The Affordable Housing Crisis

Richard Epstein*

Richard Epstein

Richard Epstein

Housing policy has become yet another flashpoint in these highly polarized times. Much of the controversy swirls around President Donald Trump’s nomination of Ben Carson, a distinguished neurosurgeon, as Secretary of Housing and Urban Development. HUD operates a wide range of subsidized federal housing programs that impassioned critics of his nomination are sure Carson will dismember. His chief vice in their eyes is his lack of direct experience working in the housing area. In a real sense this is a mixed blessing. On the one hand, these programs must be managed—and, ideally, by someone competent and somewhat knowledgeable in the field. On the other, his greatest strength is that from an outside perspective he understands that many of these programs must be cut back or shut down. There is some overstatement in the charge that HUD is a socialist program. But there is much truth to the claim that many of its programs have seriously aggravated housing difficulties around the country, especially for the most vulnerable groups.

The key challenge is to choose the correct path for housing reform. Many of Carson’s critics think the proper line is to require new developments to save a proportion of units for low-income residents, which will ensure, they claim, “that economically diverse neighborhoods and housing affordability will be preserved for generations to come.” The implicit assumption behind this position is that government agents have enough information to organize complex social institutions, when in fact they are slow to respond to changes in market conditions and are often blissfully unaware of the many different strategies that are needed in different market settings. No one wants to say that governments should not lay out street grids and organize infrastructure. But they operate at a huge comparative disadvantage when it comes to real estate development on that public grid.

Far superior is an alternative view that I have long championed. The first thing to do is to abandon the assumption that there is a systematic market failure requiring government intervention. The second is to remove all barriers to entry in the housing markets, so that supply can increase and prices can fall. These barriers are numerous, and include an endless array of fees, taxes, and permits that grant vast discretionary authority to local officials. A removal of these burdens will allow us to harness the private knowledge of developers who will seek to work in those portions of the market that hold the greatest profit opportunities.

The critics often fear that developers will look to build only mansions and high-rise towers to satisfy the endless desires of the millionaire class. But that hyperbole ignores every relevant feature of an unregulated housing market. Most critically, as costs of housing construction and maintenance go down, developers are able to offer lower-priced units to people of more limited means. Prices are kept low by new entry across the full spectrum. Some developers will move quickly into the luxury market, but others, knowing of the potential glut, will move into other market niches in different neighborhoods where they can secure the highest rate of return. And once that is done, the expanded supply will provide more opportunities to lower-income tenants.

Yet as matters stand, there is good reason why developers gravitate to the higher end of today’s highly regulated market—because they cannot absorb the high fixed costs of planning, permitting, and construction for smaller projects. As demand surges in highly desirable supply contracts, the result is always the same. Equilibrium prices march steadily upward, leading local activists to cry for a new round of subsidies, restrictions, and reforms, all of which start the cycle over again.

One highly controversial program is Measure S, which is on the ballot in Los Angeles. As the Los Angeles Times—a fierce opponent of this ballot initiative—notes, “Measure S would impose a two-year moratorium on all real estate projects that require a General Plan amendment, zone change or increase in allowable height.” One LA project that would be forced to stop would house homeless veterans and other low-income folks. Nor should that consequence come as a surprise. The reference to amendments and zoning changes cuts far more deeply than it appears, because under modern land use law, modifications of existing ordinances, often called “contract zoning,” are routinely necessary to get a deal through. The way it works is the initial zoning laws are set in a highly restrictive fashion. The developer then has to come forward with a package of benefits for the community as a way to secure a more favorable zoning classification. By blocking renegotiations, Measure S freezes everything, virtually assuring a mass developer exit from the market. The preexisting process already is a huge deterrent to development, which started its relentless decline after the 1950s with the onset of strict zoning regulations.

The bad ideas for housing regulation do not end with blanket moratoria. Indeed, the most popular approach nationwide does not directly limit the amount of new housing that can be built. Instead, it embraces “inclusive zoning” in which the developer is forced to set aside some fraction of the total number of units as designated affordable housing units. As one might expect, the worse the underlying situation, the more stringent the matching requirements. Thus, this past December, Portland, Oregon, unanimously approved its “Historic Inclusionary Housing Program” that requires all developments of twenty or more units to designate 20 percent of these units as affordable. Look for a lot of 19 unit projects. Earlier in the summer of 2016, San Francisco, whose zany housing policies have no known limitations, raised the ante when its voters approved Proposition C. Prior to its adoption, developers had three options: Set aside 12 percent of units for affordable housing; build some units off-site; or contribute to an “in lieu” fund to enable the City to take on new projects. Proposition C raises the ante by insisting that the projects have 25 percent on-site housing; 33 percent off-site housing; or that their developers pay a commensurately higher fee.

This program is reasonable insofar as it imposes less stiff requirements for the on-site units than the off-site ones. These are usually more expensive to construct. And, ironically, they are less desirable to low-income tenants who cannot afford to live in high-price areas. It is just for that reason that a recent op-ed in the New York Times by financial journalist Eric Uhlfelder called for a “new fix” for affordable housing that requires the imposition of an annual luxury tax “on new high-end condos and rentals.” As Uhlfelder notes, this proposal essentially eliminates the difficulties of in-kind contributions. But it is hard to see why it should make a dent in the underlying supply problem. Generally speaking, the elimination of two options will not improve the position of the developers. Instead, it becomes absolutely critical to know which of these new construction projects will be covered by the luxury tax and which will not. If the line is announced in advance, a City will find itself in the odd position of insisting that new construction meets its parameters, as developers seek to gain permits under the radar. If the rate, moreover, is set incorrectly, the entire scheme could fail for want of takers, sending the city’s program back to square one.

One way to avoid this difficulty, now under active consideration in Los Angeles, is for developers to pay a so-called “linkage fee” on all new commercial and residential housing, which can then be used to remedy the chronic undersupply of affordable housing. The program here, however, could—in combination with the city’s new project moratoria—put all development into paralysis. One clear improvement over both the Uhlfelder and Los Angeles proposals is to sever the link between new affordable housing programs and any special tax on new real estate development, by funding all local affordable housing programs out of general revenues. That switch in emphasis means that a specific tax is less likely to wreck a specific segment of the housing industry. It will also provide a modest political check on the willingness of local governments to dedicate funds to affordable housing programs, given popular resistance to overall tax increases. That just might switch the political balance in favor of the liberalization of the notorious zoning codes that have stifled new construction in the first place.

