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John Bogle, the founder of The Vanguard Group who died earlier this month at age 89, got rich by giving his mutual fund customers a better deal.

The obituaries seem to have missed that point, dwelling instead on the theory that if only Bogle had chosen to rip off his customers, he could have been even richer. That claim is highly speculative, and based on a fundamental misperception: a view of capitalism as a racket rather than as a system in which the incentives of entrepreneurs and customers sometimes align with results that are spectacularly rewarding for both.

The tone was set with a New York Times obituary. “Vanguard managed its indexed mutual funds at cost, charging investors fees that were far lower than those of virtually all of its rivals,” the Times wrote. “Vanguard’s consistent growth produced riches for Mr. Bogle, but not to the extent that another ownership structure might have done. For example, Edward C. Johnson III, the chairman of Fidelity Investments, has a net worth of $7.4 billion, according to Forbes. Mr. Bogle’s net worth was generally estimated at $80 million last year.”

In case anyone missed the point, the lead headline in Friday’s Times business section read “Jack Bogle was no billionaire.” That ran over an article crediting Bogle with “giving up his chance at great wealth by eschewing ownership of the company,” and describing Bogle’s $80 million as “small change by the standards of money management.”

“Instead of making billions, helping millions,” was the Times inside headline. An accompanying Times article described Bogle as someone “who didn’t care about his own bottom line.”

Concurrently though, media darling Alexandria Ocasio-Cortez’s policy adviser Dan Riffle “believes billionaires are immoral even if they’re good people,” tweeting, “Important point here. Bill Gates’ money hoarding makes him greedy, but maybe he goes 6/6 on the other deadly sins and, on balance, is a good person. Still, he’s a policy failure. The acquisition of that much wealth has bad consequences. A moral society needs guardrails against it.”

With Oceania now being at war with Eastasia, I eagerly await the Gray Lady’s denunciation of Times savior Carlos Slim.

BLUE STATE BLUES: Checking the math on California’s cap and trade, some experts say it’s not adding up.

Far more troubling are red flags highlighted in reports from academia, the nonpartisan Legislative Analyst’s Office, independent market experts and other major carbon markets, all concluding that California has a serious problem with too many unused pollution credits.

In the cap-and-trade system, major polluters must either produce fewer greenhouse gases to comply with California’s emissions caps or buy credits to offset their excess emissions from companies that pollute less. Credits are traded at state-sanctioned auctions and on secondary markets. And the state gives some free to utilities, natural-gas suppliers and industries that are vulnerable to out-of-state competition.

Some companies have not yet needed to use up the allowances to stay within state emissions limits and probably won’t have to in the next couple of years, according to some analysts, who estimate there are hundreds of millions of unused credits in the system.

The result is a glut of credits that could allow businesses to keep polluting past state limits in later years, after the overall cap becomes more restrictive. Unless the oversupply is addressed, experts say, polluters will have no incentive to cut emissions to required levels by 2030; instead, industries could continue polluting and use banked allowances to offset their emissions and technically keep them under the cap.

The state Legislative Analyst’s Office foresees a reckoning, estimating that because of excess allowances, actual emissions could be as much as 30 percent over the statewide target by 2030.

Positive spin: Sacramento finally produced a surplus of something.

I THINK IT’S SIGNIFICANT THAT THIS IS IN THE WEEKLY STANDARD: NeverTrumpers: What if Trump really is making America great again?

They are afflicted with a nagging suspicion. Trump might, how shall they whisper it, Make America Great Again.

The tax bill has given the economy a bit of a tailwind, most Americans have more money in their pockets, and corporations have greater incentives to step up spending and to bring some funds home. The NAFTA trade agreement with Mexico and Canada likely will be revised to America’s advantage. The president’s decision to punish Assad for crossing the red line that Obama refused to enforce is popular and his decision to defer to his military advisers and keep the response targeted so as not to induce a response from Russia has met with broad approval. His threats against North Korea—my nukes are bigger than your nukes—appalled the fastidious members of the establishment diplomatic community, but have Kim Jong-un claiming to be willing to negotiate a peace treaty with South Korea and détente with the United States.

Then there is China. Trump has done what previous administrations failed to do: forced China to make some concessions, opening at least a crack in the wall it has erected against imports. Majority-owned American financial firms will gain entry into several sectors, and tariffs on made-in-America automobiles will come down, while the United States tightens restrictions on intellectual property theft by the Chinese regime, in part by limiting China’s ability to buy tech-heavy U.S. firms. Even dyed-in-the-cotton-apparel free-traders are now conceding that the president’s negotiating tactic—threaten to bring down the international system, unless it gets fixed—is working. And should have been tried administrations ago. . . .

So here is BT and AT:

Before Trump, Assad could use chemical weapons with impunity; after Trump, he pays a steep price. BT, China could plunder American intellectual property and disregard the rules of the trading system that it has manipulated in its rise to power; AT, it fears Trump’s tariffs sufficiently to begin modifying its unfair trading practices. BT, Russia could wage cyberwar on the U.S. electoral system without fear of response from America; AT, Putin and his oligarch cronies find themselves being cut off from access to the world financial system. BT, the economy was mired in sub-trend growth; AT and his tax cut, growth is up. BT, in the post-war years most presidents projected a dignity of sorts; AT, presidential dignity is not even considered a virtue.

Seems like a fair deal.

ANDY KESSLER: Elon Musk’s Uncontested 3-Pointers: What does the Tesla and SpaceX founder have in common with Stephen Curry?

Mr. Curry often takes shots from several feet behind the 3-point line. Defenders, figuring no one would be stupid enough to shoot from that far away, leave him open. And he makes baskets with surprising accuracy. At one point in 2016, he made 35 out of 52 shots from between 28 and 50 feet. Uncontested indeed.

Elon Musk’s business strategy isn’t so different: Go far enough into the future that there are no other competitors. Mr. Musk’s first success was X.com, an email payment company. It merged with Peter Thiel’s Confinity to form PayPal —and avoid competition. They had the market to themselves for a long time because fraud, especially from Eastern Europe, was so rampant on early internet payment platforms. They solved the fraud problem and enjoyed an uncontested market, eventually selling for $1.5 billion to eBay .

Then Mr. Musk headed further into the future. He took the nine-figure payout from PayPal and pushed ahead with SpaceX, Tesla and Solar City. Literally his last $20 million went to Tesla in 2008. “I was tapped out. I had to borrow money for rent after that,” he later recalled. Private space launches, electric cars and rooftop-solar financing were all huge Muskian pushes into the future, where no one else dared play. Today, Tesla is worth around $60 billion. SpaceX raised money last summer at a $21 billion valuation. Mr. Musk is no longer borrowing to pay his rent.

Quite impressive, even though I find all the handouts offensive. When I see someone driving a Tesla I greet him with, “You’re welcome.” When he inevitably asks for what, I roll out the long list of subsidies: a $465 million Energy Department loan in 2009, a $7,500-a-car income-tax credit from the feds, $1.3 billion in incentives from Nevada for a factory, and more. Removing competition by racing to the future is one thing. Seeking special treatment to boost your advantage is cheating.

Mr. Musk still pushes the boundaries. Some ideas will work and some will go up in flames, maybe literally. Work is progressing on the sonic-speed Hyperloop transportation system. The Boring Co., which Mr. Musk founded in 2016 to undertake the project, proposes to dig tunnels under cities fast—and to reduce costs by a factor of 10. For some reason, the Boring Company recently presold 20,000 flamethrowers at $500 each, complimentary fire extinguisher included. The entrepreneur is even funding a “neural lace,” a still theoretical brain-to-computer interface. Is a holodeck next? All these ideas are far-fetched, but they’re mostly uncontested.

In his 2014 book, “Zero to One,” Mr. Thiel badmouths competition. “ Tolstoy opens Anna Karenina by observing: ‘All happy families are alike; each unhappy family is unhappy in its own way.’ Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.” Google founder Larry Page agrees. “If you’re not doing some things that are crazy, then you’re doing the wrong things.” I agree, as long as there are market forces to allow competition from anyone who dares.

Well, that’s the thing, isn’t it? The problem with Silicon Valley is that the big winners get cozy with government and competition somehow falls by the wayside. Stricter antitrust enforcement would help.

GARY WOLFRAM: Private Health Care Would Be Less Expensive for All.

It is important to realize the current system is not particularly market-based. The Affordable Care Act imposes thousands of pages of regulation, and the federal government is the largest purchaser of health care. It spends over $1 trillion on Medicare and Medicaid alone. No wonder other countries have better health outcomes.

A quick look at how well veterans and Medicaid recipients fare under government health care might cause you to think twice about adopting Senator Sanders’s plan. Only about 70 percent of physicians will accept Medicaid patients.

What’s more, government insurance has led to inefficiencies in the use of resources in health care due to the incentives of the system. Since the patient will ask if Medicare or Medicaid pays for the service rather than how much the service costs, providers have a strong incentive to engage in activities that are very costly and only marginally advance patient health, but that will be paid for by the government.

A solution much more likely to aid the poor is for the government to move Medicaid and Medicare to a form of health savings account. It would provide complete coverage for catastrophic care, and fund an account for recipients that they could use on health care spending. This would cause people to ask “How much does that test cost here versus another clinic?” This in turn would incentivize places like Wal-Mart having to employ nurse practitioners at their pharmacy who can provide health care at reasonable prices. Additionally, it would also spur innovation in medical techniques and pharmaceuticals that make people healthier at lower costs.

Well, yes. But if Walmart gets people healthy, then how will politicians take the credit for spending even more of other people’s money on a pretense of solving a spending problem they created?

And don’t forget about the opportunities for graft, even if the DNC-Media Complex would rather you did.

MEGAN MCARDLE: Debt Alone Won’t Crush Puerto Rico. Depopulation Is the Curse.

“They owe a lot of money to your friends on Wall Street,” Donald Trump told Geraldo Rivera. “We’re going to have to wipe that out. That’s going to have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave goodbye to that.”

Bond markets didn’t appreciate the verbal wave. The territory’s bonds, already weak from the pounding of Hurricane Maria, fell another 31 percent. White House budget director Mick Mulvaney hastened to say the president didn’t mean what he said. “I wouldn’t take it word for word with that,” he said demurely. Nor should you; as debt expert Cate Long told CNN Money, “Trump does not have the ability to wave a magic wand and wipe out the debt.”

Yet the fact remains that Puerto Rico is not going to be able to pay all of its debts. Prior to the hurricane, the territory had $73 billion in outstanding debt, and a population of 3.4 million people. That’s approximately $21,500 for every man, woman and child on the island – just about enough to buy each of them a brand new Mini Cooper, provided that they don’t insist on the sport package or the heated seats. . . .

And why was the government borrowing so much? For one thing, because the government doesn’t work very well. The operations of the Puerto Rico Electric Power Authority, for example, defy belief: It essentially gave unlimited free power to municipalities and government-owned entities, which used it to do things like operate skating rinks in the tropics. Everywhere you look, you see signs of a government struggling to perform basic tasks: collect taxes, maintain the infrastructure, improve the health system. In the jargon of development economists, the island lacks “state capacity”: It is simply unable to exert the amount of power over its operations that we on the mainland mostly take for granted.

But you can’t entirely blame the Puerto Rican government for the state of the underlying economy, which is what had plunged the island into a bankruptcy crisis even before the hurricane. For that you have to look to the federal government, which eliminated a tax break that had given companies incentives to locate in Puerto Rico, and then oversaw a financial crisis that sent them into an even deeper spiral. We also made sure that a relatively poor island was forced to adopt the federal minimum wage, which was too high for the local labor market. That has contributed to the 11.5 percent unemployment rate. And Puerto Rico uses the U.S. dollar, leaving it unable to adjust monetary policy to overcome economic stagnation.

None of those things will change just because we wipe out the bondholders. And the bondholders are not Puerto Rico’s only creditors; it has an unfunded pension liability of roughly $50 billion. Covering the current liability will consume more 20 percent of the budget.

That figure will only grow, because the biggest problem of all is Puerto Rico’s rapid demographic decline. There has long been a steady migration from Puerto Rico to the mainland. By 2008, there were more Puerto Ricans in the rest of the U.S. than there were in Puerto Rico. But the economic crisis has accelerated that flow to staggering levels.

So I’m guessing that if Steve Bannon were still around, he’d be encouraging Trump to do things that would make Puerto Rico so attractive that not only would people want to stay there, but expat Puerto Ricans would want to return, since most of them vote Democrat, and Puerto Rico doesn’t have any electoral votes. Which would be good for Puerto Rico, and also for Trump. In Bannon’s absence, I’m not sure there’s anyone in the White House who thinks that way.

CHANGE: A momentum shift against assisted suicide.

Momentum is finally shifting against the legalization and expansion of assisted suicide. Twenty-three states have rejected bills attempting to legalize assisted suicide since the beginning of 2017, and these bills are now considered dead for the remainder of the year.

Why such unusual bipartisan consensus? In our profit-driven healthcare system, where care is expensive and assisted suicide is cheap, patients with terminal illnesses, people with disabilities, the elderly, and the poor are in grave danger of being pushed towards a death-too-soon. Assisted suicide policy injects government bodies and insurance companies with financial incentives into every single person’s end of life decisions.

Well, so many people seem eager for us to die earlier that it’s hard to trust them with our lives.

RICHARD HASS: The End of Asia’s Strategic Miracle?

Despite all of these tensions, Asia has remained largely at peace, partly because no country has wanted to jeopardize economic growth by initiating a conflict. This perspective is most clearly associated with Deng Xiaoping. In leading China’s process of economic “reform and opening-up” from the late 1970s to the early 1990s, Deng explicitly emphasized the importance of a stable external environment to facilitate internal economic development. The reliance on regional trade ties to support growth and employment has provided yet another incentive to sustain peace.

But economics was probably not the only factor at play. Because most Asian countries are host to relatively homogenous societies with strong national identities, the chance of civil conflicts erupting and spilling over national borders is relatively low. Last but certainly not least, America’s strong military presence in Asia – which underpins its robust regional alliance system – has reduced the need for Asian countries to develop large military programs of their own, and has reinforced a status quo that discourages armed adventurism.

These factors have contributed to peace and stability in Asia, but they cannot be taken for granted. Indeed, they are now coming under increasing pressure – putting the strategic miracle that has facilitated Asia’s economic miracle in jeopardy.

How much of an economic liability does North Korea have to become before Beijing acts, or has President Xi Jinping turned his back on Xiaoping’s growth-first policy?

LOS ANGELES TIMES EXPLAINER: What would California’s proposed single-payer healthcare system mean for me?

The framing — in an ostensibly “straight” news explainer — is telling:

Whether you’re insured through an employer, through Covered California or on public programs such as Medi-Cal, as long as you’ve established California residency — regardless of legal immigration status — you would be enrolled in a single plan, which the bill’s backers call the “Healthy California” plan. That would eliminate the need for employer-provided plans and other commercial options.

Michael Lighty, policy director for the California Nurses Assn., put it bluntly: “You’ll never have to deal with an insurance company again.”

Benefits would be generous, including all inpatient and outpatient care, dental and vision care, mental health and substance abuse treatment, and prescription drugs. Patients would be able to see any healthcare provider of their choosing.

Older Californians on Medicare would also be wrapped into this plan. The plan envisions using all the existing federal dollars going toward Medicare and Medi-Cal beneficiaries in California in the state’s single-payer model.

But there’s a hitch: The federal government — a frequent punching bag for California Democrats at the moment — would need to grant a waiver to redirect that money.

“The question is: Will the Trump administration approve such a waiver?” Kominski said.


“If you’re paying for health insurance right now through healthcare premiums and cost-sharing, you’d end up paying instead through taxes,” said Micah Weinberg, president of the Bay Area Council Economic Institute. “There are some people who at the end of the day will end up paying more, others who will end up paying less.”

