Archive for the ‘Regulatory Studies’ Category
In Before the Ban
Travel along a two-block stretch of Central Avenue in Prince George’s County, and you’ll find a staggering 11 fast-food restaurants.
For community activist Arthur Turner and state Sen. David C. Harrington (D-Prince George’s), the strip is evidence of the proliferation of burger joints and Chinese takeouts in the county, especially in poorer, inner Capital Beltway communities.
Pointing to studies that rank Prince George’s residents among the least healthy in Maryland, Turner and Harrington want to limit new fast-food restaurants in the county, a far stricter approach than what has been enacted in such places as New York City and Montgomery County, which banned the use of trans fats in those establishments…
“Our county is inundated with unhealthy food choices,” Turner said. “In some areas, if someone wants a healthy choice, there are no options. We want healthy options in our community.”
Opponents of such efforts say that what people eat is a matter of personal choice and that it should be up to the free market to determine which restaurant goes where…
Turner said that his group identified Panera Bread and Chipotle as preferable alternatives to a fast-food burger restaurant and that he plans to seek similar compromises with other developers.
Given the weak correlation between dieting and long-term weight loss, and the very, very weak correlation between dieting and the marginal difference between Chipotle and McDonald’s, basically all that we have here are politicians and activists remaking the community to suit their personal tastes, as if Prince George’s County were just SimCity with slightly cooler graphics.
My prediction: This is a very good deal for any fast food restaurant that gets in before the ban.
Filed under: Health, Welfare & Entitlements; Regulatory Studies
Reforming Previous Reforms, ad Infinitum
In the forthcoming issue of Cato Policy Report, Jeffrey Friedman describes the cumulative effects of regulations that led to the 2008 financial collapse:
So deposit insurance begat bank-capital regulations. Initially these were blunderbuss rules that required banks to spend the same levels of capital on all their investments and loans, regardless of risk. In 1988 the Basel accords took a more discriminating approach, distinguishing among different categories of asset according to their riskiness — riskiness as perceived by the regulators. The American regulators decided in 2001 that mortgage-backed bonds were among the least risky assets, so they required much lower levels of capital for these securities than for every alternative investment but Treasurys. And in 2006, Basel II applied that erroneous judgment to the capital regulations governing most of the rest of the world’s banks. The whole sequence leading to the financial crisis began, in 1933, with deposit insurance…
Deposit insurance, hence capital minima, hence the Basel rules, might all have been a mistake founded on the New Deal legislators’ and regulators’ ignorance of the fact that panics like the ones that had just gripped America were the unintended effects of previous regulations.
Friedman is talking about financial and housing regulation. But I was reminded of them when I heard President Obama tell congressional Democrats, “Today we are on the doorstep of accomplishing something that Washington has been talking about since Teddy Roosevelt was President, and that is reforming health care and health insurance here in America.” And his formal speech to Congress in September: “I am not the first President to take up this cause, but I am determined to be the last.”
But of course we’ve been “reforming” health care ever since Teddy Roosevelt, and those reforms have brought us to our present difficulties. The Flexner Report 100 years ago reduced the supply of doctors and drove up the price. Wage and price controls during another Roosevelt era led to the system of employer-provided insurance, again driving up costs. Medicare and Medicaid poured more third-party payments into the system and added layers of government bureaucracy. HMOs and other cost-containment measures were a response to a problem created by the absence of normal consumer pressure. Then we got HIPAA, Kennedy-Kassebaum, the Mental Health Parity Act, state mandated-coverage laws, and the Medicare Prescription Drug Benefit.
And here we are today, with a health care system that everyone agrees needs reform. Maybe it’s time to recognize that we’re just piling new regulations on top of old regulations, like some compulsory Rube Goldberg device, and to try instead free markets, in which consumers pay for what they want from providers, insurance companies, managed care organizations, and other entities that compete for their business by seeking to provide better care at lower prices. Otherwise, we can be sure that Barack Obama won’t be the last president to stand before Congress and declare that our health insurance system needs reform. Indeed, we can bet that if he signs the current bill, he himself will be back before Congress in a year or two asking for reforms to reform the reforms that were intended to reform the previous reforms.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Health, Welfare & Entitlements; Regulatory Studies
Government-Subsidized Risk Is a Bad Idea
Kudos to Nicki Kurokawa, a former Cato employee, for this short but substantive video explaining “moral hazard.” She notes that government-subsidized risk played a pernicious role in the housing bubble and financial crisis, and warns that “too big to fail” may create similar problems in the future.
