Are Sanctuary Cities Legal?

Andrew Napolitano*

Andrew Napolitano

Andrew Napolitano

Last week, President-elect Donald Trump re-emphasized the approach he will take in enforcing the nation’s immigration laws, which is much different from the manner of enforcement utilized by President Barack Obama. The latter pointedly declined to deport the 5 million undocumented immigrants in the United States who are the parents of children born here -- children who, by virtue of birth, are American citizens. Trump has made known his intention to deport all undocumented people, irrespective of family relationships, starting with those who have committed crimes.

In response to Trump’s stated intentions, many cities -- including New York, Chicago, Los Angeles and San Francisco -- have offered sanctuary to those whose presence has been jeopardized by the president-elect’s plan. Can they do this?

Here is the back story.

Under the Constitution, the president is the chief federal law enforcement officer in the land. Though the president’s job is to enforce all federal laws, as a practical matter, the federal government lacks the resources to do that. As well, the president is vested with what is known as prosecutorial discretion. That enables him to place priority on the enforcement of certain federal laws and put the enforcement of others on the back burner.

Over time -- and with more than 4,000 criminal laws in the United States Code -- Congress and the courts have simply deferred to the president and permitted him to enforce what he wants and not enforce what he doesn't want. Until now.

Earlier this year, two federal courts enjoined President Obama -- and the Supreme Court, in a tie vote, declined to interfere with those injunctions -- from establishing a formal program whereby undocumented people who are the parents of natural-born citizens may lawfully remain here. It is one thing, the courts ruled, for the president to prioritize federal law enforcement; it is quite another for him to attempt to rewrite the laws and put them at odds with what Congress has written. It is one thing for the president, for humanitarian reasons or because of a lack of resources, to look the other way in the face of unenforced federal law. It is another for him to claim that by doing so, he may constitutionally change federal law.

Trump brilliantly seized upon this -- and the electorate’s general below-the-radar-screen disenchantment with it -- during his successful presidential campaign by promising to deport all 13 million undocumented immigrants currently in the United States, though he later reduced that promise so as to cover only the 2 million among them who have been convicted in the United States of violating state or federal laws.

Enter the sanctuary cities. These are places where there are large immigrant populations, among which many are undocumented, yet where there is apparently not a little public sentiment and local governmental support for sheltering the undocumented from federal reach. Trump has argued that these cities are required to comply with federal law by actively assisting the feds -- or at least not aggressively resisting them.

Thus the question: Are state and local governments required to help the feds enforce federal law? In a word: No.

The term “sanctuary cities” is not a legal term, but it has been applied by those in government and the media to describe municipalities that offer expanded social services to the undocumented and decline to help the feds find them -- including the case of Chicago's offering undocumented immigrants money for legal fees to resist federal deportation. As unwise as these expenditures may be by cities that are essentially bankrupt and rely on federal largesse in order to remain in the black, they are not unlawful. Cities and towns are free to expand the availability of social services however they please, taking into account the local political climate.

Enter the Supreme Court. It has required the states -- and thus the municipalities in them -- to make social services available to everyone resident within them, irrespective of citizenry or lawful or unlawful immigration status. This is so because the constitutional command to the states of equal protection applies to all persons, not just to citizens. So the states and municipalities may not deny basic social services to anyone based on nationality or immigration status.

The high court has also prohibited the federal government from “commandeering” the states by forcing them to work for the feds at their own expense by actively enforcing federal law. As Ronald Reagan reminded us in his first inaugural address, the states formed the federal government, not the other way around. They did so by ceding 16 discrete powers to the federal government and retaining to themselves all powers not ceded.

If this constitutional truism were not recognized or enforced by the courts, the federal government could effectively eradicate the sovereignty of the states or even bankrupt them by forcing them to spend their tax dollars enforcing federal law or paying for federal programs.

Thus the Trump dilemma. He must follow the Constitution, or the courts will enjoin him as they have his predecessor. He cannot use a stick to bend the governments of sanctuary cities to his will, but he can use a carrot. He can ask Congress for legislative grants of funds to cities conditioned upon their compliance with certain federal immigration laws.

All of this is part of our constitutional republic. By dividing powers between the feds and the states -- and by separating federal powers among the president, Congress and the courts -- our system intentionally makes the exercise of governmental power cumbersome by diffusing it. And since government is essentially the negation of freedom, the diffusion of governmental powers helps to maximize personal liberty.

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

America’s Immigration Quagmire

Richard Epstein*

Richard Epstein

Richard Epstein

America’s immigration problem raises a huge set of thorny issues. At a theoretical level, it is difficult to articulate, let alone implement, the ideal immigration policy. While there are compelling arguments in favor of the basic norm of free trade, an open immigration policy could lead to massive political dislocations. Allowing the free flow of goods across borders is quite unlike allowing people to do the same. Goods do not put potential burdens on educational, health, and social service institutions; they do not participate in political activities, lobby to become citizens, or vote. By the same token, goods do not bring with them entrepreneurial skills and professional expertise like that possessed by immigrants; and, at the other end of the economic ladder, they help to fill many low-wage positions. Anyone who thinks they can come to a categorical judgment on immigration policy has not thought hard enough about the problem.

These difficulties work themselves into the fabric of our current immigration law. Right now, enforcement of immigration law is entrusted to ICE, the eerie acronym for the U.S. Immigration and Customs Enforcement. ICE is responsible for border protection and dealing with aliens already in the country. Its portfolio of duties involves the enforcement of over 400 different federal statutes. To get the barest sense of the massive size of this apparatus, just leaf through the major provisions of the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA), which addresses border control, smuggling, document fraud, employment restrictions, and, with renewed urgency given the imminent arrival of the Trump administration, the “inspection, apprehension, detention, adjudication, and removal of inadmissible and deportable aliens.”

Every cranny of such statutes is laced with hidden complexities and potential constitutional problems. Just this past week, in Jennings v. Rodriguez, the United States Supreme Court grappled with the vexing question of what kind of statutory and constitutional protections are or should be given to immigrants who are held in detention for long periods of time without a review of their status. The Ninth Circuit decided that all these detainees had to be released after six months of detention if the government did not prove by a preponderance of evidence that their detention was warranted. It is unlikely  that this aggressive bit of judicial intervention will be sustained. But no matter the outcome of the case, the underlying difficulty remains. How does ICE deal justly and efficiently with the tens of thousands of individuals in custody at any one time, even at current enforcement levels?

To add to the complications, the detainees are wildly heterogeneous. Some are stateless persons, who by definition cannot be deported to their home countries. Some are persons with strong but uncertain claims for refugee status. Others are legal permanent aliens who are threatened with deportation for the commission of minor drug offenses that would merit only modest punishment if committed by citizens. Handling these cases in the criminal justice system is made infinitely more delicate because a plea bargain that might easily be reached with a natural-born citizen could precipitate a deportation proceeding against a similarly situated alien, thereby putting enormous pressure on prosecutors and defense attorneys to avoid penalties that could trigger a deportation that neither side wants.

In light of these difficulties, the prudent practical approach is to give strong weight to the status quo ante, by implementing only those changes that will make some clear improvement to the immigration situation, without upsetting America’s fragile consensus on immigration policy. One sensible place to start is with the liberalization of the H-1B visa program, which could help expand the competitiveness of American businesses both at home and abroad. These visas represent only a small fraction of the overall immigration system. The far greater risk to the system comes from the bellicose remarks of President-Elect Donald Trump, who has vowed repeatedly to step up enforcement of the immigration laws. Thus, in his November 13 60-minutes interview with Lesley Stahl, Trump minced no words when he said:

What we are going to do is get the people that are criminal and have criminal records—gang members, drug dealers—where a lot of these people, probably two million, it could be even three million, we are getting them out of our country or we are going to incarcerate. But we’re getting them out of our country, they’re here illegally. After the border is secure and after everything gets normalized, we’re going to make a determination on the people that they’re talking about who are terrific people, they’re terrific people but we are gonna make a determination at that. But before we make that determination, it’s very important, we are going to secure our border.

These statements reveal that Trump has paid scant attention to the nature of the immigration problem, the probable impact his policies will have on aliens and citizens alike, and the huge financial, logistical, and constitutional obstacles that stand in the path of his proposed program.