“Benefits would be generous.” “You’ll never have to deal with an insurance company again.” “There are some people who at the end of the day will end up paying more, others who will end up paying less.” There’s no real discussion of perverse incentives for illegal aliens and welfare cheats, the effect on the job market of a 15% payroll tax, or whether businesses could afford the proposed 2.3% tax on gross receipts.

So of course, the only real question is whether mean old President Trump would approve of such a wonderful program.

Californians are being thoroughly prepared to vote in single payer, and they just might do it.

ED MORRISSEY: California’s looming single-payer disaster.

An analysis from the Colorado Health Institute showed that their state’s ColoradoCare proposal would start off with a deficit of over $200 million in its very first year of full operation, even with a three-year headstart on new taxes to launch the system. By the end of the tenth year, the cumulative red ink would have exceeded $7 billion — which would be more than twice the state’s annual GDP.

The solutions for this fiscal meltdown in a single-payer system, CHI noted, were all unpleasant. One option would be to cut benefits of the universal coverage, and hiking co-pays to provide disincentives for using health care. That would in some cases “reduce the level of insurance below what [Coloradans] have today,” the study noted. The state could raise taxes for the health-care system as deficits increased, which would amount to ironic premium hikes from a system designed to be a response to premium hikes from insurers. Another option: Reduce the payments provided to doctors, clinics, and hospitals for their services, which would almost certainly drive providers to either reduce their access or leave the state for greener pastures.

If California goes ahead with this, the exodus of health care providers will be met with screams from Sacramento of “I need wider powers!”

NEWS YOU CAN USE: Netflix is no longer available for your rooted Android phone.

Have you noticed that you suddenly can’t (officially) download the Netflix app to your rooted Android phone? You’re not alone. Netflix has confirmed that its app is no longer visible on Google Play to anyone with a device that is “not Google-certified or [has] been altered.” A spokesperson tells Android Police that it’s all about a shift in copy protection. Version 5.0 of the Netflix app now leans entirely on Google’s Widevine digital rights management to prevent piracy, so it has to treat those modified devices as incompatible. The crackdown isn’t completely shocking, but it does create some issues.

There’s certainly an incentive for the shift in strategy: now that you can download shows, piracy is more of a concern than ever. In theory, it’s a bit easier to strip the copy protection from the downloaded copy of a Netflix series than it is to rip the stream. And when you root a device to gain more control over the operating system, you potentially have a better chance of circumventing that DRM than you would otherwise.

This measure might not stop many people, however, and it could hurt otherwise well-meaning viewers. While Netflix says its app “will no longer work” with modified Android devices, Android Police has verified that it still runs properly if you manage to install the app (such as by sideloading the APK), at least for now.

This may be a losing fight for Netflix.

PERVERSE INCENTIVE: California bill would force utilities to give rebates for energy-storage systems.

The Energy Storage Initiative (SB700) was approved last week by the state’s Senate Energy, Utilities and Communications Committee and is awaiting a full senate vote.

The bill, authored by State Sen. Scott Wiener, a Democrat, would require the electric utilities to provide rebates to their customers by Dec. 1, 2018 for the installation of energy storage systems meeting certain requirements.

SB700 would require utilities to collect up to $166 milliion annually from ratepayers from 2018 through 2027 to fund the Energy Storage Initiative, which would then use the funds to provide rebates to customers who install energy storage systems.

People who don’t need batteries to round out peak hour usage — like on the North Coast, where the climate is moderate enough that air conditioning is almost unheard-of — would be incentivized to buy batteries for the sole purpose of not paying for the energy needs of southern and inland Californians.

This looks to me like yet another scheme to subsidize rich battery manufacturers and gentry liberals, all on the backs of California’s poorest residents.

ANALYSIS: TRUE. ‘Fake News’ Is The Legacy Media Shaking Down Facebook.

Robert Tracinski:

An overview of studies on the fake news phenomenon indicates that Facebook’s critics have it completely backward. People don’t form their political preferences by reading fake news, they seek out fake news to support their political preferences. That goes for both sides, mind you, but given the organizations Facebook has tapped to deal with this issue, I have a feeling that in the new system one side is going be flagged way more often.

Yet for readers of those stories, gaining the official disapproval of Facebook is going to be like being “banned in Boston.” For the right audience, it’s a selling point: “Read the news Mark Zuckerberg doesn’t want you to hear!”

That’s why Facebook doesn’t just leave it to users to make their own choices. Instead, flagged stories will be harder to find in Facebook news feeds and won’t be able to promote themselves with advertising. Given how “fact checkers” have played favorites with their ratings, there is a massive incentive for them to abuse this power simply to suppress facts and interpretations that support the other side of the political debate.

That’s kind of baked into the whole idea. After all, nobody was all that bothered by “fake news” until they thought it produced an election result they didn’t like. Then it suddenly became an issue. So from the very beginning, this push to suppress “fake news” is motivated by a desire to suppress undesirable political outcomes.

If you think of them as Democratic operatives with bylines, it all makes sense.


For two decades leading up the the Great Recession, state and local governments across the country, under continuous pressure from deep-pocketed public sector unions, moved to steadily increase already-generous pension benefits for government workers, appeasing a powerful constituency while hiding the implausibility of their promises with accounting gimmicks.

The economic crisis of 2009 rattled the foundations of this Ponzi scheme. Five municipalities—along with Puerto Rico—have been forced into bankruptcy, with more almost certain to follow, as the combined shortfall approaches three-and-a-half trillion dollars. In response, GOP lawmakers have led efforts to beat back public sector unions and bring pension benefits back in line with states’ ability to pay.

But who engineered this epic fiscal crisis in the first place? One might assume that it was tax-and-spend Democrats, eager to grow government and do the bidding of unions, math be damned. In fact, according to a new study by political scientists at Stanford and UC Berkeley that should blunt Republicans’ self-righteousness about their party’s allegedly superior fiscal prudence, the creation of unsustainable state and local retirement systems was a thoroughly bipartisan affair. It wasn’t until the Great Recession forced pensions to the top of the agenda that the parties’ stances began to meaningfully diverge. . . .

Why didn’t Republican lawmakers do more to protect the solvency of state pension systems in the 1990s and early 2000s, before disaster struck? The study notes that Republicans had little incentive to pick a fight with unions before conservative activists made belt-tightening a priority in the wake of the Great Recession. Moreover, Republican politicians relied on the votes of pensioners, who are older than the general population. Finally, the logic of defined-benefit pensions—make promises now, pay later—always encourages politicians to kick the can down the road.

Republican politics at the state level—at least when it comes to pensions—appears to have been driven less by limited government ideology and more by interest group maneuvering and self-interested political calculation. Both parties have powerful incentives to adhere to blue model thinking.

Buying votes with other peoples’ money — or better yet, the promise of other people’s money — is so tempting that politicians need to be structurally prevented from doing so.

WELL, TO BE FAIR, ANDERSON COOPER IS BAD FOR AMERICA IN GENERAL: Mollie Hemingway: Anderson Cooper’s Orlando Ranting Is Bad For America: Anderson Cooper’s bullying of same-sex marriage opponents isn’t tough journalism but an example of media cowardice in the face of Islamist violence.

You know he would never talk to an imam that way, and you know why. As I frequently point out, the incentive system that the politico/journalistic class is setting up is an unfortunate one, one that we — and they — will have cause to regret in the future.

MORE OF THIS, PLEASE: Senator Mike Lee (R-UT) and Congressman Jeb Hensarling (R-TX) have an oped in NRO, “A Stronger Congress, a Healthier Republic.”

The federal government is broken. And while there is plenty of blame to go around, only Congress can fix it.

We don’t mean this as an indictment of any one leader or party, because the dysfunction in Washington today has accreted over decades, under Houses, Senates, and presidents of every partisan combination, as well as the many different justices of the Supreme Court. . . .

The stability and moral legitimacy of America’s governing institutions depend on a representative, transparent, and accountable Congress to make its laws. For years, however, Congress has delegated too much of its legislative authority to the executive branch, skirting the thankless work and ruthless accountability that Article 1 demands and taking up a new position as backseat drivers of the republic.

So today, Americans’ laws are increasingly written by people other than their representatives in the House and Senate, and via processes specifically designed to exclude public scrutiny and input. This arrangement benefits well-connected insiders who thrive in less-accountable modes of policymaking, but it does so at the expense of the American people — for whose freedom our system of separated powers was devised in the first place.

In short, we have moved from a nation governed by the rule of law to one governed by the rule of rulers and unelected, unaccountable regulators. Congress’s abdication, unsurprisingly, has led to a proliferation of bad policy and to the erosion of public trust in the institutions of government. Distrust, also unsurprisingly, is now the defining theme of American politics. . . .

That is why we have joined with eight colleagues in the House and Senate to develop and promote a new agenda of structural reforms that will strengthen Congress and reassert its vital role in our society. We call it the Article 1 Project (A1P). . . .

First, Congress must reclaim its power of the federal purse. Our formal budget process, which dates to 1974, has fallen apart, and we must restructure it for a post-earmark world. We need to bring entitlement programs back onto the actual budget and bring self-funding federal agencies back under annual appropriation.

Second, we need to reform legislative “cliffs” that loom behind expiring legislation — at the end of the fiscal year and when the federal debt nears its statutory limit — to realign the incentives of the American people and their government.

Third, Congress must take back control of actual federal lawmaking. Today, the vast majority of federal laws are unilaterally imposed by executive-branch agencies. The bureaucrats in these agencies then serve as police, prosecutors, and courts in the ensuing cases. All major regulations should be affirmatively prioritized and approved by a vote of Congress.

Finally, we must clarify the law governing executive discretion, which right now allows presidents and federal bureaucrats to ignore or rewrite federal statutes, so long as they have a clever enough reason.

Yes, yes, yes, and yes to these four commonsense proposals. But they are only a small start in the right direction. Congress’s voluntary abdication of its legislative power since the early twentieth century is perhaps the single most significant flaw in our constitutional architecture– and one that the founding generation never foresaw. As James Madison expressed it in Federalist No. 48:

[I]n a a representative republic where the executive magistracy is carefully limited, both in the extent and the duration of its power; and where the legislative power is exercised by an assembly, which is inspired by a supposed influence over the people with an intrepid confidence in its own strength . . .  it is against the enterprising ambition of this department [the legislature] that the people ought to indulge all their jealousy and exhaust all their precautions.

Like Dorothy and her ruby slippers, Congress has always held the power to “go home” and restore the Constitution’s separation of powers. It can simply click its collective heels and, well, legislate, particularly in areas such as the power of the purse and passing statutes that carefully circumscribe (and limit judicial deference to) the unconstitutional “fourth branch” of the administrative state.

Of course the success of the Article I Project (or any similar effort) will require either: (1) a President who does not veto any such laws (i.e., a Republican President); or (2) a veto-proof supermajority of two-thirds of both chambers of Congress (i.e., a House and Senate comprised of at least two-thirds GOP members). Sadly, the Democrats have shown zero willingness in restoring Congress’s constitutional power, and have indeed cheered President Obama’s incessant executive power grab.

OBAMA TO PROPOSE UNDERMINING OBAMACARE?: Yep, you read that right. The Washington Examiner is reporting that President Obama’s budget proposal is expected to include a narrowing of Obamacare’s so-called “Cadillac tax” of 40 percent on benefits-rich health insurance plans.

Writing in the New England Journal of Medicine, Council of Economic Advisers Chairman Jason Furman and chief economist Matthew Fiedler wrote that the budget, to be published next week, will propose raising the threshold for the cost of plans affected by the tax.

The change, they wrote, will prevent the tax from “creating unintended burdens for firms located in areas where health care is particularly expensive.”

The Cadillac tax was made law as part of the funding for Obamacare. It is also intended to slow the growth in health care costs created by the existing incentives in the tax code. . . .

While the tax is popular among economists, it is opposed by unions that have bargained for costly expensive plans as well as by business groups such as the U.S. Chamber of Congress and is generally viewed unfavorably in Congress. Congress voted in December to delay the imposition of the 40 percent excise tax from 2018 to 2020.

No one ever thought the Cadillac tax was politically sustainable, long-term, precisely because of the vigorous opposition by unions, who give so generously to Democrats every election cycle.  So it was always a “fake” revenue raiser for Obamacare. The problem, however, is that the Cadillac tax is one of the largest revenue sources within Obamacare–an estimated $108 billion over a ten-year period.

When you narrow, or eliminate, this revenue source, suddenly Obamacare becomes much more expensive than the rosy “deficit reducing” bill of goods sold to the American people. As Obama told the American people in his address to a Joint Session of Congress on health care in September 2009:

And here’s what you need to know.  First, I will not sign a plan that adds one dime to our deficits — either now or in the future.  (Applause.)  I will not sign it if it adds one dime to the deficit, now or in the future, period.  And to prove that I’m serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize. . . .

Now, add it all up, and the plan I’m proposing will cost around $900 billion over 10 years — less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration.  (Applause.)  Now, most of these costs will be paid for with money already being spent — but spent badly — in the existing health care system.  The plan will not add to our deficit.

Of course, this promise–that Obamacare would not add to the deficit–was completely false. But when you begin to narrow or repeal Obamacare’s major revenue-raising provisions such as the Cadillac tax, the deficit problem grows even worse.

Don’t get me wrong: I’m certainly not advocating for keeping the Cadillac tax, or any other provision of Obamacare. The whole thing was a massive, ill-considered jumble from day one, and it should never have been rammed through Congress via reconciliation. We are all now literally paying the price of such a raw political maneuver.

But when the namesake of Obamacare begins to propose repealing/narrowing the most significant revenue generating provisions of his own (only) major legislative achievement, you know something is seriously rotten in the state of Denmark. Obama is (predictably) throwing a bone to the Democrats’ union constituency, but it only emphasizes how Obamacare was and still remains, at its core, nothing but a stinky pile of crony capitalist payoffs to every single affected sector of economy. Even Obamacare’s Cadillac tax “punishment” of high-value union health plans turned out to be a ruse.


Because the threat smart members of the Washington political elite truly believe in is not Ted Cruz, but the model he represents: that the path for an ambitious freshman politician to achieve leadership of the Republican Party in this day and age is not the normal give and take and deference to leaders and precedent and the way we do things around here, but instead to take a flamethrower to this system from day one. Regardless of whether Cruz wins a general election, his nomination could fundamentally transform the political incentives of the Senate and change the internal dynamics of the Senate Republican Conference. It shows that you can get a shot at the presidency not by playing along, but by playing your own game.

The potential of every two years having someone walk through the door in each new Senate class who thinks they could be the next potential Ted Cruz is an absolute nightmare for those who have thrived in their cushy lifestyles as stewards of the world’s most exclusive club. And that is why his nomination is unacceptable.

Wait, I thought it was perfectly fine for a relatively unknown politician to stop by the Senate for a cup of coffee, then immediately hit the campaign trail uttering larger than life pronouncements in front of Styrofoam columns. But then, whether the RNC chooses Trump, Cruz or Rubio, as Glenn has noted, Beltway Elites chose the form of their Destructor in 2008.

BLUE ZONE MELTDOWN: Puerto Rico’s Rolling Catastrophe:

Puerto Rico was already in default, and no one seems to have expected that it would make this payment in its entirety. But the official announcement underscores the fact that there is no end in sight for the island’s crisis. The appetite in Congress for a bailout or bankruptcy protection appears to be minimal, and it seems likely to stay that way for the near future unless and until Puerto Rico’s woes start to hit the mainland in a major way—a prospect that is not inconceivable, but which advocates of a no-strings-attached bailout have every incentive to exaggerate. So in the short term, the island will probably be forced to continue grinding it out on the backs of its own taxpayers.

In the medium term, as we have said before, there is a role for Washington in bringing Puerto Rico’s crisis under control. The guiding principle of U.S. government involvement should be “relief for reform“—that is, Puerto Rico should be eligible for meaningful assistance in servicing its debts if and only if it can make profound structural changes to the decrepit blue model governance system that landed it in this mess.

Well, once the ruling class can’t squeeze out any more graft, it becomes more receptive to change.


