Greece On The Brink

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

Germany and Greece have both wisely blinked on how best to renegotiate Greece’s outsized debt to its reluctant playmates inside the European currency union. The present fix will last for only four months, which means that the unresolved issues will surge to the fore yet again if some long-term solution is not crafted in the interim. In dealing with bailouts of this sort, financial gurus unduly rely on macroeconomic principles. In my view, that approach overlooks the gritty transactional challenges that routinely arise when parties attempt to work out delinquent loans in the shadow of bankruptcy. The picture is not pretty.

To see how the process unfolds, start with a simple situation where a lender advances $1 million to a debtor who at the appointed hour is unable to repay the loan in accordance with its terms. At this point, the lender first looks to foreclose on any specific collateral that the borrower has given to secure the loan. But specific assets do not secure many loans, like those made to Greece.

In dealing with these unsecured debts, one option open to the lender is to insist that all the money be repaid, come hell or high water. But if the current funds are not available, these futile and aggressive demands could easily disrupt the debtor’s productive capacity, so that the lender will cut off its nose to spite its face. Backing off on these onerous collection demands, by taking some reduction to the principal or interest, or both. Typically, these revised deals also require delay in repayment, but that haircut, as it is usually called, ultimately works to the lender’s benefit. To see why, do the math: backing down results in a higher probability of collecting a smaller amount. Its present value is often worth more than some lower probability of collecting the original debt with interest in full.

Similar calculations influence the position of the debtor. At one level, it would like to pay no money back on principal or interest, but it knows that if it takes the nuclear option it will cut itself off from all future funds and thus will be worse off than if it negotiated some peace with its creditor.

The net effect of these two forces, both between private parties and between nations, tends to result in a legal composition of claims that has two components. First, the debtor agrees to pay some fraction of the overall claim, while the various co-creditors agree on some division among themselves of the reduced revenues. The hard question is which of the many possible permutations will be the final resting point. Here, basic bargaining theory is clear on only one point. There is no unique solution which states in present value terms how much of the debt will be forgiven and how much will be kept in place. Much of this depends on how the two parties play the game of chicken where each knows that the only question is how many concessions it will have to make. Notwithstanding these stresses, the uniform legal response is to enforce the settlement as written—at least until it falls apart a second time.

One key question concerns the overall implications of these awkward settlements for the financial health of both the creditors and debtors, each of whom have taken a financial hit. The answer depends on the size of the implicit wealth transfer between the parties. In general, the entire process leads to unhappy result. These transactions are costly to negotiate, and the transfer at the end of the game does nothing to improve the productive capacity of either the lender or the borrower, except to stave off disaster.

The hope for some upward bump in output improves when and if the debtor accepts certain conditions on how it will best run its business—or its nation. At the very least, the borrower has to do two things. It must set aside some reserves for repayment, and, more importantly, reorganize how it does business in order to improve output. In dealing with nation states, liquidation in bankruptcy is just not an option. The long-term success of the reorganized country depends on choosing sensible negotiated conditions.

We can now isolate the nub of the confrontation that arises in the case of Greece. There is no magic number that tells how much of the debt should be forgiven this time when some debt has already been forgiven. But two other problems lurk in the background. The first is that in any sensible private transaction, the lender will advance capital to a borrower for it to purchase durable assets that will generate the income for the repayment of the loan.

The recent events in Greece, however, make it painfully clear that the funds it received from other nations in the European Union were largely used to bolster its elaborate internal transfer system, the aim of which is to stoke consumption. The borrowed funds generated income to repay the interest and principal on the debt.

That situation is not sustainable. If Germany and the other lenders make financial advances on the same terms as the previous advances, they will be throwing good money after bad. The Greeks will again fund short-term consumption not long-term investment. One possible way for the lenders to collect their pound of flesh is to demand today a continuation of the austerity regime that the newly elected Greek Prime Minister Alexis Tsipras and his finance chief Yanis Varoufakis have steadfastly resisted. Their successful campaign was based on the promise to repudiate the heavy austerity regime that has led to massive dislocations inside Greece, whose high unemployment rates are untenable in the long run. It is easy to see in this scenario some grim historical patterns. In the aftermath of World War I, the Treaty of Versailles imposed such onerous obligations on Germany that its enforcement contributed to the massive social unrest that led to the catastrophic rise of the Nazi party.

Yet at the same time, to back off of austerity will lead to yet another round of debts that will be written off. The advantageous consequences to Greece of that forgiveness are thus set off by the disadvantageous consequences to Germany and its lending partners. It is no part of a sensible policy to have Greece live beyond its means in the long-run, and then fight over how much of its debt it can export to its lending nations in the next financial showdown. It no wonder that Wolfgang Schäuble, the German finance minister has decided to play it tough by making virtually no long-term concessions. It does no good to bailout the Greeks if that action sinks, or even destabilizes the German economy.

So what then should be done to get out of this death spiral that threatens to envelop both sides to this deal. There is only one answer. The Greeks must heal themselves. The solution here does not depend on austerity, which imposes suffering without positive consequences. Nor does it depend on budgetary and financial reforms of the sort that Greece seems willing to make, notwithstanding rising internal discontent. The solution is to undertake a comprehensive top-to-bottom structural reform of the Greek economy that rests on one simple position: Full steam ahead on deregulation in all markets dealing with capital and labor, which will unlock the productive capacity of the nation. It is here that the rubber hits the road. Greece is legendary for its elaborate set of entry barriers to various trades and professions. It is notorious for the extensive protections that it offers its current workers. And it cannot escape the grim wreckage of a 25 percent unemployment rate that stems as much from these dysfunctional market regulations as anything else.

Deregulation does two things at once. First, it reduces the administrative costs of running a state, which in turn should allow the government to lower the tax burden needed to maintain internal order. Those savings can go to enhance both the Greek standard of living and to reduce the foreign debt. Second, deregulation increases overall output, so there is again more wealth available for debt repayment, current consumption, and the future investment that is sorely needed to return Greece to prosperity. The simple point here is that the only way to avoid the endless cycle of first incurring and then forgiving debt is to create wealth through deregulation and lower taxes.

But Greece—and the European Union—face a major roadblock. The ruling party Syriza is left-wing. Like the progressives in the United States, its members think that the way to create wealth is to support unions, to impose higher minimum wages, and to stifle various forms of competition. That orthodoxy runs throughout all of Europe. So long as the creditor nations of Europe cling to their own allusions that the full panoply of worker protections is an essential condition for both growth and for social justice, the entire enterprise is doomed. The so-called growth measures will just double down on the same failed interventionist polices that got the European Union into the current mess.

No one wants Greece to leave or be expelled from the European Union. That scenario will lead to a rapid devaluation of the new Greek Drachma, to a precipitous fall in living standards in Greece, and to major political distress that will give resurgent Marxist forces yet another rallying point for still further government regulation of the economy. It may be too much to expect Syriza to understand that its long-term success depends less on debt forgiveness than on fundamental structural reform. Marxist habits die hard. But hopefully Greece’s leaders will soon come around to this iron law of economics: you cannot redistribute what you do not produce.

*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.