But even these are really stopgap measures. All taxes deter development. Market liberalization increases it. Folks like Uhlfedler are explicit that they resort to these schemes because they expect a Trump administration to cut back on federal subsidies, which I regard as a welcome counterforce to unsound HUD programs. So it is back again to Ben Carson, whose real comparative advantage is that he has no historical connection with the dysfunctional public housing world. But Carson does grasp the dangers of “mandated social-engineering schemes,” and appreciates the risks of “unintended consequences” of various social interventions. Hopefully, when he takes over HUD, he will bring with him a broom that will sweep clean much of the detritus that currently exists.

As Carson has noted, one of his first targets will be the multiple Obama programs that grant HUD funds to affordable housing that is built in wealthier neighborhoods. Apart from the endless paperwork these “fair housing” programs require, they also depart from Uhlfelder’s observation that most local housing activists would prefer to use government grants to fix up housing in areas where low and moderate-income people actually choose to live. Any decision by Carson to scrap the rule would be a vast improvement for housing markets, as lower administrative costs would lead to higher levels of local development.

The so-called housing experts all sign on to the general mission of HUD to deal with the various ills of housing shortages, but none of them have the slightest interest in the market solutions that could improve the overall situation. To make the point more clearly, market solutions do not include letting developers steamroll small property owners through eminent domain abuse, or allowing local communities to pass restrictive zoning and permitting requirements that are intended to block low-income housing. Rather, the correct answer is to stop eminent domain abuse, to peel away layers of regulation, and to cut out the extensive network of government grants that impose strings on how housing can be built. Perhaps Carson does not know much about the current programs. But if he puts the necessary reforms in place, he will have no need to master the details of endless federal, state, and local regulations that have created the affordable housing crisis in the first place.

*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 Parting Shot at Personal Freedom

Andrew Napolitano*

Andrew Napolitano

Andrew Napolitano

On Jan. 3, outgoing Attorney General Loretta Lynch secretly signed an order directing the National Security Agency -- America’s 60,000-person-strong domestic spying apparatus -- to make available raw spying data to all other federal intelligence agencies, which then can pass it on to their counterparts in foreign countries and in the 50 states upon request. She did so, she claimed, for administrative convenience. Yet in doing this, she violated basic constitutional principles that were erected centuries ago to prevent just what she did.

Here is the back story.

In the aftermath of former President Richard Nixon’s abusive utilization of the FBI and CIA to spy on his domestic political opponents in the 1960s and '70s -- and after Nixon had resigned from office in the wake of all that -- Congress passed the Foreign Intelligence Surveillance Act, which created a secret court that was charged with being the sole authority in America that can authorize domestic spying for non-law enforcement purposes.

The standard for a FISA court authorization was that the subject of the spying needed to be a foreign person in the United States who was an agent of a foreign power. It could be a foreign janitor in a foreign embassy, a foreign spy masquerading as a diplomat, even a foreign journalist working for a media outlet owned by a foreign government.

The American spies needed a search warrant from the FISA court. Contrary to the Constitution, the search warrant was given based not on probable cause of crime but rather on probable cause of the status of the person as an agent of a foreign power. This slight change from “probable cause of crime” to “probable cause of foreign agency” began the slippery slope that brought us to Lynch’s terrible order of Jan. 3.

After the Foreign Intelligence Surveillance Act, numerous other statutes were enacted that made spying easier and that continued to erode the right to be left alone guaranteed by the Fourth Amendment. The Patriot Act permitted FBI agents to write their own search warrants for business records (including medical, legal, postal and banking records), and amendments to FISA itself changed the wording from probable cause “of foreign agency” to probable cause of being “a foreign person” to all Americans who may “communicate with a foreign person.”

As if Americans were children, Congress made those sleight-of-hand changes with no hoopla and little serious debate. Our very elected representatives -- who took an oath to preserve, protect and defend the Constitution -- instead perverted it.

It gets worse.

The recent USA Freedom Act permits the NSA to ask the FISA court for a search warrant for any person -- named or unnamed -- based on the standard of “governmental need.” One FISA court-issued warrant I saw authorized the surveillance of all 115 million domestic customers of Verizon. The governmental need standard is no standard at all, as the government will always claim that what it wants, it needs.

All these statutes and unauthorized spying practices have brought us to where we were on Jan. 2 -- namely, with the NSA having a standard operating procedure of capturing every keystroke on every computer and mobile device, every telephone conversation on every landline and cellphone, and all domestic electronic traffic -- including medical, legal and banking records -- of every person in America 24/7, without knowing of or showing any wrongdoing on the part of those spied upon.

The NSA can use data from your cellphone to learn where you are, and it can utilize your cellphone as a listening device to hear your in-person conversations, even if you have turned it off -- that is, if you still have one of the older phones that can be turned off.

Notwithstanding all of the above gross violations of personal liberty and constitutional norms, the NSA traditionally kept its data -- if printed, enough to fill the Library of Congress every year -- to itself. So if an agency such as the FBI or the DEA or the New Jersey State Police, for example, wanted any of the data acquired by the NSA for law enforcement purposes, it needed to get a search warrant from a federal judge based on the constitutional standard of “probable cause of crime.”

Until now.

Now, because of the Lynch secret order, revealed by The New York Times late last week, the NSA may share any of its data with any other intelligence agency or law enforcement agency that has an intelligence arm based on -- you guessed it -- the non-standard of governmental need.

So President Barack Obama, in the death throes of his time in the White House, has delivered perhaps his harshest blow to constitutional freedom by permitting his attorney general to circumvent the Fourth Amendment, thereby enabling people in law enforcement to get whatever they want about whomever they wish without a showing of probable cause of crime as the Fourth Amendment requires. That amendment expressly forbids the use of general warrants -- search where you wish and seize what you find -- and they had never been a lawful tool of law enforcement until Lynch's order.

Down the slope we have come, with the destruction of liberty in the name of safety by elected and appointed government officials. At a time when the constitutionally recognized right to privacy was in its infancy, Justice Louis Brandeis warned all who love freedom about its slow demise. He wrote: “Experience should teach us to be most on our guard to protect liberty when the Government's purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding.”