It’s not just stagnating cities in states like California or Illinois that are running into pension troubles. The pension vise is now tightening around Houston too, an oil-rich metropolis that has been enjoying rapid job growth for years. . . .

Houston’s experience is a cautionary tale. The city counted on oil money and didn’t manage its finances well when times were good, and, like many cities, built its pension promises on overly optimistic projections for future growth. Pensions are in trouble in states and municipalities all over the country because while politicians have strong incentives to over-promise in the short-term, they have little incentive to plan for future slowdowns. And if Houston can’t create sustainable pension systems, despite its impressive economic fundamentals, what hope is there for Chicago?

The WSJ story also highlights the many divisions and conflicts that will flare up in the coming years as a pension reckoning approaches. Houston residents are “reluctant to support any tax increases” even as the pension woes “have contributed to reductions in hiring of police officers and spending on pothole repairs, which have become issues in the mayoral race.” This type of tradeoff is part of what we call the blue civil war. Various interests (in particular, the people who produce public services and the people who consume them) will be pitted against each other as the unsustainability of the blue model of governance, present in both Republican and Democratic states, becomes more and more clear.

Politicians don’t care if it’s unsustainable, so long as they get theirs before it collapses. This is a problem.

TANKS FOR THE MEMORIES: Mizzou media maven Melissa Click’s CV is reviewed by John Hinderaker of Power Line in a post titled “The Fraudulence of Leftist Professors,” after which, John writes:

The astonishing thing is that Professor Click collects money from various sources to support her “research.” E.g.:

Women’s and Gender Studies Faculty Research and Creative Activities Grant, University of Missouri. Awarded to support research on readers’ reactions to the messages in the Fifty Shades of Grey book series. April 2013.

Richard Wallace Faculty Incentive Grant, University of Missouri. Awarded to support research on readers’ reactions to the messages in the Fifty Shades of Grey book series. April 2013.

From Fifty Shades of Grey to Thomas the Tank:

A&S Alumni Organization Faculty Incentive Grant, University of Missouri. Awarded to support initial research on the PBS children’s series Thomas the Tank Engine. February 2010.

If you put a gun to my head and made me read one or the other–Fifty Shades of Grey or Thomas the Tank Engine–I would go with Thomas. I do wonder, however, what the feminist angle on Thomas the Tank could possibly be.

Oh, that’s an easy one. Back in February a headline at — where else? — the London Guardian ran down the “Ten things feminism has ruined for me — Bras, bikes and Thomas the Tank Engine… Emer O’Toole mourns some of life’s simpler pleasures.” The previous year, someone else at the Guardian named Tracy Van Slyke wrote a piece titled “Thomas the Tank Engine had to shut the hell up to save children everywhere — Classism, sexism, anti-environmentalism bordering on racism: any parent who discovered these hidden lessons will be glad the show’s star just quit.” (The voice actor who played Thomas quit in a contract dispute; he was replaced by another actor):

And that’s not even to get started on the female trains. Well, actually it’s hard to get started on them, because they barely exist. Take a quick scan of the more than 100 trains and characters in the Thomas universe – it spans multiple books, toys and continents in addition to a TV show – and you can quickly count on two hands the number of lady trains that populate is Isle of Sodor. Emily – the only lady train to get name checked in the opening credits and the only one who regularly hangs out with the boy trains – is said to “know her stuff.” That’s the sole description of her personality. What does that even mean?

Last year, the British Labour shadow Transportation Secretary even called out Thomas for its lack of females, saying that the franchise setting a bad example for girl wannabe train engineers everywhere.

At first blush, Thomas and his friends seem rather placid and mild. And there are certainly a lot worse shows in terms of in-your-face violence, sexism, racism and classism. But looks can be deceiving: the constant bent of messages about friendship, work, class, gender and race sends my kid the absolute wrong message.

Witness the violence inherent in the HO* scale train system!

* And how dare the model railroad degrade sex-workers with these highly problematic initials!

HIGHER EDUCATION BUBBLE UPDATE: What We’re Buying With $1 Trillion+ in Student Loans:

You know what they say about doing the same thing over and over again and expecting a different result. This is certifiable. College is too expensive, so have the government make it easier to finance — then keep shifting more and more of the cost burden to the government, without doing anything about the underlying cost inflation that is making it necessary for government to get into the finance business.

Obviously, this can’t go on indefinitely. The income-based-repayment programs are relatively new, so the government hasn’t yet been handed the bill for the loan forgiveness that will be necessary as we give people payment rates that are often less than the interest on the loan. But when the government gets that bill, people are going to notice that this is a costly business.

Over decades, the government has restructured the educational system to make it look more like the health-care system, with the costs paid by third parties while the service is consumed by individuals who have no incentive to think about price. The effects are predictable for both. . . .

Does college actually make people much more economically productive? Yes, yes, I know: People who go to college earn substantially more than people who don’t, and that earnings premium has been increasing in recent decades. But what, exactly, do they learn in college that makes them so much more productive? In certain technical professions, the answer is obvious; engineers and nurses do need to master the rudiments of their trade before they are unleashed on an unsuspecting public.

But that doesn’t describe the whole higher educational system. It doesn’t even seem to describe the majority of college degrees. Administrators defending the value of degrees in “business” or liberal arts rely on nebulous claims that they are teaching students “how to think.” However, they provide little objective evidence that these programs impart thinking skills worth tens of thousands of dollars.

There’s at least some evidence that a lot of the benefit of a college degree comes not from what you learn in college, but from signaling to employers that you are the kind of conscientious, hardworking student who can get into college and stick with it long enough to get a degree. In other words, much of what we do in school is not learn anything in particular, but obtain a credential that certifies us as good potential employees.

Do tell. If you understand the federal student aid system as a means for transferring money from taxpayers to an industry that’s basically a wholly-owned subsidiary of the Democratic Party, it makes more sense.

SCOTT SHACKFORD: What Bernie Sanders Doesn’t Understand About Germany’s “Free” College:

Anyway, you won’t see any discussion in Sanders commentary about why college prices have exploded far above and beyond increases in the consumer price index or even the costs of healthcare. There will be no discussion of how subsidies and administrative bloat have massively driven up prices and eliminated any incentives for colleges to restrain costs. It’s just a thing that happened. . . .

ince Sanders left out any analysis of why college is so expensive, it’s worth exploring what exactly Sanders has left out when he invokes Germany’s college system. Note that Sanders has said “A college degree is the new high school diploma”? That attitude is exactly backwards from how Germany approaches higher education. Germany does not have a work environment that demands a college degree for every well-paying career. The apprenticeship program that Sanders bemoans having lost in America is well intact in Germany. Many careers that require college degrees in America do not require college degrees in Germany.

Even with the free tuition, Germany actually has a lower college enrollment rate than many other Western countries, including the United States (check out World Bank data here). Actually, America has a higher rate of college enrollment than all of the countries Sanders lists except for Finland.

Oh, also: America has a higher college graduation rate than Germany, too. And a greater percentage of young Americans have college degrees compared to every country on Sanders’ list except for Norway and Ireland.

Instead, Germany has a very robust vocational education track that partners businesses and the government to provide apprenticeships, so the government (and citizenry) is not paying the full burden for the students’ training, though Germany is still covering classroom costs.

It is also a highly regulated, centrally controlled, and very inflexible system that probably won’t fly in the United States. . . .

It’s certainly easy to see how a guy who thinks we have too many types of deodorant would not grasp that flexibility and innovation could be lost as a result of standardizing college the way we have public education. It’s also possible Sanders wouldn’t even grasp that this is a problem.

Indeed. Maybe he should do some remedial reading.

VIOLENCE WORKS, ESPECIALLY AGAINST COWARDS: Art showing Isil menacing Sylvanian Families removed from exhibition. “Mimsy explained that she had decided to go under a pseudonym when presenting her work to ‘avoid any possibility of beheading’.”

If our cultural leaders agreed not to give in to this sort of threat, then the threats would be ineffectual because there would be too many targets. But they’re cowards — or, worse, through some sort of toxic multicultural “privilege” theory, think that they deserve to be threatened and intimidated. As I keep saying, beware of the incentive system you’re creating, because others are watching and taking notes.


I thought Rich Lowry’s unstoppable tirade about El Trumpo’s figurative emasculation at the hands of Carly Fiorina would be hard to top, but the South Park guys have never been one to shy away from a challenge. In last night’s episode they showed a Canadian politician mocked up to look like Trump literally being raped to death. It was pretty fantastic.

That being said, it’s the sort of thing that’s worth stopping to think about for a second. I mean, Trey Parker and Matt Stone went there. They showed a (lightly fictionalized representation of a) major American presidential candidate being f—ked to death onscreen by one of the show’s beloved characters.

And yet, episodes of South Park have famously been bowdlerized by parent company Viacom when the show attempted to display an image of the Prophet Muhammad. This censorship occurred because of violence committed by Islamist savages in response to past displays of Muhammad.

So, to recap, at this point in American history you can show a major American political figure being anally raped until he expires but you cannot show an image of a historical figure from Islam. Why? Because Muslim radicals do not want the image shown and threatened violence if South Park exercised its freedom of expression.

My advice: If you don’t like your media coverage, behead a few people. That’s the incentive system they’ve — more or less knowingly — created.

If I were Trump, I’d tweet their home addresses. Because people who create such incentives should have to live with them. And if you don’t appreciate liberal bourgeois values, maybe you should try living without them for a while. . . .

TRUE! Yes, Computers Have Improved. No, Communism Hasn’t.

At the New Republic, Malcolm Harris asks an interesting question: Was the Soviet Union’s problem that Communism can never work? Or did the Soviets just need a lot more MacBook Airs?

Actually, Harris is channeling Paul Mason, the author of the book he is reviewing, and unfortunately, he doesn’t really try to answer the question. Instead he makes the stridently timid argument that this won’t happen because the capitalists won’t let it, at least without a healthy dose of revolutionary action.

I’ll swing for the fences and argue that no, even with better computers, Communism isn’t going to work. Nor some gauzy vision of post-capitalism that looks like Communism, but with YouTube videos.

In retrospect, Communism seems wildly stupid, or at least, incredibly naive. Did the people who dreamed up this system not understand the enormous incentive problems they were creating? As Ayn Rand dramatized the problem in “Atlas Shrugged”: “It’s miseries, not work, that had become the coin of the realm — so it turned into a contest among six thousand panhandlers, each claiming that his need was worse than his brother’s. How else could it be done?” The incentives of “from each according to his ability, to each according to his need” drive toward falling production, which means there won’t be enough to cover the needs.

Or as a former colleague who fled Communist Poland once told me, “They pretended to pay us, and we pretended to work.” There is a reason that basically all the Communist and Socialist regimes ended in some degree of authoritarianism.

To most people espousing communism, the authoritarianism isn’t a bug, it’s a feature. All the talk about “sharing” and “compassion” is just to fool the rubes. People espousing communism should be treated as if they are on the same moral plane as people espousing Nazism, because they are.

GREEN CORRUPTION: Carbon Offsets May Have Dramatically Increased Emissions.

That’s the finding of a new report from the Stockholm Environment Institute, which investigated carbon credits used to offset greenhouse gas emissions under a UN scheme. As one of the co-authors of the report put it, issuing these credits “was like printing money.” . . .

The SEI sampled 60 random projects and found a whopping 80 percent of them to be of questionable green merit. The majority of these bogus Russian and Ukrainian offsets were used by the European Union’s Emissions Trading System (the EU ETS), a program already bogged down with problems pricing carbon. “[T]he poor overall quality of [Joint Implementation] projects may have undermined the EU’s emission reduction target by some 400 million tons of CO2,” said Anja Kollmuss, one of the leaders of the study.
This has huge implications, then, for Europe’s green goals. For years EU members have chosen to outsource emissions cuts with these carbon credits, but the lack of proper oversight at the UN level of the projects abroad supposedly generating these cuts now leaves the supposedly eco-conscious bloc in a bind. “If the EU was taking its climate targets seriously, then at least 400 million ETS certificates would have to be deleted to counter that,” Kollmuss pointed out.

But perhaps worst of all are the perverse incentives the SEI report alleges these credit swaps have created for actually increasing emissions. According to a study released in the journal Nature Climate Change, plants in Russia “increased waste gas generation to unprecedented levels once they could generate credits from producing more waste gas,” resulting in an increase in emissions as large as 600 million tons of carbon dioxide—roughly half the amount the EU’s ETS intends to reduce from 2013 to 2030.

It’s like the whole thing is just one big scam.

HIGHER EDUCATION BUBBLE UPDATE: Millions A Year Behind On Student Loans.

Nearly 7 million Americans have gone at least a year without making a payment on their federal student loans, a high level of default that suggests a widening swath of households are unable or unwilling to pay back their school debt. As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this past week. That was up 6%, or 400,000 borrowers, from a year earlier.

That translates into about 17% of all borrowers with federal loans being severely delinquent, a share that would be even higher if borrowers currently in school who aren’t yet required to repay were excluded. Millions of other borrowers are months behind but haven’t hit the 360-day threshold that the government defines as a default.

Severe delinquencies are rising despite the sharp drop in unemployment over the past year and a big push by the Obama administration to enroll borrowers in programs that lower their monthly payments.

Plus: “The education mess is a lot like the health care mess: the combination of federally mandated costs and controls, runaway cost inflation driven by insiders who keep jacking up the price, perverse market incentives in a warped marketplace, dysfunctional mandates, guild controls and crony regulations, all have produced a system in which costs are increasingly out of line with true value—and with society’s ability to pay.”

Who could have seen this coming?

AUTOMATIC VOTER FRAUD: Hillary Clinton calls for automatic voter registration. I’m sure this wouldn’t lead to any problems.

“Today Republicans are systematically and deliberately trying to stop millions of citizens from voting,” she said during a speech at Texas Southern University in Houston.

“I call on Republicans at all levels of government, with all manner of ambition to stop fear-mongering about a phantom epidemic of election fraud and start explaining why they are so scared of letting citizens have their say.”

Clinton went after former Texas Gov. Rick Perry, Wisconsin Gov. Scott Walker, New Jersey Gov. Chris Christie and former Florida Gov. Jeb Bush by name, accusing the Republican presidential hopefuls of taking part in “a sweeping effort to disempower and disenfranchise” minorities, young people and the poor.

Automatic voter registration is just another ploy by Democrats to swell their base’s turnout at the polls, including those who lack legal ability to vote, including illegal aliens and convicted felons.  This shouldn’t be surprising, as a recent poll revealed that 60% of Democrats agreed that illegal immigrants should be able to vote, and another revealed that illegal Hispanic immigrants favor Democrats by 54 to 19 percent over Republicans. Democrats in Congress have introduced legislation to restore voting rights for convicted felons.

Keep talking, Hillary. A recent Rasmussen poll showed 76% of likely voters support voter ID, including 58% of Democrats. In recently upholding Indiana’s voter ID law in 2008, liberal Supreme Court Justice John Paul Stevens (now retired and replaced by Elena Kagan) observed in Crawford v. Marion County Election Board:

[F]lagrant examples of such fraud in other parts of the country have been documented throughout this Nation’s history by respected historians and journalists,that occasional examples have surfaced in recent years,and that Indiana’s own experience with fraudulent voting in the 2003 Democratic primary for East Chicago Mayor—though perpetrated using absentee ballots and not in-person fraud—demonstrate that not only is the risk of voter fraud real but that it could affect the outcome of a close election.

There is no question about the legitimacy or importance of the State’s interest in counting only the votes of eligible voters. Moreover, the interest in orderly administration and accurate recordkeeping provides a sufficient justification for carefully identifying all voters participating in the election process. While the most effective method of preventing election fraud may well be debatable, the propriety of doing so is perfectly clear.

The incentive to commit voter fraud for political gain is indisputable. Hillary’s policy proposal would only amplify such incentives. Moreover, President Obama’s unilateral lawmaking executive action on immigration has made it easier for illegal immigrants to register to vote (and vote) by granting them drivers’ licenses and Social Security numbers.

