I generally hold John Tamny’s analysis of economic matters in high regard, so I was surprised to find his take on the American Airlines bankruptcy to be oddly lacking.
In his latest Forbes column, Tamny argues that it wasn’t its pension obligations, but monetary policy, specifically the weak dollar, that pushed American Airlines into bankruptcy.
The immediate reason he cites is high fuel prices, which are caused by the fact that oil is priced in dollars in the global market. High fuel prices have hit nearly all airlines hard, not just American. As Tamny himself notes, “Southwest Airlines was one of the few carriers that properly hedged its exposure to fuel prices that were set to go through the roof.”
What does set American Airlines apart is its pension and labor costs.
American’s pension liabilities are so enormous, at $10 billion, that to deny they were a major factor in the airline’s bankruptcy is contrarian to the point of absurdity. Tamny argues that those liabilities didn’t drive American to bankruptcy based on the notion that they would have been reflected in the airline’s stock price. However, that argument fails in the face of the dodgy accounting which many unionized companies with defined benefit pensions apply to those pensions. Information cannot get out into the market when it is suppressed or obscured.
Then there are labor costs, on which American spends $800 million more a year than its main competitors.
Finally, there’s the problem of management decisions that simply go awry. In that regard, last weekend’s interview of Alaska Airlines CEO Bill Ayer in The Wall Street Journal is worth reading. All too often, airlines place too much focus on gaining greater market share—usually through debt-fueled growth—and not enough on common sense strategies such as working to reduce per-mile costs.
The Chronicle of Higher Education reports that a team of eight law firms have just “sued a dozen more law schools across the country, accusing them of luring students with inflated job-placement and salary statistics and leaving graduates ‘burdened with debt and with limited job prospects.’ The lawyers . . . said they planned to file 20 to 25 new lawsuits every few months . . . the lawsuits had been filed on behalf of a total of 51 graduates, and each suit was seeking class-action status. The targets of the latest round of lawsuits” include “Brooklyn Law School,” “Chicago-Kent College of Law,” “DePaul University College of Law,” “Golden Gate University School of Law,” “Hofstra Law School,” “University of San Francisco School of Law,” “Widener University School of Law,” and several others. As the Chronicle notes, “Disgruntled law-school graduates who can’t find jobs are increasingly taking their complaints to court, asserting that the schools duped them into enrolling with misleading statistics about their chances of landing well-paying jobs when they get out. Last year similar lawsuits were filed against New York Law School, Thomas M. Cooley Law School, and Thomas Jefferson School of Law.”
As I noted earlier, much of what law schools teach their students is useless drivel, and law schools routinely exaggerate their students’ job prospects. Accordingly, there is no reason to require people to attend law school before sitting for the bar exam. As law professor Paul Campos notes, legal education is often a rip-off, since the typical law professor has little real-world experience practicing law, and “knows nothing about being a lawyer.” But since most states require people to attend law school before sitting for the bar exam, law schools have been able to increase tuition by nearly 1,000 percent since 1960 in real terms. For its part, the Obama Education Department has implemented policies that encourage colleges to jack up tuition and charge students even more, even as college students are learning less and less.
Oklahoma taxpayers might be able to breathe a little bit easier this year thanks to two important pieces of legislation making their way through the state capitol.
A proposed amendment to the state’s constitution would enjoin any Oklahoma municipality not “to become indebted or contractually obligated, in any manner, or for any purpose” without the express approval of the municipality’s governing body, the municipal officer charged with budgetary oversight by the governing body, or a majority of the municipality’s citizens.
The amendment’s sponsor, Senator David Holt (R-Oklahoma City), has dubbed it the “Lincoln Amendment” because it “enshrines in our state’s Constitution a basic premise of American democracy — that our government is by the people and for the people, just as Lincoln said at Gettysburg.”
From Senator Holt’s office:
Recently, Oklahoma was ranked the most anti-taxpayer state in the entire southern United States by the Competitive Enterprise Institute. This was primarily because in Oklahoma, the wishes of local taxpayers and their elected representatives are routinely trumped when it comes to spending tax dollars, causing local governments to take on expenses they cannot afford, resulting in service cuts or requests for more taxes. The Lincoln Amendment is a response that shifts the power of the purse back where it belongs, to the taxpayers.
The state Senate is also considering the Oklahoma Paycheck Protection Act, which would amend the state code so that the state’s Office of Personnel Management can only direct payroll deductions to an organization if “the primary or core function of the organization is nonpolitical and nonpartisan.” The bill would also prohibit Oklahoma school districts from directing payroll deductions to teachers’ unions, and would prevent Oklahoma municipalities from writing union payroll deductions into employment contracts.
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Proponents of government collective bargaining view it as a fundamental human right. The shameful actions of SEIU in Michigan, however, undermine this claim.
In 2005, Michigan lawmakers signed off to create the Michigan Quality Community Care Council (MQC3). MQC3 maintains a registry of homecare providers to assist Medicaid recipients looking for a caregiver. In reality, the primary function of MQC3 was to make 45,000 private homecare providers government employees and dues-paying union members.
