Tag Archives: Tim Lee

Talking About The Clause… No, Not That Claus

Andrew Sullivan rounds up some of this.

Josh Marshall at Talking Points Memo:

A year ago, no one took seriously the idea that a federal health care mandate was unconstitutional. And the idea that buying health care coverage does not amount to “economic activity” seems preposterous on its face. But the decision that just came down from the federal judgment in Virginia — that the federal health care mandate is unconstitutional — is an example that decades of Republicans packing the federal judiciary with activist judges has finally paid off.

Julian Sanchez on Marshall:

And the weird thing is, he’s right… sort of! It does seem like a surprising result, given the last century of Commerce Clause precedent, that anything plausibly describable as economic activity might be found beyond the power of Congress to micromanage. “Preposterous on its face,” even.

But isn’t it preposterous that it’s preposterous? Step back from that steady accretion of precedents and instead just ask how far a federal power to “regulate commerce…among the several states”—especially in the context of separate and parallel powers to regulate commerce with foreign nations and Indian tribes—can plausibly be stretched. Isn’t it the idea that “regulate commerce” could entail a power to require a private individual in a single state to buy health insurance that ought to seem kind of crazy? Shouldn’t we find it more intuitively preposterous that a provision designed for tariffs and shipping rules should be the thin end of the wedge for a national health care policy?

And yet it isn’t! It’s the denial of that infinitely flexible reading that now seems strange. And that’s really strange.

Megan McArdle on Sanchez:

Obviously, I agree with Julian.  I have been reading a lot of well-meaning liberals who are befuddled by the notion that conservatives are going after the mandate, when that runs the risk of bringing on single payer.  Personally, I kind of doubt that, but this is completely beside the point.  On a reading of the commerce clause that allows the government to force you to buy insurance from a private company, what can’t the government force you to do?

This doesn’t seem to be a question that interests progressives; they just aren’t very excited about economic liberty beyond maybe the freedom to operate a food truck.  And so they seem genuinely bewildered by a reading of the commerce clause that narrows its scope, or an attempt to overturn the mandate even though this might lead us into a single payer system.  If you view this solely as tactical maneuvering, perhaps it really is preposterous.

And of course, for some conservatives, these operations are tactical, but for a lot, it’s an actual horror at the ever-expanding assertion of government powers.  I’d like it if they’d get equally horrified about, say, the TSA and the drug laws, but there you are: neither side is as consistently supportive of liberty as I’d like.

Radley Balko:

Next, I posed this question to Chris Hayes on Twitter, so I’ll pose to those of you who read this site who are outraged by the Hudson ruling: Putting aside what’s codified Bill of Rights, which was ratified after the main body of the Constitution, do you believe the Constitution puts any restrictions on the powers of the federal government?

If your answer is yes, what restrictions would those be? And what test would you use to determine what the federal government can and can’t do? I’ve written this before, but after Wickard, Raich, and now, if you support it, the health insurance mandate, it’s hard to see what’s left that would be off-limits. I mean, during her confirmation hearings, Elena Kagan couldn’t even bring herself to say that it would be unconstitutional for the federal government to force us to eat vegetables every day. (She did say it would be bad policy — but that’s a hell of a lot different.)

If your answer is no, that is, that the Constitution puts no real restraints on the federal government at all, why do you suppose they bothered writing and passing one in the first place? I suppose an alternate answer might be that the Constitution does place restrictions on the federal government, but those restrictions have become anachronistic given the size of the country, the complexity of modern society, and so on. To which my follow-up question would be, do you believe there should be any restrictions on the powers of the federal government? Let’s say, again, beyond those laid out in the Bill of Rights.

I guess to get at the meat of the disagreement, I should ask one more: Do you buy into the idea that the people delegate certain, limited powers to the government through the Constitution, or do you believe that the government can do whatever it wants, save for a few restrictions outlined in the Constitution? It’s not an unimportant distinction. I’m not sure it’s consistent to believe that the government gets its power from the people, but the people have gone ahead and given the government the power to do whatever it wants.

I’m not trying to be cute. I’m genuinely interested in how people on the left answer these questions. Rep. Pete Stark, a liberal Democrat, said a few months ago that he believes there are no constitutional restrictions on what the Congress can do. To hear from a sitting Congressman was refreshingly honest. And terrifying.

Jonathan Chait at TNR:

The conservative argument, reflected in Republican judge Henry Hudson’s ruling against the individual mandate, is that purchasing health insurance is the ultimate individual decision, and that abridging this liberty would, in Hudson’s words, “invite unbridled exercise of federal police powers.” If the individual mandate is permissible, writes George Will, then “Congress can doanything – eat your broccoli, or else – and America no longer has a limited government.” Megan McArdle echoes, “On a reading of the commerce clause that allows the government to force you to buy insurance from a private company, what can’t the government force you to do?”

This is the intellectual rationale for the hysterical conservative response to the pasaage of health care reform. By this line of reasoning, the individual mandate springs from a paternalistic desire to compel individuals to engage in behavior that affects nobody but themselves.

But of course, the decision not to purchase health insurance is the very opposite. Those who forego health insurance are forcing the rest of us to cover their costs if they exercise their right to be treated in an emergency room. They are also forcing the rest of us to pay higher insurance rates, now that insurance companies can no longer exclude those with preexisting conditions. That, of course, is exactly why conservatives supported it for so long.

Conservatism’s sudden lurch from supporting (or tolerating) the individual mandate to opposing it as a dagger in the heart of freedom is a phenomenon that merits not intellectual analysis but psychoanalysis. This is simply how conservatives respond in the face of every liberal advance. At such moments the nation is always teetering on the precipice between freedom and socialism. The danger never comes to pass, yet no lesson is ever learned. We simply progress intermittently from hysterical episode to hysterical episode.

Conor Freidersdorf at The American Scene on Chait:

It’s handy to argue against the generalized hypocrisy of incoherent ideological adversaries, though I don’t think that describes Megan McArdle, Julian Sanchez, Radley Balko, or many others who see constitutional problems here, myself included. I’ll see if I can make a case without lapsing into hysteria: If the Obama Administration’s health care reform bill stands, I do not imagine that America is going to cease to be free, or that a decisive blow in the battle between capitalism and socialism will have been struck. Although I would’ve preferred different variations on health care reform, I am not even expert enough to know for sure whether they’d have been more successful.

What does worry me is the notion that the federal government is no longer an entity of enumerated powers – that a limit on its scope purposefully established by the Founders no longer exists. It used to be a check and balance. Is it now completely gone?

If Judge Hudson’s ruling is upheld, I’ll celebrate not because I fear Obamacare – I’m cynical enough to suspect that whatever came next might well make me even worse off – but because a limit on federal power that I care about generally has been re-asserted.

Should his ruling be overturned, I’ll be disappointed because the precedent troubles me: if the commerce clause can prevent me from growing marijuana in my backyard and mandate that I buy a particular kind of health insurance that covers far more than emergency room care, what Congressional action can’t it cover? You’d think from Chait’s post that liberals never approach matters of constitutional law in this way, looking past the utility in a given policy area to ask what the long term implications are for state power.

What I’ve yet to see answered to my satisfaction is Radley Balko’s question

Chait responds to Friedersdorf:

Let me try to reiterate my point.

The legal merits of Hudson’s ruling, which seem to be totally daft, are themselves piggybacked upon a policy argument which is itself highly unpersuasive at best. The political argument, endorsed by Friedersdorf, maintains that the individual mandate represents some dramatic new imposition of Congressional power. Congress’s power may have grown over the years, the argument holds, but the individual mandate represents some new frontier of intrusiveness. It is forbidding an activity (or inactivity) that is more personal and less intertwined with the economy as a whole than almost any previous regulation. It is not dramatically different than a law requiring people to eat broccoli.

But this is totally incorrect. In reality, the individual mandate is much less intrusive and paternalistic than many regulations accepted as Constitutional. The rationale isn’t to make people buy insurance because it’s good for them. If people want to accept the risk of illness on their own, that’s fine. The issue is precisely that they can’t do this without forcing the rest of us to pick up the tab when they 1) show up at the emergency room, or 2) decide to buy private insurance in a now-regulated market.

Regulations to prevent people from offloading their risks onto others are extremely common and extremely necessary. So, again, the right’s portrayal of this as a dramatic expansion of the scope of Congressional action is wildly misleading, and it owes itself not to any sober analysis of federal power but to the psychology of reaction.

Now, Friedersdorf is correct to point out that some libertarians who are not partisan Republicans have endorsed this argument as well. In my view this is a group of people who are deeply inclined to support limited government, and have latched onto an argument in favor of limited government that has gained a political foothold without subjecting the merits of the case to serious scrutiny. They think the case is about drawing a new line against the expansion of Congressional economic power, when in fact the line is far behind the old one.

Freidersdorf responds to American Scene:

Actually, I am endorsing a somewhat different argument, and I apologize if I misstated my position or was less than clear about it. It isn’t that I think the individual mandate is an imposition of Congressional power more dramatic than anything seen before. It is merely one example of the longstanding Congressional tendency to justify all manner of things – gun free school zones, legislation to prevent violence against women, the ability to grow marijuana in my backyard, etc. – under the banner of the commerce clause. Where I come down on these cases has nothing to do with policy arguments: on the merits, some seem like good ideas to me, and others seem like bad ideas, but none strike me as attempts to regulate interstate commerce unless that task is so broad that it imposes no meaningful limit on the scope of federal power. (Speaking of which, I’d still like to see Chait and Kevin Drum answer Radley Balko’s question.)

Chait writes:

Friedersdorf is correct to point out that some libertarians who are not partisan Republicans have endorsed this argument as well. In my view this is a group of people who are deeply inclined to support limited government, and have latched onto an argument in favor of limited government that has gained a political foothold without subjecting the merits of the case to serious scrutiny. They think the case is about drawing a new line against the expansion of Congressional economic power, when in fact the line is far behind the old one.

I actually agree that the individual mandate doesn’t constitute an obvious high water mark when it comes to legislation passed under the umbrella of the commerce clause. But surely Chait understands how constitutional challenges work. Most people who care about the principle at stake don’t get to choose the partisan blowhards on the same side of the issue, let alone the case that someone with standing files, that winds its way through the courts, that results in a favorable ruling, and that has a chance of making it to the Supreme Court. The individual mandate may not constitute a high water mark as legislation, but if it ends up being a SCOTUS test case, the majority opinion that results might well entrench a precedent that goes farther than any before it, and determines the future of the commerce clause for generations. To me, Linda Greenhouse is right: the issue at stake is whether the Rehnquist Court’s jurisprudence is going to be killed in infancy or mature into a more expansive body of law.

