Archive for the ‘Regulatory Studies’ Category
Federal Government Subsidizes and Penalizes Boeing Co.
When an entity is as mammoth and undisciplined as the $3.8 trillion U.S. federal government, it’s inevitable that its programs will be working at cross purposes. Just ask the civil aircraft manufacturer Boeing Company.
Politicians love Boeing because it not only makes valuable products but it also exports billions of dollars worth around the globe. To give a boost to those exports and supposedly create more jobs in the United States, the federal government’s Export-Import Bank offers preferential loans to foreign governments and airlines to help them buy more Boeing aircraft.
As my Cato colleague Sallie James documents in a new study, “Time to X Out the Ex-Im Bank,”
the number-one user of the Ex-Im Bank is the Boeing Company. Of the 35 aircraft sales supported by Ex-Im in FY2010, 28 were Boeing products, and the Congressional Research Service estimates that more than 60 percent of the value of Ex-Im Bank loan guarantees supported Boeing aircraft sales in that year.
No wonder critics refer to the Ex-Im as “Boeing’s Bank.”
Yet the same federal government is making it more difficult for Boeing to manufacture its airliners cost-effectively in the United States. Under the sway of organized labor, the National Labor Relations Board is seeking to prevent Boeing from expanding its production in South Carolina, a right-to-work state where the company’s employees are non-unionized.
In a column at Bloomberg.com today, Harvard economist Edward L. Glaeser rightly worries that the NLRB action is undermining one of the most important advantages enjoyed by American-based companies—the freedom of labor, capital, and goods to move freely within the United States. As Glaeser notes:
The profound role that mobility has played in our country, enabling repeated reinvention, causes me to be deeply worried about the possibility that a National Labor Relations Board complaint will prevent Boeing Co. from moving plane production from [unionized] Washington state to South Carolina.
In the spirit of compromise, Congress should eliminate the Ex-Im Bank, while telling the NLRB to back off and let U.S. companies deploy their productive resources in whatever locations within the United States that make the most competitive sense.
Overregulation: The View From a Helicopter Cockpit
Philip Greenspun discovers that an FAA inspector is happy to march a little helicopter charter outfit run by a single owner/pilot through the same paperwork slog that a much busier operation would face:
Finally, the FAA inspector looked at my random drug testing program to make sure that everything was in place. I’m subject to the same drug testing requirements as United Airlines. I am the drug testing coordinator for our company, so I am responsible for scheduling drug tests and surprising employees when it is their turn to be tested. As it happens, I’m also the only “safety-sensitive employee” subject to drug testing, so basically I’m responsible for periodically surprising myself with a random drug test. As a supervisor, I need to take training so that I can recognize when an employee is on drugs. But I’m also the only employee, so really this is training so that I can figure out if I myself am on drugs. As an employee, I need to take a second training course so that I learn about all of the ways that my employer might surprise me with a random drug test and find out about drug use. But I’m also the employer so really I’m learning about how I might trap myself. … Five minutes after the FAA inspector left, I received a phone call. “I’m from the FAA and we’d like to schedule an audit of your drug testing program.”
Things proceed to get crazier from there. And none of the craziness is likely to change so long as being worried about regulatory overkill is construed in Washington as being Against Air (or Food or Toy or Drug) Safety.
As Central Falls Falls
The New York Times has an article today on the plight of Central Falls, Rhode Island, a 19,000-population industrial city that may declare bankruptcy under the fiscal weight of $80 million in pension obligations for police and fire officers. Unlike some coverage of municipal fiscal woes, this one does not dance around the way some of the problem originates in misguided labor policy:
The city, just north of Providence, is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York. These uniformed workers can retire after just 20 years of service, receive free health care in retirement, and qualify for full disability pensions when only partly disabled.
“Promised” is a word of art here, because the city wasn’t really making all of these concessions on a voluntary basis, as its negotiator explains:
state law called for binding arbitration, which for many years was a clubby process that emphasized comparable benefits all across the state more than any city’s ability to pay.
“Binding” arbitration, just to be clear, does not mean that the city agreed beforehand to settle disputes with the unions by way of arbitration; it means that state law imposed an arbitrator’s edict whether city managers ever signed up for the arbitration route or not. It thus differs from the contractually specified arbitration upheld lately in consumer contexts by the U.S. Supreme Court in AT&T v. Concepcion, a decision assailed by many of the same politicos who see no problem with genuine mandatory arbitration in the labor context.
