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Opt-Out Versus Opt-In, the Inverted Presumption, and the CAT

November 17, 2023

“We do it this way on all other campuses. If we cannot do it this way, we’ll leave Amherst.” That was the ultimatum served to me by a representative of MASSPIRG (Massachusetts Public Interest Research Group) fourteen and a half years ago. At the time, I was a member of the five-student strong Amherst College Judiciary Council. Normally, the Council resolved mundane issues such whether a new student club merited general funding support from the student government. However, that day we were dealing with the comparatively explosive case of whether MASSPIRG, a third-party group that performs activism for various causes connected to social progressivism, could continue its activities with Amherst students using a unique and rather pernicious funding mechanism. This funding mechanism shares a notable attribute in common with one prominent federal administrative agency’s latest efforts.

Unlike all other third-party groups with Amherst students as members, MASSPIRG enjoyed an exemption from having to raise its funds through ordinary means such as tee-shirt sales or raffles. These ordinary means required students inclined toward these third-party organizations to opt-in to support them with their donations. MASSPIRG’s exemption though allowed it to receive its funding directly from the student activities fund of the student government. Opting-out was only narrowly possible. As part of that exemption, every student at the start of each semester could submit within, if I recall, a two-week window a request to opt-out of their portion of the MASSPIRG funding. While each student’s contribution was modest, $18 annually, this was a significant sum of nearly $30,000 each year for MASSPIRG when factoring the entire student body. Again, no other third-party organization had been granted this arrangement. The majority of students ignored the request to opt-out (since the $18 would often be refunded to their parents or their scholarship) while a small but vocal minority would submit the request and grouse.

We members of the Judiciary Council sought to review, after some time had passed, whether MASSPIRG should continue to receive this special exemption in the presence of a representative of the state organization along with students in MASSPIRG. At the hearing, I and the other members of the Judiciary Council pressed the representative and students about the opt-out method of funding and why it was necessary. They told us that MASSPIRG would cease to exist at Amherst without this arrangement and again that if this method was not followed, MASSPIRG would disassociate with Amherst. In a unanimous vote, the Judiciary Council held that such an extraordinary arrangement would need to be put to a student-wide referendum as soon as possible. The student government agreed to place it on the next ballot to the consternation of MASSPIRG.

Why did MASSPIRG defend this opt-out arrangement so vigorously? On its face, there seems to be a fundamental injustice at work. Why should students have to take affirmative steps to re-secure their property because of a special exemption of one student group? It recalls the logic of the Supreme Court’s 2018 ruling in Janus, a case concerning opting-out of union dues, that no “payment to the union may be deducted from a nonmember’s wages, nor may any other attempt be made to collect such a payment, unless the employee affirmatively consents to pay.”[1]Indeed, the Janus Court held that “unless employees clearly and affirmatively consent before any money is taken from them,” the opt-out method was unconstitutional.[2]

The deeper principle, rooted in Natural Law, undermining the legitimacy of the opt-out method is that which you may not do directly, you may not do indirectly. Justice Joseph Story recognized that principle at work in his opinion in the Charles River Bridge case from 1837.[3] Justice Owen Roberts invoked that principle as well a century later in his majority opinion in United States v. Butler. As legal scholar Hadley Arkes has written on that case, “If the federal government did not have the authority to set the wages at the Hoosac Mills in North Adams, Massachusetts, it may not use the tax system as a way of legislating by indirection. The government may not raise taxes for the business and then remit the taxes if the owners accept the federal policy on wages.”[4] In short, as Arkes notes distilling Justice Butler, the state cannot leave us to opt-out to “buy back our freedom.”[5]

These topics connect somewhat unexpectedly to the present and the SEC’s Consolidated Audit Trail, or CAT. The CAT, a massive data collection effort that has been more than a decade in the making, has been the subject of previous blog posts. Among the CAT’s deeply troubling aspects is the presumption that your personal identifying information as well as your trading history are the property of the SEC and its subordinate entities such as FINRA to comb through. The SEC prefers the CAT’s “opt-out system” for data collection rather than an “opt-in system” where it must subpoena records individually or adhere to the current Bluesheets process to learn about individuals’ trading histories. Just as MASSPIRG at Amherst would have rather relied on the default presumption that students’ activities fees would be funneled to it rather than perform fundraisers, the SEC would rather have its default presumption be to collect all the information of traders on U.S. securities exchanges. Unlike MASSPIRG at Amherst though which allowed a two-week period each semester to opt-out of funding the organization, there is no way for U.S. investors to opt-out of sharing their personal identifying information as well as trading history. No matter how small an investor you are, there is no way to opt-out of the CAT if you wish to trade securities. The only way to opt-out effectively is to trade exclusively on foreign exchanges or invest in other ways. Behavioral economics supports the idea that opt-out systems encourage compliance with whatever the default presumption is. However, this powerful tool should only be employed in limited circumstances, such as perhaps a national draft to defend the republic in a time of invasion, rather than to streamline efficient deprivation of one’s property, or the collection of one’s personal identifying information and trading history.

What was MASSPIRG’s fate at Amherst? Despite the liberal sensibilities of the student body, by a nearly 2-1 margin the Amherst students voted in the ensuing referendum to remove MASSPIRG’s special exemption, vindicating the treatment of all third-party organizations to be treated equally in raising funds. I’m told that MASSPIRG in future years did leave Amherst but that other third-party organizations flourished in its absence. Score one for the cause of right-reason.

[1] 138 S. Ct. 2448, 2486 (2018).

[2] Id.

[3] Charles River Bridge v. Warren Bridge, 36 U.S. 420 (1837).

[4] CRB | The Mirage of Enumerated Powers, by Hadley Arkes – Claremont Review of Books

[5] Id. (citing 297 U.S. 1, 73 (1936) (“The Congress cannot invade state jurisdiction to compel individual action; no more than can it purchase such action.”)).