Noah Millman also responded to my earlier post.

He writes:

…it is unquestionably within the power of Congress to tax, and the mandate could have been structured as a tax-plus-voucher scheme that would have had exactly identical effects. Does that mean that the law is constitutional? If not, then the reason is entirely some notion of precedent – that if this form of the law is Constitutional then other mandates that could not obviously be structured as a tax (“From this day on, the official language of San Marcos will be Swedish. Silence! In addition to that, all citizens will be required to change their underwear every half-hour. Underwear will be worn on the outside so we can check. Furthermore, all children under 16 years old are now… 16 years old!”) would also be acceptable. If that’s the argument that’s being made, then why are we arguing about the health insurance mandate as such being a threat to freedom?

First of all, the judicial precedent in this case won’t necessarily apply only to future commerce clause cases that involve mandates. Second, people are talking about the mandate as a threat to freedom for all sorts of reasons, many of them nonsensical. There are two arguments that I regard as plausible. One is that the mandate is particularly troubling because it requires payments to powerful corporations that spent millions of dollars lobbying the very people who wrote and passed health care reform. Call it the wonko-industrial complex. What if it gets out of control?! But that isn’t my position. It’s the second argument that I am making: it’s the jurisprudential precedent and the implications for the commerce clause and federalism generally that matter.

Tim Lee:

I get what Julian, Radley, and Megan are saying, and in principle I agree with them. A fair-minded reading of the constitution and the debates that surrounded its enactment makes it pretty clear that the founders’ goal was to create a federal government of far more limited powers than the one we’ve got. But I’m finding it awfully hard to get excited about the federalist boomlet sparked by Judge Hudson’s ruling that the ObamaCare insurance mandate is unconstitutional. I’m not a big fan of ObamaCare, and I wouldn’t be too sad to see portions of it struck down by the courts. But the rank opportunism of the Republican position here is so obvious that I have trouble working up much enthusiasm.

There’s nothing particularly outrageous about the health care mandate. The federal government penalizes people for doing, and not doing, any number of things. I’m currently being punished by the tax code for failing to buy a mortgage, for example. I’d love it if the courts embraced a jurisprudence that placed limits on the federal government’s ability to engage in this kind of social engineering via the tax code. But no one seriously expects that to happen. The same Republican members of Congress who are applauding Hudson’s decision have shown no qualms about using the tax code for coercive purposes.

The test case for conservative seriousness about federalism was Raich v. Gonzales, the medical marijuana case. Justices Scalia and Kennedy flubbed that opportunity, ruling that a woman growing a plant in her backyard was engaging in interstate commerce and that this activity could therefore be regulated by the federal government. If Scalia and Kennedy now vote with the majority to strike down portions of ObamaCare, it will be pretty obvious that they regard federalism as little more than a flimsy pretext for invalidating statutes they don’t like. Or, worse, for giving a president they don’t like a black eye.

Joshua Holland on Balko:

The question’s a straw-man — as evidence that “the left” flatly rejects all limits on the federal government, Balko offers up a statement by Rep. Pete Stark, a liberal from California, which was taken at least somewhat out of context during a town haul meeting with constituents and turned into a minor brouhaha by Andrew Breitbart’s crew a few months back.

More importantly, premising the question on us “setting aside the Bill of Rights” and amendments 11-27 just because they were ratified after the fact is disingenuous. As soon as an amendment is ratified, it becomes part of the United States Constitution, and those amendments happen to codify most of the constraints on the federal government that liberals hold to be the most important. (Balko’s a good civil libertarian who thinks they’re pretty important too.)

Essentially, he’s saying, ‘aside from preventing the government from limiting your right to speak, worship, assemble, petition government for redress, searching or seizing your stuff without due process, forcing you to incriminate yourself, enacting policies that discriminate on the basis of race and gender and guaranteeing a dozen other cherished freedoms, are there any constraints at all that you lefties find legit?’

That aside, the longer answer is that the Framers obviously didn’t create a detailed, step-by-step handbook for governing the U.S., and they didn’t try to anticipate every conflict that might come up in this new federal system they were cooking up. But they knew that conflicts would in fact arise, and they created a court to adjudicate those conflicts. It’s an enumerated power!

Now, the issue before us is what economic activities (or non-activities) the Commerce Clause empowers the feds to regulate, and the Supreme Court has used an expansive – and, yes, expanding – interpretation of that clause for close to 75 years.

Balko, like his fellow libertarians, and, less consistently, conservatives, doesn’t like that interpretation, which is his right. But it is nevertheless what’s known as a “super-precedent” – jurisprudence that’s been tested and affirmed in a not one or two, but a series of cases decided by the courts over the years.

Until maybe 20 or 30 years ago, the idea that judges should, accept in very rare cases, defer to precedent was a key tenet of judicial conservatism. That’s changed somewhat with the right’s focus on “originalism” – the idea that justices should try to glean the original intent of the Framers and put a little less emphasis on upholding precedent. (That shift is why, ironically, when one defines “judicial activism” as a willingness to overturn past rulings, conservative justices have been shown to be far more activist than liberals in recent times.)

So, a shorter answer, speaking as just one lefty, is that I accept any constraints on the government that the Supreme Court, guided, as it should be, not only by the text of the Constitution but also by past precedent– and checked by the states and the executive and legislative branches via the amendment process — holds to be legitimate.

Scott Lemieux on Balko:

Well, I don’t really see the Bill of Rights as a mere aside; these limitations are very important. But that said, to play the mild contrarian I don’t actually have any objection to U.S. v. Lopez. When a statute is not a regulation of economic activity, has no jurisdictional hook, has no necessary connection to a broader regulatory regime, and Congress can’t be bother to explain what the connection to interstate commerce is or why federal action is necessary…I don’t really have a problem with the Supreme Court ruling the statue as beyond Congress’s authority. And while I disagree with United States v. Morrison, this is primarily because I strongly reject the narrow conception of Congress’s enforcement power under Section 5 of the 14th Amendment. I have no problem saying that the commerce clause limits federal ability to intervene in purely local crime enforcement.

Now, I assume the libertarian response will be that this isn’t much, and…this is right. I don’t think in a modern industrial economy there’s any point in the Supreme Court trying to make distinctions between “local” and “national” economic regulations.

One thing I would add, though, is that saying that the Court should not strike down economic regulations under a narrow interpretation of the Commerce Clause is not to say that the power of Congress is unlimited. As many of you know, Madison did not feel that “parchment barriers” were the most important protection against excessive government. Rather, he felt that an institutional design featuring multiple veto points was the central protection. And, in fact, Madisonian institutions have been effective — from my non-libertarian perspective, often much too effective — in limiting the authority of the federal government to regulate the economy. I think these limits are (more than) sufficient, and having the courts try to apply a conception of economic powers more meaningful in an 18th-century agrarian economy doesn’t make any sense.

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Liberaltarians Are So 2006

Will Wilkinson:

Of Matt Yglesias’s sensible approach to regulation, Conor Friederdorf writes:

Being someone who understands progressives, Mr. Yglesias makes the case for deregulation in terms likely to appeal to his colleagues on the left. What would be nice is if more people on the right could be similarly persuasive. Of course, capitalizing on common ground or winning converts on individual issues requires an accurate understanding of what motivates people with different ideologies, so it isn’t surprising that a Yglesias fan invoked Cato in that Tweet. It’s a place where several staffers are daily deepening our understanding of where liberals and libertarians can work together.

I’m glad Conor recognizes the value of the work some of us at Cato have been doing to make productive liberal-libertarian dialogue and collaboration possible. Alas, all good things must come to an end.

Via the Kauffman Foundation

Brink Lindsey Joins Kauffman Foundation as Senior Scholar

Economic researcher and author to contribute to Kauffman’s growing body of work on firm formation and economic growth

KANSAS CITY, Mo., Aug. 23, 2010 – The Ewing Marion Kauffman Foundation today announced that Brink Lindsey has joined the Foundation as a senior scholar in research and policy. Lindsey will use his expertise in international trade, immigration, globalization and economic development to identify the structural reforms needed to revive entrepreneurial innovation, firm formation and job creation in the wake of the Great Recession.

As for me, my official last day at Cato is September 15. Expect more blogging and sketches.

David Weigel:

The libertarian Cato Institute is parting with two of its most prominent scholars. Brink Lindsey, the institute’s vice president of research and the author of the successful book The Age of Abundance, is departing to take a position at the Kauffman Foundation. Will Wilkinson, a Cato scholar, collaborator with Lindsey, and editor of the online Cato Unbound, is leaving on September 15; he just began blogging politics for the Economist.

I asked for comment on this and was told that the institute does not typically comment on personnel matters. But you have to struggle not to see a political context to this. Lindsey and Wilkinson are among the Cato scholars who most often find common cause with liberals. In 2006, after the GOP lost Congress, Lindsey coined the term “Liberaltarians” to suggest that Libertarians and liberals could work together outside of the conservative movement. Shortly after this, he launched a dinner series where liberals and Libertarians met to discuss big ideas. (Disclosure: I attended some of these dinners.) In 2009 and 2010, as the libertarian movement moved back into the right’s fold, Lindsey remained iconoclastic—just last month he penned a rare, biting criticism of The Battle, a book by AEI President Arthur Brooks which argues that economic theory is at the center of a new American culture war.

Did any of this play a role in the departure of Lindsey and Wilkinson? I’ve asked Lindsey and Wilkinson, and Wilkinson has declined to talk about it, which makes perfect sense. But I’m noticing Libertarians on Twitter starting to deride this move and intimate that Cato is enforcing a sort of orthodoxy. (The title of Wilkinson’s kiss-off post, “The Liberaltarian Diaspora,” certainly hints at something.)

Ilya Somin:

There are two big problems with Weigel’s insinuation. First, Cato has not changed or even deemphasized any of its positions on those issues where they have long differed with conservatives including the war on drugs, immigration, foreign policy, and others. If they were trying to move “back into the right’s fold,” one would think they would pulled back on these positions at least to some noticeable extent. Yet a quick glance at Cato’s website reveals recent attacks on standard conservative policies on Afghanistan, and the “Ground Zero mosque,” among other issues.

Second, it is strange to claim that Cato got rid of Lindsey for promoting a political alliance with the left at the very time when Lindsey himself recently disavowed that very idea, stating that “it’s clear enough that for now and the foreseeable future, the left is no more viable a home for libertarians than is the right.” If Cato objected to Lindsey’s advocacy of an alliance with the left, one would think they would have purged him back when he was actually advocating it, not after he has repudiated it. Wilkinson does still favor liberaltarianism, but apparently only as a philosophical dialogue. He holds out little if any prospect of an actual political coalition between the two groups.

