Reason Magazine - Contributors

Old law vs. the new economy

info@reason.com (James V. DeLong) — Wed, 01 Aug 2001 00:00:00 EDT

In August 1997, a certain Mr. T. Trahan of CSC Credit Service wanted to let his sales executives work out of their home offices. He was uncertain about his possible obligations under the Occupational Safety and Health Act, so he wrote to OSHA, the agency that administers the act.

The wheels of bureaucracy grind slowly: His query went unanswered for over two years, but he finally received a reply in November 1999. Those wheels also grind exceeding small, because the Occupational Safety and Health Administration finally said that, yes, a workplace is a workplace and the act applies even if it is in a home. The employer must diligently identify possible hazards to protect the employee.

OSHA’s interpretive letter went on for six pages, covering such employee dangers as the possible overload of electrical circuits, the need for material safety data sheets covering hazardous chemicals, the applicability of its then-pending rule on ergonomics, and other such intricacies.

This assertion of OSHA authority went unnoticed until the next January, when a Washington Post story about it triggered a frenzy of media and congressional objections to over-regulation and invasion of the home. OSHA withdrew the letter within 24 hours, and within three weeks its head told a Senate committee that it did not hold employers responsible for home offices, did not expect employers to inspect these, would not itself inspect, and regretted the whole misunderstanding.

But that testimony clouded the reality that the agency did not retreat an inch from its view that the act does in fact apply to home offices, and that agency forbearance is a matter of choice, not law. OSHA could at any time reverse its stance, at a cost estimated by the Employment Policy Foundation, a Washington, D.C.-based think tank that leans toward the business side of employment issues, of at least $1,000 per home office for compliance with rules on clutter, lighting, furniture, exit signs, lead paint, and so on.

The OSHA telecommuting controversy was only the most publicized recent instance of the growing conflict between the possibilities of the information-age economy and the rust-caked body of labor laws and -- equally important -- mental attitudes built over the past century.

The business community assessed the outcome of the telecommuting encounter as an armistice, not a victory. Bobbie Kilberg, president of the Northern Virginia Technology Council (NVTC), told the same Senate committee that the agency’s retreat allowed her organization to continue its pro-telecommuting policy "for the present time," but that for the long run the policy needs to be formalized by legislation, or at least rulemaking.

Kilberg noted that seven of NVTC’s 17 employees telecommute at least one day per week, and that four of these are mothers with children under 14. She could have added that the NVTC is only one example of a significant trend. A Gallup poll last autumn found 8 million full-time telecommuters in the U.S. -- a number up from zero a decade ago -- out of a total workforce of 135 million. The number of part-time telecommuters is believed to be much higher.

In a year when the soccer mom was the most lusted-after political quarry in America, the significance of Kilberg’s numbers could not have escaped the senators. Woe awaits the elected official who lets OS HA eliminate the flexibility that telecommuting offers to the professional classes.

What do women workers want?

While the telecommuting battle was going on, OSHA’s analogue in the Department of Labor, the Employment Standards Administration, was fighting its own war against the new economy. ESA handles such issues as time-and-a-half overtime pay, which is required if hourly workers put in more than eight hours in a day or 40 hours in a week. It was asked how the calculation of time-and-a-half was affected by a worker’s receipt of stock options. In February 1999, it answered with an interpretation saying that the value of the option had to be considered as part of the employee’s base pay. Then it added an elaborate and absolutely incomprehensible guideline on calculating this value. As a result, a company would have had to be insane to even consider stock options for hourly workers ever again.

This, too, sat unnoticed for a time, then hit the press big at the end of 1999. As in the telecommuting case, the political system reacted strongly. But this time, ESA did not retreat. So in May 2000 Congress changed the law, by a unanimous vote in each house, so that stock options are not considered part of an hourly employee’s basic pay.

Telecommuting and stock options have both become important issues because new social attitudes are emerging from the new economy. The stock option question reflects several beliefs -- the idea that all should participate in the economic returns from the new economy, a blurring of historic dichotomies between labor and capital, and concepts of worker participation and the "we’re all on the team" ethic.

The defense of telecommuting reflects a rising national appetite for flexible employment arrangements. The Employment Policy Foundation notes that 90 percent of employed Americans work under traditional arrangements (i.e., 40 hours a week, eight hours a day at the employer’s workplace, or some regular part-time arrangement), but some 51 percent would like looser deals, such as working from home or dropping in and out of the labor force.

The desire for flexibility is especially pronounced among parents, and two-thirds of all mothers with children under 3 are now working (compared with 42 percent in 1980). Employers have been responding. While total work time required may remain rigid, more give is creeping into starting and ending times. In 1991, 15 percent of all full-time workers had flexible schedules; by 1997 (the most recent data available from the Bureau of Labor Statistics), 28 percent did.

Congress, ever ready to impose quotas in the name of whatever cause achieves sacred-cow status, has picked up telecommuting. It has decreed that federal agencies must allow telecommuting and that the Office of Personnel Management must ensure that at least 25 percent of the federal workforce is participating, starting immediately.

The increase in telecommuting and in flextime has fueled many stories about the growing openness of labor arrangements. But these two developments are not the tip of a new labor iceberg; they are the whole iceberg. In other areas, working arrangements are steadily becoming less rather than more flexible.

For example, one might expect that many young mothers who have moved into the labor force would prefer part-time to full-time work. In fact, while the absolute number of part-time workers has expanded, part-timers as a percentage of the work force have declined from 20 percent in 1982 to 16 percent today.

Nor is the Internet generating the host of independent contractors or temporary employees that was anticipated. Only 8.2 million workers are independent, and they are mostly what they have always been: management consultants, sales reps, real estate agents, carpenters, and truck drivers. No more than 156,000 independents work as computer geeks, and no tide of independents is discernible in other parts of the economy.

Agency-employed temps are also rare, supplying only 1.2 million workers. They are not particularly noticeable in high tech; only 1 percent (18,000) of all systems analysts and 2 percent (15,000) of programmers live in the temp world.

The increase in scheduling flexibility has also proved a limited benefit. It applies mostly to professional, managerial, and sales workers, 40 percent of whom can control their schedules. As one moves down any given hierarchy, flexibility grows more rare.

Logically, introducing flexibility into organizational structures and work schedules could not only accommodate the desires of soccer moms and dads, it could produce significant economic savings that would benefit firms and workers. Yet so far the response to the possibilities created by the information age has been notably tepid. Why?

Keeping the workers down

Conventional labor arrangements are largely dictated by the economic imperatives involved in making the most efficient use of a firm’s infrastructure, such as the support staff, supervisory time and energy, information resources, and communications. These require centralized work sites and consistent hours of operation. They also require massive investments in buildings and equipment that are used a measly 40 hours a week, plus an expensive transportation infrastructure built to meet rush hour needs that also eats up billions of hours of human commuting time.

The rise of the Internet, among other communication technologies, offers huge opportunities to organize work in new ways. Space and equipment costs can be cut, travel time reduced, even public infrastructure investments re-configured. The potential gains in efficiency are dazzling.

But the centralized structures and fixed schedules of the modern workplace are dictated by something other than economic efficiency. They are compelled by federal and state government rules, and it is far from clear that these will permit the changes necessary to produce possible gains. In fact, to judge by the telecommuting and stock-options cases, it is clear that these rules will be modified only after bitter, inch-by-inch struggles.

The U.S. Department of Labor enforces over 180 different laws. The Equal Employment Opportunity Commission and the National Labor Relations Board administer regulatory empires of their own, and the 50 states add yet more regulatory layers. These laws encompass a huge array of subjects and purposes.

The first of the big federal acts was the Davis-Bacon Act of 1931, which required that federal construction projects pay "prevailing wages" so as to avoid cutthroat competition for scarce work during the Depression. Other federal laws initiated during the Depression era, or added since, cover wages and hours, protection of corporate whistleblowers, pensions, family and medical leave, occupational safety and health, disabilities, and many points in between.

It is a jerrybuilt structure, and much of it was enacted for dubious motives. Davis-Bacon was designed by its congressional sponsors to ensure that African Americans, who were not allowed into unions, got no share of Depression-era public spending.

Laws against home-based work are based partly on the truth that the practice can be used to avoid minimum wage laws. But they also provide employment to people who do not want to keep a regular schedule. The labor bureaucracy’s hostility to such arrangements derives largely from the labor-union calculation that home workers are hard to organize. The Department of Labor has conducted a decades-long crusade against folks who want to supplement meager incomes by part-time knitting at home.

Much of the structure of labor law reflects the zanier thinking of the New Deal. One was the idea that the U.S. was a mature economy in the 1930s, and that available work must be rationed. Another was that the road to recovery lay through the creation of scarcity by reducing supply while raising prices. (John Maynard Keynes tried to talk Roosevelt out of this one; he failed.)

The structure remains as built, as if Rube Goldberg had designed it, however inconsistent with subsequent experience or modern life. One of its most important premises is that flexibility is bad. Labor policy assumes that employers have power and workers do not. Thus, workers should not be permitted to bargain over conditions of employment, except through unions, because the imbalance of power means that anything that might lead to abuse will lead to abuse.