In 2006, SEIU took advantage of Michigan law deeming homecare providers government employees. To gain exclusive representation SEIU organized a covert union campaign. The stealth-organizing tactic led to 20 percent voter turnout and SEIU won a landslide victory.
Soon thereafter, SEIU obtained a collective bargaining agreement (CBA) with the state. The events following the CBA expose the dangers of government union political influence and permanence of CBAs.
MQC3, acting as a “dummy” employer for homecare workers, created a mechanism for union dues to be siphoned off Medicaid checks. Not only is it illegal to unionize homecare workers who are private contractors, homecare workers already have employers: their Medicaid beneficiaries. Worse, the scheme wholly rejects the purpose of Medicaid by diverting funds from individuals who cannot afford medical care to Big Labor.
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Last week, the Metropolitan Washington Airports Authority announced it was considering scrapping the Silver Line stop at Dulles Airport.
Though the Silver line was designed specifically to provide service to Dulles Airport, MWAA Board Member Bob Brown said it “wouldn’t be much of an additional burden on riders because even if Metro stopped at the airport people would still have to take a hike to the airport terminal” (1,150 feet – more than three football fields).
That’s right, MWAA just admitted that the proposed metro stop at Dulles Airport would be so inconvenient that air travelers aren’t likely to use it. So if the Silver Line is really just a westward extension of commuter rail that might not even stop at Dulles Airport, why is MWAA still involved?
More importantly, why would Virginia (one of only eight states with a AAA bond rating and the only one to have kept it without interruption for the last seventy years) surrender authority over a $6.8 billion infrastructure project to a notoriously secretive and debt-addicted semi-private entity like MWAA?
Virginia turning the reins of a large and complex project over to an opaque agency with a worse credit rating than France might seem completely backwards, but maybe the alternative to MWAA is even worse. One argument in favor of giving MWAA jurisdiction over planning the Silver Line is that it is a less wasteful and incompetent entity than the Kafkaesque Washington Metropolitan Area Transit Authority, which will ultimately run it.
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Harvard University economist Jeffrey Miron argued that the $800 billion stimulus package wasn’t even designed to stimulate the economy, but rather to benefit special-interest groups, since it flunked even old-fashioned Keynesian policy prescriptions about how to revive the economy. Recently-disclosed memos obtained by the New Yorker provide more evidence for this argument: “over the objection of his economic advisors, President Obama replaced $60 billion of ‘highly stimulative spending’ with a slow-spending but ‘inspiring’ $20 billion for high-speed trains and $40 billion in pork for his Senate Democratic allies. And this is starting from a point at which he knew that his advisors thought that not more than $225 billion of the $826 billion total was high-quality, fast-spending, efficient stimulus.”
This is not the only way that Obama ignored economics in favor of politics when drawing up the stimulus. Originally, economists wanted the stimulus to include the kinds of transportation spending that could boost the economy. But the stimulus package was purged of most investments in roads and bridges, and filled instead with welfare and social spending, out of political correctness, after feminist leaders complained that fixing roads and bridges would put unemployed blue-collar men to work, rather than women. Christina Hoff Sommers points out that “of the 5.7 million jobs Americans lost between December 2007 and May 2009, nearly 80 percent had been held by men,” because men “predominate in manufacturing and construction, the hardest-hit sectors.” But when some administration officials floated the concept of “an ambitious . . . stimulus program to modernize roads, bridges,” and infrastructure as a way of “reinvigorating the hardest-hit sectors of the economy,” “Women’s groups were appalled,” denouncing “The Macho Stimulus Plan.” The Obama administration quickly knuckled under to this pressure, resulting in a “stimulus” package that spent money instead on social services like welfare that are administered mostly by female employees. As an AP story noted “Stimulus Aid Favors Welfare, Not Work, Programs.” (The stimulus package largely repealed welfare reform).
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Propped up by government subsidies and regulations requiring students to attend law school before taking the bar exam, law schools waste their students’ time teaching irrelevant legal theories and ideologies, even as they paint a deceptively rosy picture of the job prospects that await their students upon graduation. As I noted in The Wall Street Journal this weekend,
At Harvard Law School I learned about trendy ideological fads and feminist and Marxist legal theory. But I did not learn the basics of real-estate and family law until I took a commercial bar-exam preparation course after graduating from law school. I learned more practical law in one summer of studying for the bar exam than I did in three years of law school. Students should not have to attend law school before taking the bar exam.
As Charlotte Allen notes at Minding the Campus, law schools are “fudging the facts” regarding their students’ job prospects in order to attract students and justify skyrocketing tuitions:
law schools, along with the universities to which they are attached, crave their students’ tuition dollars (law schools, where expensive labs are nonexistent and large lecture courses are the rule, tend to be cash cows for their host campuses) . . . One way to do this is to boast a high percentage [to U.S. News & World Report of] “graduates known to be employed within nine months after graduation.”
