Ebola Quarantines: False Imprisonment or Good Medicine?

*Thomas Warns

GOVERNORS CHRISTIE AND CUOMO ORDERED A BLANKET QUARANTINE LAST WEEK, THEN QUICKLY SOFTENED THEIR STANCE. 

GOVERNORS CHRISTIE AND CUOMO ORDERED A BLANKET QUARANTINE LAST WEEK, THEN QUICKLY SOFTENED THEIR STANCE. 

Though Ebola has been ravaging West Africa, just four people have been diagnosed with Ebola in the United States, two of which were exposed to the virus while overseas. Last week however, New York’s Bellevue Hospital accepted its first Ebola patient, Dr. Craig Spencer, a night after he went bowling with friends and rode the subway. Dr. Spencer had spent the last month treating Ebola patients in West Africa, and had been back in New York for almost a week. This development prompted the Governors of New York and New Jersey to jointly agree to begin quarantining healthcare workers returning from trips to Ebola-stricken countries like Guinea, Liberia, and Sierra Leone. Some hailed the move as a welcome move to protect Americans, while other criticized it as driven by fear rather than science.

This situation took an unexpected turn when the first person to be detained under this new policy, a nurse named Kacy Hickox, shared her experience with the media. Kacy Hickox complained that the conditions of her confinement were bad, that the employees who interacted with her were not forthcoming with information, and that she was being treated like a criminal rather than a hero. What followed was a wave of criticism for the mandatory quarantine policy; Kacy Hickox was allowed to fly home to Maine, and Governors Cuomo and Christie had to soften their quarantine policy. Now, they insist, they will merely ask people to quarantine at home if they are determined to be at risk, and will compensate them for lost wages.

The first question to ask from this whole episode is as follows: did New York and New Jersey have the authority to detain the nurse? The CDC claims that the federal government has authority to enact quarantines under the Commerce Clause of the Constitution, which is a dubious reading of that clause. Fortunately, that debate can be sidestepped, since the actions here were taken by state governments; at the state level, the government unquestionably can exercise its police power to isolate and quarantine individuals that are suspected of having communicable diseases.  Historical precedent for such actions is scarce, but the Spanish flu in 1918 prompted cities and states to quarantine patients while closing schools, and New York isolated tuberculosis patients that wouldn’t comply with treatment while it mulled a strict quarantine in the 1990s.

THE TINY VIRUS AT THE HEART OF AFRICA'S EPIDEMIC.

THE TINY VIRUS AT THE HEART OF AFRICA'S EPIDEMIC.

Even if quarantine is a valid exercise of police power by the state, was it properly exercised here? On the one hand, the situation looks doubtful. Despite having an elevated temperature from one reading, numerous other readings found Mrs. Hickox had no fever. She displayed no other symptoms of the disease. Mrs. Hickox was detained without much of a chance to contest her detention, and received essentially no notice that this might happen to her when she came back to the U.S. (the policy had been announced one day earlier). All of these restrictions to Mrs. Hickox’s liberty should be taken quite seriously.

On the other hand, the quarantine was not without any basis in reason. Mrs. Hickox had been in direct contact with Ebola patients in West Africa, just like the infected Dr. Spencer. Further, out of an abundance of caution, it was not unreasonable to weigh the one elevated temperature heavily, even if other readings before and after were normal. Mistakes when treating Ebola can be deadly. And while there was no hearing given to the nurse, the only rebuttal she could have mustered was that she did not have Ebola; that fact won’t be known for as long as 21 days, which is the maximum incubation period of the virus. When dealing with a public health crisis, the government can quarantine now and provide process later. This is the cautious approach most Americans want.

Perhaps the White House...does not want to panic people a week before a major election by admitting that it downplayed the health risks of Ebola?

The White House immediately criticized the ban as unnecessary and “not grounded in science.” That opinion is curious, however, considering the fact that the federal government is simultaneously keeping its own soldiers under quarantine when they return from West Africa. Clearly they realize quarantine has some value. Perhaps the White House is motivated by electoral politics, rather than science, and does not want to panic people a week before a major election by admitting that it downplayed the public health risks of Ebola?

It doesn’t help that the CDC guidelines appear to be changing as well. Though it has consistently said that Ebola is only transmitted through direct contact with the bodily fluid of a symptomatic Ebola patient, it states that individuals should not even be within three feet of someone that is suspected of having the disease because it could be spread by droplets in the air. This haziness calls to mind an earlier press conference, where the head of the CDC said that one couldn’t get Ebola from an infected person on the bus, but that infected people shouldn’t take the bus because they might infect others. Our healthcare system has so little experience with Ebola that we are learning things on the fly. The CDC for instance had to beef up the safety procedures for healthcare workers after two nurses contracted Ebola from Thomas Eric Duncan, America’s first Ebola patient.

Can a less restrictive home quarantine work just as well? Unfortunately, it will not. Dr. Spencer originally lied and claimed he was self-quarantining himself, before the NYPD examined his MetroCard usage and caught him in his lie. Contrary to popular belief, healthcare workers, even those going on humanitarian missions to Africa, are not saints; they’re still human beings that can lie and make mistakes when it is convenient for them. Paying quarantined individuals lost wages is a fair compromise, but a home quarantine for high risk individuals will not cut it. Some people do not have the self-control to play it safe if they think they’re not ill.

