The Real Lesson of the IRS Scandal

Richard Epstein

The news of the past week has rightly been dominated by allegations of abuse in the Exempt Office (EO) of the Internal Revenue Service. The EO is in charge of processing applications for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code, which authorizes these exemptions for “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” Some 3,357 applications for tax-exempt status were filed in 2012, an election year, which was a 50 percent increase from the 2,265 applications filed in w 2011.

The criteria for Section 501(c)(4) organizations are open-ended. Few complex organizations are ever operated “exclusively” for any single purpose, and the many applicants have rather different definitions of what counts as “social welfare.” The deadly combination of loose standards and applications in the thousands empowers the EO to decide which applications sail through, and which are mired in delay.

The May 14 report of the Treasury Inspector General for Tax Administration’s (IG) explicitly stated that the EO’s actions were “not politically biased,” but were attributable solely to the confusions of lower staff members, who somehow for nearly three years never quite understood their jobs assignments. Don’t believe a word of that whitewash. All the nitpicking questions and pointless delays, such as those experienced by the Ohio Tea Party, were calibrated to hold off the approval of these applications until after the November 2012 presidential election.

The Larger Lesson

The dismal performance of the IRS is but a symptom of a much larger disease which has taken root in the charters of many of the major administrative agencies in the United States today: the permit power. Private individuals are not allowed to engage in certain activities or to claim certain benefits without the approval of some major government agency. The standards for approval are nebulous at best, which makes it hard for any outside reviewer to overturn the agency’s decision on a particular application.

That power also gives the agency discretion to drag out its review, since few individuals or groups are foolhardy enough to jump the gun and set up shop without obtaining the necessary approvals first. It takes literally a few minutes for a skilled government administrator to demand information that costs millions of dollars to collect and that can tie up a project for years. That delay becomes even longer for projects that need approval from multiple agencies at the federal or state level, or both.

The beauty of all of this (for the government) is that there is no effective legal remedy. Any lawsuit that protests the improper government delay only delays the matter more. Worse still, it also invites that agency (and other agencies with which it has good relations) to slow down the clock on any other applications that the same party brings to the table. Faced with this unappetizing scenario, most sophisticated applicants prefer quiet diplomacy to frontal assault, especially if their solid connections or campaign contributions might expedite the application process. Every eager applicant may also be stymied by astute competitors intent on slowing the approval process down, in order to protect their own financial profits. So more quiet diplomacy leads to further social waste.

One reason the administrative process gets so bogged down is the grandiose standards the agencies employ. The FDA’s mission statement provides one example: “The FDA is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation.”

What is left unstated is how the FDA determines “the safety, efficacy, and security” of the huge list of products whose use it oversees. Clearly, absolute “safety, efficacy, and security” are unattainable, so it falls to the FDA to turn differences in kind into differences of degree. For example, just how safe is safe enough when all “safe” drugs have deadly side effects for which some FDA warnings are appropriate? The ambiguity in these key areas lets the FDA ask companies for additional trials in a two-page letter, often needlessly tacking on years to any particular application.

Similarly, “The mission of the California Environmental Protection Agency (Cal/EPA) is to restore, protect, and enhance the environment, to ensure public health, environmental quality, and economic vitality.” Once again, such a grand vision does not answer any of the hard decisions that an agency faces when the scarcity of social resources precludes perfect restoration, complete protection, and vigorous enhancement of the environment. But the mission statement does permit the agency to slow down growth, often for years, and never with compensation for the aggrieved owner.

The Federal Communications Commission is no better. It issues and reviews broadcast licenses by asking whether an application promotes the “public interest, convenience, and necessity.” This formless standard often allows the FCC to do largely what it wants. The short duration of these licenses inspire all sorts of objections at renewal time. And the want of outright ownership allows the FCC to impose a host of technical conditions that can impair the overall efficiency of spectrum use.

One Disease, Many Cures

These three mission statements share a common feature with the tax-exemptions in the IRS: They use broad mandates that foster administrative discretion and delay, both of which pose a threat to the rule of law. Even though the disease is the same in all cases, the cure surely is not. Here is a quick primer on what ought to be done in these different settings.

501(C)(4) Organizations — The IRS’s 501(c)(4) standard, “operated exclusively for the promotion of social welfare,” is an open invitation for disaster. It should be scrapped entirely. That would leave in place Section 501(c)(3), which already covers a long list of organizations that are “operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, to foster national or international amateur sports competition, to promote the arts, or for the prevention of cruelty to children or animals.” In 2012, over 66,000 organizations sought tax-exempt status under this subsection. If these organizations don’t promote the “social welfare,” then just why do they receive this preferred tax treatment? Scrapping 501(c)(4) exemptions should make it harder for all political organizations of whatever persuasion to find relief at the IRS.