Thus, if hourly workers are allowed to work 10 hours a day for four days instead of eight hours for five days, then employers will impose this schedule on some unwilling workers. This cannot be allowed. Thus, if employers and employees are allowed to agree that a worker will get comp time instead of overtime pay, then employers will force this on workers. This too must be forbidden.

The idea that labor markets might work like other markets, that workers might sort themselves out according to their own preferences among packages offered by different employers, is antithetical to the still-prevailing New Deal belief system.

Although unions have often been criticized for crafting unyielding work rules, legal standards actually impose greater rigidity on the workplace. Unions can be bought off, persuaded to relax a rule in a trade for money. Legal standards, on the other hand, are set in stone. If the Fair Labor Standards Act forbids a four-day, 10-hour-a-day week, then that’s that. The employer can’t offer more money for the flexibility, nor can an employee who desperately wants the new schedule offer to take less.

Even anti-discrimination and anti-harassment laws, which have goals with which all would concur, have become forces for rigidity. They are shot through with vagueness and uncertainty, and the multimillion-dollar damages that juries have awarded under these laws have put employers into a defensive posture. This means inflexibility. Because supervisor discretion is too easily painted as discrimination, everyone must be treated alike and everything must be documented. Flexible arrangements cannot be offered to some employees and not others, which makes employers reluctant to offer them at all.

The potential implosion of Social Security is reinforcing government’s propensity to enforce rigidity. Any sensible current entrant into the work force would opt out. He would declare himself a free agent, ask that his employer’s share of Social Security be paid to him in cash, and sock both it and his own share into an index fund. A $50,000 per year worker would save $7,650 in a year, which at 6 percent would be worth $61,200 in 36 years. Few expect the rate of return from Social Security to be as high.

The Internal Revenue Service seems, sensibly, to fear massive defections from the system, and is growing more imperious in its decisions restricting employers’ use of free agents. Any effort toward flexibility is assumed to be motivated by a desire to evade Social Security tax obligations, and can be countenanced only if the deal passes an elaborate 20-point test. An employer who guesses wrong on the result will pay heavily.

The IRS’ assault on flexibility is always justified by stern lectures on the need to protect the workers against exploitive employers, never in terms of protecting Social Security revenues against the rationality of the work force. In fact, the IRS policy injures workers both directly and indirectly. Not only is the worker’s rate of return on his savings reduced, but employers have responded by imposing strict time limits on the tenure of independent contractors, decreeing that after a set period -- usually three months -- they must be cast adrift, regardless of their own desire or the state of the project on which they are working. Companies have also stopped hiring temps directly, forcing them to come in through temp agencies, which take a big chunk out of their pay. Both courses leave the workers worse off.

Employers who adopt flexible arrangements are also getting nicked by employees who repent of their bargain and want labor law to rewrite it. Last year, Microsoft agreed to pay almost $100 million to workers who had signed very clear contracts affirming their independent status. The IRS forced their reclassification as employees, and they then sued Microsoft on the theory that as employees they should have received stock purchase privileges in the 1980s.

AOL is being sued by volunteers who manned its chat rooms and performed other community services. Their original arrangement was very communitarian, and much like a gift economy; their recompense was in the accolades of the online community and in free connection time, which was valuable when AOL charged $6 an hour, but worth zilch when it instituted flat pricing of $19.95 per month.

These volunteers noticed that many company employees earned not just community approval but cash and stock options, which then became worth a fortune. They also noticed that the Fair Labor Standards Act does not allow volunteers in profit-making organizations. Like the Microsoft contractors, they want to be employees, retroactively.

Customer representatives at Amazon’s Seattle facility are also reconsidering the glories of the new economy. They launched a unionization drive, an effort brought to a halt when the company cut the size of the facility and fired most of them.

Racial-bias litigation is increasing, with some minorities alleging that their underrepresentation in high-tech industries must be due to discrimination. They, too, want retroactive relief, particularly stock options, calculated at the peak values of the Nasdaq.

New economy vs. old law

The collision between the possibilities of the new economy and the institutionalized rigidity of old-style labor policy is creating an odd reversal. Businesses and their workers want to use the new technologies to take more account of employees’ personal and family needs, expanding opportunities to fit work into a satisfying overall pattern. The partisans of the status quo are resisting, which means they persist in the dogma that employees must be treated as fungible factors of production and plugged into one-size-fits-all slots in the workplace.

There are several reasons behind this reactionary stubbornness. One is the perceived interests of the unions, which have dominated labor policy since the New Deal. Another is that labor law is administered by large bureaucracies, which must operate through rules. Because no bureaucratic structure can be made sophisticated and flexible enough to deal with all the complexities of real life, real life must be remolded to fit the needs of the structure. Note that OSHA took over two years to respond to a simple letter of inquiry about the legal status of home offices, as if the Internet and the world of telecommuting were supposed to freeze in place until OSHA staff got around to looking at their in-boxes. A third factor is that the world of labor law administration is self-selected: People are drawn to jobs as labor law administrators because they embrace old concepts of class conflict. Combine all these factors and the result is an inevitable hostility to the new, fast-changing, and flexible world of work.

Can these forces win their war against the new economy? The ability of governments to enforce sclerosis should never be underestimated. Still, the potential economic and human gains from workplace flexibility are so immense that it is difficult to imagine either businesses or individual workers giving in without a major fight.

Consider the ongoing reconfiguration of industries at the core of the new economy, those in which the output can be translated into bits and moved anywhere in the world at the speed of light: movies, music, publishing, computer software, R&D of all kinds. These are the industries that can take greatest advantage of the economies attainable from dispersing their work forces and cutting back on their central offices.

The new configuration also greatly expands the talent base on which such a company can draw. Previously, a magazine published in Chicago had most of its staff there because interacting by mail was too slow. Staff was thus limited to those writers and editors living in Chicago or willing to move there.

Now, to say a magazine is published in a given city is increasingly meaningless. Writers and editors can be anywhere, and so can the printing plant, and none of these need be in the same place. This expansion of horizons also helps the writers. They can live in Chicago without limiting their options to that city, or they can live somewhere else and still work for the Chicago-based publication.

They have become much more mobile. Taking a job with a new publication no longer means pulling up stakes physically, so the risks of both hiring (for the magazine) and job change (for the writer) are greatly reduced. This in turn fosters innovation and experimentation. It also increases the possibility that a worker can put together two or three part-time gigs, which reduces further the costs and risks for all parties to the deal, thus creating yet more possibilities for innovative arrangements.

While new economy "bit-stream industries" offer the clearest examples of business evolution, similar changes are occurring throughout the old economy as well. Information is revolutionizing automobile manufacturing, oil drilling, and other activities once classified as "heavy industry." Computer programmers, automobile designers, lawyers, and other intellectual workers can be found all over the nation or the world, not gathered in a few business centers. Medicine is being revolutionized by bit streams in the form of pharmaceutical patents, and research facilities can be located anywhere. At a more prosaic level, American doctors now dictate post-operative notes that are transcribed by workers in India and returned to the U.S. by 7 the next morning. Even the medical advice itself can be dispensed over the Web. In the near future, your doctor may also be in India.

Are labor markets like other markets?

There is a fundamental question at the core of this controversy, one that has remained long unresolved: Should labor markets be treated like other markets, and workers allowed to sort themselves out according to their own preferences?

Americans have always been ambivalent in their answer. On the one hand, economists regard U.S. flexibility, as opposed to European-style labor protection, as a source of economic strength. On the other, much U.S. law is indeed premised on the view that labor markets are not like other markets, and that special protection is necessary.

Part of the philosophy of the free market is that everyone is both a producer and a consumer. From this perspective, labor is a factor of production, like capital goods and real estate; the dictates of economic efficiency are that workers will be pushed to their limits. They will be subjected to competition and paid only the value that other people place on their production, and that much only if no one else can produce more cheaply.

But when workers switch to their role as consumers, things change. They then get the benefits of the wealth produced by the system. This wealth is immense, precisely because the system culls out business inefficiency and constantly reorganizes to put resources -- including workers -- to their most productive uses. The theory is that everyone is both consumer and producer, both king and serf. Because you cannot select only half of the system, the trade-offs benefit everyone.

In practice, people are always squeamish about this philosophy. It is difficult to separate the "factor of production" from the human being doing the producing. Moreover, the producer/consumer trade-off does not work so well for those at the lower end of the labor system, because they get fewer benefits on the consumer side. No society, certainly not a democratic one, will ever treat labor as mechanistically as pure market theory suggests.

This hesitation is strongly reinforced by political pressures. Most of us believe that the free-market system, however sound in theory, needs some tweaking in our favor. We all know that we personally are underpaid and overworked, and deserve dispensation from the tougher parts of being a producer. If we manage to convince the political system, we can get the benefits of the free market while dodging our share of its unpleasantness. The situation is a natural for political log rolling, and in fact different groups of workers are treated quite differently, depending on their political clout. Davis-Bacon still stands as the prime example of politically motivated labor law.

A second reason for interfering with labor markets is the conviction that there is an imbalance of power between employer and employees. This argument cannot be dismissed out of hand. Memory is long, and in the company towns of a couple of generations ago, the imbalance was only too real.

Even today, labor markets remain "sticky." That is, workers’ ties to communities inhibit their mobility, and information about alternative employers is often imperfect. Moreover, workers often have invested to create skills specific to a particular job, company, or industry, and they may not be able to get rewarded for these if they change jobs. Employers can and do use such stickiness to their own advantage.