You're Invited: The Affordable Care Act in 2015

The Journal of Law & Liberty and the Classical Liberal Institute at NYU School of Law cordially invite you to a symposium on the Affordable Care Act in 2015 on Tuesday, March 10, 2015. The conference will be held from 9:00am to 3:00pm in the Lester Pollock Colloquium Room, located on the ninth floor of Furman Hall at 245 Sullivan Street, New York, New York, 10012.  

The event is open to the public and free to attend. For those seeking CLE credit, up to 4.5 CLE credits will be available, and the event is appropriate for both newly admitted and experienced attorneys.

The symposium will feature three panels on current issues surrounding the ACA, including Hobby Lobby and the contraceptive mandate, the King v. Burwell case, and concrete plans for continued health reform.  The detailed schedule is attached.

Please RSVP here.

Jon Stewart and Me

Judge Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

About six years ago, one of my producers at the Fox News Channel received a call out of the blue in which the caller asked if I’d be interested in coming on "The Colbert Report." At the time, I was generally unfamiliar with the genre of late-night comedy because I am usually in dreamland when it airs.

Colbert was hilarious in his haughty imitation of the excesses of my Fox colleague Bill O’Reilly. I did not and do not know what his personal politics are, but his shtick was playing O’Reilly to a T. In fact, at one point during our back-and-forth, I inadvertently called him “Bill.” He stopped the act, came out of character and kissed me. Later he claimed it was one of the most novel and show-stopping uses of a single word he had experienced.

A few months later, my producer received a call from a producer for Colbert’s boss, Jon Stewart. That caller asked if I wanted to be on Jon’s show to discuss my latest book. That was five books and five appearances ago.

The on-air experience with Jon Stewart is unlike anything I do at Fox. First, when you are Jon’s guest, you are his only guest. Second, as the only guest, you are on the show for about 15 minutes. In TV time, and by Fox standards, 15 minutes as an on-air guest is an eternity. Third, Jon spends the first 15 minutes of the show bashing you or your ideas or your employer -- and he did this to me all five times I was on with him. So, by the time I first walked onto his set, the 400 or so folks in his live studio audience were expecting me to have two horns and a tail. I decided to push the envelope a bit. Before Jon could question me, I told him my purpose in coming on his show was to out him as a closet libertarian. “Go ahead, Your Honor. Give it a try. This is ridiculous.” OK, here goes… “Is it any of the government’s business whom you marry or what you put into your body or to whom you speak on the phone?” “Of course not.” Good. “Should the U.S. be traveling the globe looking for monsters to slay?” “No; never.” Excellent. “Can the feds constitutionally capture the content of your phone calls and emails without a search warrant from a judge based on evidence about you?” “No.” Terrific.

I should have stopped there, but I was having too much fun with America’s funniest comedian. “Are you a secret admirer of Rand Paul?” OK. I blew it. He exploded with his characteristic inanity, and the audience roared with Jon and me, thinking we had rehearsed this.

So began a happy friendship during the course of which we have discussed and analyzed on air nearly every aspect of the proper role of the government in our lives. We were and are admittedly an odd couple. He is the progressive Jewish funnyman with a tongue as sharp as a serpent’s tooth, trying to sound smart. I am the libertarian traditionalist Catholic defender of the Constitution, trying to be funny.

Well, a strange thing happened. We agreed more than we disagreed, and I learned what most of his fans do not know: Jon does not need to try to sound smart; he may be the smartest personality on television. He is as well read in the works of those with whom he disagrees as he is in the works of those who reinforce his own views.

During last winter’s version of the polar vortex, a bit like the weather this week in the northeast, I left a restaurant in lower Manhattan one night and was waiting for a car to pick me up when I saw a man wearing two overcoats and a hoodie walking a three-legged dog. I couldn’t see the man’s face, but I recognized the dog, and the dog recognized me. Then I heard the man, who was on his cellphone, spell my last name in a loud booming voice to whomever was on the other end of the call.

It was Jon. His dog jumped up to lick my face. Jon hugged me and said, “Judge, please come on the show next week. Let’s talk about something that we will not disagree on.” “What?” “Lincoln…” Oy. We disagreed profoundly. Jon had a black actress about a foot and half taller than I am playing Lincoln and three leftie-loony professors who were blind to historical truths trying to rough me up. It was hilarious.

I was saddened when Jon announced his retirement last week. Jon is a comic genius. His ratings are the envy of all in cable TV. He is the principal news source for millions of young people, who are the principal targets of TV advertisers -- and God love him, he is his own boss. He has five dogs who run around that studio, and also a lot of love. Agree with him or not, he is intellectually honest, sharp as a tack, and so warm and engaging that you just don’t want your time with him to end.

I hope mine doesn’t.

*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 Foreign Policy Amateur

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

When it comes to foreign policy, President Barack Obama’s intentions and plans are unclear even to himself. The President’s indecision can be seen in his effort to authorize the use of military force “against the Islamic State of Iraq and the Levant,” a plan that has been met with strong opposition on both sides of the aisle.

On one side sit many Republicans who think that his weak resolution is tantamount to an unprecedented surrender of military power to the Congress, which is institutionally no more capable of running a war than of running the Post Office. On the other side lie the conflicted Democrats who are convinced that this resolution amounts to a wholesale of surrender of power to the President to enter into foreign adventurism on an unprecedented scale in ways that are sure to lead to future embarrassments. In the meantime, the hardened criminals of ISIL can bask at their good fortune of facing a tormented enemy whose collective psychological meltdown is worth several ground divisions.

To grasp the level of decline in American governance on foreign policy matters, we can compare the unified response to 9/11 to today’s tortured impasse. The original AUMF was passed by Congress on September 14, 2001 and signed into law by President George W. Bush on September 18. The scope of that text was thought at the time to be broad because it authorized the President “to use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons.”

Alas, even with the benefit of hindsight, this language does not quite cover the rise of ISIL, which is not a lineal descendant of Al-Qaeda, even though it shares Al-Qaeda’s all-consuming desire to rain as much death and destruction down on the United States and its allies as it can possibly muster. My own cautious view is that the badness of fit under the AUMF should not strip the President from the ability to attack an enemy whose activities are so close to the original target that they could reasonably be thought to fall within its ambit. The fine points of radical Islamic political divisions should not hamstring military efforts against such a malevolent foe.

Others, most notably law professor Bruce Ackerman, give ample reason to disagree with my assessment. Under such murky circumstances, there is widespread agreement that the nation needs some definitive Congressional action today to legitimate the President’s actions. Nonetheless, this open political wound has been allowed to fester for months.

Meanwhile the overall situation on the ground has deteriorated in the past six months. Notwithstanding sporadic U.S. and allied air attacks on ISIL positions, the group continues to maintain its savage territorial grip over large segments of Iraq, and has the ability to act inside Syria and surely other places as well, such as Afghanistan, Africa, Egypt, Lebanon, Libya, and Pakistan. Witness the Egyptian air strike against ISIL in Libya in response to its purported beheading of 21 Coptic Christians.

Right now, ISIL is able to finance some of its activities with oil that it sells from its controlled territories. The President acknowledges ISIL’s repeated barbarity in the preamble to the new resolution, which speaks of ISIL’s “despicable acts of violence and mass executions against Muslims,” its “depraved, violent, and oppressive ideology,” and its “threated genocide against Christian Yezidi and Turkmen populations.” This indictment is no clarion call to immediate and decisive action, but only a limp announcement, some day and in some way, “to degrade and defeat ISIL.”