The Food and Drug Administration — Turning next to the FDA, it is critical to strip it of most of its approval power. Right now, FDA approval involves three stages of clinical trials. Stage one clinical trials are small size affairs, intended to test whether a drug has serious adverse safety consequences that make it unfit for human use. Stage two and stage three trials are progressively far more elaborate productions intended to test for both safety and effectiveness before letting a drug on the market. Little time and money is spent on stage one trials. Stage two trials cost substantial sums. Stage three trials can cost thousands of lives, millions of dollars, and many years.

The best strategy to keep the FDA under control is to block it from banning a drug simply because the drug has not passed stage two or three trials. The removal of FDA oversight will allow these drugs to reach the market more quickly. People who are sick can then decide with the aid of their physicians and healthcare organizations whether to take these drugs in light of the other alternatives available to them. In so doing, they need not fly blind because many independent professional organizations right now do a far better job of evaluating drug efficacy by looking at off-label and overseas usage of drugs.

Liberalize the rules, and experimental treatments will not fall in the exclusive province of the rich and the well-connected (if indeed they are available to anyone at all). The drug companies and the patients can decide by contract how best to allocate the risk of adverse consequences. Clinical trials will not disappear, but they will be directed at satisfying potential customers, including health plan operators, and not FDA officials. There will be some losses from premature use, but far fewer losses from unconscionable delay, and far lower prices that will allow for greater access.

Environmental Protection — Endless environmental permits far too often stand in the path of sensible development. These permits require comprehensive evaluation of all potential future adverse effects, no matter how small or improbable, that might follow from the construction of a new plant or facility. Yet the parade of horribles rarely comes to pass.

This exhaustive preclearance stands in stark contrast to the private law rules that were developed in connection with just these environmental risks, and provide a clear solution to the problem: Allow the activity to proceed naturally as the market would dictate, but then draw a real red line in the sand once there is evidence that a plant or facility poses actual or imminent peril of serious harm. Then, but only then, lower the boom.

First, make them responsible for any harm caused, no excuses allowed. Second, shut the facility down immediately at the insistence of either the government or private party until the peril is corrected. Keeping that tough standard means that businesses with millions at stake in their new operations will steer clear of doubtful zones. New facilities will get online more rapidly, allowing dangerous older equipment, which is often grandfathered in under current laws, to be removed from operations more quickly. Killing the permit culture will reduce the opportunities for that deadly duo of discretion and delay.

FCC Licenses — The FCC has an inordinate and wholly unnecessary power to issue, renew, and revoke licenses to the airwaves. Their key task should be to make sure that operations taking place on one frequency do not interfere with the transmission of signals on other frequencies. Those observable events are easily remedied with the same combination of damages and injunctions available in environmental cases.

The FCC should arrange to sell off frequencies to private owners to use, develop, and sell like any other resource. That process has already allowed the government to pocket a fair piece of change in dealing with many broadband licenses. It could also rationalize and improve the operation of the broadcast licenses for radio, television, and other consumer services at a fraction of the price it now takes to run the current system. As Friedrich Hayek noted long ago in The Road to Serfdom, the function of government is to organize the traffic flow, not to determine the composition of the traffic.

The scandal at the IRS teaches a larger lesson for the overall operation of the administrative state. The best way to control the twin risks of discretion and delay is to strip administrative agencies of as much of their discretionary power as is humanly possible. Each area has its own twists, and some discretion on enforcement issues will always remain. But the larger goal should be clear: an efficient administrative state that does not incentivize discretionary bureaucratic delay. The time to start on major reform efforts is now. Here is one crisis that should not go to waste.

The Journal of Law and Liberty Welcomes Professor Randy Barnett to its Board of Advisors

The Journal of Law and Liberty is excited to welcome Professor Randy Barnett to its Board of Advisors.

Randy E. Barnett is the Carmack Waterhouse Professor of Legal Theory at the Georgetown University Law Center, where he directs the Georgetown Center for the Constitution and teaches constitutional law and contracts. After graduating from Northwestern University and Harvard Law School, he tried many felony cases as a prosecutor in the Cook County States’ Attorney’s Office in Chicago. 

Professor Barnett is one of the nation's foremost Constitutional Law scholars and has frequently been a pivotal player in headline-grabbing Supreme Court cases. In 2004, he argued the medical marijuana case of Gonzalez v. Raich before the U.S. Supreme Court. In 2011-12 he represented the National Federation of Independent Business in its constitutional challenge to the Affordable Care Act.  

Professor Barnett joins Judge Douglas H. Ginsburg and Professors Richard Epstein, Mario Rizzo, Eugene Volokh, and Todd Zywicki on the Journal of Law and Liberty Board of Advisors.