These concerns about labor markets are intertwined -- employer power derived from stickiness leads to a sense that intervention is necessary which leads to log rolling. So one of the most interesting dimensions of the new economy is that it forces us to rethink historic positions on these issues. The revolution is improving labor markets just as it is improving the market for goods, and the reasons for many of the existing interventions -- however good or bad they were when adopted -- need re-examination.

Working-class flexibility

Job markets are no longer limited by the classified pages of the local newspaper; they exist nationwide. If bit streams are involved, then physical relocation is unnecessary, whether for hourly workers or for writers, sales representatives, and management consultants. One can work as an Amazon customer rep from anywhere, not just Seattle. Even the new economy equivalent of the assembly line, a job such as data entry, can be performed anywhere in the world, as in the case of the Indian medical note transcribers.

Relocating also entails less psychic trauma than it once did. Moving on speculation is less necessary; the labor market in a new locale can be checked in advance. Information about living in the new community is far more plentiful and accessible. If training is needed, that too is more available than ever, thanks to the Internet.

Even political log rolling may become less resistant to reform. The expansion in the number and diversity of information channels is making the government more transparent. People can use the Internet to learn about such things as the low rate of return on their Social Security contributions, or the special tax breaks given to particular groups.

Recently, a proposed expansion in the regulation requiring banks to nose into the affairs of their customers generated 250,000 e-mails to the federal agencies involved. This campaign was triggered entirely by Internet word of mouth. In contrast, in pre-Internet days, it would have been impossible for word of the government’s telecommuting and stock-options decisions to have spread so quickly or to have aroused such instant and massive opposition.

One possible result of these developments is that the traditional American ambivalence about labor markets may change, too. We may become increasingly willing to accept the bargain whereby people bear the burdens of the market as producers and take the benefits as consumers. But the fate of the Nasdaq over the past year has tempered the hype of 18 months ago, as well as the everyone-a-capitalist-king enthusiasm.

In any event, all that has happened so far is that the professional classes are expanding the flexibility of their working hours and are getting the right to work from home some of the time. The free agent universe of the visionaries is not coming to pass, and is resisted by the labor and tax bureaucracies. But then the war between old labor law and the new economy is only beginning.

The Great Gun Fight

info@reason.com (James V. DeLong) — Wed, 01 Aug 2001 00:00:00 EDT

A REASON ONLINE debate

More guns mean less crime. That's the essential thesis of John R. Lott Jr.'s path-breaking book, appropriately titled More Guns, Less Crime: Understanding Crime and Gun Control Laws (University of Chicago Press, 2000), which looked at the relationship between liberalized gun laws and criminal activity. In both the original 1998 and revised 2000 editions, Lott, a senior research scholar at Yale Law School, used national gun and crime data to perform an unprecedentedly thorough study of the issue. On the face of it, his claim makes sense: If criminals assume that potential victims may be armed, they'll be less likely to act. (See "Cold Comfort," January 2000.)

Not so fast, says George Mason University physicist Robert Ehrlich. In his new book, Nine Crazy Ideas in Science (A Few May Even Be True) (Princeton University Press), Ehrlich argues that the data are in fact inconclusive and that Lott is massaging the results to fit his theory. Ehrlich, a gun owner himself, concludes that liberalized gun laws have had no appreciable effect one way or another.

So which is it? We invited Ehrlich and Lott to debate the issue on Reason Online from May 21-24. Each was allowed to make two contributions and, after the initial salvo, each had to respond within hours of the other's posting. Readers interested in more information can visit the debate, which includes links to many of the sources mentioned below, including both Ehrlich's and Lott's books.

Robert Ehrlich

More Guns Mean More Guns
Why John Lott is wrong

John Lott's book, More Guns, Less Crime contains many points with which I agree. For example, I believe that many criminals are leery of approaching potential victims who may be armed -- an idea at the core of his deterrence theory that guns help to prevent crime. I also believe that violent criminals are not typical citizens, and that the possession of a gun by a law-abiding citizen is unlikely to turn him into a crazed killer. Additionally, Lott has a point when he speaks of the media's overreporting of gun violence by and against kids and the corresponding underreporting of the defensive use of guns to prevent crime.

As a gun owner myself, I was quite prepared to accept Lott's thesis that the positive deterrent effect of guns exceeds their harmful effects on society, but as a scientist I have to be guided by what the data actually show, and Lott simply hasn't made his case. Here's why:

Lott misrepresents the data. His main argument that guns reduce crime is based on the impact on various violent crime rates of "concealed carry laws," which allow legal gun owners to carry concealed weapons. Since these laws were passed at different dates in different states, he looks at how the crime rates change at t=0, the date of the law's passage in each state. Lott's book displays a series of very impressive-looking graphs that show dramatic and in some cases immediate drops in every category of violent crime at time t=0. The impact on robberies is particularly impressive, where a steeply rising robbery rate suddenly turns into a steeply falling rate right at t=0 -- almost like the two sides of a church steeple. As they say, when something looks too good to be true, it probably is. Lott neglects to tell the reader that all his plots are not the actual FBI data (downloadable from their Web site), but merely his fits to the data.

The actual data are much more irregular with lots of ups and downs, and they show nothing special happening at time t=0. Lott has used the data from 10 states in his book. When we look at changes in the robbery rate state by state, only two of the states (West Virginia and Georgia) show decreases at t=0, while the other eight show increases. Overall, averaging the 10 states, there is a small but not statistically significant increase in the robbery rate at t=0, certainly not the dramatic decrease Lott's fits show. In fact, Lott's method of doing his fits is virtually guaranteed to produce an "interesting" result at time t=0. What he does is to fit a smooth curve (actually a parabola) to the data earlier than t=0, and a separate curve to the data later than t=0.

Given a completely random set of data, Lott's fitting procedure is virtually guaranteed to yield either a drop or a rise near time t=0. Only if the data just happened to lie on a single parabola on both sides of t=0 would the fits show nothing special at that time. Since random data would show a drop or a rise equally often at t=0, we have a 50 percent chance of finding a drop -- not a very good argument for the drop being real. The fact that all categories of violent crime (murder, rape, assault, robbery) show drops is also not particularly surprising, since the causes of violent crime (whatever they are) probably affect the rates in all the separate categories. Similarly, it is no more mysterious that when the overall stock market rises or falls dramatically the individual sectors (industrials, utilities, etc.) are more likely than not to move in the same direction.

Lott's results are not consistent. Taking Lott's fits at face value, we find they give inconsistent results. For example, he shows murders, rapes, and robberies each declining sharply and immediately at t=0, the year of passage of the laws, but the aggravated assault rate rises slightly and doesn't start its descent until three years after the law's passage. Presumably, the same sorts of folks are committing murders and assaults, so this difference is very puzzling. Similarly, Lott shows the rate of multiple public shootings declining dramatically (by 100 percent) only two years after t=0. But using follow-up data in a more recent paper, Lott shows multiple shootings rising precipitously the year before t=0 and then declining right at t=0. It's difficult enough to understand why the impact of the laws should be so much greater on multiple shootings by crazed killers than ordinary murders (which drop only 10 percent), but figuring out how the laws could work in reverse time on the thinking of these psychos is a real challenge.

Lott's results cannot account for all the relevant variables. Recognizing that violent crime rates can depend on all sorts of factors aside from the passage of concealed carry laws, Lott includes many variables when he runs his multiple linear regressions to disentangle the impact of each factor. Many of these variables, such as arrest rates, percentage of African Americans, and population density, account for a far greater percentage of the variation in violent crime than the mere 1 percent he attributes to passage of the laws. However, with such a small dependence on the one factor he is looking for, only if Lott has included all the relevant variables that could affect the rate of violent crime can he hope to see the residual amount due to the effect of that one factor. In answer to this criticism, Lott says OK -- tell me what variable I've left out and I'll include it. But the list of plausible variables that could affect violent crime rates over time is virtually endless.

Here, for example, are 14 that Lott didn't include: (1) amount of alcohol sold, (2) price of alcohol, (3) amount of drugs sold, (4) price of drugs, (5) number of police on the beat, (6) number of police brutality complaints, (7) average summer temperature, (8) number of convicted felons on the streets, (9) average age of convicted felons on the streets, (10) percentage of teenagers living in two-parent households, (11) high school dropout rate, (12) dollars spent on crime prevention programs, (13) minimum wage rate, (14) amount of media violence. I'm sure readers could come up with many more plausible factors, any one of which could mask the true dependence on the concealed carry laws.

Lott doesn't properly compute statistical significance. Another very serious problem with Lott's method is how he calculates the statistical significance of his results. He essentially asks, What is the probability of getting the observed variation of the crime rate on either side of t=0 based on changes in the various socio-demographic variables and random variations? If that computed probability is very small, he regards his hypothesis that the concealed carry laws made the difference as being proven.

But that's not right. He needs to look at the probability of a change in the crime rate for years t= -3, -2, -1, 0, 1, 2, 3, etc. Only if the probability is very much less for year zero than the other years can he consider his results meaningful. It seems very likely, however, that Lott would find similarly low probabilities for all these other years, because only if the violent crime rate were static over time would there be no significant variation on either side of year t=0, or any other given year. In fact, John Donahue, a law professor at Stanford, analyzed Lott's data and found that the most significant turning point for the robbery rates occurs before t=0.

