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Obama Administration Declares War on Franchisors and Subcontractors by Walter Olson

In a series of unilateral moves, the Obama administration has been introducing an entirely new regime of labor law without benefit of legislation, upending decades’ worth of precedent so as to herd as many workers into unions as possible.

The newest, yesterday, from the National Labor Relations Board, is also probably the most drastic yet: in a case against waste hauler Browning-Ferris Industries, the Board declared that from now on, franchisors and companies that employ subcontractors and temporary staffing agencies will often be treated as if they were really direct employers of those other firms’ workforces: they will be held liable for alleged labor law violations at the other workplaces, and will be under legal compulsion to bargain with unions deemed to represent their staff.

The new test, one of “industrial realities,” will ask whether the remote company has the power, even the potential power, to significantly influence working conditions or wages at the subcontractor or franchisee; a previous test sought to determine whether the remote company exercised “ ‘direct and immediate impact’ on the worker’s terms and conditions — say, if that second company is involved in hiring and determining pay levels.”

This is a really big deal; as our friend Iain Murray puts it at CEI, it has the potential to “set back the clock 40 years, to an era of corporate giants when few people had the option of being their own bosses while pursuing innovative employment arrangements.”

  • A tech start-up currently contracts out for janitorial, cafeteria, and landscaping services. It will now be at legal risk should its hired contractors be later found to have violated labor law in some way, as by improperly resisting unionization. If it wants to avoid this danger of vicarious liability, it may have to fire the outside firms and directly hire workers of its own.
  • A national fast-food chain currently employs only headquarters staff, with franchisees employing all the staff at local restaurants. Union organizers can now insist that it bargain centrally with local organizers, at risk for alleged infractions by the franchisees. To escape, it can either try to replace its franchise model with company-owned outlets — so that it can directly control compliance — or at least try to exert more control over franchisees, twisting their arms to recognize unions or requiring that an agent of the franchiser be on site at all times to monitor labor law compliance.

Writes management-side labor lawyer Jon Hyman:

If staffing agencies and franchisors are now equal under the National Labor Relations Act with their customers and franchisees, then we will see the end of staffing agencies and franchises as viable business models.

Moreover, do not think for a second that this expansion of joint-employer liability will stop at the NLRB. The Department of Labor recently announced that it is exploring a similar expansion of liability for OSHA violations. And the EEOC is similarly exploring the issue for discrimination liability.

And Beth Milito, senior legal counsel at the National Federation of Independent Business, quoted at The Hill: “It will make it much harder for self-employed subcontractors to get jobs.”

What will happen to the thriving white-van culture of small skilled contractors that now provides upward mobility to so many tradespeople? Trade it in for a company van, start punching someone’s clock, and just forget about building a business of your own.

What do advocates of these changes intend to accomplish by destroying the economics of business relationships under which millions of Americans are presently employed? For many, the aim is to force much more of the economy into the mold of large-payroll, unionized employers, a system for which the 1950s are often (wrongly) idealized.

One wonders whether many of the smart New Economy people who bought into the Obama administration’s promises really knew what they were buying.

This post first appeared at Cato.org.

Walter Olson
Walter Olson

Walter Olson is a senior fellow at the Cato Institute’s Center for Constitutional Studies.

When Judges Quit Protecting Liberty by David S. D’Amato

How do we decide if a government action is legitimate?

When courts are asked to determine whether a government action has violated an individual’s rights, they apply one of several different “standards of review” or “levels of scrutiny,” ranging from “strict scrutiny” (reserved for a very narrow category of cases) to “rational basis scrutiny.”

Rational basis tests erect the lowest possible legal hurdles for the government, yet they are applied in cases that implicate some of our most important liberties, such as the right to earn a living, simply because they were not listed by name in the Bill of Rights.

For example, a law requiring an expensive permit to arrange flowers will only merit a rational basis review. And while rational basis review is a test for constitutionality, it doesn’t have anything to do with the Constitution or its history.

As Timothy Sandefur pointed out in the Cato Unbound issue on judicial activism, such rational basis tests have “no foundation whatsoever in the Constitution of the United States.” Rather, they were simply made up, fashioned by judges out of whole cloth during a period when courts were increasingly willing to defer to legislators and bureaucrats and their arbitrary and needless interference with private enterprise.

Rational basis review amounts to carte blanche for petty tyrants in legislatures, city councils, and regulatory agencies. Since the New Deal, courts have refused to give any real constitutional protection to the basic right to choose your profession and earn an honest living.

The 1934 Supreme Court decision in Nebbia v. New York is an important episode in the creeping evolution of rational basis. Leo Nebbia, a grocer, was convicted of the heinous crime of selling milk at a price that was too low, according to the bullies at New York’s “Milk Control Board.”

Writing for the Court, Justice Owen Roberts declared that as long as a law has “a reasonable relation to a proper legislative purpose,” the courts have no authority to strike it down.

Though he admitted that “the reasonableness of each regulation depends upon the relevant facts,” Roberts still maintained that, once a law is enacted, “every possible presumption is in favor of its validity.” If a “policy may reasonably be deemed to promote public welfare,” judicial review is basically over.

As a practical matter, this strange, circular reasoning means that a legislative body determines for itself whether its bills are constitutional. Merely by passing the law, the legislature settles the question and obliges the courts to accept any explanation offered for it. Such a theory eviscerates meaningful judicial review and leaves the individual defenseless, without any legal recourse against the nearly omnipotent modern state. And, since the Nebbia decision, the courts have only become more deferential.

Conservatives mistakenly associate judicial “activism” with the progressive left, but the New Deal-era progressive judges were actually the architects of the judicial “deference” that reigns today. Traditional common law protections were discarded in favor of expedience: the desire to get out of government’s way as it systematically planned, monitored, and regulated society as it saw fit.

The liberalism of the previous century was likewise treated with an arrogant and imperious contempt. Quaint notions of individual liberty and inviolable natural rights gave way to the irresistible march of modernity and “scientific” progress, shepherded by their natural steward, the state.

Rational basis tests invert legitimate due process. The burden of proof should be on the government to prove that a law or regulation serves the general welfare. The government should have to factually demonstrate the connection between the law and public health and safety, not merely assert that one mightexist.

But, instead, judges have decided that person challenging a law must confront and rebut every possible argument and hypothetical that the government (or judge) might conjure up in support of its law.

The rational basis test demands that a victim of government overreach prove the impossible, refuting an infinite universe of possible scenarios and rationales that could justify the law. Forget the actual empirical facts — rational basis has no time for such distractions.

On the contrary, the test requires judges to help the government by inventing counterfactual stories that could have justified the law. Even if the law has nothing to do with community health or safety, even if it is openly protectionist, it must be upheld if any flight of fancy could justify it.

Thus, the rational basis “test” is no test at all. It is a hollow, perfunctory gesture as the court abandons its duty of judicial review and leaves the hapless individual at the mercy of capricious government officials and special interests.

The right to choose your occupation is as fundamental a liberty as the right to speak, an indispensable aspect of self-ownership and self-determination. The freedom to make important, personal decisions about your career and your property is the bedrock of peaceful cooperation and civil society. In any society even moderately committed to freedom and legitimate due process, the rational basis test would be inconceivable. The presumption of liberty, like the presumption of innocence, would be the individual’s default position under the law.

Sadly, judges have abandoned their posts, doing the bidding of arbitrary governments and politically powerful economic interests who use the law to prevent competition. To fulfill the Constitution’s guarantee of due process, and to restore our lost liberties, we must scrap the rational basis excuse.

David S.  D'Amato

David S. D’Amato

David S. D’Amato is an attorney and independent scholar whose writing has appeared at the Institute of Economic Affairs, the Future of Freedom Foundation, the Centre for Policy Studies, and the Institute for Ethics and Emerging Technologies.

How Economic Control Threatens Political Liberty, Free Speech and the Rule of Law by Jon Guze

John Cochrane (aka “The Grumpy Economist”) has posted a long meditation entitled “Rule of Law and the Regulatory State,” in which he makes a very important point:

The United States’ regulatory bureaucracy has vast power. Regulators can ruin your life, and your business, very quickly, and you have very little recourse. That this power is damaging the economy is a commonplace complaint. Less recognized, but perhaps even more important, the burgeoning regulatory state poses a new threat to our political freedom.

What banker dares to speak out against the Fed, or trader against the SEC? What hospital or health insurer dares to speak out against HHS or Obamacare? What business needing environmental approval for a project dares to speak out against the EPA? What drug company dares to challenge the FDA?

Our problems are not just national. What real estate developer needing zoning approval dares to speak out against the local zoning board?

Readers who doubt that this is an urgent problem should read the whole thing, which includes numerous chilling descriptions of regulatory abuse, but here I want to focus on an issue he raises in passing: how best to refer to this urgent problem?

Cochrane says he hasn’t found “a really good word to describe this emerging threat of large discretionary regulation, used as tool of political control.” He considers “socialism,” “regulatory capture,” and “cronyism,” but he rejects all three. Regarding the last two, he notes:

We’re headed for an economic system in which many industries have a handful of large, cartelized businesses — think 6 big banks, 5 big health insurance companies, 4 big energy companies, and so on.