Ironically, the President’s proposed reauthorization is not only weak, but it is also sneaky. Bruce Ackerman has recently picked up his pen to denounce the President’s latest initiative for seeking to have it both ways: keep the 2001 authorization on the books while asking for a more specific resolution for three years directed precisely to the ISIL problem. Ackerman is correct that the President’s current request may be read to add to, not detract from, his powers such that its three-year limitation means that in 2018, we are back to all the original ambiguities in the 2001 AUMF.

In my view, Ackerman understates the presidential confusion. What is completely unclear is which of the two resolutions would control when both are in effect. One possible reading is that the 2015 resolution would suspend the President’s right to rely on the 2001 AUMF, which will only roar back to life when the new resolution expires in 2018. At the same time, Congress dare not repeal the 2001 resolution without making sure that the President has the necessary authority to act against Al-Qaeda and against ISIL outside that narrow geographical region.

Faced with this bizarre and unstable situation, what should the Congress do to set matters right? One initial complication is whether the reauthorization is itself constitutional. The simple reading of the Congress’s power to “declare war” is that it is just that. It is an on/off switch that allows Congress to declare war against some nations but not others. In modern times, it makes sense to allow us to declare war against ISIL, perhaps by calling that terrorist operation the Islamic State.

But it is less clear to me whether or not the doctrine of separation of powers allows the Congress to do the President’s bidding by having Congress micromanage the President by declining to authorize “enduring offensive ground combat operations.” As the President explains, he does not want the ability to launch a long-term war like the ones in Iraq or Afghanistan, which he has so badly mismanaged over the past six years.

Unwisely, our conflicted President tries to have everything both ways and, as a result, ties himself in knots. His added authorization is intended to provide the flexibility to conduct ground combat operations in more limited circumstances, such as rescue operations involving U.S. or coalition personnel or the use of special operations forces to take military action against ISIL leadership. It would also authorize the use of U.S. forces in situations where ground combat operations are not expected or intended, such as intelligence collection and sharing, missions to enable kinetic strikes, or the provision of operational planning, and other forms of advice and assistance to partner forces.

To my mind, if Congress had come up with the tortured articulation of Presidential powers in its own declaration of war, the President would have had every right to squawk that these ad hoc limitations are seriously compromising his position as the Commander-in-Chief of the armed forces. We all know that words like “expected and intended” have unexpected and unintended interpretations, that “kinetic strikes” are not a known term of art, and that various forms of “advice and assistance” could mean that American officers take leadership positions on ground operations that might overstep the grounds of this authorization.

It is equally true that the courts will go to enormous lengths not to inject themselves into any such potential squabble. Nor does Congress have the institutional capabilities to monitor each perceived violation of this convoluted interbranch treaty. Nor does it help that the President’s successor will. as of January 20, 2017, be bound by a resolution to which he or she has not given consent. Under the new President, this entire debate would be opened up again during a crisis.

So what should be done? The first job is to remove the clutter. In general, it is a mistake in war time for any nation to telegraph its punches to the enemy. So all the self-imposed limitations on what the United States should and should not do should be eliminated, which would simplify the constitutional analysis and at least put the President in a position where he could take forcible action, which he desperately wants to avoid. At this juncture, no events in the last six months have led me to change my views of this past summer when I lamented the death of the Pax Americana—a death that makes it virtually certain that one hotspot after another will erupt into flames. Our enemies will show us no respect, and our friends will have no confidence that we will stand beside them as we had done from the end of the Second World War.

Here is one suggestion: Congress need not vote on this resolution at all. The Republicans are in control of both Houses, and they can pass whatever resolution that they want. Indeed, it is far from clear that the President could constitutionally veto a resolution of Congress, which need not take the form of legislation. But whether or not that point is true, there is no good practical or constitutional reason for these self-inflicted limitations to hamper the President.

I agree with John Yoo that, constitutional issues to one side, the gravity of the situation calls for a more pointed response than the one that the President wants to give, and that the President should be given the flexibility to act as he sees fit in wartime, be it against Al-Qaeda, ISIL, or any new offshoot or rival, so long as Congress has approved the basic mission. There is always the possibility down the road to alter the authorization if that should be fit, but I think that it is a mistake to try to tether the authorization to the current configuration of enemies. Ackerman is again correct to note that the phrase “associated forces” is something of a wiggle expression that allows for the expansion of authority. Even under its newly honed statutory definition, that the term means “individuals and organizations fighting for, on behalf of, or alongside ISIL or any closely-related successor entity in hostilities against the United States or its coalition partners.”

Yet the problem with this definition is that it only carries the older ambiguity over to the new resolution, which leaves it unclear whether an independent organization with aims parallel to those of al-Qaeda or ISIL but at odds with both, should be covered by the resolution. By now we should know that the peril to the United States and its allies only gets greater as the enemy morphs through intrigue or violence. What possible reason is there to hold back authorization now for the next ISIL clone that adopts similar tactics in Africa, the Middle East, or elsewhere? Back in November, I criticized an earlier version of the AUMF reauthorization on the grounds that it contained too many restrictions relating to matters of time, place, and manner of authorization.

Sadly, it is very clear that there is massive disagreement on this issue, as many experts in the area have countless variations on the basic theme. But during the intervening months, my views on this issue have hardened. Early on I thought that the mixed strategies were constitutional but unwise. Now I am sure about the dangers of indecision, but less sure about the constitutionality of the form of divided authority that the President is seeking. It has become all too clear that the President’s effort to use half-moves will raise many problems down the road. A simple up or down decision on the use of force against our Islamist enemies, present and future, is all that Congress can and should supply.

*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.

A Worthless Piece of Paper

Judge Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

President George W. Bush was fond of saying that “9/11 changed everything.” He used that one-liner often as a purported moral basis to justify the radical restructuring of federal law and the federal assault on personal liberties over which he presided. He cast aside his oath to preserve, protect and defend the Constitution; he rejected his oath to enforce all federal laws faithfully; and he moved the government decidedly in the direction of secret laws, secret procedures and secret courts.

During his presidency, Congress enacted the Patriot Act. This legislation permits federal agents to write their own search warrants when those warrants are served on custodians of records -- like doctors, lawyers, telecoms, computer servers, banks and even the Post Office.

Such purported statutory authority directly violates the Fourth Amendment to the U.S. Constitution, which guarantees the right to privacy in our “persons, houses, papers and effects.” That includes just about everything held by the custodians of our records. Privacy is not only a constitutional right protected by the document; it is also a natural right. We possess the right to privacy by virtue of our humanity. Our rights come from within us -- whether you believe we are the highest progression of biological forces or the intended creations of an Almighty God -- they do not come from the government.

This is not an academic argument. If our rights come from within us, the government cannot take them away, whether by executive fiat, popular legislation or judicial ruling, unless we individually have waived them. If our rights come from the government, then they are not rights, but permission slips.

The terms of the Patriot Act were made public, and those of us who follow the government’s misdeeds could report on them. After all, this is America. We are a democracy. The government is supposed to work for us. We have the right to know what it is doing in our names as it is doing it, and we have the right to reveal what the government does. Yet, under this law, the feds punished many efforts at revelation. That’s because the Patriot Act prohibits those who receive these agent-written search warrants from telling anyone about them. This violates our constitutionally protected and natural right to free speech. All of this has been publicly known since 2001.

