Saturday, July 25, 2015

A Victory for Choice and Competition in North Carolina



Earlier this week the North Carolina Supreme Court struck a blow for choice and competition in K-12 Education. In Hart et al. v. State of North Carolina and Richardson et al. v. North Carolina,  the Court rejected challenges to the state's Opportunity Scholarship Program in a well-reasoned opinion by Chief Justice Martin.  Like a similar program in Washington D.C. previously discussed on this blog, the program provides financial assistance --- $4,200 per student --- to low income families who choose to enroll their children in certain private schools.  Sometimes called "vouchers," such scholarships implement  the vision of Nobel Laureate Milton Friedman, who articulated the powerful case for educational choice in his now-famous essay "The Role of Government in Education," reproduced here at the website of the Friedman Foundation for Educational Choice.

North Carolina imposes various regulatory requirements on its non-public schools.  (See here).  In addition, schools that enroll students who receive such assistance must employ nationally-recognized standardized tests annually in the third grade and afterwards to evaluate the progress of students in "grammar, reading, spelling and mathematics" and submit the results of such tests to the State's Educational Assistance Authority. ("Authority")  Such schools must also provide the parents or guardians of such students with annual progress reports, including the results of standardized tests and inform the Authority of the graduation rates of such students.  A school that enrolls 25 or more such students must report the aggregate standardized test scores of such students to the Authority, and such aggregate scores are available to the public.     Schools that enroll such students cannot discriminate based on race, color or national origin.  Moreover, the Authority must annually retain an independent research organization to assess the "learning gains or losses" of students who receive such grants as well as the "competitive effects" of the program upon the learning outcomes of students who remain in public schools.  (See N.C.G.S. Section 115C-562.1-7, found here).  

The Authority selected about 2,300 students from more than 5,500 applicants to participate in the program in its first year, at a total cost to the state of $10.8 million.

Plaintiffs, backed by the North Carolina ACLU, raised numerous objections to program.  Most notably, the plaintiffs claimed that the spending authorized by the program did not serve a "public purpose" because some of the schools in which beneficiaries enrolled are not accredited by one or more accrediting agencies and/or employed some teachers that are not certified.  See North Carolina Constitution Article V, Section 2(1) ("The power of taxation shall be exercised in a just and equitable manner, for public purposes only, and shall never be surrendered, suspended, or contracted away.") Plaintiffs also made a related claim that the program failed to "guard and maintain" the privilege of education guaranteed by Article I, Section 15 of the state constitution.  Indeed, a lower court had ruled that the "General Assembly fails the children of North Carolina when they are sent with taxpayer money to private schools that have no legal obligation to teach them anything." (Emphasis added).

The North Carolina Supreme Court properly rejected these and other claims.  As explained above, the Opportunity Scholarship Program contains numerous features, including annual testing, reports of the results to the state, and annual progress reports to parents and reports on graduation rates that enhance the accountability of private schools to families and the public.  The most important such mechanism, however, is market competition, the institution on which free societies ordinarily rely to ensure the production of high quality products and services.  Such competition, bolstered by background rules of contract and tort law, includes rivalry among various private schools as well as rivalry between private schools and their public counterparts, including the State's 147 Public Charter Schools.  Contrary to the implication of the district court's reasoning quoted above, no North Carolina children "are sent" by the state to a private school. Instead, parents or guardians voluntarily choose such schools over the free public school, and any public charter school, the child is entitled to attend.  Many middle class families already have sufficient financial resources to choose private schools for their children, and the U.S. Constitution guarantees them that right.  The Opportunity Scholarship Program increases the number of competitive options available to low income families, thereby facilitating their participation in the same educational markets, and attendance at the same schools, that middle class families have enjoyed for decades. Absent some substantial market failure, and none is apparent, there is no reason to believe that educational outcomes will suffer.  Organizations such as the ACLU, which purports to stand for "choice" and even invokes the Statue of Liberty on its logo, would do well to reconsider prior opposition to such programs, opposition that, when successful, entrenches anti-liberty state monopolies subsidized by the taxpayers, many of whom would prefer to send their children to private schools.

