This blogpost was co-authored by Trevor Burrus.

A seemingly complicated legal case that has caught Cato’s attention, CCA Associates v. United States, boils down to a simple constitutional question: If the government reneges on a contract and forces a property owner to rent apartments at below-market rates for longer than originally agreed, does it constitute a taking under the Fifth Amendment (which would require the government to pay just compensation)?

In 1961, Congress amended the National Housing Act to create incentives for private builders to supply housing to low- and moderate-income families. Builders were given below-market mortgages backed by the federal government and, in return, the owners agreed to certain restrictions from the Department of Housing and Urban Development, the most relevant being limitations on raising rent. Owners were also given the right to pre-pay the 40-year mortgage after 20 years, however, freeing them at that time from their rent-control obligations.

In 1990, as one 20-year period came to a close, Congress took away the owners’ right to pre-pay their mortgages. In 1996, however, Congress returned the property owners’ right to pre-pay. Therefore, between 1991 (when the original 20-year period would have lapsed) and 1996, the property owners were forced to rent at below-market rates.

CCA Associates is one of many similarly situated property owners who are suing the federal government for its clear act of duplicity. CCA Associates’ case, among many others, has been bouncing back and forth between the Court of Federal Claims and the Federal Circuit for many years.

One of the key questions is how to determine the degree to which the government’s actions economically affected CCA Associates’ property. One view is that there was substantial economic impact during the five-year period between when Congress eliminated and then restored the pre-pay right — CCA Associates lost approximately 81% of the property’s possible value during those five years. Another view looks at the impact during the five-year period as fraction of the entire life of the property, not just the diminished value during the five-year period. Under this calculation, CCA Associates only lost 18% of the total value of the property.

The Federal Circuit adopted the latter formula and held that 18% is not a substantial enough economic impact to constitute a Fifth Amendment taking. Cato has joined the National Federation of Independent Business, the Center for Constitutional Jurisprudence, and Professor Steven Eagle of George Mason University Law School on an amicus brief urging the Supreme Court to take CCA Associates’ case.

We argue that adopting the Federal Circuit’s answer to the so-called “denominator question” — that is, whether the denominator in the “economic impact” fraction should be the entire life of the property or the shorter (here five-year) period during which the government temporarily took the owners’ right to rent at the market price — could preclude all possible claims that the government committed a “temporary taking.” By choosing a big-enough denominator, courts can always characterize an economic impact as being below the constitutional threshold.

We also argue that, in applying the Supreme Court’s factors in the famous 1978 Penn Central case (which set up the analytical framework for regulatory takings), the Federal Circuit incorrectly treated the factors as a magic formula and ignored other relevant factors. Finally, we point out how courts are obviously confused about the proper standards to apply in these cases, thus creating a perfect time for the Supreme Court’s guidance.

The Court will decide this fall whether to hear CCA Associates v. United States.

Remember that guy?

Well today, the Wall Street Journal reprints a series of emails showing how his administration colluded with drug-company lobbyists to pass ObamaCare. Never mind the nonsense about Big Pharma making an $80 billion “contribution” to pass the law. An accompanying Wall Street Journal editorial explains that Big Pharma “understood that a new entitlement could be a windfall as taxpayers bought more of their products.”

The money quote from these emails comes from Pfizer lobbyist/​Republican/​former George W. Bush appointee Anthony Principi. Even though the drug companies were donating to all the right politicians and pledging to spend hundreds of millions of dollars on pro-ObamaCare advertising campaigns and grassroots lobbying, President Obama still accused unnamed “special interests” of trying to stop ObamaCare in order to preserve “a system that worked for the insurance and the drug companies.” Principi was indignant:

We’re trying to kill it? I guess we didn’t give enough in contributions and media ads supporting hcr. Perhaps no amount would suffice.

The nerve. I smell a campaign slogan. “Barack Obama: a Politician Who Cannot Stay Bought.”

The Journal adds:

[Former Energy and Commerce Chairman Henry] Waxman [D‑CA] recently put out a rebuttal memo dismissing these email revelations as routine, “exactly what Presidents have always done to enact major legislation.” Which is precisely the point—the normality is the scandal.