Filed under: Finance, Banking & Monetary Policy; Regulatory Studies
Where Are the Jobs?
The Washington Post’s “Mega-Jobs” section, ballyhooed all week in radio ads and placards, turns out to be a pathetic six pages of classifieds. Not a great indication of recovery. At his December jobs summit, the president said, “I want to hear from CEOs about what’s holding back our business investment and how we can increase confidence and spur hiring.” Since then, and most recently in his Saturday radio address, he has promised to focus relentlessly on jobs.
But he refuses to take a serious look at the burdens he and his administration are placing on job creation. American businesses already face the highest corporate tax rate in the OECD. Labor Secretary Hilda Solis says her agency will seek to enact 90 rules and regulations this year to give more power to unions, and President Obama is appointing NLRB members who have said that that the NLRB could enact “card check” without congressional authorization. If Congress resists expensive “cap and trade” regulation, the EPA has announced that it can impose even costlier regulations on its own. The media blitz about state and local fiscal crises has employers worried that states will raise taxes and/or that the federal government will spend more to bail them out. The “health insurance excise tax” looks like a tax on hiring, especially for the biggest companies. Beyond any of these specific concerns is the general impact of uncertainty — employers and investors don’t know what might be coming down the pike, but none of the prospects look like making it cheaper or more profitable to hire new workers.
And in response to all this, the only idea President Obama and congressional Democrats put forward is to spend more money. There may be arguments for Keynesian stimulus. But it’s hard to imagine that the economy will benefit from a deficit larger than the currently projected $1.5 trillion, which is already a trillion dollars more than any previous deficit except for 2009. If $3 trillion in deficits in two years hasn’t stimulated the economy, it might be time to think about different strategies — like lifting the burdens on entrepreneurship, investment, and job creation.
Cross-posted at Politico Arena.
What Is Seen and What Is Not Seen
Two items in Tuesday’s newspapers remind us of the often unseen costs of regulation and also of the often unseen benefits of market processes. In the Wall Street Journal, Prof. Todd Zywicki examines the likely consequences of a law to limit credit card interest rates and the fees they charge to merchants:
Card issuers might also reduce the quantity and quality of credit cards by restricting credit availability and cutting back on product innovation or ancillary card benefits. This is exactly what happened when Australian regulators imposed price controls on interchange fees in 2003: Annual fees increased an average of 22% on standard credit cards and annual fees for rewards cards increased by 47%-77%. Card issuers also reduced the generosity of their reward programs by 23%. Innovation, especially in terms of improved security and identity-theft protection, was stalled. Card issuers also increased their efforts to attract higher-risk customers who generate interest and penalty fees to offset lower interchange revenues from lower-risk transactional users.
Those are the kinds of unseen costs that most of us wouldn’t anticipate (that’s why economists talk about “unanticipated [or unintended] consequences” of action). Only after the fact were economists able to identify the specific costs of the regulation. It seemed like a good idea – limit the cost of something that consumers (voters) want. Did anyone predict the consequences? People probably predicted that annual fees would rise to compensate for the lost revenue from interchange fees. But did they anticipate a slowdown in innovation in security and identity-theft protection? Did they anticipate that card issuers would work harder to get higher-risk customers? Such regulation always impedes the optimal working of market processes, and thus inevitably delivers sub-optimal results.
Meanwhile, we often observe conditions in the marketplace that don’t seem to make sense to us. So we assume something is wrong, maybe even corrupt. An article in the Washington Post written in a sober yet hysterical style raised the problem of “medical salesmen in the operating room.” Then, in a letter to the Post, Dr. Mark Domanski explains why it makes sense to have medical salesmen in the operating room. A Post article on the topic had been full of anecdotes about a salesman who “began his career selling hot dogs” hanging out in operating rooms and doctors who expressed outrage. If only they had thought to ask a surgeon in distant Arlington, Virginia:
I found David S. Hilzenrath’s Dec. 27 Business article, “The salesman in the operating room,” to be one-sided.
Of course, medical sales representatives work along doctors in operating rooms. As a surgeon, I always want a company rep in the operating room.
So, if you were having surgery that involved a complicated piece of equipment, wouldn’t you like somebody from the manufacturer to be there? I know I would.
Here’s why:
Remember when you tried to assemble that desk you bought from a furniture store? We all know how to use a screwdriver, but when something is off, it’s nice to know there is a number to call. What if you needed to put that desk together quickly because you needed it for something important? It would be nice if the company sent someone to make sure all the parts were there and in good order. That’s what a good rep does.