Someday we will learn why Obama did this. I hope that when we do, it is at a time when we still have personal liberty in a free society.

*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.

A Revolution in Administrative Law

Richard Epstein*

Richard Epstein

Richard Epstein

One of the most vital, but technical, items on the Republican agenda is not likely to get its fair share of public attention. On the first day of the new Congress, Republican Representative Bob Goodlatte of Virginia introduced two pieces of legislation that could fundamentally alter the structure of American administrative law for years to come.

The first bill, H.R. 26, the Regulations From the Executive In Need of Scrutiny (REINS) Act, languished in three previous successive Congresses, but it has now cleared the House by a vote of 237-187. If enacted, this bill will give Congress a final say on regulations with an estimated cost over $100 million through a mandatory up-or-down vote before they go into effect. More importantly for the day-to-day operation of administrative law is Goodlatte’s other bill, H.R. 5, the Regulatory Accountability Act, which the congressman claims will “wipe out abusive regulation—freeing Americans to innovate and prosper once more.”

This last claim is a tall order for any one piece of legislation. But there is no underestimating the effect H.R. 5 will have in shaping the agendas that Scott Pruitt will bring to the Environmental Protection Agency, Betsy DeVos to the Department of Education, Andy Puzdur to the Department of Labor, and Rick Perry to the Department of Energy—each of whom will administer a complex set of statutes that authorize their agency actions while delimiting their authority. In the Obama administration, there were profound political clashes between his progressive administrators, who constantly sought to extend the scope of their authority in all of these areas, and their opponents both on and off the bench.

The great challenge of H.R. 5 is to rethink a system of administrative law that was ushered in by the passage of the Administrative Procedure Act of 1946 in the aftermath of World War II. The APA has a quasi-constitutional status because it seeks to rationalize judicial oversight of administrative agencies that received vastly greater power after the New Deal constitutional revolution. This expansion came to fruition during the October 1936 Supreme Court term, during which the Court first increased the scope of congressional power by allowing it to regulate in virtually any area of economic or social importance, and second, weakened the individual rights afforded to private property and to economic liberties in the pre-New Deal Constitution. A decade later, Congress passed the APA to cut back on the aggressive implementation of legislation through regulation and enforcement actions instituted by the new generation of New Deal agencies. These transformative laws dealt with such core matters as labor, agriculture, communications, and securities law.

One essential provision of the APA, Section 706, regulates the interaction between the agencies and the courts. It states in part: “To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.” In addition, Section 706 provides that the reviewing court shall “hold unlawful and set aside agency action, findings, and conclusions found to be—(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

Under the APA’s sensible original design, a reviewing court stands in relation to the administrative agency much as an appellate court stands in relation to a trial court. On all questions of law, the appellate court makes its own interpretation of the relevant legal materials in deciding the meaning and scope of a particular provision. On questions of fact, an appellate court tends to defer to the trial court decision. Finally, an important class of cases deals with mixed questions of law and fact—e.g., whether the basic facts establish negligence by the defendant.

This time-tested regime reflects the application of the principle of comparative advantage by the different layers involved in judicial administration. Triers of fact often have to examine many witnesses and documents, for which they develop the appropriate expertise on such key issues as credibility and weight. Giving them latitude speeds up the process of adjudication, reduces the burden on appellate judges, and prevents the introduction of a fresh round of factual errors by appellate judges. At the other extreme, reading statutes and regulations is what appellate courts do well, and these questions can be resolved by standard techniques of interpretation that carry over from one substantive field to another. Courts typically apply an intermediate standard of judicial review to those difficult mixed questions of law and fact.    

For many years, the APA more or less kept true to its original conception, which treated administrative agencies as if they functioned like trial courts. By the 1970s, however, it became clear that the courts, most notably the liberal Circuit Court for the District of Columbia, had adopted an activist role in the overall process, particularly in their comprehensive review of the factual record. That Court was slapped down hard in 1978 by a young Justice Rehnquist in Vermont Yankee v. National Resources Defense Council, Inc. for introducing added layers of complexity, especially in dealing with the approval of new nuclear power plants, into the relatively lean structure of the APA.

But the truly great transformation of American administrative law took place in two major decisions of the 1980s, both of which changed administrative law for the worse, by inverting the relationship of review of facts and review of law. The first became subject to a hard-look doctrine, and the second to extensive judicial deference.

On the former, in the 1983 Supreme Court decision Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Co., the Court, speaking through Justice Byron White, read the arbitrary and capricious standard strictly to require the National Highway Transportation Safety Administration to give a “hard look” to the NHTSA’s decision to postpone the implementation of passive restraint devices in automobiles. The Court insisted, among other things, that “an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”

Under this standard any complex factual determination becomes fair game for an intensive review, which could be used not only to block new regulations but also to block efforts to roll back existing regulations on the ground that they were too onerous. The correct position is one that, as Section 706 suggests, shows some degree of deference to agency decisions. Otherwise no factual determination can be put into place, which is one reason why the nuclear power industry in the United States has been stopped dead in its tracks by judicial oversight.

In my view, the Goodlatte legislation goes in exactly the wrong direction when it proposes a grotesquely convoluted system of factual review under the grandiose claim that the law “restores to the people the true right to be heard by Washington’s regulators.” But “the people” also includes every special interest group that wishes to obstruct sensible reform, as in State Farm itself, as well as those, like the new cadre of Trump administrators, who have a more deregulatory frame of mind. There are many tasks of administration that need to be done and the Goodlatte labyrinth could bring the entire administrative process to a halt, killing off good projects as well as bad ones. No system of appellate review can neutralize incompetent regulators without hamstringing competent ones in the bargain. This portion of the legislation should be withdrawn and reengineered.

Nonetheless, H.R. 5 is on the mark with a far shorter and far more coherent provision that it styles the Separation of Powers Restoration Act (SOPRA), which in 2016 had been sensibly introduced as a freestanding bill. Its key provision reads that any court reviewing administrative action shall “decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by agencies.” “De novo” review means that the reviewing court gives no deference to the legal opinions of either the parties or lower court judges and administrators.