Start with the nature of the underlying problem. Trump makes it appear as though there were some vast new threat from immigration, most notably from Mexico. But the facts reveal a different story. The overall rate of immigration into the United States stands at about 3.1 immigrants per 1,000 per year, trending slightly downward from 2000 onward. Set against the backdrop of a declining birth rate inside the United States, foreign immigration acts as a useful counterweight, which among other things is necessary to prop up the generous entitlements supplied to senior citizens under Social Security, Medicare, and Medicaid. More concretely, the net rate of immigration from Mexico, which was very high, totaling 600,000 in the boom years of 2006-2007, was sharply negative in the recession years of 2012-2013, at minus 600,000, and roughly neutral since that time. The same picture has applied globally since 2009, with net immigration and outflow of illegal aliens about constant, with between 300,000 and 400,000 in each group per year. I use the term “illegal” instead of the more fashionable “undocumented” for two reasons. First, it is the statutory language; and second, it expresses an accurate statement about the legal position, which the word “undocumented” fails to to capture. It is not possible to be a legal illegal alien. It is possible to be a legal but undocumented one.

No matter the terminology, however, Trump’s broad allegations also fail to make any sense in dealing with aliens with criminal records. As noted before, the risk of deportation creates a powerful deterrent against the commission of crimes for any illegal alien. Over the past 25 years, we have seen a rapid decline in the overall and violent crime rates of the early 1990s, both when illegal immigration was high and after it declined. A similar decline is found among all subgroups of illegal aliens. The recent upsurge in criminal activity in the post-Ferguson era has nothing to do with immigrant populations. It is more likely that, in some key urban areas, it stems from the so-called Ferguson Effect. Hillary Clinton’s well-noted campaign charges of institutional racism against the police only worsened the situation. But no matter how one views that controversial issue, gang members and drug dealers make up at most an insignificant fraction of the illegal aliens in the United States. In any event, they are already subject to deportation under current rules. It is also worth noting that the net removals of aliens increased in the Obama years, both for criminal and noncriminal aliens. That number was 392,000 in 2010, and it is hard to see how the system could double or triple that figure in the next several years without a massive commitment of resources, which in turn would produce vast dislocations in a domestic economy that depends heavily on illegal aliens to keep things moving. A recent McKinsey study offers a powerful endorsement of the massive social gains that occur globally through immigration.

In light of all of this, it is hard to fathom how any major shift in immigration enforcement policy would be a net good for this nation. At one level, mass deportations would undermine local economies, reduce tax revenues (especially all sales and excise taxes), militarize our cities, and cost a fortune. Wholly apart from the economics are the potentially catastrophic social consequences of turning upside down the lives of these illegal aliens.

The threat of the Trump program is also manifest in the outspoken statements of key Democratic mayors. These city leaders plan to run “sanctuary cities” in which they will not cooperate with ICE officials in enforcing immigration laws, even as they stand to lose millions in potential federal aid. In one sense, the effectiveness of this program is limited, because it is clear as a matter of constitutional law that the federal government has full power to enforce its immigration laws without the cooperation of local officials, who in turn are bound not to interfere with those federal efforts. As the 2012 Supreme Court decision in Arizona v. United States makes clear, the United States can preempt all local laws that are inconsistent with federal policy. Arizona was an Obama administration victory because it preempted Arizona laws that wanted to step up enforcement of the control of illegal aliens beyond the level of federal norms. Turnabout is fair play, so now states cannot, under any Trump administration reforms, interpose their authority against that of the federal government. On the other hand, Trump should know that these expanded federal efforts will surely falter as the United States is not under current law entitled to dragoon local officials into funneling individuals into the ICE system. A little cooperation could go a long way.

It is critical in this situation for the new Trump administration to back off its confrontational policy and instead seek a more incremental and balanced approach to the issue. Ironically, one hugely important step in dealing with the immigration problem is to liberalize our trade policy with Mexico and other Latin American nations from which large numbers of illegal immigrants come to the United States. Increased trade will have two key effects. First, it will improve the economic situation in other countries, which in turn will reduce immigration into the United States and also induce some illegal immigrants to return to their home countries. In addition, free trade will increase exports to foreign nations, thereby increasing job opportunities for citizens and aliens alike. Trump’s quixotic campaign will at the very least block these improvements, and worse could serve to further inflame political passions and partisan divisions that only make the task of intelligent immigration reform even more difficult.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

Is Flag Burning Protected Speech?

Andrew Napolitano*

“If there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion or other matters of opinion.” -- U.S. Supreme Court Justice Robert H. Jackson

Andrew Napolitano

Andrew Napolitano

Is flag burning protected speech? This old issue returned front and center earlier this week after President-Elect Donald Trump tweeted that he found it so reprehensible, it should be criminal. He even suggested a punishment -- loss of citizenship or one year in jail. Is the President-Elect correct? Can the government punish acts that accompany the expression of opinions because the government, or the public generally, hates or fears the opinions?

Here is the backstory.

Last weekend, in a series of continued emotional responses to the election of Donald Trump as president of the United States, and prodded by the death of Fidel Castro -- the long-time, brutal, profoundly anti-American dictator of Cuba -- students on a few American college campuses publicly burned American flags. These acts regenerated the generation-old debate about the lawfulness of this practice, with the president-elect decidedly on the side of those who condemn it.

For the sake of this analysis, like the U.S. Supreme Court, which has addressed this twice in the past 17 years, I am addressing whether you can burn your own American flag. The short answer is: Yes. You can burn your flag and I can burn mine, so long as public safety is not impaired by the fires. But you cannot burn my flag against my will, nor can you burn a flag owned by the government.

Before the Supreme Court ruled that burning your own flag in public is lawful, federal law and numerous state laws had made it criminal to do so. In analyzing those laws before it declared them to be unconstitutional, the Court looked at the original public understanding of those laws and concluded that they were intended not as fire safety regulations -- the same statutes permitted other public fires -- but rather as prophylactics intended to coerce reverence for the American flag by criminalizing the burning of privately owned pieces of cloth that were recognizable as American flags.

That is where the former statutes ran into trouble. Had they banned all public fires in given locations, for public safety sake, they probably would have withstood a constitutional challenge. But since these statutes were intended to suppress the ideas manifested by the public flag burning, by making the public expression of those ideas criminal, the statutes ran afoul of the First Amendment.

The First Amendment, which prohibits Congress from enacting laws infringing upon the freedom of speech, has consistently been interpreted in the modern era so as to insulate the public manifestation of political ideas from any government interference, whether the manifestation is by word or deed or both. This protection applies even to ideas that are hateful, offensive, unorthodox and outright un-American. Not a few judges and constitutional scholars have argued that the First Amendment was written for the very purpose of protecting the expression of hateful ideas, as loveable or popular ideas need no protection.

The Amendment was also written for two additional purposes. One was, as Justice Jackson wrote as quoted above, to keep the government out of the business of passing judgment on ideas and deciding what we may read, speak about or otherwise express in public. The corollary to this is that individuals should decide for themselves what ideas to embrace or reject, free from government interference.

In the colonial era, the Founding Fathers had endured a British system of law enforcement that punished ideas that the King thought dangerous. As much as we revere the Declaration of Independence for its elevation of personal liberty over governmental orthodoxy, we are free today to reject those ideas. The Declaration and its values were surely rejected by King George III, who would have hanged its author, Thomas Jefferson, and its signers had they lost the American Revolutionary War. Thank God they won.

Justice Jackson also warned that a government strong enough to suppress ideas that it hates or fears was powerful enough to suppress debate that inconveniences it, and that suppression would destroy the purposes of the First Amendment. The Jacksonian warning is directly related to the Amendment’s remaining understood purpose -- to encourage and protect open, wide, robust debate about any aspect of government.

All these values were addressed by the Supreme Court in 1989 and again in 1990 when it laid to rest the flag burning controversies by invalidating all statutes aimed at suppressing opinions.

Even though he personally condemned flag burning, the late Justice Antonin Scalia joined the majority in both cases and actively defended both decisions. At a public forum sponsored by Brooklyn Law School in 2015, I asked him how he would re-write the flag burning laws, if he could do so. He jumped at the opportunity to say that if he were the king, flag burners would go to jail. Yet, he hastened to remind his audience that he was not the king, that in America we don’t have a king, that there is no political orthodoxy here, and that the Constitution, which is the supreme law of the land, leaves freedom of expression to individual choices, not government mandates.

The American flag is revered because it is a universally recognizable symbol of the human sacrifice of some for the human freedom of many. Justice Scalia recognized that flag burning is deeply offensive to many people -- this writer among them -- yet he, like Justice Jackson before him, knew that banning it dilutes the very freedoms that make the flag worth revering.

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

Obama’s Labor Market Mischief

Richard Epstein*

Richard Epstein

Richard Epstein

Under the Fair Labor Standards Act of 1938 and its subsequent amendments (FLSA), Congress has delegated to the President the power to set overtime regulations for all public and private employees throughout the United States. On March 13, 2016, President Obama directed Thomas E. Perez, head of the Department of Labor (DOL), to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees,” which, in his view, “have not kept up with our modern economy.” The Department of Labor conducted exhaustive hearings on the matter, during which it received comments from close to 300,000 individuals and organizations.