As the surgeon, I make the diagnosis and decide the treatment. No company representative tells me how to use a knife. But many products in the operating room are complex and change almost every year; they are getting better that fast.
When I am using a complex product, such as a plating system for fixing a jaw fracture, having the rep in the room ensures that the system is functional. I know all the parts will be there. I know that the right screw and plate will be handed to me at the right time.
Sometimes we call in the rep for an operation, and it turns out that the fracture does not need to be plated. No rep has ever suggested that I plate a fracture that didn’t need to be plated.
Members of Congress and activists are constantly reading articles about apparent problems and rushing off to propose legislation. These examples and countless more should remind us to think carefully before we coercively interfere in the decisions that millions, billions, of people make every day.
Credit Card Dementia and Boundary Cases
The most interesting libertarian-related conversation I’ve read today comes from Rortybomb, by way of Andrew Sullivan, with commentary by Megan McArdle. Here’s a challenge to libertarians from Rortybomb, aka Mike Konczal:
I want to pitch to the credit card and financial industry a new innovative online survey. It is targeted for older, more mature long-time users of our services. We’ll give a $10 credit for anyone who completes it. Here is a sense of what the questions will look like:
- 1) What is your age?
- 2) What day of the week are you taking this survey?
- 3) Many rewards offered are for people with more active lifestyles: vacations, flights, hotels, rental cars. Do you find that your rewards programs aren’t well suited for your lifestyle?
- 4) What is the current season where you live? Are any seasons harder for you in getting to a branch or ATM machine?
- 5) Would rewards that could be given as gifts to others, especially younger people, be helpful for what you’d like to do with your benefits?
- 6) Would replacing your rewards program with a savings account redeemable for education for your grandchildren be something you’d be interested in?
- 7) Write a sentence you’d like us to hear about anything, good or bad!
- 8 ) How worried are you you’ll leave legal and financial problems for your next-of-kin after your passing?Did you catch it? Questions 1,2,4,7 are taken from the ‘Mini-mental State Examination’ which is a quick test given by medical professionals to see if a patient is suffering from dementia. (It’s a little blunt, but we can always hire some psychologist and marketers for the final version. They’re cheap to hire.) We can use this test to subtly increase limits, and break out the best automated tricks and traps mechanisms, on those whose dementia lights up in our surveys. Anyone who flags all four can get a giant increase in balance and get their due dates moved to holidays where the Post Office is slowest! We’d have to be very subtle about it, because there are many nanny-staters out there who’d want to coddle citizens here. . .
I smell money — it’s like walking down a sidewalk and turning a corner and then there is suddenly money all over the sidewalk. One problem with hitting up sick people, single mothers, college kids who didn’t plan well and the cash-constrained poor with fees and traps is that they’re poor. Hitting up people with a lifetime of savings suffering from dementia is some real, serious money we can tap as a revenue source.
Clearly, only an evil person (or a libertarian!) would allow a scam like this one. Megan responds, I think rightly:
I’m not sure why this is supposed to be a hard question for libertarians. I mean, I might argue that preventing people from ripping off the marginally mentally impaired would, in practice, be too difficult. Crafting a rule that prevented companies from identifying people who are marginally impaired might well be impossible — I’m pretty sure that if I wanted to, I could devise subtler tests than “What day of the week is it?” And while the seniors lobby is probably in favor of not ripping off seniors, they’re resolutely against making it harder for seniors to do things like drive or get credit, which is the result that any sufficiently strong rule would probably have.
But it’s pretty much standard libertarian theory that you shouldn’t take advantage of people who do not have the cognitive ability to make contracts. Marginal cases are hard not because we think it’s okay, but because there is disagreement over what constitutes impairment, and the more forcefully you act to protect marginal cases, the more you start treating perfectly able-minded adults like children.
The elderly are a challenge precisely because there’s no obvious point at which you can say: now this previously able adult should be treated like a child. Either you let some people get ripped off, or you infringe the liberty, and the dignity, of people who are still capable of making their own decisions.
I’d add two responses of my own.
First, I can’t believe there’s all that much money to be had here. Anyone who wanders into Tiffany’s and back out again without remembering what they bought is, generally speaking, a bad credit risk. Mildly irresponsible people — those who slightly overspend, then have to make it up later — those are probably great for creditors. Lesson learned: If you’re not demented, don’t be irresponsible. (If you are demented, you’re not going to follow my advice anyway.)