Civil Liberties After Boston

Richard Epstein

In the aftermath of the terrorist bombing—no lesser word will do—at the Boston Marathon, a major debate has broken out over the proper law enforcement procedures in two key areas: general surveillance and targeted searches. Many insist that a general right to privacy should limit the first, and that concern with racial and ethnic profiling should limit the second. Both of these overinflated concerns should be stoutly resisted.

The task of unearthing terrorist activities is like looking for a needle in the haystack. Even the best system of oversight and surveillance will turn up an extraordinarily high percentage of false positives, for the simple reason that the odds of any given lead providing useful information, although hard to estimate, may be very small. It takes, therefore, a very large payoff indeed to justify government action in those cases, which is why police surveillance and monitoring should receive high priority only in cases where the risk justifies the large public expenditures and the serious intrusions on privacy of those targeted individuals. At this point, the questions arise of what kind of surveillance should be used, and when and how law enforcement officials can target particular individuals.

The Way Forward on Surveillance

The Tsarnaev brothers’ attack at the Boston Marathon has brought forth an insistent public call for an increase in surveillance to detect suspicious activities before it is too late. To be sure, there are always technical difficulties in using surveillance devices. But any objection on that ground should be treated solely as means-ends questions, which can in large measure be answered by improved software in such key areas as facial recognition detection. The moral, social, and constitutional objections are sadly misplaced.

Yet, post bombing, intense political opposition has arisen in Massachusetts over the wider use of drones and other surveillance devices at next year’s Boston Maraton. Republican Sen. Robert Hedlund of the Massachusetts Legislature has sponsored restrictive legislation on drones with two key provisions. First, the legislation would prohibit the generalized use of drones in Boston, without the explicit prior approval of local governments, including the Boston City Council. Second, the legislation would “prohibit data collection about lawful peaceful activity,” which in turn would be backed up by public disclosure of drone use.

Hedland’s stated rationale runs as follows:

It’s not surprising that you have law enforcement agencies rushing out to use [the Boston bombing and subsequent manhunt] as pretext to secure additional powers but I think we have to maintain perspective and realize that civil liberties and the protections we’re granted under the Constitution and our rights to privacy, to a degree, are nonnegotiable. . .

You don’t want to let a couple of young punks beat us and allow our civil liberties to be completely eroded. I don’t fall into the trap that, because of the hysteria, we need to kiss our civil liberties away.

Hedlund is dead wrong here—and this is from a writer whose entire career has been devoted to imposing workable and principled limitations on government power.

First, the essential task of government is to preserve the life, liberty, and property of all individuals within its jurisdiction against their forcible destruction by other individuals. Second, a system of ex post (after the fact) criminal punishments forms at best only one part of a coherent and comprehensive strategy.

Compensation after the fact from terrorists is rarely, if ever, available. And even if it should magically materialize, it does not bring dead people back to life or heal the wounded. Criminal sanctions will not deter suicide bombers, nor can they be meted out in proportion to the mayhem that these people cause. Major ex ante (before the fact) precautions are imperative to stop the endless loss of life and limb that ex post sanctions cannot deter.

Nor is there any “pretext” at work in insisting on greater deterrence. It is easy to pooh pooh a major social threat like terrorism by reducing it to the conduct of “young punks,” the very people most likely to engage in violent activity.

Unfortunately, Hedlund compounds his initial error with two further mistakes. His first is constitutional, with the false claim that our rights of privacy under the Constitution are “nonnegotiable.” Fortunately, no provision of the United States Constitution requires this rigid and destructive point of view.

The basic command of the Fourth Amendment says that, “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated . . .” For these purposes, the operative term is “unreasonable,” which, in light of the weighty interests on all sides of the dispute, requires some public judgment that compares the risks of inaction with those of excessive action. This unavoidable balancing process makes it foolish to elevate privacy—itself a complex notion—to that “nonnegotiable” status under a Constitution that also values the protection of life, liberty, and property.

Second, the last thing needed in these difficult circumstances is a squeamishness about aggressive government action. It is wholly unwise to think that we can turn surveillance devices on and off with the flip of a switch, as Hedlund proposes, and still get the information we need. The correct approach is to do exactly what Hedlund would stop: collect troves of information about the conduct of people in public places, which can then be stored for future use.

The key protection of civil liberties lies in the restricted access and use of that information. Unauthorized use is subject to severe penalties and should be invoked to allow for the full collection of the relevant information. Indeed, similar activities have to take place in monitoring the Internet use of suspected terrorists—and similar constraints must apply. The information can be collected and reviewed for limited law enforcement purposes, so long as its unauthorized release or use is subject to heavy criminal sanctions.

One great advantage of this comprehensive approach to surveillance in public places is that it avoids the risk that the surveillance will be conducted in a discriminatory fashion. The collection of information covers everybody who comes to public places. Yet once the information gathered reveals some potential targets, it then justifies closer surveillance of key individuals who can be singled out by their past activities. As the evidence gets stronger, so too does the case for more aggressive law enforcement actions. Whenever possible, these enhanced government activities should be subject to some kind of independent oversight, similar to the surveillance warrants of the FISAcourts, which deal with the wiretaps that are in place today.

