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Today, the momentum is growing for fundamentally restructuring the national residential mortgage market in the wake of the earlier collapse of the Federal National Mortgage Association (FNMA, or "Fannie Mae") and Federal Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac). These two government-sponsored enterprises (GSEs)--so-called in recognition of their hybrid public/private nature--have long written large chunks of the residential home mortgage market, to the tune of trillions of dollars. The current legislative fixes now on the table include a bipartisan proposal from Tim Johnson and Mike Crapo, coupled with an earlier entry by Maxine Waters. The Johnson-Crapo proposal follows on earlier entries from Jeb Hensarling on the House side and Bob Corker on the Senate side. Each of these proposals seeks simultaneously to unwind the past and to redefine the future. To evaluate them requires understanding the historical linkage between past events and future prospects.

To begin, some background. In response to the brewing subprime mortgage crisis in 2008, Congress in late July of that year passed the Housing and Economic Recovery Act (HERA). That legislation, inter alia, created a new Federal Housing Finance Agency (FHFA), which on September 7, 2008 placed into a conservatorship both GSEs. These conservatorships were intended to keep both entities alive in order to facilitate their return to the private market. They were not receiverships whose object is the orderly liquidation of the two businesses. The basic plan called for an infusion of up to $200 billion in fresh cash into Fannie Mae and Freddie Mac under a Senior Preferred Stock Purchase Agreement (SPSPA) that gave the government warrants, exercisable at a nominal price, to acquire a 79.9 percent ownership stake in each enterprise. In exchange for that advance the senior preferred stock carried a 10 percent annual dividend payment, which went up to 12 percent if the GSEs delayed their dividend payments on the senior preferred.

The terms of that deal were radically altered in August 2012, when the United States, acting through the Treasury Department, imposed, through the Third Amendment to the 2008 SPSPA, a "net worth sweep" that entitled the government to 100 percent dividends on future earnings. That one bold stroke effectively made it impossible for the GSEs to repay their loans and rebuild their capital stock. Both the junior preferred stockholders and the common shareholders could under this agreement never receive a dime from either GSE, even after the entities returned to profitability. Assessing this gambit requires understanding two things: first, the relationship between the Third Amendment and the original 2008 SPSPA; and second, the relationship between the Third Amendment and efforts to revitalize the housing market. Both relationships are widely misunderstood today.


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Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

In a general, political sense, people tend to characterize "populism" as a movement against corporate marauders who are perpetually searching for a way to fleece the unsuspecting average citizen. In order to curtail this supposed abuse, government should step into various facets of the corporate/individual relationship to make sure that there remains what it considers a proper balance of interests.

In a larger, economic sense though, populism is better characterized as a movement of capital from government to government-favored enterprises. The latest example comes to us from Maryland. Steve H. Hanke, professor of applied economics at Johns Hopkins University, and Stephen Walters, a fellow at JHU's Institute for Applied Economics, Global Health, and the Study of American Business, have written an op-ed examining the manner in which the Maryland government is misallocating capital by dispersing it amongst projects that it believes will become profitable, rather than allowing that capital to remain in the market and flow to its most productive uses. As a result, those entities or people that are closely connected to the government would naturally have more influence in determining how the money would be allocated. Hanke and Walters highlight a recent example:

A small but telling example is in Towson, a thriving suburb of Baltimore, where the proprietors of a sports-themed chain restaurant called the Greene Turtle recently built a rooftop bar so patrons could imbibe at altitude. Just good old American enterprise at work, except for the fact that, according to the Baltimore Sun, $505,000 of the $890,000 cost came out of taxpayers' hides as low-interest government loans, much of which will be forgiven if the enterprise meets modest "employees added" targets and stays open five years.
At the grand opening on Jan. 2. Maryland's First Lady, Katie O'Malley, presented a governor's citation to the bar's proprietors, who happened to be childhood friends. It's remarkable how often development dollars trickle first to cronies or political donors.

Besides the obvious ethical conundrums involved in these sorts of deals, the economic impact is ultimately devastating. As this money flows to government-favored projects, the importance of economic viability studies and projections concomitantly lessens. Instead, the judgment of the executive and legislative branches replaces any institutionalized process. The ad hoc nature of this routine ultimately leads to ad hoc results:

In 2006, Martin O'Malley --then Baltimore's mayor, now the state's governor and a presidential aspirant--decided that the Baltimore Convention Center needed an adjoining hotel. Private investors disagreed, so City Hall "invested" $300 million to enter the hospitality industry. Since opening its doors in August 2008, the Hilton Baltimore--city-owned but managed by the global hotelier--has recorded more than $50 million in operating losses.