Lott has correctly observed that, by passing concealed carry laws in various states in various years, the U.S. has been in effect conducting an extremely interesting social experiment. That experiment, in principle, can give us an empirical answer to the relationship between easing restrictions on gun-carrying permits and crime. However, his one-sided analysis of the data inspires little confidence that we can count on him to tell us the true results of this experiment. From all indications it seems that the concealed carry laws probably have had almost no effect, one way or the other.

John R. Lott Jr.

Taking Stock
Less gun control means less violent crime

Robert Ehrlich's review of the first edition of my book, More Guns, Less Crime, is well-written, and it is interesting to know that he owns a gun despite his concerns about research on the benefits of doing so. Unfortunately, however, his discussion is incomplete and simply inaccurate. Below are responses to the more important claims he makes.

"Lott neglects to tell the reader that all his plots are not the actual FBI data...but merely his fits to the data." There are several places in my book that discuss how the diagrams show how crime rates change before and after right-to-carry laws are adopted once other factors have been taken into account. It is important to distinguish not just whether there was a decline in crime rates, but whether there was a decline relative to other states that did not adopt the right-to-carry laws. The second edition of More Guns, Less Crime, which was published in 2000, was also clear on this point, and its graphs showed the changes in crime relative to other states that did not change their laws and were in the same region of the country.

"Lott has used the data from 10 states in his book." I used data from the entire United States. The first edition used state-level data from all the states and the District of Columbia, as well as county-level data for the entire country from 1977 through 1992 (and, in some estimates, up to 1994). The second edition of the book not only updated the county and state data through 1996, but also used city-level data for the largest 2,000 cities. Possibly what Ehrlich means here is that only 10 states (with a total of 718 counties) adopted right-to-carry laws during the 1977-1992 period. The point of examining all counties in all the states was to make a year-by-year comparison of how the crime rates had changed in the counties with the right-to-carry laws relative to the counties in states without the laws. In the second edition of my book, a total of 20 states, representing 1,432 counties, adopted right-to-carry laws between 1977 and 1996.

"The actual data are much more irregular with lots of ups and downs, and they show nothing special happening at time t=0." My book reports the year-to-year changes in crime rates, and these results are consistent with the before-and-after trends. One of the benefits of examining the change in trends is that there are straightforward statistical tests to see if the change is statistically significant.

"Overall, averaging the 10 states, there is a small but not statistically significant increase in the robbery rate at t=0, certainly not the dramatic decrease Lott's fits show." Ehrlich has examined state-level robbery rates for the 10 states that had adopted right-to-carry laws between 1977 and 1992, using data extended up until 1995 for the four years on either side of adoption. He finds that there is no statistically significant change in before-and-after trends. He claims to use data up until 1997, but that is not possible since he limited the sample to only four years after adoption and the first full year these states had the law in effect was 1992. I have tried to replicate his results, but have been unable to do so: Robbery rates are declining after adoption relative to how they were changing prior to adoption.

Yet even if his data analysis had been correct, his approach has a lot of problems. The main difficulty is that there is no comparison of what is going on in the states that do not adopt right-to-carry laws. When such a comparison is made, the drop in crime is about twice as large in right-to-carry states and twice as statistically significant. Accounting for other factors (e.g., the arrest rate for robbery) also increases the statistical significance of the drop. Many aspects of what he did are unclear, such as whether he weighted each state equally or weighted them by population (as is normally done). But neither approach altered the final result.

"What [Lott] does is to fit a smooth curve (actually a parabola) to the data earlier than t=0, and a separate curve to the data later than t=0." This is only one of several different approaches reported in my book. The first edition also presented actual data on the number of permits issued per county over time for several states where the data were available. The second edition further examined whether differences in right-to-carry laws can affect the number of people who get permits (e.g., the permitting fees, the length of the training requirement, and how many years the law has been in effect), and whether this in turn can explain the changes in crime rates.

"Given a completely random set of data, Lott's fitting procedure is virtually guaranteed to yield either a drop or a rise near time t=0." This is not literally true. Besides a flat line, other possibilities very obviously include the crime rate first rising and then falling after adoption -- or falling and then rising. The question is also not whether there is a change in trends, but also whether those changes are statistically significant.

"Similarly, Lott shows the rate of multiple public shootings declining dramatically (by 100 percent) only two years after t=0. But using follow-up data in a more recent paper, Lott shows multiple shootings rising precipitously the year before t=0 and then declining right at t=0." There are no inconsistencies. This paper, co-authored with William M. Landes, examined whether the results were sensitive to removing observations from the year of adoption, as well as the two years prior to adoption. We found that the results remained essentially unchanged.

"It's difficult enough understanding why the impact of the laws should be so much greater on multiple shootings by crazed killers than ordinary murders (which drop only 10 percent), but figuring out how the laws could work in reverse time on the thinking of these psychos is a real challenge." It is all too easy to dismiss mass murderers as totally irrational. But individuals who go on shooting sprees are often motivated by goals such as fame. Making it difficult to obtain those goals may discourage some from engaging in their attacks. There is also the issue of stopping attacks that do still occur. Suppose that a right-to-carry law deters crime primarily by raising the probability that a perpetrator will encounter a potential victim who is armed. In a single-victim crime, this probability is likely to be very low. Hence the deterrent effect of the law -- though negative -- might be relatively small.

Now consider a shooting spree in a public place. In a crowd, the likelihood that one or more potential victims or bystanders are armed would be very large even though the probability that any particular individual is armed is very low. This suggests a testable hypothesis: A right-to-carry law will have a bigger deterrent effect on shooting sprees in public places than on more conventional crimes.

To illustrate, let the probability (p) that a single individual carries a concealed handgun be .05. Assume further that there are 10 individuals in a public place. Then the probability that at least one of them is armed is about .40 (= 1 - (.95)10). Even if (p) is only .025, the probability that at least one of 10 people will be armed is .22 (= 1 - (.975)10).

Ehrlich claims that I fail to account for all relevant variables. Sure, there could possibly be still other variables out there, though I doubt it. The data used in the first edition of the book have been made available to academics at 45 different universities. I know of no study that has attempted to account for as many factors as I have, but if Ehrlich thinks that other factors are important, he is perfectly free to see whether including them alters the results. Other academics have tried different variables -- for example, Bruce Benson at Florida State University tried including other variables for private responses to crime, and Carl Moody at the College of William & Mary used additional variables to account for law enforcement -- but so far none of these other variables has altered the results.

However, the variable list that I attempted to account for is much more extensive than Ehrlich indicates. Among the factors that I accounted for in the first and second editions of my book are: the execution rate for the death penalty; conviction rates; prison sentence lengths; number of police officers; different types of policing policies (community policing, problem-orientated policing, "broken window" strategies); hiring rules for police; poverty; unemployment; four different measures of income; many different types of gun control and enforcement; cocaine prices; the most detailed demographic information on the different age, sex, and racial breakdowns of the population used in any study; and many other factors.

Discovering some left-out variable is more difficult than simply saying that other factors affect the crime rate. This left-out factor must be changing in the different states at the same time that the right-to-carry laws are being adopted. In addition, crime rates are declining as more permits are issued in a county, so the left-out variable must similarly be changing over time. Other evidence that I presented in my book indicates that just as crime rates are declining in counties with right-to-carry laws, adjacent counties on the other side of state borders in states without these laws are experiencing an increase in violent crime. The more similar these adjacent counties, the larger the spillover. Right-to-carry laws also reduce crime rates where the criminal and the victim come into direct contact with each other relative to those crimes where there is no such contact. To alter the results, these left-out factors would have to vary systematically to coincide with all these different results.

One of the reasons I graphed the before-and-after trends as well as the year-to-year variations in crime rates was to allow readers to judge for themselves whether the adoption of right-to-carry laws coincided with changes in crime rates. For a general audience, I thought that this graphical approach was the most straightforward.

As to the appropriateness of a particular statistical test, the answer depends upon what question one is asking. The one test that Ehrlich questions asked whether there was a statistically significant change in the slopes in crime rates before and after the laws are adopted. For that question, the F-test that I used is the appropriate test.

Research by Florenz Plassman and Nicolaus Tideman that is forthcoming in the October 2001 issue of the Journal of Law and Economics breaks down crime data by each state and by individual years before and after the adoption of the right-to-carry law. They find that for all 10 states that adopted such laws between 1977 and 1992, murder, rape, and robbery rates fell after adoption. If Ehrlich were to identify the statistical test which he says shows a significant turning point for robbery before the adoption of right-to-carry laws, I would be happy to comment on it.

It is flattering that my research is the first topic that Ehrlich discusses in his book, Nine Crazy Ideas in Science. My research, however, is not alone in studying this issue. A large number of academics have examined the data. While a few academic articles have been critical of some of the methodology, not even these critics have found a bad effect from right-to-carry laws. In fact, the vast majority of academics have found benefits as large or larger than the ones I report.

What is also interesting is how little criticism there is of the other gun control topics that my book addressed. For example, no academics have found significant evidence that waiting periods or background checks reduce violent crime rates. Unfortunately, what I have found is that many of these gun control laws actually lead to more crime and more deaths.