Then, in June 2013, Edward Snowden, the uber-courageous former CIA and NSA official, dropped a still smoldering bombshell of truth upon us when he revealed that the Bush administration had dispatched the NSA to spy on all Americans all the time and the Obama administration had attempted to make the spying appear legal by asking judges to authorize it.

Snowden went on to reveal that the NSA, pursuant to President Obama’s orders and the authorization of these judges meeting in secret (so secret that the judges themselves are not permitted to keep records of their own rulings), was actually capturing and storing the content of all emails, text messages, telephone calls, utility and credit card bills, and bank statements of everyone in America. They did this without a search warrant based on probable cause -- a very high level of individualized suspicion -- as required by the Constitution.

Snowden revealed that Obama’s lawyers had persuaded these secret judges, without any opposition from lawyers representing the victims of this surveillance, that somehow Congress had authorized this and somehow it was constitutional and somehow it was not un-American to spy on all of us all the time. These judges actually did the unthinkable: They issued what are known as general warrants. General warrants were used against the colonists by the British and are expressly prohibited by the Fourth Amendment. They permit the bearer to search wherever he wishes and seize whatever he finds. That’s what the NSA does to all of us today.

Last week, we learned how deep the disrespect for the Constitution runs in the government and how tortured is the logic that underlies it. In a little-noted speech at Washington and Lee Law School, Gen. Michael Hayden, the former director of both the CIA and the NSA, told us. In a remarkable public confession, he revealed that somehow he received from some source he did not name the authority to reinterpret the Fourth Amendment’s protection of privacy so as to obliterate it. He argued that the line between privacy and unbridled government surveillance is a flexible and movable one, and that he -- as the head of the NSA -- could move it.

This is an astounding audacity by a former high-ranking government official who swore numerous times to uphold the Constitution. He has claimed powers for himself that are nowhere in the Constitution or federal statues, powers that no president or Congress has claimed, powers that no Supreme Court decision has articulated, powers that are antithetical to the plain meaning and supremacy of the Constitution, powers that any non-secret judge anywhere would deny him.

If the terms and meaning of the Constitution could be changed by the secret whims of those in the executive branch into whose hands they have been reposed for safekeeping, of what value are they? No value. In such a world, our Constitution has become a worthless piece of paper.

*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.

McDonald's vs. NLRB

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

Under the Obama Administration, the National Labor Relations Board has taken strong pro-union stances on collective bargaining. One of its most salient initiatives has been its recent effort to expand the definition of an “employer” under the National Labor Relations Act. Thus on December 19, 2014, Richard Griffin, the NLRB’s General Counsel, issued a short announcement that it would file unfair labor charges against both McDonald’s and its franchisees for “making statements and taking actions” against those employees who participated in nationwide fast food worker protests.

That decision has set the stage for one of the most contentious management labor disputes of recent years. In the two weeks following the announcement, some 61 new complaints were filed, and more are coming in steadily. And why not, with such a huge target to shoot at? McDonald’s, of course, runs a major operation with its many independent franchisees. Its standard business arrangements are, in broad outline, typical of other franchisee operations, of which there are today, according to the International Franchise Association—whom I have advised on these matters—about 750,000 outlets, employing some 8.1 million workers, whose direct economic output is about $770 billion per year, and whose indirect impact is surely larger.

The most obvious explanation for the growth of the franchise system is that it works economically, wholly apart from any direct concern with labor relationships. The standard economic set-up is needed to create a system of optimal incentives for all its participants. The basic job of a franchisor is to create a standardized product that will allow its strong and reliable brand to lure in customers across the franchisor’s entire national or global base. Customers want the ironclad assurance of consistent quality of both product and service, no matter what franchise they attend. A franchisor that allows its franchisees to work without explicit guidance or close supervision is in mortal danger of brand deterioration.

The business set-up is yet another variation of the common pool problem. Each individual franchisee knows that it will pocket the full gains from any small decline in the quality of its goods or services. At the same time, the astute franchisee knows that it will bear only a tiny fraction of the overall system loss. Without close supervision, every franchisee will be tempted to cut corners, at which point all franchisees—and all their customers—are worse off than they would have been if uniform standards had been enforced against each of the outlets. No individual franchisees can police all the others, so it falls to the franchisor to police them all, not only for its own benefit, but also for that of all franchisees and consumers.

In response, it may be said that if quality control is the dominant issue, let the franchisor take direct control over the operations, which gives it ample means to curb cheating. But that possible response overlooks the huge business drawbacks inherent in such a monolithic arrangement. Individual outlets operate in different markets, with different workforces, different consumer tastes, and different local and state regulations on everything from waste disposal to signage.

A remote company could easily find it difficult to manage thousands of different outlets on a daily basis, because of the difficulties in first finding and then motivating the managers of the individual outlets to make the best business decisions. It would of course be foolish to ban direct ownership of some or all outlets. But the huge popularity of the franchising arrangement with its long-term franchisees gives strong empirical evidence that better execution at the local level comes from independent franchisees who have their own cash in the game and thus stand to suffer the direct consequences of faulty business execution.

In effect, taking the system as a whole, the complex division of control allocates to the franchisor those activities that it does best, and to the franchisees those activities that they do best. The overall improvement of the business operations translates into lower prices and better products for consumers, greater opportunities for ordinary men and women to start their own businesses, and increased jobs for workers seeking full or part time employment. Tampering with a successful business model by ad hoc regulation is a recipe for disaster.

The NLRB does not deny that there are powerful efficiency advantages to the creation of a franchise arrangement. Nor does it deny that there are no cases on the record in which franchisors under the standard business arrangements have ever been treated as employers of the workers of the individual franchisees. Indeed, virtually the only way under current case law for a firm to be treated as a joint employer is for it to fire employees who are under the divided control of the two firms in question, which never happens under standard franchisee arrangements.

The standard franchisor is not, as union lawyers like to say, “the boss” of the franchisee’s employee. Nor does the relationship between the franchisor and franchisee, as union supporters claim, exist in "a make-believe world in which responsibility for wages and working conditions falls squarely on the shoulder of franchisees." That rhetorical flight of fancy cannot be sustained in light of all the tasks that franchisors donot take on with respect to the franchisee’s employees. Franchisors do not recruit, interview, hire, fire, promote, or discipline individual employees. They do not set wages or individual terms of employment. They keep no records of any kind on any franchisee employee. They are only in the standards business. Consciously and sensibly, they leave all personnel decisions to the franchisee, who is in the best position to make those judgments, and faces potential liability under the labor acts if it crosses the line.

It is no secret that these arrangements are structured in this fashion in part to ensure that the franchisor will not be treated as an employer under the NLRA. But these franchise contracts are not sham arrangements that say one thing and mean another. Their explicit terms are scrupulously observed, and there is no obligation whatsoever for any firm to sacrifice its business efficiency in order to maximize union power and influence.

The decision of General Counsel Griffin to prosecute these cases does not mean that in each and every case a franchisor will be treated as if it is an employer. It is rather the case that, as the NLRB’s General Counsel and the Service Employees International Union (SEIU) have separately argued in briefs before the NLRB, that the Board should return to some “traditional” standard that “would make no distinction between direct, indirect, and potential control over working conditions and would find joint employer status where ‘industrial realities’ make an entity essential for meaningful bargaining.”