Baltimore's relentless and much-applauded campaign of subsidized development along its waterfront provides another example. Tax breaks of more than $200 million for a $1 billion project on a former industrial site called Harbor Point--justified with the usual claims that this will create thousands of jobs--have provoked demonstrations by citizens who now realize that these promises are empty. Since 2001, the city has bled 49,000 jobs.

As the failure of these projects begins to increase in frequency, the government will be forced to either cut spending, raise taxes, or increase borrowing to make up for the revenue shortfall. As Hanke and Walters note, Maryland has opted for the second one, raising taxes on personal and corporate income, while adding a slew of excise taxes to the mix. Even still, Maryland faces a structural deficit of $166 million over the next two years, while dealing with the exodus of 66,000 residents and $5.5 billion in taxable income from 2000-10. Consequently, the government will have to increase taxes again to make up for the shrinking of the tax base. This vicious cycle of tax-and-spend will continue until Maryland realizes that economic viability must be the primary criterion utilized when making investments, and that the market is in the best position to make consistent, wise investments.


Our latest column from Professor Richard Epstein:

The Improbable Fate of the Durbin Amendment in the Circuit Court of Appeals for the District of Columbia
A Learned Court Makes Intellectual Hash of an Ill-Conceived Statute

The 2010 enactment of the Durbin Amendment as part of the Dodd-Frank Act set into motion an extensive round of administrative rulemaking and litigation that may well have run its course with the recent unanimous opinion of the Circuit Court for the District of Columbia, written by Judge David Tatel for himself and Senior Judges Harry Edwards and Steven Williams in NACS (formerly National Association of Convenience Stores) v. Board of Governors of the Federal Reserve. The outcome of the case was to sustain the decision of the Federal Reserve to allow the banks that issue debit cards to recover $0.21 cent on average in debit card transitions. In so doing, the Court reversed the decision below by Judge Richard Leon, which was openly contemptuous of the arguments of the Fed that carried undue weight in the Court of Appeal. It is a long saga in which no one is covered with glory. To set this in context, it is therefore regrettably necessary to review some of Durbin's tangled history.

The Durbin Amendment The debit card was one of the great commercial innovations in American banking. Starting from a standing start in 1995, it managed by 2009 to become the dominant form of payment in the United States, eclipsing the venerable credit card both in number of transactions and in dollars transferred. One might have thought that this enviable record of success would have won plaudits across the board, for no program can enjoy such success if it does not create net gains to all the parties who contribute to the system.

In this case, those parties numbered five. In the middle of the picture lay the credit card companies, chiefly Visa and MasterCard, which orchestrate transactions between two sides of the market. On the one side lie the credit card holders who received their cards from issuing banks. The key feature of the pre-Durbin arrangement was that the debit card holder paid no monthly or swipe fee for the use of the card. Instead the cost of servicing and recruiting the debit card holders was funded by an interchange fee that was paid to the issuing banks from the retail merchants who accepted the cards. These merchants also paid a fee to the acquiring banks that serviced their accounts, and a smaller fee to the credit card companies that orchestrated the transaction from the middle.

In NACS, Judge Tatel accepted the Durbin fairy tale that this entire arrangement reeked of market failure because of the high level of interchange fee charged for the occasion. But at no point does he explain what the correct fee ought to be, for his only account of market failure is that merchants discovered that they could not do without the card, from which, however, it does not follow that they will pay anything to get it. Rather, what happened was that the credit card companies in discharge of their contractual obligations set the interchange fees at a level that allowed all parties to prosper. The use of that payment in these two-sided markets in effect put the cost of running the system on the parties for whom demand was inelastic (i.e., relatively unresponsive to price changes). The lower prices offered to cardholders thus increased the number of card users, which in turn allowed the fixed costs of running the system to be amortized over a larger customer base. And those interchange dollars funded the special benefit packages that kept debit cardholders coming into the system. In a word, the system was not broken, and the Durbin Amendment did not fix it.

More specifically, the Amendment introduced its own novel inefficiencies by its government command. The relevant text has to be set out in full in order to understand the bizarre nature of the Circuit Court's decision. It reads as follows:

Section 920 (2) Reasonable interchange transaction fees The amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.