Indeed, some humanitarian workers lack the desire to quarantine themselves, not just the will.  Mrs. Hickox’s humanitarian mission to West Africa was certainly laudable, and she obviously has a tremendous amount of empathy for suffering people a continent away. That makes her decision to resist quarantine so curious – doesn’t she care about protecting people in America too? If her goal is to stop the spread of Ebola, why not treat her 21-day quarantine in America as an extension of her humanitarian mission in West Africa? Mrs. Hickox, however, whined about the quarantine, and after being released to a home quarantine in Maine, refuses even to stay home there. Her desire to resist a home quarantine is not singular.

HOW EFFECTIVE ARE AID WORKERS IN WEST AFRICA?

HOW EFFECTIVE ARE AID WORKERS IN WEST AFRICA?

What do the scientists and doctors think about a quarantine? While the doctors at the CDC say it isn’t necessary and is potentially harmful, plenty of other experts support Governors Christie and Cuomo. The 2011 Nobel Prize winner for Medicine and Physiology, whose work centered on the immune system, supports the quarantine. Dr. Jeffrey Drazen and other editors from the influential New England Journal of Medicine argued that though the quarantine had some efficacy, it was unnecessary because a fever would provide the proper notice for healthcare workers that they have become contagious and need to seek medical attention. Unfortunately, that has been scientifically proven to be inaccurate in 13% of cases. Other doctors have questioned whether the cost of discouraging some from going to West Africa was truly that great, since many of the workers have little experience or training under the terrible conditions they are thrust into, and are likely not as effective in fighting the disease as assumed.  

So let’s review: the government has the right to quarantine possible Ebola patients, the scientific evidence in favor of the quarantine is quite substantial, and alternative methods such as self-quarantines are simply not effective. It sounds like Governors Christie and Cuomo need to stand tall and fight for what is right, regardless of the political motivations compelling the White House to oppose one, and enforce the quarantine, just as California and Illinois are doing. We should all thank them for that. 

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

The Kidney Crisis

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

Recently, a distinguished list of academics signed an open letter to President Barack Obama, Health and Human Services Secretary Sylvia Matthews Burwell, Attorney General Eric Holder, and the leaders of Congress. The letter implored the administration to take prompt and effective steps to end the shortage of organs now available for transplants, especially kidneys. Its signatories announced: “We call for the swift initiation of evidence-based research on ways to offer benefits to organ donors in order to expand the availability of transplants.“

I chose not to sign that letter. It was not because I disagreed with its unhappy diagnosis that the chronic shortage of organs available for transplants, especially kidneys, is inexcusable; on that point, the letter was spot on. Rather, I refused to sign because I believe that the letter’s call to action was hopelessly slow in the face of an unending cascade of unnecessary deaths. If heeded, its call will be the latest in a long series of well-intentioned failed attempts to end the government scourge created by the current ban on kidney sales. This ban was implemented by the National Organ Transplantation Act (“NOTA”) of 1984, sponsored by Senator Orrin Hatch and then-Representative Al Gore. NOTA’s central provision makes it illegal to “acquire, receive, or otherwise transfer” an organ to another person for “valuable consideration,” which with minor exceptions blocks both cash and in-kind payments.

To solve the problem of organ shortages, we must begin by repealing NOTA and implementing a free market for organs. The area in which that voluntary market would work best is for kidneys, both live and cadaveric. Kidneys are the most desperately sought organ. Of the close to 125,000 people now waiting on the Organ Procurement and Transplantation Network, (OPTN) transplant list, more than 100,000 are waiting for kidneys, and the number is rising daily. Relative to transplants of pancreas, livers, hearts, lungs, and intestines, kidney transfers are the easiest to execute, with the greatest benefits to the recipients and the transferors alike.

The open letter reports that we are in a losing battle with kidney shortages. On the supply side, the number of live donations is now down to about 5,700 per year from 6,000 per year some five years ago. Most of those transfers come from family members, where the matches may be less than ideal, and the health of the donor less than perfect. Also on the supply side, the number of accidental deaths of young individuals is down, which cuts off, for the best of reasons, the most desirable source of cadaveric kidneys. On the demand side, better healthcare now allows individuals who suffer from diabetes and kidney disease to live long enough so that they will actually need dialysis or other treatment.

The ability to get organ donations from strangers is very small even though the net benefits are enormous. The mortality risk to the donor is in the order of 3 parts in 10,000. The extra life to the recipient of a live kidney is in the order of 15 to 20 years. (That figure is far greater than the gains from a cadaveric kidney, whose condition is likely to be degraded at the time of death, and to deteriorate thereafter in the interval needed to complete transplantation, if consent can be obtained in time from grieving relatives.) The gains to recipients of a live transaction, if monetized, could easily exceed one, even two, million dollars, at a total cost that is below $100,000 per donor, which includes personal discomfort, loss of work time, and family dislocations. But altruism does not work well when donors have to incur uncompensated losses of that size. Unfortunately, the huge potential for gains from trade is blocked by the firm NOTA prohibition against organ sales.

The open letter does not refer to those gains from trade. It in fact criticizes them. “To ensure equality,” it reads, “private transactions between individuals should remain prohibited.” The letter then seeks to accomplish the impossible by endorsing a centralized approach administered by the United Network for Organ Sharing (UNOS). This nonprofit organization was founded in 1984, when the risks of kidney transplants were greater and the waiting lists far shorter than the 4.3 years of today. This is up from 2.8 years only five years ago. If UNOS remains in charge, the waiting times will continue to grow.