Both Lindsey and Wilkinson have done much important and valuable work, and Cato is the poorer for losing them. At this point, however, there is no evidence that their departure was caused by a “purge” of liberaltarians intended to bring Cato “back into the right’s fold.”

CONFLICT OF INTEREST WATCH: I am a Cato adjunct scholar (an unpaid position). However, I am not an employee of Cato’s, and have no role in any Cato personnel decisions. In this particular case, I didn’t even know it was going to happen until it became public.

Daniel Foster at The Corner:

I won’t speculate on what’s going on at Cato. But, as much as I respect Brink Lindsey, both he and Wilkinson often expressed contempt for conservatism andconservative libertarians — Cato’s base, as it were — that probably didn’t help their causes. In Lindsey’s case, it was tempered by a kind of anthropological aloofness; in Wilkinson’s, less so.

American libertarianism is queer in that it can admit both rationalists and conservatives in the Oakeshottian senses. Reading Wilkinson it becomes clear that he is a classic rationalist. He derives his libertarianism a priori — a set of propositions on a chalkboard. Contrast with, for example, the average tea partier, who gets his as a uniquely American historical inheritance — a full-blooded tradition. Like most rationalists, Wilkinson thinks this is not just silly and sentimental but pernicious (one of his biggest bugaboos is patriotism).

And so, holding the same set of basic principles, but with different reasons, sends these two kinds of libertarians in two very different directions: the rationalists off toward liberaltarianism; the conservatives the classic Buckley-National Review fusionism.

Matt Welch at Reason

Alex Pareene at Gawker:

Various libertarians (and, to a much lesser extent, liberals) have wondered, as Lindsey did in that 2006 piece, why libertarians so often align themselves with conservatives instead of liberals. Considering the number of anti-libertarian policies the conservative movement fights for, it seems slightly odd that libertarians would act as an arm of that movement. But I think the answer is sort of obvious: While some outlets, like those leather jacket-wearing rebels at Reason, just tend to go after whoever’s currently in power, most of the big libertarian institutions are funded by vain rich people. And these vain rich people care a lot more about tax policy (specifically a policy of not having to pay taxes) than they do about legalizing drugs or defunding the military-industrial complex. And if they’re keeping the lights on at Cato and AEI, they want Cato and AEI to produce research that relates more to hating the IRS and the EPA than to hating the NYPD or the FBI.

And Cato was born as a Koch family pet project. As in the Koch family that is bent on the political destruction of Barack Obama.

Anyway, Lindsey and Wilkinson aren’t saying anything about their departures, but, as Dave Weigel writes, it looks for all the world like “Cato is enforcing a sort of orthodoxy.”

A libertarian influence on the Democratic party in the realms of law enforcement, drug policy, and civil liberties would definitely be a good thing. But the big libertarian institutions are not really amenable to working with liberals.

Steve Benen:

But what’s especially interesting to me is how often we’ve seen moves like these in recent years. David Frum was forced out at the American Enterprise Institute after failing to toe the Republican Party line. Bruce Bartlett was shown the door at the National Center for Policy Analysis for having the audacity to criticize George W. Bush’s incoherent economic policies.

In perhaps the most notable example, John Hulsman was a senior foreign policy analyst at the right’s largest think tank, the Heritage Foundation. Hulsman was a conservative in good standing — appearing regularly on Fox News and on the Washington Times‘ op-ed page, blasting Democrats — right up until he expressed his disapproval of the neoconservatives’ approach to foreign policy. At that point, Heritage threw him overboard. Cato’s Chris Preble said at the time, “At Heritage, anything that smacks of criticism of Bush will not be tolerated.”

A few years later, Cato seems to be moving in a very similar direction.

Intellectually, modern conservatism is facing a painfully sad state of affairs.

John Quiggin:

These departures presumably spell the end of any possibility that Cato will leave the Republican tent (or even maintain its tenuous claims to being non-partisan). And Cato was by far the best of the self-described libertarian organizations – the others range from shmibertarian fronts for big business to neo-Confederate loonies.

On the other hand, breaks of this kind often lead to interesting intellectual evolution. There is, I think, room for a version of liberalism/social democracy that is appreciative of the virtues of markets (and market-based policy instruments like emissions trading schemes) as social contrivances, and sceptical of top-down planning and regulation, without accepting normative claims about the income distribution generated by markets. Former libertarians like Jim Henley have had some interesting things to say along these lines, and it would be good to have some similar perspectives

Chris Bodenner at Sully’s place:

With Lindsey and Wilkinson out, perhaps there’s a chance for Nick Newcomen, the Rand fan who drove 12,000 miles with GPS tracking “pen” to scrawl the message above?  If nothing else, his ideological chops are unassailable.

UPDATE: Heather Hurlburt and Daniel Drezner at Bloggingheads

Arnold Kling

Tim Carney at The Washington Examiner

Tim Lee here and here

James Poulos at Ricochet on Lee

UPDATE #3: David Frum at FrumForum

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The Blogosphere Puts It In Park

Tyler Cowen at NYT:

IN our society, cars receive considerable attention and study — whether the subject is buying and selling them, the traffic congestion they cause or the dangerous things we do in them, like texting and talking on cellphones while driving. But we haven’t devoted nearly enough thought to how cars are usually deployed — namely, by sitting in parking spaces.

Is this a serious economic issue? In fact, it’s a classic tale of how subsidies, use restrictions, and price controls can steer an economy in wrong directions. Car owners may not want to hear this, but we have way too much free parking.

Higher charges for parking spaces would limit our trips by car. That would cut emissions, alleviate congestion and, as a side effect, improve land use. Donald C. Shoup, professor of urban planning at the University of California, Los Angeles, has made this idea a cause, as presented in his 733-page book, “The High Cost of Free Parking.”

Many suburbanites take free parking for granted, whether it’s in the lot of a big-box store or at home in the driveway. Yet the presence of so many parking spaces is an artifact of regulation and serves as a powerful subsidy to cars and car trips. Legally mandated parking lowers the market price of parking spaces, often to zero. Zoning and development restrictions often require a large number of parking spaces attached to a store or a smaller number of spaces attached to a house or apartment block.

If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now — and people would be more careful about when and where they drove.

The subsidies are largely invisible to drivers who park their cars — and thus free or cheap parking spaces feel like natural outcomes of the market, or perhaps even an entitlement. Yet the law is allocating this land rather than letting market prices adjudicate whether we need more parking, and whether that parking should be free. We end up overusing land for cars — and overusing cars too. You don’t have to hate sprawl, or automobiles, to want to stop subsidizing that way of life.

As Professor Shoup wrote, “Minimum parking requirements act like a fertility drug for cars.”

Under a more sensible policy, a parking space that is currently free could cost at least $100 a month — and maybe much more — in many American cities and suburbs. At the bottom end of that estimate, if a commuter drives to work 20 days a month, current parking policy offers a subsidy of $5 a day — which is more than the gas and wear-and-tear costs of many round-trip commutes. In essence, the parking subsidy outweighs many of the other costs of driving, including the gasoline tax.

In densely populated cities like New York, people are accustomed to paying high prices for parking, which has helped to encourage a relatively efficient, high-density use of space. Yet even New York is reluctant to enact the full social cost of the automobile into policy. Proposals to impose congestion fees have failed politically, and on-street parking is priced artificially low.

Matthew Yglesias

Arnold Kling:

I am not sure that the argument is correct. I worry that there is a lot of confusion between fixed costs and marginal costs. Creating a parking place carries fixed costs. However, the marginal cost of using a parking space is often zero.

The marginal cost of using a cell phone network is often zero, so your cell phone company tries to offer you a plan that makes the marginal cost feel like zero to you. It could be that free parking emerges for the same reason.

If we abolished free parking, would parking spaces be scarcer? Keep in mind that if the price of parking went up, this would cause movement along the supply curve as well as along the demand curve. Maybe the total number of parking places would decline (it depends on elasticities), but the one result you can predict with certainty is that the number of unused parking places would go up. Is that necessarily welfare-improving?

Suppose I have a piece of land that could be used for parking or for other purposes. You might argue that having a price for parking would send me a clearer signal about the best use.

However, the cost of converting that land from one use to another is very high, so I have to choose one purpose or the other and stick with it. One exception to high conversion cost is lanes that change from parking lanes to traffic lanes during rush hour. There, the price of parking during rush hour is very high (you get ticketed and towed), and that seems to work.

Once I have decided to use land as a parking place (say, land in front of a store), then there is no reason for me to want to deter people from parking in empty spaces. That suggests charging a price of zero other than at peak times.

The problem is one of congestion pricing. You need paid lots to charge people to park at peak times, such as concerts or sporting events.

Cowen responds:

The key is not to “abolish” free parking, but to a) abolish minimum parking requirements, and b) put prices or higher prices on congested municipal-owned parking spaces.  Both a) and b) will lower the demand for parking and a) will lower the supply of parking, so why should the number of unused parking spaces necessarily go up?  If you treat something as an appropriately scarce resource, it should be used more effectively.

There are plenty of DC restaurants which don’t have their own parking lots, but they use paid valet parking and find ingenious ways to store cars more effectively.  The parking fee means that some people walk there or use the Metro, rather than driving and parking.  No one finds this arrangement especially objectionable and while valet parking is at a discount to market still it is priced.  At lunch time valet parking is less likely but still people pay to park, usually in nearby lots.  No one would suggest that these restaurants be forced to put in minimum parking.  Nor would anyone suggest that mandated minimums would be neutral with respect to parking efficiency.

I’m simply asking for the same switch in reverse, namely to do away with minimum parking requirements.  Very likely, such a change will have a bigger impact on future developments than on past developments (it can be hard to reconfigure a parking lot), although some malls might sell off or rent their now-liberated parking spots to other commercial ventures.

Mark Thoma:

I don’t have much to say about this in particular, just a general point about moving to market based allocations of some goods and services, particularly those controlled by government.

As the price of a good or service rises, it begins to price some people out of the market. I don’t mean that they choose to consume other things instead, I mean that no matter how much they want it, they can never have it. It’s not a matter of desire, or willingness to pay, they simply cannot raise the needed funds — it’s just not possible to afford the good or service in question.

Because of this there are some goods and services controlled by government, national parks come to mind, where we choose to allocate goods by other means than the price system, lotteries, waiting time, random draws, that sort of thing. It generally occurs when we think equity is a primary consideration, i.e. that everyone should have a relatively equal shot at consuming a good or service.