In prescribing regulations under paragraph (3)(A), the Board shall--

(4) (B) distinguish between--

(i) the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction, which cost shall be considered under paragraph (2); and

(ii) other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered under paragraph (2).

The correct reaction to this sorry provision is that it is both clear and misguided. The initial material in subsection (2) is deeply uninformative because setting fees that are "reasonable and proportional to the cost incurred by the issuer with respect to the transaction" gives no hint of the horror to come. That capacious phrase clearly covers all costs, both variable and fixed, associated with the transaction. On this view, the provision does not put any constraint on the fees that could be charged above and beyond those found in a competitive market, which would lead to that result.

The entire sense of the provision takes on a darker meaning in the light of Section (4)(B), which gives a definition that is far more restrictive than the general statement above. It divides the world into two kinds of costs and makes it clear that only the "authorization, clearance, or settlement" costs for a particular electronic transaction should be considered under paragraph (2) while all other costs are removed.

Judicial Obscurantism in the Court of Appeals It does not take a genius to conclude that the listing of these three transaction-specific costs excludes all the overall costs needed to design, operate and maintain the system. By design, those were to be cast back on the issuing banks to recover from their own debit card customers. Try as one might, it is not possible to see any gaps in the statutory structure. The only way in which this could have been made clearer is to have inserted the word "all" before "other costs" in paragraph (ii). But it is hard to resist the conclusion that Senator Durbin, perverse though he be, knew exactly what he was doing with his own Amendment. The Senator was devoted beyond all measure to Walgreen's and other retailers and equally intransigent with respect to the banks, so it is a virtual certainty that he meant what he said--and said what he meant. The retailers had excellent lawyers to help Senator Durbin along his appointed path. Judge Tatel called the Durbin Amendment a badly drafted statute, but that charge is surely wrong. Incompetently conceived, surely, but accurately drafted, regrettably, is a much better account of Durbin's regulatory calamity.

At this point, the contrast between the learned obscurity of Judge Tatel and the blunt clarity of Judge Leon's opinion below is a sight to behold. The key argument of Judge Tatel is that this text could "easily" be regarded as ambiguous so that it is correct for the Board to allow "issuers to recover, equipment, hardware, software and labor costs since [e]ach transaction uses the equipment, hardware, software and associated labor, and no particular transaction can occur without incurring these costs." Judge Leon rightly dismissed that claim in one word: "Please."

Leon's terse view of statutory interpretation makes infinitely more sense than the tendentious reading Judge Tatel, who relied on this identical passage to incorporate the semiotics of Jacques Derrida or the post-structuralism of Michel Foucault into modern administrative law. Finding, or inventing, ambiguity where none existed, he gave the views of the Federal Reserve undeserved prominence under the regrettable Chevron doctrine that has courts defer to agencies when statutes are found ambiguous.

To conjure up that needed ambiguity, Judge Tatel launches into an extended, prolix, and tedious discussion of restrictive and nonrestrictive clauses, which, he claims, allows the Fed to infer this third class of expenses lurking in the shadows that the Fed by rule recover through debit interchange.

We are in an ethereal world. These unspecified objects might be called "fixed, variable costs". But suppose that these costs, like the Loch Ness monster, do exist. It nonetheless remains true that the impatient Judge Leon offers the only tenable reading of the Durbin Amendment: these fixed costs of running the computer network were excluded along with every other business cost needed to keep the program going, without which any particular transactions would not happen.

Economic Redemption, of Sorts As a matter of statutory interpretation, Judge Tatel's opinion is an intellectual train wreck. But functionally, it supplies a most welcome result, because of the hopelessly confiscatory nature of the Durbin Amendment, which on its face would have make made it impossible for the banks to recover their extensive invested costs in their operational system through interchange, without supplying them any alternative. To be sure, there was extensive talk of how banks should charge their own customers monthly or swipe fees. But those were never collected, after they were buried in an avalanche of abuse, starring the ubiquitous Senator Durbin who wrote the heads of Bank of America and Well-Fargo gratuitously nasty letters asking that they rescind the fees that only months before were supposed to be their salvation.

The net result was that the banks could not recover their invested capital sunk in these debit card systems. This whole statutory system borders on the farcical because it overlooks its long-term stability and success. In many places I have urged that the entire statute should be struck down as a confiscatory taking. That decision was resisted in the earlier and misguided 2011 decision of the Eighth Circuit in TCF National Bank v. Bernanke (on which I worked as a consultant to TCF through the trial stage) that suggested that the issuing banks could make up their lost revenue somehow by charging their own customers, which never happened.