To be sure, accreditation and professional certification can sometimes improve the quality of products offered by some market actors.  Any such improvements come with countervailing costs, however. Such costs include the out-of-pocket cost of compliance, the cost of monitoring such compliance, the reduction in innovation resulting from regulatory mandates, and the exclusion of otherwise qualified individuals from the occupation in question.  See generally Milton Friedman, Capitalism and Freedom, Ch. 9 (1962).  At the same time, many markets for complex products function quite well without such governmental intrusion.   No certification agency decides what apps Apple will include on its latest I-Phone or whether and how Amazon will attempt to compete with Wal-Mart.  Indeed, Wake Forest University, founded in 1834, was first accredited in 1921. Davidson, founded in 1837, was first accredited in 1917.  So far as this blogger is aware, faculty who have taught at such institutions were never "certified" by any independent body.  It's hard to imagine that these institutions did not serve "public purposes" until 1921 and 1917, respectively.

Presumably the North Carolina Legislature understood the role that markets play in ensuring educational quality and took account of the costs and benefits of additional regulatory intrusion.   The legislature obviously decided that, on balance, the Opportunity Scholarship Program enhanced the public welfare by facilitating individual choice, bolstering educational competition and enhancing educational outcomes. Indeed, the State has long declined to impose stringent regulatory oversight on its private schools, trusting market competition to assure quality, and the Opportunity Scholarship Program imposes additional regulatory requirements on those schools that accept scholarship recipients.  As Chief Justice Martin eloquently explained for the Court, this determination was a quintessentially legislative judgment and, of course, subject to legislative revision as new facts about the operation of the program become available.  Hopefully the Court's decision will clear the way for an expansion of the program and thus additional reliance upon choice and competition in the provision of education in the Tar Heel State.

Sunday, July 12, 2015

Job Growth Still Weak, Like the Recovery

Last week brought more mediocre news about the Nation's economy. According to the Bureau of Labor Statistics ("BLS"), the economy added a seasonally-adjusted 223,000 jobs in June, 2015, the 73rd month of this economic recovery.  (The current recovery started in June, 2009.)   The BLS also revised downward the employment growth figures for April and March.   These results follow prior reports that the economy grew a mere 0.2 percent in the first quarter of 2015, "nearly grinding to a halt," as a report in the Washington Post put it.

The New York Times, for instance, claims these latest employment figures show "healthy" job growth, consistent with its prior claim that May job growth (now revised downward) was "strong." (To be fair, another Times analyst opines that the June numbers are "weaker than they look.")  Analysis of the historical record, particularly that of the nation's recovery from the 1981-82 recession, suggests that June job growth, like that throughout this recovery, was quite disappointing.

As noted above, June, 2015 is the 73rd month of the recovery that began in June, 2009.  By comparison, the so-called Reagan recovery began in November, 1982.  The 73rd month of that recovery, November, 1988, saw job growth of 339,000, about 52 percent larger than that of June 2015.  (Go to this website and insert the appropriate dates to generate these figures.)    Moreover, this 52 percent figure actually understates the gap between job growth in these two months. After all, the workforce and thus total employment was significantly smaller (106,277,000) in October, 1988 than it was this most recent May (141,619,000).   Hence, employment grew at a rate of just over three tenths of one percent in November 1988 compared to the prior month's level, slightly more than double the June 2015 rate of growth. The significant disparity between these two months is not an anomaly: total employment increased by nearly nine tenths of one percent in the combined months of September, October and November of 1988, compared to less than five tenths of one percent in April, May and June 2015.     Previous posts on this blog have reached similar conclusions about the relative strength of employment growth during the Reagan recovery and the Obama recovery.  (See here and here, for instance.).  The left-leaning Center for American Progress apparently agrees.  In a recent essay about the state of the employment market, the CAP concludes that: "job growth remains weak compared to previous recessions."  (By "previous recessions" the essay apparently means "recoveries from previous recessions."). 

Such disappointing employment growth should not be surprising, given the slow pace of economic growth during this recovery which, as noted above, began in June, 2009.  Here are the annual rates of GDP growth for the last five years, according to the World Bank, beginning with 2010, the first full year of recovery from this most recent recession:

2010:   2.5

2011:   1.6

2012:   2.3

2013:   2.2

2014:   2.4

Thus, annual GDP growth averaged 2.2 percent during this period.