And which critics have argued from the beginning. As I wrote more than two years ago, ObamaCare is corruption:

Each new power ObamaCare creates would be targeted by special interests looking for special favors, and held for ransom by politicians seeking a slice of the pie.

ObamaCare would guarantee that crucial decisions affecting your medical care would be made by the same people, through the same process that created the Cornhusker Kickback, for as far as the eye can see.

When ObamaCare supporters, like Kaiser Family Foundation president Drew Altman, claim that “voters are rejecting the process more than the substance” of the legislation, they’re missing the point.

When government grows, corruption grows. When voters reject these corrupt side deals, they are rejecting the substance of ObamaCare.

Fortunately, voters so detest ObamaCare that there’s a real chance to wipe it from the books. This video explains how state officials can strike a blow against ObamaCare/​corruption:

Today POLITICO Arena asks:

Is Jeb Bush right that his father and President Reagan would find themselves out of step with today’s Republican Party because of its strict adherence to ideology and the intensity of modern partisan warfare?

My response:

Jeb Bush’s remarks about the Republican Party represent the views of some members of a party that, like the Democratic Party, has become more sharply defined than it was under his father’s or brother’s presidencies. Looking at the longer and deeper view, however, that’s not surprising, because the Bush presidencies were more anomalous than indicative of the party.

For much of the post-War period the Republican Party, especially under the eastern establishment, was little but “Democrat-lite.” That began to change with Barry Goldwater in 1964, suffered a setback under Nixon and Ford, but nonetheless continued under Governor and then President Reagan, who brought a fair measure of ideological discipline to the Party—affecting the Democratic Party in the process. (Compare the ideological opposition to Reagan to that of Ford, for example.) Despite the two Bushes thereafter, the intellectual and activist institutions that had underpinned the Reagan revolution continued to grow, especially as the Democratic Party itself became more polarized, and those forces increasingly influenced the Republican Party, encouraging it to stand for something, unlike the earlier “always-in-the-minority” party—the party Democrats remembered fondly as the “reasonable” Republicans.

There were plenty of counterexamples to those developments, of course—the collapse of the Gingrich bubble late in 1995, the rise of the Tom DeLay opportunists, and the spending of Bush II. And there were issues that continued, and continue even now, to deeply divide members, like immigration and the drug war. But increasingly the two parties have become more sharply defined—“polarized,” if you prefer—as the 2010 mid-term elections made especially clear. And contrary to the Washington establishment, that’s not a bad thing, because voters now have a real choice, not just a choice between two parties, both of which stand for essentially the same things, their respective candidates seeking simply to stay in power. Today, in the main, Republicans stand for the private sector and limited government, Democrats for the public sector and government services. We’ll soon see which course the American people want to take.

The Bipartisan Policy Center (BPC) has come out against bipartisan spending restraint. The BPC has issued a report highly critical of the sequestration spending cuts that were agreed to in the bipartisan Budget Control Act of 2011.

The BPC is a center-left thinktank in Washington that houses some very good policy scholars. The goal of the group is to celebrate “times in American political history when two sides have come together in the interest of the country and the people.”

Surely that describes the Budget Control Act. The Act made some modest progress at trimming the giant federal budget deficit, which is an important concern of BPC scholars. The Budget Control Act passed the House 269 to 161 with 174 Republicans and 95 Democrats in favor. It passed the Senate 74 to 26. President Obama signed it. What could be more bipartisan than that?

However, the BPC complains that the sequester will cause “immense pain, disruption, and uncertainty,” and it could “cost the economy more than one million jobs” from the supposedly negative “multiplier effects.” But that’s not what happened the last time we had bipartisan spending restraint in Washington, which was in the 1990s. Federal spending fell from 22 percent of GDP to 18 percent during that decade, and the economy boomed.

Government shrinkage creates a positive multiplier, not a negative one, because the government releases resources—such as skilled workers from the defense industry in the 1990s—that are put to more productive uses in the private sector. You take an engineer from the Department of Defense or Energy and put her in the private sector producing goods for the market, and GDP will go up not down.