On the positive side, the letter proposes a set of possible healthcare experiments that might involve the provision of in-kind compensation to potential donors that could cover life-long health and disability insurance and funereal benefits. These could, in principle, be supplemented by “a pension contribution, tax credit, or charitable contribution.” Unfortunately, the letter frets so much about the downsides of improvident kidney transfers that it accepts a set of procedural limitations that doom the experiment. New experimental programs, doubtless subject to extensive internal oversight, have to meet as-yet unspecified standards on informed consent, psychological tests, and of course long wait periods before the donation can take place.

The simplest objection to this program is that it is too little and too late to dent the shortage. Any government experiment will take years first to debate and then to perform. Thereafter further delays will be incurred in trying to make sense of fragmentary data. Any pilot programs will prove yet again that justice delayed is justice denied, especially for the thousands of individuals who die in the interim.

It’s important to realize that any short-term experimental approach cuts out some indispensable benefits that only open markets can supply. The basic logic of a market is that it allows people to match up with others in order to secure gains from trade, which, as noted above, are huge for potential live kidney transplants. But kidney markets are difficult to organize because real gaps in information plague both sides of the market. After all, kidney transplants take place only once for any live kidney donor, and rarely more than twice for any kidney recipient. In one sense, these markets are even more difficult to crack than real estate markets, which exhibit a similar pattern of low-frequency and high-value transactions.

To navigate these markets, it is therefore critically necessary for third party intermediates to add their reputational bond and transactional skills to assure, as brokers, both buyers and sellers (no more donors, as it were) that the transaction will go as scheduled. And, no, there is no need for the government to supply these intermediates. The market forces that generate brokers for real estate could work here, where customers on both sides of the market enjoy full legal protections against bad performance, misrepresentation, and mistake.

Even if the signatories of the letter had urged government officials to allow for ordinary market transactions to take place for a year, the experiment would thunderously fail. The temporal limitation on the market would make it uneconomic for any third person to invest the lump-sum capital needed to set up the brokerage operation in the first place. The failures that would ensue would be interpreted as convincing evidence that markets necessarily fail, when the better explanation is that they offer proof-positive that poor experimental designs cannot replicate actual market conditions.

So why not take the plunge? One standard objection is that individuals could be “coerced” into selling their organs. But this argument is exactly backwards. To find coercion, look no further than the family situation where one member is an organ match for a sibling or a child, but has serious qualms about taking the risk in question. Now money or in-kind benefits cannot be offered to offset that risk. So the full array of nonstop family pressures can be imposed in order to get the reluctant relative to change his or her mind. But in an open market, the potential of thousands of unrelated donors makes it both impossible and unnecessary to bring subtle pressures to bear on these strangers. Coercion is not an inherent consequence of voluntary exchanges. Rather, it is a far greater risk when only uncompensated transfers can be allowed.

A second objection is that the voluntary market will discriminate against the poor who do not have the means to pay. To this point, two responses are in order. First, right now rich people can influence the UNOS allocation process to work their way up the queue. Richer people have more contacts and more resources to spend on getting themselves on, if necessary, multiple queues. Worse still, there are all sorts of opportunities to divert cadaveric organs to favored recipients, as major transplant centers can keep harvested organs for their own patients by claiming that their condition renders them unfit to be transferred elsewhere. No system that allocates huge benefits for zero or below market price will be immune from influence, whether we are talking about rent-controlled units in Manhattan or unassigned kidney organs, whose donor, often young and poor, receives not one cent from the successful transfer.

Second, money does not have to be an obstacle to getting a kidney transplant. If we redirect some subsidy funds away from dialysis treatments, people who cannot afford to pay for an organ could still have the opportunity to receive a transplant. As the open letter notes, right now 7 percent of the Medicare budget goes to dialysis and organ transplantations. Figures for 2010reported $32.9 billion going to End State Renal Disease, and the number is surely higher today. That money is misspent. As the letter notes “each transplant saves the health care system more than $100,000 compared to dialysis.” That money should be given to the recipients, and they should be able to keep the change when they buy an organ. The numbers cancel out even on the wholly unrealistic assumption that a kidney transplant, like dialysis, lasts only for one year. But write the total cost of the kidney off over several years, and the government can easily double the $100,000 figure, save money, and induce a ready supply of donors, who will accept lower prices as transplant techniques develop and the matching system improves.

Open markets could solve the organ shortage problem. On the donor side, it will induce high-quality sellers, because no one wants to buy a hepatic or diseased kidney. On the recipient side, the cash supplements could go a long way to increase organ access to indigent and minority patients, who are currently ill-served by the system. The big losers in this program will be the purveyors of dialysis services. But, the winner will be the large number of stricken people who, liberated from these machines, can live better and richer lives. 

*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.

Freedom Friday: Best Links of the Week

Chilling Free Speech

Judge Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

Earlier this week, the federal government’s National Science Foundation, an entity created to encourage the study of science -- encouragement that it achieves by awarding grants to scholars and universities -- announced that it had awarded a grant to study what people say about themselves and others in social media. The NSF dubbed the project Truthy, a reference to comedian Stephen Colbert’s invention and hilarious use of the word “truthiness.”