It is important to note that this supposed standard drips with uncertainty as to which franchisors should be responsible in which particular cases. The term “potential control” has no clear meaning, for it could easily be stretched to include any situation in which a franchisor could demand direct control over employee relations even if it has no desire to exercise it. Any case-by-case determination on franchisor power is not possible in an industry this complex, where the basic franchising structure is subject to small variations in individual cases which may—or may not—tip the balance under this test for or against the franchisor’s alleged employer status. In addition, this open-ended standard allows for SEIU and other labor organizations to file constant claims against franchisors like McDonald’s, which are costly to defend even if the claim is dismissed years later.

These charges of unfair labor practices, moreover, need not command the support of the particular workers at any given franchisee who, given the rapid rate of turnover in this business, may much prefer to work in an environment in which they do not have to pay stiff initial membership fees and annual dues as a condition of employment. Indeed, the high rate of turnover in many franchise businesses means that a large fraction of the mandated union members will have had no say whatsoever in deciding whether to join the union approved by workers, many of whom have already left their jobs.

It is also critical to note that if the NLRB General Counsel does prevail after challenge in court, it will necessarily undo many of the advantages of the current business relationships. Put yourself in the position of a franchisor that is told in no uncertain words that it is jointly liable for an unfair labor practice for each and every decision made by its franchisee/joint employer.

At this point, it becomes foolhardy for the franchisor to remain indifferent to the behavior of an individual franchisee who can expose the high visibility franchisor to major damage awards and much adverse publicity. But once the franchisor decides that it has to take over much of the business, then the entire business model is at risk. After all, what individual franchisee wants to be saddled with additional costs of coordination while facing higher wages and less business flexibility?

At this point, the shrinking pie will lead to frantic efforts to renegotiate the basic deal in ways that both sides can live with, fully knowing that any new arrangements have to be far worse than the ones that they have displaced. The union profits handsomely from fees and dues, but individual workers are likely to be displaced in larger numbers, as everyone looks for various automated devices to reduce the dependence on unionized workers under a collective bargaining agreement that imposes onerous and unnecessary working conditions. Right now, the SEIU knows that the workers of any one individual outlet will not sign on to a union, because those workers fully understand that the competitive conditions in the franchise business mean that successful unionization is a pyrrhic victory from which they will never recover.

Unfortunately, this point is often lost on writers like David Weil, who in condemning “The Fissured Workplace,” treats the breakdown of the monolithic form as some kind of neglected social problem. But any new form of organization is no more of a problem than is the decline of Life Magazine after the rise of specialized and niche publications, each of which is better able to serve its targeted constituency than one all-purpose magazine. The simple point here is that more powerful metrics mean that transactions across independent firms have made it less costly to run a dispersed network, with or without unions. Contracting out allows the business to concentrate its efforts on its core competence, without having to take on duties that are more cheaply and effectively handled by others. Heavy-handed efforts at regulation to block these innovations can only make matters worse.

The NLRA imposes a heavy tax that hurts employers and employees alike. Ironically, the rise of independent contracting generally is an effort to escape these explicit or implicit taxes that the government imposes on the employment relationship. The irony should not be lost. In undertaking the effort to expand the scope of unionization, the NLRB General Counsel will only add new fissures to the workplace that is reeling under the onslaught of ever more onerous regulations. The law of unintended consequences applies with full force to the NLRB’s ill-considered flirtation with an expanded joint employer doctrine.

*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.

Forecasting the 2016 Republican Primaries

The grueling 2012 primary ended with Mitt Romney's victory. Who will enter the ring this cycle?

The grueling 2012 primary ended with Mitt Romney's victory. Who will enter the ring this cycle?

*Thomas Warns and **Nick Beek

The next President won’t be inaugurated until January of 2017, but that doesn’t mean the 2016 Republican primaries haven’t begun (here and now, in 2015). Where does the field stand at the moment, and who is likely to run? Here is a brief profile, with Nick’s insight and Tom’s verdict on who joins the fray.

mitt romney.jpg

Mitt Romney – The 2012 Republican Presidential nominee enjoyed a small lead in most polls of Republican primary voters, but that may have been a result of his name recognition more than anything. With Jeb Bush securing high-dollar donors and political operatives before a potential 2016 campaign could get off the ground, Mitt Romney announced on Friday that he would not be running

Nick’s Prediction: Had Mitt Romney decided to run again I do not believe voters would have been receptive to a third Mitt Romney run. Once someone loses a general election (especially if it is not particularly close) voters are less likely to give them another chance.

Verdict – Not Running.

Rand Paul – The libertarian hero has not publicly announced whether or not he would run, but he has made a number of visits to early primary states, and also has tried to expand the Republican block with a speech before the NAACP, among other attempts. For the third cycle in a row, the Republican primary will feature a Dr. Paul.

Nick’s Prediction: Rand Paul is going to enter the race. There have been high profile reports about Rand Paul securing political operatives for a presidential run. He is going to be competitive in the early states and can learn from his father’s previous runs. The Paul brand is well known but the question is can Rand Paul reignite the base his father created, and then expand it to the broader populace? If Rand Paul can do this, then he can win the nomination. My early prediction is that if Paul loses Iowa, he loses the entire nomination contest.

Verdict – Will enter the race.

Scott Walker – Scott Walker’s stock has been on the rise lately, particularly in Iowa. After sending out feelers in regards to a 2016 run, he has found that the signs are all positive – donors are backing him, and so do the conservative readers of Drudgereport.com. He has stared down adversity before, including most famously a brutal recall election in 2012, and has become a national icon in the fight against organized labor. He will enter the ring as a formidable foe.

Nick’s Prediction: I’m undecided about Scott Walker’s chances in the primary. I think while having gone through an election pretty much every 2 years for the past 6 years has given him valuable experience, the guy has got to be tired of it. He’s tested on the campaign trail, but I don’t know if he can handle the national scrutiny. Being a sitting Governor is also another point that makes it seem harder for him to win. Campaigning is a full time job; it’s easy for a Senator to miss a vote, but a Governor really needs to be present in his or her state. I think he’ll perform well in early primary states, but I think he would lose the general election in a landslide.

Verdict – Will enter the race.

Jeb Bush – Many in the media are quick to call the son of 41 and brother of 43 the “favorite” in this crowded Republican field, but many Republicans aren’t listening. He is a moderate who tracks left on issues like immigration reform, which could cause headaches in the primary. For now though, the weight of the Establishment seems to be coalescing around him, and he has secured many Romney donors and staffers. We may be subjected to another Bush-Clinton election in 2016.

Nick’s Prediction: Jeb Bush benefits from the Bush brand (i.e. experience in running for President, name recognition, donor base, political operatives) in both the primary and general. Bush is a moderate, and his brother has a poor record, which will hurt him in the primary (although being a moderate would help in the general). I think ultimately being tied to his brother’s record will be his downfall in the general if his moderate flavor does not doom him in the primary.

Verdict – Will enter the race.

Ted Cruz – The fiery Texan is a darling among the more conservative wing of the Republican Party. His aversion to compromise and dedication to ideological purity will endear him to many, though his ceiling looks limited. Still, the Republican primaries have room for Cruz if he decides to enter, as he is widely given credit (or blame) for shutting down the government for two weeks in a showdown to repeal the Affordable Care Act.