Clinton’s remarks indicated that the automatic registration should occur when an individual turns 18, but it’s unclear how such automatic registration would be executed. It is clear, however, that under New York v. United States and its progeny, the federal government cannot commandeer States to carry out federal law, so the federal government would have to implement such automatic voter registration itself somehow, perhaps via Social Security’s database.

States already have the capability of requiring automatic voter registration if they wish.  So this is truly another attempt by Democrats to impose a one-size-fits-all “solution” to a non-problem.

ASHE SCHOW: Colleges between a rock and a hard place on campus sexual assault.

College campuses have it rough these days. It’s easy to blame them for the current state of lawsuits stemming from sexual assault complaints, but a lot of the blame should be placed on the federal government.

It was the Department of Education’s Office for Civil Rights that published the “Dear Colleague” letter that has been used by colleges to institute pseudo-court systems designed to make it easy to expel accused students. For their part, the colleges aren’t exactly happy about this new world.

“A university is not a court of law and the same rules that apply in criminal cases do not apply to student conduct proceedings,” said a spokesman for James Madison University. “No matter how the proceedings are handled, at least one of the parties will likely be unhappy with the results and may choose to go to federal court.” . . .

The universities are being forced into this untenable position. Nancy Gertner, a feminist and former federal judge, summed up the current culture surrounding campus sexual assault thusly: “If you find for the man, you’re bound to be criticized. If you find for the woman, you are not.”

Josh Engel, an attorney in Ohio who has been taking on cases from accused students, described this sentiment last year.

“All the incentives for the school are lined up at the moment to encourage them to throw kids out. Schools do not get any credit from the Department of Education because they provide adequate or more-than-adequate due process,” Engel told the Washington Examiner. “All the Department seems to be concerned about these days is results, which is, ‘how many kids have you disciplined?'”

And as far as the Department of Education goes, what is considered acceptable behavior and what constitutes a university response are constantly changing.

What’s sad is the unwillingness of universities to file suit and oppose the Department of Education here. The higher education establishment has made clear that it cares more about money than about fairness.

I’VE BEEN WARNING ABOUT THE INCENTIVE SYSTEM THEY’RE CREATING FOR SOME TIME: The MSM Teaching Christians the Way to Respect is Violence. May they have joy of the consequences.

FREE SPEECH LESSONS FROM GARRY TRUDEAU: “How can you tell which minorities it is proper to satirize? By whether they are likely to shoot you, apparently. Trudeau spent his career unfairly attacking Republicans, so he never had to worry.” I keep warning people about this incentive system, and they keep not listening.

HIGHER EDUCATION BUBBLE UPDATE: The Economist: More and more money is being spent on higher education. Too little is known about whether it is worth it.

The modern research university, a marriage of the Oxbridge college and the German research institute, was invented in America, and has become the gold standard for the world. Mass higher education started in America in the 19th century, spread to Europe and East Asia in the 20th and is now happening pretty much everywhere except sub-Saharan Africa. The global tertiary-enrolment ratio—the share of the student-age population at university—went up from 14% to 32% in the two decades to 2012; in that time, the number of countries with a ratio of more than half rose from five to 54. University enrolment is growing faster even than demand for that ultimate consumer good, the car. The hunger for degrees is understandable: these days they are a requirement for a decent job and an entry ticket to the middle class. . . .

If America were getting its money’s worth from higher education, that would be fine. On the research side, it probably is. In 2014, 19 of the 20 universities in the world that produced the most highly cited research papers were American. But on the educational side, the picture is less clear. American graduates score poorly in international numeracy and literacy rankings, and are slipping. In a recent study of academic achievement, 45% of American students made no gains in their first two years of university. Meanwhile, tuition fees have nearly doubled, in real terms, in 20 years. Student debt, at nearly $1.2 trillion, has surpassed credit-card debt and car loans.

None of this means that going to university is a bad investment for a student. A bachelor’s degree in America still yields, on average, a 15% return. But it is less clear whether the growing investment in tertiary education makes sense for society as a whole. If graduates earn more than non-graduates because their studies have made them more productive, then university education will boost economic growth and society should want more of it. Yet poor student scores suggest otherwise. So, too, does the testimony of employers. A recent study of recruitment by professional-services firms found that they took graduates from the most prestigious universities not because of what the candidates might have learned but because of those institutions’ tough selection procedures. In short, students could be paying vast sums merely to go through a very elaborate sorting mechanism.

If America’s universities are indeed poor value for money, why might that be? The main reason is that the market for higher education, like that for health care, does not work well. The government rewards universities for research, so that is what professors concentrate on. Students are looking for a degree from an institution that will impress employers; employers are interested primarily in the selectivity of the institution a candidate has attended. Since the value of a degree from a selective institution depends on its scarcity, good universities have little incentive to produce more graduates. And, in the absence of a clear measure of educational output, price becomes a proxy for quality. By charging more, good universities gain both revenue and prestige.

But value for students and society? “America’s market-based system of well-funded, highly differentiated universities can be of huge benefit to society if students learn the right stuff. If not, a great deal of money will be wasted.”

Do tell.


The core problem of the welfare state is that it relieves people of the need for family to take care of them, but it does not relieve society of the need for caretakers. In fact, because there’s evidence that more generous social-security systems cause people to reduce their fertility, you can argue that these systems are undercutting the very actuarial basis upon which they depend.

The effect is what social-security systems are struggling with around the world: As the ratio of workers to retirees declines, it gets harder and harder to raise the tax revenue to cover benefits. Though Americans talk anxiously about the fiscal health of our systems, international pension-reform wonks actually look enviously at our system, which contains fewer of the incentives for earlier retirement that plague many countries.

But our demographic transition is not just a problem of pension math. There’s also the problem of what it does to economic growth as society ages. As workforce growth slows, so does gross domestic product growth. In theory, this can be made up with greater productivity growth. But productivity growth is moving in the wrong direction — and because older people tend to be more risk-averse as workers and investors, that too may be a natural result of an aging society.

And, of course, there is the question of who will provide the actual hands-on care that people need. Here, the usual solution proposed is immigration. There are a couple of problems with that. The first is that everywhere else is undergoing the same demographic transition as we are, so the limitless supply of young foreigners may dry up as aging parents require them to be nearer to home and family capital gets concentrated upon a few people rather than dispersed among many children.

But there’s another problem, which is that old people are often vulnerable. This is why stories of abuses in nursing homes are so common; it is not that the state doesn’t care about the people in its charge, but that “the state” does not actually provide the care — individual people do, some of whom are badly motivated. And incentives get very tangled when strangers are in charge of caring for frail people who may be experiencing cognitive decline.

Yep. Even in fancy, expensive places, the staff doesn’t have nearly the incentive to look after you that family does, something that’s being demonstrated right now in my own life and family.

PUSHBACK: Russia Threatens SWIFT.

It is important not to underestimate the amount of bluster and bluff in Russian talk about its friendship with China and its turn to the east. Repeated failures to build an effective Russia-China partnership date back to the era of the Soviet Union and Mao. But both countries, and they are not alone, are deeply and seriously concerned about what they see as the excessive power that the present day SWIFT system gives the U.S. and its Western allies; essentially, the ability to cut a country’s banks off from the global financial system. These are the sanctions that have been so effective against Iran. Russia and China, and a number of other countries, would like very much to break this weapon, something they see as one of the chief props of American world power.

It isn’t easy to build an alternative, and countries like China which depend on large flows of both investment and trade with the rest of the world, and whose financial systems are pointed toward greater rather than less integration with the global system are somewhat less eager about building an alternative than countries like Russia. Furthermore, lots of ne’er-do-wells like Venezuela, Argentina, or perhaps a Syriza-led Greece would love to join an alternative system thinking that it offers them new chances to stiff a new set of creditors.

Still, the more powerful the sanctions weapon becomes, and the more we try to use it, the greater the incentive we create for other people to challenge it. This should at the least cause the West to think twice before slamming sanctions down when somebody jaywalks; this is a tool that should be reserved for great dangers, not pesky annoyances. Yet there’s a longstanding tendency in the West to use sanctions as a substitute for military action—public opinion demands action, politicians don’t want to send troops (and think the public demand for action will cool rapidly when the body bags start coming home), so sanctions become the way to look tough while staying cool.

Which calls for courage and self-discipline among politicians, both, alas, in short supply these days.

JOURNALISM: Journalism school dean: The First Amendment ends at insulting Mohammed. If you want to create an incentive system where newspaper editors get lynched for insulting Jesus, this is the way to go about it.

HIGHER EDUCATION BUBBLE UPDATE: Wisconsin won’t admit it, but its new egalitarian policy leads to grading quotas.

In fall 2009, the College of Letters and Science pushed further with a study of grading practices in five introductory courses. Its title was revealing: “Grade Gap/Future Gap: Addressing Racial Disparities in L&S [Letters & Science] Introductory Courses.” Departments were instructed to implement strategic action plans to “eliminate racial grade gaps by 2014.”

This targeted five introductory courses: Chemistry 103, Communication Arts 100, English 100, Mathematics 112, and Psychology 202.

Putting an even sharper point on the administration’s desires, the report explained, “. . . these courses have something in common, sharp disparities in grade outcomes by race. In all courses targeted minority students achieve lower grades than non-targeted students at similar preparation levels. In each course, targeted minority students receive more of the low grades and fewer of the high grades.”

No, that doesn’t explicitly demand grade quotas, but the unsubtle point can’t be missed.

Furthermore, to ensure “steady annual improvements,” the dean would create incentives and an accountability system.

The people who teach those introductory courses, mostly teaching assistants and instructional academic staff, are quite vulnerable to administrative pressure because they are on limited-term contracts. They are apt to decide that giving each individual the grade he or she earned is less important than assigning grades so that there is little or no gap between groups.

Rather than adjusting grades, however, the university suggests that faculty members who teach those courses should “discover pedagogical strategies that reach targeted and non-targeted students with equal effectiveness” to reduce the achievement gap.

Resorting to faddish education-speak, the university suggests that the faculty use “proactive multicultural competence” to make their teaching more effective for the targeted students.

Efforts to eliminate the grade gap are being intensified under UW-Madison’s “Framework for Diversity and Inclusive Excellence” plan. Its Recommendation 1.5 calls for a “reduction in the achievement gap.”

I’m sure this will build confidence in the entire enterprise.

THE ECONOMIST: How Prosecutors Came To Dominate The Criminal Justice System.

Another change that empowers prosecutors is the proliferation of incomprehensible new laws. This gives prosecutors more room for interpretation and encourages them to overcharge defendants in order to bully them into plea deals, says Harvey Silverglate, a defence lawyer. Since the financial crisis, says Alex Kozinski, a judge, prosecutors have been more tempted to pore over statutes looking for ways to stretch them so that this or that activity can be construed as illegal. “That’s not how criminal law is supposed to work. It should be clear what is illegal,” he says.

The same threats and incentives that push the innocent to plead guilty also drive many suspects to testify against others. Deals with “co-operating witnesses”, once rare, have grown common. In federal cases an estimated 25-30% of defendants offer some form of co-operation, and around half of those receive some credit for it. The proportion is double that in drug cases. Most federal cases are resolved using the actual or anticipated testimony of co-operating defendants.

Co-operator testimony often sways juries because snitches are seen as having first-hand knowledge of the pattern of criminal activity. But snitches hoping to avoid draconian jail terms may sometimes be tempted to compose rather than merely to sing. . . .

It is not clear how often prosecutors themselves break the rules. According to a report by the Project on Government Oversight, an investigative outfit, compiled from data obtained from freedom of information requests, an internal-affairs office at the Department of Justice identified more than 650 instances of prosecutors violating the profession’s rules and ethical standards between 2002 and 2013. More than 400 of these were “at the more severe end of the scale”. The Justice Department argues that this level of misconduct is modest given the thousands of cases it handles.

Judge Kozinski worries, however, that there is “an epidemic” of Brady violations—when exculpatory evidence is hidden from defence lawyers by prosecutors. For example, in 2008 Ted Stevens, a senator from Alaska, was found guilty of corruption eight days before an election, which he narrowly lost. Afterwards, prosecutors were found to have withheld evidence that might have helped the defence. Mr Stevens’s conviction was vacated, but he died in a plane crash in 2010.

Prosecutors enjoy strong protections against criminal sanction and private litigation. Even in egregious cases, punishments are often little more than a slap on the wrist. Mr Stevens’s prosecutors, for example, were suspended from their jobs for 15 to 40 days, a penalty that was overturned on procedural grounds. Ken Anderson, a prosecutor who hid the existence of a bloody bandana that linked someone other than the defendant to a 1986 murder, was convicted of withholding evidence in 2013 but spent only five days behind bars—one for every five years served by the convicted defendant, Michael Morton.

Related: Ham Sandwich Nation: Due Process When Everything Is a Crime.


There are only a small number of for-profit law schools nationwide. But a close look at them reveals that the perverse financial incentives under which they operate are merely extreme versions of those that afflict contemporary American higher education in general. And these broader systemic dysfunctions have potentially devastating consequences for a vast number of young people—and for higher education as a whole. . . .

These investments were made around the same time that a set of changes in federal loan programs for financing graduate and professional education made for-profit law schools tempting opportunities. Perhaps the most important such change was an extension, in 2006, of the Federal Direct PLUS Loan program, which allowed any graduate student admitted to an accredited program to borrow the full cost of attendance—tuition plus living expenses, less any other aid—directly from the federal government. The most striking feature of the Direct PLUS Loan program is that it limits neither the amount that a school can charge for attendance nor the amount that can be borrowed in federal loans. Moreover, there is little oversight on the part of the lender—in effect, federal taxpayers—regarding whether the students taking out these loans have any reasonable prospect of ever paying them back.

This is, for a private-equity firm, a remarkably attractive arrangement: the investors get their money up front, in the form of the tuition paid for by student loans. Meanwhile, any subsequent default on those loans is somebody else’s problem—in this case, the federal government’s. The arrangement bears a notable resemblance to the subprime-mortgage-lending industry of a decade ago, with private equity playing the role of the investment banks, underqualified law students serving as the equivalent of overleveraged home buyers, and the American Bar Association standing in for the feckless ratings agencies. But there is a crucial difference. When the subprime market collapsed, legislation dedicating hundreds of billions of taxpayer dollars to bailing out the banks had to be passed. In this case, no such action will be necessary: the private investors have, as it were, been bailed out before the fact by our federal educational-loan system. This situation, from the perspective of Sterling Partners and other investors in higher education, comes remarkably close to the capitalist dream of privatizing profits while socializing losses.

From the perspective of graduates who can’t pay back their loans, however, this dream is very much a nightmare. Indeed, it’s easy to make the case that these students wind up in far worse shape than defaulting homeowners do, thanks to two other differences between subprime mortgages and educational loans. First, educational debt, unlike mortgages, can almost never be discharged in bankruptcy, and will continue to follow borrowers throughout their adult lives. And second, mortgages are collateralized by an asset—that is, a house—that usually retains significant value. By contrast, anecdotal evidence suggests that many law degrees that do not lead to legal careers have a negative value, because most employers outside the legal profession don’t like to hire failed lawyers. . . . It would be comforting to think that the crisis is confined to for-profit schools—and indeed this idea is floated regularly by defenders of higher education’s status quo. But it would be more accurate to say that for-profit schools, with their unabashed pursuit of money at the expense of their students’ long-term futures, merely throw this crisis into particularly sharp relief. . . . The only real difference between for-profit and nonprofit schools is that while for-profits are run for the benefit of their owners, nonprofits are run for the benefit of the most-powerful stakeholders within those institutions.

Well, it’s not as if this hasn’t been pointed out before, but it bears repeating.

ADD? Megan McArdle: Add Fraud to the List of Obamacare Disasters.

It sounds like the systems that are supposed to check identity, immigration status and income simply aren’t working at all; the system just assumes that you are who you say you are.