The crisis in municipal finance wrought by binding public-sector arbitration and related laws comes as no surprise to readers who remember Cato’s excellent 2009 study “Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government” by Don Bellante, David Denholm, and Ivan Osorio. (The California city of Vallejo declared bankruptcy in 2008 following the failure of negotiations with police and fire unions over unsustainable compensation.)
One point the otherwise thorough Times article omitted: many politicians in Washington have worked for years to impose a Central-Falls-like legal climate on states and localities lucky or farsighted enough to have avoided one in the past. During last fall’s lame duck session, then-Majority Leader Harry Reid (D-Nev.) tried to push through the truly appalling Public Safety Employer–Employee Cooperation Act, which not only would have forced police and fire unionization on reluctant states and localities but also provided that in case of impasse (quoting Heritage) “States would have to provide a dispute resolution mechanism, such as binding arbitration.” And the misnamed Employee Free Choice Act (EFCA), a priority of President Obama during his first years in office, would have imposed binding arbitration on the private sector. Central Falls may now be hurtling toward the waterfall, but how many other communities are just one political shove away from plunging into the same fiscal rapids?
New Light on Paternalism
Yesterday Mario Rizzo pointed out a couple of new studies on the unexpected results of paternalist policies designed to “nudge” Americans into making what their betters consider smart decisions. In today’s Wall Street Journal, Energy Secretary Steven Chu sums up the paternalist view very concisely. Opposing a House bill to repeal the 2007 federal law that effectively outlaws incandescent light bulbs, Chu says:
We are taking away a choice that continues to let people waste their own money.
Exactly. The government wants to take away our choice. It wants to take away our right to make our own decision. It doesn’t trust us to make our own choices. And why should it? Secretary Chu won the Nobel prize in physics. He’s obviously smarter than we are.
Sure, some people just don’t like fluorescent light. Some people don’t like the way the new bulbs come on slowly. Some people don’t like the curlicue look. Some find that they don’t in fact last longer than incandescent bulbs. Some are skeptical about promises of long-term savings, or simply prefer to spend less now.
But none of that matters to Secretary Chu and other paternalists. They know that these bulbs are best for us, and so they “are taking away a choice” that they don’t think people should make. That’s the difference between the libertarian and paternalist views in a nutshell.
Free-Market Beer
The new issue of Mid-Atlantic Brewing News has a nice article about the District of Columbia’s laissez-faire rules for beer distribution. (See page 8 in the “digital edition“).
Columnist George Rivers explains that the D.C. rules encourage entrepreneurship, bring jobs and economic activity to the city, and are a big plus for consumers:
While most jurisdictions in the U.S. erect regulatory barriers to limit the sale and consumption of alcohol, DC’s legal framework encourages retailers and wholesalers to compete for consumers’ dollars through increased selection and lower prices.
Rivers notes that beer consumers flee Maryland’s red tape and higher tax burden to enjoy the lower prices in D.C. At the same time, entrepreneurial beer retailers choose D.C. to do business because they don’t have to deal with a burdensome and monopolistic wholesaling industry.
Perhaps the most celebrated beneficiary of DC’s liberal liquor laws was the legendary Brickskeller, once holder of the Guiness World Record for the largest selection of beer.
D.C.’s free-market beer environment also stimulates broader economic activity.
The District’s flexible liquor laws have helped facilitate the logistical challenges behind the pairing of 144 craft beers and food at SAVOR, the nation’s premier beer-and-food event, now in its fourth year.
So up with deregulation, up with jobs and investment, and down the chute with the beer!
‘My Disability Made Me Do It’
James J. McDonald, Jr., a California attorney with the firm of Fisher & Phillips, has long been one of the more incisive critics of the employment provisions of the Americans with Disabilities Act (ADA), in particular the law’s coverage not just of physical handicaps like deafness and paraplegia but also emotional, mental and behavioral disabilities, which often bring with them a high potential for disrupting the workplace. Last month McDonald spoke on this topic at the annual convention of the Society for Human Resource Management (SHRM), the professional organization of the HR field. Here are some highlights from his speech of cases in which employers, he said, were required to accommodate employees:
*A 911 operator whose narcolepsy made him [or her? -- W.O.] fall asleep on the job.
*A county custodian with borderline mental retardation who was twice criminally convicted of stealing items from offices she was cleaning.
*A medical transcriptionist with obsessive-compulsive disorder who repeatedly came to work late, or not at all.
*An employee with bipolar disorder, who, when given a performance improvement plan, threw it across the room and shouted profanities. She later kicked her desk and said “They’ll regret this.”