For example, suppose we believe that everyone should at least have a chance to swim in the ocean. Willingness to wait indicates desire for the good in the same way that willingness to pay does, and this can be used to allocate the good or service. That is, willingness to circle for a period of time looking for a parking place so you can go to the beach — which varies with demand for parking in that area — indicates the depth of desire to do this activity and thus has desirable allocative properties — and we can eliminate the externalities Tyler is worried about through a tax on carbon and congestion at the pump. The supply of parking, which is controlled by government, could be determined by the carrying capacity of the beach, which is itself influenced by considerations such as habitat protection that private markets may not handle well in any case. And, of course, public transportation could be provided as an alternative, but that’s not available to everyone so some parking would likely be needed. Perhaps parking wouldn’t be all that expensive, or maybe it would given the prices Tyler cites in the article for places like California, but the example is intended mainly to illustrate that prices aren’t the only allocation mechanism available, and that sometimes other alternatives are desirable. There are certainly cases where price is a barrier and we choose to allocate goods by other means.

Robin Hanson:

Re Mark Thoma, if we were concerned about overall equity of utility, we’d just give the poor more money and let them buy what beach trips they wanted. If we paternalistically thought poor folk irrationally buy too few beach trips (why?!), we might give them beach travel vouchers. But surely the vast majority of free parking is not well explained by our thinking the poor irrationally take too few car trips.

Re Arnold Kling, I didn’t see Tyler saying to force prices above marginal cost; he just opposed laws requiring excess supply. Why should we treat parking spots much different than thousands of other familiar products whose average costs are often above marginal costs? Should we require every mall to have enough movie theaters seats to handle the premier of a record blockbuster, all because since theatres are rarely full their marginal cost is near zero?  How about similarly requiring a vast supply of restaurant tables which would then rarely be full?

Sometimes good economic analysis says that the world should be different than it is. Yes you should wonder if such an analysis is missing something important. But you shouldn’t strain too much just to justify the status quo. We require the creation of way too much parking, and we’d be better off to coordinate to stop it.

Kling responds to Hanson:

So, there are two issues.

a. How much land should be devoted to parking spaces?
b. Given the answer to (a), what should be the price for parking?

I argue that for (b) the answer is often zero. A higher price would simply result in unused parking places, which does not increase welfare. Robin is falling back on issue (a), and here the thinking is that the state provides, either directly or through regulation, more parking spaces than are optimal.

Suppose there were no state provision of parking places. What would the equilibrium look like? Some possibilities:

1. You get Berlin, where the public transit is highly efficient and lots of people ride bicycles, even in the rain.

2. Individual housing developments and businesses undersupply parking. The thinking is that if parking runs out in front of your business, your customers will use the parking spaces in front of the business next door. This leads to stores putting up warning signs that say, “unless you patronize my store, your car will be towed.” Neighborhoods put up signs that say, “unless you have a residential permit, your car will be towed.” This imposes all sorts of enforcement costs as well as inefficient use of space. The warning signs often deter people from parking in places where they impose no cost at that particular time.

3. Land use responds, but not toward the Berlin scenario. On the contrary, businesses relocate farther away from cities, to locations where parking is cheap to supply and you don’t get into fights with other businesses about towing rules. Housing developments are built without street parking but instead with large driveways–in effect, each household requires its own oversized parking lot to accomodate its peak demand . As a result of these sorts of adaptations, it takes more parking places to accommodate the same number of cars.

4. After a lot of Coasian bargaining, businesses agree to each provide a minimum number of parking places and housing developers agree to provide streets wide enough to allow parking.

The point is, you don’t necessarily get (1). And you might get (4).

Thoma responds to Hanson:

In response to Robin Hanson, I think Arnold Kling makes some good points about why government intervention in parking may be necessary to resolve externality problems. Arnold doesn’t say that government intervention is necessary, and he would likely resist that interpretation, a Coasian bargaining solution is the outcome in his scenario. But the usual sorts of considerations, i.e. transactions costs, unclear property rights regarding street parking in front of residences — some people, for example, use cones and other devices to save parking spots — and other barriers may prevent the Coasian bargaining outcome. (Robin Hanson doesn’t like what I wrote either, though, again, I was trying to make a general point about equity versus efficiency and probably should have chosen another example besides parking near the ocean to make that point

Randal O’Toole at Cato:

I am disappointed that the distinguished George Mason University economist, Tyler Cowen, has fallen for the “high-cost-of-free-parking” arguments of UCLA urban planner Donald Shoup. Shoup is an excellent scholar, but like many scholars, he has the parochial view that the city that he lives in is a representative example of what is happening everywhere else.

Shoup’s work is biased by his residency in Los Angeles, the nation’s densest urban area. One way L.A. copes with that density is by requiring builders of offices, shopping malls, and multi-family residences to provide parking. Shoup assumes that every municipality in the country has such parking requirements, even though many do not, and that without such requirements there would be less free parking. This last assumption is extremely unlikely, as entrepreneurs everywhere know that (outside of New York City) 90 percent of all urban travel is by car, and businesses that don’t offer parking are going to lose customers to ones that do.

Shoup portrays such free parking as a “subsidy” because not all people drive and so the ones who don’t drive end up subsidizing the ones who do. But any business offers a variety of services to its customers and employees, and no one frets about subsidies just because they don’t take advantage of every single service. How often do you actually swim in the swimming pools or work out in the exercise rooms of the hotels you stay at?

Shoup also supposes (and Cowen accepts) that universal parking fees would greatly reduce the amount of driving people do. “Minimum parking requirements act like a fertility drug for cars,” Cowen quotes Shoup as saying. Metro, Portland’s regional planning agency, submitted this question to its transportation model and concluded that requiring all offices, shopping malls, and multi-family residences to charge for parking would reduce driving by about 2 percent. The model showed that charging for parking has a greater effect on driving than spending billions on light rail, building scores of transit-oriented developments, or increasing the urban area’s population density by 20 percent. But 2 percent still isn’t going to do much to relieve congestion or solve any of the other problems Cowen associates with driving. Plus he never really explains why he thinks reducing mobility is a good idea in the first place.

Tim Lee:

A key point to emphasize here is that parking mandates aren’t just a subsidy to car ownership, they’re also a burden on pedestrians, who must trek across parking lots to get to almost any building. So not only does walking mean giving up the state-mandated subsidy of free parking, but it also means walking significantly further than you’d have to in a city where the availability of parking was determined by market forces.

And this results in the opposite of the virtuous cycle I wrote about a few weeks ago: as density falls, you get fewer pedestrians, which depletes the market for small, pedestrian-friendly establishments. And fewer pedestrian-friendly businesses establishments means that even fewer people walk. The result is the situation in most cities in the Midwest and the Sun Belt, where even people who strongly prefer to live in a “walkable” neighborhood find there are few if any neighborhoods that cater to that preference.

James Joyner:

To all this, I’d add a couple of points.

First, this is a very difficult conversation to have because of the radical differences in reference frames of the two sides.    Aside from economists, anti-free parking types are invariably urban dwellers where parking is difficult and the demand for every square foot of space is high.   People who live in suburbs, especially those that don’t regularly drive into the handful of dense urban centers where any of this matters, are befuddled.  Nobody would pay to park at the Hamilton Place mall on the outskirts of Chattanooga.   At the Pentagon City mall, nobody thinks twice.

Second, while ordinances requiring the allocation of parking spots for apartment buildings, storefronts, and the like are doubtless a boon to car owners, they are mostly an attempt to limit negative externalities.   If I build an apartment complex in a major downtown center and provide no parking, I’m obviously less competitive than those who do.   But, at the same time, those who live in my building who own cars are going to have to park somewhere, and they’ll therefore occupy spaces — often for hours and days on end — that could otherwise be used by short-term parkers who want to patronize the local merchants, taverns, and restaurants.   Similarly, if I run a downtown business that caters to clients who don’t need to come to my storefront, I’d never pay to construct parking spaces for my employees, as it’d be cheaper to subsidize their parking elsewhere.   But, again, that means my employees, who arrive before the shops open, are taking up spots that could be used by customers of service-oriented businesses.

Taking both of these into consideration, then, it seems to me that the key good to control is street parking in crowded downtown areas at peak hours.   We want residents of apartment buildings and houses and employees of businesses to be out of the way to accommodate short-term parking that allows commerce to take place.   So, in places where street parking is scarce, charge variable rates at meters and limit the number of hours that can be parked there.  (A tangentially related pet peeve: And delivery vehicles can’t be allowed to take up these spaces, much less double park, which means that those activities have to be time-shifted to the early morning or late evening hours.)

These regulations would be anathema in most of the United States, which simply isn’t crowded enough to have that kind of government intervention in the lives of citizens.   But it makes sense in New York, Boston, DC, San Francisco, and a handful of other metro areas long since accustomed to the need for state to smooth over daily interactions.

Ryan Avent:

But the main point is that it’s very difficult to make a positive case for government provision of parking spaces or mandated parking minimums. Given the existence of government provided spaces, it’s harder still to argue against market parking pricing. We have many examples of private firms building and operating parking lots or decks, charging positive prices, and doing a lovely business that seems to work well for operator and driver alike. How does one justify government intervention?

Now you might argue that there are public good considerations involved; that parking spots are like other bits of transportation infrastructure in that there is a role for government provision. Personally, I think parking spots are more like gas stations than roads, and meanwhile roads should be congestion priced (as many transit systems already are — and then some, in some cases). You’d think that libertarians making the public good argument would have no problem defending government provision of and subsidy for transit, but of course they don’t. They get around this by arguing that people want to drive and they don’t want to ride transit. This is strange in that in few other cases would a libertarian claim to know what markets want, and while they might refer to mode shares, those shares are themselves determined by decades of heavy subsidies for all things auto.

William Brafford at The League:

But the phrasing at the end of Cowen’s column is unfortunate, as it seems to imply that someone out there should be raising fees: “Imposing higher fees for parking may make further changes more palatable by helping to promote higher residential density and support for mass transit.” It’s clear from the beginning of the article that Cowen is speaking of removing the zoning laws and street parking procedures that keep the cost of parking artificially low in places, but I could see how a too-quick reader might wrongly infer that the column argues for high parking costs as a policy goal regardless of market prices.

Weirdly, several libertarians have taken issue with Cowen’s article. Randal O’Toole is pretty sure that “free parking is a free-market choice,” and thinks Cowen should support it. Well, I’m sure there are plenty of places where it will make a lot of sense for businesses to build large parking lots, but it’s strange to me that a libertarian would be all right with regulations that make this decision for the businessmen. Perhaps he sniffs out an urbanist agenda behind the argument…

Arnold Kling suspects that if we didn’t like state-mandated free parking, we won’t necessarily get the low-driving paradise we desire. Perhaps the American people, accustomed to driving, will simply embrace further sprawl as businesses relocate to exurbs where land is cheap. Or maybe local governments will be faced with skyrocketing enforcement costs as people cheat aggressively on parking. (Cowen thinks Kling’s microeconomic logic is a little bit off.)