This compact and straightforward provision, which should be promptly enacted, takes aim at two of the most misguided decisions of administrative law that instructed courts to take a deferential stance toward agency actions interpreting the key statutes and regulations they administer. The first of these cases, Chevron USA Inc. v. NRDC (1984), written by Justice John Paul Stevens, insisted that in all ambiguous cases, reviewing courts should defer to an agency interpretation of its governing statute. Auer v. Robbins (1997), written by the late Justice Antonin Scalia, similarly held that for an agency’s “own regulations, [its] interpretation of it is, under our jurisprudence, controlling unless ‘plainly erroneous or inconsistent with the regulation.’”

The current regime of deference enjoys strong bipartisan support even though it is plainly inconsistent with Section 706, which provided for the de novo review called for in SOPRA. The change is long overdue. It is difficult to describe in a short space the enormous doctrinal refinements of both Chevron and Auer. No one knows quite when any given statute or regulation becomes ambiguous, and there is a futile debate as to whether the same level of deference should be afforded to memoranda and opinion letters as to regulations issued after the more extensive notice and comment procedures the APA calls for in dealing with major regulations. Scholars thus talk about Chevron step zero, step one, and step two in an effort to decide just how much deference is required in any given context.

But the implicit assumption that all agencies are neutral and dispassionate enforcers of their own statutes is falsified by the day-to-day actions of agencies. Their heads have strong political agendas to advance on key issues such as labor, education, and environment, all flash points in the Obama administration. The acceptance of high levels of deference lets agencies make hash out of statutes, which is what happened, for example, in the Department of Labor’s ruling that the statutory prohibitions against sex discrimination, passed decades before, meant to apply to modern gender identity cases that no one had even imagined at the time. Deferring to agencies invites huge flip-flops with the change of administration, given their radically different views of how these various relationships could be shaped. It also allows agencies like the Federal Communications Commission to expand their jurisdiction with dubious interpretive strategies, which often upsets the balance initially designed by Congress.

That potent combination of intellectual incoherence and institutional instability makes it hard for private businesses and organizations to plan for the future. Concerns for their plans could be effectively moderated if these legal issues were simply decided by courts as they have been for centuries.

The fruits of this confusion will become evident the day after the Trump inauguration when major agencies reverse field, an action requiring as little justification as the process that adopted these (dubious) rules in the first place. It is often said about administrative agencies that only they possess the expertise to make sense out of arcane statutory and regulatory language. Nothing could be further from the truth. Most of the really important language consists of words like discrimination and pollution that judges can understand and apply as well as anyone else. The great danger of entrusting these issues to administrative agencies lies in their inherent bias. The independent agencies are in most cases run by commissions of five members, which often divide three-to-two, with the President appointing a chairman from his own party. Bias in administration is not some rare Black Swan event, but is, as standard public choice theory predicts, a common occurrence.

This is why the Democrats in Congress are so fiercely opposed to the key Trump appointments mentioned above. Now that they are out of power, the Democrats, who once praised executive and administrative power, will sound the rule of law trumpet loudly. And they should be heard on this point. H.R. 5 is important now because it can be used to restrain the abuse of discretion of Republican administrators, just as it can be used to restrain the abuse of Democratic ones.

For the moment at least, the proposed revolution in administrative law will have its greatest impact on the regulatory misadventures of the highly partisan Obama agencies. But in the long run, we need SOPRA to make sure that Republican administrators do not return the favor by hiding behind Chevron and Auer deference in order to impose, by regulation and interpretation, their own dubious decisions. Whether one deals with constitutions, statutes, or regulations, the only safe guide is to try to use text, context, structure, and purpose to determine the correct interpretation of disputed provisions. Gimmicks like Chevron and Auer deference only muddy the waters. In all cases, de novo review of questions of law is a matter of the highest importance for constitutional and institutional safeguards of the rule of law. We need it today.

*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.

Obama’s Dangerous Palestinian Gambit

Richard Epstein*

Richard Epstein

Richard Epstein

As we reach the end of the Obama presidency, U.S.–Israeli relations are in a state of turmoil after the administration abstained on the UN Security Council vote of December 23, 2016 regarding Resolution 2234, which, among other things, “Reaffirms that the establishment by Israel of settlements in the Palestinian territory occupied by since 1967, including East Jerusalem, has no legal validity and constitutes a flagrant violation under international law and a major obstacle to the achievement of the two-State solution and a just, lasting and comprehensive peace.”   

To say that this resolution has not been well received in the United States is something of an understatement. The House of Representatives, for instance, recently issued a nonbinding resolution that condemned the UN act as “one-sided and anti-Israel.”

At this point, it is imperative to take a close look at what the resolution says to see whether or not this and similar charges raised against it can be sustained. That inquiry in turn has to deal with two issues, one legal and one political. The first question is whether the Israeli settlements are in fact a flagrant violation of international law. The second asks whether the settlements are a serious impediment to the creation of a two-state solution. I conclude that the UN resolution overstates its condemnation of Israel, and join the chorus of those who think that the Obama administration stumbled badly when its abstention allowed the Resolution to become official UN policy.

As is often the case with poorly crafted resolutions, this one goes astray with its very first word. To say that the UN “reaffirms” the current status quo implies that, on some earlier occasion, it had voiced the same position that it does today. But the earlier positions taken by both the UN and the United States were far more nuanced than this latest one..

The most relevant document for these purposes is Resolution 242 of November 22, 1967 in the aftermath of the Israeli victory in the Six Day War that started when Egypt, Jordan, and Syria engaged in military action intended to destroy the state of Israel. The short resolution in effect adopted the land-for-peace formula that has guided American policy for close to 50 years. The Israelis agreed to withdraw from “territories occupied in the recent conflict” in exchange for a deal that resulted in the acceptance by all powers within the region of the legitimacy of the state of Israel with secure and defensible borders. At no point was it required that the Israelis return to the de facto borders that had been established under the 1949 armistice. Instead it could keep some territories to rationalize its national boundary lines in ways that allowed it to obtain defensible borders.