This isn’t the only major part of the system that’s still missing; as the Official Blog Spouse reported last week, the system that pays insurers still seems to be MIA. Presumably, the emergency team called in to fix the exchanges prioritized the bits that the public could see, leaving everything else for later. Compared to what was described by the Barack Obama administration (and the law), the system still seems to be half-built.

How much does this matter? Obviously, all the GAO can say is that this is possible; we don’t know whether, or how often, such fraud has actually occurred. Even if you get an insurance card fraudulently, how easy would it be to use without ever being asked for picture ID? How many people would go to the trouble of faking or altering documents? And might the subsidies be taken away after review? We simply don’t know.

Still, it’s obviously troubling that people could so easily fraudulently obtain government subsidies, because the incentive to do so is obvious: free money from the government. It’s also troubling because it makes one wonder what other major parts of the system simply aren’t working.

Here’s a hint: All of them, except for those with political angles.

IRA STOLL: The Latest Public-Sector Pension Scandal: The state-pension-industrial complex corrupts politics on multiple levels. “The current system takes rich money managers, who ordinarily might be a voice for lower taxes and restrained government spending, and makes them beholden, for business, on public pension boards that sometimes include union officials. Instead of arguing for less generous pensions, or for personal accounts that employees would manage individually, the money managers now have incentives to argue for more generous pensions and to avoid upsetting the system that is enriching them.” Then there’s the outright bribery.

THE ECONOMIST: BNP Deserved A Clobbering, But Its Treatment Makes The U.S. Legal System Seem Like An Extortion Racket. “America’s system for pursuing errant banks, especially foreign ones, is anything but fair. This case, like most, did not go to court. BNP negotiated a settlement with regulators and prosecutors rather than risk a trial. No doubt the ugliness of its crimes played a role. But even if it had had a better case, BNP would have had little choice but to settle. Defeat in court might have led to the loss of its American banking licence—a death sentence for a big international bank. America’s prosecutors can also wield the threat of criminal charges against individual bankers. Not only were BNP’s tormentors, such as Benjamin Lawsky, New York’s politically ambitious banking regulator, able more or less to dictate their terms, they also had an incentive to make the fine as big as possible because the agencies involved divvied up much of it among themselves. Mr Lawsky’s outfit gets $2 billion, four times its annual budget, which it will triumphantly deposit in New York state’s depleted coffers.”

It does look rather shady.

IMAGINE THERE’S NO INSURANCE: It’s easy if you try:

The ACA is not the only game health care game in town. Either because they are opposed to the values embodied in the ACA or because they are unable to afford the costs it imposes, some people are dropping out of mainstream insurance altogether. WaPo looks at some of the health care programs they are opting into instead. Of particular note are groups like Christian Healthcare Ministries. Members of CHM pool money to pay for each other’s health care bills, out of pocket and unmediated by insurance.

We don’t know how many people are using this kind of system; the piece does tell us that CHM has 80,000 members, and the overall number is probably vanishingly small. But CHM and similar groups represent a kind of approach that deserves more attention than it is getting, for two reasons. First, it encourages responsible health care use. . . .

Cost-sharing groups therefore provide exactly the kind of cost-controlling incentives that an impersonal, national insurance system can’t. Perhaps more importantly, programs like this introduce some sense of social solidarity into the health care market.

George Korda, a Knoxville columnist and radio host, has used CHM for years and tell me it’s been a really good deal for him. I do wonder if it’s scalable.


FERC governs the electricity grid, and in 2011 Mr. Wellinghoff ordered transmission operators to pay retail energy users to reduce their power consumption at peak periods. This smart-grid program is known as “demand response” and can help run the system more efficiently and reliably. But FERC rigged this well-meaning incentive to harm traditional baseload power, especially coal but also natural gas and nuclear.

The problem is that Congress limited FERC’s mandate to the wholesale interstate power markets—that is, power supply. Authority over retail power demand is reserved to the “exclusive jurisdiction” of the states.

FERC regulated anyway, claiming that the demand-response program would “directly affect” the regional level and therefore the two distinct state and interstate spheres were essentially the same. Judge Janice Rogers Brown shreds that logic as a “metaphysical distinction.” She goes on to note that FERC’s rationale “has no limiting principle” because changes in one market inevitably beget changes in another. FERC could use the same rationale to claim jurisdiction over “any number of areas, including the steel, fuel and labor markets.”

The D.C. Circuit ruled FERC lacked statutory authority but then took a further step and declared the demand-response rule “arbitrary and capricious” on the merits, which is unusual. The courts generally defer to the judgment of regulators, and the Administrative Procedures Act blesses all but the most egregious overreach.

The bureaucrats should be held personally responsible for overreach. But this is a start.

SO WE HAVEN’T RECOVERED YET? “In her first monetary policy speech as Federal Reserve chair, Janet Yellen said Wednesday that the nation’s economic recovery will be nearly complete within two years, but cautioned that the economy still needs the central bank’s support.” This has to be the slowest “recovery” since the Great Depression.

Related: Points and Figures: It Wasn’t A Financial Crisis, It Was A Systemic Run. “Current policy has guaranteed debt. The US has instituted program after program and the Fed has actively pursued activities that hold interest rates low. All this does is create poor incentives. Banks can game the system and run around any regulation. Regulation has also crushed competition, leaving Goliath banks. Cochrane says it plainly, ‘Too big to fail means too big to lose money, and too big to lose money means too big to compete.’”

K-12 IMPLOSION UPDATE: Choice, Not More Spending, Is Key To Better Schools.

Most proposals for improving education come down to the same thing — spend more of the taxpayers’ money.

But that’s what we’ve been doing for two or more generations, and it hasn’t worked. Andrew J. Coulson, director of the Cato Institute’s Center for Educational Freedom, calculates that inflation-adjusted spending per pupil more than doubled from $5,500 a year in 1970 to more than $12,500 in 2010.

What did America get for its money? Nothing — at least when measured in terms of educational quality. Since 1970, average test scores among 17-year-olds have been flat in reading and math, and down in science. . . .

Money can buy a lot in public schools — smaller classes, better teachers, modern facilities, computers and other technologies. So why hasn’t spending paid off in better educational outcomes? The biggest impediment is a government-run school system resistant to innovation, indifferent to student needs and mired in mediocrity.

Better schools are certainly within our means, but we won’t get them with current assumptions and institutions. It’s time to harness the tried-and-true forces of capitalism — most important, choice and competition. Capitalism in the classroom will create proper incentives, spur innovation and drive entrepreneurial activity.

Gosh, you could write a book on all that’s involved here.

CREATING AN INCENTIVE FOR RELIGIOUS VIOLENCE: “Islamic extremists” put a price on your head? That means you can’t give a speech in this American government building.

I keep noting that our feckless political class will come to regret the incentive system they’re creating. And they keep creating it.

JAMES TARANTO: Chaplinsky vs. Kozinski: “Innocence of Muslims” and the “fighting words” doctrine.

The dubbed line to which Garcia objected would surely qualify as fighting words if uttered as a taunt to a Muslim on the street. But just as surely it does not as part of a movie, even a dishonestly produced movie intended as a provocation.

A necessary condition for the application of the fighting-words doctrine is the tendency “to incite an immediate breach of the peace.” It would be an understatement to say that “Innocence of Muslims” incited a breach of the peace. But it wasn’t an immediate one. In Kozinski’s account, the incitement didn’t even come from the posting on YouTube but from its (surely mischievous) airing on Egyptian television.

The issuance of a fatwa is a further argument against the application of the fighting-words doctrine. The term “fatwa” was little known among non-Muslim Westerners until 1989, when Ayatollah Ruhollah Khomeini pronounced one against Salman Rushdie for “The Satanic Verses.” But “fatwa” is not synonymous with “death threat.” The term refers to any legal decree issued by an Islamic scholar or clergyman. What distinguishes fighting words from merely provocative ones is that the reaction they draw is not premeditated. A fatwa implies a deliberative process, more a plot than a street fight.

To be sure, the Ninth Circuit did not hold that “Innocence of Muslims” is unprotected speech. Judge Kozinski’s reference to “fighting words” was only dictum, which is to say that it was not relevant to the disposition of the case. Judge N.R. Smith didn’t even take up the point in his dissent. Possibly Kozinski meant to use the term only colloquially, in the spirit of the late Christopher Hitchens, whose Slate column was called “Fighting Words” with no implication that its content was constitutionally unprotected.

Still, it carries more weight when a judge uses a legal term of art in an opinion, even only in passing, than when a journalist does so. Whatever one makes of the copyright claims at the heart of Garcia v. Google, it bears noting that defiant and contemptuous words about Islam, or any other religion, are protected by the First Amendment as surely as are those about the American flag.

In law, but not in fact. Because violence works, and our institutions cave before it. May our political class take joy in the incentive system they are creating.


The other day, after one of my talks, a 10th-grade girl came up and shyly asked if I had a minute. I always have a minute to talk to shy high school sophomores, having been one myself.

And this is what she asked me:

“I understand what you’re saying about trying new things, and hard things, but I’m in an International Baccalaureate program and only about five percent of us will get 4.0, so how can I try a subject where I might not get an A?”

I was floored. All I could think as I talked to this poor girl is “America, you’re doing it wrong.”

I was 15 in 10th grade. If you can’t try something new in 10th grade, when can you? If you can’t afford to risk anything less than perfection at the age of 15, then for heaven’s sake, when is going to be the right time? When you’re ready to splash out on an edgy assisted-living facility?

Now is when this kid should be learning to dream big dreams and dare greatly. Now is when she should be making mistakes and figuring out how to recover from them. Instead, we’re telling one of our best and brightest to focus all her talent on coloring within the lines. This is not the first time I’ve heard this from kids and teachers and parents. But I’ve never heard it phrased quite so starkly.

Our educational system, like our political system, is structured to reward behavior that is bad for society at large. You get more of what you reward. Incentives, even perverse incentives, matter.

HMM: Experts See Inconsistencies in DOJ’s Merger Deal With Airlines.

A spokeswoman for DOJ referred Law Blog to remarks made by U.S. antitrust chief Bill Baer on Tuesday. He said the concessions would produce a whole new market dynamic, offering the discount airlines lower barriers to entry, and “providing the incentive and ability for those carriers to invest in new capacity and positioning those carriers to provide significant new competition system-wide.”

University of Tennessee law professor Maurice Stucke said he finds it hard to square that with what the government said before. The government’s complaint, for instance, talked about how Southwest was already competing against the legacy airlines in various markets but still couldn’t prevent the anticompetitive effects of earlier mergers.

The complaint also quoted a senior US Airways executive explaining to her boss in 2011: “Our employees know full well that the real competition for us is [American], [Delta], and [United]. Yes we compete with Southwest and JetBlue, but the product is different and the customer base is also different.”

Said Mr. Stucke, ”If it were just purely a slot issue, the complaint would read differently.”

Personally, I find Maurice Stucke more credible.

POINTS AND FIGURES: The Secret No One is Talking About Buried In Obamacare.

Obamacare is a total fail. It’s too clunky. They didn’t exactly use Lean Startup principles when they wrote the bill.

One of the goals of Obamacare which I agree with in principle is to separate employment from health insurance. Tying them together creates all kinds of poor economic incentives. But, the ACA law is littered with even worse economic incentives. One of them is mobility.

Obamacare will cause people to freeze in geographic location.

Insurance companies cannot compete across state lines, so your policy is only portable within your state. That’s bad for economic development. A person now has to deal with 50 sets of rules, 50 exchanges. Obamacare didn’t solve the problem.

There will be people that stay in place because of insurance costs from one state to the next. I have looked, and personally for me my costs of insurance go up exponentially when I move out of state.

In our old broken healthcare system, employers would pick up the difference. As our society transitions to an independent worker society, and insurance isn’t tied to job, individuals will be forced to pick up the cost.

Instead of opening up competition, Obamacare shuts it down. One of the great facets of the United States is that each state competes with the other. If one state passes bad laws, and restricts freedom, people can pick up and leave to go to another state. If an industry shuts down, people can leave and pursue opportunity somewhere else.

Obamacare makes that highly difficult.

So many layers of disaster here. It’s like peeling an onion of fail.

RADLEY BALKO: We Need A Whistleblower Prize. “This Washington Post piece looking at what has happened to several notable government whistleblowers is sobering. . . . It needn’t even be something as dire as national security. I’ve seen and reported on countless law enforcement officers whose careers were cut short (or worse) when they reported wrongdoing by other cops, or more systemic problems within their police agencies. It seems to me that we’re asking an awful lot of whistleblowers. We’re hoping their sense of right and wrong and devotion to public service will compel them to come forward even if that likely means an end to their career in public service — at best. If we really value whistleblowers, we need to provide them with a bit more incentive. And it needs to come from the private sector. The government certainly isn’t going to reward them for exposing government malfeasance, President Obama’s campaign promises notwithstanding.”

To be fair, most of President Obama’s campaign promises seem to be “notwithstanding” these days.

POLITICO: Behind The Curtain: DC Turns On Obama. “Obama’s aloof mien and holier-than-thou rhetoric have left him with little reservoir of good will, even among Democrats. And the press, after years of being accused of being soft on Obama while being berated by West Wing aides on matters big and small, now has every incentive to be as ruthless as can be. This White House’s instinctive petulance, arrogance and defensiveness have all worked to isolate Obama at a time when he most needs a support system.”

POINTS AND FIGURES: The New Chicago Mob. “The entrenched interests make money off of the failure of the younger generation. With each succeeding failed generation, the entrenched interests cut themselves a new check. Economic incentives are in place that allow them to take cash out of a system that fails the masses over and over again. They are lining their pockets and pointing fingers everywhere else.”

PROFILES IN COURAGE: Richard Dawkins: Islam? What’s that? “It’s funny how these confident, cocksure prophets of atheism-who barely have time to take a breath between slamming the tenets of Christianity and Judaism-often get curiously tongue-tied and shy when the subject of Islam comes up.”

Don’t want your religion attacked? Behead a few attackers. It doesn’t take many — most of them are cowards and poseurs, and will shut up at the least hint of risk. Hey, don’t blame me. I didn’t set up this incentive system.

HIGHER EDUCATION BUBBLE UPDATE: George Leef: The Spirit of Adam Smith Returns: At one time, professors were independent contractors paid by students; that relationship may return.

Adam Smith, perhaps the most perceptive observer of human action of his time, pointed out from experience that incentives mattered to professors. At Scottish and English universities in the 18th century, some professors were in the main paid directly by student fees, while others were paid entirely by the university, thus putting a middleman between the customers and the providers of teaching services.

In the former case, Smith wrote (in Book V of The Wealth of Nations), a professor’s reputation is important and depends “upon the affection, gratitude, and favourable report of those who have attended upon his instructions; and these favourable sentiments he is likely to gain in no way so well as by deserving them, that is, by the abilities and diligence with which he discharges every part of his duty.”

In universities where professors were paid entirely by the institution, however, their incentives were markedly different. Smith observed, “if his emoluments are to be precisely the same whether he does or does not perform some laborious duty, it is certainly his interest…either to neglect it altogether or…to perform it in as careless and slovenly manner as authority will permit.”

Would this promote grade-inflation and easy assignments? Possibly — but, of course, we have those under the current system, too.

WALTER RUSSELL MEAD: British Hospital Carnage a Window into US Future.

The scandal surrounds a recent hospital report’s findings that Stafford Hospital in Staffordshire ignored even the most basic standards of treatment to disastrous, and disgusting, effect. . . .

As the piece goes on to explain, the hospital’s actions sprung from its single-minded pursuit of cost control. It drastically reduced its operating budget in hopes of qualifying for foundation-trust status, a legal category that would grant it more freedom from central government control. It’s a textbook case of how structural incentives in government-dominated health care systems can lead to terrible outcomes.