Neither of Kling’s scenarios seems particularly likely to me, but then again I don’t study this stuff and I don’t really have the first clue what would happen if cities aimed at more robust markets for parking. All I can really provide is one lonely data point: having arranged my life so I can do most of what I want to do without having to drive, I can say for sure that if parking prices went up in Baltimore, I’d sell my car. At any rate, I am a huge fan of sidewalk cafes and not having to walk through parking lots to get to stores, so I’d love it if more city businesses were given the opportunity to do without parking lots.

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Number 14… Number 14… Number 14

Heather Horn at The Atlantic with the round-up:

On Monday, Senate Minority Leader Mitch McConnell became the latest Republican to call for a reexamination of the Fourteenth Amendment and the issue of “birthright citizenship.” Senators Lindsey Graham and Jon Kyl have also recently spoken out against the policy of granting automatic citizenship to all born in the U.S., even if they are the children of illegal immigrants. The birthright citizenship issue, though, doesn’t split quite along party lines. In the ensuing debate, several conservatives have come out opposing the proposed revision. Some maintain, though, that the Republican senators have a point.

Alex Altman at Swampland at Time:

The relevant facet of the 14th Amendment, which ensures due process and equal protection, states: “All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States.” While proponents of repeal say the language–specifically the phrase, “subject to the jurisdiction thereof”–is ambiguous, judicial precedent is stacked against them. That’s one reason why the notion of revisiting the citizenship clause may be more of a political gambit than a realistic proposal. Bills challenging the citizenship provision have been proposed multiple times in recent years without success–former Rep. Nathan Deal, who’s running for governor of Georgia, submitted such an idea last year, and Rep. Ron Paul did so in 2007 without success. “Anchor babies,” as critics of birthright citizenship have dubbed children born to illegal immigrants, have long been a subject of scorn for conservatives. But a constitutional amendment requires the backing of two-thirds of both chambers of Congress and ratification by 38 states–which is highly unlikely, to say the least.

It’s unclear how far the party is willing to push the issue, or whether conference members are on the same page. A GOP aide told the Washington Post’s Greg Sargent that “nobody is talking about an all out repeal of the 14th Amendment,” and that McConnell merely supported holding hearings to revisit the concept of birthright citizenship. But the topic has sparked a pitched battle in the Senate, as The Hill reports, and Senators like Graham and James Inhofe seem to have their minds made up.

A majority of Americans support Arizona’s new law, and in the short term a hard-line stance on illegal immigration may give Republicans a boost. As a long-term political strategy, however, attacking birthright citizenship is an easy way to alienate the nation’s largest and fastest-growing minority group. In one recent poll, 49% of respondents supported birthright citizenship, while 46% said the law should be tweaked. But that poll found nearly 80% of Latinos are in favor of the provision–a figure that’s surprising only because it wasn’t greater. Many conservatives have argued the GOP risks kneecapping itself with the Hispanic electorate. “If the Republican Party embraces ending birthright citizenship, then it will be assured losing Latino and ethnic voters — and presidential elections for the foreseeable future,” wrote Cesar Conda, former domestic policy adviser to Vice President Dick Cheney.

Mark Krikorian at The Corner:

Would it be cynical of me to think that McCain’s “little jerk” is just trying to burnish his tough-on-immigration bona fides?:

Sen. Lindsey Graham (R-S.C.) announced Wednesday night that he is considering introducing a constitutional amendment that would change existing law to no longer grant citizenship to the children of immigrants born in the United States.

Yeah, right. So the guy doesn’t want to do what’s necessary to actually stop illegal immigration, but he wants to make sure that the children born to all the illegals he helps bring here become U.S.-born illegal aliens? I’m afraid, though, that his rationale, whether he actually believes it or not, is in fact one shared by a lot of immigration hawks:

“People come here to have babies,” he said. “They come here to drop a child. It’s called ‘drop and leave.’ To have a child in America, they cross the border, they go to the emergency room, have a child, and that child’s automatically an American citizen. That shouldn’t be the case. That attracts people here for all the wrong reasons.”

I don’t like illegals having U.S.-citizen kids any more than anyone else, but there’s no evidence suggesting that this “drop and leave” stuff is true — anything’s possible, I suppose, but it’s just an assertion at this point. My own sense is that most illegal alien women who have kids here (accounting for nearly 10 percent of all children born in the U.S. each year) didn’t come for that purpose; they came for jobs or to join relatives, and one thing led to another, birds-and-bees style, and they had kids. There are no doubt some people who dash across the border illegally to have kids, but they just can’t amount to a large share of the problem. Nor does the problem of “birth tourism” require a change in the Constitution — we just need to permit (and require) our consular officers to reject visa applications from pregnant women, inviting them to re-apply once they’ve given birth in their own countries.

The phenomenon of citizen-children of illegal aliens is a symptom of too much illegal immigration, not a cause. Comprehensive immigration enforcement — abroad, at the borders, and in the interior — plus deep, permanent cuts in future legal immigration (which is the catalyst for illegal immigration) are the solution, because when we have less illegal immigration, we’ll have fewer kids born to illegals and the problem goes away. I’m afraid that if the citizenship issue makes progress, the libertarians will co-opt us, backing the citizenship change as a way of diverting attention from real immigration control.

Krikorian responds to e-mails

Daniel Foster at The Corner:

When I first read this anonymous Huffington Post story suggesting that Sen. Jon Kyl (R., Ariz.) had signed on to the wholesale repeal of the 14th Amendment, I thought it was a gross mis-characterization, sloppy at best, a bold-faced lie at worst:

On Sunday, Sen. John Kyl (R-Ariz.) became the highest-ranking Republican to call for the repeal of the 14th Amendment to the U.S. Constitution. Appearing on CBS’ Face the Nation, Kyl said that he opposes allowing children of undocumented immigrants to be granted U.S. citizenship and wants Congress to hold hearings on the matter.

But it turns out the blogger was just aping CBS News’s write-up of Kyl’s appearance on Face the Nation. That post contains the same non-sense about Kyl wanting to repeal the 14th Amendment:

Sen. John Kyl, R-Ariz., said today that Congress should hold hearings to look into denying citizenship to illegal aliens’ children born in the United States, as the fight over immigration widens into the explosive “birthright” issue.

Kyl told CBS’ “Face the Nation” that he supports a call by fellow Sen. Lindsey Graham, R-S.C., to introduce a new amendment to repeal the 14th Amendment of the Constitution.

This is absurd. Here’s the text of the 14th Amendment, in full:

Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.

[…]

What Kyl, Graham and others have tentatively embraced is an amendment that would clarify the first sentence of section 1 — and indeed, there is a credible argument that “subject to the jurisdiction thereof” already excludes individuals who are here illegally, meaning that one might be able to end birthright citizenship for the children of illegal aliens by statutory as opposed to constitutional action.

Neither Kyl nor Graham,  nor any other elected Republican I know of, has talked about repealing the Due Process or Equal Protection clauses — which are prime constitutional underwriters of so much legislation favored by progressives. Nor, of course, has anybody talked about reestablishing the 3/5 Compromise or limiting suffrage for African-Americans.

Michael Brendan Dougherty at The American Conservative:

Of course, Graham was one of the most enthusiastic supporters of Comprehensive Immigration Reform in 2007. Back then dropped babies weren’t his concerns, rather he wanted to “tell the bigots to shut-up.”

There is no good reason for immigration restrictionists to soften up to Graham now. Overturning birthright citizenship doesn’t bring order or justice to America’s decades long problem of illegal immigration. There may be good reasons to think that overturning it would do little reverse illegal immigration, and much to prevent assimilation.

In any case, Graham’s re-framing of the immigration issue in one of the silliest and most counter-productive possible and his chosen method signals that he is not serious. Constitutional amendments are almost impossible to pass, especially in this age of gridlock and ideological sorting of parties. In other words, this is a stunt, just as his former denunciation of “bigots” was a stunt.

John Sides:

Everyone knows this controversy by now. Here is the bill. Here is Mitch McConnell yesterday. It’s highly unlikely that this push to end birthright citizenship will go anywhere, but it’s worth probing public opinion on this question and on an underlying question: what should be the boundaries of the American national community?

Some quick searching did not turn up many polls on birthright citizenship per se. Rasmussen recently asked whether children of illegal immigrants should be citizens. In their sample, 58% of respondents said no, and 33% said yes. It would be interesting to know whether this is an objection to birthright citizenship per se or essentially an objection to illegal immigration.

Now to the broader question. In 2004, the General Social Survey asked a battery of questions on potential qualifications for being American. This was the preamble:

Some people say the following things are important for being truly American. Others say they are not important. How important do you think each of the following is…

Here is the average importance that respondents accorded to each qualification.

americanqualifications.png

On average, respondents saw all of these qualifications are more important than unimportant. However, they also saw some qualifications as more important than others. In general, the more important qualifications reflect things that an immigrant can achieve: speaking English, becoming naturalized, respecting American institutions and laws. More exclusive criteria, and ones that immigrants cannot change (or change easily), are less important: being born in America, being Christian, or having American ancestry.

How might we interpret these results in light of the debate over birthright citizenship? Here are two possibilities.

First, Lindsey Graham and other opponents of birthright citizenship could take heart. Look, they might say, the public doesn’t even think being born in America is as important as other things. Given the importance accorded to American citizenship, we could make native-born children of immigrants go through the naturalization process and Americans would still see them as American. No harm done.

Second, some might object to that interpretation as a violation of the “spirit” underlying American public opinion. Americans’ sense of their national community is more inclusive than exclusive. Shifting American law in a more exclusive direction is not in this spirit. Why not recognize that more important than birthplace is speaking English, loyalty to the United States, and respect for its laws? And why not take heart that immigrants do learn English and are no less patriotic than native-born Americans?

Jill Lawrence at Politics Daily:

Senate Republican Leader Mitch McConnell is playing down his party’s new scrutiny of the 14th Amendment, which among other things confers U.S. citizenship on anyone born in the United States. McConnell on Thursday portrayed calls for hearings on the amendment as simply an attempt to examine what he calls the “unseemly” business of foreigners showing up just in time to have their babies, then going back home.

