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Fannie Mae Employees Keep Fat PayChecks at Taxpayers’ Expense
Earlier this week the Inspector General (IG) of the Federal Housing Finance Agency released a report documenting the current pay levels of mid-level executives at Fannie Mae and Freddie Mac, those mortgage giants which contributed to the financial crisis and have so far cost the taxpayer over $180 billion. Despite the bail-outs, it seems the GSEs are still a comfortable place to work, all at the taxpayers’ expense.
This chart, reproduced from the IG report, illustrates that the GSEs’ over 300 Vice Presidents actually got paid more in 2011 than 2010, with a median compensation of $388,000. Those poor directors, of which there are over 1,650, had to make due on a median compensation of only $205,300. For running two companies into the ground, these executives seems pretty well paid to me.
One of the arguments against cutting pay at Fannie and Freddie is that all the good employees will leave, ultimately costing the taxpayer even more. First I question whether we want the same people running these companies that ran them into the ground. Shouldn’t we be cleaning house at Fannie and Freddie? Secondly, voluntary employee attrition rates since the GSEs have been taken over aren’t all that much higher than before their bail-outs. If anything these rates are too low. Again given their role in the companies’ failures, we should encouraging long-time Fannie/Freddie employees to leave, not stay.
I have long proposed that since the taxpayer now outright owns Fannie and Freddie, their employees should be paid like federal government employees (who are already over-paid). To continue to allow the same people who stuck the taxpayer with a $180 billion bill to be paid lavishly, is to add insult to injury.
Obama, Barbara Walters, and Marijuana Users
In an interview with Barbara Walters, President Obama was finally asked about the dramatic legal changes underway in Colorado and Washington–the legalization of marijuana for adults under state law. The President said that the federal government has “higher priorities” than arresting marijuana users. At first glance, that may seem like a good answer for those supportive of drug policy reform, but it is not.
Here’s why: Arresting marijuana users has never been a high priority of federal law enforcement. There are about 800,000 marijuana arrests in the U.S. every year. The feds are responsible for about 1% of those. The feds rely on state and local police to conduct domestic drug investigations–especially users with small amounts. The feds want to focus their resources on the big international cartels operating outside the country. Of course, the DEA also gets involved with the larger smuggling operations inside the U.S. In California, where marijuana is quasi-legal for users (in a de facto sense) federal prosecutors focus on the supply side–raiding, harassing, arresting. The feds bypass juries by using civil asset forfeiture laws against persons opening dispensaries.
Against that background, listen again to Obama: My administration has higher priorities than going after marijuana users. Hmm. That’s just another way of saying “nothing has changed as far as I’m concerned.” I expect Attorney General Eric Holder to announce a legal challenge to the Colorado and Washington initiatives sometime soon. And federal raids will begin soon also.
Cato hosted an event this week on some of the issues related to such a federal legal challenge. Speakers included, former DEA chief, Asa Huthinson and Robert Mikos, Vanderbilt law professor and author of a new Cato study about the interplay between federal and state law with respect to marijuana.
Bloomberg: ObamaCare Doubling Premiums for Individuals & Firms Spurs Talk of Delaying Rollout
Bloomberg reports:
Health insurance premiums may as much as double for some small businesses and individual buyers in the U.S. when the Affordable Care Act’s major provisions start in 2014, Aetna Inc. (AET)’s chief executive officer said.
While subsidies in the law will shield some people, other consumers who make too much for assistance are in for “premium rate shock,” Mark Bertolini, who runs the third-biggest U.S. health-insurance company, told analysts yesterday at a conference in New York. The prospect has spurred discussion of having Congress delay or phase in parts of the law, he said.
“We’ve shared it all with the people in Washington and I think it’s a big concern,” the CEO said. “We’re going to see some markets go up as much as as 100 percent.”…
Premiums are likely to increase 25 percent to 50 percent on average in the small-group and individual markets, he said, citing projections by his Hartford, Connecticut-based company.