Sure, they are protected from competition. But the price of protection is that the businesses support the regulator and administration politically, and does their bidding. If the government wants them to hire, or build [a] factory in unprofitable place, they do it.

The benefit of cooperation is a good living and a quiet life. The cost of stepping out of line is personal and business ruin, meted out frequently. That’s neither capture nor cronyism.

The fact is, we’ve seen this system of political economy before — most notably in Mussolini’s Italy and in Hitler’s Germany — and there’s a commonly used term for it. It’s fascism. Maybe Cochrane thinks that term is too emotionally charged. However, I’d have thought a bit of emotional charge was warranted. As Cochrane says:

The power of the regulatory state…lacks many of the checks and balances that give us some “rule of law” in the legal system. …

The clear danger we face is the use of regulation for political control. Each industry gets carved up into a few compliant oligopolies. And the threat of severe penalties, with little of the standard rule-of-law recourse, keeps people and businesses in line and supporting the political organization or party that controls the agencies. …

A return to economic growth depends on reforming the regulatory state. But… preservation of our political freedom depends on it even more.

Read the rest here.

This post first appeared at the John Locke Foundation.

EDITORS NOTE: See Steve Horwitz’s “Why the Candidates Keep Giving Us Reasons to Use the “F” Word“; Jeff Tucker’s “Trumpism: The Ideology“; and Jason Kuznicki’s “The Banality of Donald Trump.”

Jon Guze

Did Oregon Gag the Anti-Gay Marriage Bakers? by Walter Olson

Readers who follow the battles over forfeiture law may recall the recent case in which a North Carolina convenience store owner from whom the government had seized $107,000 without any showing of wrongdoing decided to fight the case in the press as well as in court, backed by the Institute for Justice.

Lyndon McLellan’s decision to go public with the dispute drew a menacing letter from a federal prosecutor about the publicity the case had been getting:

“Your client needs to resolve this or litigate it,” Mr. West wrote. “But publicity about it doesn’t help. It just ratchets up feelings in the agency.” He concluded with a settlement offer in which the government would keep half the money.

That case ended happily, but the problem is much broader: many individuals and businesses fear that if they seek out favorable media coverage about their battle with the government, the government will find a way to retaliate, either informally in settlement negotiations or by finding new charges to throw against them.

That such fears might not be without foundation is illustrated by last week’s widely publicized Oregon cake ruling, in which a Gresham, Oregon couple was ordered to pay $135,000 in emotional-distress damages for having refused to bake a cake for a lesbian couple’s commitment ceremony.

Aside from the ruling’s other objectionable elements, the state labor commissioner ruled it “unlawful” for the couple to have given national media interviews in which they expressed sentiments like “we can see this becoming an issue and we have to stand firm.”

Taking advantage of an exception in free speech law in which courts have found that the First Amendment does not protect declarations of future intent to engage in unlawful discrimination, the state argued — and its commissioner agreed — that the “stand firm” remark along with several similarly general comments rallying supporters were together “unlawful.”

That ought to bother anyone who cares about free speech. I’ve got a piece up at Ricochet.com, my first there, exploring the question in more detail:

Suppose someone began a sentence with the words “I don’t think I should have to serve [group X] at my shop….”

If they follow with the words “but since it’s the law, I’ll comply,” the sentence as a whole would clearly count as protected speech under current law. If they follow with the words “and I won’t, law or no law,” it loses protection.

But suppose the speaker were to end the sentence at “…my shop.” Up to that point, the speaker has expressed only an essentially political opinion, not a forward-looking intention to defy the law.

Such speech is all the more of core First Amendment interest when it takes place not in a local, commercial context but as part of broader political discussions between citizens as to whether laws are unjust or government too heavy-handed.

Read the rest here.

Walter Olson

Walter Olson is a senior fellow at the Cato Institute’s Center for Constitutional Studies.

RELATED ARTICLE: Hypocrisy ALERT: Gay Bakeries Refuse to Make Pro-Christian Cakes [+Videos]

EDITORS NOTE: This piece cross-posted from Cato at Liberty and Overlawyered.

Does “I, Pencil” Need a Pro-Government Update? by George C. Leef

In a book I recently read, Complexity and the Art of Public Policy by David Colander and Roland Kupers, I was surprised to find a chapter entitled “I Pencil Revisited.” Yes, they meant Leonard Read’s famous essay showing how market prices and competition work to coordinate production in a way that no single person, however powerful or intelligent, possibly could.

The authors aren’t exactly hostile to Read’s message but say that it leaves out something important — the role of government.

They write,

For me to be produced, someone had to protect the property rights upon which the market is based, someone had to guarantee that the contracts between individuals would be enforced, and someone had to be on the lookout for lead, for the safety of machines, and similar problems, which if not addressed might well lead to a society to undermine the institutional structure that produced me.

And, again writing through the voice of a pencil, Colander and Kupers say,

The reason I, Pencil downplayed government’s role is that he was afraid its inclusion would lead some people to expand the role of government to solve the inevitable problems that come about in coordinating production.

I believe that they are mistaken on that. The reason why Leonard Read focused exclusively on the remarkable story of voluntary market cooperation and did not expand the piece to discuss the proper role of government was that he figured most people already had some understanding of the need to protect property, enforce contracts, and settle disputes.

What very few people had any comprehension of was the way individuals all across the globe are brought into cooperation by the market for pencils.

Going into the role of government in the essay would have been like Mozart adding a few extra movements to his Jupiter Symphony.

Here is why the authors make this argument. They don’t like what they call the “market fundamentalism” of Leonard Read, former FEE president Don Boudreaux, and others (like me) who argue that the people of any society will be the most productive, happiest, and best able to deal with the problems they see if the government is kept only to the functions of protecting the rights of life, liberty, and property.

Instead of laissez-faire, Colander and Kupers favor what they call “laissez-faire activism.”

In short, they want us to believe that there is an ideal middle ground between unsophisticated “market fundamentalism” and top-down government planning and control of the economy. The latter, they understand, is bad because such authority will squelch innovation and competition, but the former supposedly doesn’t do enough to allow people to realize their “collective goals.” Here is a crucial passage:

What simplistic or fundamentalist free market advocates sometimes miss is that a complex system works only if individuals self-regulate, by which we mean that they do not push their freedom too far, and that they make reasonable compromises about benefiting themselves and benefiting society.

Of course, the common law framework that thinkers in the Adam Smith, Frederic Bastiat, Leonard Read line advocated does put limits on individual action. Rights and the sphere of legitimate action are clearly established, and to the extent that people have collective goals, they are free to pursue them voluntarily. But Colander and Kupers think government can and should do just a bit more.

One of their ideas is that government should adopt policies that will “nudge” people to do what they “really want to do,” but can’t sufficiently discipline themselves to do. They extol the book Nudge by Cass Sunstein and Richard Thaler, which purports to show how government can “encourage” people to act in preferable ways, without dictating behavior to them.

But why can’t we rely entirely on voluntary efforts by concerned individuals and organizations to do that encouraging? Churches, for example, have been encouraging people to behave better for millennia; Alcoholics Anonymous has been helping people recover from alcohol abuse since 1935; parents have been “nudging” children to make wiser decisions since time immemorial. Why look to government policy?

Sometimes, the reason why people seem to need “nudging” is that current government policy encourages undesirable behavior. Few Americans save much these days, for instance. But instead of trying to “nudge” them to save more, why not change the tax laws that discourage thrift? Going back towards “laissez-faire fundamentalism” would solve or ameliorate many of our problems.

Moreover, Colander and Kupers ignore the great and, I maintain, insuperable problem of keeping government interference within bounds. If the state has the authority to “nudge” people, what keeps politicians from ratcheting up the power if it doesn’t work? Nudging turns into pushing, then shoving. Interest groups will importune politicians with arguments for policies they favor, crafting them as merely helping “the people” to realize the social goals they “really” favor.

They way democratic politics tends to be captured by interest groups is the big message of Public Choice theory, but Colander and Kupers never think to explain how they’d prevent their “laissez-faire activism” from turning into plain old activism.

After reading Complexity and the Art of Public Policy, I fail to see how government can improve upon capitalism combined with the host of voluntary organizations that spring up in a free society. I, Pencil does not need to be revisited.

George C. Leef

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

Celebrate Independence With a Revolution Against the Surveillance State by Ryan Hagemann

In the decade before 1776, British courts began issuing “writs of assistance” for the general search and seizure of colonists’ documents. The intention was to permit British troops to inspect properties for smuggled goods, but these writs gave officials broad power to enter private homes to search for, and seize, anything and everything that might be considered contraband by the British Empire.

Such general warrants were among the many complaints the colonists levied against the crown and played no small part in the American Revolution.

This Independence Day, it would behoove us all, as Americans, to reflect on the motivations for the colonists’ revolt against Britain. In a 2013 piece at the Huffington Post, Radley Balko spoke on the core meaning of the Fourth of July:

Independence Day isn’t for celebrating the American government and whoever happens to be currently running it, but for celebrating the principles that make America unique.

And in fact, celebrating the principles that [animated] the American founding often means celebrating the figures who have defended those principles in spite of the government.

The list of modern Americans who have stood as stalwart guardians of the principles of liberty is regrettably short. More concerning, however, is what has happened in the years since 9/11, as fear and paranoia over terrorism gripped the American electorate and absconded with many of the basic liberties that the founding generation fought and died to uphold. America just isn’t what it used to be.