“I’m not aware of anybody who’s come out for altering the 14th Amendment,” McConnell said at a breakfast sponsored by the Christian Science Monitor. He said the push for hearings stems from a Washington Post story about foreign businesses that supply visas to expectant mothers. “This is the kind of thing that irritates Americans quite a lot,” he said. “I don’t think having hearings on an obvious unseemly business is a threat to the 14th Amendment. What’s wrong with looking into this? The Post did.”

McConnell added that “the remedy for it is not yet clear. But I am not advocating revisiting the 14th Amendment and I don’t think any others have. I think the view is, why don’t we take a look at this?”

UPDATE: Doug Mataconis

UPDATE #2: Via Andrew Sullivan,

Will Wilkinson

Tim Lee

More Wilkinson

John J. Miller at The Corner

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Filed under Immigration, The Constitution

Minty, Minty Fresh

Tim Lee at Megan McArdle’s place:

Businesses typically steer clear of hot-button political issues, and it’s not hard to understand why. They want to attract as many customers as possible, and taking a side on a controversial issue will alienate whichever half of the population happens to be on the other side. So I was astonished to see the personal finance site Mint.com run this blatantly anti-immigrant chart on its Mintlife site. What’s wrong with it? Well, let’s start with the sources:

mint_sources.png

The most jarring name on this list is the openly racist vdare.com. The rest of the list is a mix of official government sources, non-profits, and blogs. The sources skew heavily in an anti-immigrant direction, although at least one is a pro-immigrant source (fiscalpolicy.org). While none of the other anti-immigrant sources is as offensive as vdare, few (if any) of them could be considered credible sources for statistics about immigration.

Given its sources, it’s not surprising that the chart is riddled with implausible statistics. The most obvious whoppers are the claims that “about 43% of all Food Stamps issued in the United States are to illegal aliens,” and “about 41% of all unemployment checks issued in the United States are to illegal aliens.” Mint doesn’t give specific citations, but these claims appear to come from this article at “Charlotte Conservative News,” which itself does not cite any sources. Given that the law doesn’t allow undocumented immigrants to collect unemployment benefits, this claim doesn’t pass the straight face test. As for food stamps, I’m not able to find recent statistics, but a 1995 study found that undocumented immigrants with citizen children received about 2 percent of all food stamp benefits. The population of undocumented immigrants has increased in the last 15 years, but it hasn’t increased by a factor of 20.

Another dubious claim is that undocumented immigrants cost Arizona taxpayers $2.7 billion, which would be roughly a quarter of Arizona’s $10 billion budget. The post doesn’t give a specific citation, so it’s hard to fact-check it, but that figure seems implausibly high given that undocumented immigrants constitute less than 10 percent of the population.

The graphic doesn’t even pretend to be a balanced look at the immigration debate. It doesn’t estimate the amount immigrants pay in taxes. It doesn’t discuss the number of businesses started by immigrants or the number of jobs they have created. It doesn’t mention the crucial role that immigrants play in our high-tech industries. It doesn’t show the ever-escalating costs of enforcing our draconian immigration laws.

Ezra Klein:

I’m a user of Mint.com, the sleek personal finance site that was recently purchased by Intuit, but I’m not happy to see it using its credibility as a finance site to promote absurd fear-mongering and dubious statistics from anti-immigration outlets. And even putting aside its reliance on racist and/or non-credible sources, the chart manages to toss up a bunch of statistics about illegal immigration’s economic cost without saying a word about its economic benefits.

This is a tricky place in the immigration conversation, but if you’re talking economics rather than legality, it can’t be avoided. Illegal immigrants pay a variety of taxes, including payroll and sales taxes, but return to their home countries before they collect the benefits. They drive down wages for competing workers, which is a cost, but also drive down prices of the goods they produce, which is a benefit. They help some industries which would leave the country remain within American borders (as the line goes, California either imports people who pick strawberries or it imports strawberries). They purchase things. They’re disproportionately young (one way of lessening our entitlements crisis would be a massive increase in immigration). And of course, there are enormous economic benefits to the immigrants themselves, and to the countries that receive the money they send home. For an introduction to some of these issues, see this paper (pdf) by economist Gordon Hanson.

Illegal immigration, of course, isn’t just an economic issue. It’s also an issue of fairness, and law, and distribution. But insofar as Mint’s chart was about the economics of the issue, it managed to both mislead in what it said, and in what it didn’t say. Even worse, it managed to mislead in only one direction. As Tim Lee writes, I hope this is just some kid at the company freelancing a charticle and not an official ideological policy of a site that supposedly tracks ATM withdrawals. But I guess we’ll know soon enough when Mint.com responds to the hubbub.

Max Read at Gawker:

Mint was bought by software makers Intuit—the company behind the Quicken finance software—last fall. It seems pretty unlikely that a big company like Intuit is looking to piss off costumers who (having paid attention in economics class) believe that immigration improves, rather than harms, a country’s economy. So what happened here? Is Crooks an anti-immigrant true believer who got carried away, or just a guy who didn’t know much about the issue and doesn’t have a great eye for credible sources? Or is “immigration is bad” official Mint.com policy now? Any way you slice it, Mint doesn’t look good.

David Weigel:

There’s some low-level chatter and anger today focused at Mint.com, a popular personal finance website (disclosure: I use its iPhone app) which has published an infographic on “The Economic Impact of Immigration.” Nothing overly political about it on the surface, but check out the sources — in addition to Pew, the site credits the restrictionist Center for Immigration Studies and VDare.com for data. VDare, in particular, is best known for publishing work by white nationalists while maintaining that it is not a white nationalist site. (A current headline: “Diversity Is Strength! It’s Also…US-Educated Terrorists.”)

[…]

I’ve asked the company about this and will post a response if/when I get it. For now, it says plenty about how immigration restrictionists, who crank out lots of data, dominate web searches on the topic.

Lee Sherman at Mint.com:

At MintLife, our mission is to give users and visitors the financial information they need to save and do more with their money. Topics range from personal finance advice, to analysis of macroeconomic trends and the fiscal impacts of news of the day. We publish content from a variety of contributors and sources, and the opinions expressed don’t necessarily reflect those of Mint.com or of Intuit.

It’s true that the tone is often provocative, seeking to engage readers in dialogue around important topics, but the recent blog post “The Economic Impact of Immigration” went too far, cited polarized sources and did not receive the editorial judgment and oversight it deserved.

We regret it. It is completely unacceptable and won’t happen again. Our intention was not to further the agenda of any of the sources from which data was pulled, and the post has been removed.

Josh Lowensohn at Cnet:

MintLife’s editor Lee Sherman has since taken down the graphic and issued an apology, saying that the company went “too far” and that it won’t happen again. “It’s true that the tone [of the MintLife blog] is often provocative, seeking to engage readers in dialogue around important topics,” Sherman said. “But the recent blog post ‘The Economic Impact of Immigration’ went too far, cited polarized sources, and did not receive the editorial judgment and oversight it deserved.” The apology, though, was not good enough for some Mint users, who have removed their accounts from the service, and are posting about it on Twitter.

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Filed under Immigration, New Media, Race

I’ll Be Paying With Cash, Thanks

Robin Sidel and Dan Fitzpatrick at WSJ:

Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time.

Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don’t generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.

“If you put $1,000 in a checking account and don’t do anything with it, it will be hard to get that for free,” says Sherief Meleis, a managing director at Novantas LLC, a consulting firm that advises banks.

Felix Salmon:

Why do most people hate their bank? Because their relationship is based on the lie of “free checking”, and a relationship based on a lie is always going to be a dysfunctional relationship. Checking is never free, but in recent years banks have been able to conjure the illusion of free through a system of regressive cross-subsidies, where the poor pay massive overdraft fees and thereby allow the rich to pay nothing.Interchange fees are a cross-subsidy too: this time it’s merchants who help pay for the checking accounts of the rich. In fact, they do more than pay for their checking accounts, they pay them a nice tax-free income, when the rich people accept debit rewards cards.

With the federal government finally cracking down on overdraft fees, and with the Durbin amendment threatening interchange fees to boot, the fiction of free checking looks as though it’s reaching the end of its natural life:

More than half of all checking accounts are currently unprofitable, according to a report issued last month by Celent, a unit of Marsh & McLennan Cos. It costs most banks between $250 and $300 a year to maintain one of the roughly 200 million checking accounts, according to industry estimates.

Checking accounts pay zero interest these days, but even being able to borrow money for free from depositors isn’t worth $300 per year to a bank. If a checking account has $1,000 in it on average, and the bank can lend that money out at 7%, net of defaults, then it’s making $70 a year on the account, which isn’t enough to cover its costs.

The natural answer, here, is to restart charging monthly fees on modest-balance checking accounts — and to shed few tears when your low-balance customers leave:

The offers of free checking without any minimum balance requirements attracted a new wave of low-income customers, who previously went to check-cashing stores. Some consumer advocates have warned that the elimination of free checking could drive some of those customers out of the banking system.

From the banks’ perspective, though, many of those customers aren’t profitable.

All of which provides some important background in understanding the stance of Patrick Adams, the CEO of St Louis Community Credit Union. Adams’s customers are relatively poor: his credit union is designated a Community Development Financial Institution, which targets the African-American community in St Louis. And he’s dead-set against any regulation of interchange fees, which provide an important source of income for his institution; he’s written three blogs on the subject, here, here, and here.

Adams, unlike Harriet May, was willing to provide me with concrete numbers:

We have 25,000 debit card holders with a 50/50 split on debit vs signature. We had 3.2 million debit card transactions in 2009 totaling $892,490 in debit interchange income or an average per transaction of just under 28 cents per. At an average interchange rate of 1.3%, our average member debit transaction is for 21.40. Our all in expense (including fraud) is $521,000.

We project that a 50% reduction in interchange would cost us $446,000 of top-line revenue. Something has to give if we lose that revenue. A $20 per year annual fee works, but we don’t want to fee our members.

Essentially, St Louis Community CU is getting about $35 of top-line revenue per year, per debit card. If that revenue disappears, it hurts the credit union’s finances. And so Adams is railing against interchange regulation:

Here’s another surefire lock of a bet. You will be more frustrated than ever. Your costs at the bank will be up. Your costs at the retailer will be up. You will be confused as to which retailers accept your debit card and which ones don’t. You will have no clue what the minimums and maximums of your debit card activity will be because there will be no consistency among retailers.

As a result, you will carry more cash and more checks… And, what about this double-dip possibility? You’ll use more checks at the check-out counter and the retailer will charge you a processing fee for doing it. (See, their handling of checks and cash are more expensive than debit cards.) You’ll pay for that, as well.

If this legislation is passed, I will mark my calendar to re-visit this issue a year after enactment. If I am wrong, I will eat the biggest piece of humble pie ever, including a public apology to everyone – starting with Senator Durbin. I must tell you that I’m extremely confident that an apology won’t be forthcoming.