I don’t want to pick on BPC in particular, and their new report has lots of useful data and analysis. But how is America going to avoid a Greek-style fiscal disaster if even the supposed deficit-hawk groups start chickening out of spending restraint after just the first small reform steps?

Rather than reversing course, we should be build on the BCA with the reforms at www​.Down​siz​ing​Gov​ern​ment​.org.

The Washington Post reports:

For 14 months, a bipartisan group of 17 states has been quietly collaborating with the Obama administration to help build a foundation for the health-care reform law’s success.

The group includes some of the law’s staunchest supporters working alongside a handful of its bigger detractors. They are backed by $3 million in funding from eight nonprofit organizations that hope to see the Affordable Care Act succeed.

Together, they have come up with a tool to help consumers navigate the health insurance exchanges—the marketplaces that each state is required to have by 2014.

In other words, at the same time Alabama, Arizona, Colorado, and Kansas are suing to overturn Obamacare as unconstitutional, officials in those states are helping to implement the same unconstitutional law.

The Post reports, without rebuttal, several myths about the states’ role under Obamacare. It refers three times to the “tight deadlines” states face under the law. (There are no deadlines. HHS has said that if states decline to create exchanges, they can change their minds later.) It claims, “If a state does not have a framework in place by 2013, the Department of Health and Human Services will come in and do the job itself.” (That’s highly questionable. Obamacare appropriates zero funds for federal exchanges and HHS has admitted it doesn’t have the money.) It quotes Kansas insurance regulator Linda Shepphard as saying, “There is no work being done to build an exchange in Kansas at this point.” (Well, which is it? Is Kansas doing “no work,” or is it “collaborating with the Obama administration”?) I’d say certain state officials got some ’splaining to do.

In the video below the jump, I explain to state officials why flatly refusing to create an Obamacare exchange is the best thing they can do for their states.

I have great fondness for Estonia, in part because it was the first post-communist nation to adopt the flat tax, but also because of the country’s remarkable scenery.

Most recently, though, I’ve been bragging about Estonia (along with Latvia and Lithuania, the other two Baltic nations) for implementing genuine spending cuts. I’ve argued that Estonia is showing how a government can reignite growth by reducing the burden of government.

Not surprisingly, some people disagree with my analysis. Paul Krugman of the New York Times criticized Estonia yesterday, writing that the Baltic nation suffered a “Depression-level slump” in 2008 and has only managed an “incomplete recovery” over the past few years.

He blames this supposedly weak performance on “austerity.”

I have a positive and negative reaction to Krugman’s post. My positive reaction is that he’s talking about a nation that actually has cut spending, so there’s real public-sector austerity (see Veronique de Rugy’s L.A. Times column to understand the critical difference between public-sector and private-sector austerity).

This is a sign of progress. In the past, he launched a silly attack on the U.K. for a “government pullback” that never happened, so what he wrote about Estonia at least is based on real events.

My negative reaction is that Krugman is very guilty of cherry-picking data. If you look at the chart that accompanies his post, Estonia’s economic performance isn’t very impressive, but that’s because he’s only showing us the data from 2007-present.

The numbers are accurate, but they’re designed to mislead rather than inform (sort of as if I did a chart showing 2009-present).

But before exposing that bit of trickery, there’s another mistake worth noting. Krugman presumably wants us to think that the downturn coincided with spending cuts. But his own chart shows that the economy hit the skids in 2008 — a year in which government spending in Estonia soared by nearly 18 percent according to EU fiscal data!

It wasn’t until 2009 that Estonian lawmakers began to reduce the burden of spending. So I guess Professor Krugman wants us to believe that the economy tanked in 2008 because of expectations of 2009 austerity. Or something like that.

Returning now to my complaint about cherry picking data, Krugman makes Estonia seem stagnant by looking only at data starting in 2007. But as you can see from this second chart, Estonia’s long-run economic performance is quite exemplary. It has doubled its economic output in just 15 years according to the International Monetary Fund. Over that entire period — including the recent downturn, it has enjoyed one of the fastest growth rates in Europe.

This doesn’t mean Estonia is perfect. It did experience a credit/​real estate bubble, and there was a deep recession when the bubble burst. And the politicians let government spending explode during the bubble years, almost doubling the budget between 2004 and 2008.