Second, I am always amazed at how border cases are dragged out, again and again, as if they proved something against libertarianism. Border cases — How old before you can vote? How demented before a contract doesn’t bind? — are a problem in all political systems, because all systems start with a presumed community of citizens and/or subjects. We always have to draw boundaries between the in-group and the outliers before we have a polity in the first place.
What makes the classical liberal/libertarian approach so valuable is in fact that it draws so few boundaries. Where other systems depend on class boundaries, race boundaries, religious boundaries, and so forth — with annoying boundary issues at every stop along the way — libertarians make it as simple as I think it can be. We presume that all mentally competent adults are worthy of liberty until they prove themselves otherwise.
The boundary cases are still there, but they are fewer and more tractable. Konczal just wandered into one of them. It proves much less than he thinks.
Filed under: Finance, Banking & Monetary Policy; Political Philosophy; Regulatory Studies
H&R Block and the IRS: An Unholy Alliance to Ransack Taxpayers
The late George Stigler, winner of the Nobel Prize in economics, is famous in part because of his work on “regulatory capture,” which occurs when interest groups use the coercive power of government to thwart competition and undeservedly line their own pockets. A perfect (and distasteful) example of this can be found in today’s Washington Post, which reports that the IRS plans to impose new regulations dictating who can prepare tax returns. Not surprisingly, the new rules have the support of big tax preparation shops such as H&R Block and Jackson Hewitt, which see this as an opportunity to squeeze smaller competitors out of the market. The IRS and the big firms claim more regulations are needed to protect consumers from shoddy work, but this is the usual rationale for licensing laws and other government-imposed barriers to entry and the Institute for Justice has repeatedly shown such rules are designed to benefit insiders rather than consumers.
Tax preparers do make many mistakes, to be sure, but that is a reflection of a nightmarish tax code, and the annual tax test conducted by Money magazine showed that even the most-skilled professionals — such as CPAs, tax lawyers, and enrolled agents — were unable to figure out how to correctly fill out a hypothetical family’s tax return. But since the IRS routinely makes major mistakes as well, perhaps the moral of the story is that we need fundamental tax reform, not IRS rules to create a cartel for the benefit of H&R Block and other big firms. Would any of this be an issue if we had a flat tax or national sales tax?
Filed under: Government and Politics; Regulatory Studies; Tax and Budget Policy
‘Search Neutrality’ Regulation?
For more technical audiences, I wrote recently on the Tech Liberation Front blog about Google’s claim to favor “openness” when, in fact, its crown jewels—search and ad serving—are closed systems.
Google is “free to be wrong about philosophy, of course,” I wrote. “It doesn’t matter at all—except when Google tries to impose its philosophy on others. And in the debate over ‘net neutrality’ regulation it has done exactly that.”
Now Google is in the sights of those proposing public utility regulation of Internet search. It would be entertaining ironic comeuppance for Google, but “search neutrality” regulation would ossify an innovative business and deprive consumers of the benefits of competition.
Filed under: Regulatory Studies; Telecom, Internet & Information Policy
The Consequences of Regulation
The city of Alexandria, Virginia, passed a law in 2005 to require that each cab respond to two dispatch calls every day. WAMU reports on the results:
Says [driver Chaudhry] Ahmed, “If they’re going to do this kind of stuff, then for sure we’ll be out of business and standing in line at the unemployment office.”
Alexandria created the rule back in 2005 to prevent taxi drivers from spending all their time picking up fares at hotels and the airport. Since that time, one company has closed because it couldn’t meet the requirement and another has been put on probation. But Transportation Chief Bob Garback says the city doesn’t want to shut anybody down: “Our objective is just to make sure that we have reasonable taxi service here. Shutting companies down doesn’t really serve that purpose.”
Alexandria didn’t want to shut companies down. Someone just had an idea and decided to codify it, without much thought as to where cab drivers actually find passengers, how much it costs to respond to dispatches, and so on.
No doubt most regulators and legislators don’t want to shut companies down. But special interests and activists and irate citizens press their ideas, and policymakers respond. It always seems like a good idea at the time: guarantee every worker a minimum wage, put a cap on rising rents, or make sure that banks lend money to borrowers who can’t really afford a house. And then when low-skilled workers become too expensive to hire, or builders decide they can’t make a profit on new apartment houses, or millions of mortgage holders are unable to make their payments — well, “Our objective was just to do something reasonable. We never intended to screw up the workings of the market and cause firm closings, unemployment, apartment shortages, or a wave of defaults.” But that’s the result of throwing a monkey wrench into the economy.