As an economic matter, it is clear that the higher the allowable debit interchange fees, the less disruptive the Durbin Amendment is to the operation of the debit card interchange market, and in that sense at least the decision in NACS performs a useful public service that was no part of its intention. Indeed, I suspect--or just hope--that Judge Tatel's misguided bit of statutory interpretation will not be challenged down the road.

Remember that the panel decision was unanimous, and it may prove unlikely that either the entire District of Columbia Court of Appeal or the Supreme Court will have any appetite to untangle the tortured arguments that persuaded so distinguished a panel of the Court of Appeals. And if they did look at this statute, they should start by revisiting the constitutional issues from TCF, which were decided on an assumption that has proved false, namely, that the debit card companies can recover their lost fees from their own customers.

That seems highly unlikely at present, so at present the best achievable resolution for this issue is a large dose intellectual bed rest after all the legal twists and turns of the past four years. But who am I to say? I thought that the chances that Judge Leon's decision would be overturned were close to zero. And never in my most fevered moment could I have imagined the grotesque and improbable way in which the Court of Appeals saved the bacon of the Federal Reserve, and yes, of the issuing banks. Wonders never cease.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

Following on the heels of its passage of the FACT Act last week, the House took up the issue of lawsuit abuse more broadly:

On Thursday, November 14, the Lawsuit Abuse Reduction Act (LARA), H.R. 2655, was passed by the U.S. House of Representatives on a 228-195 vote. LARA is designed to curb the filing of frivolous lawsuits by restoring mandatory sanctions (e.g. payment of attorney fees) where a court determines a claim to be frivolous. It would amend Rule 11 of the Federal Rules of Civil Procedure to provide for mandatory sanctions and also eliminate the "safe harbor" provision which currently allows parties to withdraw a frivolous claim within 21 days without consequences.

From a procedural standpoint, this bill would streamline the Rule 11 process by delineating a bright-line rule for remedies if a claim is deemed frivolous. This would allow for increased judicial economy in the decision-making process, because judges would not have to spend additional time determining whether sanctions are appropriate for a given case. Instead, the focus would shift strictly towards determining the appropriate size and scope of the sanctions.

From a substantive standpoint, the Rule 11 reform would create greater certainty of consequences for the claimant. Because the claimant knows that an initial ruling that a claim is frivolous leads to mandated sanctions, the subjectivity of the judge's view on whether sanctions should be applied becomes irrelevant.

At the same time, because the judge retains subjectivity as to the breadth of the sanctions, the claimant does not have the variables necessary to measure whether it still might be worth it to bring a claim or group of claims. As a result, the claimant would naturally be reluctant to bring a substandard claim in the first place, especially because the removal of the safe harbor provision would make it even riskier to do so.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

In the midst of the myriad political battles going on in Washington, there is some good news:

On Wednesday, November 13th, the Furthering Asbestos Claim Transparency (FACT) Act, H.R. 982, was passed by the U.S. House of Representatives on a 221-199 vote. The FACT Act is designed to curb fraud and abuse in asbestos litigation by addressing the problem of false and/or inconsistent claims submitted to asbestos bankruptcy trusts and in the civil justice system.


The legislation would amend federal bankruptcy law to require asbestos bankruptcy trusts to submit quarterly reports to the overseeing bankruptcy court which detail each demand made against the trust by a claimant. The Act would, therefore, provide a link between the separate personal injury compensation systems of the bankruptcy trusts and the civil justice system.

The House's passage of the bill serves as an admirable first step in redirecting trust funds to those who are rightfully entitled to them. The Senate should take this signal from the House and pass the bill with all deliberate speed. The interests of the plaintiffs' bar cannot take precedence over justice for aggrieved individuals with legitimate claims. The interests of commerce and the worker are in perfect alignment. The only loser here would be those lawyers who can no longer make fraudulent claims and get away with it.