I’ll take Adams’s bet. Yes, the costs of a checking account will be more transparent and visible to consumers. But costs at the retailer will not rise, since the retailer’s costs will have fallen. There will be no confusion about which retailers accept which debit cards, and debit-card minimums and maximums will be a non-issue. People will not carry more cash, and they certainly won’t carry more checks. And Adams will owe a public apology to Durbin.

Stephen Spruiell at The Corner:

The old model: Banks use high fees on avoidable behaviors that are nevertheless common among the financially inept, such as account overdrafts, to subsidize free checking accounts and other reward programs for customers who use their accounts responsibly.

The new model: Liberals argue that overdraft fees are abusive and should be banned. Democrats enact new restrictions on overdraft fees. Banks end free checking accounts and other reward programs for responsible customers.

And we haven’t seen anything yet. Just wait until the new Consumer Financial Protection Bureau gets to work.

Matt Welch at Reason:

It was just terrible that the fine print of free-checking accounts included language saying “We will charge you for overdrafting your account, loser,” a sad fact easily divined by, for instance, overdrafting your account. So, consumer advocates, noble regulators, and other champions of the little guy came up with a genius solution: require banks to obtain letters from customers saying “Please charge me a lot of money when I write a bad check.” The result?

Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Hooray for progress! Back to the mattress!

Kevin Drum:

This is fundamentally my problem with overdraft and interchange fees: they’re basically surreptitious ways for the poor to subsidize the rich. There’s no law against that, of course, but the practice is so grotesque that in this case I’m perfectly willing to make one.

Basically, what banks have learned is this: it’s mostly poor people who pay overdraft fees. That makes sense, of course: they’re the ones most likely to run out of money, aren’t they? The thing is, it’s easy to fool unsophisticated consumers into not noticing these fees, or into thinking that they’ll never have to take advantage of them. But banks know better. They know to three decimal places how often low-income customers are likely to screw up slightly and overdraw their account by twenty bucks. And when they do, they’re charged obscenely more than the actual cost of servicing the overdraft. So who benefits? I do. I always have plenty of money in my checking account and I’ve never overdrawn it. So the entire debit card system is, for me, free.

The same is true for interchange fees. Banks charge merchants far more in interchange fees than it costs to actually run their payment networks, and merchants pay because they have no choice. Visa and Mastercard are functional monopolies, so if you want to do business with them — and what merchant can afford not to? — you have to pay whatever they tell you to pay. This cost gets passed on to consumers, of course, and the poor and working class pay it. The middle class and the rich, however, don’t: they basically get the fees rebated in the form of reward cards.

So you have two cases here of a system that costs money to operate, and in which the costs are largely borne by the poor in order to make them free (or cheap) to the better off. If you can sleep easily at night even after you understand how this works, you have a heart of stone.

So what’s the alternative? Simple: fees that are fair and transparent. Overdraft fees should cover the average actual cost of overdrafts plus a small amount. Interchange fees should cover the actual cost of operating an electronic payment network. Credit card interest rates should cover the risk-adjusted cost of actually loaning out money.

And to those interchanges, Reihan Salam in Forbes:

As trousers grow skinnier, our mobile phones are following suit, as evidenced by the ultraslim iPhone 4. But the U.S. Treasury, alas, has no intention of altering the design of its coins to accommodate America’s evolving fashion sense. At home my coins accumulate in jars and paper cups and drawers, perhaps to serve as raw material for some future magnetic art project. And as for bills, I only use them when absolutely necessary.

Generally speaking merchants will accept debit cards for even very small transactions. But as we all know, they don’t like it. In New York City, where cab drivers are required to accept electronic payment, many drivers will plead with you to use cash, citing the onerous fees collected by the banks.

These swipe or interchange fees are the target of a new regulation proposed by Sen. Dick Durbin of Illinois, a liberal stalwart keen to pick a fight with the financial sector. Merchants have been urging Congress to take action on swipe fees for years, but it’s only now, when esteem for the financial sector is at a low ebb, that there’s been any hope of a tough regulatory response.

My gut instinct is to distrust sweeping regulatory efforts. When the interests of one set of businesses are pitted against another set of businesses, I’m inclined to let consumers decide who should come out ahead. Yet swipe fees pose a number of interesting puzzles.

In January Andrew Martin of The New York Times published a scathing exposé of how Visa and MasterCard squeeze retailers. The two big payment networks dominate the marketplace by making their offerings attractive to banks and credit unions that, in turn, issue debit and credit cards. Visa and MasterCard set fees for every debit card transaction, fees which vary by type of card, among other things. But the banks collect the fees and, all other things being equal, they like making more money rather than less.

Visa and MasterCard are serving their customers extremely well. The trouble is that their customers are banks–not consumers, who face higher prices as merchants pass on higher fees in the form of higher prices. Indeed Visa was, according to Martin, the first to pursue the high-fee strategy. MasterCard found that it was losing market share to Visa by continuing to offer lower fees, and so it quickly matched its rival. It’s hard to see how Visa and MasterCard might break out of this very stable dynamic; last fall the Government Accountability Office issued a report describing how swipe fees have steadily increased.

One argument, raised by scholars Todd Zywicki and Geoffrey Manne, is that swipe fees are a way to pass on credit losses to merchants. Yet as financial blogger Felix Salmon of Reuters observes, merchants don’t also benefit from the much larger credit profits derived from fees and interest payments enjoyed by banks.

Swipe fees could be increasing due to rising levels of fraud and identity theft. That, however, would represent a case for shifting away from signature debit and towards PIN credit. But signature debit is more profitable for card issuers, which is presumably why there hasn’t been aggressive movement in this direction. In Salmon’s view, rising swipe fees represent pure rents for the effective duopoly of Visa and MasterCard, and the Durbin amendment would help shift the balance of power towards merchants and consumers.

The case for regulation does seem fairly strong. To me that suggests that there’s been a serious failure on the part of entrepreneurs. One wonders how the Visa-MasterCard duopoly has become so robust. In the absence of new swipe fee regulations, it’s possible that merchants will band together to find a superior alternative. The trouble is that the retail sector remains fairly fragmented, and cooperation on this scale would be very difficult to achieve. The past decade has seen a number of innovative payment systems emerge, from PayPal to Square.

Mike Konczal at Rortybomb:

Remember this debate is about reward cards versus debit cards. Merchants love debit cards, they are easier than cash. They don’t want to subsidize the airline industry by having to pay for rich people’s frequent flyer miles reward card for free, without anything in exchange for providing an additional good or service.

But they can’t give incentives for debit cards under current law. They can’t offer you a free loaf of bread with your groceries for typing in your pin, or give you your very own pin express checkout lane, for using debit. That is valuable local information and retail innovation that is lost. So watch for interchange rates being juked between high rewards credit cards, generic credit cards, the abomination that is “signature debit”, and pin debit.

I am not certain whether or not Hill staffers are currently being bombarded with financial lobbyists with vested interests claiming all kinds of decreases in interchange over the past decade. This data is very hard to find, as the credit card companies guard it vicious. Now, I’m just a dude with a matlab license and a free blog, so let me tell you what other credible people have researched and found recently.

Tim Lee at McArdle’s place:

Most of the commentary on interchange fees have focused on the rate paid by merchants, but this is the wrong number to focus on. Rather, we should care about the net of merchant fees minus cardholder benefits. If credit card fees rise but benefits rise by an equal amount, the result is a wash as far as the customer is concerned. I’m not aware of any precise data on cardholder benefits, but judging from the fact that companies used to charge an annual fee to issue credit cards and they now frequently offer generous cash back, I think it’s safe to say that benefits have gotten more generous over time. So looking only at interchange fees gives us a distorted picture.

Now maybe you don’t believe that banks will continue to pass increased fee revenues on to their customers. But notice that this is a symmetrical situation. If you doubt that competition among banks will shift most of the benefits of higher fees to consumers, then you should be equally skeptical of claims that competition among merchants will translate lower credit card fees into lower retail prices.

Konczal writes derisively about cardholder benefits, arguing that merchants “don’t want to subsidize the airline industry by having to pay for rich people’s frequent flyer miles reward card for free, without anything in exchange for providing an additional good or service.” But this misses the point in a couple of important ways. First, the benefits are limited neither to frequent flyer miles nor to rich people. But more fundamentally, what merchants want is irrelevant, because there’s no reason to think consumers’ interests are more aligned with merchants than with banks. Indeed, you could view the credit-card-issuing banks as agents for cardholders, negotiating for discounts that are passed along to their customers.

Advocates of regulation like to tell a populist story of consumers against rapacious banks. But there are wealthy corporations on both sides of the bank-merchant relationship. There’s no reason for regulators to side with Wal-Mart over Wells Fargo. Policymakers should focus on ensuring that both sides of the market (card-issuing banks and card-accepting merchants) are robustly competitive. Then consumers will reap most of the benefits whether interchange fees go up or down.

Konczal responds:

This argument is predicated on the idea that all people in the United States have access to the high-end consumer credit market. In general, the “two-sided markets” argument assumes a single representative consumer and a single representative business in a closed loop, where value can’t really be transfered in or out. That’s not the real world, where there are multiple payment systems, including cash, debit and credit cards with different prices, and multiple people with different access to credit.

Rich is a loaded term, but let’s throw some numbers out there. Here is an estimate that 13.2% of American households don’t own a checking account and about 9.5% of American households hold no bank account at all. They’ll pay the same price for goods and services as Tim, but not receive 1% back in cash. There’s a move to try and get the unbanked decent prepaid debit cards. They’ll definitely not get a good rewards problem out of it.

Is there inequality within the credit market for those who have access to it? From Adam Levitin’s Priceless? The Social Costs of Credit Card Merchant Restraints (19), which gives a history of the “merchant restraints” on distinguishing between debit and credit, we know that: “Visa Signature cards, which carry a high level of rewards and are marketed specifically to affluent consumers, comprise only 3.5% of all Visa cards but have accounted in recent quarters for 22.2% of all Visa purchases.” That’s a high volume of purchases with high rewards going to just a few people. Many people have rewards cards, but the very best ones are reserved for the high end, and those at the high end spend more than those not at the high-end. And everybody pays the same price.

We also know that around 45% of interchange goes to fund rewards. These high interchange rates drive up prices. Tim’s 1% back requires a merchant to pay an estimated 2.22% interchange for that feature alone. People who get less back, or who use debit, or who pay with cash, are paying higher prices to transfer money to Tim.