In May 2016, following these hearings, the Department issued its Overtime Final Rule that showed how little it had learned from the process. It did nothing to adjust the definitions of EAP (executive, administrative, and professional employees) workers. But it did raise the minimum salary level for exempt EAP workers from $23,660 per year, or $455 per week, to $47,892 per year, or $921 per week. The regulation also included a provision that automatically raised the minimum salary level every three years to take into account the effects of inflation.

This rule, which generated widespread consternation in government and business, was scheduled to go into effect on December 1, 2016. But on November 22, 2016, in Nevada v. U.S. Department of Labor, Judge Amos L. Mazzant of the Eastern District of Texas, an appointee of President Obama, issued a nationwide preliminary injunction that blocked its implementation at the request of 21 states (all but Louisiana with Republican governors) and a number of private businesses. Under the FLSA, the exemption only applies to workers paid on a salary (as opposed to an hourly) basis who must be paid the minimum amount set by the regulation in question. Most critically, the FLSA regulations contain a so-called “duties test” that must be met in order for employees to be treated as exempt
EAP workers.

Executives typically have management powers and the ability to hire and fire. Administrators do office and non-manual work related to firm management. Professionals have to engage in intellectual work that, with study, allows them to acquire “advanced knowledge . . . in a field of science or learning.” In the end Judge Mazzant held that the regulation failed because in raising the minimum level to $47,892, it did not take any steps to make sure that EAP workers under that level were not exempt from the overtime provision. In other words, the duties component of the test had to be satisfied independently of the hourly test.

In reaching his decision, Judge Mazzant upended the usual expectation that the government is given broad discretion in interpreting its own regulations. Thus in the course of its argument, the Department of Labor insisted that the well-known 1997 Supreme Court decision of Auer v. Robbins gave the Secretary of Labor virtually full discretion in fleshing out the details of the regulations that it promulgated under the FLSA. In that decision, Justice Scalia held that the Secretary could refuse to classify police sergeants and lieutenants as bona fide EAPs because they were subject to reductions in pay for various disciplinary infractions. The supposed standard for upholding an interpretation was that the interpretive rule was not “plainly erroneous or inconsistent with the regulation.” But it was laughable nonetheless because it was at enormous variancewith ordinary language, which everywhere describes sergeants as “field supervisors” and lieutenants as the supervisors of a “bureau, squad or unit.” Notwithstanding Auer’s indefensible intellectual acrobatics, Judge Mazzant decided to apply a “plain meaning” test that struck down the regulation on the simple ground that many workers earning below the new threshold in fact occupy bona fide EAP roles. Yet the Secretary made no effort to provide separately for any of those cases. Interestingly enough, the same objection did not succeed against the lower, previous minimum salary number given that few if any EAPs earn such low wages.

In making this decision, however, Judge Mazzant turned away another challenge to the FLSA insofar as it applies to public employees, to whom his decision devoted virtually exclusive attention. This more fundamental challenge should have been based on the sensible view that the United States has no business regulating the wages or overtime pay of state government employees. In principle, the strongest argument in favor of this position is that the United States and the states should be regarded as coequal sovereigns, each within its own defined territory. Under that conception, the states should be able to organize the internal affairs of all its own agencies as it sees fit. In National League of Cities v. Usery (1976), Justice Rehnquist did not embrace this strong originalist conception, but he did hold that the states were exempt from federal oversight insofar as they discharge “traditional governmental functions”—a phrase that the Court never fully defined. The unworkable nature of that needless distinction led the Court in 1985 to overturn National League of Cities in Garcia v. San Antonio Metropolitan Transit Authority, given its professed inability to decide whether mass transit in a metropolitan area fell within the class of traditional government functions.

Unfortunately, this whole judicial episode was misconceived, because in the post-New Deal Era, there is no principled reason at all to distinguish between traditional and novel government functions when both are regarded as equally legitimate. The correct result is that all states should be liberated from any statute, including the FLSA, that seeks to set the wages and hours of a state’s own employees. Judge Mazzant briefly noted correctly that the Court did some modest backtracking from Garcia in Printz v. United States, which held that the federal government could not require state and local enforcement officers to conduct background tests on prospective handgun purchasers. But he was surely correct to conclude that Garcia is still the law. Ideally, the model of coequal sovereignty is most faithful to our constitutional traditions. A reconstituted Supreme Court could solve a large fraction of this problem by ditching Garcia and expanding the exemption under National League of Cities so that it covered all state and local workers, regardless of their function.

Nonetheless, in the short run, the new Trump administration should not wait to find out whether Judge Mazzant’s edgy decision will be sustained on appeal. On day one in office, President Trump should scrap the DOL’s new overtime rule: Far from modernizing and streamlining business, the new rule, as is evident from the torrent of objections, throws a massive wrench into the new economy. The simplest point here is that the “hour” is no longer the gold standard of compensation for many workers. The gig economy, for example, pays its workers by the job and not by the hour. It is impossible for these employers to monitor the hours of workers who, under their contracts, have complete freedom to decide whether or not to take any given assignment. It becomes the road to economic ruin to impose rules of this sort when the penalties for noncompliance are so high.

The same can be said with respect to graduate students whose laboratory work is a mixture of study and employment, where it is again impossible to tease out the one component from the other. The objection also applies to tech start-ups, whose employees receive a huge chunk of their compensation in the form of stock options and future bonuses, which are largely ignored under the myopic FLSA hourly formula. None of these cases gave rise to much difficulty when the base wage was set low, but they cause enormous confusions to millions of workers whose responsibilities are not accurately measured by their base rate of compensation.

Nonetheless, the DOL has buried its head deeply in the sand in promulgating the regulation. Its own original assessment of the impact of its new overtime rule is a perfect self-parody of economic analysis. The stated point of the rule was to raise “salary threshold at the 40th percentile of weekly earnings for full-time salaried workers in the lowest wage Census region in the country, currently the South.” The meaning of this particular figure is never explained. Nor did DOL come to grips with the massive disruption that the new overtime rule could cause to many established forms of business. Instead, it adopted the naïve conclusion that “managerial costs” will be about $224 million, which is “based on the median compensation of a manager multiplied by the assumed average 5 minutes per week for the additional monitoring (i.e. more than one hour per quarter) multiplied by the total number of directly affected workers who work overtime either regularly or occasionally but on a regular basis.”

At no point does the DOL even ask whether to include in its calculation the key decisions that firms must make on whether to keep workers below the threshold, or to raise them above it, in order to avoid the heavy monitoring costs. Nor does it ask whether firms will choose to lay off some workers or redefine job classifications in ways that minimize the impact of the new rule. The DOL also fails to examine whether, and if so how, these firms will have to adjust other salaries to keep relative compensation in order. And, of course, the DOL ignores the possibility that some workers are opposed to the shift, given the loss of potential status from having to punch a clock, and the possibility that some departments might have to close or restructure or let go of some workers. The DOL model also assumes that it is easy to set in place the systems needed, and that the firms in question need not worry about inspections, fines, and potential civil liability for noncompliance with the rules. It is laughable to think that the fight over this rule is about the allegedly $224 million per annum in quantified managerial costs or even the $1.2 billion in pay increases that are identified by the DOL. The greatest sin of the DOL is that it assumes blithely that neither private nor government firms and agencies respond to incentives, so that it can reduce a complex economic inquiry into a simple set of mathematical calculations not worth the paper that they are written on.

Nonetheless, the DOL is largely unrepentant; in response to Judge Mazzant’s decision, it wrote: “We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans." But once again this pronouncement suggests that the DOL knows what counts as a fair day’s pay for the millions of workers who are subjected to the rule. In so doing, it makes the most fundamental mistake in economic analysis. It assumes that the agreements that are in place do not reflect the revealed preferences of the workers who have signed on to these deals. It is of course the case that workers want to receive higher wages, and every employer would prefer to pay less. It is just these two pressures that drive a competitive market to set wages as they do. There is absolutely no reason to think that the optimal pay schedule for overtime is one-and-a-half of basic wages. A huge number of firms will have to change their job classifications and reorganize their work and production schedules to avoid overtime payments. Yet the DOL ignores this elephant in the room, so little does it understand the market that it regulates.