The reference to Colbert is cute, and he is a very funny guy, but when the feds get into the business of monitoring speech, it is surely no joke; it is a nightmare. It is part of the Obama administration’s persistent efforts to monitor communication and scrutinize the expressions of opinions it hates and fears.

We already know the National Security Agency has the digital versions of all telephone conversations and emails sent to, from or within the U.S. since 2005. Edward Snowden's revelations of all this are credible and substantiated, and the government’s denials are weak and unavailing -- so weak and unavailing that many NSA agents disbelieve them.

But the government’s unbridled passion to monitor us has become insatiable. Just two months ago, the Federal Communications Commission, which licenses broadcasters, threatened to place federal agents in cable television newsrooms so they can see how stories are generated and produced. The FCC doesn’t even regulate cable, yet it threatened to enhance its own authority by monitoring cable companies from the inside.

What’s going on here?

What’s going on here, and has been going on since President Obama took office in January 2009, is a government with little or no fidelity to basic constitutional norms. There is no defense under the Constitution to any aspect of the government's -- federal, state, regional, local or hybrid; or any entity owned or controlled by any government; or any entity that exercises the government’s coercive powers or spends or receives its money -- monitoring the expressive behavior of anyone in the U.S., not in a newsroom, on social media or anywhere else.

The NSF’s stated purpose of the Truthy squad is to look for errors in speech, particularly errors that fuel hatred or political extremes. This monitoring -- this so-called search for error -- is totalitarian and directly contradicts well-grounded Supreme Court jurisprudence, for several reasons.

First, for the government to gather information -- public or private -- on any person, the Constitution requires that the government have “articulable suspicion” about that person. Articulable suspicion is a mature and objective reason to believe that the person has engaged in criminal behavior. Without that level of articulable belief, the government is powerless to scrutinize anyone for any reason.

The articulable suspicion threshold is vital to assure that people in America have the presumption of liberty and are free to choose their behavior unimpeded or threatened by the government. The feds cannot cast a net into the marketplace of ideas and challenge what it brings in. Were they able to do so, the constitutional protections for free expression and the primacy of liberty would be meaningless.

Second, the courts have repeatedly held that the First Amendment needs breathing room, and they also have held that government monitoring of speech curtails that breathing room. Stated differently, a person under observation changes behavior on account of the observation. Thus, by the very act of monitoring our words, the feds will have the effect of curtailing them.

The virtual or physical presence of the monitors would give people pause, cause them to reconsider offering opinions, induce them to refrain from expressing their true thoughts and even drive their speech underground. This is called “chilling,” and it has been condemned by numerous Supreme Court decisions.

The principal purpose of the First Amendment is to keep the government out of the marketplace of ideas, and any governmental behavior that influences the exercise of the freedom of speech -- no matter how gently, indirectly, innocently or secretly -- violates that principle and provides the basis to sue the government to have its Stasi-like monitoring of speech enjoined. Another prime purpose of the First Amendment is to encourage open, wide, unfettered and robust debate about the policies and the personnel of the government. Who can engage in that with Big Brother watching and keeping score?

All presidents push the envelope when it comes to exercising their constitutional powers. But we never before have seen in modern times a president like the present one. From his halcyon days as a senator fighting for civil liberties, he has descended into a totalitarian darkness. How can he ask soldiers to defend a Constitution with their lives that he disregards with his deeds?

The government is worried about speech. Big deal. Speech is none of the government’s business. History teaches that the remedy for tasteless speech is not government repression -- it is more speech. In a free society, when the marketplace of ideas is open and unfettered, the truth is obvious. But in a repressive society, the truth becomes a casualty. Which society did the Framers give us?

*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. 

The War Against Airbnb

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

This past week, with much pomp and circumstance, New York State Attorney General Eric Schneiderman filed a massive report indicting the major upstart Airbnb for its dubious short-term leasing practices in New York City. Schneider thinks that his report is sufficient to nail Airbnb to the mast for its pervasive illegal conduct. But on a closer inspection the report looks more like an indictment of the City’s obsolete laws for dealing with new disruptive technology. Why complain about a business that matches many an out-of-town traveler with willing hosts, for a fee that leaves both sides happy, even after Airbnb takes its cut? 

New York State is going after the enormously popular company now that its rental transactions have soared in recent years. Starting from virtually nothing in 2010, revenues have roughly doubled from year to year so that the business today generates about $282 million in total revenue and about $61 million in revenue to Airbnb. About 6 percent of the participating unit owners generate about 37 percent of the profits from the nearly 500,000 reservations to date. The price per unit is about the same for large and smaller renters, so that there is no sign of antitrust difficulties in a market marked by easy entry and exit. Not surprisingly, the most lucrative rentals are on Manhattan’s west side, and in those parts of Brooklyn close to Manhattan. According to Schneiderman’s report, about 72 percent of these rentals are said to be in violation of New York City’s Multiple Dwelling Law, which imposes minimum rental periods of 30 days. Units turn over far more rapidly under Airbnb. Now that Airbnb has come of age, it is critical to separate the wheat from chaff in the Schneiderman report. 