Update on BAMN
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Earlier this year I posted a blog about the case the Supreme Court was set to hear concerning Michigan's ban on affirmative action, pointing out what I viewed as some significant flaws in the plaintiffs' arguments. Moreover, I analyzed the issues in a more thorough manner in a recent law journal article here. On October 15th of this year, the Supreme Court heard oral arguments in that case, under the title Schuette, Attny. Gen of Mich., v. BAMN, et al. Central to the BAMN case is the assertion that Michigan's Proposal 2, which amended the state constitution to outlaw affirmative action, inter alia, at the state universities, set up a different political process for lobbying for racial preferences than the process for lobbying preferences based on alumni status, athletic ability, etc. Thus, under the Hunter/Seattle line of cases, Proposal 2 arguably violates the federal Equal Protection Clause.

As is often the case, both listening to the oral arguments, and reading the transcripts thereof, provides the observer with a very brief glance at what the attorneys presenting consider the most important aspects of the case. Actually, what the transcripts probably show is the issues that the competing attorneys think are both central to the issue, and on which certain Justices are still persuadable. They only have a brief time, the issues are very complex, and so choices of time and energy must be made.

The written briefs, along with briefs from amici, lay out the arguments in more detail. They show that Justice Kennedy, once again, is perceived as the swing vote, as arguments in the briefs are clearly designed to convince him, not so subtly, often reminding him of his own words from other cases. But despite this strategy, Shuette, who as Michigan's Attorney General was defending Proposal 2, spent most of his time answering questions by Justices Ginsburg & Sotomayor. In contrast, and perhaps not surprisingly, the attorneys for the two defendant groups were grilled pretty thoroughly by Justices Roberts, Scalia, and Alito. With all the usual cautionary caveats about predicting what the Court will do, the interactions with Justices Kennedy and Breyer may be most relevant. Both seemed somewhat skeptical of the defendants' arguments. Obviously, only time will tell how the Court will rule. But based on the arguments expounded in the oral arguments, it would be difficult if not impossible for the Court to rule in favor of the defendants. Otherwise, as Justice Scalia suggested, the federal Equal protection clause would contradict itself.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

This week, the Supreme Court is considering a potentially-transformative case that could alter the range of free speech protection granted under the First Amendment. In McCutcheon v. FEC, the Court must decide whether aggregate limits on the amount a person ($48,600 for direct contributions to candidates; $74,600 for donations to non candidate-affiliated political committees) can donate during an election cycle is constitutionally permissible.

Specifically, the Court's constitutionally-relevant precursor here is Buckley v. Valeo, which held that contributions could be limited due to the fear of perpetuating corruption by allowing a donor to make unlimited donations to a single candidate in exchange for political favors. Ostensibly, this appears to be a legitimate concern, possibly even to the extent of allowing for a qualified restriction on political free speech.

But in a larger sense, the specific principle laid out in Buckley cannot been extended out to encompass an area in which the Court's reasoning does not logically extend. The end as stated in Buckley is to subvert potential political corruption, through the means of restricting the amount an individual can donate to candidates for federal office. If we extend this logic to McCutcheon, the stated proposition would stand as: If we restrict the amount of money an individual can give as an aggregate to various candidates, then we are furthering the end of subverting potential political corruption.

Now, the Federal Election Campaign Act already restricts individual donations to a single candidate to $5,200 ($2,600 for primary; $2,600 for general election). Using the Buckley logic, these means can seem to be tailored towards preventing political corruption by preventing a candidate from being beholden to a donor rather than an idea. However, this logic falls apart when we try to say that a limit on the aggregate amount a donor can make furthers this same end. By this extension, a donor could be restricted from donating even nominal amounts to a candidate if the donor has already hit the aggregate ceiling. In oral arguments, Chief Justice Roberts addressed this exact point:

"The concern," Chief Justice John Roberts noted, "is you have somebody who is very interested, say, in environmental regulation, and very interested in gun control. The current system, the way the anti-aggregation system works, is he's got to choose. Is he going to express his belief in environmental regulation by donating to more than nine people there? Or is he going to choose the gun control issue?"

An aggregate cap stands as a forced rationing of political thought as expressed, ironically, through the Buckley proposition that money in service of political speech is protected by the First Amendment. Because the latter statement is a long-standing legal fact, the logical disconnect becomes more apparent.

Moreover, because we are dealing with First Amendment protections, the means must be given "strict scrutiny" examination. The Buckley court seemingly found donor limits to individual candidates to be narrowly-tailored means to the end of rooting out potential quid pro quos.

In order to extend that to McCutcheon, the Court would have to say that the additional burden on political speech created by aggregation caps is either 1) still narrowly-tailored to the anti-corruption end or 2) come up with a new justification for the aggregation caps that can pass strict scrutiny.