Reasonable Suspicion and the Terry Stop

The need for expedited action also applies to individual decisions of law enforcement personnel operating on suspicion, where the immediacy of the situation makes it difficult, if not impossible, to introduce an added layer of judicial protection.

As far back as 1969, the United States Supreme Court, speaking through Chief Justice Earl Warren in Terry v. Ohio, held, after much handwringing, that a police officer did not have to show probable cause in order to stop and frisk a person on public streets. Reasonable suspicion that unlawful activity might happen was all that was needed to justify what are now commonly called “Terry stops.” Justice John Marshall Harlan tightened the noose still further by noting that whenever the police had enough reason to stop a person, the right to frisking him followed “automatically” given the ever-present risk that the party stopped might be carrying a concealed weapon.

This decision has generated many complaints about racial profiling, an issue that the Warren Court was well aware of at the time. There is no reason to sugarcoat the painful choice. These frisks are honest-to-goodness searches and they can be highly intrusive, covering even intimate body parts where weapons could be concealed. They are also more likely to be conducted in high-crime areas with a disproportionate number of young African-American males. No one can deny the unhappy fact that a huge number of erroneous searches will take place, for which there is, after the fact, no effective remedy at all. Unsuccessful searches yield no evidence that could be rendered inadmissible at trial.

Yet there are no sensible alternatives to the Terry rule. It surely makes no sense to stop and frisk a proportionate number of white males for no reason. In addition, it is virtually impossible to construct an intelligent system of ex post compensation to redress the large number of low-level harms that undoubtedly occurred when an innocent person was frisked.

Terry was unusually candid in recognizing that it chose the best of a bad lot, by allowing substantial errors in order to protect against yet greater losses. The Terry court further hedged its bets by announcing that its ruling applied only to this particular case. But history has not worked out that way. Today reasonable suspicion virtually always justifies the search and the frisk that follows.

Clearly, the stakes on ethnic profiling are higher than ever after the Boston Marathon—which makes it all the more important to keep the law in focus. Jonathan Chait recently wrote a short piece in New York Magazine entitled: “Profiles in Profiling: From the appalling New York Post to the rest of us.” He observed:

The Muslim world has certainly produced more than its share of terrorists. But there is a conceptual fallacy at the root of the nativist paranoia the Post (and other elements of the Murdoch media) have eagerly exploited: One cannot infer from the fact that many terrorists are Muslims the conclusion that many Muslims are terrorists.

No one should offer any defense of the irresponsible journalistic sensationalism that Chait rightly attributes to the Post. But the defenders of increased surveillance are not making the crude leap of logic with which they are charged. Everyone knows that two propositions are all too true: First, the vast majority of individuals with Muslim background are not terrorists, and, second, a disproportionate number of terrorists are Muslim. It is that last fact that drives the need for further surveillance, notwithstanding the high error rate captured in the first observation.

Indeed, it seems as though the FBI had received intelligence from Russian authorities that Zubeidat Tsarnaeva, the mother of the Tsarnaev brothers, was herself a potential terrorist. With that, any doubts about Russian intelligence or the motivations of the brothers falls by the wayside. Law enforcement officials must follow such leads to their bitter end in dealing with the prevention and deterrence of terrorist activities. The quicker public officials shed their reluctance to move decisively in these areas, the safer we all shall be.

The FDA's Ghoulish Cigarette Labels

Richard Epstein

Recently, the Supreme Court refused to review a decision of the Sixth Circuit that sustained the power of the Food and Drug Administration to require tobacco companies to place ghoulish warnings and images on tobacco packages. The challenge was based on the ground that the forced inclusion of warnings adverse to the interest of tobacco companies was a kind of forced speech that the First Amendment forbade.The argument on the opposite side was that the Congress has extensive powers that allow it to require the FDA to develop warnings and pictures that, in the most forceful way possible, bring the horrors of smoking home to the potential individuals who engage in it.

I approach this issue with mixed emotions. My first awareness of the dangers of tobacco came when I was nine years old and my family took extensive steps to persuade my late physician father to quit smoking, which he did for the rest of his life. I myself have never had the slightest interest in smoking cigarettes and have mounted many a campaign to persuade others to quit the habit.
Perhaps for just this reason, in the 1980s I worked as a legal consultant with Philip Morris in the effort to resist the ultimately successful efforts of the plaintiff’s bar to persuade the federal courts to allow tort actions to be brought against the tobacco companies on the ground that these companies had either understated or concealed the dangers associated with smoking.