Blue model partisans claim that the American health care system is one of the worst in the world in terms of bang for the buck. Many single-payer systems are indeed cheaper than ours, but this is only half the story, and this new report suggests that the other half of the story—quality of care—isn’t always as rosy as official metrics show.

Expect problems like this to crop up in the U.S. as Obamacare moves us further down the road of wonk-based health care, with well-intentioned, top-down reforms that sow chaos across a complex system.

Related: Obamacare Fail: CBO Predicts Drops in Health Coverage.

When Obama took to the stump for health care reform, one promise came through loud and clear: “If you like your insurance, you can keep it.” That promise is officially about to be broken, according to the Congressional Budget Office. Millions of employees will soon be dropped from health insurance coverage as new provisions of the law go into effect. . . . The CBO also projected that 5 million fewer people will gain health insurance coverage over the next decade than originally expected.

Expiration date, reached.

TIM GEITHNER’S LEGACY: An Issue For Republicans, If They’re Smart Enough To Use It:

As Timothy F. Geithner prepares to leave the Treasury Department, most assessments focus on how his policies affected the economy. But his lasting legacy may be more political, contributing to the creation of an issue that can now be seized either by the right or the left. What should be done about the too-big-to-fail category of financial institutions?

Mr. Geithner came to Treasury in the middle of a severe financial crisis, a set of problems that he helped to create and then worked hard to prevent from worsening. As president of the Federal Reserve Bank of New York, starting in 2003, he watched over – and failed to defuse – the buildup of systemic risk. In fact, the New York Fed was relatively on the side of allowing large, seemingly sophisticated financial institutions to fund themselves with more debt relative to their thin levels of equity.

This was a major conceptual mistake for which there still has not been a full accounting. In fact, blank denial continues to be the reaction from the relevant officials. . . . In Mr. Geithner’s view of the world, the 2010 Dodd-Frank financial reform legislation fixed the problem of too-big-to-fail banks. Outside of Treasury, it’s hard to find informed observers who share this position. Both Daniel Tarullo (the lead Fed governor for financial regulation) and William Dudley (the current president of the New York Fed) said in recent speeches that the problems of distorted incentives associated with too big to fail were unfortunately alive and well.

Ironically, despite the fact that the Obama administration failed to rein in the megabanks and allowed them to become larger and arguably more powerful, this has not helped the Republicans in electoral terms.

As Ms. Noonan puts it bluntly: “People think the G.O.P. is for the bankers. The G.O.P. should upend this assumption.”

Yes. In reality, the Democrats are the party of the plutocrats and big banks, while the “rich” that the GOP represents are the “petty rich” of small business owners and successful professionals — unsurprisingly, it’s the “petty rich” that Obama’s tax increases have targeted. Turn that around.

And while you’re at it, repeal the Hollywood tax cuts!

MICHAEL BARONE: Soul-Crushing Dependency.

“This is painful for a liberal to admit,” writes liberal New York Times columnist Nicholas Kristof, “but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in soul-crushing dependency.”

Kristof is writing from Breathitt County, Ky., deep in the Appalachian mountains, about mothers whose Supplemental Security Income benefits will decrease if their children learn to read. Kristof notes that 55% of children qualifying for SSI benefits do so because of “fuzzier intellectual disabilities short of mental retardation,” far more than four decades ago when SSI was just a new program.

Evidently SSI administrators decided to be more generous to parents of such children. But, as Kristof notes, giving parents an incentive to keep children from learning to read works against the children’s long-term interest.

Kristof’s column makes a point similar to that in my De. 2 Examiner column on the vast rise in people receiving Social Security Disability Insurance payments. As with SSI, one imagines that those responsible for extending benefits to those not previously eligible did so out of a sense of generosity. But as I noted, “there is also a human cost. Consider the plight of someone who at some level knows he can work but decides to collect disability payments instead. That person is not likely to ever seek work again, especially if the sluggish recovery turns out to be the new normal. He may be gleeful that he was able to game the system or just grimly determined to get what he can in a tough situation. But he will not be able to get the satisfaction of earned success from honest work that contributes something to society and the economy.” Generosity that produces “soul-crushing dependency” is not really generosity.

No, it’s not about generosity. It’s about power. They’ll turn us all into beggars ’cause they’re easier to please.

JOURNALISM: Do you get the feeling AP editors are worried about being tried in absentia and sentenced to death? They’ve demonstrated that violence and intimidation work where they’re concerned. May they have joy of the incentive system they’re creating.

THE ITALIAN JUSTICE SYSTEM HAS NOT BEEN COVERING ITSELF WITH GLORY LATELY: Italian scientists convicted over earthquake warning.

This calls into mind Robert Heinlein:

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as “bad luck.”

This has created a lot of incentives for scientists to leave Italy and to avoid giving any sort of earthquake advice to the Italian government. I predict a run of bad luck.

NIGERIANS ARGUE FOR FEDERALISM AND END TO ENTITLEMENT CULTURE:   The current debates in Nigeria over constitutional change center upon the need for stronger federalism and concomitant decentralization of government, with the goal of ending what’s been labeled “feeding bottle federalism‘:

Our peculiar federalism with its indolent culture of entitlements creates a consumption loop that guarantees perpetual dependence on volatile primary commodities. One objective of the new constitution should be to remove the feeding bottle, and jack up the federating units to mature into self-fending adults. Necessity, they say, is the mother of invention. The umbilical cord between government and business is that government relies on business to create jobs and provide revenues. In turn, governments do everything for businesses to thrive. Free money from Abuja has broken this. To restore the umbilical cord and incentive for states to create wealth and hence for entrepreneurial policymakers to emerge, we must wean the system of helpless dependence on the Abuja feeding bottle.

This, my friends, is ironic to say the least:  The same problems exist today in the U.S.  As the Obama administration continues the march toward steady centralization of government power– including the possibility of bailing out irresponsible, overspending states such as California and Illinois– the US is spiraling into the same vortex of dependency and inefficiency that Nigerians are trying so desperately to end.

VANDALISM GETS RESULTS: NYC Prohibits Controversial Subway Ads in Wake of Islamist’s Vandalism:

The New York Times reports the MTA will prohibit any advertisements that it “reasonably foresees would imminently incite or provoke violence or other immediate breach of the peace.” Those “viewpoint” ads that do not meet this criteria will be allowed, so long as a disclaimer is included saying the MTA does not endorse them. The MTA met on Thursday to discuss the rules, which were approved unanimously 8-0.

Is the Edward Tyler Nahem Gallery in New York considering a similar policy? The MTA has created an incentive system that might eventually lead them to just that.

RELATED: Western Courts Bend to Islamic Practices.

WELL, IT’S NOT LIKE IT’S DISSING MUHAMMAD: White House Silent Over Demands to Denounce ‘Piss Christ’ Artwork. And it’s not like the people who don’t like it have killed anyone. May our leaders have joy of the incentive system they’re creating.

THAT’S BECAUSE HE’S NOT AFRAID OF CHRISTIANS: Obama admin not so sensitive to Christian college’s religious feelings: Wheaton College never burned anything down, so its feelings don’t count.

May our feckless leaders have joy of the incentive system they’ve created.


The power prosecutors have to charge people with crimes is often overlooked. While probable cause is the minimum standard police officers need to make an arrest and the minimum standard to convict is beyond a reasonable doubt, the question is where the power to charge should be between those two extremes.

In the 22 states that require a grand jury indictment before charging, the grand jury standard is a preponderance of the evidence, although grand juries are sometimes notorious for rubber-stamping a prosecutor’s wishes.

But without a grand jury, a prosecutor’s charging power is entirely discretionary.

Once charged, a suspect often needs to hire expensive legal representation or, if he can’t afford it (and there aren’t many people who can pay for representation on a murder charge), request a public defender. It likely means at least temporary incarceration, the posting of bond, and a stigma more damaging than an arrest, but less so than a conviction.

A judge may occasionally dismiss charges due to lack of evidence, but generally speaking, the decision to charge is the prosecutor’s. And while police officers can be sued for a wrongful arrest, prosecutors are protected by absolute immunity, meaning that as long as they’re performing a prosecutor’s duties, they can’t be sued.

That “absolute immunity,” by the way, is entirely a judicial creation and — except, I suppose for absolute judicial immunity — as overweening an example of “judicial activism” as you’ll ever find, though this is seldom noted. If such immunity is to exist, it should be legislatively arrived at, not the product of judicial fiat.

Personally, I think that overcharging should cost prosecutors something. How about this — the state is on the hook for a pro-rata share of defendant’s legal expenses based on the number of offenses charged, but not convicted. Charge with 20 crimes, convict on 2, you pay 90% of the defendant’s legal fees.

Or maybe it should be based on years: Charges adding up to a maximum penalty of 100 years; actual sentence, 1 year. Government pays 99%. What do you think? I think that we need more oversight of prosecutors, and since I have little faith that the legal establishment will provide it, I’m looking for structural ways to give them skin in the game.

UPDATE: Former prosecutor, now criminal-defense lawyer John Steakley emails:

So who pays? If it’s the prosecutor personally, then good luck getting money out of someone earning a little more than a well-paid public school teacher. If it is the county government, then won’t the jurors (and county taxpayers) have a incentive to convict so that they can reduce their indirect liability? I can already hear the prosecutor’s argument: “A vote to convict means more tax dollars available for teachers, cops and cable TV in the jury room!”

And if we are going to make the prosecutor pay for acquittals, how long until we make the defendants reimburse the government for the expense of convicting them? And wouldn’t that create yet another financial incentive for jurors to convict?

Hmm. Would a prosecutor really make that argument to a jury? Would a court permit it? If so, the problem’s bigger than I thought. But I welcome other suggestions for structural reform, because I have no faith in the system’s ability to police itself.

Another reader goes a bit too far on the incentive side:

You bring up the very real point of prosecutorial misconduct. You get what you reward. Our current system incentivizes prosecutors to over charge and the plea bargain. No skin off their nose if it hurts the defendant and the plea bargain makes their life easier. However your solution tends towards punishing taxpayers, not prosecutors, for prosecutorial misconduct by adding to the tax burden (i.e. paying defense costs). The simplest solution is if the defendant is found innocent on any one charge, then they are found innocent on all. The chance that a prosecutor would over charge then would be greatly reduced, but we would also see many more guilty people go free. Perhaps the solution is to make the prosecutor face a personal penalty. Introduce three jury results (ala Scotland), Guilty, innocent and not proven. Not proven would be where the jury finds not enough evidence to convict, but enough evidence that they can’t clearly say the person is innocent. If the jury rules innocent, then the prosecutor loses his government job and has his law license suspended for a year. Then the prosecutor would have some skin in the game to balance the incentives to overcharge.

I think that would lead to undercharging. And another reader emails:

I’m a Harvard Law graduate working as an assistant district attorney in the Southwest and would like to offer some thoughts in response to your recent post on overcharging by prosecutors. Please do not use my name as I am writing in my personal capacity and do not want my views attributed to the office I work for. Thanks.

I think that the debate would be served by distinguishing between two different senses of the term ‘overcharging.’ In the first sense, overcharging means bringing charges that are not supported by the facts, in other words, the facts do not meet the legal definition of the crimes charged because one or more elements are missing. An example this type of overcharging might include charging a Defendant with bribery of a witness when the Defendant makes a victim some extra-judicial offer of some restitution or compensation, but does not actually ask the victim to change her testimony.

The second sense of overcharging is bringing charges that do indeed have a legitimate factual basis and meet the elements of the statute, but do not serve the interests of justice. For example, it my state, the crime of contributing to the delinquency of a minor, a felony, is defined broadly enough to include a 19-year old who shares a joint with a 17-year old. If the Defendant has no previous criminal history, then a felony conviction for this behavior is probably unjust. But the legislature has made it so. Another example might be a Defendant who uses fraudulent access to a computer at work to steal funds from her employer. She can legitimately be charged with both embezzlement and a computer crime. But depending on the circumstances, the additional punishment of the computer crime might not be appropriate.

The first form of overcharging is unethical and if a prosecutor knowingly brings charges that are not supported by the facts, he or she should be subject to discipline, whether administratively, through the state bar, or even criminally, if the conduct is egregious enough.

The second form of overcharging is much more of a gray area. If the charges are supported by the facts and the law as defined by the legislature, then it is up to the prosecutor’s discretion. There is nothing unethical about bringing such charges, unless they are brought as retaliation against the Defendant or defense attorney rather than to serve justice. Excepting those scenarios, it comes down to the prosecutor’s role vis-à-vis the legislature, and there is no easy right answer. In my mind, this challenge is the best argument for having elected District Attorneys.

I do agree with you that there are prosecutors out there who do not take their role seriously enough and cause damage to the public because of it. But I do not agree with using the convictions at the end of the process as your final metric of whether something was overcharged. There are many reasons why legitimate charges may not result in convictions. Witnesses do not always show up to trial. The witnesses who do show up may not necessarily come across very well. Evidence may get excluded by the judge. And a jury is a strange beast, not necessarily reaching the just result in every case. I believe that they do the right thing in most cases, but any prosecutor or defense attorney can tell you that there are outliers, cases where the jury acquits on solid evidence or convicts on insufficient evidence.

Well, even if the charges are theoretically justified, the practice of laundry-list indictments — which you didn’t used to see — puts unfair pressure on defendants to agree to a plea, because they potentially face enormous jail time if they go to trial. Prosecutors have no such countervailing pressure. I’d like it to be expensive to overcharge in some fashion. Of course, if judges were to strike excessive charges that would help, but this doesn’t seem to happen. Perhaps if we compute prosecutors’ conviction rates based on the initial charges — charge 50 crimes, accept a plea deal on 2, it counts as a 4% conviction. . . .

And reader Tim Maguire writes: “I think we could go a long way towards reining in over-aggressive prosecutors simply by barring them from running for political office until, say, five years has elapsed from their last prosecution.” Heh.

DESTROY ALL CHURCHES: “If the pope called for the destruction of all the mosques in Europe, the uproar would be cataclysmic. Pundits would lambaste the church, the White House would rush out a statement of deep concern, and rioters in the Middle East would kill each other in their grief. But when the most influential leader in the Muslim world issues a fatwa to destroy Christian churches, the silence is deafening.”

It’s a temporary condition. Within a few years, the Knights Templar will be back. It’s all in the incentive system.

MARK STEYN: Thus the courage of the secular left: If you’re going to be “provocative”, it’s best to do it with people who can’t be provoked. May they have joy of the incentive system they’re creating.

ESTABLISHING A SYSTEM of perverse incentives.


In Lyndon Johnson and the American Dream, Doris Kearns Goodwin (just Doris Kearns in NR’s copy of the book — we’re old-school) has one interesting observation about LBJ: He never got out of the legislative mind-set, and his measure of success when crafting his hallmark programs, from Medicare to the Civil Rights Act of 1964, was simply getting the bill passed. Never mind the contents of the program: Just get something signed into law. Tragically for LBJ, he didn’t have a Nancy Pelosi around to tell us that we had to pass Medicare so we could find out what’s in it.

I get the same feeling for President Obama’s new mortgage settlement: Never mind what it does, or whether it does any good, just get everybody’s signature on the deal.

Here’s what it does not do: It isn’t going to prevent a lot of foreclosures (and may in fact cause some), it isn’t going to assuage the terror in the mortgage markets, and it probably isn’t going to clean up the system that caused some number of homeowners to be foreclosed on without proper documentation.

Like the fiasco that was HAMP, this settlement will encourage homeowners to become delinquent on their loans: There’s $10 billion set aside for principal writedowns for delinquent homeowners, but paid-up borrowers only get $3 billion to encourage the refinancing of underwater mortgages.

As always a disincentive to productivity and thrift, an incentive to mooching and looting.

HIGHER EDUCATION BUBBLE UPDATE: Beware: Alternative Certification Is Coming.

The announcement of agreements between Burck Smith’s StraighterLine and the Education Testing Service (ETS) and the Council on Aid to Education (CAE) to provide competency test materials to students online is potentially very important, along with several other recent developments. A little economics explains why this is so.