In his book, Ehrlich awards "cuckoos" to the ideas he discusses, with one cuckoo meaning "Why not?" and four cuckoos meaning "certainly false." He gives my work three cuckoos, but there are a lot of academics who must then be in the same boat as I am. More important, his criticisms are based upon either an incomplete or inaccurate reading of my work.

Robert Ehrlich

Data Distortion
Lott's numbers don't tell us anything

I reply below to the main criticisms of John Lott -- at least those which I have understood.

Lott doesn't deny that he misleads the reader by neglecting to mention that his plots are fits to the data, because he can't. His graphs are in fact labeled "number of violent crimes" per 100,000 population and I find no statement in his book that the graphs are fits, rather than actual data. In his reply, Lott justifies the use of displaying fits by noting that it is important to show "adjusted" crime rates after other variables (aside from the laws) have been taken into account.

Lott is correct that I was using the first edition of his book when I made the comment about only 10 states changing their right-to-carry laws in the stipulated time period.

Lott claims that I "used data up until 1997, but that is not possible since he limited the sample to only four years after adoption [of the laws]...." Clearly, he is mistaken, since my plots show data extending 10 years before the law's adoption.

My statement about the changes in slope in the various states was based on simple linear fits to the data two years on either side of t=0, without weighting the states by population. However, without doing any statistical analysis whatsoever, a mere glance at the graphs for the 10 states should allow readers to decide for themselves whether the data for the 10 states actually show anything particular happening at time t=0. (The data for robbery can be found plotted in my book or downloaded from the FBI Web site.)

Lott claims that his fitting procedure is not biased, because by using random data one is not virtually guaranteed to find a drop or a rise at t=0, as I claimed. Instead, he points out that the random data might show an abrupt change in the slope, not the actual level, at t=0 (e.g., first rising then falling, or first falling then rising). But Lott's correction to my statement actually makes my basic point even stronger, since a decrease in slope is exactly what might be expected if Lott were right. Thus, if his fitting procedure would force random data to show a change in slope at t=0 -- equally often an increase or decrease -- we can't have too much confidence that any observed decrease in slope validates his theory.

It's difficult to find anything about mass murder amusing, but I find Lott's calculation for the greater deterrent effect of easing concealed-carry laws on multiple shootings very humorous. Essentially, he is saying that after concealed-carry laws are eased, mass murderers really are more deterred than ordinary murderers, because the chances are much greater that someone in a large group is actually armed. Now, I don't think mass murderers are totally irrational. But I find this type of probability calculation more revealing of Lott's thinking than that of mass murderers, some of whom I imagine would relish the idea of going out in a blaze of glory, in case someone in the group were armed. ("Suicide by police" seems to be a fairly common act by some psychos.)

In Lott's rebuttal on this same issue he fails to address the other inconsistency in his results: How could the laws act in reverse time, causing a big spurt of mass shootings the year before the laws were enacted? He also neglects to answer my question on how his analysis can show the murder rate dropping immediately after the laws are passed, but the aggravated assault rate not starting its drop until four years later.

Lott is right in pointing out that the omitted variables would need to change systematically in a way correlated with the dates of passing the laws. But given that the laws (according to him) account for such a tiny fraction of the change in crime rates, and given an extremely long list of possible variables, it seems likely that some of them could fit the bill. If Lott's claim that he really has accounted for all the key variables that affect violent crime rates were correct, then he really should be able to predict how the crime rates will change in the future in each state, based on all these variables. Moreover, if his predictions fail to be borne out in any state it would show that he has left out some factor. (We are all used to hearing about why the stock market did what it did on any given day, after the fact. But the failure to make such accurate predictions ahead of time tells us that maybe we really don't fully understand all the variables that make the market do what it does, any more than we understand the variation in crime rates.)

I am not alone in questioning Lott's statistical analysis -- see, for example, work by Daniel Webster, Jens Ludwig, Daniel Black, and Daniel Nagin. Lott notes that his F-test is the appropriate one to answer the question of whether there was a statistically significant change in the slope in crime rates at t=0. I don't dispute that the change in the slope of crime rates may be statistically significant at t=0. After all, there might have been a real change at that point in time for reasons unrelated to the laws.

However, I claim that the slope will probably also be found to change by statistically significant amounts at most other years as well, and that would show that there's nothing special happening at t=0, the year the laws were passed. The real test of whether it was the liberalized gun laws that made the difference is that a statistically significant change in slope was found at t=0 and only at t=0.

To see this basic flaw in Lott's statistical analysis, let's imagine that some lunatic has a theory that the Nasdaq drops every full moon. Presumably, according to Lott, the way to test this theory would be to do a linear regression involving as many extraneous variables as we can think of that might affect the Nasdaq -- and not to worry too much that we may not have gotten them all. Then using the regression, we need to see if the Nasdaq had a statistically significant drop on days when the moon was full. It very well might show a statistically significant drop on those days. Why not? However, I expect that the Nasdaq would also show drops (and rises) having comparable statistical significance for other lunar phases as well -- thereby proving exactly nothing.

Prof. Lott, wouldn't you agree that a finding of a statistically significant change in the crime rates at years before t=0 would invalidate your results? Will you tell us what your analysis shows for the statistical significance of changes in slope at years other than t=0?

John R. Lott Jr.

The Effect Is Clear
Disarming law-abiding citizens leads to more crime

To Prof. Ehrlich, the "basic flaw" in my statistical analysis is that concealed handgun laws are likely to be just accidentally related to changes in the crime rate. He takes a simple example of explaining how the stock market changes over time. Obvious variables to include would be the interest rate and the expected growth in the economy, but many other variables -- many of dubious importance -- could possibly also be included. The problem arises when such variables are correlated to changes in stock prices merely by chance.

An extreme case would be including the prices of various grocery store products. A store might sell thousands of items, and the price of one -- say, peanut butter -- might happen to be highly correlated with the stock prices over the particular period examined. We know that there is little theoretical reason for peanut butter to explain overall stock prices, but if you go through enough grocery store prices, it just might happen that one of them accidentally moves up and down with the movements in the stock market over a particular period of time. Similar problems can occur with other obviously unrelated variables, such as the incidence of full moons or sunspots.

There are ways to protect against this "dubious variable" problem. One is to expand the original sample period. If no true causal relationship exists between the two variables, this coincidence is unlikely to keep occurring in future years. And this is precisely what I did as more data became available: Originally, I looked at data through 1992, then extended it to 1994, then up until 1996, and then, in recent working papers, up through 1998. If Ehrlich understood this, he would realize that this is equivalent to his request that I should try to "predict how the crime rates will change in the future."

Another approach guarding against the "dubious variable" problem is to replicate the same test in many different places. Again, this is exactly what I have done here: I have studied the impact of right-to-carry laws in different states at different times, and I have included new states as more and more states have adopted these laws as the time period has been extended.

As I discussed previously, I have also provided many qualitatively different tests, linking not only the changes in gun laws to changes in crime rates but also the actual issuance of permits; the changes in different types of crimes; rates of murders in public and private places; and comparisons of border counties in states with and without right-to-carry laws. Even if I accidentally found a variable that just happened to be related to crime in one of these dimensions, it seems unlikely that you would get consistent results across all these different tests.

In any case, as far as I know, no one except Ehrlich is arguing that testing whether right-to-carry laws affect crime is the theoretical equivalent of including as variables such things as full moons. Whatever one's views on the topic, there are legitimate questions over whether these laws increase or decrease crime -- and the only way that we can test that is to include them as a variable in the regressions.

However, the bottom line is clear: If Ehrlich believes that there is a particular variable that has been left out and that corresponds with all these changes, I have given him the data set; instead of speculating about what might be, he should actually do the work to see if his concerns are valid. No previous study has accounted for even a fraction of the alternative explanations for changing crime rates as I have and, more important, my regressions explain over 95 percent of the variation in crime rates over time.

His concerns about using before-and-after trends make little sense to me because I report the results in many different ways: linear and nonlinear trends before and after, year-to-year changes, and before-and-after averages. Readers of my book can view the graphs with the year-to-year changes and judge for themselves when the change in trends occur.

As I explicitly note in my book (pages 146-7 in the first edition), my graphs showing the nonlinear trends before and after the change in laws are constructed similarly to how other economists have analyzed crime data. No explanation is offered for why I shouldn't have focused on whether there was a decline in crime relative to other states that did not adopt the right-to-carry laws.

Ehrlich might find it amusing that deterrence does work, but the data on guns and crime consistently shows that the greater the likelihood that a person can defend himself, the greater the deterrence. William M. Landes and I point to evidence that perpetrators of multiple victim shootings are disproportionately psychotic, deranged, or irrational. Ehrlich and others claim that a law permitting individuals to carry concealed weapons would therefore not deter shooting sprees in public places (though it might reduce the number of people killed or wounded). Yet a right-to-carry law will both raise the potential perpetrator's cost (he is more likely to be wounded or killed or apprehended if he acts) and lower his expected benefit (he will do less damage if he encounters armed resistance). Even those bent on suicide may refrain from attacking if the harm that they can do is sufficiently limited. Although not all offenders will alter their behavior in response to the law, some individuals might refrain from a shooting spree.