But this no longer applies after Resolution 2234, which “Reiterates its demand that Israel immediately and completely cease all settlement activities in the occupied Palestinian territory, including East Jerusalem, and that it fully respect all of its legal obligations in this regard. . . .” The resolution was not invoked under the UN’s so-called Chapter VII powers that address “threats to the peace, breaches of the peace, and acts of aggression.” Instead, it relies on Chapter VI, which is intended to deal with peaceful resolution of disputes. There is more than a whiff of complexity in this resolution. First, it condemns all Israeli settlements post-1967, including those in the Jewish quarter in East Jerusalem. But it is not clear how much further it goes, given that the phrase “completely cease all settlement activities” can easily be read to say that the Israelis are under an obligation not only to not expand existing settlements, but also to dismantle all settlements in the West Bank, or at the very least to stop all “natural growth” in Jewish populations within the settlements—a futile proposal that became national policy under Obama after, as Elliot Abrams reports, it had been explicitly rejected by George W. Bush’s administration.

It may therefore be an open question as to whether Israel is under a further obligation to turn over effective administration to Palestinian control, given what has been condemned as a flagrant violation of international law. No one can be sure, but texts less emphatic have been subject to broader interpretations. Indeed Hamas was quick to “emphasize the need to turn such a resolution into action, not only to halt settlements but to eradicate Israel’s occupation in all its forms,” including, of course, the occupation of all territories within the 1949 armistice lines. Clearly, the Resolution does not go that far, but on any reading it represents a major shift from the earlier views that Israeli settlements, especially those in or near Jerusalem, could continue to accept more people on the ground that they would be incorporated into Israel as part of any final settlement.

In light of its announced transformation, it is fair to ask, how solid is the legal foundation on which the new Resolution rests, especially compared to Resolution 242? Given its categorical denunciation of the Israeli position, we should expect to see unassailable evidence in support of its position. But the record is, in my view, far weaker than advertised. In dealing with this issue, Resolution 2234 points to two major sources of authority, both of which require some explanation. First, there is the Fourth Geneva Convention concerning the Protection of Civilian Persons in Time of War of August 1949, and second there is an advisory opinion rendered by the International Court of Justice in July 2004. At no point does Resolution 2234 discuss the rationales of these two key documents. This omission is troubling.

Most relevant to this discussion is the short text in Article 49 that provides simply: “The Occupying Power shall not deport or transfer parts of its own civilian population into the territory it occupies.” Yet the widespread consensus treats Israel as an occupying power. But it is not clear how this provision applies given the complex history of the region. The first point to note is that the phrase occupying power does not quite capture the Israeli-Palestinian dispute. Context matters.

The Fourth Geneva Convention was adopted in the aftermath of World War II, when there was an urgent humanitarian need to take care of refugees and other persons who had been displaced by the war. The Convention does deal extensively with occupied territories, but it offers no definition of what counts as such a territory. The clear cases of occupation are those in which one nation takes over the territory of another during armed conflict, which happened for example when the Soviet Union occupied the Baltic States in June 1940, in the aftermath of the notorious Molotov-Ribbentrop Pact that partitioned Eastern Europe into a Soviet and German spheres of influence. The occupation was then followed by the mass deportation of local citizens and the mass transfer of Russian citizens into the Baltics.

By linking the term “deport” with “transfer,” it is arguable, perhaps probable, that the abuse targeted was not the voluntary migration of individuals into occupied territories, but the Stalinesque activities of the forced transferal of a nation’s own people into occupied territories against their will, which happened in the aftermath of the occupation of the Baltics. None of this means that Palestinians do not have legal protection under the Geneva Conventions, but the ongoing security issues in these cases make it difficult in the abstract to determine just how far they run. But right now there is a serious debate, pro and con, over the condemnation with full compensation of vacant and uncultivated land on which to build Jewish settlements.

Set against this background, it is far from clear as a textual matter exactly how Article 49 applies to the Israeli occupation of the West Bank in the aftermath of the Six-Day War. The war began as an act of aggression against Israel by Jordan, and the legal status of those territories had not been resolved by the 1949 Armistice. The Israelis had their own historical claims to these territories, the status of which was disputed at the time. In their view, as developed here, these territories are “disputed territories” to which the Geneva Convention does not apply at all. To make matters more complicated, at the close of the Six-Day War, the only party that had a legal interest in the territories was Jordan, who had exercised de facto territorial sovereignty prior to the onset of hostilities. There was at that time no Palestinian nation either in the West Bank or in Gaza, which was then part of Egypt.

The Jordanians were, of course, no friends of the Palestinians. Indeed, in September 1970 there was a fierce conflict, known as Black September, in which the Palestinian Liberation Organization forces led by Yasir Arafat were defeated by the Jordanian forces led by then-King Hussein, and were forced into exile after the death of thousands. Just what would have happened to Palestinian national ambitions if the territories had been returned to Jordan so that the Fourth Convention would no longer apply? We shall never know the answer to that question because Jordan never sought to regain the territories and indeed in 1988 renounced all claim to the West Bank in part to clear the path to Palestinian claims. Note that the Jordanians did not—nor could they have—transferred their claims to Palestine which did not (and still does not) have statehood status. At this point, we have the novel situation in which the stripping away of the initial sovereign leaves Israel without a genuine competitor for sovereignty over the territories. Nothing in the Fourth Convention covers these unique circumstances. And it is a political, not a legal, issue that governs the implementation of any potential two-state solution.

Nor is the situation made any clearer by the 2004 Advisory opinion, which addressed the legality of the wall that Israel erected around the West Bank to protect itself against widespread Palestinian terrorist attacks. Clearly the wall separated the West Bank from the rest of Israel, and it was condemned for that reason as illegal by the ICJ, which heavily relied on notions of customary international law that have never been supported by a consistent practice that requires nations to remain immobile in the face of systematic terror threats. To be sure, Resolution 2234 condemns terrorist activities, but only in a disembodied sense that makes no reference to the constant activities of Hamas or the active support for terrorist activities that is fully institutionalized by the Palestinian authority, which offers financial support for individuals and the families of those who kill or maim Israelis. Generalized pronouncements make it appear that Israel and the Palestinian Authority are equal offenders in the commission of terrorist acts, when it is highly likely that the Israeli security measures would be vastly curtailed if there were credible assurances that the bombings, shootings, and stabbings would come to an end.

The one-sided treatment of these legal issues is consistent with the general UN approach that obsessively condemns Israel while mostly overlooking the atrocities that have ravaged the greater Middle East. In light of these issues, it is somewhat odd to treat the settlements as though they were the major obstacle to the two-state solution. Remove them tomorrow, especially in response to the UN resolution, and the most likely outcome is that the PA and Hamas would intensify their activities to destroy the Jewish state, just as they did in 1948, 1956, 1967, and 1973 when Israel fought wars of survival, knowing full well that the first defeat would be the last one, even if the 1949 Geneva Convention places strict limitations on how occupying powers have to behave toward conquered people.