Finally, because Super PACs are largely funded by wealthier donors, the aggregate caps would destroy the influence and impact of smaller donors in a variety of political arenas, while allowing larger donors to increase their influence in the political process; this would abrogate the intention of campaign finance laws in the first place. Considering these legal and policy implications, the Court should take this opportunity to clear the way for free expression of political thought.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

It looks like the federal government is getting ready to launch itself firmly into the debate over patent trolls. The Manhattan Institute recently released a report that focused on the nature and practice of these so-called "patent trolls," or companies that frequently exist for the express purpose of acquiring large patent portfolios and suing companies that infringe for licensing fees. The Federal Trade Commission recently announced that it would begin a process of further inquiry by using its subpoena power to call 25 Patent Assertion Entities and 15 device/software manufacturing companies. The stated aim of the inquiry is to better understand the logistical framework of patent trolls and the manner in which accrued capital is distributed. It will be interesting to see if this investigation simply serves to satisfy procedural formalities or actually leads to substantive policy action down the road.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

The Justice Department likes to proclaim itself to be an advocate for ensuring equality of opportunity across the entire socioeconomic spectrum of America. In terms of education, it likes to claim that universal access to education for the disadvantaged is the key to maintaining a stable democracy and a generally-inclusive civic society. Ostensibly, this is certainly a salutary position, and certainly a noble policy aim.

There always seems to be, however, a disconnect that constantly emerges with the stated ends and the desired means of reaching this goal. The latest example comes to us in the form of a lawsuit aimed at halting Louisiana's voucher program. Attorney General Eric Holder is asking a federal court to halt the use of vouchers, pursuant to the mandates of a case called Brumfield v. Dodd. The stated reason is that the racial balance of schools will get altered in contravention of the desegregation orders laid out in Brumfield, and that the state should have to seek federal approval for each district in which it wishes to utilize vouchers.

Even before analyzing the legal missteps, the Justice Department's logic implicitly admits two things: 1) That racial balancing should take precedence over educational opportunity for low-income students and 2) that the chance of vouchers not meeting the Brumfield racial balancing standard is enough to repudiate the entire voucher program. If equality of educational opportunity is indeed the desired end, then this approach does not seem to be the most efficient means of reaching it.

Moreover, the Justice Department is misapplying the legal standard. Clint Bolick, vice president for litigation at the Goldwater Institute and advocate for the Louisiana chapter of the Black Alliance for Educational Options, recently wrote about the myriad misapplications:

Curiously, the Justice Department did not file its motion in any of the ongoing Louisiana desegregation cases. Instead, it seeks an injunction in Brumfield v. Dodd , a case filed nearly 40 years ago challenging a program that provided state funding for textbooks and transportation for private "segregation academies," to which white students were fleeing to avoid integration. Since 1975, private schools have had to demonstrate that they do not discriminate in order to participate in that program.


The Louisiana Student Scholarships for Educational Excellence Program restricts participation to private schools that meet the Brumfield nondiscrimination requirements. The program further requires private schools to admit students on a random basis. Thus the program clearly complies with Brumfield. And the Brumfield court has no jurisdiction over the desegregation decrees to which the Justice Department seeks to subject the voucher program.

Nor can any court properly force the state to seek advance approval from the Justice Department for a clearly nondiscriminatory program that advances the education of black children. As the Supreme Court ruled earlier this year in Shelby County, Alabama v. Holder, when it struck down the "pre-clearance" formula of the 1965 Voting Rights Act regarding federal approval for electoral changes, states cannot be forced to submit their decisions to federal oversight "based on 40-year-old facts having no logical relationship to the present day."

It does not seem like too much of a stretch to assume that, when the proffered means run so afoul of the stated ends, there is some sort of variable intervening between the point A to point B relationship. This interference generally takes the form of some sort of special interest or political motive that ends up taking precedence over the general welfare. In this case, there seems to be a symbiotic relationship between the Justice Department (which does not want to cede power over enforcing desegregation decrees) and the local school districts (which obtain federal funds in connection with these decrees). As long as the political class favors power perpetuation over the welfare of its constituents, we will continue to see the advocacy of mutated means towards empty ends.


The citizens of Louisiana, through their elected representatives, have chosen to fund educational opportunity for students primarily through traditional public schools. In addition, in situations where those public schools prove to be insufficient, they have offered to a small percentage of parents the opportunity to try an alternative-a private school experience at taxpayer expense (at least partially). But the Louisiana Supreme Court recently held the portion of the voucher law that took funding from public schools to give to parents for use at private schools invalid under the state constitution. Following this setback, the legislature was confronted with the task of finding alternative funding for the voucher program.