Nick’s Prediction: I don’t know if he enters the race. I think if he does, he flames out quicker than Rick Perry did. He might be better served waiting, as this year’s field is overcrowded.

Verdict – Not running.

Marco Rubio – The Florida Senator’s poll numbers have cooled somewhat of late (though it may be partially a by-product of a more crowded field), but some conservative donors still feel confident in the energetic Hispanic-American, who has begun laying the groundwork for a run in 2016. He seems to have an adept handle of social media, which could catapult him quickly into the top tier of GOP candidates. His time may ultimately come in 2020 or later, but he seems serious about a run now.

Nick’s Prediction: I know the guy has young kids, I wonder if that’ll stop him from seeking the Presidency. I know from one of his staffers that he likes to put his kids on the bus, and generally finds it very important to spend time with his family. That’ll stop if he runs. Is he ok with that sacrifice?

Verdict – Will enter the race.

Chris Christie – Christie’s waist has been shrinking, but his ambitions are growing. The New Jersey Governor has a moderate record, and has proven popular in his deep blue home state. With “Bridgegate” firmly in the rearview mirror, Christie looks poised for another run, this time for President. The only thing that could derail him is another scandal.

Nick’s Prediction: Christie runs but there’s a lot of baggage underneath the surface that is waiting to be drudged up during what is likely to be a hard fought and lengthy primary; that I think ultimately sinks him.

Verdict – Will enter the race.

Paul Ryan – Paul Ryan is the GOP counter to charges that they don’t have ambitious plans. His budget bills are always a hot debate topic in Washington, and it appears it will stay that way – Ryan has signaled that he will be staying in Congress rather than seeking the White House.

Nick’s Prediction: I think he’s the most ideologically pure and smartest of the Republican contenders. I think he would have a decent shot at winning the primary if he ran. I don’t think he’d be as competitive as Bush in the general election though.

Verdict – Not running.

Rick Perry – Rick Perry enjoys widespread popularity in Texas, and has been an able fundraiser. After a gaffe-filled campaign in 2012 however, in which he couldn’t remember which parts of government he wanted to slash, donors are likely to steer clear of the former Governor. Rick Perry might be forced to sit on the sidelines.

Nick’s Prediction: Rick Perry is going to run.

Verdict – Not running.

Donald Trump – The eccentric billionaire is all talk and no game. He only flirts with running for President to improve ratings for The Apprentice.

Nick’s Prediction: I would love for him to run but he’s not. He’s in it for the publicity and money.

Verdict – Not running.

Ben Carson – The retired neurosurgeon has a cult following, but he will suffer due to lack of name recognition. His claim to (modest) fame is a speech he delivered in front of Obama from 2013; he doesn’t appear to have much staying power, but he appears ready to throw his hat in the ring anyway, and has shown an enthusiasm for brushing up on a variety of topics.

Nick Prediction: Herman Cain 2.0. These random non-political types always run and fail. They’re untested, unknown, and don’t know how to run a campaign. You can’t stumble your way into the Presidency by way of a highly contested primary and then general election. Plus, he’s has said some crazy things, like saying Obamacare was the worst thing to happen to America since slavery.

Verdict – Will enter the race.

Sarah Palin – The former Alaska Governor rocketed to fame (and infamy) when she was tapped to be John McCain’s Vice President during the 2008 election. She is surprisingly popular among many (including influential media member Matt Drudge), but is despised but a much larger part of the country. Further, she is largely a single issue candidate who wishes to promote drilling to cut oil prices – the U.S. has largely already done that over the last 8-10 years. She has been more successful in runs on FoxNews, as well as on reality TV, and may be best served by staying there.

Nick’s Prediction: Same reasons as Donald Trump.

Verdict – Not running.

Rick Santorum – The Pennsylvania politician and noted social conservative gave Mitt Romney his most sustained challenge in 2012, as he won a number of primaries and caucuses, including Iowa’s. Rick Santorum however doesn’t really move the needle, and isn’t well liked. Donors may think twice before putting on the sweater vest to support him. He also fails the “google” test for a President. He dropped out in 2012 when he daughter became ill; her health may play a role in his decision this time around as well.

Nick’s Prediction: All signs point to yes for running. If you bet on historical trends for the GOP nomination (he came in second in 2012) then you should be betting on Santorum.

Verdict – Not running.

Mike Huckabee – A much more reasonable and likable social conservative than Rick Santorum, the former Arkansas Governor quit FoxNews last month, which ramped up speculation that he was looking to enter the race. Huckabee made a strong showing in 2008, and seems to have a lot of good will. He will push the party to the right on social issues during the debates.

Nick’s Prediction: He’s going to run. He has the likability factor too, and appeals to both evangelicals and Tea Party conservatives. I’d like to think he has a good shot at winning the nomination but in 2008, his appeal seemed to top out at a similar level as Santorum in 2012.

Verdict – Will enter the race.

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Bobby Jindal – The Louisiana Governor has signaled that he is at least considering a run for President, though Louisianans aren’t so enthusiastic. He has his supporters, but his star has dimmed since his response to the State of the Union in 2009 (to be fair, Bill Clinton also delivered a clunker of a response speech in 1985, and became President less than a decade later). Perhaps he will get a close look as a Vice Presidential candidate.

Nick’s Prediction: If Jindal runs, the rest of the candidates will suck the operatives & money right out from under him at the first sign of trouble. He then drops out Tom Vilsack style.

Verdict – Will not be running.

The RestCarly Fiorina – former CEO of HP; John Kasich – Governor of Ohio; Mike Pence – Governor of Indiana.

Nick’s Prediction: I think Kasich would be a serious contender in the primary and general, but I have a feeling the Bushes keep him out. Fiorina I think plays with the idea and then endorses Bush.

Verdict: Will not be running.

*Thomas Warns is a J.D. Candidate in the Class of 2015 at New York University, and the Editor-in-Chief for the N.Y.U. Journal of Law & Liberty.

**Nick Beek works in politics in Washington, DC and graduated from Northeastern University with a degree in political science.

To Vaccinate or Not To Vaccinate?

Judge Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

New Jersey Gov. Chris Christie unwittingly ignited a firestorm earlier this week when he responded to a reporter’s question in Great Britain about forced vaccinations of children in New Jersey by suggesting that the law in the U.S. needs to balance the rights of parents against the government’s duty to maintain standards of public health.

Before Christie could soften the tone of his use of the word "balance," Kentucky Sen. Rand Paul jumped into the fray to support the governor. In doing so, he made a stronger case for the rights of parents by advancing the view that all vaccines do not work for all children and the ultimate decision-maker should be parents and not bureaucrats or judges. He argued not for balance, but for bias -- in favor of parents.

When Christie articulated the pro-balance view, he must have known that New Jersey law, which he enforces, has no balance, shows no deference to parents’ rights and permits exceptions to universal vaccinations only for medical reasons (where a physician certifies that the child will get sicker because of a vaccination) or religious objections. Short of those narrow reasons, in New Jersey, if you don’t vaccinate your children, you risk losing parental custody of them.

The science is overwhelming that vaccinations work for most children most of the time. Paul, who is a physician, said, however, he knew of instances in which poorly timed vaccinations had led to mental disorders. Yet, he was wise enough to make the pro-freedom case, and he made it stronger than Christie did.