To find out more about why the language of the ADA has led to such cases, how the Ninth Circuit (joined by the Tenth) has developed legal standards even more protective of misbehaving employees than those proposed by the Equal Employment Opportunity Commission (EEOC), and why McDonald thinks it is (perversely) shrewd for employers to keep themselves in ignorance about some employee disabilities, follow the link. (In this 2010 paper, by the way, McDonald gets into detail on a long list of ADA/misconduct cases, each seemingly more extreme than the last.) It’s worth remembering that the U.S. Supreme Court for a while attempted to interpret the ADA narrowly so as to focus the law’s benefits on traditional disabled groups, only to be slapped down by the George W. Bush-era U.S. Congress, which overrode those decisions (to general applause in the press) and instead instituted ultra-broad definitions of disability for ADA purposes. Earlier on the ADA here, here, here, etc.
The First in a Long Series
The Washington Post offers today a critical look at independent fundraising and spending in the 2012 campaign.
The article states independent groups are raising money “in response to court decisions that have tossed out many of the old rules governing federal elections, including a century-old ban on political spending by corporations.”
But the century-old ban is on campaign contributions by corporations, and it is intact. Spending on elections was not prohibited to some corporations until much later.
Other spending by corporations, like the money spent by The Washington Post Company to produce the linked story, has never been regulated or prohibited by the federal government.
The article mentions a “shadow campaign” and refers to Watergate. It states “independent groups are poised to spend more money than ever to sway federal elections.” Surely something is amiss here! Or at least the causal reader of the Post might conclude that.
But what is going on? A spokesman for one of the independent groups says they are trying to influence the debt ceiling debate and that as far 2012 goes: “We’re definitely working to shape how the president is perceived, because how he is perceived will have a huge impact on how this issue is resolved.”
It sounds like the group is engaging in political speech on an issue, speech that could have some effect on next year’s election. What is amiss about that? Isn’t the right to engage in such speech a core political right under our Constitution?
The article also argues that independent groups, being independent, may fund speech that may harm a candidate they are trying to help. Candidates, in a sense, have lost some control over their campaigns and their messages.
Of course, absent limits on contributions to candidates and parties, the money going to independent groups might go to…candidates and parties. Liberalizing speech, not suppressing independent groups, might be a good way to prevent groups from airing ads that harm or misrepresent candidates for office. Finally, candidates do have the power to repudiate independent ads.
Expect more news stories like this one over the next 18 months. The cause of campaign finance reform is in desperate straits. Reformers in the media are going to construct a narrative that says: money is destroying democracy in 2012, all because of Citizens United. They hope thereby to set the stage to restore restrictions on campaign finance.
The Federal Government and Financial Literacy
Almost 600 pages into the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is a provision directing the Government Accountability Office to assess the feasibility of the federal government certifying organizations that provide financial literacy. The GAO released its report this week and concluded that “While a federal process for certifying financial literacy providers appears to be feasible, doing so would pose challenges.”
The challenges cited by the GAO are generally of the bureaucratic variety: What agency or agencies would be in charge? What criteria would be used? How would oversight be conducted? And most importantly, how much would it cost [taxpayers] to implement and operate a federal process for certifying financial literacy providers?
Fortunately, the GAO says that the majority of the representatives of private sector financial literacy organizations, federal agencies, and academic experts that it interviewed said that the disadvantages outweighed the advantages. Numerous concerns were cited, but one in particular stands out: Financial literacy certification may not be an appropriate role for the federal government.
Well, Hallelujah. I’ve read my share of GAO reports – almost all of which have dealt with activities that are not a proper role of the federal government – and I don’t recall that concern being mentioned.
Not only is individual financial literacy not an appropriate concern of the federal government, the federal government itself is a monument to financial illiteracy. It isn’t just that GAO report after GAO report continues to document financial mismanagement across the entire government complex. No, it’s the fact that Washington’s financial mismanagement has left us with a bloated government that’s mired in debt and crippled by massive “entitlement” programs that operate like Ponzi schemes.
The additional irony is the Dodd-Frank regulatory overhaul was passed in the wake of an economic meltdown perpetrated in large part by government failure. Alas, there might not be a lot of shame in Washington, but the hypocrisy is seemingly without limit.
So What If Corporations Aren’t People?
As Julian Sanchez detailed yesterday, those who complain about fewer restrictions on corporate political speech but celebrate the freeing of restrictions on corporate videogame speech are in a bit of a logical pretzel. But ultimately both those who think corporations have speech rights and those who don’t miss the larger point: it’s not about corporate rights but the rights of the individuals who freely associate and thus pool their speech via the corporate legal form.