Industry analyst Robert Laszewski comments:
[F]or the vast majority of states there will be rate shock.
I can also tell you that, so far, I have detected no serious effort on the part of Democrats to delay anything. Frankly, I think hard core supporters of the new health law and the administration are in denial about what is coming.
I expect more health insurers to be echoing the Aetna comments in coming weeks.
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An Important Victory for the Right to Keep and Bear Arms
On Tuesday, the Chicago-based 7th Circuit Court of Appeals struck down Illinois’s ban on carrying ready-to-use firearms. Moore v. Madigan is written by Judge Richard Posner, possibly the most famous non-Supreme Court judge in the country, and is an important extension of the Second Amendment right to keep and bear arms. Judge Posner’s decision makes it very clear that the right to self-defense entails more than just allowing people to keep guns in the home.
In the landmark case of United States v. Heller, a case in which Cato was intimately involved, the Supreme Court struck down the District of Columbia’s near total-ban on having guns in the home. Two years later, in McDonald v. Chicago, the Court expanded this protection to the states, striking down Chicago’s equally draconian gun ban.
Ever since those two cases established and expanded the right to keep and bear arms, lawyers have been testing the waters to see how far the Supreme Court’s ruling goes. Heller held that the protection of the home with a reasonable firearm (i.e. a handgun, not a rocket launcher) is the core of the Second Amendment. While that right cannot be totally eliminated by states and municipalities, it is still subject to reasonable regulation. Yet this holding only addressed the Second Amendment right to keep arms, not to bear them. Both words are in the Amendment and both words clearly mean different things.
Up until Tuesday, Illinois was the last state to flatly ban all carrying of ready-to-use guns outside the home. Since the mid-1980s there has been a remarkable proliferation of states that offer concealed-carry permits. As you can see from this nifty animation, in 1986 only 34 states allowed their citizens to carry guns. Moreover, most of those states had “may-issue” permitting, meaning that local officials are given broad discretion in choosing who gets a permit. “May-issue” statutes often contain discretionary language such as, “if the sheriff determines the applicant to be of good moral character and of having proper cause for wanting a permit then he may issue a permit.” While “may-issue” laws are better than “no-issue” laws, they imbue local officials with far too much discretion over whether a citizen is of sufficient “moral character” and has “proper cause” to be allowed to exercise her fundamental right to self-defense. In a decision that Judge Posner criticizes in Moore, the Second Circuit recently upheld New York’s “proper cause” provision.
As you can tell by the animation, the growth in “shall-issue” states is astounding. Today, unless you live in Illinois, you may be surrounded by many legally gun-toting citizens, and while you may not have noticed this, trust me, the criminals have. And despite this massive increase in the legal carrying of weapons, crime is still going down and we are not living in a modern recreation of the Wild West. Instead, as Clayton Cramer and David Burnett documented in the recent Cato study, Tough Targets, those carrying weapons are increasingly using them to protect themselves and to save lives.
In his decision, Judge Posner discusses the evidence on both sides of the debate over the relationship between guns and crime. He also decides that the evidence is more or less irrelevant to the question of whether the Illinois ban can survive:
In sum, the empirical literature on the effects of allowing the carriage of guns in public fails to establish a pragmatic defense of the Illinois law. Anyway the Supreme Court made clear in Heller that it wasn’t going to make the right to bear arms depend on casualty counts. If the mere possibility that allowing guns to be carried in public would increase the crime or death rates sufficed to justify a ban, Heller would have been decided the other way, for that possibility was as great in the District of Columbia as it is in Illinois.
Posner then finds the Illinois ban squarely proscribed by the plain language in Heller and McDonald:
A woman who is being stalked or has obtained a protective order against a violent ex-husband is more vulnerable to being attacked while walking to or from her home than when inside. She has a stronger self-defense claim to be allowed to carry a gun in public than the resident of a fancy apartment building (complete with doorman) has a claim to sleep with a loaded gun under her mattress. But Illinois wants to deny the former claim, while compelled by McDonald to honor the latter. That creates an arbitrary difference. To confine the right to be armed to the home is to divorce the Second Amendment from the right of self-defense described in Heller and McDonald.