The Israelis know this all too well. They also know that the lesson of the 2005 withdrawal from Gaza led to the rise of Hamas and to repeated military actions and missile attacks between 2006 and 2014. Any unilateral surrender of lands in the West Bank to a new Palestinian state opens up the possibility that greater hostilities could be launched against an Israel weakened by successive rounds of fatal concessions. The Israelis claim that the only path to peace is through bilateral negotiations between the parties, backed by the US and the UN. Those negotiations were apparently close to success in 2000 and 2008, but the deal was never closed because of the Palestinians.

At this point, Resolution 2234 has killed the prospects for any negotiated peace in the foreseeable future. The Palestinian Authority will treat compliance with a ruinous Resolution as a precondition for further negotiations. The Israelis cannot live in a world that requires them to surrender territories under their control before 1967. The terms of the UN Resolution thus have put an effective end to all negotiations between the two sides. The Israelis are likely to continue the dangerous game of expanding settlements in the West Bank, as the only credible way of punishing the Palestinians for their continued delay. Whether this strategy will work, or should work, is a hard call. But much of the blame for the current impasse lies at the feet of Secretary of State John Kerry who never did understand the political dynamics of the Israeli-Palestinian negotiations.

*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.

Obsolete Climate Science On CO2

Richard Epstein*

Richard Epstein

Richard Epstein

The incoming Trump administration has promised dramatic transformations on many vital domestic issues. The best gauge of this development is the fierce level of opposition his policies have generated from Democratic stalwarts. One representative screed is a New York Times Op-Ed by Professors Michael Greenstone and Cass Sunstein, who lecture the incoming president on climate change: “Donald Trump Should Know: This is What Climate Change Costs Us.”

Greenstone and Sunstein have a large stake in the game: During their years in the first Obama administration, they convened an interagency working group (IWG) drawn from various federal agencies that determined that the social cost of carbon (SCC)—or the marginal cost of the release of a ton of carbon into the atmosphere—should be estimated at about $36 per ton (as of 2015). Choose that number and there is much justification for taking major policy steps to curb the emission of carbon dioxide. Greenstone and Sunstein hoped that the working group process would draw on the “latest research in science and economics,” and establish the claimed costs by “accounting for the destruction of property from storms and floods, declining agricultural and labor productivity, elevated mortality rates and more.”

Their effort should be dismissed as a rousing failure, and as an affront to the scientific method that they purport to adopt in their studies. The first error is one of approach. The worst way to get a full exchange of views on the complex matter of global warming is to pack the IWG entirely with members from the Obama administration, all surely preselected in part because they share the president’s exaggerated concerns with the problem of global warming. The only way to get a full and accurate picture of the situation is to listen to dissenters on global warming as well as advocates, which was never done. After all, who should listen to a “denier”?

This dismissive attitude is fatal to independent inquiry. No matter how many times the president claims the science is rock-solid, the wealth of recent evidence gives rise to a very different picture that undercuts the inordinate pessimism about climate change that was in vogue about 10 years ago. The group convened in the Obama administration never examined, let alone refuted, the accumulation of evidence on the other side. Indeed, virtually all of its reports are remarkable for the refusal to address any of the data at all. Instead, the common theme is to refer to models developed by others as the solid foundation for the group’s own work, without questioning a word of what those models say.

The second major mistake in the government studies is the way in which they frame the social costs of carbon. As all champions of cost/benefit analysis understand, it is a mistake to look at costs in isolation from benefits, or benefits apart from costs. Yet that appears to be the approach taken in these reports. In dealing with various objections to its reports, the IWG noted in its July 2015 response that “some commenters felt that the SCC estimates should include the value to society of the goods and services whose production is associated with CO2 emissions.” Their evasive response has to be quoted in full to be believed: "Rigorous evaluation of benefits and costs is a core tenet of the rulemaking process. The IWG agrees that these are important issues that may be relevant to assessing the impacts of policies that reduce CO2 emissions. However, these issues are not relevant to the SCC itself. The SCC is an estimate of the net economic damages resulting from CO2 emissions, and therefore is used to estimate the benefit of reducing those emissions."

In essence, the benefits from present or future CO2 emissions are not part of the story. Yet a truly neutral account of the problem must be prepared to come to the conclusion that increased levels of CO2 emissions could be, as the Carbon Dioxide Coalition has argued, a net benefit to society when a more comprehensive investigation is made. The entire process of expanding EPA regulations and other Obama administration actions feeds off this incorrect base assumption. The most striking admission of the folly of the entire EPA project comes from EPA Chief Gina McCarthy, who has stated that she would regard a decrease of one one-hundredth of a degree as enormously beneficial, notwithstanding its major cost, because its symbolism would “trigger global action.” No cost/benefit analysis would justify wasted expenditures solely on symbolic grounds. After all, human progress on global warming will only suffer if other nations follow our false siren on CO2 emissions, while ignoring the huge pollution that envelops major population centers like Delhi and Beijing.

Unfortunately, support for regulating CO2 emissions relies unduly on a Regulatory Impact Analysis that is worth no more than the faulty assumptions built into the model. These include the EPA’s hugely complicated Clean Power Plan, temporarily enjoined by the United States Supreme Court, that relies once again on the flawed social costs of carbon estimates.

The weakness of the EPA approach is shown by the data that Greenstone and Sunstein cite to support the contention that global warming has reached dangerous levels. They refer, for example, to a Geophysical Research Letter of 2014 that notes the retreat of ice in the West Antarctic between 1992 and 2011. But that one finding has to be set in context, as is done in the 2016 State of the Climate Report  prepared by the Committee for a Constructive Tomorrow (CFACT) and sent to the U.N. Climate Conference in Morocco. This more complete account notes that the mass gain in East Antarctica has been at 200 billion tons per year on average, compared to the 65 billion tons, which was offset by substantial gains in ice in West Antarctica, generating a net gain of roughly 82 billion tons per year in Antarctic ice between 2003 and 2008. The upshot: “The good news is that Antarctica is not currently contributing to sea level rise, but is taking 0.23 millimeters per year away.” Overall, the temperature over the Antarctic has been constant for the past 35 years.