The reason was pretty clear. I thought then and now that the basic dangers of cigarettes were so clearly etched into the consciousness of every sentient being that it was pointless to allow individual claims to go forward on the grounds that some individual smokers were so naive that they had no knowledge of what everyone else knew.

In taking this position, I did not think that it was necessarily irrational for all people to smoke, even if they were fully cognizant of the risk. The individual choice depends on two key factors. The first is the extent of the smoking risk, not just its existence. That risk is in fact lower than many people think when due regard is given these two considerations: the probability of contracting cancer or other dangerous conditions, and the delay between the time of smoking and the onset of illness. The first of these factors is less than one, and can be reduced by some material extent by stopping smoking as one gets older, and the risks of tobacco become greater. The second factor requires some stiff discounting to get the correct costs. In combination they reduce the magnitude of the risk.

On the second side of the equation sits the pleasures of smoking, which hold no charm for me.  But others have different needs and desires, and it makes perfectly good sense that some people will think that those benefits outweigh the associated costs, especially if they choose to moderate their consumption by switching to low tar/nicotine brands, and reducing the number of cigarettes smoked.
Over time, as the information about smoking has become more salient, the number of smokers has declined, and the mix of brands sold has shifted as well as filter cigarettes have become more common. I do not see any real evidence of a breakdown in information markets that requires the warnings that the government puts on its packages. Indeed, I think that -- far from giving true and accurate information about smoking -- the blunderbuss nature of these warnings contributes to the overall misinformation about the risks associated with the use of tobacco, and does so in a deliberate and self-conscious fashion.
I have no doubt that the government can implement regulations requiring correct information to be put out by the tobacco companies. But that modest office is not the objective of the current campaign, and there is nothing about the state power to regulate tobacco in the name of health and safety that allows it force tobacco companies to make false (i.e. exaggerated) statements about their own product. Public disinformation is not a legitimate end of government. Indeed, I would go further. I do not think that the government should spend public moneys to promote this same message, even if it does not require tobacco companies to participate in its own advertising campaign.

The bottom line is this: There is no legitimate government interest in deliberately making false statements by products no matter how noble the motive. For folks like me, the warnings are superfluous because nothing could get me to smoke in the first place. To others, they are just abusive -- they will continue to smoke nonetheless. And for all of us, it is a sorry spectacle for a paternalist government to resort to deliberate overstatements, no matter how lofty the intent.  When this issue does reach the Supreme Court, the laws should be struck down as an abuse of government power under the First Amendment.

The Incompleteness of the Harm Principle: a response to Jason Pontin's essay on free speech

Richard Epstein

Jason Pontin has written a perceptive analysis of a timeless question:  what changes in law need to be adopted in order to account for technological advances (see “Free Speech in the Era of Its Technological Amplification”)? In answering that question, he takes the right approach by taking up John Stuart Mill’s harm principle, which at its core makes this claim:

“The sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number is self-protection … The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant.”

This principle is both profound and incomplete. The last sentence announces a strong antipaternalist manifesto that no government, individual, or group should be able to reform the private preferences of other individuals. That principle is a welcome recipe for social peace: if the rule were otherwise, it would be necessary to decide which individuals or groups occupied the dominant position with respect to other groups. Any interested group would find it most difficult to choose on neutral principles which group should have that preferred position. In contrast, a principle of parity works as well for large and fractured societies as it does for smaller and coherent ones, by making that question irrelevant. Score one for Mill.

Mill does less well, however, in defining how the harm principle works. One possible implication of this principle is, as Pontin notes:

The only principle I can imagine working is yours, where “harm” is interpreted to mean physical or commercial injury but excludes personal, religious, or ideological offense.

Pontin’s version is clearly correct insofar as it excludes “religious or ideological offense” from the category of what lawyers call “cognizable” harms. That odd term “cognizable” is meant to capture this dual understanding. The offense that people take at the conduct of others cannot be dismissed with a wave of the hand, given that these feelings are often deep and long–lasting. They are in fact real harms, subjectively experienced. So the willingness to cut them out of the harm principle cannot rest on a simple denial of the fact, but must rest on the awareness that for the long-term success of the system, each person must waive that claim against all others, no matter how acute the feeling.

Essentially, the comprehensive judgment is that we all are better off when we have to suffer the slings and arrows of this sort of abuse than we are when these attacks are subject to extensive legal control that runs the serious risk of state censorship. The claim, therefore, behind the offense principle is one of universal privilege to hurt the feelings of others, and not a factual claim that there is no harm at all. That difference matters, because when voluntary institutions put speech codes into place for their members, they are responding to a real harm that by consent can be controlled within a limited forum, even if the state cannot dictate that same relationship among strangers. Private ordering has advantages that public ordering cannot match.