The decision is certainly an important victory for the right to self-defense. We will now wait to see if Illinois appeals the decision. While Judge Posner struck the ban down, he delayed his mandate for 180 days in order to “allow the Illinois legislature to craft a new gun law that will impose reasonable limitations, consistent with the public safety and the Second Amendment as interpreted in this opinion, on the carrying of guns in public.”
My prediction is that, rather than risk the Supreme Court affirming the ruling, Illinois will impose a severely limited permitting system. Either way, this is certainly the most important case decided under the Second Amendment since McDonald.
Chuck Hagel Would Be an Excellent Secretary of Defense
The rumors that President Obama will nominate Chuck Hagel to be the next Secretary of Defense should be welcomed by anyone frustrated by years of war and foreign meddling, and out-of-control spending at the Pentagon. Which is to say, nearly everyone. I hope the reports are true.
The biggest boosters of the Iraq war, the Afghan war, the Libyan war, and possible war with Syria and Iran, are apoplectic. And they should be. Hagel, a decorated Vietnam war veteran, understands war, and doesn’t take it lightly.
Although the president will obviously make the decisions, I expect that Hagel will generally advise against sending U.S. troops on quixotic nation-building missions. We might even see a resurrection of another Republican SecDef’s criteria for restraining Washington’s interventionist tendencies. At a minimum, Hagel will reflect Colin Powell’s view that “American GIs [are] not toy soldiers to be moved around on some sort of global game board.”
Hagel’s speech earlier this week to the Atlantic Council encapsulated many of the views that he has articulated throughout his career: he favors active engagement with the outside world, wants America’s allies to contribute more to global security and to cooperate with the United States in addressing common challenges, and is a consistent advocate for free trade.
I don’t put much stock in the neoconservative echo chamber’s claim that Hagel will have a tough time being confirmed. As David Boaz pointed out in 2010, Hagel’s other views should put him squarely in the conservative Republican camp. Aside from the small (and shrinking) Interventionist Caucus in the Senate, on what grounds would other Republicans oppose his nomination? Because he learned the error of his ways in initially supporting the Iraq war, and many of them never did? If more Republicans had come to their senses sooner, they would likely be the majority party in the Senate, and Hagel could just as easily have been nominated by a Republican president.
I had the pleasure of introducing then-Senator Hagel at a Cato event on Capitol Hill in 2007. We welcomed him to Cato to talk about his book in 2008. He is a serious and thoughtful individual who has served this country well, and will do so again. I sincerely hope that President Obama chooses him to be the next Secretary of Defense.
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Did the Profit Motive Spark the Recent Asian Factory Fires?
[This is an expanded version of my opinion piece in the New York Times online, today.]
Critics of capitalism and globalization have rendered judgment: Western apparel brands and big box retailers, in their zeal to perpetuate and profit from soulless, rampant consumerism, are to blame for the recent, tragic fires in Bangladeshi and Pakistani apparel factories. Fealty to nothing but the bottom line, so the story goes, drives investment toward the low wages that persist alongside lax health, environmental, and safety standards. Such characterizations evoke Friedrich Engels’ mid-19th century Manchester. Abuse and tragedy are inevitable… unless good people speak out.
(For a sampling of these viewpoints, just Google “factory fire Bangladesh” or read some of the views and comments at “Room for Debate.”)
Most outspoken people express empathy for the victims and sadness about the recent tragedies and then proceed to vent their rage against capitalism and globalization without considering how those processes have improved the lives of billions of people in developing countries. Those for whom feeling crowds-out thinking tend to assume someone can just wave a magic wand and rid the planet of poverty. If Walmart and Target and Sears and Tommy Hilfiger and L.L. Bean weren’t so damn greedy, the thinking goes, life would be better for workers in poor countries.