On the positive side, report notes that all persons who stay in short-term hotel arrangements have to pay a city occupancy tax of 0.05875 percent on their units. It then complains that the Airbnb units have successfully evaded that tax. The soundness of the occupancy tax can be debated. But in general where there are substitute forms of short-term accommodations, both should be subject to the same tax regime, so that Airbnb units don’t gain an unfair advantage over the traditional hotels that are its direct competitors. The point looks, however, to be far from insolvable, for Airbnb surely has the capability to add the tax to the transaction fee and to remit the receipts to the City in New York. Nothing more need be done on this score.

The rest of the charges against Airbnb look a lot weaker. First, the report reproduces an affidavit from Thomas Jensen, its Chief of Fire Prevention, in its case against City Oases, LLC and others. That affidavit claims that all units are firetraps because of the high level of concentration of transient tenants living in close quarters with each other, who could run around in deadly confusion in the event of the fire. As an abstract matter, the claim is surely plausible, but it is not persuasive in this context. 

Notwithstanding the explosive growth of Airbnb rental units, the affidavit does not offer a single instance of a fire that arose from an Airbnb unit. Instead it references the 1980 fire at the Las Vegas MGM to impress upon its readers the importance of fire safety. It never mentions the many college students and young professionals in New York City who pay astronomical rents to live in cramped quarters. But even if the risk of fire were an immediate concern, shutting down the units is the classic case of legal overkill if lesser measures are still available, including better fire inspections throughout the City.

A similar response is in order to the four affidavits appended to the report that complain of chronic noise and disruption from four Airbnb units. There is no indication of the total number of complaints filed, nor any mention of the renters and owners who report positive experiences. Cherry-picking four units out of hundreds of thousands is unacceptable for any serious systematic study of the impact of Airbnb on New York City. Sadly, the report also misses the two best ways in which to address the nuisance problem. First, there are many laws already on the books that prohibit this kind of disruptive and asocial behavior in any dwelling, whether or not it is let out through Airbnb. Long-term tenants should also be sanctioned for the same forms of abusive behavior. Better enforcement of a neutral law should supply a strong response to the nuisance problem, without targeting Airbnb rentals.

The report also completely overlooks the role of private landlords in policing unwise Airbnb arrangements. In New York City, the notion of freedom of contract is dismissed as quaint and irrelevant to the stormy world of landlord-tenant relations. But in this instance, it could help prune any potential excesses from the Airbnb problem. The simple solution lets the landlord set by lease the terms for Airbnb rentals in units under its control. That landlord might choose to prohibit Airbnb subleases entirely in order to avoid the potential noise and safety disruptions in the building. But, if so, it will pay the price if the rentals go down because present and future tenants are deprived of an additional income stream to pay the rent. To finesse that difficulty, the landlord could opt for an intermediate position that allows these rentals under certain rules that require, say, minimum occupancy periods of a week. Or it could prohibit Airbnb transactions entirely. Whichever way the landlord goes, it internalizes the costs of its decision.

The point here is that New York’s Attorney General does not have to get into making business judgments about matters about which he knows nothing. Different landlords have different layouts and different tenant bases, so it is unlikely that one size will fit all in the Airbnb market. A large chunk of the Airbnb flap can be easily converted from a public law problem to a contract problem if Mr. Schneider will call off his attack. Once the landlord sets its lease terms, it should be able to request that Airbnb not list units in its structures for rental in violation of those terms—and hold them responsible for inducement of breach of contract if they try to deal with tenants in the teeth of this known prohibition. Perhaps the supply of Airbnb units will be reduced. But given that market forces drive that selection, the change is all to the good. And those units that remain for short-term rent should be able to raise their rates, adjusting for scarcity in sensible market behavior.

Not only does the report miss this market approach, but it also conjures up dubious externalities by insisting that the renters in these short-term units are raising the costs for long-term renters in the City even as they enrich the new class of Airbnb landlords. But the report’s flimsy indictment leaves out two major sources of gain from the Airbnb market. 

First, it ignores the gains from luring people to the New York economy both for tourism and business. The City surely courts those business travelers and tourists who stay in traditional hotels for their positive benefits, which go far beyond the occupancy tax to include all the business revenue they generate in the City. Why think that Airbnb residents are a net drain on the local economy when their presence is not associated with criminal activity or any other form of antisocial conduct? Why throw these financial benefits away to benefit traditional hotels perhaps, but no one else?

Second, the report ignores the substantial gains to Airbnb renters who get better deals than they could find at conventional hotels. Indeed, the net revenues from short-term leases count as a good thing, because it taps space that would otherwise remain an idle form of “dead capital,” as Arthur Brooks of the American Enterprise Institute reminds us. Of course, there is a serious housing shortage in New York City, but the whole point of markets is to make the best allocations of scarce resources under rapidly changing conditions. 

The way to tackle the shortage issue is not to mandate preferences for long-term tenants, but to loosen up on the conditions of supply by a massive relaxation of the entry barriers to residential housing markets in New York City, not only in the high rent areas of Manhattan and Brooklyn but throughout the entire City. Streamlining the currently interminable multi-step permit process for new construction would be a real start. Making sensible reforms in the now byzantine affordable housing regulations would also be most welcome. Yet the Attorney General’s report does not say one word about any kind of structural reform. Instead it buys into the fashionable but mistaken view that managing the current mix of housing units in the City is the way to promote equity. But that method comes in a distant second best to a conscious policy that seeks to expand the number of units, which in turn should lower rents and increase opportunities for long- and short-term tenants alike.