In the first week of beginning economics courses, professors usually make this fundamental point: If the price of something rises a lot, people look for substitutes. Resources (dollars) are scarce, and individuals want to make the best use of them. They “maximize their utility” by shifting away from high-priced good or service A to lower-priced good B.

With regards to colleges, consumers typically have believed that there are no good substitutes–the only way a person can certify to potential employers that she/he is pretty bright, well educated, good at communicating, disciplined, etc., is by presenting a bachelor’s degree diploma. College graduates typically have these positive attributes more than others, so degrees serve as an important signaling device to employers, lowering the costs of learning about the traits of the applicant. Because of the lack of good substitutes, colleges face little outside competition and can raise prices more, given their quasi-monopoly status.

As college costs rise, however, people are asking: Aren’t there cheaper ways of certifying competence and skills to employers? Employers like the current system, because the huge (often over $100,000) cost of demonstrating competency is borne by the student, not by them. Employers seemingly have little incentive to look for alternative certification. That is why reformers like me cannot get employer organizations like the U.S. Chamber of Commerce to take alternative certification seriously. But if companies can find good employees with high-school diplomas who have demonstrated necessary skills and competency via some cheaper (to society) means, they might be able to hire workers more cheaply than before–paying wages that are high by high-school-graduate standards, but low relative to college-graduate norms. Employers can capture the huge savings of reduced certification costs. And students avoid huge debt, get four years more time in the labor force, and do not face the risks of not getting through college. Since millions of college grads have jobs which really do not use skills developed in college anyhow, alternative certification is more attractive than ever.

All is proceeding as I have foreseen.

BECAUSE IT’S ONLY SAFE TO PICK ON CHRISTIANS: University atheist society president forced to resign after cartoon of Muhammad having a drink with Jesus is posted on Facebook.

And the lesson to Christians (and other religions) is that if you want respect, make people physically afraid. But if that’s the incentive system you create — and it is absolutely the one that’s been created — don’t be surprised if people pick up on it. Because the lesson of this decade is that people respond to incentives, even perverse ones.

CHINA’S PARALLEL ONLINE UNIVERSE: “China is increasingly operating an online parallel universe where social media clones ‘mimic the functions of the most popular, internationally recognized social media applications, such as Facebook and Twitter. The replicas, however, come with a major catch: they systematically comply with the Chinese Communist Party’s strict censorship requirements.’ They are satisfying the growing demand of hundreds of millions of Chinese citizens for social media tools, reducing incentives for them to circumvent the ‘Great Firewall,’ Freedom House warns. Testing by researchers found that a search for the names of seven prominent Chinese lawyers, activists, and journalists on Sina Weibo returned no results, only an Orwellian notice that ‘According to related laws and policy, some of the results are not shown here.'”

MEGAN MCARDLE: Why We Stopped Spanking.

I wonder, however, if “better” is quite the right word. It seems to me that what parents have discovered is a much, much more intensive form of parenting than their grandparents employed. The elaborate charts and systems of incentives are enabled by the fact that modern children are effectively monitored by adults every waking hour until they become quite old.

As Valerie Ramey points out in a recent essay, one of the enduring mysteries of the 20th century is that in America, at least, labor saving appliances don’t seem to have saved much labor. Adults spend less time on certain “home production” tasks–like cooking–but more on others, particularly childcare. . . . Today’s kids seem to be not only supervised but regimented; most of their time is supposed to be spent in some sort of structured activity. This makes it very easy to create elaborate reward systems, because there is all this elaborate surveillance that makes it very easy to monitor compliance.

I had some related thoughts here. “We keep hearing about declining birthrates, but raising a kid is far more expensive — financially, emotionally, and in terms of time — today than it was a few decades ago. As she occasionally notes, things that were considered adequate, or even exemplary, parenting then are now considered abuse or neglect. In fact, when you look at how the burden of childrearing has increased, it seems amazing that we see as many people having children as we do.” By way of comparison, I invoked James Lileks.

But here’s another thought. Why are kids today so fat? Because — since you can’t (or at least, many parents don’t) induce good behavior by spanking, people try to keep kids happy with food. (That’s the most common “reward.”) Stick a kid in a carseat — unknown in the past — and you pacify them with a juicebox or some goldfish. They’re immobile (burning fewer calories than old-fashioned front-to-back clambering kids) and fed to distract them from the unhappiness of being strapped in like a mummy.

Likewise, schools and daycare centers shove snacks at them for the same reason. It may only add up to a few hundred calories a day in the form of extra snacks and reduced mobility, but that’s all it takes to produce weight gain over time.

The Bryan Caplan “good enough” approach is healthier, and easier on parents. Related item here. Beware the wimpy parents.

And maybe spanking isn’t so bad.

UPDATE: Here’s a column I wrote a while back on related matters. Excerpt:

Meanwhile, in the United States, commentator John Gibson is calling for “procreation, not recreation.” But I think that attitude is part of the problem. (Procreation not recreation? As an old-timer once reportedly said in response to the Make Love, Not War, slogan: “Hell, in my time we did both.”)

But Gibson’s slogan unwittingly captures an important aspect of the problem, in the United States and other industrial societies, at least: We’ve taken a lot of the fun out of parenting. Or to echo Longman, the “social costs” of parenting continue to rise, and, more significantly, perhaps, the “social returns” continue to decline.

Parenting was always hard work, of course. But aside from the economic payoffs, parents used to get a lot of social benefits, too. But in recent decades, a collection of parenting “experts” and safety-fascist types have extinguished some of the benefits while raising the costs, to the point where what’s amazing isn’t that people are having fewer kids, but that people are having kids at all. . . . There’s also the decline in parental prestige over generations. My mother reports that when she was a newlywed (she was married in 1959) you weren’t seen as fully a member of the adult world until you had kids. Nowadays to have kids means something closer to an expulsion from the adult world. People in the suburbs buy SUVs instead of minivans not because they need the four-wheel-drive capabilities, but because the SUVs lack the minivan’s close association with low-prestige activities like parenting, and instead provide the aura of high-prestige activities like whitewater kayaking. Why should kayaking be more prestigious than parenting? Because parenting isn’t prestigious in our society. If it were, childless people would drive minivans just to partake of the aura.

In these sorts of ways, parenting has become more expensive in non-financial as well as financial terms. It takes up more time and emotional energy than it used to, and there’s less reward in terms of social approbation. This is like a big social tax on parenting and, as we all know, when things are taxed we get less of them. Yes, people still have children, and some people even have big families. But at the margin, which is where change occurs, people are less likely to do things as they grow more expensive and less rewarded.

So as we head into what looks like a major demographic debate, I think we need to look beyond subsidies and finances to culture. If people want to see Americans have more children, they should probably ignore Putin’s advice, and they should definitely ignore Gibson’s advice. They should look at ways of making parenting more rewarding, and less burdensome, in social as well as economic terms.

Read the whole thing, if I do say so myself. Plus, here’s a law-review article on how the legal system encourages “over-parenting.”

RICHARD EPSTEIN: Why Progressive Policies Always Fail.

We have rigged our tax policies so that, depending on the year, close to 40 percent of the income tax revenue comes from the 1 percent of the population that controls 20 percent of the wealth.

Close to half the population pays no federal income tax at all. This is a political disaster in the making.

The American economy is currently stagnating for two main reasons. At the top of the system, a relentless program of redistributive taxation undermines incentives for long-term investment and growth.

Yet from this vain pursuit of economic equality, we get declining standards of living for all. Simultaneously on the ground, excessive regulation of labor and real estate markets chokes off growth — employer by employer and house by house.

Our lopsided structure cannot last. Stock market losses cut the total income of so-called “one percenters” by around 30 percent between 2007 and 2009, with the greatest losses in the top 0.1 percent.

Higher tax rates will drive that overall level of wealth lower still, given that so little government revenue comes from the bottom half of the income distribution. Low tax revenues plus shiny new entitlements create an unsustainable situation where 40 percent of current expenditures are funded by long term debt, on which principal and interest payments will soon come due.

Something that can’t go on forever, won’t.


Also last night, the chairman of the supervisory board of China Investment Corporation, the country’s sovereign wealth fund, put further distance between China and the eurozone bail-out, saying that Europe’s bloated welfare state meant that people did not work hard enough.

“I think if you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of their worn out welfare societies,” Jin Liqun said in an interview with Al Jazeera television. “I think the labour laws are outdated – the labour laws induce sloth, indolence rather than hard working. The incentive system is totally out of whack.”

Eurozone leaders had been hoping that China would use some of its trade surplus to back the bail-out fund.

I couldn’t say it better myself.

UPDATE: Malaysian reader Daniel Riveong sends the link to the original interview. He blogged about it here.

HIGHER EDUCATION BUBBLE UPDATE: Learning from Australia? “In Australia, students each know in advance how much money is in their student-loan “account” so to speak. They know that when the money runs out, government support is over (unless the student is moving on to professional school, for example, in which case supplemental funds are made available). This means that the student has the incentive to make good decisions, stick with the program, and complete their studies in a timely manner. In other words, there is no such thing as a stipend runner who simply stays in the system for as long as possible to keep collecting student-aid rebates and avoid entering the repayment period.” This also encourages schools not to jack up the price.

RAPID PRICE DECLINES IN solar photovoltaic systems? “This does not mean that manufacturing costs are falling as fast as prices. For several years in the run up to the 2008 financial crisis demand for solar power was growing so fast due to government incentives (especially in Germany) that declines in production costs did not translate into declines in market prices. The recession caused a drop in demand while capacity was still growing. So prices are catching up with previous production cost declines. Companies are feeling more pricing pressures and a shake-out is going on with weaker players failing or merging.”

NOT CLEAR ON THE ROLE OF INCENTIVES: Italian Seismologists Charged With Manslaughter for Not Predicting 2009 Quake. “Italian government officials have accused the country’s top seismologist of manslaughter, after failing to predict a natural disaster that struck Italy in 2009, a massive devastating earthquake that killed 308 people. A shocked spokesman for the U.S. Geological Survey (USGS) likened the accusations to a witch hunt.”

The Italian justice system is looking like a bigger joke than usual, lately.

LARRY KOTLIKOFF AND ANDY WEISS look at tax plans for left and right. “Our country is saving nothing, investing nothing, growing more unequal, going broke and pulling apart. The current tax system makes these problems much worse. Our plan, called the Purple Tax Plan (www.thepurpletaxplan.org), provides a simple and transparent tax system with much better incentives to work and save, much greater revenue-generating capacity, and much greater equity. Best of all, both parties can call the plan their own.”


How often do omnibus spending bills go down to defeat? Approximately … never, as Dave Weigel reminds us, and pork is usually the reason why. Not only do omnibus bills appear only when the budgeting process has failed and funding becomes an urgent issue, they also get so large and stuffed with perks that few dare to challenge them.

In this case, though, earmark reformers got the edge thanks to the series of measures designed to impose transparency on pork requests. . . . this result vindicates the efforts of Porkbusters. When the outrage became high enough and transparency identified the offenders, the porkers abandoned their earmarks. As a result, we will see a reduction in spending, thanks to the new GOP majority in the House. The omnibus spending bill, chock-full of not just earmarks but funding for big-government programs, won’t be passed into law after all. Without pork, legislators will have no incentive to pass massive new spending by excusing it with self-promoting home district projects any longer, and the overall spending itself will become the focus — as it should have been all along.

The system worked. This was always going to be a long game on pork reform, and this is the first fruit of an effort started years ago.


WELL, THAT’S JUST SAD: Westboro Baptist Protesters Get Tires Slashed Following Protest Saturday.

UPDATE: Reader George Wilson writes:

I read about the Westboro tires and I was troubled. Their message is abhorrent even if constitutionally protected. When, however, does it become ‘fire in a crowded theatre’ I.e. An incitement to riot?

I’m not surprised about the counter protest but I am concerned about the tire slashing. It seems like a significant escalation. I wonder if this is a confluence of elite disregard for the feelings of the average American and the success of Muslim violence, threatened and real, in getting action. People learn by example.

Yes, when the authorities implicitly condone violence in causes that they support (or at least are afraid to oppose), it sends a more general message that violence works. I’ve warned about this incentive system in the past.

MISBEHAVING PROSECUTORS: A USA Today investigation finds egregious misconduct at the Department of Justice, with few consequences. . . . USA Today’s finding of little to no sanction for misbehaving prosecutors is consistent with other studies. Consequences, like taxes, are for the little people. “The number of federal laws reaches well into the thousands, and it’s growing. Many are so broadly written they allow prosecutors to ring just about anyone they please up on federal charges. This creates a system driven by politics, not justice. It makes criminals out of all of us, making actual enforcement of the law arbitrary and corruptible. Worse, every incentive for a federal prosecutor pushes in the direction of winning convictions, with little if any sanction for crossing ethical and legal boundaries in the process. It’s a system that’s not only ripe for abuse, but that actually rewards it.”

Maybe we should go for a “loser pays” system in criminal law. Couple that with fully-informed juries and you could get somewhere . . . .

Plus this: “Public choice theory teaches us that public servants act in their own interest in the same way private sector workers do. There’s nothing transformative about working in a DA’s office as opposed to, say, a white shoe law firm. You don’t shed self-interest to become purely noble and altruistic once you’re sworn into office. If anything, prosecutors should be given more scrutiny and oversight than other members of the legal profession. Private lawyers at best can influence courts and government officials to move money around. Prosecutors put people in prison and, in some cases, send defendants to their deaths. When they cheat, there ought to be consequences.”

UPDATE: Reader Michael Altman writes:

Dear Mr. Reynolds, as a former Assistant District Attorney in New York county, my experience is very different from your perception. When we first joined the Office Mr. Morgenthau made clear to us that our obligation was to “do justice,” not get convictions. He told us that he was most proud of the cases he ultimately declined to prosecute. While many prosecutors’ offices are not run as they should be, that doesn’t change the essential differences between prosecutors and attorneys in the private sector (including white shoe firms). A prosecutor’s obligation is to see justice done, the obligation of an attorney in the private sector is to zealously represent his or her clients within the applicable ethical guidelines.

The incentives don’t point this way nowadays.

THE IMPORTANCE OF APEX PREDATORS: What would happen if sharks disappeared?

UPDATE: Reader Rosie Moore writes:

I couldn’t help thinking, while watching the clip, of an analogy with the “economic ecosystem”. Many of the statements made about overfishing of sharks can be applied to the Fed’s punitive actions on the “predators” of the economy. Call the “makers” (entrepreneurs, venture capitalists, etc.) the “predators” and call the “takers” (those on gov’t entitlement programs) the “prey”. This Fed passes measures that discourage the “makers” from doing what they do well (for which, yes, they are sometimes paid obscenely) – invent new technology or drugs, create wealth (in the form of shareholder value), add jobs, supply competitors with incentive to be stronger, etc. – in the form of “sunsetting tax cuts”, handcuffs of new health care legislation, higher costs of securities and regulatory compliance, etc. So the “predators” are getting overfished – and we won’t know the final effect on the total “economic ecosystem” for a while, but you can bet it will strengthen the meek, the bunnies and deer, and be bad for the overall functioning of our free market system.

And to close the loop with the link – it will cost us plenty of clams!

I’m pretty sure the predator/prey relationship goes the other way . . . .

VULNERABILITY COMES CHEAP? There’s an increasingly open market in computer vulnerabilities.   Crooks buy them to construct “zero day” exploits that haven’t been seen before and that are likely to escape most malware detection systems.  Security firms buy the vulnerabilities to improve their detection programs.

So what’s the price of a new vulnerability?  A very limited study found that most vulnerabilities sell for $5,000 or less. Some of the posters at Slashdot are pleased that vulnerability sellers, presumed to be unscrupulous researchers and hackers, “aren’t making much money at it.”  But considering the lack of trust in any such market — the buyer doesn’t know the vulnerability is any good until it’s been clearly explained, and once the seller has clearly explained it, the buyer has no incentive to pay — $5,000 doesn’t seem all that cheap.