But Estonia reacted to the overspending and the downturn in a very responsible fashion. Instead of using the weak economy as an excuse to further expand the burden of government spending in hopes that Keynesian economics would magically work (after failing for Hoover and Roosevelt in the 1930s, Japan in the 1990s, Bush in 2008, and Obama in 2009), the Estonians realized that they needed to cut spending.

And now that spending has been curtailed, it’s worth noting that growth has resumed.

What makes Krugman’s rant especially amusing is that he wrote it just as the rest of the world is beginning to notice that Estonia is a role model. Here’s some of what CNBC just posted.

Sixteen months after it joined the struggling currency bloc, Estonia is booming. The economy grew 7.6 percent last year, five times the euro-zone average. Estonia is the only euro-zone country with a budget surplus. National debt is just 6 percent of GDP, compared to 81 percent in virtuous Germany, or 165 percent in Greece. Shoppers throng Nordic design shops and cool new restaurants in Tallinn, the medieval capital, and cutting-edge tech firms complain they can’t find people to fill their job vacancies. It all seems a long way from the gloom elsewhere in Europe. Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. …How did they bounce back? “I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank. …that’s not exactly the message that Europeans further south want to hear. …Estonia has also paid close attention to the fundamentals of establishing a favorable business environment: reducing and simplifying taxes, and making it easy and cheap to build companies.

Good policy makes a difference. But it also helps to have rational citizens (unlike France, where people vote for economic illiterates and protest against reality).

While spending cuts have triggered strikes, social unrest and the toppling of governments in countries from Ireland to Greece, Estonians have endured some of the harshest austerity measures with barely a murmur. They even re-elected the politicians that imposed them. “It was very difficult, but we managed it,” explains Economy Minister Juhan Parts. “Everybody had to give a little bit. Salaries paid out of the budget were all cut, but we cut ministers’ salaries by 20 percent and the average civil servants’ by 10 percent,” Parts told GlobalPost. …As well as slashing public sector wages, the government responded to the 2008 crisis by raising the pension age, making it harder to claim health benefits and reducing job protection — all measures that have been met with anger when proposed in Western Europe.

It’s worth noting, by the way, that government is still far too big in Estonia. The public sector consumes about 39 percent of economic output, almost double the burden of government spending in Hong Kong and Singapore.

But, unlike certain American politicians, at least the Estonians understand the problem and are taking steps to move in the right direction. I hope they continue.

P.S. The President of Estonia, a Social Democrat named Toomas Hendrik Ilves, used his twitter account to kick the you-know-what out of Krugman yesterday. For amusement value, check out this HuffingtonPost article.

P.P.S. A few other nations, such as Canada and New Zealand, also imposed genuine spending restraint in recent decades and they also got good results.

When you work at a non-profit, like Cato, you accept part of the deal is being paid below-market wages. Not that I’d reject a raise, but I actually think it improves the organization. No one is here for the money. You’re here for the mission. When one hears, however, of public employees, especially those in “mission-driven” organizations, being paid out-sized compensation, you can’t help but wonder what happened to the devotion to the mission.

In response to public complaints, HUD conducted a survey of public housing authority director compensation. The average salary, not including benefits for a housing authority director, who manages over 1,250 units, was $115,615 (2010). Certainly in excess of the median household income, but not extreme for senior public employees (who in general are over-paid).

A few “outliers” did stand out. The Atlanta public housing director apparently received, in 2010, $644,241 in total compensation. Now of course, that director is claiming that such a number is “misleading” as it includes bonuses and pay-outs for unused vacation. You can find her defense here and judge for yourself. I would certainly say from having met her on a few occasions, she is one of the more competent and hard-working housing authority directors. But worth $644,241?

HUD’s reaction to all this? To cap the federal contribution to $155,500. Given that housing authorities are themselves creatures of state law and their directors usually appointed by mayors or governors, it is not clear to me why there should be any federal contribution to their compensation. Let’s cap the federal part at zero. If a city, county or state wants to continue to receive federal housing money, the least it can do is manage to pay the salary of its director. While I’m no fan of federal housing programs, I’d at least like to see said funding actually go to those in need.