That is, it really doesn’t matter that “corporations aren’t people.” Of course they’re not living, breathing human beings, and their ”personhood” for legal purposes is just that: a convenient legal fiction.
To elaborate on these ideas, Cato legal associate Caitlyn Walsh McCarthy and I have written a law review article titled “So What If Corporations Aren’t People?” Here’s the abstract:
Corporate participation in public discourse has long been a controversial issue, one that was reignited by the Supreme Court’s decision in Citizens United v. FEC, 130 S. Ct. 876 (2010). Much of the criticism of Citizens United stems from the claim that the Constitution does not protect corporations because they are not “real” people. While it’s true that corporations aren’t human beings, that truism is constitutionally irrelevant because corporations are formed by individuals as a means of exercising their constitutionally protected rights. When individuals pool their resources and speak under the legal fiction of a corporation, they do not lose their rights. It cannot be any other way; in a world where corporations are not entitled to constitutional protections, the police would be free to storm office buildings and seize computers or documents. The mayor of New York City could exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he’d like to move his office there. Moreover, the government would be able to censor all corporate speech, including that of so-called media corporations. In short, rights-bearing individuals do not forfeit those rights when they associate in groups. This essay will demonstrate why the common argument that corporations lack rights because they aren’t people demonstrates a fundamental misunderstanding of both the nature of corporations and the First Amendment.
This article is still being edited — it won’t appear in the John Marshall Law Review till the fall – so comments are welcome. Thanks to Eugene Volokh for making suggestions on an earlier version.
Update: Larry Solum has “recommended” our article on the Legal Theory Blog. Thanks!
100,000+ Cribs May Be Headed for Dumpsters Today
Last December the Consumer Product Safety Commission (CPSC) adopted new standards for crib design, a step mandated by the famously overreaching Consumer Product Safety Improvement Act of 2008 (CPSIA). The commission decided to go well beyond a set of voluntary design standards that had been widely adopted the year before; it also chose to make the new rules retroactive, rendering unlawful the sale of many existing cribs whose overall safety record is otherwise acceptable—no one would think of subjecting them to a recall, for instance. Commissioner Nancy Nord:
The day care industry did protest that the rule, as proposed, would result in approximately a $1/2 billion hit to a group that could not immediately absorb costs of such magnitude, especially on the heels of having just bought new cribs to meet the standards of 2009. As a result, at the last minute just before finalizing the rule, the Commission agreed to amend the proposed rule to delay the effective date for this group by 18 months. There was no analysis behind this date; basically, it was pulled out of a hat.
Manufacturers and sellers fared less well, however, and were stuck with a deadline of June 28, 2011, that is, today. Commission staff predicted that retailers would not suffer significant economic harm, which turned out to be wrong, as the commission learned when they began hearing from “small retailers who are stuck with stranded inventory that they cannot sell, also asking for a delay,” according to Nord.
How much stranded inventory? Quite a lot, says Commissioner Anne Northup:
The retailers of these cribs, which the Commission deemed were safe enough to continue to be used for another two years in day care facilities, stand to lose at least $32 million dollars when they are required to throw out noncompliant cribs on June 28.
That’s a lot of landfill space that may be needed in coming days. Nord again:
An internal survey of 5 retailers found that those companies had at least 100,000 non-complying cribs in inventory. A survey done by a trade association representing one part of the small retailer community found that 35 companies had 17,500 cribs that cannot legally be sold in two weeks.
Retailers pleading for a longer transition period got no mercy from the hard-line pro-regulation Commission majority led by Obama appointee Inez Tenenbaum. In a similar way, the much vaster stranded-inventory problems and compliance nightmares engendered by CPSIA as a whole keep getting worse rather than better, due to an equally obdurate attitude from the commission’s current leadership and its Democratic allies in Congress. Politically and with the press, there seems to be little downside in striking cost-no-object For the Children postures, even if the result is to place untenable burdens on the sorts of local shopkeepers and service providers who specialize in meeting the everyday needs of children.
Related, at my website Overlawyered: “Thanks for standing by for eight months after we told you to stop selling your infant slings pending a recall. We’ve decided no recall is needed. What, you’re out of business? Never mind.”
CBO Report Reveals Spending Disaster
New projections from the Congressional Budget Office show that without reforms rising federal spending will fundamental reshape America’s economy, and not in a good way. Under the CBO’s “alternative fiscal scenario,” the federal government will consume an 86 percent greater share of the economy in 2035 than it did a decade ago (33.9 percent of GDP compared to 18.2 percent).