But the tides of unrestrained surveillance seem to be receding.

A few weeks ago, thanks to a vibrant and broad coalition of civil libertarians, grassroots organizations, and cross-aisle partners, America finally took the first step in reining in the secret surveillance state that Edward Snowden revealed to us almost two years ago to the day. The USA FREEDOM Act, for all its flaws, stands as the most significant piece of surveillance reform legislation since 1978 and signals Congress’s willingness to work on surveillance reform.

While there is much to do in preparing for upcoming battles over government surveillance, a look back at recent events can help shed light on how we as libertarians can best move forward.

Not surprisingly, the debate left some dissatisfied that the reforms did not go far enough, while others considered anything short of a full USA PATRIOT Act reauthorization to be an unacceptable compromise.

Filled with riotous rhetorical broadsides, the debate featured civil libertarians supporting reform against civil libertarians backing a complete, uncompromising end to the surveillance state, pitting Republican hawks against centrists and Democrats, and Sen. Rand Paul against pretty much everyone.

In a story of strange political bedfellows, Sen. Paul joined hawks such as Sen. John McCain and Sen. Richard Burr in voting against the USA FREEDOM Act. While Paul criticized components of the bill for not going far enough (all criticisms being perfectly fair and true), the political reality was such that this bill, however imperfect, was by far the best chance for reform in the near term.

As Cato’s Julian Sanchez noted prior to its passage: “While ‘Sunset the Patriot Act’ makes for an appealing slogan, the fact remains that the vast majority of the Patriot Act is permanent — and includes an array of overlapping authorities that will limit the effect of an expiration.”

In other words, the limitations of USA FREEDOM would actually be more effective than simply letting a two or three provisions of the USA PATRIOT Act (temporarily) expire.

The heroes of this debate were a broad coalition of civil-society groups, technology firms, and nonprofits dedicated to moving the ball forward on reform, no matter how small the gain.

However, even as some are celebrating this small but important victory, there are troubled waters ahead for privacy advocates and civil libertarians. The upcoming Senate vote on the Cybersecurity and Information Sharing Act (CISA) is the next battle in the ongoing war against the surveillance apparatus. If passed, it would be one step forward, two steps back for the small victories privacy advocates have won over the past month.

I’ve written quite a bit on the issues that many civil libertarian organizations have with CISA, which is little more than a surveillance Trojan Horse containing a host of “information-sharing” provisions that would allow intelligence agencies to acquire information from private firms and use it to prosecute Americans for garden-variety crimes unrelated to cybersecurity, due process be damned.

A broad coalition of organizations has once more come together, this time to oppose CISA, to continue the battle against expanding the surveillance state.

In public policy, the Overton window refers to the spectrum of policy prescriptions and ideas that the public views as tolerable: the political viability of any idea depends not on the personal preferences of politicians, but on whether it falls within the range of publicly acceptable options.

That is why a willingness to compromise is so vital in public-policy discussions. Marginal reforms should be seen as victories in the slow but consistent effort to rein in the excesses of our Orwellian security order.

USA FREEDOM is far from ideal, and the expiration of provisions of the PATRIOT Act, such as Section 215, will not stop government surveillance in its tracks. The government can still use National Security Letters (NSL), and Section 702 of the FISA Amendments Act can still be creatively interpreted by the intelligence community to justify continued mass surveillance, to say nothing of Executive Order 12333, which covers surveillance conducted outside of the United States.

Nonetheless, the new law is an important first step towards tearing down the most onerous provisions of the PATRIOT Act in a piecemeal fashion. This may seem a daunting and less-than-ideal approach for many libertarians, but the alternative is merely symbolic gesticulation.

So where do we go from here?

Libertarians need to start working with nontraditional allies to support, on an issue-by-issue basis, real, practical reforms to the surveillance state. If we do not, we cannot hope to be effective and valuable partners to those individuals and organizations working tirelessly in support of the same values and freedoms that we all hold dear.

We must also recognize that there are limitations to compromise, and we should never forsake our core principles in favor of political expediency. But, on the margins, we can make significant contributions to civil liberties, especially in the ongoing surveillance reform debate. Recognizing the reality of what is achievable in the current political landscape is necessary for identifying and taking advantage of the available opportunities for restoring liberty.

We have a choice in the upcoming surveillance-reform fights: We can be positive contributors to a legacy of liberty for future generations, or we can continue to fancy ourselves armchair philosophers, ignoring public-policy realities and taking comfort in the echo chamber that never challenges our worldview.

Given political realities, marginal reforms constitute the fastest path forward. The American people are owed their civil liberties; hence, we must fight to move, however incrementally, towards a freer, more civil society.


Ryan Hagemann

Ryan Hagemann is a civil liberties policy analyst at the Niskanen Center.

RELATED ARTICLE: Cyber Security: Where are we now and where are we headed?

SCOTUS Says You Can Be Sued for Unintentional Discrimination by Walter Olson

Stop calling it fair housing law. If it was ever a matter of fairness, it isn’t now.

Under today’s 5-4 Supreme Court holding in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, you can be held liable for housing discrimination whether or not you or anyone in your organization intended to discriminate.

Instead — to quote Justice Anthony Kennedy, who joined with the Court’s four liberals in a 5-4 majority — you might have been influenced by “unconscious prejudice” or “stereotyping” when you lent money or rented apartments or carried on appraisal or brokerage or planning functions.

What you did had “disparate impact” on some race or other legally protected group, and now you’re caught up in potentially ruinous litigation in which it’s up to you to show that you had a good reason for what you did and could not have arranged your actions in some other way that had less disparate impact.

The decision is quite broad in its implications. For example, in employment discrimination law, where disparate impact has long been legally established, it is increasingly legally dangerous to ask job applicants about criminal records, or carry out criminal background checks on them before a job offer, for fear of disparate impact.

Is it still safe to ask such questions of prospective tenants in your apartment building? Better ask your lawyer.

The case hinged on statutory interpretation, and as Justice Alito’s dissent makes clear, King v. Burwell wasn’t the only case decided today in which a majority mangled the clear meaning of a law’s text to get the result it wanted.

As Justice Ginsburg was frank enough to note at oral argument, “”If we’re going to be realistic about it…in 1968, when the Fair Housing Act passed, nobody knew anything about disparate impact.”

On the contrary, the law’s text specified that it was banning decisions taken “because of” race, and to find a loophole the majority was obliged to fall back on an incidental clause banning the making “unavailable” of a “dwelling,” which we are meant to believe snuck in a huge new area of liability.

As the majority stresses, many appeals courts did go along with a liberal interpretation. But the Executive Branch did not — in 1988 it took the position before the Court that the law did not permit disparate impact claims — while Congress hedged the issue in later enactments so as to keep all sides on board a compromise.

Despite ridiculous claims (like that in a Vox headline) that the Court today “saved” the Fair Housing Act or that a contrary decision would have “gutted” it, the great majority of litigation under the Act has been on disparate-treatment complaints (which, as Alito notes, can already use disparate impact as evidence of pretext.)

But the Obama administration, as I’ve documented elsewhere, has launched a huge effort to turn disparate-impact law into an engine of revolutionary changes in local government and housing practice, introducing, for example, such concepts as a local government obligation to pursue subsidized federal housing grants and to enact laws forcing private landlords to accept Section 8 tenants.

As the four dissenters make clear, a compliance and litigation nightmare now looms for many in real estate, finance, and local government as they try to dodge liability.

“No matter what [Texas] decides” in the case at hand on locating low-income housing, for example, one or another group “will be able to bring a disparate-impact case” based either on the theory that projects should be put in poorer areas (which enables building more of them) or in affluent areas (which will benefit some future residents).

If you have time to read only one bit of today’s opinion, read Justice Clarence Thomas’s separate dissent. Thomas brilliantly recounts the EEOC’s successful subversion of its own founding statute, culminating in the Court’s profoundly mistaken opinion in Griggs v. Duke Power, the employment case that founded disparate impact theory.

“We should drop the pretense that Griggs’ interpretation of Title VII was legitimate,” he writes. It’s a tour de force — and already being denounced vehemently on the Left.

This post first appeared at Cato.org.


Walter Olson

Walter Olson is a senior fellow at the Cato Institute’s Center for Constitutional Studies.

“SCOTUScare”: Supreme Court Guts Obamacare to Uphold Subsidies by Daniel Bier

The Supreme Court has voted 6-3 (with Chief Justice Roberts writing the majority opinion, joined by Justice Kennedy and the four liberal justices) to uphold the subsidies the IRS is distributing for health insurance plans purchased on the federal insurance exchange.

This ruling sets a dangerous precedent, and its reasoning is, as Justice Scalia wrote in his dissent, “quite absurd.”

There will no doubt be much written about the decision in the coming days, and almost all of it will mischaracterize the ruling as the Supreme Court “saving” the Affordable Care Act again.

This is a crucial error: The Court’s ruling guts the ACA and rewrites [it] in a way that is politically convenient for the president — again.

When the Patient Protection and Affordable Care Act was passed in 2010, the law was designed to work through a “cooperative federalism” approach. For example, the portion of the law expanding Medicaid, like the rest of Medicaid, would be a joint federal-state program, partly funded and regulated by the feds but administered by the states.