Supreme Court Erases Legal Precedent for Auto Bailout
On Monday the Supreme Court released its last orders for the calendar year. Of particular note — apart from the non-release of the long-awaited decision in the Citizens United campaign finance case — the Court dismissed the cert petition in Indiana State Police Pension Trust v. Chrysler LLC as moot and vacated the underlying Second Circuit opinion. While this is not the ideal outcome – particularly for the Indiana creditors — it is in its own way an important decision preserving the integrity of bankruptcy law.
To recap: In January, Chrysler stood on the brink of insolvency. Purporting to act under the Emergency Economic Stabilization Act, the Treasury Department extended the car company a $4 billion loan using funds from the Troubled Asset Relief Program (TARP). Still in a bad financial situation, Chrysler initially proposed an out-of-court reorganization plan that would fully repay all of Chrysler’s secured debt.
The Treasury rejected this proposal and instead insisted on a plan that would completely eradicate Chrysler’s secured debt, hinging billions of dollars in additional TARP funding on Chrysler’s acquiescence. When Chrysler’s first lien lenders refused to waive their secured rights without full payment, the Treasury devised a scheme by which Chrysler, instead of reorganizing under a chapter 11 plan, would sell its assets free of all secured interests to a shell company, the New Chrysler.
Chrysler was thus able to avoid the “absolute priority rule,” which provides that a court should not approve a bankruptcy plan unless it is “fair and equitable” to all classes of creditors. The forced reorganization amounted to the Treasury redistributing value from senior, secured creditors to debtors and junior, unsecured creditors. The government should not have been allowed, through its own self-dealing, to hand-pick certain creditors for favorable treatment at the expense of others who would otherwise enjoy first lien priority.
While the Court’s ruling prevents the creditors from collecting what would have otherwise been considered their rightful portion of the liquidation, it also erases a terrible precedent from the federal judiciary’s books and reaffirms years of settled bankruptcy law. A decision upholding the Second Circuit’s ruling would have undercut the established practices of bankruptcy and introduced even more uncertainty into a still-uneasy market.
To put it more broadly, the bankruptcy laws are in place to ensure that debts are paid in an established and fair manner and not at the whim of whatever political actors happen to be in power at the time. Taking away that assurance stifles investment and thereby hurts the economy.
Cato joined the Washington Legal Foundation, the Allied Educational Foundation, and George Mason law professor Todd Zywicki on a brief supporting the creditors’ petition that you can read here. And you can watch Cato’s policy forum on the auto bailout here.
Filed under: Government and Politics; Law and Civil Liberties; Regulatory Studies
How to Kill a Company: A Beginner’s Guide (Chapter 1, P. 1.)
As described in the current Cato Policy Report, one of the “Hard Lessons from the Auto Bailout” is that management at GM is likely to be “highly erratic, as the president and Congress wrestle for decisionmaking primacy at this majority taxpayer-owned entity.” The “dealerships” issue is Exhibit A.
One of GM’s first decisions upon emerging from bankruptcy was to announce closures of a number of dealerships to help reduce costs. Then-nominal-CEO Fritz Henderson explained that the planned closings would save GM about $100 in distribution costs per vehicle–a few hundred million dollars per year when factoring in the millions of units GM expects to produce.
But many of GM’s congressional CEOs cried foul, demanding reconsideration from a company that had taken public funds. The House of Representatives even passed a bill requiring companies that received federal funds to reestablish terminated dealership agreements, though no action was taken in the Senate.
However, as reported in The Hill today, Congress is fast-tracking legislation to restrict GM’s (and Chrysler’s) closings, by subjecting each decision to an arbitrator, who will “balance the economic interests of the terminated dealership, the car companies and the general public.” A Senate aide is cited as saying legislators intend to pass this measure before Christmas.
Well, look, EVERY decision GM makes will produce winners and losers in terms of real and opportunity costs. Hence, EVERY decision is just as worthy of legislative or executive scrutiny, if the dealership issue is the litmus test.
With 537 CEOs, all but one of whom have bigger priorities than GM’s bottom line, GM’s future will be dictated by splitting differences, political logrolling, and managing by consensus–tactics that will assure GM’s demise.
Filed under: Government and Politics; Regulatory Studies; Trade and Immigration
Schools and Rotten Meat
USA Today has been running a lengthy series on the condition of food sold through federal school lunch programs, and today’s installment is particularly interesting. It turns out that fast-food chains like Jack in the Box and Burger King – predatory capitalists who want nothing more than to make filthy lucre off of unsuspecting hungry people — have much higher meat quality standards than does the selfless government sworn to protect the public.