Why then the difference? The simplest explanation is that any effort to transport the harm principle to larger social settings gives everyone a huge incentive to become truly offended at the speech of others so that they can now have a lever to suppress their ideas. The angrier you get, the greater your rights. Work yourself into a white heat, and the world must yield to your outrage. That dynamic will not work in a private setting where the organizer of the group has strong incentives to prevent any systematic move to extremes.

Unfortunately, Pontin’s formulation of the rule contains two serious errors that stem from his willingness to accept both “physical and commercial injury.” Physical harm certainly sets out a valid prima facie case that is subject to defenses that relate to consent and self-defense. But commercial harm is much too broad to be treated in the same fashion. The root of the difficulty is that Pontin’s formulation fails to distinguish three separate cases. 

The first is commercial harm that is wrought by defamation or violation of trade secrets. Here the libertarian norms against fraud reach the defamation case, which always involves a false statement about a plaintiff that a defendant makes to at least one third party. Trade secrets are a bit trickier, but they are best understood as property claims acquired to information by self-help that people can either keep to themselves or share with any number of persons under a promise of confidentiality.

Second, the single most dangerous version of the harm principle abroad in the land is that competitive injury suffered when a rival firm sells a better good at a lower price should be damned as a form of “unfair” or “ruinous” competition, notwithstanding the well-nigh universal proposition that competitive markets lead to optimal resource allocation. This form of commercial injury (which is surely real, as is offense) will lead to massive cartelization if given any legal respect. Like mere offense, it has to be treated as a noncognizable harm.

Third, the reference to commercial injury does not adequately deal with the position of a natural or legal monopolist in a network industry, whether it be railroads or cyberspace. The correct rule in these cases does not allow the monopolist to charge whatever it wants to whomever it wants. Instead, the long common-law tradition says that the party who holds that monopoly power can never engage in an arbitrary refusal to deal, but must offer his goods and services at reasonable and nondiscriminatory rates. Here the first term is intended to squeeze out monopoly profits, and the second to make sure that the monopolist does not engage in favoritism.

There is nothing whatsoever in Mill that addresses this middle category of public utilities or network industries. Nor does Pontin focus explicitly on this middle category. Nonetheless, it is of profound importance for dealing with the Internet. There are questions as to whether some carriers exert that power, and if so, how they should be regulated, both on pricing and on their ability to turn down content. Yet by the same token, if these services are in competition with each other the case for regulation is much diminished given consumer choices. It is in this middle territory where all the complexities arise. But the Millian harm principle, articulated in 1859, supplies none of the answers on a topic that has engaged the courts in the United States as a key constitutional matter for nearly 140 years, starting with Munn v. Illinois in 1876.

There is no space here to go through that longish history. Readers with interest in it can consult my Principles for a Free Society (1998). Chapter 3 contains a general discussion of the harm principle. Chapter 10 offers a fuller account of its application to common carriers.

Freedom Friday: Best Links of the Week

The Presidential Wheel Turns - Peggy Noonan, WSJ

The Bush Legacy - Charles Krauthammer, Washington Post

The Education Blob Gets Revenge - John Stossel, Reason

Internet Sales Tax Will Kill Small Businesses - Tod Cohen, USA Today

Korematsu and the Dangers of Waiving Constitutional Rights - George Will, Washington Post

President George W. Bush "The United States must strive to expand the reach of freedom"

Searches and Seizures: Reasonable or Unreasonable?

Richard Epstein

Matters of criminal procedure were not much in evidence in the aftermath of the bombings at the Boston Marathon. Nary a peep of protest was raised against the massive lock-down and manhunt that followed hard on the heels of that senseless tragedy.

But now that some degree of normalcy has returned, it is important to think about these procedural issues. To that end, two recent Supreme Court cases address law enforcement and the Fourth Amendment. Florida v. Jardines deals with searches in connection with illegal drug trafficking and Missouri v. NcNeely addresses compelled blood tests on suspected drunk drivers.

Both of these cases return to fundamental questions that have previously divided the Court. What is remarkable about the Supreme Court’s recent Fourth Amendment jurisprudence is that these divisions are not apparent. The opinions in both cases lack reference to the endless theoretical debates between the hard-nosed originalists and the equally insistent defenders of the “Living Constitution.” In consequence, these close decisions have generated strange alliances that have transcended the deep five-to-four conservative-liberal split.

Back to Constitutional Basics

To understand why, it is useful to start with the complete text of the Fourth Amendment.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

The impulse for the Amendment was the 1765 English case of Entick v. Carrington, where Lord Camden refused to allow public officials to ransack the plaintiff’s premises under “general warrants.” His decision inspired the Warrant Clause of the Fourth Amendment, which required government officials to “particularly describe” what they hoped to search or seize.