The part of the law meant to increase individually purchased insurance coverage was similarly designed to work through federal-state cooperation.

Each state would set up its own health insurance “exchange,” and the federal government would issue tax credits for qualified individuals who purchased policies on the state exchanges. The logic here is that the states are best suited to run exchanges for their residents, as they have particular and specialized knowledge about other state healthcare programs, state regulations on insurance, and their residents’ health needs.

But the law did not (and constitutionally could not) force state governments set up exchanges. So as a backstop, a separate section of the law allows the federal government to set up an exchange for residents in states that did not set up their own.

Here’s where it got problematic: The plain text of the law only authorizes tax credits for policies purchased on an “exchange established by the State.”

There’s no easy way around this fact. Nowhere does the ACA authorize subsidies for plans purchased on the federal exchange. None of this would have been an issue if every state had chosen to build an exchange, as the law’s authors anticipated.

But in reality, the ACA has been persistently unpopular, and only 14 states (and DC) had working exchanges. The details of the backstop provision suddenly became a lot more important as the residents of 36 states were cast onto the federal exchange.

Faced with uncooperative federalism, the Obama administration suddenly had a big political problem, and it would have been quite embarrassing for the law’s biggest benefit to evaporate just as the president was planning to run for reelection on it.

So 14 months after the bill was signed into law, the IRS issued a rule, by executive fiat, to issue subsidies on the federal exchange. Because the penalty for failing [to] purchase health insurance is based on the cost of insurance, including subsidies, relative to a person’s income, individuals and businesses in states without exchanges who would otherwise have been exempt from fines and mandates were now in violation.

Lawsuits followed, which argued the IRS’s decision to issue subsidies in states that had declined to create exchanges was against the law, and it had resulted in actual harm to them.

In one of the lower court rulings on this issue, the DC Circuit concluded that the law offered no clear basis for issuing subsidies through the federal exchange.

If Congress intended to issue subsidies through the federal exchange, it would have been perfectly easy for them to say so, in any number of sections. And if Congress intended to treat the federal exchange as though it were a State entity (as the ACA does with US territories’ exchanges), it knew how to do that too. Yet there is no section of the law that does this.

Some argued that this omission was a “drafting error,” a legislative slip-up. If so, it was one it made over and over again, in at least ten different sections. And, as Michael Cannon rather pointedly asks, if it was a drafting error, why didn’t the government make that case in court? Why didn’t the IRS make that claim when they issued the new rule?

The answer may be that the law meant what the law says. The scant legislative history on this question doesn’t show that Congress ever thought that subsidies were going to be disbursed through the federal exchanges. Perhaps the law’s authors simply didn’t think about it or did not consider the possibility that most states would refuse.

But, in fact, it is entirely plausible that the ACA’s authors intended to only offer subsidies to residents of states that created exchanges, as an incentive to states to build and run them.

The reasons why Congress wanted the states to run the exchanges are perfectly clear. But, apart from the possibility of losing the subsidies, there seems to be little reason for state governments to take the risk of building one of the notoriously dysfunctional exchanges if they could dump their citizens onto the federal exchange with no consequences.

Jonathan Gruber, an MIT economist who was involved in the design of the health care law, explicitly claimed that the law’s authors did this on purpose:

If you’re a state and you don’t set up an Exchange, that means your citizens don’t get their tax credits. … I hope that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these Exchanges, and that they’ll do it.

On the other hand, the government argued (and Roberts accepted) that the text of the law is ambiguous, and ambiguous phrases should be interpreted “in their context and with a view to their place in the overall statutory scheme,” the goal of which was to increase health insurance coverage.

Given that, Roberts concludes, we should construe “exchange established by the State” to mean any ACA exchange, whether Federal or State.

Roberts got to this reasoned, methodical, and preposterous conclusion by arguing that the plain meaning of the text would lead to “calamitous results” that Congress meant to avoid. To wit, that only allowing subsidies for plans purchased on state exchanges would cause a “death spiral” in the insurance market in states that refused to establish exchanges.

The ACA reform has three basic components: subsidies for insurance plans, the individual mandate to purchase insurance, and regulations requiring insurers to issue coverage to people with preexisting conditions (“guaranteed issue”) and banning them from charging higher premiums to sicker people (“community rating”).

The “death spiral” logic goes:

  • If states chose not to establish exchanges, their residents would not get subsidies;
  • If they couldn’t get subsidies, many people would be exempt from the insurance mandate;
  • If they were exempt, they could just wait until they got sick to buy insurance;
  • If they did that, insurers would have to accept them, under the guaranteed issue rule;
  • If that happened, the price of insurance would go up for everyone, under community rating;
  • If that happened, more healthy people would drop out of the insurance market, leaving insurers with a pool of ever sicker and more expensive patients (“adverse selection”), thus forcing insurers out of business and leaving even more people without insurance. And so on.

Hence, “death spiral.” In fact, this is exactly what happened in the 1990s in many states with guaranteed issue and community rating, before Massachusetts invented the mandate to force people to buy insurance and keep the pool of insured people relatively healthy.

But in the ACA, the mandate rests on the cost of insurance with subsidies, and (under the plain text of the law) the subsidies rest on the states establishing exchanges. If the subsidies go, fewer people will buy insurance, and the mandate crumbles, leading to a spiral of higher costs and fewer people insured.

Roberts concluded that this risk would have been unacceptable to Congress, arguing: “The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral. It is implausible that Congress meant the Act to operate in this manner.”

This perceived implausibility, combined with the alleged ambiguity of the text, caused the Court to rule in favor of the subsidies:

Petitioners’ plain-meaning arguments are strong, but the Act’s context and structure compel the conclusion that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.

The basic problem with Roberts’ decision is that the text isn’t ambiguous. It’s actually pretty clear, as he acknowledged. But the second issue is that Roberts has no strong basis for his speculations about what Congress thought was likely to happen with states or what risks it was willing tolerate.

If the ACA’s authors thought (as almost everyone did) that the states would get with the program and establish their own exchanges, there is no reason that they would have assumed a serious risk of a death spiral. In fact, Gruber suggested that was the plan all along: offer a carrot to the states (the subsidies) and a stick (the risk of screwing up their insurance market).

But more importantly, the “implausible” risk that Roberts bases his interpretation on is precisely what the ACA deliberately did to US territories by imposing guaranteed issue and community rating without an individual mandate.

The DC Circuit Court that ruled against the subsidies last year made exactly this point:

The supposedly unthinkable scenario … one in which insurers in states with federal Exchanges remain subject to the community rating and guaranteed issue requirements but lack a broad base of healthy customers to stabilize prices and avoid adverse selection — is exactly what the ACA enacts in such federal territories as the Northern Mariana Islands, where the Act imposes guaranteed issue and community rating requirements without an individual mandate.

This combination, predictably, has thrown individual insurance markets in the territories into turmoil. But HHS has nevertheless refused to exempt the territories from the guaranteed issue and community rating requirements, recognizing that, “[h]owever meritorious” the reasons for doing so might be, “HHS is not authorized to choose which provisions of the [ACA] might apply to the territories.”

But, it seems, the Supreme Court feels that is authorized to choose what provisions of the ACA should apply, on the grounds that doing so would make better policy, regardless of what the law actually requires.

This is essentially what Roberts did in the previous Obamacare ruling, in which he rewrote the individual mandate and the Medicaid portions of the law in order to make them pass constitutional muster.

In his scathing dissent, Justice Scalia noted,

Having transformed two major parts of the law, the Court today has turned its attention to a third. The Act that Congress passed makes tax credits available only on an “Exchange established by the State.”

This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare.

… This Court’s two decisions on the Act will surely be remembered through the years. The somersaults of statutory interpretation they have performed (“penalty” means tax, “further [Medicaid] payments to the State” means only incremental Medicaid payments to the State, “established by the State” means not established by the State) will be cited by litigants endlessly, to the confusion of honest jurisprudence.

This decision is not disastrous because it “saved” Obamacare — it did no such thing: The Court gutted the law and let the Obama administration stuff it with whatever policy it thought best.

No, the ruling is a catastrophe because it establishes the principle that the president can unilaterally override the plain meaning of the law whenever he or she thinks that doing so will lead to a better outcome, one more in keeping with his or her policy goals.

As is often the case with elaborate government programs, things didn’t turn out the way that the planners expected. And, once again, the Supreme Court allowed the government to skate around both the Affordable Care Act and the law of unintended consequences.

This decision sanctifies the administration’s decision to defy Congress, circumvent the states, and flout the law. And as the authors of Obamacare knew, if you subsidize something, you’ll get more of it. Expect this ruling to stimulate more sloppy legislation, executive overreach, and subversion of the rule of law.


Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

What Can the Government Steal? Anything It Pays For! by Daniel Bier

“…Nor shall private property be taken for public use, without just compensation.” – Fifth Amendment to the U.S. Constitution 

On Monday, I wrote about the Supreme Court’s decision in the case of Horne v. USDA, in which the Court ruled almost unanimously against the government’s attempt to confiscate a third of California raisin farmers’ crops without paying them a dime for it.