How can that be? Oh right: As I wrote in my paper “Corruption in the Public Schools: The Market Is the Answer,” companies that have to attract and keep customers to stay in business have a huge incentive to avoid such things as, you know, sending their customers to the hospital! Not so government bureaucrats or educationists, who are getting your tax dollars no matter what.
This is a basic, basic reality that is all but totally ignored by people who insist we need government to protect us from evil corporations. And it is doubly ignored (if that’s logically possible) in education, where the assumption is that government must provide the schools if they are to be any good, and that profit-seekers are handmaids of the devil.
And so I ask (only slightly tongue-in-cheek): How many more children have to get E. coli before we allow freedom in education?
Filed under: Education and Child Policy; Regulatory Studies
A Free Press Only Counts if It’s on Dead Trees
The Associated Press reports:
The federal government is wading into deliberations over the future of journalism as printed newspapers, television stations and other traditional media outlets suffer from Americans’ growing reliance on the Internet.
With the media business in a state of economic distress as audiences and advertisers migrate online, the Federal Trade Commission began a two-day workshop Tuesday to examine the profound challenges facing media companies and explore ways the government can help them survive.
Media executives taking part are looking for a new business model for an industry that is watching traditional advertising revenue dry up, without online revenue growing quickly enough to replace it. Government officials want to protect a critical pillar of democracy—a free press.
“News is a public good,” FTC Chairman Jon Leibowitz said. “We should be willing to take action if necessary to preserve the news that is vital to democracy.”
Language mavens, observe the lede: The federal government is “wading into deliberations.” I infer that in Newspeak, this may mean something like “trying to spend more money.” Perhaps I should look forward to the federal government wading into deliberations over my salary? (On second thought, maybe not.)
Some of the proposals aimed at saving traditional journalism are relatively innocuous, like letting newspapers become tax-exempt nonprofits. At least this wouldn’t do too much harm, and, given recent performance in the industry, it approaches being fiscally neutral.
Other ideas, like forcing search engines to pay royalties to copyright holders, would have far more serious consequences. It’s hard to see whom this proposal would hurt worse, the search engines, socked with massive fees, or the copyright holders themselves — if search engines don’t index you, you don’t exist anymore.
The surest loser, though, would be the rest of us. Restricting the flow of news for the financial benefit of Rupert Murdoch seems a far cry from our Constitution, which allows Congress “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Burdening search engines seems only to inhibit the progress of science and the useful arts, while enriching a small number of people. It might pass the letter of the law, but I doubt that this is what the founders had in mind.
But anyway…. shame on Americans for our “growing reliance on the Internet”! Don’t we realize that, as the article notes, “a free press is a critical pillar of democracy” — and that a free press only counts, apparently, if it’s on dead trees?
I’m all in favor of the good the press can do, but it strikes me as shortsighted to think that this good can only be done in the traditional media. It also seems foolish to me to think that tying the press more closely to the government will make it more critical and independent. Often, the very best journalism comes from complete outsiders. I’m reminded of Radley Balko’s recent (and excellent) takedown of the claim that Internet journalists are basically parasites:
In 20 years, the Gannett-owned Jackson Clarion-Ledger never got around to investigating Steven Hayne, despite the fact that all the problems associated with him and Mississippi’s autopsy system are and have been fairly common knowledge around the state for decades. It wasn’t until the Innocence Project, spurred by my reporting, called for Hayne’s medical license that the paper had no choice but to begin to cover a huge story that had been going on right under its nose for two decades.
… That’s when the paper starting stealing my scoops. Me, a web-based reporter working on a relatively limited budget. Like this story (covered by the paper a week later). And this one (covered by the paper weeks later here). Oh, and that well-funded traditional media giant CNN did the same thing.
Tell me again, who’s the parasite here? And why should taxpayers bail out yet another industry that isn’t delivering what we want?
Filed under: General; Government and Politics; Regulatory Studies
Congress Grows Fed Up
The Wall Street Journal reported that Congress likes Fed Chairman Bernanke, but not the institution that he heads. There is growing consensus that the Fed needs to be reformed and restructured. Most notably, there are calls to strip the Fed of its supervisory authority. In practice, the new sentiment reflects the failure of the Fed to rein in risk taking by the largest banks.
The Fed is pushing back. One reserve bank president said that removing the Fed’s supervisory authority “would affect our ability to conduct monetary authority effectively.” He went on to say that without the supervisory authority, the Fed wouldn’t know enough about risks brewing in the economy. This argument is shop worn. The Fed had the authority. It fueled the housing boom with its monetary policy and failed to head off the banking crisis with its supervisory powers. And let us not forget the regional banking crises of the 1990s; the fallout of the Latin American debt crisis for Citibank; and others (e.g., the failure of Continental Illinois National Bank). All on the Fed’s watch.