And if it is, should we celebrate?  A low price for computer vulnerabilities tells us something about the supply of vulnerabilities: Plenty more where those came from.  I don’t think we open champagne when the wholesale price of cocaine hits new lows.

This week, my crime column for Reason looks at 117 audio recordings of roll call meetings in a Brooklyn NYPD precinct that were recently obtained by the Village Voice.

Some background: Last March, a study from Molloy college suggested that NYPD higher-ups were pressuring police officers to under-report or reclassify serious crimes to juke the city’s crime stats. At about the same time, an NYPD officer released a few recordings in which his commanding officers can be heard telling rank-and-file cops that they’re required to meet a minimum number of arrests and citations each month. Both stories were played down by NYPD and its supporters.

The new recordings obtained by the Village Voice reinforce both sets of allegations made last March. The implications are pretty startling: As a matter of policy, NYPD seems to be encouraging its officers to harass innocent people, even to the point of arresting and detaining them for non-crimes (the city had a record 570,000 stop-and-frisk searches last year). At the same time, the department may be pressuring some officers and citizens to downgrade actual crimes–even serious ones–or to not report them at all.

We obviously want to hold government employees accountable. But it’s important that the metrics we use in doing so both reflect political realities and create a proper alignment of incentives. Much of what’s wrong with the criminal justice system today isn’t the product of evil or malevolent law enforcement personnel, but of poorly structured incentives put in place by bad policy. And bad policy usually comes from clueless politicians (the issue of crime seems particularly prone to unnuanced, slogan-based policy making).

I’ll look at other incentive problems within the criminal justice sysem in future posts this week.

ANN ALTHOUSE: Comedy Central cowers in the face of a murder threat/warning against “South Park” creators Matt Stone and Trey Parker. Obviously, Christians — and Sarah Palin fans, and lovers of My Mother The Car — should take heed of this incentive system our modern media is creating. Don’t want things you treasure satirized? Just issue a “prediction” and — voila! Meanwhile, note how entirely real radical Muslim threats and violence are treated as just part of the weather — something you have to adapt to — while nonexistent Tea Party violence is an existential threat to the Republic.

But here’s a warning of my own: Those who have no backbone will do the bidding of those who do.

SYSTEM LACKS INCENTIVES to curb big spending. Plus, I admit I’m at a loss.

MICKEY KAUS: What happens if Dems pass health care?

Look at the way various groups can be expected to react to the health care victory::

A–Will old people be happy? No, they’re kind of pissed off.

B–Will young people be happy? Well, they’re getting targeted by the mandate to buy insurance and milked by community rating to make the system solvent. So maybe not.

C–Will opponents of the bill like it? Obviously not. They will turn out.

D–Will supporters of the bill like it? Two subgroups here: i) Those who wanted more (like a public option or single payer) are disappointed and maybe angry and demoralized. But at least they have a good reason to show up at the polls (to elect liberals who will help them achieve what they want). ii) Those who didn’t necesarily want more–who are happy with the Pelosi/Reid product–have far less incentive to show up. For them, the deed is done. Unless, that is, Dems can somehow bait the Republicans into making repeal of Reid/Pelosi a hard-core pledge. …

I still expect the Democrats will hold the House and Senate, simply because (in part thanks to the Feiler Faster principle) the entire health care issue will seem like less of a big deal by November. But when you think about it in this category-by-category way, the outlook is kind of grim for the Dems, no? ….

But he sees a silver lining, of sorts.

ROUGHING UP THE MIDDLE CLASS. “For decades there has been debate about how to help the poor without discouraging work, saving or marriage. Yet with almost no notice just such disincentives have crept up the income ladder, observes economist C. Eugene Steuerle, a former Treasury official and expert on the taxation of families. . . . Work isn’t the only middle-class virtue that is getting punished. The system penalizes savings, too–not just through taxes, but also through programs that reward debtors, the profligate and college families that show up at the financial aid office with empty pockets. Yet another series of tax and benefit rules penalizes marriage. ‘This is a big social experiment. We really don’t know what the long-term effect of all these incentives is going to be,’ Steuerle says.”

My prediction: You’ll get more of what you reward, and less of what you punish. But maybe the political class is okay with that. “They’ll turn us all into beggars ’cause they’re easier to please.”

ONE-WAY FREE SPEECH. Hey, the cowards who run many of our institutions only believe in free speech for those they’re afraid of. May they have joy in the incentive system they’re creating.


Ezra wins on points. But here’s the thing: Army hospitals have all the advantages that single-payer advocates love about the VA. They’re unified. There’s no profit incentive–indeed, the doctors are on quite low salaries. They have great incentives for preventive care. They certainly don’t have any profit motive to provide bad care. So why did Walter Reed suck? And what guarantees that the VA is the system we’ll follow, rather than the multiple other dysfunctional government systems everyone hates?

And it’s not like the VA is so great. There’s the nationwide botched-colonoscopy problem, which still hasn’t been properly addressed. Then there’s that whole rogue cancer unit thing.

LIFE-PROLONGING: “If you look at the math on which the developed world is betting the future, government health systems will have huge incentives to develop ever greater institutional biases against ‘life-prolonging.'” There is, however, a better way.

NO RECESSION FOR THE POLITICAL CLASS: “The deepening economic recession hasn’t stopped members of Congress from throwing lavish events to raise campaign money for the 2010 election.” The worse America does, the better they do. Some incentive system, huh? . . . .

JOEL KOTKIN: Height of Power: The Washington Fiefdom Looms Larger Than Ever.

For more than two centuries, it has been a wannabe among the great world capitals. But now, Washington is finally ready for its close-up.

No longer a jumped-up Canberra or, worse, Sacramento, it seems about to emerge as Pyongyang on the Potomac, the undisputed center of national power and influence. As a new president takes over the White House, the United States’ capacity for centralization has arguably never been greater. . . . The contrast between Washington and most of the United States has gradually become more pronounced. In good times and in bad, lawyers, lobbyists and other government retainers have continued to enrich themselves even as the Midwest industrial-belt cities have cratered and most others struggled to survive. “The vision of generations of liberals,” admitted the New Republic in the mid-1970s, “has created a prosperous and preposterous city whose population is completely isolated from the people they represent and immune from the problems they are supposed to solve.”

Not a positive development. But Washington has grown because rival power centers have suffered for their mistakes — while Washington’s mistakes produce more power for Washington. Great incentive system, huh? (Via NewsAlert).

“DUTCH COURAGE.” The key to free speech is to frighten people, obviously. Great incentive system, there . . . .

SOME ECONOMIC QUESTIONS: I like this one: “Is it good public policy to have your entire electorate pay taxes? If so, why? If not, why not? I’m trying to figure out how it is healthy to have 35-40% of the electorate outside of the income tax system.” I think that everyone should pay something in income tax, and that the amount they pay should go up or down with total federal spending. Otherwise nobody has any incentive to control spending, and we wind up . . . well, where we are. More questions, and an invitation to discussion, at the link.


I really do not want to be that “greedy” guy whom Obama so hates. “Greedy,” loosely defined in Obamanomics, is 49 percent of voters. For the record, if you make $249,000 per year or less you are fine; somewhere around $250,000 and above, you are officially evil and he is coming after you.

I want to appease the new administration and not be too productive. So, upon Obama’s passing his new redistribution plan, I will slow my work schedule, lay off a few people (Obama’s got their back) and let someone else bust his tail since I will now be able to get “redistributed wealth” from those poor fools who are ambitious, energetic, work hard and have made good decisions.

I cannot wait, as I need a break. And it will be nice to not be vilified by politicians. It will feel good to be liked again.

Wish me luck for the next few years. I am looking forward to a respite from hard work, taxes and creating jobs.

You sure hear a lot of people saying this kind of thing. So what happens if this stops being a joke and becomes a trend?

UPDATE: A reader emails:

Count me among the ones seriously considering this. I’m in my mid-forties and run a company employing 124 people. Yes, I make more than 250K a year and pay out more than a million in salary and benefits. If my tax burden increases any more it simply isn’t worth it anymore and I’m seriously considering cashing out and semi-retiring. I won’t be able to live as well I once did, but that’s ok because I’d get by. It’s simply isn’t worth it if I don’t have the option of growing my business and just seeing the extra effort go to taxes to a wasteful government. I know it would result in at least half my people losing their jobs, but I couldn’t guarantee they could stay even if I did. Frankly, I’m just tired and if there is no reward for the extra effort why should I bother?

On the other hand, reader Dave Holsclaw is less positive:

Trouble is – when the evil folk who earn more than $250K fail to provide the necessary dollars to fulfill the dreams of The One, the sliding scale of evil will appear. Soon, those who earn $175K and then those who earn $105K will be identified as evil and have their property confiscated.

The story is always the same. The socialist/communist/fascist state destroys the productivity of the middle class, confiscates the fruit of their labor and enforces a two class system – the many (who labor to support the State), and the few – The One, his family and his chosen disciples (who enjoy the power, status and wealth that the State provides).

There is no such thing as simply slowing down and enjoying the dole.

The thief comes to kill and steal and destroy. That’s it.

Well, that’s a cheerful take.

ANOTHER UPDATE: Reader Scott Brooke writes:

I’ve been reading with great interest your theories on “going John Galt”. I’ve not read Atlas Shrugged yet, it’s sitting on my nightstand with a bookmark about 5 pages in, but I think I get the general gist of it. Perhaps there’s more reality in the book but the idea seems preposterous, no matter how appealing it might be to join such a quiet revolution. Successful people can’t just turn off their success DNA. They need it beaten out of them. And while I agree that Obama’s policies will begin the slow turning of the screws, we’re far from getting the beatings. No, successful people crave success, not money, although that often comes along with it. It’s part of their “being” to be successful. To think that people can shut that off is as silly as thinking poor people will stop being lazy if the government provides for them.

The tide works its magic over time but almost nothing happens to stop the slow erosion. People only “act” when there’s a hurricane. Obama and his “Hope” are a tide, not a hurricane. The best we can wish for is a slow retreat of the tide because without a hurricane, people will continue to be what they are at the core. Successful or lazy but no real change in action.

On the other hand, reader Jeff Stevenson writes:

You think that it hasn’t already started to become a trend? Please don’t forget that the very people who are saying these sort of things are *not* the sort that just talks. These are the folks who are action-oriented, start businesses and create jobs. They are not the sort to spout off and create “manifestos” and issue propaganda statements, they take action.

I do technology consulting in a high demand field and I have the ability to raise or lower my income, depending on how hard I feel like working. I am setup perfectly to react to the Obama/John Galt issue. I have read Atlas Shrugged and I am already *executing* a plan to work much less next year. Notice that I did not say that I was considering, or talking about, or thinking of. I have already shed customers and lined up a few reliable ones for the next year (and perhaps the one after that) to enable this plan.

I had initially targeted 2009 as an expansion year, hiring new people and growing the business. Now, maybe not so much.

See ya’ on the other side.

And Prof. Joe Olson writes: “FWIW, I turned down 3 consulting jobs this Fall (during which I’m not teaching) because the net return wasn’t enough for me to disrupt my travel and recreation plans.” Presumably it won’t get better under Obama’s plan.

MORE: Reader Kartik Gada writes:

For many years (especially the last 130 years), people came to America because the goverments of their home countries did not reward hard work or entrepreneurship. America attracted the best and brightest, and benefitted greatly. We drained the brains out of governments too foolish to nurture the full potential of their best people.

Now if America itself becomes a place that is tough for the best and brightest, not only will new immigrants stop coming here, but many US-born people may leave to find a new country with lower tax rates. People can leave America for much the same reason they came.

What if, say, China sets up a ‘special economic zone’ that attracts branches of major US corporations, and where US expats are courted, and offered a life of low or even zero income tax, good schools, etc. all while working at the same US corporations, just out of the China division? Some Americans would go. A marginal tax rate of 0=12% vs. 50% in California or New York is hard to turn down.

Furthermore, remember that the top 1% of Americans pay 40% of taxes. If that 1% leaves for a greener pasture, won’t revenue from income tax drop by 40%? What then?

Some smart country, somewhere in the world, will offer big incentives to over-taxed US private-sector people. Some will go. Many could go. That country will reap the biggest windfall ever. The US will effectively have scared away the geese that lay the golden eggs.

It could be an opportunity for someone.

STILL MORE: Reader Jim May writes: “Kartik Gada hits the nail on the head. I left Canada for the greater opportunity and freedom in America. I never expected Canada to follow me here.”

MORE STILL: Reader Rahul Biljani emails:

‘Going John Galt’ is not that easy – Congress quietly passed an ‘exit tax’ earlier this year to penalize any (somewhat) high net worth US resident that decides to vote with their feet.

As quoted in the links below, the U.S. government , through the Heroes Earnings Assistance and Relief Act of 2008 (the HEART bill, for short, and I am not making this up), effective June 17, 2008, imposes an “exit tax” on certain citizens and long-term residents who expatriate or terminate their long-term residency. Such individuals, called covered expatriates, will be deemed to have sold all of their worldwide property for its fair market value on the day before expatriating or terminating U.S. residency, and will be liable for U.S. tax on the amount deemed realized in excess of $600,000 (subject to cost of living adjustments).

Covered expatriates are: citizens and long-term residents who (a) have an average annual U.S. tax liability for the previous five years of $139,000 (adjusted for inflation), (b) have a net worth of at least $2,000,000 on the expatriation date, or (c) fail to certify compliance with all U.S. federal tax obligations for the previous five years.



Maybe the government has thought this out more than we think.


FINALLY: Reader Michael Hauk writes:

I’m sure you are getting boatloads of emails on this subject, but here is one more data point:

I am a physician in a highly paid and understaffed specialty. Many of my colleagues are openly discussing going part-time to lower our tax exposure, should Obama get his socialist wish-list through Congress. I did my medical training in the military, and had frugality instilled in my make-up by parents and grandparents who lived through the (real) Depression. My family and I already live well below our means, and we can live just as well on less. Much, much less.

Obama believes healthcare is a right. Well, good luck fulfilling that promise when those of us who provide it decide it’s not worth it anymore…

They’ll be going after slackers, hoarders, and wreckers . . . . More seriously, I don’t think the government would see a shortage of doctors as a problem. Instead, it’s an excuse to cut costs with wait-based rationing.

IT’S ENRON FANNIE MAE ACCOUNTING FOR THE ELECTORAL SYSTEM: “Mississippi’s voter situation is hard to believe. Places like Madison County have over 123% more registered voters than people over the age of 18.” We’re seeing a lot of that, and I’m worried that we’ll wind up with a crisis in confidence in the electoral system that will be worse than the financial crisis. In both cases, inside players have an incentive not to address the problem, but the consequences are likely to be dire for the rest of us. Really, 2000 should have been the wake-up call.

Of course, some of us have been sounding the warning for a while. Not to mention John Fund’s warning. Much good it’s done. . . .

GREG MANKIW FOCUSES ON WHAT’S IMPORTANT: “Here is a question that you may have been thinking about: How do the different candidates’ tax plans affect Greg Mankiw’s incentive to work?”

If there were no taxes, so t1=t2=t3=t4=0, then $1 earned today would yield my kids $28. That is simply the miracle of compounding.

Under the McCain plan, t1=.35, t2=.25, t3=.15, and t4=.15. In this case, a dollar earned today yields my kids $4.81. That is, even under the low-tax McCain plan, my incentive to work is cut by 83 percent compared to the situation without taxes.

Under the Obama plan, t1=.43, t2=.35, t3=.2, and t4=.45. In this case, a dollar earned today yields my kids $1.85. That is, Obama’s proposed tax hikes reduce my incentive to work by 62 percent compared to the McCain plan and by 93 percent compared to the no-tax scenario. In a sense, putting the various pieces of the tax system together, I would be facing a marginal tax rate of 93 percent. The bottom line: If you are one of those people out there trying to induce me to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place.

Perhaps this will lead a lot of people to “go John Galt.”