Today, as a theoretical matter, all nine Supreme Court justices rightly recognize that Entick supplies the indispensable first step for dealing with an age-old problem—namely, the extent to which the police may infringe on the ordinary rights of individuals to personal liberty and private property in order to control criminal activity. No justice thinks that the police should have unlimited discretion in this area. Yet none doubts that the police perform vital functions needed for the preservation of our ordered liberty.

Since all the justices are working to balance the same set of considerations, modern decisions in this area tend to focus on setting the right balance in hard cases. On this point, the key insight is one that all nine justices undervalue, the need for bright-line rules in routine cases.

Drug Busts and Privacy

In Jardines, the Supreme Court had to decide whether the government conducted a search when it brought a trained drug-sniffing dog on a six-foot leash to the front door of the Jardines’ house, where it went wild after sniffing the cannabis that was growing inside. It is remarkable that a fact pattern this simple could provoke a five-to-four split, where Justice Antonin Scalia, joined by Justices Thomas, Ginsburg, Sotomayor, and Kagan, found an unconstitutional search. That decision was met by a dissent from Justice Alito, joined by Justices Roberts, Kennedy, and Breyer.

Scalia’s position was that bringing a dog onto the property near the house—into the so-called curtilage—was done with the specific purpose of finding out what went on inside the walls of the house. In my view, his ultimate position was clearly correct. That outcome rests on a simple analysis of what a search is: a purposive act made in order to discover new information. Therefore, an accidental discovery, such as when a police officer just happens to smell odors coming from the street while engaged in other business, is not a search. The means by which this (deliberate) search takes place bears no relationship to the resolution of the constitutional issue.

Unfortunately, Justice Scalia embellished that basic insight with two unneeded qualifications. First, he insisted that under our Fourth Amendment jurisprudence, the “home is first among equals.” Textually, however, “houses”—which are less intimate than “homes” anyhow—receive no priority over persons, papers, and effects. Indeed, it is easy to imagine cases where the violation of these other three interests could give rise to equal or greater umbrage. As a matter of sound textual interpretation, it is always risky to introduce fine distinctions among items that are bracketed together in the original text.

Next, Justice Scalia held that the case was simple because the police invaded the Jardines’ curtilage in order to conduct their search. But the offensive search here was not about what was found in that location, but the information behind closed doors. Property is thus a means to protect privacy, a broader notion. Yet that information might in some cases be discoverable by a skilled dog or other instrumentality that the police operated from Jardines’ front gate, the public streets, or a neighbor’s porch. In these instances, the quantum of relevant information is the same as that found from the trespass itself.

So the question arises of why the protection of the home diminishes because the deliberate search takes place from a somewhat more remote location. The well-known 1967 Supreme Court decision in Katz v. United States had already made it clear, in some cases at least, that a trespass into some protected space was not necessary to create a Fourth Amendment violation. In that case, the government agents attached an electronic listening device to the outside of a public phone booth to gather evidence about the illegal gambling activities of the accused. The phone booth was said to be a place where anyone enjoys a reasonable expectation of privacy.

There is a similar expectation in Jardines, even though there was no “physical” invasion of the premises. The police entry is not subject to constitutional oversight because the sniffing dog trampled a blade of grass. Rather, the protection of the privacy interest dominates. No private individual could escape a damage action for invasion of privacy if he or she listened to intimate conversations from a distance. The government should fare no better in this context.

In dealing with this case, Justice Scalia had to address the government’s contention that its entrance onto the property did not constitute a trespass because of the standing common law rule that gives ordinary people an “implied license” to enter the property. In his dissent, Justice Alito pushed this notion by noting that people are normally allowed to beat a path to the front door for a wide range of social and business purposes, and need only retreat once they are told to leave.

Justice Scalia, however, is far more faithful to the common law rules when he concludes, “The background social norms that invite a visitor to the front door do not invite him there to conduct a search.” This little debate vividly shows how good constitutional law depends critically on mastering common law principles, which Justice Alito failed to do.

The common law recognizes two classes of permitted entrants—business invitees and social guests. These may differ in the degree of protection that they receive against physical injury on the premises, but those refinements are irrelevant here because all permitted entrants propose transactions that work for the benefit of the landowner. In contrast, the landowner gives no consent, express or implied, to those who enter with hostile intent, like the government officials here. The simple rule gets this case right, and offers greater clarity to law enforcement personnel and property owners alike, without any needless qualifications.

The Forfeited Rights of Drunk Drivers

In McNeely, a deeply divided Court revisited the question of whether the police must obtain a search warrant before drawing blood from an errant driver who refused to submit to a breath test that measured his alcohol concentration. The traditional view, articulated by the late Justice William Brennan in the 1966 case of Schmerber v. California, put forth two propositions that are in tension with each other.

The first was that drawing blood from a person counts as both a search and a seizure of the person, which it surely does. The second was that owing to the “exigent circumstances” stemming from the rapid decay of blood alcohol, the arresting officer could order that search without first getting a warrant or showing the more exacting “probable cause” requirement that the Constitution imposes for many searches.