Around the world, some central banks have supervisory authority over banks and some do not. There is no clear pattern for either monetary policy or bank regulation with respect to how the powers are structured and distributed. Other factors seem to matter much more. It would be useful to identify what they are.
Congress is moving a few deck chairs around as the ship sinks. No fundamental rethinking of bank regulation is occurring. The Fed is probably being made a scapegoat for Congress’s own failings. But that is how Washington works.
Filed under: Finance, Banking & Monetary Policy; Regulatory Studies
The Negative Feedback Loop Begins
I wrote on the Tech Liberation Front blog a couple of months ago about the shady practice among a few Internet retailers of handing off customers who accept a “special offer” to a company that charges people a monthly fee for some kind of credit monitoring service. And I argued hopefully that maybe technologists and the Internet community could generate a response to this problem:
Being a smart, informed, and aggressive consumer is each person’s responsibility if a free market is to operate well. The alternative is a negative feedback loop in which government authorities protect us, we rely on that protection and stop policing retailers. Thereby we abandon the field of consumer protection to government authorities, who—try as they might—can never do as good a job for us as we can for ourselves.
The Senate Commerce Committee is having a hearing today on “Aggressive Sales Tactics on the Internet and Their Impact on American Consumers.”
Filed under: Regulatory Studies; Telecom, Internet & Information Policy
Big Business Not Investing
In a recent post, I argued that while third-quarter GDP was positive, the underlying data revealed that U.S. private investment was still in the toilet. While government spending might be providing a short-term “sugar high” for the economy, U.S. business investment remains in recession. I speculated that Obama’s anti-business agenda is likely one cause of the problem.
For those observations, economist Brad DeLong called me an “utter fool.”
Let me draw your attention to an article in the Washington Post today entitled “Corporate giants sit on piles of cash.” Nucor Steel is sitting on piles of cash that it is unwilling to invest. Nucor’s chief executive Daniel Dimicco explains:
Everything is still on hold because we don’t have a lot of confidence that the right things are being done in Washington to reinvigorate the economy.
To story goes on:
Nucor isn’t alone. The balance sheets of large U.S. corporations are for the most part in good shape. Many big companies have piles of cash on hand and credit markets have thawed so that they can raise new funds… But most U.S. executives lack enough confidence in the economy to expand their businesses.
Filed under: Government and Politics; Regulatory Studies; Tax and Budget Policy
The Real Story Behind the Chrysler Bankruptcy
If you worry about the abuse of executive power and declining respect among elected officials for the rule of law, you should watch this eloquent illumination of what really went down in the Chrysler bankruptcy earlier this year. The speaker is Richard Mourdock, Treasurer of the state of Indiana. The setting is a Cato Institute policy forum on October 15 about the “sordid details of the Bush/Obama auto industry intervention.”
As state treasurer, Mourdock is the person responsible for investment decisions concerning Indiana’s state employee pension funds, some of which owned a small share of Chrysler’s $6.9 billion in secured debt and some of which opposed the administration’s offer of $.29 on the dollar for that debt. Though these small secured holders were publicly castigated by President Obama as “unpatriotic” and unwilling to sacrifice for the greater good, Mourdock led the effort to stop the “sale” of Chrysler all the way to the U.S. Supreme Court.
Mourdock’s presentation gives a flavor for the tactics employed by the Obama administration to “encourage” senior, priority creditors to back off their claims so that chosen parties could take priority—tactics that included backroom reminders that some of those creditors had received and might seek more TARP funding, threats of bringing the full weight and measure of the White House press office to bear down on dissenters, public condemnation, and other forms of arm-twisting most Americans would find unseemly for a U.S. presidential administration.
Filed under: General; Government and Politics; Regulatory Studies; Tax and Budget Policy; Trade and Immigration
Online Privacy and the Commerce Clause
I fear that with the PATRIOT Act on the brain, I’ve been remiss in continuing the colloquy on behavioral ads and privacy regulation that I’d been having with Jim Harper—who flattered me by responding in a long and thoughtful essay a couple weeks back. Because there’s so much interesting stuff there, I hope he won’t mind if I restrict myself to the first part of his reply here, in the interest of making this all a bit more digestible to those whose fascination with the topic may not be quite as consuming as ours. I’ll consider briefly the constitutional issue Jim raises, and turn to some of the specifics of the issue—and the relative merits of the common law alternative—in another post.