To Paul, the issue is not science. That’s because in a free society, we are free to reject scientific orthodoxy and seek unorthodox scientific cures. Of course, we do that at our peril if our rejection of truth and selection of alternatives results in harm to others.

The issue, according to Paul, is: WHO OWNS YOUR BODY? This is a question the government does not want to answer truthfully, because if it does, it will sound like Big Brother in George Orwell’s novel “1984.” That’s because the government believes it owns your body.

Paul and no less an authority than the U.S. Supreme Court have rejected that concept. Under the natural law, because you retain the rights inherent in your birth that you have not individually given away to government, the government does not own your body. Rather, you do. And you alone can decide your fate with respect to the ingestion of medicine. What about children? Paul argues that parents are the natural and legal custodians of their children’s bodies until they reach maturity or majority, somewhere between ages 14 and 18, depending on the state of residence.

What do the states have to do with this? Under our Constitution, the states, and not the federal government, are the guardians of public health. That is an area of governance not delegated by the states to the feds. Of course, you’d never know this to listen to the debate today in which Big Government politicians, confident in the science, want a one-size-fits-all regimen.

No less a champion of government in your face than Hillary Clinton jumped into this debate with a whacky Tweet that argued that because the Earth is round and the sky is blue and science is right, all kids should be vaccinated. What she was really saying is that in her progressive worldview, the coercive power of the federal government can be used to enforce a scientific orthodoxy upon those states and individuals who intellectually reject it.

In America, you are free to reject it.

Clinton and her Big Government colleagues would be wise to look at their favorite Supreme Court decision: Roe v. Wade. Yes, the same Roe v. Wade that 42 years ago unleashed 45 million abortions also defines the right to bear and raise children as fundamental, and thus personal to parents, and thus largely immune from state interference and utterly immune from federal interference.

Paul’s poignant question about who owns your body -- and he would be the first to tell you that this is not a federal issue -- cannot be ignored by Christie or Clinton or any other presidential candidate. If Paul is right, if we do own our bodies and if we are the custodians of our children’s bodies until they reach maturity, then we have the right to make health care choices free from government interference, even if our choices are grounded in philosophy or religion or emotion or alternative science.

But if Paul is wrong, if the government owns our bodies, then the presumption of individual liberty guaranteed by the Declaration of Independence and the Constitution has been surreptitiously discarded, and there will be no limit to what the government can compel us to do or to what it can extract from us -- in the name of science or any other of its modern-day gods.

*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.

Measles: Misinformation Gone Viral

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

One of the great achievements of the last century was the effective elimination of many deadly communicable diseases by the widespread deployment of vaccines. I can still remember the fear that struck the hearts of every family in the early 1950s at the onset of another summer watch against polio, a disease whose spread has since been all but eliminated globally by the innovations of first the Salk (dead virus) and then the Sabin (live virus) vaccines.

A similar triumph occurred with the development of reliable vaccines for measles, a childhood disease that poses a serious threat to the health and life of those who become infected. Before the measles vaccine in 1963, the death rate from measles was close to twice that from polio. Fortunately, the new vaccine turned the situation around. In 1963 and 1964, there were over 800,000 cases of measles in the United States. By 1982, vaccination had largely eliminated the disease. Measles made a modest comeback around 1990, and then fell quiescent—until the recent outbreak of measles cases at Disneyland in California, which, as it spreads, puts the issue of vaccines back on the table.

The resurgence of measles is largely attributable to the confluence of two separate factors. On the one side there is a strong, if unacknowledged, effort on the part of some people to free ride off the vaccination of others. The self-interested calculations of many conscientious parents can run as follow: Of course, measles is a contagious disease, but it only spreads if there is a sufficiently large population of unvaccinated people in any given community. Taking any vaccine, including the measles vaccine, necessarily carries with it some risk of adverse outcomes. Vaccines could be impure or improperly administered, and even in the best of times, there is always a residual risk that the vaccine itself will transmit the very disease that it is supposed to prevent. So long as other individuals are vaccinated, the rational free rider decides that it pays not to vaccinate his or her own children. They receive the protection afforded by herd immunity, without subjecting their loved ones to the risks, however small, that vaccinations always present.

The second factor that reduces vaccination levels is the spread, sometimes deliberate, of misinformation that overstates vaccination risks. This sentiment is often fueled by powerful suspicions that drug companies are greedy and governments corrupt. This entire episode was fueled by fraudulent studies published by Dr. Andrew Wakefield in 1998 in Lancet magazine, which twelve years later the journal eventually retracted, but only after much of the damage was done. Those studies, which had been funded in part by plaintiffs’ lawyers suing vaccine manufacturers, purported to find a (nonexistent) link between vaccines that were manufactured using a mercury-based compound, Thimerosal, and autism. Unfortunately, Lancet’s forthright retraction of the article did not quell the uneasiness about vaccines in either Britain or the United States. Indeed, it may well have fueled populist concerns of an ever-wider conspiracy among establishment figures.

This combination of free-riding and misinformation may now be exacting a high toll, as the increased spread of measles puts a large population of unvaccinated persons at risk for the disease, no matter what their overall health. It is not surprising, therefore, that the anti-vaccine groups have now been put on the defensive in part by a recent lawsuit brought in California by Carl Krawitt on behalf of his six-year old son Rhett, who suffers from leukemia and therefore cannot safely take the vaccine.

Krawitt’s suit demands that his local school board require all students who can, but have not, been vaccinated to stay at home, so that Rhett can more safely attend the school. Legally, his suit is likely to founder on the shoals of modern administrative law, which vests a large and virtually unreviewable discretion in local health officials to decide whether this action is required. Yet by the same token, if the school board should deem the risk sufficient to call for those suspensions, it is equally unlikely that any parent who refuses to vaccinate their children for either religious or medical reasons could have any success in keeping them in school. Discretion is always a double-edged sword, so that the high level of official discretion that lets health officials allow unvaccinated students attend school also gives them authority to force those students to stay home.

The current struggles over sound vaccine policy raise a tension between public health on the one hand and competing versions of individual liberty on the other. This conflict was, if anything, more acute a century ago when infectious diseases cut a wide path for which vaccines and other treatments provided only a limited response. The main constitutional lens through which these issues were viewed at the time was one of police power. This all-pervasive notion has no explicit textual authorization in the Constitution. But a moment’s reflection makes it clear that the Constitution’s various provisions protecting individual liberty must at times give way to government control in response to health hazards.

From the earliest times, therefore, the police power has always been construed to allow public officials to take strong action against individuals who posed threats to the health of others by the spread of communicable diseases. In perhaps the most famous statement of this sort, Justice John Marshall Harlan, himself a champion of limited government, wrote in the 1905 case of Jacobson v. Massachusetts that while the Supreme Court had refrained from defining the limits of police power, it had “distinctly recognized the authority of a State to enact quarantine laws and ‘health laws of every description,’” and then proceeded to sustain a Cambridge Massachusetts compulsory vaccination statute against smallpox, a disease for which Edward Jenner had developed an effective vaccine as early as 1796.