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A prominent federal judge has added to the growing chorus of criticism for American law schools and their failure to provide practical training for their students despite charging exorbitant tuition:
Judge José Cabranes of the U.S. Court of Appeals for the 2d Circuit . . .noted that law schools are in “something of a crisis,” given the skyrocketing cost of tuition, ever-higher graduate debts and a growing feeling that legal scholarship is of little use to the bench or practitioners. …
To get back on track, law schools should shift their curricula back to core courses and away from the interdisciplinary classes that have grown in popularity, he said; they should introduce a two-year core law program followed by a yearlong apprenticeship, and increase transparency regarding costs, job prospects and financial aid information. …
Cabranes lamented the move by law schools toward specialized, often interdisciplinary courses that can displace “black-letter” law courses — criminal and civil procedure, evidence and federal courts. He related a story about a friend’s child who enrolled in a law school clinic focusing on housing court — but who had never taken a property law course. Core law courses should come before clinics and interdisciplinary work, even if the latter are more popular with students and faculty, he said. …
Cabranas also offered a harsh assessment of the scholarship that legal educators are producing. He recalled recent criticism from several Supreme Court justices that the scholarship has left “terra firma” in favor of outer space. “Legal scholarship is a conversation among members of the academy with the rest of us reading — maybe,” he said.
Cabranes also “condemned a growing ‘cult of globalization,” in which law schools focus on trendy international concerns, rather than give their students a “solid foundation in the law.” An earlier news story in The New York Times described what a costly white elephant law schools have become. Law school is expensive because of government-enforced accreditation standards that prevent law schools from containing costs even if they wanted to: “the lack of affordable law school options, scholars say, helps explain why so many Americans don’t hire lawyers” when they genuinely need legal assistance or advice. Lawyers need to bring or work on big-ticket lawsuits — even socially destructive lawsuits — to pay off their student loans, instead of providing badly needed legal advice and assistance to people of modest means, who can pay less. (Certain types of lawsuits are favored by one-way fee-shifting statutes that encourage trial lawyers to bring those particular types of lawsuits, even when the entity being sued is probably innocent.)
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The Equal Employment Opportunity Commission recently posted a letter on its website claiming that it is illegal for employers to have a high-school diploma requirement if an applicant who is learning-disabled was unable to graduate from high school. The EEOC’s letter radically stretches the concept of “disparate impact” or unintentional discrimination beyond what most courts would allow, in a way that will harm small employers.
Under Supreme Court precedent, an employer can be liable for “unintentional discrimination,” or “disparate impact,” if it has a job requirement that systematically screens out many more members of a minority group than other groups. For example, back when few black people in North Carolina had high-school diplomas, the Supreme Court ruled that a power company there that required high-school diplomas for unskilled jobs was liable for “racially disparate impact,” since the requirement systematically screened out large numbers of black people at a much higher rate than white people.
But the fact that a job requirement screens out a small number of applicants of a given race (or a given minority group, like the disabled) is not enough to state a claim. It has to weed out a large number of such applicants, in a systematic way. Thus, small businesses are usually beyond the tentacles of the EEOC, since they generally don’t hire a large number of people, or have a large number of minority applicants. Employers sued because their job requirements had unintended racial disparities have nonetheless prevailed in court when the absolute number of minority applicants rejected for the job was small, such as a dozen or fewer. Moreover, as the Tenth Circuit Court of Appeals noted in Coe v. Yellow Freight (1981), “discriminatory impact cannot be established where you have just one isolated decision. A claim of discrimination resulting from the mode of filling a single position does not give rise to a disparate impact.”
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The Supreme Court has rejected the Obama administration’s argument that it can dictate who churches hire as ministers or clergy in Hosanna-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission. The Obama administration unsuccessfully argued that the government can dictate who churches hire, as long as it also subjects secular employers to the same dictates regarding who they hire (so-called rules of general applicability). Taken to its logical conclusion, this argument would allow the government to ban a church or synagogue from hiring based on religion (defeating the whole purpose of religious freedom, which is to allow churches to promote their own religion) or sex (preventing the Catholic Church from having a male priesthood). No Supreme Court justice bought the administration’s argument, made on behalf of the Equal Employment Opportunity Commission (EEOC). The Supreme Court unanimously found that such government control over who churches can hire would violate the religion clauses of the First Amendment.
If federal antidiscrimination laws covered churches’ hiring of clergy, as the Obama administration demanded, they would have to not just avoid discriminating based on things like sex or religion, but would also have to radically alter sensible hiring criteria by eliminating longstanding, neutral church practices that have the affect of inadvertently screening out more members of a minority group than of other groups (so-called “disparate impact” or “unintentional discrimination”). For example, some branches of the Lutheran Church have hiring criteria for religious broadcasters on their radio programs, such as “knowledge of Lutheran doctrine,” and “classical music training,” that few minorities satisfy (only 2 percent of all people with Lutheran training are minorities, and only 0.1 percent of people with both Lutheran training and classical music training are minorities), given the Lutheran Church’s historical roots in overwhelmingly white areas like Germany, Scandinavia, and Minnesota. Even though they are happy to have black applicants, and do not treat black applicants worse based on their race, the EEOC could easily sue them for racially disparate impact if the Obama administration’s argument had been accepted. (The religion clauses of the First Amendment not only protect who churches hire as ministers, but also other people who serve as “voices of the church,” such as theology professors, and religious broadcasters on behalf of a church.)
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