It’s a bit rich to see enlightened, cosmopolitan members of the media elite expressing disdain for consumerism and demanding greater accountability from the retailers and brands, when their own advertising-revenue-dependent employers are just as complicit (if that’s the right word) in fueling consumerism. Yesterday, when clicking to the second page of this online New York Times story, which seems to confer blame for 112 deaths in Bangladesh on Western brands and retailers, I was mugged by a pop-up ad for Banana Republic. (Hey, before finishing this article, you must spend $199 on this faux-safari outfit or $99 on these seersucker picnic trousers.)
If Walmart is responsible for insuring safety at the factories with which it contracts because the relationship enhances it’s bottom line , shouldn’t the networks, the newspapers, and the magazine publishers (who profit from Walmart’s advertising budget and whose ads perpetuate consumerism) be accountable, too? Alas, nothing would cause greater deforestation than a project cataloging the hypocrisy of the sanctimonious Left – except, perhaps, a project documenting the hypocrisy of the puritanical Right.
Obviously, developing country factory conditions do not appeal to rich-country sensibilities. But the proper comparison is not between wages and conditions in a factory in Dhaka, Bangladesh and Dayton, Ohio. More appropriate is to consider the alternatives that would exist in poor countries in the absence of Western investment. In a series of articles over the years, New York Times columnist Nicholas Kristof has argued that factory work offers a step up the ladder for billions of impoverished people around the world. His stories about the subsistence options confronting Cambodian women before the arrival of apparel factories – picking through garbage dumps, backbreaking agricultural work, and prostitution – remind us to not make the perfect the enemy of the good.
Of course that doesn’t justify an unsafe work environment. And, in fact, Western investment in developing country factories, whether through ownership or partnership with local owners, tends to raise the average wage, improve the health and safety conditions of the workplace, and reduce the average environmental impacts. Why? Because of that reviled profit motive.
Western companies usually offer wages that are higher than the local average to attract the most productive workers. Those companies are protective of their brands, which in some cases are their most valuable assets. Labor or environmental abuse, lax safety standards, and unhealthy or hazardous products associated with the brand are detrimental to the bottom line. As cold as that may sound, those considerations compel companies to submit to third party verifications of all sorts of working conditions because they have incentives, through the market, to get it right (or, perhaps more aptly, disincentives to get it wrong).
Exposure of labor abuses, safety violations, tainted products, environmental degradation, and other social ills associated with a brand or a retailer hurts to bottom line. Thus, company management doesn’t necessarily have to have genuine empathy for its workers and concern for the environment when there are proper incentives in place to compel them to behave as if they do have genuine empathy or concern for the environment. Bad press and bad perceptions can quickly degrade or destroy a brand in an age where the public increasingly demands social accountability as an attribute of the products and services it consumes. The verdict of the marketplace can be swift and unambiguous. Just ask Mattel, whose bottom line took a beating during the lead-paint-in-kids-toys debacle a few years ago or Nike, which has suffered boycotts and profit suppression over the years for allegedly contracting with “sweatshops.”
Critics wrongly complain that there’s little accountability. There is accountability, but that doesn’t insure against all accidents or abuses. There are industrial accidents and abuses in U.S. workplaces. But what if there were no Western investment in poor countries? What employment options would the locals have? Working for a local factory? Okay, but there is certain to be much less accountability under that arrangement. Western investment in developing country factories and just doing business with locals brings much greater accountability to the work environment. It doesn’t mean there won’t be any problems, but without that investment, abuses and tragedies would be more frequent.
The most prominent entities in the supply chain will be held to account for these fires, and safety procedures and infrastructure will surely be evaluated and upgraded, not only in Pakistan and Bangladesh, but in whatever jurisdictions these entities’ supply chains traverse. Tragedies have provided teaching moments throughout history. Unfortunately, one lesson that hasn’t been absorbed by enough Americans is that capitalism and globalization are making life much better for people in developing countries.