So like every good dorm room bull session, we begin in the weeds of policy and quickly find ourselves breathing the rarefied air of constitutional theory. Supposing for the moment that we thought it were a good idea on policy grounds, would it be within the power of Congress to set ground rules for online advertisers who gather personal data from Web browsers? Recall that there are two particular rules that I’ve said I’d be tentatively open to, but which Jim rejects: a requirement of notice when information is being collected (say via a small link from the adspace to a privacy policy) and a rule establishing that privacy policies are enforceable, so that individual users can sue for damages if a company knowingly violates its stated policy (thus far, courts have not generally found these to be binding). Does this fall within the power to “regulate commerce … among the several states”? I think so. I’ll start with what I hope will be some uncontroversial arguments and go from there.
Filed under: Law and Civil Liberties; Regulatory Studies; Telecom, Internet & Information Policy
What Is Regulation?
The New York Times tries to spin the work of Nobel laureates Elinor Ostrom and Oliver Williamson as not anti-regulation:
Neither Ms. Ostrom nor Mr. Williamson has argued against regulation. Quite the contrary, their work found that people in business adopt for themselves numerous forms of regulation and rules of behavior — called “governance” in economic jargon — doing so independently of government or without being told to do so by corporate bosses.
But none of us “anti-regulation” folks are against “rules of behavior that people in business adopt for themselves independently of government.” The world is full of rules, from wearing clothes in the office to customary trade practices to the rules for managing common-pool resources that Ostrom studied. Anyone who opposed such “forms of regulation” wouldn’t be a libertarian or even an anarchist — he’d be a nihilist. (Of course, one could sensibly oppose particular rules; but no one seriously wants a world without rules of behavior.)
David Henderson analyzes one of the misunderstandings about the laureates’ findings:
Some have summarized their work by saying that institutions other than free markets often work well. But that statement can mislead you to conclude that government solutions are the answer. Free markets are only a subset of free institutions. A better way to sum up their work is that what Ms. Ostrom and Mr. Willamson really show is that voluntary associations work.
The Concise Encyclopedia of Economics defines “regulation” this way: “Regulation consists of requirements the government imposes on private firms and individuals to achieve government’s purposes.” That’s the kind of regulation that is controversial among economists and often criticized by libertarians. It is entirely different from “rules of behavior that people in business adopt for themselves independently of government.” Those sorts of rules — often called “governance,” as the New York Times notes — are private and voluntary, made by the voluntary interactions of a few or many people.
The work of Ostrom and Williamson supports the idea of spontaneous order, an order that emerges as result of the voluntary activities of individuals and not through the commands of government. Spontaneous order can be hard to grasp, though it is the background of our entire world — language, common law, money, and the economy are all spontaneous orders (though government has intruded into some of those orders). It’s misleading to say that work of Ostrom and Williamson is somehow supportive of “regulation,” given the way that word is commonly used.
Sheldon Richman made a similar point back in June and wrote a Facebook note on the same paragraph that caught my eye.
Filed under: General; Political Philosophy; Regulatory Studies
Your Choices Are Unacceptable
Through my work on agriculture, I get occasional media calls on obesity and the agri-industrial complex supposedly behind it. On Sunday, for example, I gave an interview on NPR about the USDA’s push for — and subsidisation of — farmers markets and “eating locally” as the solution to poor nutrition. (This a recurrent theme of the Obama administration: Michelle Obama has made people’s food habits her business, growing a White House Garden and driving in a convoy of 36 vehicles to the H Street farmers’ market in a photo-op to promote it. The USDA even has a “People’s Garden“.)
So an article in today’s New York Times caught my eye. According to a recent study, the push for calorie postings in restaurants has had no affect on people’s eating habits in certain low-income areas of New York City. People’s choices are, apparently, pretty impermeable to the information that nutrition and public health advocates assured us was the key to better choices.
You would be forgiven for thinking that was the end of the matter and we could go on eating what we like unharassed. Think again:
“I think it does show us that labels are not enough,” Brian Elbel, an assistant professor at the New York University School of Medicine and the lead author of the study, said in an interview.
I hope I’m not coming across as hyperbolic, but I find it difficult to believe that healthy eating advocates will be content to accept that people are making choices, unpalatable though they may be to the ”slow food” movement, based on the benefits and costs of the alternatives available to them. If people won’t voluntarily submit to the food police — even when information is available — then I suspect calls for regulation will soon follow.
(HT: Radley Balko)
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