The only way in which to achieve permanent wage increases is to reduce the many impediments on the FLSA and other statutes that make it harder for employers and workers to achieve productivity gains. The fruitless overtime rule of the DOL, if implemented, will probably result in resource losses that exceed, by at least an order of magnitude, the paltry sums that it purports to transfer from employers to workers. The quicker the DOL is pushed to the sideline, the better it is for the American economy, its workers, and employers and consumers alike. Let’s hope that the change in presidential administration leads to a long overdue change in labor market regulation. 

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

California’s Needless Housing Crisis

Richard Epstein*

Richard Epstein

Richard Epstein

Everyone agrees the most attractive areas in California suffer from a housing crisis that calls for drastic action. The difficult question is deciding what should be done. Many of the challenges are embodied in the small California town of Mountain View, population 80,000, which should be basking in sunshine as the home of Google. But instead the town is mired in discord and controversy over a set of well-entrenched anti-growth policies concerning housing. The tight supply of housing has raised the price of the median home to about $1.4 million. Rents, too, have skyrocketed, resulting in the displacement of many long-term tenants—teachers, nurses, and tech employees—who have to endure long daily commutes to work or find jobs elsewhere. Mountain View is now the proud home to numerous mobile home parks, occupied by individuals who crave access to the city—and who reportedly drive Teslas and Mercedeses, no less—but who lack the means to purchase or rent ordinary housing.

The situation in Mountain View has provoked two distinct responses. The first of these was the approval on November 8 of Measure V, a rent control statute that turns Mountain View’s rental market into a regulated public utility, complete with its own five-member board. The ordinance exempts all units built after February 1, 1995. But for the covered units, it rolls back rents to their October 2015 levels, and then limits rent increases going forward to between 2 and 5 percent, with allowances for higher increases if justified by extraordinary costs. The tenant groups that support the statute seek, without explicit acknowledgement, to secure a massive wealth shift in their favor, without discouraging future development. In so doing, they ignore the costs to other potential residents who put a higher value on those units, which will lead to a misallocation of available units whose number is kept artificially low by a wide range of entry constraints. The administrative costs of running this system for their exclusive benefit will, moreover, be borne by everyone inside the city. It is also likely that the threat of a new rent control law will weigh heavily on the market for exempt units, and will retard the ability to build new units as well.

That last possibility is the subject of an intense struggle between Mountain View’s pro- and anti-growth factions. Generally, pro-growth forces have made gains in California leading to a new YIMBY (Yes, in my Back Yard) movement.  And new pro-growth members of the Mountain View City Council have spurred proposals to add about 10,000 new units—roughly 50 percent of the current total housing stock—to provide homes for Google employees. The politics around this proposal are intense, because new housing projects bring new tenants whose children will need to be educated in local schools, funded in part by local property tax dollars, some of which might come from existing tenants. Yet the construction of new office buildings and other facilities, which avoids this educational burden, will only aggravate the mismatch between jobs and homes in the area, further intensifying the housing shortage.

So the questions are: What caused this housing crisis, and what can be done to dig California communities like Mountain View out of their giant housing holes?

On the first question, it should be noted that similar issues occur from time to time outside of California, but usually with far less severity. The explanation for the situation lies in the heavy hand of government regulation on the operation of housing markets through tools like zoning and rent control laws, endless permitting requirements, and a host of other restrictions that go far beyond what is needed to control the health and safety risks associated with real estate development. Of course, real estate markets need some form of external regulation. But the particular form makes all the difference.

On this score, the traditional small-government approach could still work today. The first system of social control is the law of nuisance that prevents landowners from engaging in activities that are offensive to their neighbors, like the emission of filth, noises, and odors. These restrictions are efficient because they imitate standard restrictions always included in all forms of planned-unit developments, whether they be apartment complexes or gated communities. The initial owner of the property knows that his gain from selling or leasing is far greater if all owners are subject to these restrictions than if none are. The owner therefore “internalizes the externalities,” to use a term of art, by picking the optimal set of rules to regulate these risks. There is no conflict between his welfare and that of his buyers. The law of nuisance backstops these rules by protecting outsiders from the combined activities of the new project.

Every standard voluntary development goes far beyond the prevention of nuisances by imposing a set of covenants and restrictions that address such matters as setbacks, height restrictions, aesthetics, common areas, taxation, governance, and many other details. These tend to differ across developments based on the income, tastes, and preferences of the unit owners. But the same logic drives them to efficient outcomes. Any benefit given to one tenant is a restriction on the others. The optimal set of rules continues to maximize the difference between total benefits and total costs, and the entire arrangement “runs with” the land so as to preserve the basic governance structure as individual units are bought and sold.

What is striking about the system of public restraints in California is that they go far beyond the various covenants and conditions that developers devise for their own projects. And they do so in ways that benefit local residents by imposing crushing costs on new arrivals. At this point, the self-balancing mechanism that constrains the behavior of developers is removed, now that local homeowners and voters are given a free hand in how they regulate, because they never have to compensate current landowners or future buyers and tenants for the losses these restrictions impose. Local citizens are prepared to consume a lot of goodies at zero price, which is all that an emaciated takings law now requires of them. At this point, they only cast their ballots for particular restrictions that benefit themselves, no matter what the cost to future members of their community. “Welcome stranger” and “not in my backyard” become the order of the day, so each small community adopts rules that keeps out any new activity that sitting tenants think will lower the value of their own units. Let them build elsewhere is the modern equivalent to Marie Antoinette’s “let them eat cake.”

The correct way to deal with this problem is to impose a serious compensation requirement on the communities that implement these regulations so that the prices they impose on others are now borne by themselves. This elaborate system of takings law should not, of course, require that communities compensate landowners that engage in noxious activities. But by the same token, it requires a strong sense of discipline to make sure that feigned “nuisances” do not justify the full range of large-lot and height restrictions, setbacks, and the like that local communities routinely impose on new arrivals. All too often, the result is an endless back and forth in which developers challenge one set of restrictions, only to find that they have to go back to square one when the plan is rejected by the local planning board. Under current law, the aggrieved landowner cannot oppose these restrictions in court until internal administrative procedures are exhausted, which gives local governments the incentive to string out the process until developers die from financial exhaustion. The endless cycles of application and denial are ample warning to potential developers who become reluctant to buy land, develop plans, and go through endless hearing cycles before obtaining—often from multiple independent bodies—their precious permits. The potential residents that they represent are typically unheard in these proceedings. In similar fashion, the rent control laws generate an enormous wealth transfer to sitting tenants, which, over time, leads to a stagnation in real estate markets, as people hold on to their units knowing they cannot afford the higher prices available to them in the limited unregulated market.

This two-tier system creates massive inequities, which then inspires local governments to try to supply affordable housing to newcomers in ways that are routinely self-destructive. California is a national leader in this institutional folly, because its Supreme Court routinely upholds rules that act as strong barriers to entry. Thus in San Remo v. San Francisco (2002), it upheld a law that required a developer—who wanted to convert prime downtown property into a hotel—to supply substitute housing to sitting tenants, even after their leases had expired, or contribute to an “in lieu” fund that could be used to create new public housing. This senseless tax on conversion prevents the movement of property to higher value uses and thus shrinks the tax base. If a city wants to supply affordable housing programs, it can do so through general appropriations that make taxpayers take the hit for the generosity.

The situation got even worse in California Building Industry Association v. City of San Jose (2015), where a unanimous California Supreme Court held that all builders of new housing had to supply a fraction of affordable housing units at their own expense, even if their proposed plans displace no sitting tenants. The net effect of this convoluted price control system is to retard new development. Again, putting these costs on the taxpayers is the only way to break the logjam. We can be confident that the number of affordable units demanded will shrink because the expenditures will now be on-budget. But, at the same, time the total supply of housing should expand by increasing new entry, which will drive down overall price and rental levels.

At this point, it becomes clear why any Mountain View growth plan will be mired in controversy for years to come. The City Council has full discretion over what kinds of restrictions it can put on new units, and its combined weight will delay the housing relief, increase its costs, and reduce its benefits. What is needed is a systematic way out of the impasse. The first component of this program is to remove any and all permit restrictions on housing that are not related to public health and safety, narrowly defined as under traditional nuisance law. On this model, virtually every development will pass muster, and the key task of the planning commission is to make sure that vehicular access and off-street parking are properly supplied. Otherwise, the regulation stops.

More importantly, Mountain View and other towns have vacant areas and these should be regulated by a simple rule that lets the developer make all decisions inside that area on issues involving density, design, and governance. At this point, the older logic of land use restrictions can go into place. Supply will increase, and prices will go down. Where current citizens want to impose further restrictions, they can do so if they are prepared to pay for them.