Instead of so casually dismissing our result as "very humorous," Ehrlich and others should rise to the challenge to examine the data and see if they can offer a better explanation for the large drops in multiple-victim public shootings when states adopt right-to-carry laws. These crimes have seriously shocked the nation, and finding ways to reduce such incidents is very important.

Finally, in both editions of my book, I respond to the critics of my work that Ehrlich mentions in his last dispatch. (I direct interested readers to chapters 7 and 9 of More Guns, Less Crime.)

This debate has focused on just my findings dealing with right-to-carry laws, but just as important are the overall effects of gun control laws. Despite the best of intentions, law-abiding citizens, not criminals, are most likely to obey the different restrictions that are imposed. Disarming the law-abiding relative to criminals has one consequence: more crime.

Free Money

info@reason.com (James V. DeLong) — Tue, 01 Aug 2000 00:00:00 EDT

Once again we are preparing to choose federal, state, and local officials to preside over governments that redistribute about 38 percent of the GNP, enact and administer thousands of criminal laws, and assert an open-ended right to regulate every aspect of our lives. And once again the subjects of this power think they should be allowed to influence the outcome. People want to donate money to the candidates they favor, tell potential voters about candidates and issues, expand the channels of information beyond the conventional media, form organizations with others of like mind, establish Internet sites, and, in general, participate.

This desire to participate upsets most journalists, many politicians, and a large percentage of the nation's intellectual and financial elites. The Web site of Common Cause (www.commoncause.org/publications/campaign_finance.htm), the organization that for 25 years has been the mainspring of the campaign for election finance reform, features alarmist headlines such as "Ka-Ching: National Parties Raise Record $160.5 Million in Soft Money Through First 15 Months of 2000 Election Cycle." The Committee for Economic Development (www. ced.org), a voice of the business establishment, is equally concerned, blaming the "vast sums of unregulated `soft money'" for all the ills of the current electoral process and advocating fundamental reforms to "restore trust and balance."

During this year's Republican primaries, John McCain used the campaign finance issue to harvest great media acclaim and boost his candidacy. The topic played poorly with the nonestablishment parts of the Republican Party, both social and economic conservatives. They understood that McCain was telling the party to commit suicide, since his reforms would have disarmed Republican constituencies while leaving the power of labor unions, government employees, and celebrities untouched.

Still, the issue has enough media traction that George W. Bush has made reform noises. He proposes a ban on "soft money" contributions to parties by unions and corporations, along with stronger protections for union members who don't want their dues used for political purposes with which they disagree. These changes would affect Democrats as well as Republicans, so they will never pass. Al Gore, of course, favors reform, as long as he gets to define it. He would eliminate all "soft money" but allow everyone, including unions and corporations, to contribute to a nonpartisan fund that would be used to pay for the campaigns of congressional candidates who agree to spending limits.

As reflected in Gore's plan, critics of the current system tend to focus on the "loopholes" they believe undermine noble but inadequate attempts to control corruption. In particular, they decry "soft money" contributions to political parties, which are not subject to statutory limits, and spending by groups that care deeply about particular issues and want to communicate their concerns to candidates and the public. Yet almost everything the reformers say about "loopholes" is flat-out wrong. The practices branded as loopholes are not only legitimate, they are the best part of the system. Every lover of democracy and freedom should be working to expand them until they swallow the absurd rules that currently govern campaign finance. Given the inevitable failure of the Federal Election Commission's dithering efforts to regulate political speech on the Internet, that day may not be far off.

Evil Influence

In the campaign of 1789, George Washington spent [sterling]39 on "treats" for the voters. This was not much, but he was the only candidate and there weren't many voters. Washington may have been the last president not to be subjected to complaints about the evil power of money. By 1800, when Jefferson beat Adams, the financial power of banks played a role. By the post-Civil War era, both parties were shaking down public employees for contributions; in Pennsylvania during the 1870s, Republicans demanded 2 percent of their salaries. After civil service reform dried up this revenue source, the parties turned to the newest pot of wealth, big corporations.

The election of 1896 is generally cited as the great watershed in campaign finance. Mark Hanna, an Ohio industrialist, raised $7 million ($100 million in today's dollars) to help William McKinley beat William Jennings Bryan. The money came from corporations dedicated to the gold standard and protective tariffs, and Hanna asked them to contribute their "fair share," reflecting their stake in the general prosperity. His approach struck another modern note, says historian Thomas Fleming: "Hanna refused to promise any specific favor or service; rather, he sold the glittering concept of 'access' and a government that smiled on corporations."

Sympathy for Bryan is not entirely in order, because the populist's backers were wealthy individuals, notably financier Augustus Belmont of New York. But Hanna's tactics prompted a public outcry, and after McKinley's assassination in 1901 corporate America got Theodore Roosevelt, who was willing to ride the rising public concern about business money. A $50,000 check from New York Life to Roosevelt's 1904 campaign received unpleasant publicity, so, in another modern touch, he learned from his mistakes and proposed a ban on all political contributions and the funding of campaigns by the government.

Congress did not go that far, but it did ban corporate contributions to federal elections in 1907, require disclosure in 1910, impose expenditure limits in 1911, and require yet more disclosure in 1925. During the New Deal, Republican fears of the new army of bureaucrats brought about the Hatch Act of 1939, which limited government employees' political activity. As a balancer, caps were imposed on individual contributions to campaigns and on expenditures on presidential elections. The rising power of unions was attacked in 1943, when they, like corporations, were forbidden to contribute to federal campaigns.

It did not take long to find loopholes in these reforms. For example, the parties quickly decided that the 1939 limits on contributions and expenditures applied only to individual committees and that there was no limit on the number of committees a party could form. The 1940 election was characterized by multiple committees, no real limits on either contributions or expenditures for anyone who knew enough to write more than one check, and a new record for money spent on a presidential election: $21 million, or $257 million in 2000 dollars.

Costs kept rising--Johnson vs. Goldwater cost $60 million in 1964, Nixon vs. Humphrey $100 million in 1968 ($331 million and $492 million, respectively in current dollars)--and the issue finally erupted in the 1970s. In 1971 Congress passed a mild bill, directed mostly at disclosure. The election of 1972 set new records for spending ($400 million for all parties in all races, or $1.6 billion in current dollars) and was followed by the post-Watergate disclosures of sleazy tactics. With the public aroused, the result was the Federal Election Campaign Act of 1974.

It was promptly challenged by one of the oddest coalitions ever to enter a courtroom. The plaintiffs included conservative New York Sen. James Buckley (brother of William F.), liberal Sen. Eugene McCarthy, the American Civil Liberties Union, the Mississippi Republican Party, and the Libertarian Party. In Buckley v. Valeo, the U.S. Supreme Court rightly found that large chunks of the law violated the First Amendment right of free speech. Other provisions were upheld, though, based on distinctions not readily apparent to the naked eye.

Buckley was quickly followed by important decisions of the new Federal Election Commission (which had been established by the 1974 law) and then by more congressional action in response to both the Court and the FEC. When the dust settled, we had pretty much our current system, though there have been some tweaks since, largely in the form of FEC and judicial interpretations of the '74 law.

Speech Impediments

The fundamental problem with controlling campaign finance involves free speech. How can government constitutionally prohibit someone, whether an individual or a corporation, from running an ad that says "Candidate X is a schmuck" or "Candidate Y voted for higher defense budgets"? In fact, given First Amendment precedents, how can the government prevent a citizen from donating money for a candidate to spend on such messages? Free speech rights are not easily reconciled with the laws passed in the 1970s, and the courts have spent a quarter-century in the delicate political task of accommodating reformist alarms without doing excessive violence to the Constitution.

The task is complicated by the reality that campaign laws present a stark fox-guarding-the-henhouse scenario: Except for judicial enforcement of the Constitution, incumbents have carte blanche to write the rules under which people will try to unseat them. Any legislators who cannot protect themselves forever are too dumb to deserve to stay in office. In 1998, political action committees gave $220 million to congressional races; 78 percent went to incumbents, 10 percent to challengers, and 12 percent to candidates in open-seat races.

The courts are not big on contemporary political theory, and they rarely make use of public choice models that assume politicians, like actors in the private sector, relentlessly seek to increase their market share. The models of administrative law the courts do use are all based on treacly New Deal platitudes. Nonetheless, many judges, especially in the U.S. circuit courts, are aware of the campaign laws' potential as incumbent-protection devices, and this awareness infuses their decisions, however subtly. In Shrink Missouri Government v. Adams (1998), for example, the U.S. Court of Appeals for the 8th Circuit expressed skepticism about the testimony of various state legislators concerning the need to battle "corruption," noting that they had failed to cite any actual instances.

In Buckley, the Supreme Court struck down provisions of the 1974 law imposing limits on expenditures in House and Senate races. It also threw out, as an unconstitutional abridgement of free speech, limits on how much a wealthy person can spend on his own campaign. But limits on how much a person can give to someone else's campaign were upheld, and so were limits on how much an individual can give to all campaigns in a single year. Money, in the Court's view, somehow loses its character as speech when it leaves the donor's hands. Stewart Mott, the heir to a fortune in General Motors stock who largely funded Eugene McCarthy's 1968 insurgency, would no longer be able to do such a thing, though he could run himself and spend as much as he wanted. Hence the candidacy of Steve Forbes, who had to carry the economic reform banner himself because he was not allowed to finance a campaign by anyone else.