The CBO report and many centrist budget wonks focus more on the problem of rising federal debt than on rising spending. As a result, many wonks clamor for a “balanced” package of spending cuts and tax increases to solve our fiscal problems. But CBO projections show that the long-term debt problem is not a balanced one—it is caused by historic increases in spending, not shortages of revenues.
This chart shows CBO’s alternative scenario projections, which assume no major fiscal policy changes. All recent tax cuts are extended and entitlement programs are not reformed.
Let’s look at federal revenues first (blue bars). In President Clinton’s last year of 2001, revenues were abnormally high at 19.5 percent of GDP as a result of the booming economy. Over the last four decades, federal revenues as share of GDP have fluctuated around about 18 percent of GDP. The tech boom a decade ago helped generate large capital gains realizations. CBO data show that capital gains tax revenues were $100 billion in 2001, or 1 percent of GDP (see page 85). By contrast, the CBO expects capital gains taxes to be $48 billion in 2011, or just 0.3 percent of GDP (see page 93).
In 2011, revenues are way down because of the poor economy. Some people complain that the Bush tax cuts drained the Treasury, but note that revenues were 18.2 percent of GDP in 2006 and 18.5 percent in 2007, when the economy was growing and the Bush cuts were in place.
Looking ahead, the CBO projects that with all current tax cuts in place and AMT relief extended, revenues will rise to 18.4 percent of GDP by 2021, or a bit above the normal levels of recent decades. For 2035, the CBO assumes that revenues would be fixed at the same 18.4 percent, but their discussion reveals that “real bracket creep” would actually keep pushing up revenues as a share of the economy beyond 2021.
In sum, CBO projections reveal no shortage of revenues. The problem is on the spending side, as the red bars in the chart illustrate. As a result of the Bush/Obama spending boom, federal outlays soared from 18.2 under President Clinton to 24.1 percent this year. With no reforms to entitlement programs, outlays will be 33.9 percent of GDP by 2035, which is 86 percent higher than the Clinton level.
By the way, the CBO nets Medicare premiums out of outlays, which makes spending look a little smaller than it really is. Using gross Medicare spending, total federal outlays will be 35 percent of GDP by 2035.
Also note that CBO data (and other U.S. government data) low-ball government spending in other ways compared to OECD measurement standards. The OECD puts federal/state/local government spending in the United States at 41 percent of GDP in 2011. More than four out of ten dollars we earn are already being gobbled up by our governments.
If the federal government grows by 10 percentage points of GDP by 2035 per CBO, American governments will be consuming more than half of everything produced in the nation.
To fix the problem, see here.
IBM as a Metaphor for Economic Success
International Business Machines Inc. is celebrating its 100th anniversary as a company today. In this time of economic worry and uncertainty, it’s worth taking a moment to consider a few policy lessons we might glean from its longevity.
Unlike government agencies and programs, private-sector companies competing in a free market come and go. In an essay posted on the IBM web site, company officials noted:
Of the top 25 industrial corporations in the United States in 1900, only two remained on that list at the start of the 1960s. And of the top 25 companies on the Fortune 500 in 1961, only six remain there today.
How did IBM not only survive but thrive during a century that took us from horses and buggies to FaceBook and iPhones? In a word, adaptability. IBM’s management has been willing to change to meet the evolving demands of a competitive and open marketplace.
When I was researching a speech last year to retired IBM employees, I was struck by how the company has transformed itself. As I shared with the audience, IBM stands as a metaphor for the positive changes under way in our more high-tech and globalized economy:
As you all know, [IBM] has re-engineered itself from a hardware company to a provider of software and services. Today, nearly 60 percent of the company’s revenue comes from services compared to 38 percent a decade ago. Revenue from hardware has been cut in half, to 17 percent.
IBM’s gone global in a big way, too. Almost two-thirds of its revenue now comes from outside the United States. That compares to an S&P average of 47 percent. Emerging markets now account for 50 percent of its revenue growth. IBM is the biggest IT services company in India. For $100 million, it’s helping the northeast China city of Shenyang—one of its most polluted—clean up its air and reduce carbon emissions.
Politicians nostalgic for an America where the dominant companies were unionized, heavy-industry behemoths producing mostly for the domestic market should take note. As I argued at length in my 2009 book Mad about Trade (see chapters 3 and 4) and more concisely in an essay for Barron’s Weekly, America has become a globalized, middle-class service economy. As the success of IBM demonstrates, this is not something we should fear, or try to resist with trade barriers and industrial policy.
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