Finally, Schneiderman’s killer argument, on which the City’s legal actions rest, is that about 72 percent of the rentals on Airbnb are in violation of New York City’s MDL. Let us suppose that the point is true. The question remains what should be done about it. And the answer is clear—repeal or modify the MDL so as to allow for the greater flexibility of market forces to bring supply and demand into equilibrium across all segments of the market. 

In dealing with the housing laws generally, it is unwise to impose total prohibitions where narrower ones will do. The simple fact that the Airbnb market has continued to thrive notwithstanding the pressure that Schneiderman and Mayor Bill de Blasio have brought to bear is strong evidence of its enduring value for the residents and visitors who use them, most of whom are not charter members of the infamous top 1 percent. New York City should back off from Attorney General’s report, whose regulatory overkill threatens to suck the economic lifeblood out of the City.

*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.

Freedom Friday: Best Links of the Week

The Government and Freedom

Judge Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

Earlier this week, FBI Director James Comey gave an interview to “60 Minutes” during which he revealed a flawed understanding of personal freedom. He rightly distinguished what FBI agents do in their investigations of federal crimes from what the NSA does in its intelligence gathering, when the two federal agencies are looking for non-public data.

The FBI requires, Comey correctly asserted, articulable suspicion to commence an investigation and probable cause to obtain a search warrant. It does this because its agents have sworn an oath to uphold the Constitution, and their failure to comply with that oath may very well render the evidence obtained by unconstitutional means useless in court.

The NSA, as we know, makes no pretense about presenting probable cause to a judge. Rather, it asks a judge on a secret court (so secret that the judges themselves are kept from the court’s files) for general warrants. A warrant based on probable cause must specifically describe the place to be searched and the person or thing to be seized. General warrants, which the Constitution prohibits, permit the bearer to search wherever he wishes and seize whatever he finds.

British government agents and soldiers used general warrants issued by a secret court in London to invade the privacy of the colonists. The British also used another tool now prohibited by the Constitution -- called writs of assistance -- which permitted certain agents and soldiers to write their own search warrants and serve them upon the colonists. This was done, it was argued, because London was too far from America and the British claimed an urgent need to search colonial homes to determine whether the owners had paid the king’s taxes. The British use of general warrants and agent-written warrants became arguably the last straws that tipped colonial minds toward revolution.

Comey knows that if his agents get caught violating the Constitution, their searches will be fruitless. Yet, he conveniently failed to reveal in his interview that under the Patriot Act, his agents can and do write their own search warrants -- just as British agents and soldiers did. The Patriot Act calls these warrants by the euphemism "national security letters."

A national security letter is a search warrant in which one federal agent authorizes another federal agent to search for and retrieve data held by third parties. The list of third parties that can be subjected to an agent-written search warrant includes virtually all entities required by law to keep records, such as telephone providers, banks, lawyers, physicians, hospitals, supermarkets, utility companies, credit card companies and computer service providers; the list is nearly endless. Five federal judges have held this section of the Patriot Act to be a violation of the Fourth Amendment (which provides that only judges may issue search warrants) and thus unconstitutional.

The Patriot Act also prohibits the recipient of an agent-written search warrant from telling anyone about it -- that includes a lawyer in confidence, a priest in confession, a spouse in the home, even a judge in open court. It is this section of the Patriot Act that is being challenged by Twitter and Google in the Ninth Circuit Court of Appeals in California.

Twitter and Google have apparently received many of these unconstitutional agent-written warrants, and they want their customers to know what the government is doing. Two federal judges already have found this section of the Patriot Act to be violative of the First Amendment (“Congress shall make no law … abridging the freedom of speech.”) and thus unconstitutional.

The Patriot Act is the most unconstitutional legislation since the Alien and Sedition Acts of 1798, which proscribed speech critical of the government; yet the FBI loves it. Its premise is that in dangerous times, if we surrender our freedoms to the government, the government will keep us safe until the danger passes. This is a flawed argument.

The Declaration of Independence recognizes the continuous possession of personal freedoms (“endowed by their Creator with certain inalienable rights”), and thus they cannot be stolen by a majority vote in Congress, but only surrendered by a personal, intentional, knowing choice. And history teaches that government does not return freedoms once stolen or surrendered. Without freedom, who will protect us from the government?

The government can’t deliver the mail, pave potholes, balance the budget, fairly collect taxes, protect us from Ebola, even tell the truth. Who would trust it with personal freedoms?

Since 2001, Comey’s agents have written more than half a million of their own search warrants, and their targets don’t even know what was done to them. He will argue that if the evidence from these agent-written warrants is not used in court, there is no harm to the unknowing victim, and hence no foul. Yet the Constitution was written to keep the government from interfering with our natural rights even when it does so in secret, because no government violation of inalienable rights is harmless.

*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. 

The City of Houston’s Attack on Freedom of Speech and Religion

Nolan Oldham*

This week the city of Houston and its Mayor, Annise Parker, stepped up their assault on the rights and freedoms of the citys inhabitants. In a heavy-handed move aimed at silencing dissent from its new equal-rights ordinance, the city subpoenaed sermons given by pastors who opposed the law on religious grounds. The city suspects that these pastors have made inflammatory remarks regarding both LGBT issues and the citys openly lesbian mayor, and it is likely going to scour the sermons to find ways to publicly shame the pastors who made them.