The contribution limits--$1,000 to individual campaigns and $5,000 to PACs per year, up to a total of $25,000 per year--have not been raised since 1974, even though inflation has reduced their real value by two-thirds. The next time some incumbent moans about how much time he spends raising money, think of how simple it would be to increase the limits, and suppress your sympathy. The limits may make an incumbent's life unpleasant, but they make a challenger's impossible, and that is why they remain.

Pre-1974 bans on campaign contributions by corporations and unions remained in place, except that the 1974 law allows these organizations to pay the costs of administering political action committees. PACs can collect contributions from individuals and dole them out to candidates, subject to the limit on the amount contributed to any single campaign.

The law also established the FEC to administer the system, write regulations, and implement myriad reporting requirements imposed on everyone who dabbles in elections. This has led to a numbing array of nit-picking rules. The FEC's Campaign Guide for Corporations and Labor Unions is 80 pages long, and the print is small. There are separate guides for party committees, for candidates, and for PACs. The FEC digest of court cases on the law decided between 1976 and September 1999 contains 328 entries. The list of FEC advisory opinions issued since 1977 totals more than 1,130. These concern issues such as whether companies may reimburse their employees for making campaign contributions (forbidden) and whether fathers may funnel dollars through their kids (also forbidden, but you can use your spouse, as long as both names are on the account and both sign the check).

Forbidden Words

The biggest regulatory challenges come from those areas that reformers call "loopholes" and others call the exercise of free speech rights. These fall into three categories: independent expenditures, soft money, and volunteer activity.

An independent expenditure is spending by someone outside a campaign that is not coordinated with the campaign. Advertising is the most obvious example, but the category also encompasses material such as voter guides. If these were classified as campaign contributions, it would be illegal for businesses, unions, and nonprofit corporations to make them at all. For individuals, their cost would count against contribution limits.

In 1974, Congress, acting just as a public choice theorist would predict, did indeed try to control independent expenditures. But the pesky Supreme Court would not agree. In Buckley, it read the statute narrowly so as to avoid constitutional problems (a tried and true legal technique), saying the prohibition of corporate expenditures "in connection with an election" extended only to contributions to candidates and "express advocacy," which meant ads using phrases like "Vote for Candidate X" or "Defeat Candidate Y."

"Issue ads" that present an argument and perhaps link it to a candidate but that stop short of express advocacy are not covered by the law. Similarly, other expenditures of all sorts are allowed as long as they are not coordinated with a particular campaign. A later case held that even express advocacy is protected if it is conducted by a nonprofit corporation and is not coordinated with a candidate's campaign. (A fortiori, this applies to individuals.) The FEC has moved to bring such spending into the system, though, counting donations to advocacy groups against limits on individual contributions to candidates and requiring extensive reporting.

After Buckley, groups with a stake in elections learned the arts of independent action and issue advocacy. Unions poured $40 million into the 1996 election, environmentalists use issue advocacy regularly, and various conservative groups depend on it. To reformers, this participation by groups that care about issues is a "loophole."

A brisk legal business advises people how to walk the line between issue advocacy, which escapes regulation, and express advocacy. To the FEC, an ad saying, "Higher defense spending is good; Congressman X is opposed to it," is express advocacy. But if it says, "Higher defense spending is good; write Congressman X and tell him to change his position," it is an issue ad. The FEC keeps pushing to expand the law's coverage, and the courts, for the most part, keep pushing back. (See "Feckless FEC," July 1997.)

In one of the weirder aspects of this odd field, the definition of express advocacy differs in the East and the West. The U.S. Court of Appeals for the 9th Circuit, which covers California and eight other states, supports a squishy FEC test that says it all depends on what you intended to do. Other circuits say that only the precise words mentioned in Buckley and their synonyms are covered.

Lifeblood of the Party

The second big alleged loophole is called "soft money." State and national political parties are allowed to collect funds for general "party building" activities without having these count against the donors' annual contribution limits. Perhaps more important, these contributions can come from unions and corporations, entities that cannot give directly to campaigns at all. The parties must report the money to the FEC, and they must not coordinate their spending with campaigns.

The current deluge of soft money stems from a 1978 FEC advisory opinion that expanded the extent to which the parties could use such funds for purposes such as registration and get-out-the-vote drives. Predictably, these activities are now given an expansive reading, encompassing major electioneering. In 1992, the major parties collected $86 million in soft money, but its utility was still thought to be limited because everyone assumed that if they tried to push much beyond registration and get-out-the-vote drives, they would cross the line into illegal coordination. The FEC took the view that party committees were too close to the candidates to be independent and thus could never meet the requirement that expenditures on advertising or materials not be coordinated with a campaign.

Two things happened in 1996 to change this. The Supreme Court decided that a Republican state committee in Colorado that ran ads against a Democratic senatorial candidate was in fact independent of the Republican candidate. More important, President Clinton boasted of raising millions of dollars for early issue ads and personally vetting the campaign. The Republicans countered with their own spending spree, though they were slow off the mark, and soft money given to the parties reached $260 million that year.

Despite his boasts, the enforcers did nothing about Clinton, which had to mean they did not regard his actions as "coordination" that destroyed the "independence" of the expenditures. But if these actions were not "coordination," then nothing is, which means that the noncoordination requirement is dead. The FEC is now conducting a rulemaking proceeding to define coordination.

By 2000, Hillary Rodham Clinton's Senate campaign was telling people to make a big contribution and let the campaign staff break it down into hard money for the campaign, hard money for her related campaign committee, and soft money to be used by other committees for "party building." The president was equally overt, crisscrossing the nation to raise money from corporations and wealthy individuals, and the Republicans responded in kind, pulling out their own gate attractions, such as they are, and tapping into business executives and conservative entrepreneurs.

Celebrity Skin

The third gap in the law, though no reformer would dream of calling this a loophole, is voluntary activity by individuals, which is not covered by contribution limits. This exemption is an important reason for the rising political power of celebrities. The most conspicuous recent example of celebrity volunteering was Robin Williams' performance at the Democratic National Committee's record-breaking "barbecue bash" in late May, which raised $26.5 million. On a more modest but still impressive scale, an entertainer can contribute her time for a fundraiser; draw, say, 10,000 people at $100 a pop; and net a cool $1 million for the campaign. The presumptively corrupting industrialist can contribute a mere $5,000. Politicians spend a lot of time in Hollywood these days.

Another important effect of allowing unlimited voluntary activity is to give power to unions and to big government, categories that are increasingly overlapping. About 1.7 million civilians work for the federal government, and almost 13 million more earn a living producing goods and services for the feds, not counting state and local workers paid with federal dollars. State and local governments employ 17 million people. Add it up, and 22 percent of the civilian labor force of 138 million people works for governments. Public sector employees are much more likely to be unionized than are private sector employees: Unions cover 60 percent of the direct federal work force and 38 percent of state and local employees, compared to less than 10 percent of the private sector work force. All told, about 40 percent of the nation's 16.2 million union members are public employees.

Wall Street Journal columnist Paul Gigot notes that "government has become the ultimate special-interest lobby, always arguing for more government and always in apocalyptic terms." The numbers bear him out. In the 1997-98 election cycle, the American Federation of State, County, and Municipal Employees (AFSCME) was number three on the list of PAC contributions, with $2.4 million, all to the Democrats. (Numbers one and two were the realtors and the trial lawyers.) Media references to the role of "unions" in campaigns are largely references to public employees, and under the current laws their power is considerable. Unions can establish PACs to give hard money, and they can use dues for soft money and issue advocacy. In theory, a worker has a right to object and get back the portion of his dues used for politics, but this right has been gutted by administrative and judicial actions.

Unions are also the infantry of elections. They get out the vote, go door-to-door, and stuff envelopes. In this year's New Hampshire primary, more than 2,000 federal employees worked for Al Gore. In New York, union members distributed 1 million Gore fliers at 10,000 workplaces just before the March primary.

Current discussions of "reform" focus primarily on soft money, but many reformers also want to control issue advocacy, since they regard it as unseemly for those with an interest in the outcome of elections to interfere. No one talks of tightening the rules governing voluntary activity.

Access Fees

A fair amount of support for control of soft money comes from businesses. Business gets a load of grief from the media for financing politicians, but from the perspective of the givers the system looks like extortion rather than bribery. They fear that failing to pony up means that telephone calls will be unanswered, submissions unread, and representatives left standing out in the hallway while deals are cut in the conference room. So, they think, why not go with the flow, join the public indignation, and encourage Congress to outlaw soft money?

Incumbents could easily be persuaded because soft money tends to go to the parties themselves, where the leadership can use it as a tool of party discipline. The parties could also use soft money to fund challenges to incumbents of the other party, or even to fund primary challenges to some of their own members. Democratic and Republican incumbents alike can agree on the urgent need to avoid such an outrage. Since a nonincumbent finds it impossible to raise significant hard money, soft money is the only real threat to permanent tenure.