The way out is therefore available. But how is that transition to be secured in the face of implacable local opposition? Local governments have no incentive to reform themselves. The California Supreme Court is so convinced of the wisdom of local governments that it will not impose any meaningful restrictions on their operations. The state is thus locked in by bad laws and bad institutions. Ironically, one of the only possible solutions to this blue state problem will come from a potentially remade conservative Supreme Court, which will likely enforce federal constitutional guarantees on takings and due process against California and its local governments.

That process will take time, and it will require the U.S. Supreme Court to recognize that it, too, has to mend its ways. But the populist wave that brought Donald Trump to power may yet protect California from its ingrained regulatory system. The incredible mess in the California housing markets is not a product of bad luck. It is the consequence of horrible laws whose destructive impact is all too evident in the daily hardship and senseless political battles now raging across the state.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

The Loyal Opposition

Richard Epstein*

Richard Epstein

Richard Epstein

No matter which candidate wins this Tuesday’s election, the nation is likely to continue the downward slide that started with the election of Barack Obama as president in November 2008. In the last eight years, the nation has fractured morally; it has failed to grow economically; and it has been continuously embarrassed in its foreign affairs. As a lame duck president, Obama will likely do nothing to reverse these downward trends. But now consider our alternatives to replace him.

Hillary Clinton, the likely winner, has moved to the left of Barack Obama on many domestic issues: We can expect to see higher taxes, more regulation of the labor markets, futile and misguided efforts to rehabilitate the Affordable Care Act, hostility to free trade, enforcement of repressive environmental regulations, and a stoking of racial tensions. There is not a single major domestic policy issue on which she promises material improvement from her misguided and dogmatic predecessor. She speaks and thinks like a diehard progressive with scant respect for, or sympathy with, market institutions. On foreign affairs, she was once thought to be more hawkish than Obama. But as of late, she has fallen under the spell of the Sanders wing of the Democratic Party. She has also shown little unhappiness with Obama’s ill-conceived Iran nuclear deal.  Thus, she is unlikely to do much, if anything, to reinvigorate a weak American military establishment, and I fear she will continue with a passive policy of disengagement with the Russians, Chinese, and Iranians. Her recent policy pronouncements are a continuation of Obama’s, which means they could lead to a further erosion of American influence abroad, and, ultimately, the escalation of conflict in the Middle East.  

Last, but by no means least, is that the stench of scandal will hang over her even if she is elected. The relentless exposure of her various lapses, rigorously dissected by Andrew McCarthy and Kimberly Strassel, among others, will not abate if she is elected president. She will have to fight a doomed three-front war dealing with the shenanigans of the Clinton Foundation, the palpable irregularities of her email server, and the lies and distortions that have come out even as the Department of Justice and FBI have slow-walked their criminal investigations of her conduct. Future waves of embarrassing disclosures could make it impossible for her to govern effectively.

She may well be put over the top by the recent Comey letter that stated that the FBI examination of the Abedin/Wiener server revealed no new information. But anyone who was skeptical of Comey for his suspect July 5 decision not to go further with the Clinton investigation will not be assuaged in the slightest by his most recent statement. Nor is it beyond the realm of possibility that she could be forced from office by some as-yet-unknown political time bomb.  No one can say.

But lest one be too critical of Hillary, there is Donald Trump, whose personal baggage means that his election carries the risk of bringing buffoonery, decadence, and political instability into the Oval Office, as well as possible investigations into sexual assault and fraud for his previous behaviors. On policy matters, he talks as if he is still cutting real estate deals in Atlantic City. His erratic behavior leads many to fear his control over our nuclear arsenal in his position of commander-in-chief and to doubt his respect of constitutional norms on such key matters as the rule of law and the separation of powers. His belligerent insistence on renegotiating international trade deals could lead to a major trade war that would cause incalculable damage to the United States and all of its many trading partners. Trump, it appears, has never heard of the principle of comparative advantage, and thus looks at American trade deals exclusively through the lens of the perceived “losers,” with scant appreciation of the systematic gains from trade. It is no wonder that most corporate executives have shunned his candidacy, given his apparent willingness to freeze out international markets. Likewise, his shrill immigration policy threatens to make it more difficult to run the domestic economy and stabilize his relations with Latin America and Muslim nations.

On most domestic issues, he is an empty vessel who has no political experience or intellectual skills to guide the nation forward. On social issues, he has the rare capacity to inflame racial tensions without cause, and to engage in gratuitous sexual slurs that further outrage public opinion. On foreign affairs, his oft-expressed disdain for treaties could usher in pandemonium on the most central military and economic issues.

It is not a pretty choice. What makes the current situation still more distressing is the polarizing impact that this campaign has had on the American electorate. It takes no sociological wizard to realize the deep antipathy that ardent Trump supporters have for Clinton, whom they think represents the bicoastal liberal elites and their favored minority groups. Clinton supporters return the favor by denouncing everyone who supports Trump as racists, homophobes, and kooks. Harsh talk like this has tended to abate during previous presidential elections. Traditionally, Democratic candidates tacked left while Republican candidates tacked right during the primaries to secure the nomination—only to both inch back to the middle in the general election in order to appeal to the ,median voter, on whom the outcome of elections was thought to hinge.

Unfortunately, this time around that movement to the center does not seem to be taking place. Instead, both parties have assiduously cultivated their respective bases in order to increase their turnout in the national election. To the extent that each tries to win over undecided voters, it is not with appeals to policy, but with denunciations of the character and temperament of the opposing candidate. And so the electorate has become more split, guaranteeing that the supporters of the losing candidate will bitterly resent the new president. There will be no honeymoon period, no reconciliation, only massive distrust. In one likely scenario, a Clinton presidency met by a Republican Congress will lead to renewed exercises of unilateral executive power, along with gridlock on just about every issue, including Supreme Court nominations, given that the president cannot move without the cooperation of Congress on such measures.

Faced with this unappetizing set of prospects, it is interesting to observe the different responses of the intellectual elites on the Democratic and Republican sides. Both are right to castigate the evident weaknesses of the other. But the Democrats are far too likely to whitewash Clinton’s many flaws and to claim that there are strong positive policy reasons to support her candidacy. After all, they don’t have any qualms with her aggressive brand of progressive politics. Interestingly, the response of Republican elites has been much more fragmented. There are many distinguished Republicans who so fear the erratic Trump that they are willing to support the Clinton nomination, warts and all. At the same time, many other Republicans find the prospect of a politically destructive and morally bankrupt Clinton administration too much to bear, so they are supporting Trump’s election and hope to restrain him while in office. And then there are those, like myself, who find the entire situation so unsettling, and both candidates so lacking in merit, that they will not vote for either.

I do not regard this last choice as irresponsible. I am thinking of my vote not just as a way to determine the outcome of an election, but also as an expression of the policies and public officials whom I am prepared to defend. The selection of one candidate over the other is like the purchase of a complex market-basket of goods. The only choice given to anyone in an election is to purchase all the goods in a particular basket or none. In most elections, it is commonly possible to have enough confidence in a candidate and a party platform to make this kind of choice. But in this election, my strong doubts about the character and integrity of both candidates, and my deep reservations regarding the substantive positions of both candidates, lead me to one conclusion. I cannot adopt the theory of vote for the lesser evil when both evils are so unacceptable.

I know that nothing that I could say would influence the decision of a President Clinton or her supporters on domestic issues if they were to control government. Our intellectual and ideological differences are so profound that I doubt that there is any common ground for discussion. One prevailing view is that Clinton has no abiding principles, and thus is always open to moving one way or the other depending on what’s most politically expedient at the moment. Yet my own sense is that she will resist any fundamental shifts in policy, such as reform of the ill-fated individual mandate under the Affordable Care Act. On foreign affairs, she is harder to read, although it is disappointing that she has not distanced herself from the Obama policies on Iraq, Iran, and Israel.

On the Trump side, the situation is more complex. On most policy matters, Trump is a blank slate, ill-prepared for office. Should he be elected, there are two questions to consider: first, will he listen to anyone, and, second, will he listen to the right people? On the former question, the odds are not good, given his willingness to disregard his staff and stumble down his own self-destructive paths. It’s impossible to answer the latter question, but the best thing Trump can do is to include in his inner circle the very conservatives and libertarians who, for compelling reasons, have most fiercely opposed his nomination. They will be reluctant to serve, but, in the end, many of them will overlook their seasickness in an effort to right the ship of state before it runs into the shoals.

Learning how to take advice is no easy art. All too many people assured me in 2008 that Barack Obama would be a fine president because he would get good advisors. What we got in the end was Valerie Jarrett, who drove away other potential advisors notwithstanding her utter want of substantive qualifications. Presidents always have a tendency to draw the wagons close around them when faced with these threats.