The basic soundness of the constitutional recognition of a police power to deal with communicable diseases is beyond dispute. Even in a free state, quarantines are the only reliable remedy to protect the health of the public at large from the spread of disease. It is sheer fantasy to think that individuals made ill could bring private lawsuits for damages against the parties that infected them, or that persons exposed to imminent risk could obtain injunctive relief against the scores of persons who threaten to transmit disease. The transmission of disease involves hidden and complex interconnections between persons that could not be detected in litigation, even assuming that it could be brought in time, which it cannot. Public oversight should be able to achieve the desired end at a far lower cost.

In making his broad defense of the police power, Justice Harlan did not mean to eradicate the substantive protections otherwise afforded by the Constitution. Thus, only three years later in Adair v. United States, he struck down a mandatory collective bargaining statute on the ground that its interference with the contractual liberties of the employer and individual employees could not be justified on grounds of either health or safety.

That said, the categorical defense of compulsory vaccination statutes raises serious questions of its own. In Jacobson, the plaintiff had objected to taking the vaccine on the ground that his own prior medical history exposed him to serious risks, including death, if he was given the vaccination. It would be a mistake to assume that Jacobson resolved this case in favor of the state’s power to force vulnerable individuals to expose themselves to deadly risk, because the legal sanction under the Cambridge law was not vaccination itself, but only a five dollar fine for Jacobson’s refusal to be vaccinated—a trivial expense, which if sustained might reduce the number of individuals who will claim spurious health exemptions from general vaccination requirements. But it is all too easy to imagine the next hard case in which the state does order compulsory vaccination—i.e. orders some public health official to vaccinate individuals against their will—once it is determined that they face no special risk of an adverse reaction.

The key question, therefore, is just how far compulsory vaccination statutes should go. At one level, I have little doubt today that claims for individual liberty, even those raised on religious grounds, would be sustained by courts if vulnerable individuals like Rhett Krawitt were required to submit to these vaccines. But the situation becomes more complex when the question is whether unvaccinated individuals can be excluded from public schools.

The recent public discussions on this issue have assumed that health boards have the power to decide. Indeed they do thanks to the unanimous 1922 Supreme Court decision in Zucht v. King. I think that this decision is eminently defensible. To be sure, public bodies cannot just act on a whim, but in this instance, the decision of school authorities to send unvaccinated or sick pupils home is one taken routinely by private schools. Governments, acting in their own management capacity, deserve the same degree of deference from the courts.

Today, in some cases, the stakes are now far higher and it appears that some parents, like Crystal McDonald of Palm Desert, are unwilling to buckle and pull their students out of school. Right now there is little movement to extend the state police power further, so as to allow the state to keep unvaccinated persons out of other public places.

Yet agonizing choices will arise if the number of serious measles cases continues to rise inexorably. Ironically, it may well be that children like Krawitt will, through no fault of their own, be caught up in this regulatory web, as he too poses a risk to other people when allowed to go into public places. Yet notwithstanding his lawsuit, the current law probably would allow the school district to keep him out of school along with other unvaccinated individuals, given that his presence in school (or other public places) necessarily poses a health risk to other students.

It is very difficult to draw any happy conclusions from this difficult impasse. The blunt truth is that even libertarians and other defenders of small government should support the basic constitutional framework that gives public officials extensive powers to control against infection and disease by devices such as quarantine and vaccination. Apart from the forced vaccination of compromised individuals, it is difficult to carve out some enduring constitutional island of individual rights from the general principle of state control.

The weak constitutional system does not mean that nothing else should be done. Rather, it suggests that relief in this matter rests on two uncertain supports. The first is the awareness of most parents that vaccinations for their children are justified even on the narrowest grounds of individual self-interest. The bloated parental fears of adverse reactions to standard vaccines have to be effectively countered by concerted campaigns from both public and private sources. The simple truth is that in most cases, vaccinations make overwhelming sense as a way for parents to protect their children’s health.

Second, a constant pressure has to be placed on health and school officials to be sensitive to the difficult trade-offs involved in all these decisions. Thus far, the bad news is that private decisions have led people to let down their guard against communicable diseases on the naïve assumption that the diseases won’t spread. The good news, so far, is that the public response has been sensible. Let's hope, going forward, it stays that way. 

*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.

Andrew Cuomo's Blind Call for Ethics Reform

Thomas Warns*

Governor Cuomo surprised NYU Law yesterday when he announced that today he would give a speech in Lipton Hall: somewhat inappropriately, the Governor wanted to talk about government ethics. New Yorkers have been rocked the last few weeks, first by the news that Assembly Speaker Sheldon Silver had been indicted as part of a corruption probe, and then that State Senate Majority Leader Dean Skelos was also being targeted. Governor Cuomo described the three of them as the "three amigos" in his State of the Union speech, so this news hit him hard.

The Governor's response was to announce a new five point plan while at NYU. First, he argued that the idea of a citizen-legislator should be revisited; it might not be feasible to expect legislators to work part time (currently only for six months out of the year). They also need a raise from their current salary, a paltry $79,500 for six months of work (though that number is significantly higher when factoring in per diem expenditures). The supposedly skimpy salary and part time status mean that murky sources of outside income become too tempting for many.

Mr. Cuomo also called for more disclosure - instead of follow the money, "explain the money", he said. He coupled this with an end to pension payments and Assembly benefits for those who are convicted of corruption, and also called for closer scrutiny of per diem usage. He called for an end to campaign funds for personal use as well. The real bombshell came when the Governor stated that he would refuse to sign a budget until his demands for reform were met. That will surely end New York's streak of on-time budgets, which currently stands at four.

U.S. Attorney Preet Bharara has picked up the torch of the Moreland Commission after Governor Cuomo tried to put it out.

U.S. Attorney Preet Bharara has picked up the torch of the Moreland Commission after Governor Cuomo tried to put it out.

It was a breathless display of willful blindness by the Governor. If the past few weeks have taught New York anything, it is that the most trusted corruption fighters are the lawyers in the U.S. Attorney's Office, not the Governor's Office, with none taking more credit than the zealous Preet Bharara. Governor Cuomo has essentially governed the state for several years with Dean Skelos and Sheldon Silver - the "three men in a room"  often come to major policy decisions in secret, and with no accountability. Is Governor Cuomo proposing his plan now because he is actually concerned with rooting out corruption? Or does he merely wish to deflect attention away from himself, now that Preet Bharara has set his sights on the "three amigos"?

It is hard to find Governor Cuomo's concern with ethical government leadership genuine, when he had the Moreland Commission prematurely disbanded last year. The Moreland Commission was supposed to investigate public corruption within the state government, but Governor Cuomo leaned on the Commission to limit its scope, and then scrapped it in exchange for a set of weak new anti-corruption laws. Of course, if politicians are asking investigators to stop looking, and agreeing to new laws in exchange for having the probe dropped, that seems like a paradigmatic example of a good time to continue investigating. Fortunately, Preet Bharara obtained the Commission's files before they were destroyed.

At the end of his speech Governor Cuomo tried to sound an optimistic note, saying that we must "work together" to make New York a better place, because "it is the right thing to do, and it is the smart thing to do." Unfortunately, that optimism seems misplaced as long as the Governor is the one spearheading the reform. While Albany muddles along towards brinkmanship, we all might be better served to hope that the U.S. Attorney's office continues to aggressively pursue the corrupt men in power, so that we can all have a little faith in government restored.

*Thomas Warns is a J.D. Candidate in the Class of 2015 at New York University, and the Editor-in-Chief for the N.Y.U. Journal of Law & Liberty.