In my view, Justice Brennan (who was very solid on Fourth Amendment issues) got the issue right when he adopted a per se (or across-the-board) rule approving these searches. The level of intrusion is both low and uniform, and the gains from the controlling of drunk driving are sufficiently large, that this per se rule is a sensible safe harbor in an area that condemns all “unreasonable searches and seizures.”

Unfortunately, in McNeely, Justice Sotomayor took a wrong turn by concluding that the prohibition against unreasonable searches and seizures requires arresting police officers to conduct a detailed factual examination to determine whether the rate of decay of blood alcohol justifies ordering the blood test without the benefit of a warrant.

But just what is to be gained by this “fact-intensive” analysis conducted on a case-by-case basis? For starters, the admitted violation of traffic rules gives clear evidence that something is amiss. In and of itself, it surely provides reasonable suspicion for thinking alcohol may be involved, and perhaps even the probable cause needed to execute the warrant.

Everyone knows that blood alcohol decays at a rapid rate, even if that rate is not uniform across all persons. Just running this time-consuming evaluation could result in critical delays in obtaining fast-disappearing evidence, which could make any test inconclusive. Besides, it is highly unlikely that any remote magistrate would be willing to deny the request for a warrant here, so that the case-by-case approach leads to both higher error and administrative costs.

There is a sobering lesson here. Bright-line rules may not work in every case, but in this particular instance, there has not been the slightest peep of general protest with the uniform application of the Schmerber rule since it was first announced close to 50 years ago. But Sotomayer’s new case-by-case rule may not play out so well. It is a delusion to think that individualized decisions always lead to better outcomes.

One clear anxiety is whether the police discretion could mask racial-profiling, which is, without question, a highly divisive and emotional issue today. The ad hoc outcomes under McNeely invite such charges, because the discretion that is said to protect privacy can also be used to single out certain groups for unwelcome scrutiny. Jardines, on the other hand, will not generate any such backlash to the extent that it controls police behavior.

Taking both cases together sends a clear message. Some issues of course will involve matters of degree. No one has a magic formula to determine what counts as reasonable suspicion or probable cause. But that knowledge should not stop the search for clean and workable rules. With Jardines, that approach gives somewhat greater protection to potential criminals; with McNeely, it gives somewhat less. But the public wins both times. The ability to craft sensible per se rules leads to better results overall, which, when all is said and done, leads to the right balance of liberty and security that everyone desires in Fourth Amendment cases.

Former AG Mike Mukasey is Confident the Boston Marathon Bombings Were an Act of Jihad

In a interesting column today in The Wall Street Journal, Former Attorney General Michael Mukasey confidently asserts that the Boston Marathon Bombings were an act of Jihad against the United States. Mukasey raises concerns about a civilian court's ability to handle a terrorism case. In particular Mukasey, a former Chief Judge of the Southern District of NY himself,  states the following:

"If the intelligence yielded by the FBI's investigation is of value, will that value be compromised when this trial is held, as it almost certainly will be, in a civilian court? Dzhokhar Tsarnaev's lawyers, as they have every right to do, will seek to discover that intelligence and use it to fashion a case in mitigation if nothing else, to show that his late brother was the dominant conspirator who had access to resources and people."

In addition, Mukasey emphasizes his concern with President Obama's response to the attack:

"There is also cause for concern in the president's reluctance, soon after the Boston bombing, even to use the "t" word—terrorism—and in his vague musing on Friday about some unspecified agenda of the perpetrators, when by then there was no mystery: the agenda was jihad.

For five years we have heard, principally from those who wield executive power, of a claimed need to make fundamental changes in this country, to change the world's—particularly the Muslim world's—perception of us, to press "reset" buttons. We have heard not a word from those sources suggesting any need to understand and confront a totalitarian ideology that has existed since at least the founding of the Muslim Brotherhood in the 1920s."

Tweet us what you think of Mr. Mukasey's concerns @nyujll.

Freedom Friday: Best Links of the Week

What's Right With Malthus? - Ross Emmet, The Freeman

Checking the Logic of Background Checks - Jacob Sullum, Reason

Business Ethics - Richard Posner, Becker-Posner Blog

License to Drill: The Case for Modernizing America's Crude Oil and Natural Gas Export Licensing Systems - Scott Lincicome, Free Trade Bulletin

The Language of Terror - Charles Krauthammer, The Washington Post

6 Reasons Why States Should Continue to Oppose Obamacare - Peter Suderman, Reason

Boston Bruins Fans Sing National Anthem in Emotional Pregame Ceremony (Video)

Richard Epstein's take on Detainees & the Constitution

Richard Epstein sits down with Troy Senik to talk about detainees and the Constitution.