No analysis that looks at the minuses can afford to ignore the larger pluses and maintain its credibility. Indeed, for what it is worth, the CFACT report notes that the ice mass in the Arctic is now about 22 percent greater than it was at its low point in 2012. This fact helps explain why there has been no recent change in the rise of sea levels, and certainly none that can be attributed to the relatively modest level of temperature increases in the past 100 years. Recent trends suggest the rate of increase in ocean levels has been decelerating over the last 18 years, during which time there has been a substantial increase in carbon dioxide levels. Yet the 102 different models used by the Intergovernmental Panel on Climate Change (IPCC) are all high in their estimates, by roughly four-fold. As documented in the 2016 CFACT report, there has been substantially no change in overall global temperature over the past 18 years, and the record highs reported are by tiny fractions of degrees that are smaller than the margin of measurement error. Yet the government’s methodology is to look at the models and ignore the data.

Just that was done by the now anachronistic 2009 EPA Endangerment Findings for Greenhouse Gases, which reported on the overall shrinkage of Arctic ice and claimed that the “elevated CO2 levels” were expected to result “in small beneficial effect[s] on crop yields.” The good news on this point seems to be that the increase in CO2 has led to about a 14 percent increase in green vegetation on earth over the past 30 years, as Matt Ridley reported in a 2016 lecture. It is the best of all possible CO2 worlds if the level of arable land increases with minor temperature changes and there are no appreciable changes in ocean levels. Put these numbers together and a revision of the SCC must be made, as it now appears that the net costs of carbon are negative. Further, the revised projections have only strengthened the lower estimates of global warming from elevated CO2 levels.

This basic conclusion is reinforced by other data, easily accessible, that addresses other concerns raised in the Greenstone and Sunstein article. For starters, there has been no recent increase in the level of storms and floods, or the damage that is said to result from them. To the contrary, the trend line has been unambiguously favorable, as the number of extreme events like floods and storms has declined steadily over the past 100 years. Indeed, the last major event in the United States was Hurricane Katrina in 2005, followed by eleven years of relative tranquility in the United States and around the world. This point is critical because one of the constant claims on global climate change is that the system-wide instability has increased these extreme events, even if overall temperature levels have remained constant.

The overall picture with respect to the SCC, then, is the exact opposite of that described by Greenstone and Sunstein, and that change in direction has a serious effect on the success of various legal challenges. Greenstone and Sunstein note that a legal decision in 2008 held that ignoring the SCC makes an administrative rule “arbitrary and capricious” and thus requires its reformulation by the applicable agency. They also reference another 2016 decision that upheld an administrative decision of the Department of Energy that explicitly took into account the SCC. But these judicial decisions have a surreal aura about them. The key statute for these cases was the Energy Policy and Conservation Act of 1975 (EPCA), which was passed in the aftermath of the 1973 Mideast Oil Embargo that followed in the wake of the 1973 Yom Kippur War. The EPCA’s chief finding was that “the fundamental reality is that this nation has entered a new era in which energy resources previously abundant will remain in short supply, retarding our economic growth and necessitating an alteration in our life’s habits and expectations.”

It was on the strength of this 41-year-old statute that the Court in 2008 required the National Highway Traffic Safety Administration to reissue its rules for the average fuel economy standards for light trucks because they failed to take into account the SCC. The ruling is wholly anachronistic today because the revolution in energy technology has obviated the entire factual premise on which the so-called CAFE (corporate average fuel economy) rules rest. Given fracking, energy is abundant. Thus, the SCC has to be reevaluated in light of evidence collected outside the EPA, and summarized above, none of which was taken into account when working within the closed universe of the current set of environmental and energy laws. At this time, it appears that virtually all the EPA rules rest on outdated science.

Greenstone and Sunstein are not alone in their refusal to deal with evidence that undermines their claims. But if the SCC looks to be negative, the Trump administration should act to eliminate the current endangerment finding for carbon dioxide, and dismantle the regulatory apparatus that rests upon its highly questionable estimation of the positive value of SCC. The sorry truth is that the EPA and the regulatory process in the Obama administration show no respect for the scientific method they claim to rely on.

*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 Environmental Permit Menace

Richard Epstein*

Richard Epstein

Richard Epstein

There is wide bipartisan support to take immediate steps at all levels of government to improve America’s aging and dilapidated infrastructure. The challenge of infrastructure design is to move people and goods rapidly and efficiently from one place to another, while minimizing adverse environmental impacts.

Private firms can, of course, do a great deal of the legwork in putting this infrastructure together. But private enterprise cannot do the job alone. Long and skinny infrastructure elements, like railroads, highways, and pipelines, typically require the use of the government power of eminent domain to assemble the needed parcels of land. In addition, much infrastructure has to be built across government-owned land. The cooperation of government is thus needed for the completion of these projects. And there is always the risk that any major construction project could cause serious physical damage to the larger environment.

There is a need, therefore, to balance environmental protection with efficient and cost-effective infrastructure development. But it is at this critical juncture that the environmental movement has run off the rails. The passage of the National Environmental Protection Act (NEPA) in 1969 signaled the dawn of a new era in environmental law—the age of non-stop permit-process. NEPA itself contains no substantive requirements intended to enhance overall environmental protection; but it does introduce an elaborate system of “permitting” that must be satisfied before any particular project can proceed.

Thus under NEPA, it becomes incumbent to prepare an environmental impact statement for all “proposals for legislation and other major Federal actions significantly affecting the quality of the human environment.” That statement must deal with the full range of potential “adverse environmental effects,” coupled with an evaluation of the alternatives to that action, in light of both their short- and long-term impact. From its inception, NEPA was given its most aggressive interpretation, chiefly on the ground that all the risks lay in allowing projects to go forward, especially nuclear power facilities, rather than slowing them down.

Laboring under this mindset, Professor Richard Lazarus of Harvard Law School, an ardent environmentalist, has lauded NEPA as the “Magna Carta” of environmental law in the United States, claiming that it has “successfully prevented at least hundreds, and likely thousands, of actions from causing unnecessary damage to the nation’s environment.” There is no dispute that NEPA has prevented the completion of thousands of public work projects. But there is also every reason to believe that it embodies a fundamentally misguided method for dealing with environmental risks.