Here, by contrast, are the annual rates of GDP growth during the Reagan recovery, beginning with 1983, the first full year of recovery from this recession:

1983:  4.6

1984:  7.3

1985:  4.2

1986:  3.5

1987:  3.5

1988:  4.2

Annual GDP growth averaged 4.6 percent during this period, more than twice that during the Obama recovery.  (Note that excluding the 1983 figure results in the same rate of average annual GDP growth, namely, 4.6 percent). 

Economists and others will no doubt spend decades debating why the Obama recovery is so weak.  However, there can be no doubt that, judged by the rate of economic expansion and employment growth, this recovery is a disappointment that still leaves millions of Americans without the economic opportunities they deserve.   

Thursday, July 2, 2015

Happy Birthday to the Sherman Act!

Had a Good Ghost Writer

Said Ghost Writer

The Sherman Act, ostensibly authored by Senator John Sherman (R-Ohio) (pictured first above), turned 125 today.   The Senate passed the Act 51-1 on April 8, 1890, and the House followed suit unanimously on June 20.  President Harrison signed the bill into law on this date in 1890.  For a photo of the Act, go here.  

While the Act contains eight sections (see the complete text reproduced below), the statute's basic prohibitions are found in the first two. Thus, Section 1 forbids: "contracts, combinations and conspiracies in restraint of trade or commerce among the several states."  Section 2 forbids "monopolization," "conspiracy to monopolize," and "attempt[s] to monopolize."  Senator George F. Edmunds (R-Vermont) (pictured second above), Chairman of the Senate Judiciary Committee, drafted these two sections in late March and early April, 1890, narrowing Sherman's pending draft, which exceeded the scope of the commerce power.  See Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 115 & n. 59  (1988).

Although the Supreme Court initially held that Section 1 merely prohibits "direct restraints" of interstate commerce, see United States v. Joint Traffic Association, 171 U.S. 505 (1898), it would subsequently hold that Section 1 bans all "unreasonable" restraints.  See Standard Oil v. United States, 221 U.S. 1 (1911), while Section 2 only forbids unreasonable methods of acquiring or maintaining a monopoly.  See American Tobacco Co. v. United States, 221 U.S. 106 (1911).  These three limiting constructions ensured that the Act did not interfere with liberty of contract, thereby assuring that the statute banned only those practices that reduce wealth. (See here and here.)  While once controversial, Standard Oil's "Rule of Reason" survives to this day as the definitive construction of the Act.  

The Act has proved remarkably resilient, in part because of the Rule of Reason's flexibility.  To be sure, Congress has exempted various industries from the Act.  Moreover, Congress partially suspended the Act when it passed FDR's National Industrial Recovery Act in 1933.  Under the NIRA, President Roosevelt approved over 500 so-called "Codes of Fair Competition," limiting competition in each such industry.  Fortunately the Supreme Court unanimously invalidated the NIRA in Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935), restoring the Sherman Act.  Thus, the operative language of Sections 1 and 2 survives, protecting markets from wealth-reducing restraints.

As promised above, here is the text of the original Sherman Act:

An act to protect trade and commerce against unlawful restraints and monopolies.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

Sec. 1. Every contract, combination in the form of trust or other- wise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, at the discretion of the court.

Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof; shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.

Sec. 3. Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.

Sec. 4. The several circuit courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties complained of shall have been duly notified of such petition the court shall proceed, as soon as may be, to the hearing and determination of the case; and pending such petition and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises.

Sec. 5. Whenever it shall appear to the court before which any proceeding under section four of this act may be pending, that the ends of justice require that other parties should be brought before the court, the court may cause them to be summoned, whether they reside in the district in which the court is held or not; and subpoenas to that end may be served in any district by the marshal thereof.

Sec. 6. Any property owned under any contract or by any combination, or pursuant to any conspiracy (and being the subject thereof) mentioned in section one of this act, and being in the course of transportation from one State to another, or to a foreign country, shall be- forfeited to the United States, and may be seized and condemned by like proceedings as those provided by law for the forfeiture, seizure, and condemnation of property imported into the United States contrary to law.

Sec. 7. Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be unlawful by this act, may sue therefor in any circuit court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover three fold the damages by him sustained, and the costs of suit, including a reasonable attorney's fee.

Sec. 8. That the word "person," or " persons," wherever used in this act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.