The confiscation was part of an absurd FDR-era program meant to increase the price of food crops by restricting the supply; the government would then sell or give away the raisins to foreign countries or other groups.

Overall, this ruling was a big win for property rights (or, at least, not the huge loss it could have been).

But there’s one issue that’s been overlooked here, and it relates to the Court’s previous decision in Kelo v. City of New London, the eminent domain case that also just turned 10 horrible years old yesterday.

In Horne, eight justices concluded that physically taking the farmers’ raisins and carting them away in trucks was, in fact, a “taking” under the Fifth Amendment that requires “just compensation.”

That sounds like common sense, but the Ninth Circuit Court of Appeals had ruled that the seizure wasn’t a taking that required compensation because, in their view, the Fifth Amendment gives less protection to “personal property” (i.e., stuff, like raisins or cars) than to “real property” (i.e., land).

The Court thankfully rejected this dangerous and illogical premise.

But while eight justices agreed on the basic question of the taking, only five agreed on the matter of just compensation.

The majority concluded that the government had to pay the farmers the current market value of the crops they wanted to take, which is standard procedure in a takings case (like when the government wants to take your home to build a road).

Justices Breyer (joined by Ginsburg and Kagan) wrote a partial dissent, arguing the federal government’s claim that the question of how much the farmers were owed should be sent back to the lower court to calculate what the farmers were owed.

Their curious reasoning was that, since the government was distorting the market and pushing up the market price of raisins, they should be able to subtract the value the farmers were getting from the artificially inflated price from the value of the raisins that were taken. The government argued that the farmers would actually end up getting more value than was taken from them, under this calculation.

Chief Justice Roberts, writing for the majority, derided this argument: “The best defense may be a good offense, but the Government cites no support for its hypothetical-based approach.”

But the most interesting part of this subplot came from Justice Thomas. Thomas fully agreed with Roberts’ majority opinion, but he wrote his own a one-page concurrence on the question of how to calculate “just compensation,” and it went right at the heart of Kelo.

In Kelo, a bare majority of the Court ruled that the government could seize people’s homes and give them to private developers, on the grounds that the government expected more taxes from the new development.

Marc Scribner explains how the Court managed to dilute the Fifth Amendment’s “public use” requirement into a “public purpose” excuse that allows the government to take property for almost any reason it can dream up.

Thomas’s concurrence disputes Breyer’s argument about calculating “just compensation” by pointing out that, had Kelo had been correctly decided, the government wouldn’t be allowed to take the farmers’ crops at all — even if it paid for them.

Thomas wrote (emphasis mine),

The Takings Clause prohibits the government from taking private property except “for public use,” even when it offers “just compensation.”

And quoting his dissent in Kelo:

That requirement, as originally understood, imposes a meaningful constraint on the power of the state — ”the government may take property only if it actually uses or gives the public a legal right to use the property.”

It is far from clear that the Raisin Administrative Committee’s conduct meets that standard. It takes the raisins of citizens and, among other things, gives them away or sells them to exporters, foreign importers, and foreign governments.

To the extent that the Committee is not taking the raisins “for public use,” having the Court of Appeals calculate “just compensation” in this case would be a fruitless exercise.

Unfortunately, Chief Justice Roberts is already writing as though the “public use” requirement was a dead letter, writing at one point in his opinion: “The Government correctly points out that a taking does not violate the Fifth Amendment unless there is no just compensation.”

But that isn’t true. A taking violates the Fifth Amendment, first and foremost, if it is not taken for “public use.” And confiscating raisins and giving them to foreign governments in order to keep the price of raisins in the United States artificially high does not, in any sane world, meet that standard.

What Thomas didn’t say, but clearly implied, was that the Court should have struck down the raisin-stealing scheme entirely, rather than just forcing the government pay for the crops it takes.

The Horne decision was good news, but it didn’t go far enough by actually imposing a meaningful limit on what counts as “public use.” The Court could have done that in this case, by overturning Kelo or at least adding somelimitations about what governments can lawfully take private property for.

Happily, Justice Thomas isn’t throwing in the towel on Kelo, and Justice Scalia has predicted that the decision will eventually be overturned.

So can the government still take your property for no good reason? Yes, for now. But at least they have to pay for it.

That’s not nothing. And for raisin farmers in California, it’s a whole lot.


Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

“The President that Couldn’t”: Why Obama’s Agenda Failed by Thomas A. Firey

With time running out on his administration, President Obama has embarked on a sort of “apology tour” to disillusioned supporters. They are frustrated that he hasn’t delivered on many of their favored policies, from gun control to single-payer health care to carbon controls.

With candidates queuing up to replace him — many with very different policy goals than his — he apparently feels the need to rally the disaffected behind a successor who would carry on his agenda.

His message to the disheartened supporters is simple: The political failures aren’t his fault. He’s tried hard to deliver, but “Congress doesn’t work” and American government “is broken.” According to Obama:

As mightily as I have struggled against that… it still is broken. … When I ran in 2008, I, in fact, did not say I would fix it. I said we could fix it. I didn’t say, “Yes, I can”; I said — what? … “Yes, we can.”

Washington Post columnist Chris Cillizza, writing about the apology tour, throws some shade at the president, claiming that he did in fact promise to change policy. But ultimately Cillizza agrees with Obama, writing that the American “political system is … more broken than any one person — no matter who that person is or the circumstances that surround that person’s election — could hope to solve.”

But both the president and Cillizza are completely wrong; the American political system assuredly is not broken. The system was designed — and we should all be very grateful that it was designed — to not allow the radical change that Obama’s supporters — or supporters of other politicians across the political spectrum — want.

It is the rare times when such change does occur — think Franklin Roosevelt’s expansion of national government or George W. Bush’s anti-terrorism initiatives and war in Iraq — that American governance had failed and very bad things happen.

Today the United States is a nation of more than 320 million remarkably different people, living in unique situations, having highly individual concerns, desires, and risk preferences, and holding a wide variety of mostly noble values. They each operate in a world of uncertainty and limited resources. Given those dramatically varied circumstances, any national policymaking is likely to harm and anger tens of millions of people.

For that reason, the Framers (who likewise lived in an incredibly diverse nation for their era) designed American government to elevate private action and decentralize governance while limiting national policy to matters of broad consensus and compromise.

Because few of the policy goals advocated by President Obama and his “progressive” supporters have such support or allow for serious compromise (even the signature item that he did manage to enact), it shouldn’t be surprising that few of those goals have been achieved. That doesn’t mean American government is broken — quite the opposite! — but rather that Obama’s conception of governance is.

Perhaps the next president will better appreciate the genius of American government’s design and work within that design for policy change that he or she believes is important. But it’s clear from President Obama’s comments that he is not up to that task.

For the reason, we should all be very grateful that, no, he couldn’t.

Thomas A. Firey

Thomas A. Firey is a Maryland Public Policy Institute senior fellow, and also is managing editor of Regulation magazine, the Cato Institute’s quarterly review of business in government.

EDITORS NOTE: This first appeared at MDpolicy.org.

Airport Pirates Loot a College Student’s Life Savings by Trevor Burrus

Today, our friends at the Institute for Justice launched a new challenge to yet another instance of egregious civil asset forfeiture abuse.

Charles Clarke is a 24-year-old college student who found out the hard way that government officials can confiscate property on the mere suspicion that it has a “substantial connection” to a crime or is the proceeds of a crime. No underlying conviction is required.

Functionally, this means that officers can claim that “something was a little off” about your behavior, or that “something smells a little like drugs” and then have carte blanche to take whatever cash you have on you. After that, your cash is presumptively guilty, and it is up to you to prove its innocence.

In the winter of 2013, Charles was stopped at the Cincinnati/Northern Kentucky airport based on the officers’ assertion that his bag smelled like marijuana. Actually, it was based off of a drug dog’s “signal” that his bag smelled like marijuana. By claiming that a dog “alerted” an officer can obtain probable cause, but in reality the dogs are about as reliable as Clever Hans.

After searching his bag, the officers found no drugs or other illegal substances. They then asked him if he was carrying any cash. Charles volunteered that he was carrying $11,000–clearly thinking, not unreasonably, that in a just world there is no way the officers could just take his money. Charles’s mistake, however, was thinking that he lives in a just world, and the officers walked away with his life savings.

Charles had saved the $11,000 over the previous five years, from work, financial aid, educational benefits, and gifts from family. Now he must overcome the officers’ hunches by proving that his money came from legal sources.

By now, hopefully you’re familiar with civil asset forfeiture. Thanks in part to the excellent work of the Institute for Justice, as well as biting commentary from John Oliver and dogged investigative journalism from the Washington Post and the New Yorker (as well as Cato’s own work), civil asset forfeiture no longer exists in the shadows, where the perpetrators would have preferred it to remain.

In a time of sharp political divides, there’s one thing we all should agree on: police and other law enforcement officials should not be allowed to take assets based only on the suspicion of criminal activity and then be permitted to use those assets to purchase needed things for the department, like margarita machines.

Charles – who admittedly smoked marijuana on the way to the airport – lost his life savings to what amounts to legalized piracy. It seems Mancur Olson was on to something when he described the government as “stationary bandits.”

Thankfully, Charles has the saintly lawyers at the Institute for Justice on his side, who use the money from IJ’s generous donors to defend people like him from the most powerful organization in human history – the United States government.