The controversial equal-rights ordinance includes provisions that would allow people to use bathrooms that align with their gender preference. Transgender people will be able to file a discrimination complaint against any business owner who denies them access to the bathroom of their choice. The law has been a cause for concern for pastors from Southern Baptist, non-denominational, and other churches that fear their First Amendment right to speak freely about homosexuality would be threatened. Little did they know that the city would launch a direct attack on their free speech - and their right to religious freedom - by issuing subpoenas for any sermons that mention the ordinance, homosexuality, gender identity or Mayor Annise Parker.

HOUSTON MAYOR ANNISE PARKER.

HOUSTON MAYOR ANNISE PARKER.

The equal-rights ordinance, which is unpopular among many Houstonians, garnered opposition in the form of a petition signed by over 50,000 city residents in August - well over the 17,269 signature threshold needed to get a referendum on the ballot. The city, true to form, ignored the petition claiming that it contained “irregularities.” Opponents of the ordinance filed a lawsuit against the city. The city retaliated by issuing the subpoenas against the pastors, even though none of the pastors who received subpoenas are involved in the lawsuit.

The city’s subpoenas of the sermons - in addition to being unwise, disrespectful to religion, and abusive - are also unconstitutional because they are overly broad and violate the pastor’s First Amendment rights. A pastor’s proclamations from the pulpit are protected speech, and only subject to limited scrutiny if the church claims a tax exemption. To maintain federal tax exempt status as a 501(c) charity, the church must not substantially engage in “carrying on propaganda, or otherwise attempting, to influence legislation… [or participating in] any political campaign on behalf of (or in opposition to) any candidate for public office.” (set forth in 26 U.S.C. § 501). These subpoenas, however, are not being issued by the IRS or the State of Texas, the two levels of government that actually provide tax exemptions to the churches. Instead, the city of Houston, which has no authority and no legitimate grounds to request the sermons, is demanding the documents.

WILL THE HOUSTON CITY COUNCIL CONTINUE TO BULLY RELIGIOUS GROUPS?

WILL THE HOUSTON CITY COUNCIL CONTINUE TO BULLY RELIGIOUS GROUPS?

Also, the subpoenas do not request only information on political activities; they order the pastors to reveal any sermons that refer to homosexuality or gender identity. This strikes directly at the First Amendment’s protections of free speech and separation of church and state. There is no reason why information regarding the church’s stance on homosexuality would be useful to the city at a trial regarding the ballot referendum. The city is attempting to throw its weight around in order to intimidate pastors whose views do not align with the political establishment. Mayor Parker, the city council, and the LGBT community should respect the rights of Houston churches to preach the doctrine they believe is correct and to engage in the free exercise of their faith.

*Nolan Oldham is a J.D. Candidate in the class of 2016 at New York University School of Law, and a Staff Editor for the N.Y.U. Journal of Law & Liberty. Nolan is from Houston, TX.

We Need a Real Flat Tax

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

I was heartened recently to see Edward Kleinbard’s op-ed in the New York Times, with its alluring title, “Don’t Soak the Rich.” But as I read the piece by Kleinbard, a law school professor at the University of Southern California, it became clear that his proposed solution was a classic bait-and-switch operation. Kleinbard’s so-called flat tax soaks the rich by a different route. He proposes a tax hike on everyone evenly and then suggests that the government spend most of the extra revenues on the poor, either by direct grants or public expenditures from which they derive the lion’s share of the benefit.

The flat tax deserves a better send-off. Historically, the tax was championed by such notables as Aristotle, Locke, and Hayek as a device to reduce the government’s role in the lives of its citizens. Even a limited government must do many things—provide national defense, preserve internal order, and supply the infrastructure on which a well-organized private sector markets run. Accomplishing these daunting tasks requires public revenues. The challenge for the defender of limited government is to find that set of taxes that minimizes the distortions of a market economy while generating revenue to accomplish government’s necessary and proper goals.

In general, a two-pronged approach offers the greatest hope. First, whenever possible, the government should impose user fees to defray the costs of public services. These include, for example, highway tolls, which ideally should cover the costs of running the system, by apportioning expenses so that those who place the greatest burden on the roads pay the greatest amount. But user taxes are not feasible for standard public goods, i.e. those indivisible benefits that must be supplied to everyone if they are supplied to anyone.

The flat tax proportionate to either income or consumption offers the most attractive option, because it allows the government to set the overall levels of revenue as high or as low as seems necessary, without inviting various factions to game the system for partisan advantage. The flat tax also tends to reduce the overall tax burden, because people are on average more reluctant to raise taxes on others if they have to raise them on themselves. This added stability of the tax system produces major administrative savings by eliminating the need to police fancy income-splitting devices, such as family partnerships and trusts, that work to reduce taxes by depositing income earned by the rich into the bank accounts of their low-income relatives. The long-term stability of flat taxes thus makes it easier for private investors to make rational long-term decisions.

It should be noted, however, that the flat tax is no panacea, for it places, as Kleinbard rightly notes, no limits on the expenditure side of the ledger. When tax levels are confined to the provision of the standard, or nonexclusive, public goods that pass muster under a classical liberal theory, the prospects for redistribution are sufficiently constrained that factional politics are accordingly reduced. But once the level of transfer payments to specific individuals or groups increases, the politics of redistribution (in which rich and poor can participate) are redirected to new targets, with the similar overall negative welfare effects, not only on the rich but on the median earner as well.