Nonetheless, regardless of whether Clinton or Trump is elected president, classical liberals like myself will be shut out of political influence. At this point, the only thing that we can do is to act as the loyal opposition. Economic growth is not necessarily doomed. It can be reinvigorated by sticking to the core principle of defending a limited government that understands its primary economic and social mission is not to purify the hearts and minds of those who disagree with its leaders, but to allow strong institutions, such as private property and the freedom of contract, to flourish, while offsetting the otherwise overweening power of the state. That mission requires strong opposition to the unilateral power of executive action and the unbounded power of administrative agencies. Abroad, it requires that the future president not withdraw from foreign affairs, or take a categorical stance against the use of force against those who attack or threaten our friends and allies in Western Europe, the Middle East, and in Asia.

These principles make sense no matter which party is in office. The job of the political and legal theorist is to keep steady on the course, and to demonstrate, time and again, the necessity for classical liberal positions on the full range of substantive issues. That third voice has to be heard, and heard often, in the impending political struggles that are likely to engulf the nation in the months and years ahead. 

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

J. Edgar Comey

Andrew Napolitano*

Andrew Napolitano

Andrew Napolitano

I had intended to use this final column before the presidential election to explain at length why I cannot vote for either Hillary Clinton or Donald Trump and plan to vote for Gary Johnson for president. In a nutshell, big government is our biggest problem. It thrives on more debt, more taxes, more regulations, more war, a secretive deep state and less personal freedom. Both Clinton and Trump would grow the government. Only Johnson would shrink it.

One of the most dangerous tendencies of big government is the generation of a police state -- wherein laws, rules and procedures are primarily written and can often be bent to aid law enforcement when it is encroaching on our personal freedoms. We saw a terrifying example of that last week when FBI Director James Comey behaved as if he were his most infamous predecessor, J. Edgar Hoover.

Here is the back story.

Late last week, in an effort to redeem himself from the consequences of having ignored a mountain of evidence of guilt against former Secretary of State Hillary Clinton last summer, Comey told Congress in a cryptic letter that the FBI would resume investigating her emails based upon the belief that more of them may be located in the laptop of disgraced former Rep. Anthony Weiner. Weiner is the alleged sexual predator who remains the estranged husband of Huma Abedin, one of Clinton’s closest aides. Abedin backed up all her emails onto the laptop that she and her husband shared.

At the time he sent his Friday letter, Comey had not yet seen the contents of the Weiner laptop because the search warrant authorizing FBI agents to access its contents was not signed until Sunday. If he saw something incriminating before he wrote his letter, he saw it unlawfully; yet his duty was to bring what he saw to the Department of Justice, for which he works, not to hint about it publicly to Congress.

Comey’s progress report to Congress is prohibited by the internal regulations of the DOJ and the FBI -- and by the canons of legal ethics that regulate lawyers. Comey had no obligation to send the letter at any time; moreover, sending it last week was a direct violation of DOJ and FBI rules that prohibit all public announcements about candidates for public office within 60 days of Election Day.

Comey told FBI staffers early this week that he sent the letter because he felt duty-bound to members of a congressional committee to whom he had given a promise that he would keep them informed of the status of the email investigation. That was a troublesome promise because its compliance violated other duties imposed upon Comey. Worse than making a promise and not keeping it is making a promise that should not be kept.

The genesis of all this was Comey’s unprecedented news conference on July 5, at which he announced that no charges would be filed against Clinton because no prosecutor would take the case. That was not an announcement for him to make. The FBI’s job is to gather facts and present them to the DOJ, not to make legal evaluations. He made his announcement when he did to head off the behavior of some of his agents who were seeking Clinton’s medical records, unlawfully, from the National Security Agency to ascertain the gravity of her head injury -- an injury she posited during her FBI interrogation as the reason for her professed memory loss.

I have argued that Comey’s July 5 decision was dead wrong; there is a mountain of evidence with which to indict and convict Clinton on espionage charges. Yet it should have been presented to a grand jury -- it was not -- rather than at a news conference. The July 5 announcement was bizarre in that it not only exonerated Clinton but also described the quantity and quality of the evidence against her. This insulted the agents who worked on the case and produced the lowest collective FBI morale since Watergate. If Comey sent his Friday letter to address the problems he caused by his July 5 announcement, he did the wrong thing for the wrong reasons.

But perhaps the gravest of Comey’s violations is that of the constitutional guarantee of due process. The essence of due process is notice and fairness. How exquisitely unfair of Comey to say, in effect, “We have something that warrants investigation of you, yet we don’t know its significance, so we can’t say what it is.” This is reminiscent of Franz Kafka’s “The Trial,” in which the lead character is being pursued for a year on unnamed charges, against which he cannot defend himself.

In his play “A Man for All Seasons,” Robert Bolt shows Sir Thomas More arguing with William Roper, a colleague, who suggests that government lawbreaking can be justified for the greater good, particularly if the target is the devil (which Trump has called Clinton). More demolishes that argument in a few now iconic lines: “And when the last law was down, and the Devil turned round on you -- where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast -- man's laws, not God's -- and if you cut them down, and you're just the man to do it, d'you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake.”

To my friends who have rejoiced in James Comey’s letter, please take warning that, as More accurately predicted, the tables can be turned. If there is any moral lesson in all this, it is that the history of human freedom consists of paying careful attention to constitutional guarantees and legal protections, no matter the reputation of the accused.

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

Unaffordable Care Act

Richard Epstein*

Richard Epstein

Richard Epstein

The defenders of the Affordable Care Act are running out of excuses for the dismal performance of its health care exchanges. It is now old news that many uninsured individuals are unable, even with sizeable subsidies, to purchase health care coverage from private health care providers. As Yale Professor Jacob Hacker notes in his recent op-ed for the New York Times, the ACA has indeed faced “a rocky six months.” Average anticipated premium increases are running at 25 percent; major insurers like Aetna, UnitedHealth, and Humana have either pulled out of the program entirely or cut back their operations; and one recent tally reports that 16 of the 23 health care co-ops, with over 800,000 enrollees, have shut down, with at least six others on economic life support.

What should be done to respond to this unfortunate situation? The defenders of the ACA want to double-down on the current system by introducing a “public option” that was excluded from the original legislation. President Obama endorsed that position in a communication published recently in the Journal of the American Medical Association. After ignoring the problems with the individual health care exchanges, he suggests “Congress should revisit a public plan to compete alongside private insurers in areas of the country where competition is limited. Adding a public plan in such areas would strengthen the Marketplace approach, giving consumers more affordable options while also creating savings for the federal government.” That same line is echoed by Hacker who dismisses any notion that the public option will lead to a single-payer system, by making the tart observation that the wholesale withdrawal of private insurers from the marketplace has already resulted in a single-payer system in the five states whose exchanges will be serviced by only a single ACA provider next year, with the prospect of still more to come.

Unfortunately, President Obama and Professor Hacker, with their public option rescue plan, misunderstand the source of the current difficulties. The key problem is not monopoly power. It is runaway costs brought on by foolish regulations that no public option can cure. If the system is to survive, which is doubtful, it needs to be fundamentally redesigned.

In principle, there is no doubt that the exit of multiple players from any given market gives the survivors the opportunity to engage in monopoly pricing, which may allow them to increase profits. Yet current companies are leaving the ACA en masse because of developments on the cost side. They cannot make money when they have to play by onerous government rules in supplying health care insurance. Even in a perfectly competitive market, with free entry and exit, no one will sell any product for a price below its anticipated cost, plus an allowance for a risk-adjusted rate of return on invested capital. The firms that left concluded they could not provide a product consumers wanted at a price that would allow them to remain in the market. If there were monopoly profits to be made in this industry, new firms would enter as the old firms left. But the level of private entry into this market has been effectively zero, which is a strong signal there are no profits to be made.

Indeed, the situation is even more dire than this account suggests, because the individual health care market is not viable, even with the enormous public subsidies that are available to a large fraction of the insured population. According to figures from earlier this year, about 9.4 million enrollees (out of 11.1 million) on the ACA exchanges receive a government subsidy that averages $291 per month on policies that cost an average of $386 per month. That means that close to 85 percent of the enrollees receive an average subsidy of $4,632 per year, or close to 75 percent of the total price, for a grand total of about $43.5 billion in annual subsidies for their combined coverage. The situation looks even worse when you recall that the private plans of about six million people were canceled because they did not comply with the minimum standards set under the ACA. Those plans made money and contributed tax revenues to the government. So at a minimum, the $43.5 billion in subsidy dollars only increased the total exchange enrollment by about 3.5 million recipients. The rest of the reduction in the number of the uninsured comes not from the operation of the exchanges, but from the expansion of Medicaid by about 15 million enrollees, placing even more strain on an already overworked system.