Otherwise, Charles would be out of luck. His confiscated $11,000 is just small enough to make it almost not worth it to pay thousands in attorney’s fees in order to possibly get some of it back. It’s almost as if the officers who confiscated his money thought that Charles would be unlikely to have the resources to fight the seizure.

Last year, the officers at Cincinnati/Northern Kentucky airport had a “good” year taking things from people who haven’t been convicted of a crime, raking in $530,000 from travelers similar to Charles. Under the federal “equitable sharing” program, the departments of the deputized airport police are allowed to keep up to 80 percent of that money.

The Institute for Justice is not only seeking to recover Charles’s money, they are challenging the constitutional deficiencies of the civil asset forfeiture program in general.

For more on Charles’s case, see Vox’s story.

For more on civil asset forfeiture, see our episode of “Free Thoughts” featuring Scott Bullock from the Institute for Justice.


Trevor Burrus

Trevor Burrus is a research fellow at the Cato Institute’s Center for Constitutional Studies. His research interests include constitutional law, civil and criminal law, legal and political philosophy, and legal history.

EDITORS NOTE: This post first appeared at Cato.org.

Inside the Mind of the Man Who Could Be Bitcoin’s Creator by Max Borders

In political science terms medieval Iceland has been called an “anarchy,” but it is more realistic to describe it as a very peer-to-peer kind of government. — Nick Szabo

Many observers think Nick Szabo is the pseudonymous Satoshi Nakamoto, creator of Bitcoin. Szabo, you see, is a coding wizard who had already created an earlier digital currency called “bitgold.” Could bitgold have been a practice run?

What’s more interesting is that Szabo has written extensively on the history of law. In particular, he writes about Anglo-Saxon emergent law, which collided eventually with the “master-servant” law of Justinian’s Rome. And Szabo argues that what we have today in the United States is but the shrinking vestige of common law operating within a growing body of Byzantine statutes.

All this might sound esoteric, but it has profound implications for cryptocurrencies, smart contracts, digital property titles, dispute resolution, and other potential applications of the blockchain at the heart of bitcoin — especially if Szabo is, in fact, the developer who set about writing source code for peer-to-peer law.

Szabo wrote in 2006,

Here’s my paper on private jurisdiction in English history. Franchise jurisdiction played a crucial but unheralded role in the history of English law and politics. Some private jurisdictions existed in Anglo-Saxon times but they grew in importance in the Norman and Angevin periods, and in the corporate form remained an important part of the British Empire until the 20th century.

A franchise, such as a corporation, a jurisdiction, or a right to collect certain tolls or taxes, was a kind of property: an “incorporeal hereditament.” English property law was very flexible; as a result franchise jurisdictions came in a wide variety of forms.

One can see how Szabo would have appreciated that flexibility as a developer.

Of course, some of these aspects of the common law (law by many) are still with us, but they have been overtaken in many quarters by edict (law by one) or especially by statute (law by few).

So what happened?

The Anglo-Norman legal idea of jurisdiction as property and peer-to-peer government clashed with ideas derived from the Roman Empire, via the text of Justinian’s legal code and its elaboration in European universities, of sovereignty and totalitarian rule via a master-servant or delegation hierarchy. By the 20th century, the Roman idea of hierarchical jurisdiction had largely won, especially in political science where government is often defined on neo-Roman terms as “sovereign” and “a monopoly of force.”

Indeed, as I wrote in “The End of Politics,”

Once-great empires soon grew up amid the detritus of war. The clan-king became a god-king. The administration of empire required more layers of hierarchy, which meant delegating power to satraps and governors. The emperor would issue commands to subordinates and those commands would be carried out by those on down the chains of command. Patronage relationships became the norm. The order of man lording power over man took on religious dimensions. Values such as loyalty, honor, obedience, and patriotism firmed up the hierarchy, and without such values, the structure could be weakened either from internal dissent or from better organized enemies.

Hierarchy became more elaborate over time as each layer was added, and hierarchy persisted, apparently, as humanity’s dominant social technology.

This militaristic law is so ingrained in our understanding now that it’s difficult for most of us to imagine life outside of it. Our understanding is of wise stewards minding the upper echelons of statecraft, while the rest of us team and hustle in the relatively peaceful interstices the regulatory state provides for us. It’s hard to conceive of alternative forms of governance and law doing better, and when people drop the A word with respect to these alternative forms, people can’t get past their own connotations.

Most of us have been thoroughly inculcated with this Hobbesian rationale. For example, just in debates among classical liberals, there are those convinced that persistent peace requires a final arbiter — one whose final word quashes conflict and whose law is made absolute through enforcement. And when it comes to alternatives, our failure of imagination has given rise to some of the most predatory regimes in history. As Szabo writes,

Our experience with totalitarianism of the 19th and 20th centuries, inspired and enabled by the Roman-derived procedural law and accompanying political structure (and including Napoleon, the Csars, the Kaisers, Communist despots, the Fascists, and the National Socialists), as well as the rise of vast and often oppressive bureaucracies in the “democratic” countries, should cause us to reconsider our commitment to government via master-servant (in modern terms, employer-employee) hierarchy, which is much better suited to military organization than to legal organization.

Indeed, we should reconsider our unreflective commitment to such hierarchies, because law and society are not only possible without them, but could be more robust, peaceful, and prosperous without them. But how do we move beyond those hierarchies?

The person who designed the basic protocols of the blockchain understood the power of “dumb networks” as opposed to Byzantine codes. As Szabo writes,

Fortunately, franchise jurisdiction has left permanent influences on modern governments, including on the republican form of government in general and the United States Constitution, federalism, and procedural rights in particular. It also left a record of a wide variety of forms of law and government that can provide us with alternatives to the vast employee hierarchies wielding coercive powers that have given rise to modern oppression.

Likewise, the inventor of bitcoin is helping us imagine a different sort of world. I wrote the following in part two of “The End of Politics”:

The architecture of the Web has already shown the world what’s possible in terms of upgrading our democratic operating system (DOS). This is true both in the sense that our new social technologies are like our online technologies, and in the sense that our online technologies enable new social technologies to emerge. Little platoons are already emerging on the spine of the blockchain, for example. And just as Lyft and Uber are showing taxi cartels how it’s done (or as Kickstarter is showing the NEA how it’s done, or as Bitcoin is showing the Federal Reserve how it’s done) new parallel governance structures will soon show State hierarchies around the world how it’s done.

What might the world look like when this process is further along? It’s hard to predict. But the network architectures show the way.

All of this was my rather roundabout way of saying that we’re already weaving together new law and using it, without permission.

Echoing legal scholar Bruce Benson’s Enterprise of Law, writer and venture fund manager Michael Gibson leaves us with an even brighter glimpse of the future in “The Nakamoto Consensus”:

It turns out there’s only one thing that guarantees production of good laws. The people bound by the laws have to agree to be bound by them. Not hypothetically or tacitly, as in some imaginary will of the people or behind a veil of ignorance. Consent must be real, transparent, and continuous. No law can bind a single person unless that person consents to be bound by that law. All laws must be strictly opt in. Lawmakers could be saints, devils or monkeys on typewriters — doesn’t matter. The opt out–opt in system lets only good laws survive. Bad laws are driven out of production.

Bad laws can only inflict harm and destroy wealth up to the cost to opt out of them. We can underthrow the state one contract at a time.

This single insight — articulated so well by Gibson — is what surely informed Nick Szabo and inspired Satoshi Nakamoto.

But if the “underthrow“ of Leviathan lies ahead, it will be thanks not only to encryption technology but also to understanding the beauty, flexibility, and robustness of emergent law. Smaller jurisdictions created by forking the code or by allowing people to vote with their boats are enough to reduce the costs of exit.

Szabo writes,

The overall goal of Juristopia is to improve the most important functions of government (especially defense and the abatement of public nuisances) while preventing the corruption, oppression, war, genocide, and other abuses that have so often come with police powers and taxation. Those evils have been particularly prone to occur when those powers are bundled into a locus of sovereignty, a la the personal totalitarianism of the Justinian Code, Bodin, and Hobbes or the parliamentary totalitarianism of Bagehot. These traditions of legal procedure, assuming political relationships are a matter of delegation rather than of property, have given us almost all of the worst in Western history: the Caesars, the Tsars, Napoleon, the Kaisers, the communist dictators, Mussolini, Franco, and Hitler among others — based on the profoundly false and destructive assumption, derived from the legal procedure of the Roman Empire, that there must be “one person” who is “responsible” for all politics and law — a person or (for Bagehot) small organization sitting at the top of a vast pyramid of principal-agent, usually boss-employee, relationships.

Although it discards totalitarian political structure and legal procedure, our proposed form of government is based on historically proven legal mechanisms. With the clarity of legal procedure it avoids the vague nonsense that often passes for political philosophy. Much of the political structure of Juristopia is based on highly evolved common law mechanisms such as property and contract, but these are used in the same basic manner as in the common law, rather than as misleading analogies or mere labels.

Let’s hope this process unfolds before the hierarchies grow too authoritarian in response.

Whether Nick Szabo is Satoshi Nakamoto I cannot say. But at the very least, Szabo was part of a community from which Nakamoto drew knowledge and inspiration. And that community was built on great ideas that are finally being given expression in ones and zeros.