Regardless of what one thinks of the merits of the Louisiana voucher program, it appears the state Supreme Court did its job, construing the statute strictly, and recognizing that it is the legislature who is responsible for changing the funding mechanism of the state's schooling options, not the court's. But to make an already difficult situation even more so, the U.S. Department of Justice is now engaged in a law suit against the State of Louisiana in an attempt to restrict or stop the voucher program. The justification for DOJ's position is stated as an attempt to enforce compliance with decades-old desegregation orders. While there may be some technical legal merit to the argument, I find myself skeptical that Justice cares more about integration than it does about protecting the interests of the public education lobby. Notably, the beneficiaries of these voucher programs are by statutory requirement poor, and stuck in failing schools, and are de facto overwhelmingly minority. Moreover, in the absence of evidence of de jure discrimination, the U.S. Supreme Court has repeatedly held racial balancing per se in K-12 schools to be unconstitutional. Thankfully, the discrimination that led to the decades-old desegregation orders in Louisiana is a thing of the past, and DOJ invoking them now seems a cynical move.

The DOJ, coupled with teacher union lawsuits, are not the only threats to Louisiana's voucher program, however. Political advocates of public schools are on the attack as well, sometimes advancing reasonable arguments, though not especially convincing ones, in my view. But a recent piece in Slate by Allison Benedict showed the ugly side of the anti-voucher movement. The title of the article itself (If You Send Your Kid to a Private School, You are a Bad Person: a manifesto) is almost a caricature. But sadly, the author seems to be in earnest. In the Public Discourse, Tollefsen lampooned the Benedict article, making some good points in the process. But having limited space, he left out a few things that his perceptive intellect would have doubtless treated were he addressing the topic at length. I'll try to fill a couple of gaps.

First, Tollefsen rightly notes that Benedict suggests that parents sacrifice their own children to failing public schools for some alleged benefit that might accrue to future generations. But Benedict's underlying assumption is an even more dangerous one-that the individual ought to subordinate oneself, and one's children, to the state, however destructive the arm of the state requiring sacrifice may be to those children. She baldly asserts that to do otherwise makes one "bad." This idea conflicts directly with the enlightenment principle that organized society exists to protect inherent rights of persons; persons do not exist to protect the interests of organized society. The U.S. Supreme Court, in more enlightened times, honored this principle:

"The fundamental theory of liberty upon which all governments in this Union repose excludes any general power of the State to standardize its children by forcing them to accept instruction from public teachers only. The child is not the mere creature of the State."

While Benedict, to give her some credit, concedes that she prefers moral arm-twisting to government force in this case, she does so while admitting she is not an educational policy wonk. Though I didn't brag to the cool kids in high school that I wanted to become one, I kind of am. At least I'm enough of one to recognize that in addition to her passionate plea to parents to force their children to take one for the team, Benedict seems to have gone out of her way to undercut her own thesis. She intentionally highlights her own ignorance, complete with illuminating examples, and attributes this state to her attendance of "crappy" public schools. In addition to her self-diagnosed lack of knowledge, she might have noted the gap in her preparation regarding the use of vulgar, scatological references to people she is trying to win over to her side. Perhaps a more values-centered private school could have helped her there. A better educational experience might also have helped her understand that the relationship between her public school experience and her ignorance does not necessarily imply causation.

But despite her self-professed ignorance and judgmental character, Benedict does offer reassurance. She wants the reader to know that she is "doing fine" in spite of it. In his piece referenced above, Tollefsen does a good job convincing us that Benedict is not, in fact, doing fine. But if we assume for the sake of argument that she is, her argument for universal public schooling loses all force. She wants everyone to send their children to public schools so that they will all insist that public schools be improved. But based on her own narrative, why should her readers care? If one can do "just fine" after attending a bad public school, why should any additional resources be expended to improve them? Why should anyone sacrifice their own children for some speculative future improvement?

However bad the public school Benedict attended, I am guessing it was not as bad as some of the shockingly dishonest, ineffective, and dangerous public schools attended by some would-be beneficiaries of voucher systems. I am willing to bet I could easily find many public schools to which she would not willingly send any child she loves, or even marginally values. Perhaps I'm wrong on this point, but I hope not.