The obvious inquiry here is why the President, or anyone else, should think the public option will be able to cure the underlying ACA cost problem and help the government save money. Private health insurers work in many complex markets, where they manage to turn a profit. Is there any reason to think that a new and untested government provider will be able to succeed where the companies have failed? That rosy and improbable scenario would only be possible if the government received a complex set of privileges and advantages denied to their private competitors. These subsidies could take the form of receiving free or below-cost services from other government agencies—or being exempted from the various regulatory reviews and requirements imposed on their private competitors. In other words, the few surviving private firms will be competing on an uneven playing field against coddled government entities. The rise of the public option would mean virtually all private insurers exit the field. Hacker is unduly optimistic when he thinks that the outcome will be a stable equilibrium with public and private carriers. A single-payer system, with its massive inefficiencies, is the more likely result.

It is therefore necessary to rethink the problem from the ground up. The only way to do that is to examine the devastating constraints the ACA places on the overall health-care marketplace. The first point to note is that parties in competitive markets are not told the dimensions on which they are allowed to compete. They can offer whatever mix of goods and services they choose for whatever price they charge. They can target the entire market or only a single portion of it. They can enter and exit at will. They receive no direct subsidies from the government for the services they supply.

As I have long argued, the ACA flouts these basic principles. The first point is that each of the ACA’s bloated four-tier plans—Bronze, Silver, Gold, and Platinum—have to offer 10 key essential services. As reported by Healthinsurance.org, these include “outpatient care, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, behavioral health treatment, prescription drugs, rehabilitative services, laboratory services, preventative care and pediatric services, including oral and vision care for children.” Some of these services are not found in any voluntary market, yet all of them must be made available at a high level that is determined by government regulation, and which is not sustainable in voluntary markets.

In addition, everyone must be accepted into every plan, regardless of whether they have a preexisting condition. Most potential insureds know about their anticipated risk profiles and thus enroll in plans when they expect to face heavy expenses that the insurers cannot take into account. Beyond that, all insurance carriers are required to ignore both age and sex, even though these are powerful predictors of future health care costs. An adverse selection problem arises because both old and young are most likely to enroll when the costs of their plan are smaller than their benefits.

Faced with these constraints, private insurers have to make choices their customers won’t like. They can restrict the choice of physicians, and they can increase the level of deductibles, both of which make the plans less attractive and speed the rate of exit. Recall that enrollments are done on an annual basis, so people who have lost coverage the first time will not enroll a second time, especially if the terms of the new plan are less attractive than those of the previous one. By the same token, various patient groups for assorted ailments will steer their members to their preferred plans because the cost of a sick person’s care is far lower on the exchange. Any public option that operates under ACA rules will be vulnerable to the identical pressures that have driven the individual exchanges to the brink.

The planners of the ACA had enough foresight to realize that its open enrollment system could lead to winners and losers. They therefore designed a “risk corridor” program, which is intended to require side payments from those insurers that have drawn a good group of insureds to those insurers that have drawn a more expensive group. The implicit assumption behind this strategy is that system-wide receipts will exceed system-wide costs. But, of course, that need not be the case. Some plans will indeed do better than others, but the overall costs of running the exchanges could nonetheless still be negative, which in practice means that as the overall losses get greater, it becomes more and more difficult to fund transfer payments solely from revenue sources within the exchanges. In order to stem the shortfall, the Obama administration sought to make payments to insurers that were not authorized by Congress, only to be slapped down in court.

If the public option will accomplish nothing, then what should be done? As I have long argued, the only solutions worth considering are those that reverse the major structural failings of the current system. In the short run, the list of required benefits has to be pruned; greater price freedom has to be restored; new enrollees must be required to stay for minimum periods to counteract the adverse selection problem; insurers have to be able to more accurately price in ways that reduce the cross-subsidies currently built into the system; and transfer payments among insurers have to be scrapped.

It is an open question whether these and similar reforms can remove the rot that has worked its way into the system. Yet by the same token, it will be difficult to push for a wholesale repeal of the ACA, given that it is no longer an option for people who have been forced out of the private market to return to the plans the ACA shut down years ago. After all, any new statutory reform could be so short-lived that new entrants might be hit hard by  unanticipated restrictions before they can recoup their investments.

There is a sober lesson to learn from this sorry situation. None of the ACA’s shortfalls should have been a surprise to people who understand how insurance markets operate. The basic proposition remains that market liberalization always beats increased regulation. The former reduces administrative costs and creates desirable incentives. The latter leads to heavy cross-subsidies, endless compliance rules, and systematic deficits. It is also hard to reverse course when the strongest proponents of the given program ignore its manifest structural deficits, which is exactly what the incorrigible President Obama and Professor Hacker have done in calling for a public option that will only make a bad situation worse.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

What Happened to the FBI?

Andrew Napolitano*

Andrew Napolitano

Andrew Napolitano

When FBI Director James Comey announced on July 5 that the Department of Justice would not seek the indictment of Hillary Clinton for failure to safeguard state secrets related to her email use while she was secretary of state, he both jumped the gun and set in motion a series of events that surely he did not intend. Was his hand forced by the behavior of FBI agents who wouldn’t take no for an answer? Did he let the FBI become a political tool?

Here is the back story.

The FBI began investigating the Clinton email scandal in the spring of 2015, when The New York Times revealed Clinton’s use of a private email address for her official governmental work and the fact that she did not preserve the emails on State Department servers, contrary to federal law. After an initial collection of evidence and a round of interviews, agents and senior managers gathered in the summer of 2015 to discuss how to proceed. It was obvious to all that a prima-facie case could be made for espionage, theft of government property and obstruction of justice charges. The consensus was to proceed with a formal criminal investigation.

Six months later, the senior FBI agent in charge of that investigation resigned from the case and retired from the FBI because he felt the case was going “sideways”; that’s law enforcement jargon for “nowhere by design.” John Giacalone had been the chief of the New York City, Philadelphia and Washington, D.C., field offices of the FBI and, at the time of his "sideways" comment, was the chief of the FBI National Security Branch.

The reason for the "sideways" comment must have been Giacalone’s realization that DOJ and FBI senior management had decided that the investigation would not work in tandem with a federal grand jury. That is nearly fatal to any government criminal case. In criminal cases, the FBI and the DOJ cannot issue subpoenas for testimony or for tangible things; only grand juries can.

Giacalone knew that without a grand jury, the FBI would be toothless, as it would have no subpoena power. He also knew that without a grand jury, the FBI would have a hard time persuading any federal judge to issue search warrants. A judge would perceive the need for search warrants to be not acute in such a case because to a judge, the absence of a grand jury can only mean a case is “sideways” and not a serious investigation.

As the investigation dragged on in secret and Donald Trump simultaneously began to rise in the Republican presidential primaries, it became more apparent to Giacalone’s successors that the goal of the FBI was to exonerate Clinton, not determine whether there was enough evidence to indict her. In late spring of this year, agents began interviewing the Clinton inner circle.

When Clinton herself was interviewed on July 2 -- for only four hours, during which the interviewers seemed to some in the bureau to lack aggression, passion and determination -- some FBI agents privately came to the same conclusion as their former boss: The case was going sideways.

A few determined agents were frustrated by Clinton’s professed lack of memory during her interview and her oblique reference to a recent head injury she had suffered as the probable cause of that. They sought to obtain her medical records to verify the gravity of her injury and to determine whether she had been truthful with them. They prepared the paperwork to obtain the records, only to have their request denied by Director Comey himself on July 4.

Then some agents did the unthinkable; they reached out to colleagues in the intelligence community and asked them to obtain Clinton’s medical records so they could show them to Comey. We know that the National Security Agency can access anything that is stored digitally, including medical records. These communications took place late on July 4.

When Comey learned of these efforts, he headed them off the next morning with his now infamous news conference, in which he announced that Clinton would not be indicted because the FBI had determined that her behavior, though extremely careless, was not reckless, which is the legal standard in espionage cases. He then proceeded to recount the evidence against her. He did this, no doubt, to head off the agents who had sought the Clinton medical records, whom he suspected would leak evidence against her.

Three months later -- and just weeks before Clinton will probably be elected president -- we have learned that President Barack Obama regularly communicated with Clinton via her personal email servers about matters that the White House considered classified. That means that he lied when he told CBS News that he learned of the Clinton servers when the rest of us did.

We also learned this week that Andrew McCabe, Giacalone’s successor as head of the FBI Washington field office and presently the No. 3 person in the FBI, is married to a woman to whom the Clinton money machine in Virginia funneled about $675,000 in lawful campaign funds for a failed 2015 run for the Virginia Senate. Comey apparently saw no conflict or appearance of impropriety in having the person in charge of the Clinton investigation in such an ethically challenged space.