Max Borders

Max Borders is the editor of the Freeman and director of content for FEE. He is also co-founder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.

We Need a Magna Carta for the Regulatory State

It’s been 800 years since England’s King John signed the Magna Carta and acknowledged that a sovereign’s authority was limited.

Allan Meltzer and Kenneth Scott, both of the Hoover Institution, explain how this document planted the seed of the Rule of Law:

Although general agreement on the precise definition of the “rule of law” is lacking, most agree that it includes the principles that people should be secure in their person and property and that the state’s authority over others remains grounded in legitimate institutions so that no government can impose its will on another unchecked.

Rule of law is often summarized as equal treatment under the law.

By far the most important contribution of the Magna Carta to the rule of law was that King John accepted that his authority was limited, not absolute, and that the limitation was open to negotiation. From this beginning, the rule of law gradually replaced unrestricted sovereign authority.

Separation of powers, divided government, constitutionally enumerated powers. These concepts of limited government sprouted from the 13th Century agreement between barons and king.

From the Magna Carta’s seed to the tree of limited government, we’ve been blessed with economic gain:

The rule of law is found in all countries whose populations enjoy a high standard of living. No country that did not endorse the rule of law has ever developed a high standard of living. Freedom under the law and successful economic development occur together. In our current period, a country like China cannot expect to achieve full development without adopting the rule of law.

By adopting the rule of law, countries reduce uncertainty, which is the foundation of homegrown innovation. The rule of law, and the freedoms that it brings, explain why the United States innovates in the arts, technology and other areas.

However, while “the opportunity to extend the principles that started with the Magna Carta never ends,” Meltzer and Scott warn, “neither does the challenge to freedom.”

Take, for instance, the ever-encroaching Federal Regulatory State.

“The administrative process has become about how unelected officials make laws,” William Kovacs, the U.S. Chamber’s Senior Vice President for Environment, Technology & Regulatory Affairs, told the Senate Judiciary Committee. The Rule of the Regulators has trumped the Rule of Law:

Congress has enacted many broad and vague laws that delegated significant policy making authority to agencies, which have used that authority to fill in many of the legislative gaps. This “gap filling” authority is supported by the courts as they grant deference to agency decisions rather than being a strong check on agency power.

[ … ]

Agencies fill in so many “gaps” they make more law than Congress, all the while ignoring the impacts analyses that Congress requires. Meanwhile, the courts avoid dealing with the complexity by granting tremendous deference to agency decisions. And Congress has focused so intently on the problems with specific rules that it has ignored for almost seventy years one of the most important aspects of our complex society–that while regulators make many laws, all legislative power is still vested in Congress and Congress needs to better ensure that agencies carry out its intent.

For example, after taking three regulatory actions over a six-month period, one agency–EPA–will have extended its reach farther than ever before:

By the end of the year, all these regulations will have been imposed on an economy still trying to generate sustained economic growth and higher incomes for all Americans.

The regulators must be better regulated. We need a Magna Carta for the Regulatory State.

We need reforms to the regulatory process that restore accountability, offers transparency, provides meaningful public participation, and guarantees a safe but swift permitting process.

Americans need a regulatory system that works for them, not one that stifles their opportunities for a better life.

Meet Sean Hackbarth @seanhackbarth Follow @uschamber

EDITORS NOTE: The featured image is of a copy of the Magna Carta. Photo credit: Ed T. Licensed under a Creative Commons Attribution-ShareAlike 2.0 Generic license.

There Is No “Nationwide Crime Wave” — But Baltimore Is in Trouble by Daniel Bier

Heather McDonald’s Wall Street Journal op-ed “The New Nationwide Crime Wave” has exploded into the debate over police misconduct and criminal justice reform like a flash-bang grenade. It’s been discussed on numerous talk radio and cable news shows, and it’s been shared nearly 40,000 times on social media.

It’s a story engineered to go viral: It has a terrifying premise (crime everywhere is spiraling out of control!), a topical news hook (it’s all because of protesters!), a partisan bad guy (it’s all liberals’ fault!), and a weapons-grade dose of confirmation bias.

But there is no nationwide crime wave. It is completely manufactured by cherry picking data and misleading stats.

McDonald selects a handful of cities and quotes statistics to show that crime is exploding in “cities across America” this year:

In Baltimore… Gun violence is up more than 60% compared with this time last year, according to Baltimore police, with 32 shootings over Memorial Day weekend. May has been the most violent month the city has seen in 15 years.

In Milwaukee, homicides were up 180% by May 17 over the same period the previous year. Through April, shootings in St. Louis were up 39%, robberies 43%, and homicides 25%. …

Murders in Atlanta were up 32% as of mid-May. Shootings in Chicago had increased 24% and homicides 17%. Shootings and other violent felonies in Los Angeles had spiked by 25%; in New York, murder was up nearly 13%, and gun violence 7%.

Does this blizzard of numbers show a “nationwide crime wave”? No.

As John Lott points out at FoxNews.com,

Overall, the 15 largest cities have actually experienced a slight decrease in murders. There has been a 2 percent drop from the first five months of 2014 to the first five months of this year. Murder rates rose in eight cities and fell in seven. There is no nationwide murder wave.

Murder rates fell dramatically in some of these cities. Comparing this year’s January-to-May murder data with last year’s, we find that San Jose’s murder rate fell by a whopping 59 percent; Jacksonville’s fell by 31 percent; Indianapolis’ by 28 percent; San Antonio’s by 25 percent; and Los Angeles’ by 15 percent.

Even in the cities where murder is up compared to 2014, other categories of crime are down. New York, for instance, has had more murders but fewer burglaries and robberies. LA’s other violent crimes may be up, but murder is down.

She also implies that police are being attacked and killed more than ever: “Murders of officers jumped 89% in 2014, to 51 from 27.”

This 89% statistic is a deeply misleading view of the facts. Yes, 51 officers were murdered in 2014, compared to 27 in 2013. But 2013 was the safest year for police since World War II. It had the fewest shooting deaths for police since1887.

If you compare 2014’s 51 murders to other recent years, it’s not exceptional. In 2012, there were 48 officers killed. In 2011, it was 72. Over the last couple decades, the rate of police murders (and indeed work-related deaths from all causes) have fallen by nearly half, as have assault and injuries of police.

There’s another reason why McDonald quoted last year’s statistics for officer deaths when all of her other figures come from this year: officer shootings are down 27% so far this year.

Just like her other statistics, if she had given any context at all to the 89% figure, it wouldn’t have fit with her narrative of rising violence.

But never mind — as the author of this story, McDonald knows the cause of this fictitious trend: the “Ferguson Effect.”

The most plausible explanation of the current surge in lawlessness is the intense agitation against American police departments over the past nine months.

By her account, an “incessant drumbeat against the police” is behind the nonexistent “wave” of crime and violence against cops.

But this is also a myth. Public support for police has not waned. Gallup’s polling shows that confidence in law enforcement has been steady since the early 1990s.

That hasn’t changed, even after the protests against police abuse around the country. A Huffington Post/YouGov survey from April 2015 showed that 61% of Americans have a “great deal” or a “fair amount” of trust in their local department; 21% said “not very much,” and only 14% had “none.”

There is no national crime wave. Big cities are not facing a “surge of lawlessness.” There is no “war on cops.” The public hasn’t turned against the police.

So what’s going on in Baltimore? McDonald isn’t wrong about the spike in crime there. Baltimore City really is facing a breakdown in law and order.

Alex Tabarrok notes that police have made 40% fewer arrests since the start of the protests and the filing of criminal charges against six cops involved in Freddie Gray’s death.

As arrests have declined, crime has soared.

Tabarrok writes,

Not all arrests are good arrests, of course, but the strain is cutting policing across the board and the criminals are responding to incentives.

Fewer police mean more crime. As arrests have fallen, homicides, shootings, robberies and auto thefts have all spiked upwards.

Homicides, for example, have more than doubled from .53 a day on average before the unrest to 1.35 a day after (up to June 6, most recent data) – this is an unprecedented increase – and the highest homicide rate Baltimore has ever seen.

It’s not just murder. Shootings are up over 250%. Robberies are up 64%. Car thefts are up 42%.

It’s reasonable to assume that the increase in crime is at least partially related to the decline in police activity — criminals respond to incentives just like everyone else — but why aren’t police making arrests?

The answer might be found in the “De Blasio Effect.”

New York saw a similar “work stoppage” — that is, an unofficial strike — by the NYPD during its feud with Mayor De Blasio over his critical comments about the death of Eric Garner.

The NYPD retaliated: Arrests fell by 56% and criminal summonses fell by 92%, until the mayor made up with the department and police work resumed.

Kevin Drum speculates that BPD’s precipitous decline in arrests is a similar reprisal against the indictment of the officers involved in Freddie Gray’s death.

It’s certainly possible that has something to do with it, but officers appear to be genuinely spooked. About 130 cops were injured in the riots — that’s about 4.5% of the city’s officers down over the course of a week. That’s almost twice the rate of injury the average department sustains in a whole year.

Cops are understandably worried. Peter Moskos, a former BPD officer, says, “In Baltimore today, several police officers need to respond to situations where formerly one could do the job. This stretches resources and prevents proactive policing.”