Business people think they would still get to talk to their representatives without soft money, only they would no longer be required to pay for the privilege. They also would avoid endless time spent at fundraisers eating insipid food and listening to even more insipid speeches. But it's a mystery why executives think they would prosper if campaigns were dominated by union (i.e., public employee) volunteers and the Washington media, and if no incumbent ever needed to worry about losing an election, not even the little bit they must worry now. (In 1998, 395 of 401 House members seeking re-election succeeded, a rate of nearly 99 percent.) If soft money contributions were banned, the realities would come home to them after a cycle or two, and the logic of the situation would dictate that the former soft money contributors would start funding more issue advocacy, conducted outside the political party structure.

The federal government is now involved in every area of national life, and people with high stakes in government actions need to communicate about those actions. Those stakes need not be economic: Studies indicate that most campaign contributions are motivated by ideology, not financial interest, and those who think the government should go in a certain direction will wish to make their views known. Why would anyone think that candidates should have a monopoly on communications about themselves and their opponents, to the exclusion of interested outsiders? Only an incumbent could love this idea.

One can be sure that a ban on soft money would soon be followed by an escalation in reformist fire at the terrible "loophole" of issue advocacy, whereby those who care about political issues spend money on them. What many "reformers" really fear is not the power of money but the power of ideas, especially ideas skeptical of government. The true agenda is to suppress these; the corrupting influence of money is simply a convenient rationale.

Web of Regulations

Exhibit A for this conclusion is the reformers' attitude toward the Internet, which is becoming the newest "loophole." Instead of rejoicing that the new medium reduces the costs of communication and thus creates great opportunities to cut the tie between money and political speech, the FEC has tried to use the fact that it costs some money as a jurisdictional hook to limit it.

Four years ago, CompuServe wanted to create an "Election Connection '96" that would have offered free Web sites to all candidates. No, the FEC said; that would be an illegal corporate contribution.

In 1998 a Connecticut man named Leo Smith put up a Web site advocating the election of one candidate and the defeat of another in a congressional race. He argued this was not an expenditure because his marginal cost was zero. No, said the FEC; because the Web site was of value to the candidate, it counted as an expenditure and was subject to regulation.

A year later, the FEC was presented with a Web site called DNET (Democracy Net) designed by the League of Women Voters and another nonprofit entity to provide comprehensive information on elections. It decided this was not an expenditure and was therefore OK. But the commission did not simply repudiate its CompuServe opinion. Instead, it noted that it had considered a number of factors, and that "although all of these factors are relevant, different facts with respect to a particular factor may or may not lead to a conclusion that a website's activities are permissible." In other words, the FEC reserves the right to do whatever it pleases, without explanation.

The story does not end there, because the nonprofits then sold DNET for $30 million to a commercial operation, which is running it as grassroots.com, where it does many things that CompuServe and Leo Smith were forbidden to do. This has triggered a formal complaint to the FEC from the conservative National Legal and Policy Center, which wants to make sure the FEC does not give breaks to the politically correct that are not available to all.

In the meantime, the FEC, faced with a deluge of requests for clarification of its Internet policies, has punted. In December 1999 it issued a request for comment on all aspects of Internet use in campaigns. It received more than 1,200 responses (all of which can be read at www.fec.gov/internet. html) and is now digesting them. The word on the street is that the commission has no intention of doing anything before November, so everyone is left to speculate about what rules apply and what risks they face if they run afoul of what the FEC decides in the future. With any luck, the pressures of the Internet will trigger the demise of the whole system by making the FEC's efforts to micromanage political speech patently impossible.

Real Reform

"That's not a bug," the computer joke goes, "it's a feature." So it is with campaign finance regulation. The loopholes are the only good part of the system. Instead of fretting about how to close them, we should be figuring out how we ever went down such a ridiculous path in the first place, and about how to inoculate the body politic against future folly.

The core idea that too much is spent on elections is downright silly. In 1995-96, federal elections cost about $11 per potential voter. The federal government that year spent about $1.7 trillion, which is about $8,600 per voter; indirectly allocated huge additional chunks of resources; and affected people's well-being in all sorts of other, noneconomic ways. And we are supposed to be appalled that educating the citizenry about the people we put in charge of these activities costs $11 per voter? Clearly, the problem is the reverse: There is gross underinvestment in political information, a problem exacerbated by the reform laws.

Equally wrong-headed is the idea that most campaign contributions are motivated by a desire for favors. There is a real, though limited, problem with federal corporate welfare payments and associated unsavoriness, but on big issues contributions do not matter much. Business cannot buy votes on Social Security, or defense, or the minimum wage. Bradley A. Smith, a law professor at Capital University in Ohio and a shrewd scholar of the process, wrote in 1996: "Those who have studied voting patterns...are almost unanimous in finding that campaign contributions affect very few votes in the legislature. The primary factors in determining a legislator's votes are party affiliation, ideology, and constituent views and needs. That has been reflected in study after study over the past 20 years....Donors contribute to candidates believed to favor their positions, not the other way round." (Smith, whose skepticism about current regulations scares the so-called reformers, was confirmed as a member of the FEC in May.)

The final rationale trotted out by the reformers is the "appearance of corruption." Even if the system is not really corrupt, people think it's corrupt, so the government (i.e. incumbents) should regulate it to avoid this appearance. Unfortunately, the Supreme Court has been sympathetic to this nonsense, which is odd because in every other area of First Amendment jurisprudence such arguments get the summary rejection they deserve.

A real program of campaign finance reform would start from the premise that the First Amendment is not, as the reformers seem to believe, a loophole. The First Amendment, as applied to electoral campaigns, is an indispensable element of representative government. The only real reform needed is to expand the loopholes, not end them. Contribution limits should be removed, even for corporations and unions, and the only requirement should be full and immediate disclosure over the Internet.

There can be First Amendment objections to disclosure, since anonymity is sometimes important. But contribution sources are important pieces of information for voters to get, disclosure is necessary for public acceptance of radical change, and it is a reasonable price to get rid of the present system. Beyond the disclosure requirement, let it rip. The more money spent, the better. The more voices, the better. The more that citizens feel they can participate and be heard, the better. The less governments try to control advocacy, the better.

It won't be pretty. There will be lots of abuses, problems, and outrages. But, as Winston Churchill said of democracy itself, this approach to campaign finance has one irrefutable argument in its favor: All the other systems are worse.

Old Elites

info@reason.com (James V. DeLong) — Wed, 01 Mar 2000 00:00:00 EST

Archeological finds, we're constantly advised, must be left to experts. For example, under the American Antiquities Act of 1906, permits for "the excavation of archeological sites, and the gathering of objects of antiquity" on government land are to be granted only to "reputable museums, universities, colleges, or other recognized scientific or educational institutions, with a view to increasing the knowledge of such objects, and that the gatherings shall be made for permanent preservation in public museums." Ancient artifacts, building sites, shipwrecks, tombs--all must be preserved from hoi polloi who would treat them with insufficient sensitivity, or from looters who might (shudder) sell things to private collectors. These days, people are arrested for picking up bullets on Civil War battlefields.

Do such protective efforts actually work? The Bureau of Land Management is responsible for sites and artifacts on federal lands. According to a recent report by the Department of the Interior's inspector general, the BLM has surveyed only about 5 percent of its 264-million-acre domain and has recorded only 221,000 significant sites out of more than 4 million. It has issued permits allowing accredited experts to remove more than 20 million objects to BLM-approved repositories, but it has no system for keeping track of the items. Nor does it maintain the inventories required by law.

In short, the system is almost perfectly perverse. It assumes that every site and artifact is "significant"--which is ridiculous--and then hogs them for the BLM and the experts. It removes any incentive for private citizens, who may actually have considerable skill and knowledge, to look for things, thus leaving many items unfound and unappreciated by anyone. And it fails in its alleged purpose, which is to ensure an orderly structure for archeological activity.

Meanwhile, the storerooms of America's museums are stuffed with items that are duplicative of or inferior to the pieces on display. There they repose, gathering dust, unseen by anyone.

Perhaps a little democratization is in order, along with the recognition that not everything old needs to be treated with reverence, and that a museum should hold only the exemplary items it needs. Why shouldn't there be a brisk trade in historical artifacts, even those found on that national commons better known as federal lands?

Spare Parts

info@reason.com (James V. DeLong) — Tue, 01 Feb 2000 00:00:00 EST

On November 19, 1999, The Washington Post began a news story on organ transplant policy this way: "The Republican congressional leadership moved yesterday to derail a hard-won compromise with the Clinton administration aimed at developing a fairer system for organ transplants, outraging the White House and raising concerns that the plan could be delayed indefinitely."

You wouldn't guess it from the story, but this debate involves some serious issues of exquisite moral difficulty. What does "fair" mean in this context? Should the sickest recipients receive preference (as the administration wants), or should some other factor govern--perhaps "youngest first" or "otherwise healthiest" (to make sure that a scarce liver, say, goes to a child rather than a cirrhotic senator)? Are we better served by a few large transplant centers or by a network of smaller local ones? Will more people donate organs if transplant centers are local?

Perhaps the most interesting question does not even enter into the thinking of Congress, the administration, the Department of Health and Human Services, the medical profession, or the general press: Should individual donors or their families be allowed to establish the criteria for how their organs are disposed? (See "Organ Grinders," November 1998.) While living people are allowed to donate organs, such as kidneys, to specific individuals, this is not part of the system for allocating organs from cadavers. But if a question has no clear moral answer, perhaps people should be allowed to answer it for themselves rather than relying on the votes of the political class.