As with all types of permitting schemes, decisions under NEPA are subject to two different types of error. The first is that it allows projects that never should have been completed to enter the marketplace. The second is that it blocks or slows the completion of the vital projects needed to maintain the operation, repair, and expansion of infrastructure. In the 47 years since its passage, NEPA has developed an incredibly complex protocol that requires government oversight agencies to undertake exhaustive preliminary environmental assessments (EAs) simply to determine whether a complete environmental impact statement (EIS) is required, or whether it is proper to issue a “Finding of No Significant Impact” (FONSI) so that the EIS need not be undertaken.

This complex scheme is costly to administer. Its looming presence always kills some projects, while delaying and compromising those that do make it through, without ever making any sensible estimation of which of the two kinds of error is more costly or likely. The argument against NEPA is not that environmental protection is not needed; it is that the older public policy approach, tied more closely to judicial rules dealing with environmental risks, offers a better path forward. Such an approach would take these key steps. First, it would define the narrow class of adverse consequences for which legal relief is supplied as of right. These cover only various forms of nuisance and pollution such as emissions of odors, fluids, and solids that pose threats to public rivers, air, and lands, or to the private property of other landowners. More importantly, the traditional approach refrains from ordering any kind of legal relief until the harms, narrowly defined, have either occurred or are likely to occur imminently. The approach also routinely allows actions against any person who caused damage to either public or private property.

This slimmed-down approach offers a far superior guide to official government action. By contrast, by requiring all sources of potential soft harm to the environment to be evaluated, the NEPA process stretches out interminably, so that ten years of review are needed before actual construction can begin. These soft harms are so ubiquitous that someone, somewhere, will always harbor some deep grievance no matter what particular route is selected. That increased delay rarely, if ever, leads to better decisions. In his recent op-ed in the Wall Street Journal calling for a more rapid permitting process for the Keystone XL and Dakota Access pipeline projects, Alaska Republican Senator Don Sullivan noted that the entire Alaska Canada highway was built in eight months over hostile terrain during the middle of the Second World War compared to the 10 to 20 years it often takes today for managing a major project from start to finish. He might have added that the Army Corps of Engineers completed its preliminary route assessment in about 48 hours, trusting its ability to make on the spot adjustments as the work proceeded.

An expedited approach is still possible today. One instructive example is the repair work done to the Santa Monica freeway after the Northridge earthquake collapsed two major bridges on January 17, 1994, snarling traffic throughout West Los Angeles. Then-governor Pete Wilson waived all environmental safeguards and made a deal with C.C. Myers & Co. for a base price in 1994 dollars of $14.9 million, with a bonus of $200,000 for each day the work came in ahead of the June 24, 1994 deadline. The project would have taken at least two years to complete if standard practices were in order. Under the contract, it came in 74 days early, cutting projected construction time in half. Myers earned its $14.8 million bonus by working its crews around-the-clock seven days a week. That extra incentive allowed Los Angeles to avoid losses estimated, on the low side in my view, at $1 million per day from traffic dislocation, additional tailpipe emissions, and the inconvenience caused to businesses and residents alike. Yet at no time did anyone point to any nuisance or similar harms that required ex post remediation. Then-mayor of Los Angeles Richard Riordan observed when the project was done: "This is the way government should be carried out all the time, not just in emergencies."

Unfortunately, his sage advice cannot be put routinely into effect under the inexcusably tedious NEPA process, which requires applicants to explore in excruciating detail hundreds of contingencies at dozens of locations, knowing full well that 99.9 percent or more are dead-ends. By taking the alternative approach of waiting until danger looms, the project manager is able to use simpler and more effective techniques for construction, knowing that if the improbable happens, corrective action is close at hand.

Lest anyone think this deferred process is a license for reckless behavior, the delayed form of intervention comes with four key caveats. First, the usual internal norms from the construction industry should still govern the preapproval stage for all projects. These can simply be incorporated by reference into a revised NEPA statute. Second, damage actions are allowed for any harm the project causes, under strict rules that do not allow the developer to escape liability by showing it exhibited a high level of care in doing its work. Third, injunctive relief is similarly strict, and the ban remains in effect until that developer has corrected the situation that called for the injunction in the first place—but no longer. Fourth, no government permit should ever block action by an aggrieved private party seeking tort damages or an injunction if it should be exposed to the risk of actual or threatened harm. A government permit should never be a shield against potential liability for pollution or nuisance.

Once these protocols are implemented, improving infrastructure becomes vastly cheaper. More concretely, the entire process of route selection is utterly irrelevant to any repairs on existing facilities. And a hugely expedited process could be used for any new project that is located cheek-by-jowl with an existing facility. That one simple step would shave years off current permit processes that require the exhaustive review for all projects. Only rarely will a full-scale EIS be needed. As Senator Sullivan noted, both the Keystone XL pipeline and the Dakota Access pipeline have been stalled endlessly by an out-of-control permit process, which ironically introduces unnecessary environmental harms by forcing parties to ship oil by truck and rail, both far more dangerous. Tragically, even if we ignore all other costs, more permits in this and many other situations imply more environmental risks.

One last line of response is that my narrow focus on nuisance and pollution ignores all the other vital human and aesthetic values, including those associated with landmark and habitat protection. The criticism is wholly misplaced. One key distinction ignored by ardent environmentalists is that between imposing losses and asking for benefits. It is one thing to stop without any compensation new construction whose runoff pollutes public waters. It is quite another to stop construction without compensation on lands the government wishes to convert into a wetland preserve or a national monument. In the latter cases, these takings are surely for a public use, which allows the government to implement the program so long as it compensates the owner in full. But it becomes ludicrous to say, as does the Supreme Court, that the use of air rights for construction can be blocked without compensation to preserve the views up Park Avenue, or that ranchers must forgo the use of their lands to provide habitat for endangered species, also at no cost to the public. This semantic double-talk puts enormous pressure on the entire permitting process, from which it should be immediately separated.

A slimmed-down process could easily cut the cost and time of infrastructure repair and improvements, at an educated guess, by 75 percent, while improving overall environmental amenities. President-elect Trump and Oklahoma Attorney General Scott Pruitt, his proposed EPA head, have a huge opportunity to do much constructive work in this sadly overregulated area come January 2017.

*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.

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.