It is on the squishy expenditure side that Kleinbard finds the opening wedge to convert the flat tax into a tool to combat what he perceives as the “growing income disparity” between the very rich and everyone else. In his view, we have exhausted the gains from higher marginal tax rates, now that the United States has the world’s most progressive taxation system, even after taking into account regressive taxes on sales and property in widespread use at the state and local level.

His overall scheme, however, rests on the weakest of theoretical foundations. As an initial point, there is in the United States no growing trend of income inequality, whether we include or ignore various transfer payments. The generally accepted Gini coefficient, which offers a sensible measure of income inequality, has scarcely increased in the last 30 years. What matters more, and what that coefficient does not incorporate, is the overall rate of growth. As I argued in my critique of Thomas Piketty, the preoccupation with the Gini index blinds us to the simple proposition that many Pareto improvements—those that make someone better off without making anyone worse off—will increase both social welfare and income inequality simultaneously. The exuberant effort to increase efforts to redress inequality is one cause among many of the anemic growth levels in the United States.

Further increases to the overall taxation burden will have profound negative effects on growth, for increasing the amount of money in government hands can only diminish the returns to productive labor. A system of higher taxation for all and increased rebates for some will, as Kleinbard notes, increase, in disguise, the overall level of net progressivity system wide. But the effort to conceal the net transfers behind a flat tax will not fool anyone for long. And if the current system is too progressive, so too is Kleinbard’s improbable alternative.

Ideally, taxes provide goods that cannot be generated by market forces to all people. A well-constructed flat tax returns to all people benefits in excess of their individual contributions, thereby increasing the incentive to work. But it is wrong to say that a flat tax is unresponsive to all questions of redistribution. As Kleinbard well understands, any flat tax calibrated to earnings from labor and capital will necessarily redistribute income to the less well off, because an individual’s share from standard public services, such as access to public highways, does not increase proportionate to his income. Head taxes, regardless of income, are disasters because of the corrosive effect at the bottom of the income distribution. Indeed, it is also risky to introduce any regressive income tax, which could overtax the poor, and invite yet another fruitless struggle over finding its ideal rate.

Unfortunately, the sound political economy of a flat tax gets thrown off track as higher tax rates fuel greater levels of redistribution. One dangerous feature of Kleinbard’s system is that it introduces a sharp political disconnect between the collection and distribution of income. Once money makes it into public coffers, no one person is wise enough and powerful enough to steer it into the hands of the most needy recipients.

Kleinbard’s fine-tuning won’t work. And so an overtaxed nation is caught on the horns of a powerful dilemma. If the redistribution works as well or better than intended, we are left with a higher administrative and political cost than from today’s overly progressive fiscal system. Yet if that redistribution agenda fails, the poor suffer disproportionately because a large fraction of them won’t get their promised benefits. In designing any tax system, it is necessary to worry, not just about inequality, but also about our flawed political process, and the overall growth effects of any tax regime. Kleinbard ignores these last two.

In dealing with these twin issues, it is instructive to compare our current federal taxation regime, which operates free of all constitutional constraints, with our current system of interstate taxation, which is heavily subject to them. Federalism produces a mixed bag of incentives. Its exit options for business and labor tend to cut down on excessive taxation at the state level. At the same time, a state’s ability to tax goods and services from out-of-state could operate as a tax wall against interstate competition.

Fortunately, an alert Supreme Court applies a far higher standard of constitutional scrutiny to interstate taxation than it does federal income taxation. On interstate taxation, the fundamental constitutional rule tracks the flat tax. No state may impose taxes on foreign goods and services than are higher than the taxes that it imposes on its own internal goods and services. The upshot is a strong commitment to interstate competition, which drives down overall rates of taxation, while increasing the cross-border flow of goods and services.

Needless to say, factional politics within states works overtime to circumvent the basic rule. One notable example is in 1994 Supreme Court case of West Lynn Creamery v. Healy, in which Massachusetts adopted a two-part plan. First, it imposed “an assessment on all fluid milk sold by dealers to Massachusetts retailers.” Second, it rebated that entire assessment, most of which was levied on out-of-state dairy farmers, only to in-state producers.

The Massachusetts scheme is a federalism variation of the Kleinbard proposal. Fortunately, the Supreme Court saw through the transparent scheme and struck down this two-step evasion under the so-called “dormant” commerce clause. Doctrinally, the Supreme Court has long inferred that the power of Congress to regulate commerce among the states implies that, in the absence of any such regulation, the dormant commerce clause, as West Lynn Creamery observes, “prohibits economic protectionism—that is regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.” That commitment applied in West Lynn even for goods sold pursuant to federal marketing orders under the Agricultural Adjustment Acts, which are notorious for fixing rates at cartel levels.

There is a sobering contrast between the public choice nightmare with federal taxes and the disciplined tax regime required under the dormant commerce clause. The second regime works vastly better than the first. Sadly, Kleinbard’s proposal tries to adopt Massachusetts’s West Lynn two-part tax program on a national scale. One countermeasure to that impending debacle is to insist constitutionally on the flat federal income tax. It won’t solve all problems on the spending side, but it will be a good start to cleaning up our financial house.

*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.