There’s another issue: when crime spikes, police can be overwhelmed. Cases build up, and as new reports pour in, less and less time can be devoted to the old ones.

Most murders in Baltimore this year have gone unsolved. BPD’s clearance rate for homicides has fallen to just 40%, and the surge in killings can only make things worse.

Police Commissioner Anthony W. Batts said the rise in killings is “backlogging” investigators, just as the community has become less engaged with police, providing fewer tips.

Tabarrok is worried that a new equilibrium for crime could emerge in Baltimore. If crime continues to rise, clearance rates will fall further, detectives will get more backlogged, and it gets even harder to solve the next case. And if the probability of being caught and punished goes down, criminals will commit more crimes.

With luck the crime wave will subside quickly but the longer-term fear is that the increase in crime could push arrest and clearance rates down so far that the increase in crime becomes self-fulfilling. The higher crime rate itself generates the lower punishment that supports the higher crime rate

It’s possible that a temporary shift could push Baltimore into a permanently higher high-crime equilibrium. Once the high-crime equilibrium is entered it may be very difficult to exit without a lot of resources that Baltimore doesn’t have.

Some people see criminal justice reform as being anti-cop or “soft on crime,” but it’s not. Reform enables police to do a better job, which reduces crime — and that makes them and their citizens safer.

The best thing that Baltimore can hope for is that cops get back to work and start solving crimes. The best way to do that is for the community to engage with law enforcement.

Communities’ trust in police is key to fighting crime, and right now the BPD doesn’t have it. The Baltimore Sun has documented in excruciating detail the department’s history of corruption and excessive force, writing: “The perception that officers are violent can poison the relationship between residents and police.” And that leads to tips not given, 911 calls not dialed, and witnesses failing to come forward.

Real, credible reform, combined with accountability for misconduct and a strong commitment to community safety, is the best and probably only way to rebuild the relationship between citizen and cop and to turn crime around in Baltimore. The city and the police must embrace the task; they won’t accomplish it without each other.


Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

The Feds vs. Reason.com Commenters by Ryan Radia

Our friends over at the Reason Foundation, a venerable libertarian think tank and publisher of Reason magazine, recently received a grand jury subpoena from a federal prosecutor in New York, reports Ken White at Popehat.

The subpoena demands that Reason disclose “all identifying information” it has regarding six pseudonymous users who posted comments about the death and afterlife of a federal judge on Reason’s Hit & Run blog.

These comments came in response to a May 31 post by Nick Gillespie about the trial and sentencing of Ross Ulbricht, who was convicted in February of running an Internet-based narcotics and money laundering platform known as Silk Road.

In late May, Judge Katherine Forrest, who sits on the US District Court for the Southern District of New York, sentenced Ulbricht to life in prison. This sentence was met with mixed reactions, with many commentators criticizing Judge Forrest for handing down what they perceived as an exceedingly harsh sentence.

A few Reason users, some of whom may have followed Reason’s extensive coverage of the fascinating trial, apparently found Ulbricht’s sentence especially infuriating.

One commenter argued that “judges like these … should be taken out back and shot.” Another user, purporting to correct the preceding comment, wrote that “it’s judges like these that will be taken out back and shot.” A follow-up comment suggested the use of a “wood chipper,” so as not to “waste ammunition.” And a user expressed hope that “there is a special place in hell reserved for that horrible woman.”

Within hours, the office of Preet Bharara, the US Attorney for the Southern District of New York, sent Reason a subpoena for these commenters’ identifying information “in connection with an official criminal investigation of a suspected felony being conducted by a federal grand jury.”

This doesn’t mean a grand jury actually asked about the commenters; instead, in federal criminal investigations, it’s typically up to the US Attorney to decide when to issue a subpoena “on behalf” of a grand jury.

The subpoena demands from Reason information about the six users, including their email and Internet Protocol (IP) addresses — which, if disclosed, could enable the government to uncover the true identities of the commenters, perhaps after another round of subpoenas are sent to the users’ respective Internet Service Providers.

Popehat’s Ken White is quite troubled by the government’s decision to issue this subpoena. Ilya Somin, writing at The Volokh Conspiracy, also objects to the subpoena. So do the Cato Institute’s Tim Lynch and Techdirt’s Mike Masnick, among many others.

I too find it quite concerning. Even if this subpoena is valid under current law — more on that angle in a bit — the government made a serious mistake in seeking to force Reason to hand over information that could uncover the six commenters’ identities.

Unless the Department of Justice is investigating a credible threat to Judge Forrest with some plausible connection to the Reason comments at issue, this subpoena will serve only to chill hyperbolic — but nonetheless protected — political speech by anonymous Internet commenters.

And if Reason decides to stand up for its users’ rights, the resulting court battle will amount to a waste of federal law enforcement resources that could instead help bring actual criminals to justice, as Tim Lynch reminds us.

To be sure, I have no problem with the feds seeking to locate and prosecute people who actually threaten to commit murder — which, if transmitted in interstate commerce, is a federal crime under Title 18 USC. § 875.

Threatening to kill a federal judge is especially problematic; assassinations of federal judges do happen from time to time. As such, it’s only natural that law enforcement takes such threats seriously.

Yet, while the comments identified in the subpoena are undeniably vile, they’re also protected by the First Amendment, and rightly so. Hyperbolic political statements have a long history in the United States.

For instance, Ken Shultz notes that Martin Luther King, Jr., once said that “the hottest place in Hell is reserved for those who remain neutral in times of great moral conflict.” Sound familiar?

As for the comments about shooting a federal judge, consider the Vietnam War-era prosecution of Robert Watts for “knowingly and willfully threatening the President.”

At age eighteen, Watts said that if he were forced to join the military and “carry a rifle,” then the “first man I want to get in my sights is L.B.J.” The Supreme Court reversed his conviction, finding that Watts had merely “indulged” in a “kind of political hyperbole.” Id. at 708.

Although these statements, like the Reason comments quoted above, are understandably offensive to many listeners, causing offense alone is no basis for outlawing speech. To the contrary, “a function of free speech under our system of government is to invite dispute,” as the Supreme Court has noted. Indeed, speech can sometimes “best serve its high purpose when it induces a condition of unrest, creates dissatisfaction with conditions as they are, or even stirs people to anger.”

As for the hyperbolic comments posted on Reason about Judge Forrest, they are plainly not “true threats,” but mere “angry bluster,” as Ken White explains in detail.

The remarks, he notes, were not directed to the Judge, or reasonably calculated to reach her; instead, they appeared on a libertarian political blog notorious for its trash-talking commentariat. The comments lacked any specifics about a specific person’s plans to actually carry out an act of violence; instead, they merely expressed a general desire that a particular person be killed.

And while courts have held on occasion that hoping for someone’s death without evincing a desire to personally kill them can be a true threat, this requires some “causal connection” between the statement and the desired outcome. Again, the Reason comments don’t come close to meeting this threshold.

In short, even if the six Reason users are indicted on federal criminal charges, the First Amendment means the government is all but guaranteed to lose (barring the unlikely scenario the US Attorney’s office is sitting on some damning evidence it hasn’t disclosed).

If the commenters didn’t break the law, then, why can the government use its subpoena power to force Reason to hand over whatever personal information it’s collected about them? Because, as Ken White frets, the US Attorney’s power to issue grand jury subpoenas is so broad that, in most cases, they can be quashed only “when they are irrationally burdensome … or for an improper purpose.”

Moreover, a grand jury — which, again, is typically just another word for “federal prosecutor” — is afforded “wide latitude” in investigating potential crimes, and the “law presumes, absent a strong showing to the contrary, that a grand jury acts within the legitimate scope of its authority.”

And when a grand jury subpoena is “challenged on relevancy grounds the motion to quash must be denied unless the district court determines that there is no reasonable possibility that the category of materials the Government seeks will produce information relevant to the general subject of the grand jury’s investigation.”

What about a grand jury subpoena that implicates First Amendment interests?

In theory, “where values of expression are potentially implicated,” a district court should act with “special sensitivity” to “prevent the chilling effect” of “prosecutorial abuse,” in the words of the Fourth Circuit.

In practice, however, courts are extremely reluctant to quash a federal grand jury subpoena on First Amendment grounds. For instance, the District Court for the District of Columbia held in 2011 that “merely issuing a subpoena to uncover the identity of the speaker so that the police can ascertain whether a threat is valid cannot be deemed a Constitutional violation.”

Where does all of this leave us? Reason could move to quash the subpoena — or at least petition the court to limit its scope to identifying information about the more threatening commenters — on the basis that, absent additional evidence that its commenters’ identities are related in any way to some criminally actionable threat, enforcing the subpoena would undermine Reason commenters’ constitutional interest in anonymity while generating information of “negligible value to the government.”

However, because Reason probably could not show the US Attorney is acting in bad faith, or that complying with the subpoena would be unduly burdensome, Reason’s chances of prevailing if it chooses to fight back are not good. That’s a problem for all of us.

This piece first appeared at CEI.org.


Ryan Radia

Ryan Radia is an Associate Director of Technology Studies at the Competitive Enterprise Institute. He focuses on adapting law and public policy to the unique challenges of the information age.