impossible to diminish the rights of the corporation without diminishing the rights of the people within the corporation.  In any event, not all corporations are massive global gladiators.  Further, nobody is arguing against sensible rules preventing public corruption.  But speech is not bribery, and persuasion is not crime.  It is democracy.

And for the record, Texas puts corporations to death every day, without trial and for trivial matters.  The Texas Code specifically enables the Texas Secretary of State to dissolve a corporation for something as simple as failing to file an annual form report.  Texas corporations thus live under an ever-present threat of an administrative death penalty.

 

The Conservatives’ Challenge on Economic Inequality

[This is the first in a set of pieces by Benjamin Lusty, lawyer and an occasional contributor to Publius Online, on the topic of economic inequality]

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Americans tend not to wage class war.  The rugged individual within us celebrates economic success.  True, we loathe profit by malfeasance, but we do not begrudge those who prosper fairly.  No Occupy Wall Street protestor demanded expropriating Steve Jobs’ vast fortune (despite his legendary indifference to philanthropy).  But a hazy mistrust of “the rich” is falling over the nation’s collective conscience.  Although most Americans do not believe that wealth is theft, many are questioning whether playing by the rules profited them.  Occupy Wall Street represents only the radical rim of America, but it is speaking directly to a new discontent enveloping the middle class.

It is tempting to conclude that the nation simply suffers from anxiety naturally accompanying prolonged periods of high unemployment.  But America’s trouble is of a different quality all together.  Economic mobility, and more importantly, Americans’ perceptions of economic mobility is stalling.  Business Insider (in a fascinating series of graphs available here) reports that since 2009, average annual household income dropped 10% even though the S&P 500 gained 80% over the same period.  Likewise, since the 1960s, inflation-adjusted wages have essentially flat-lined, despite rising productivity.  A 2008 Pew Research Study reported 79% of Americans felt that it was harder to maintain middle class living standards.  Critically, new surveys report that 57% of Americans no longer believe their children will lead better lives.  It all makes for a plaintively stoic resignation of the typically tough American psyche.

And yet, America’s economic inequality is growing.  As of 2007, the wealthiest 10% of households owned two-thirds of the nation’s wealth.  Since 1979, the top 1%’s share of income nearly doubled.  Not surprisingly, the left wants to leverage economic anxiety to pass a “new” New Deal of high taxes, high spending, and busy regulation.  Their operative assumption is that inequality is the problem and redistribution is obviously the answer.

For conservatives, the current economic nervosa poses an existential threat.  Conservatives traditionally ignore economic inequality, dismissing it as a necessary (if unfortunate) by-product of liberty, property rights, and free markets.  Although income equality may be vaguely desirable, it is elementally inconsistent with freedom.  In truth, it is inevitable that a free society facilitates different economic outcomes.  People have different tastes, capabilities, interests, ethical creeds, and willingness to work.  The market divides rewards based upon value created, but free societies allow people to choose how much value they wish to create and how they create it.  We do not force people to work.  Nor do we assign occupations, locations of residence, or educational levels.  This results in a vibrant and mercurial society where each individual chooses her school, her study, her occupation, her location, her family situation, and ultimately her life.  The tricky thing though, is that choices are hard and free societies are harder.

But choice explains the gulf between rich and poor.  Educational attainment and annual income are positively correlated, but educational achievement is a choice (or rather thousands of choices made over a lifetime).  Careers, too, result from cascades of choices, each with varying degrees of compensation and commitments.  The unbreakable truth, of course, is that nobody is free to make choices outside of the context of everybody else’s choices.  Indeed, the economy is nothing more than a tangled, spider web-like matrix of trillions of choices made every day by billions of people.  This swirling commotion of commerce spins unpredictably, but in a surprisingly coordinated fashion.  It is, after all, the supposedly chaotic and merciless free market that feeds and clothes billions.  It also links hearts, minds, and pocket books across supply chains, web links, and telephone calls.  And only choice really controls it.

The conservatives’ challenge is stark.  Occupy Wall Street wants less choice because it demands higher taxes, more regulation, and forgiveness of debt (e.g., undoing financial choices).  The left wants now, as it has always wanted, more government control and less private initiative; all to make us “equal.”  They call it “social justice,” “common sense,” or “middle class solutions,” but the upshot is always more central command and less choice.

Of course the danger is not that the left is now demanding these things–it always has.  The danger for conservatives is that Americans’ confidence in their ability to make effective choices is eroding. Why should good choices matter if the average worker hasn’t gained over the course of an entire generation?  Why go to college for a highly leveraged piece of paper (formerly known as a diploma)?  The left promises free health care, food stamps, and debt forgiveness. Why not accept that, especially if (as the left would have us believe) this is all somebody else’s fault anyway? After all, taxing somebody else will make us all richer anyway….

 

Has the social media replaced the jury?

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Image by The Daring Librarian via Flickr

Has the jury system become a relic of pre-modern courts? Or has social media (Twitter, Facebook, Google+) replaced the jury system as a community of informed individuals weighing the scales of social justice and rendering important (though non-binding) “verdicts”?

In many regards, the modern “social media jury” is a lot more like the jury of 1400 AD  than our modern jury.  The jury of 1400 was a jury of the “viciniage,” or vicinity, meaning it was comprised of members of the community most closely associated with the matter in dispute and the parties involved in the case.

The jury of 1400 was not a passive recipient of carefully orchestrated and considered evidence presented through an excruciating adversarial process presided over by an impartial court.  Rather, the juries of the viciniage were expected to bring their own knowledge of the incident to the court, share it, and then reach their conclusions after the litigants’ presentations in tandem with the jurors’ inherent knowledge.  They were in essence both decision makers and private investigators.  In this sense, the jury system was more a process of aggregating diffused knowledge for the purpose of reaching an informed decision.  And that’s not unlike modern social media.

The downside, however, is that the old jury systems greatly limited the freedom of the litigants to argue their own case and introduced variables into adjudication that most would now consider intolerable, such as personal prejudice and hostility.  Let’s say I was accused of a crime, under the old jury system all of my neighbors got to come forward and decide my fate.  Some would be fair, but others may use the opportunity to “score settle” against me for something not at all related to the trial at hand.  In this sense, the old jury, and the modern “social media jury” could only serve to amplify existing prejudices rather than make rational decisions.
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Ben L. is a guest writer on Publius Online. He is an attorney in private practice, an Anglophile, and a resident of Davis County. You can follow him on Twitter at @benlusty.

User feedback: have you ever seen the experience of a social media “jury?” What was your experience?