Want to get even more regressive? The people with poor access to high-end credit are paying higher prices to transfer tax-free income to Tim. Tax-free! It’s true many people have access to rewards cards, but some use them significantly more, and with much nicer, rewards than others. Those few are not scattered randomly among the population.

Tim Lee responds:

Mike Konczal has a sharp response to my post on interchange fees. He’s been following this issue more closely than me, so there’s a lot of good information there. But one part of his argument that doesn’t seem quite right is this:

Is there inequality within the credit market for those who have access to it? From Adam Levitin’s Priceless? The Social Costs of Credit Card Merchant Restraints (19), which gives a history of the “merchant restraints” on distinguishing between debit and credit, we know that: “Visa Signature cards, which carry a high level of rewards and are marketed specifically to affluent consumers, comprise only 3.5% of all Visa cards but have accounted in recent quarters for 22.2% of all Visa purchases.” That’s a high volume of purchases with high rewards going to just a few people. Many people have rewards cards, but the very best ones are reserved for the high end, and those at the high end spend more than those not at the high-end. And everybody pays the same price.

We also know that around 45% of interchange goes to fund rewards. These high interchange rates drive up prices. Tim’s 1% back requires a merchant to pay an estimated 2.22% interchange for that feature alone. People who get less back, or who use debit, or who pay with cash, are paying higher prices to transfer money to Tim.

I’m not sure I follow Mike’s math here. The fact that 44 percent of interchange fees get passed through as rewards doesn’t mean that a dollar of rewards “requires” a fee of $2.22. Offering a credit card at all costs money; you have to do things like printing statements, processing checks, staffing help lines, and the like. For less affluent customers, the revenue from interchange fees may barely cover these fixed costs, leaving little revenue for benefits. For more affluent customers, in contrast, the fixed costs will be a small fraction of interchange fee revenues, and so the company can afford generous benefits. This isn’t a transfer of wealth from poor to rich, it’s just a reflection of the fact that wealthier customers are more lucrative.

If regulatory measures push down interchange fees, it will likely mean that affluent customers get less generous benefits. But it may also mean that the least affluent credit card holders have to start paying annual fees again (or won’t get cards at all) because interchange revenues no longer cover the cost of providing the card. This isn’t an outcome we should cheer if we’re concerned about those at the margins of the banking system.

UPDATE: Katherine Magu-Ward at Megan McArdle’s place

Matthew Yglesias responds to Drum

Drum responds to Yglesias

UPDATE #2: More Drum

Yglesias responds to Drum

Megan McArdle

John Cole

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Sympathy For The Record Industry

David Goldman at CNN:

If you watched the Grammy Awards Sunday night, it would appear all is well in the recording industry. But at the end of last year, the music business was worth half of what it was ten years ago and the decline doesn’t look like it will be slowing anytime soon.

Total revenue from U.S. music sales and licensing plunged to $6.3 billion in 2009, according to Forrester Research. In 1999, that revenue figure topped $14.6 billion.

Although the Recording Industry Association of America will report its official figures in the early spring, the trend has been very clear: RIAA has reported declining revenue in nine of the past 10 years, with album sales falling an average of 8% each year. Last decade was the first ever in which sales were lower going out than coming in.

“There have been a lot of changes over the past 10 years,” said Joshua Friedlander, vice president of research at RIAA. “The industry is adapting to consumer’s demands of how they listen to music, when and where, and we’ve had some growing pains in terms of monetizing those changes.”

The two recessions during the decade certainly didn’t help music sales. It’s also a bit unfair to compare the 2000s with the 1990s, since the ’90s enjoyed an unnatural sales boost when consumers replaced their cassette tapes and vinyl records en masse with CDs.

But industry insiders and experts argue that the main culprit for the industry’s massive decline was the growing popularity of digital music.

“The digital music business has been a war of attrition that nobody seems to be winning,” said David Goldberg, the former head of Yahoo music. “The CD is still disappearing, and nothing is replacing it in entirety as a revenue generator.”

Matthew Yglesias:

Music industry executives can tell themselves that as long as they want. But under conditions of perfect competition, the price of a song ought to be equal to the marginal cost of distributing a new copy of a song. Which is to say that the marginal cost ought to be $0. That’s not a question of habit, you can look it up in all the leading textbooks. Of course real businesses rarely operate in circumstances of perfect competition, and record companies have a variety of political and legal tools they can deploy to try to protect monopoly rents. But this is hard to do. I think the real story with the iTunes store is that over time competitive pressure has impelled it to largely drop DRM and over time I expect we’ll see that the CPI-adjusted price of songs declines.

It is, of course, possible that at some point the digital music situation will start imperiling the ability of consumers to enjoy music. The purpose of intellectual property law is to prevent that from happening, and if it does come to pass we’ll need to think seriously about rejiggering things. But I don’t know anyone who would seriously argue that a music fan in 2010 is in worse shape than a music fan in 1990 was. It’s much, much, much easier to find and listen to a wide variety of songs from all over the world.

Derek Thompson at The Atlantic:

Time out: The music industry’s revenue is half what it was in 2003. It’s not clear to me that iTunes did anything more than ring the death knell of record stores while revenues continues to plunge. OK, time in:

..In the time between Napster’s shuttering and iTunes’ debut, many of Napster’s 60 million users found other online file sharing techniques to get music for free. Even after iTunes got people buying music tracks for just 99 cents, it wasn’t as attractive as free.

“That four-year lag is where the music industry lost the battle,” said Sonal Gandhi, music analyst with Forrester Research. “They lost an opportunity to take consumers’ new behavior and really monetize it in a way that nipped the free music expectation in the bud.”

Why does Gandhi think those years were so crucial? During the “four-year lag” between 1999 and 2003, music sales fell no more than 20 percent. Six years after iTunes debuted, sales fell another 40 percent. I don’t know that any one thing is responsible for this — you could point to bitTorrent technology or YouTube or some illegal downloading services or just file it all under: The Internet. But I don’t particularly understand why you would blame the erosion of music profits in the last three years on some lost opportunity circa 2002.

Music is free now, and it has been free for millions of Americans for more than a decade. The industry was never going to unring that bell.

Sonny Bunch at Doublethink on Yglesias:

The purpose of intellectual property law has very little to do with Matt Yglesias being able to enjoy a wide variety of new music. The purpose of intellectual property law is to protect the intellectual property created by artists so they are rewarded for their efforts. The purpose of intellectual property law is to punish people who steal that which isn’t theirs.

Yes, copyright was created in part because there were concerns that authors wouldn’t bother creating new work if they were consistently stolen from, leading to Yglesias’s oddly solipsistic reading of intellectual property law. But, more importantly, copyright law evolved because we think that artists, writers, musicians, and others have a right to profit from their labors. It’s a crazy idea, I know.

Also, Yglesias’s cute little bit about the marginal distribution cost being zero ignores the fact that the production cost of music is far from zero — leaving aside the artists (who Yglesias clearly doesn’t care about being paid for their work), there are studio technicians who mix the music, producers who craft the songs, and all sorts of other people involved with the creation of music. I suppose they shouldn’t be paid either? That we should just rob them of their labor too?

I sometimes look at what my generation has done with their access to Napster, Kazaa and bit torrents, and the ethics to which they subscribe when it comes to intellectual property and weep. It’s a pretty sad state of affairs.

Tim Lee:

I have trouble getting too worked up about the semantic question of whether copyright infringement is “really” theft or not. I don’t engage in illegal file sharing and I don’t condone the practice. But at the same time, there are important differences between literal theft and copyright infringement, and I don’t think it’s particularly illuminating to equate the two.

But I do think Bunch is on shaky theoretical ground. America’s Founders had a pretty clear view of this subject, which they enshrined in our Constitution, and it’s at odds with the story Bunch is trying to tell. The Founders placed property rights protection in the Fifth Amendment, reflecting its status as a fundamental right. In contrast, the copyright clause appears in Article I, Section 8. That’s a section that enumerates the powers of Congress, not the rights of citizens. Indeed, the Constitution does not require Congress to grant copyrights at all, and contains no specific protections for copyright holders. To the contrary, the only specific requirement is a limitation on copyright protection; it requires that copyrights—unlike traditional property rights—be “for limited times.” Finally, the Constitution contains an explicit statement that the purpose of copyright is a utilitarian one: to “promote the progress of science and the useful arts.”

Indeed, if Bunch seriously believes that the function of copyright law is to “punish people who steal that which isn’t theirs,” I would be curious to know whether he obtained Matt’s permission before quoting his blog post. This, of course, is permitted under copyright’s fair use doctrine. But if copyright is just another form of property rights, then theft is theft. I don’t think there’s a section in Locke’s Second Treatise that says stealing is OK if it’s done in small increments.

Julian Sanchez on Bunch:

Call this the Lockean theory of copyright—a theory conspicuously absent from the Constitution’s Copyright Clause, which ties “exclusive rights” to the promotion of artistic and scientific progress. The thing is, this reading seems to make patent law a gross violation of the same right. Doesn’t it “rob” those who independently replicate a patented invention the right to profit from their labor?

Also, one wonders: How much do they have a right to profit? Assuming Sonny’s not going Marxist on us, I expect he doesn’t mean “commensurate with the amount of labor invested.”  He means, one supposes, whatever the market will bear. But what the market will bear depends pretty heavily on the precise contours of the copyright. How broad are fair use exemptions? How long is the term? (And if IP is really just like physical property, why are there fair use exemptions or terms?) If copyright isn’t mostly about incentives, by what standard do legislators decide these things? Does a 14 year term respect the right or violate it?  There are, of course, always fuzzy boundary questions when it comes to any sort of right. But a range between 14 years and life-plus-70 isn’t exactly a boundary question. How does Congress establish the morally correct level of protection to reflect in the law?

Yglesias responds to Bunch:

I think bringing this up in the context of the music industry seems to have confused the issue, as Bunch is very upset at what he terms “the pro-piracy, illegally-downloading-music-is-okay crowd” which I wouldn’t say I’m part of. So let’s think about something else—pharmaceuticals. Does Bunch think it’s a terrible affront to the moral rights of pharma researchers that there are generically available drugs? Does he want to see ibuprofen and penicillin and measles vaccines taken off the market? That’s crazy. As I think everyone agrees, the object of pharmaceutical patent & pricing policy is to balance the desire for medicines to be widely available and the desire to ensure that there are financial incentives for new research. Some people think we should sharply curb pharma patents and finance research some other way (prizes, more public funding) but everyone agrees that the welfare of patients, rather than pharma executives, is the legitimate point of policy.

With music and books and movies and it’s all the same. Intellectual property rights are created to ensure the existence of a supply of works for people to enjoy.

UPDATE: More Bunch

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Filed under Music, Technology, The Constitution