Why did this case go sideways?

Did President Obama fear being a defense witness at Hillary Clinton’s criminal trial? Did he so fear being succeeded in office by Donald Trump that he ordered the FBI to exonerate Clinton, the rule of law be damned? Did the FBI lose its reputation for fidelity to law, bravery under stress and integrity at all times?

This is not your grandfather’s FBI -- or your father’s. It is the Obama FBI.

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

Yale, Beyond the Pale

Richard Epstein*

Richard Epstein

Richard Epstein

In his recent op-ed in the Wall Street Journal, Yale President Peter Salovey tried to explain how colleges can make room for both freedom of speech and a culture of inclusion and diversity. Salovey wants to have his cake and eat it, too. The supposed tension between free speech and inclusion is false, he argues, because it is possible to pursue both ends simultaneously. Several days later, Yale was again in the news for its sexual harassment tribunals. As Jennifer Braceras explains in her op-ed for the Wall Street Journal, “College Sex Meets the Star Chamber,” Yale’s current policy on sexual harassment has led to a massive expansion of Yale’s control over the life of its faculty, students, and staff. At first, look, Salovey’s defense of free speech and inclusion seems unrelated to Braceras’s argument about the reach of Yale’s sexual harassment directive. But they are part of the same problem.

Yale defines sexual harassment very broadly: “Sexual harassment consists of nonconsensual sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature on or off campus, which includes (3) such conduct [that] has the purpose or effect of unreasonably interfering with an individual’s work or academic performance or creating an intimidating or hostile academic or work environment.” To be sure, no one wishes to defend assaultive or abusive sexual misconduct. But the Yale definition is capable of a broader reading. Combine the italicized words in the basic definition with clause (3) and the threat that this definition poses to free speech becomes clear. The phrase “purpose or effect” reaches actions that some reasonable person thinks might have an adverse effect, even if no harm was intended by it. Nor is there any effort to limit what is meant by a “hostile academic or work environment,” or activities on and off campus. It is all too likely that eager Yale bureaucrats will read these provisions broadly in order to expand the scope of their own authority.

The situation is still more dangerous because of the highly dubious procedures that are used in these cases. The tribunals use the lower “preponderance” of the evidence standard for guilt, rather than the stricter “clear and convincing” standard, which means the accuser has to bring less evidence against the accused. On top of that, the accused is denied the central right of cross-examination, even though he will face dire sanctions if convicted. It is impossible to know from the articulation of these standards exactly how any particular case will play out, or whether the Yale system will guarantee some modicum of consistency across separate cases. But what is perfectly clear is that the diehards who are likely to implement this policy are the same folks who have taken the lead in implementing Yale’s policy on inclusion and free speech, in ways that necessarily sacrifice the latter to the former.

The point here is not one of idle speculation. As Braceras notes, the administrative process against the accused does not need to be launched by an actual complaint by an individual victim; instead, independent parties, including Yale’s Title IX coordinators, are entitled to initiate and prosecute these cases. Given their own strong precommitments, this mixing of functions necessarily builds in an institutional bias against any claim that given speech acts should be protected. As a general matter, a broad definition of relevance is used in cases of this sort, so that it is possible for self-appointed inquisitors to roam far and wide to build up a case against unpopular professors or administrators, especially since the Yale procedures include no statute of limitations. The combination of loose definitions and dubious procedures is poisonous to the protection of free speech. Yet the tension goes unresolved.

It is equally instructive to realize that one does not have to introduce formal procedures in order to pose a grave threat to free speech on campus. Salovey takes great pride in noting “the Yale administration did not criticize, discipline, or dismiss a single member of its faculty, staff, or student body for expressing an opinion.” That sentence may be technically true, but it does not explain why Salovey did not mention the unfortunate fate of Nicholas and Erika Christakis, both of whom resigned from Yale under massive pressure after student protestors demanded that Nicholas be removed from his position as master of Silliman College. Why? Because Erika had written an email that took issue with a letter from Yale’s Intercultural Affairs Committee that warned students against various insensitive forms of behaviors, like wearing offensive Halloween costumes. The letter noted, like Salovey’s op-ed, that Yale values “free expression as well as inclusivity.” But the massive level of abuse directed at Nicholas and Erika Christakis reveals how strongly Yale weighs one imperative over the other.

The errors here are not just unfortunate glitches, but systematic blunders. One of the most critical matters in dealing with the right to free speech is the correlative duty that all individuals have to avoid actions that harm another person. But the harm principle contains much built-in ambiguity. It can only be clarified within a complete theory of freedom of speech, which itself must rest upon a comprehensive theory of freedom of human action. At the very least, any speech that involves the threat of force or the use of fraud should be subject to sanction under this principle, given the risk to the autonomy of others. That is why both assault and defamation have long been actionable harms. But by the same token, the harm principle can never be extended to cover cases where one person takes offense at the speech or conduct of other individuals—which is why flag-burning, however distasteful to most people, nonetheless receives constitutional protection. That extension of the harm principle, if applied uniformly to all speech acts, means that anyone who takes offense gets the right to sanction, if not veto, the speech of others, at which point no one can speak at all.

To forestall this risk, the great principle of toleration requires suspending the use of formal sanctions against disagreeable speech. Failure to follow this principle introduces the most dangerous set of incentives, by allowing any person to magnify his own indignation and outrage as a means to assert greater control over the speech of others. The danger of this position is apparent. The broader definition that equates harm with offense can only work if it is selectively applied. Thus protected groups get to complain loudly about the microaggressions against them, but they, in turn, are entitled to venomously attack those with whom they disagree.  A culture of free speech and open inquiry cannot long survive using this broad and selective definition of harm.

Yale, of course, is a private university that is not bound by the First Amendment, and hence could adopt whatever warped political and intellectual environment that it wants. But what Salovey cannot do is claim that Yale respects the principle of free speech, especially after the resignation of the Christakises following the relentless personal attacks on them as a result of Erika’s thoughtful email. What Salovey should have done was spoken forcefully and publicly in their defense, and entreated them to stay. Nor should he have stopped there. It was incumbent on him to endorse explicitly and publicly the commitment to free speech that President Robert Zimmer announced for the University of Chicago not too long ago. Zimmer made it crystal clear that he expects Chicago students to develop a certain toughness of mind in academic settings that transcends today’s vogue of “trigger warnings” and “safe spaces.” In order to learn and grow, students must encounter views averse to their own.

Yet Yale does not take that evenhanded and content-neutral position to preserve free speech on campus. Instead, it acts as an institutional arbiter that offers some groups special protection and leaves others to fend for themselves. It is quite chilling to read the Yale website, which heralds the university’s new commitment to the principles of diversity and inclusion across all aspects of Yale life: recruitment, mentoring, communications, and the like. One component of that program is a commitment to spend $50 million to make diversity hires on the faculty. Other initiatives are intended to create new centers and programs to study diversity throughout the university.

The Yale website proudly proclaims: “A diverse workforce and inclusive environment increases productivity, creates new ideas, performs on a higher level, and enhances Yale’s ability to continue to excel in an increasingly complex, competitive and diverse world.” Apparently, the principles of diminishing marginal returns do not apply to diversity. At no point does Yale even hint at the opportunity costs that are incurred by this uncritical adoption of its diversity agenda. Which programs were cut to make room for these new initiatives? And why?

Another obvious problem is that Yale does not celebrate political and intellectual forms of diversity, even though the overall leftward movement of university faculties has intensified in recent years. If Yale truly cared about diversity, it would look to increase the number of conservative-minded and pro-market academics in its hires of new faculty, while backing off hiring faculty members who have strong sympathies with groups like Black Lives Matter or the anti-Israel BDS (boycott, divest and sanctions), which represents the very antithesis of inclusion. But there is no indication that right-of-center thinkers are welcome under Yale’s tent.

Yale’s new inclusion and diversity policies will have grave consequences for the future of freedom of speech on campus. They will further reduce the likelihood that the institution will either announce or enforce content-neutral policies. The direct effect will be Yale’s continued discrimination against, or exclusion of, people whose views are found to not fit within its faux-inclusive community. Yale’s diversity-focused policies of recruitment, promotion, and retention will continue to drive the university further to the left now that no one in the administration is prepared to defend the traditional values of academic excellence and freedom of speech against the demands of diversity and inclusion. As a Yale Law School alumnus, I fear Peter Salovey’s misguided agenda will cause Yale to descend into moral dogmatism and intellectual mediocrity.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.