Archives: 08/2013

Hyperloop’s Real Problem

Most reviews of Elon Musk’s hyperloop plan focus on technical questions. Will it cost as little as he estimates? Could it move as fast as he projects? Could the system work at all?

None of these are the real problem with the hyperloop. The real problem is how an infrastructure-heavy, point-to-point system can possibly compete with personal vehicles that can go just about anywhere–the United States has more than 4 million miles of public roads–or with an airline system that requires very little infrastructure and can serve far more destinations than the hyperloop.

Musk promises the hyperloop will be fast. But fast is meaningless if it doesn’t go where you want to go. Musk estimates that people travel about 6 million trips a year between the San Francisco and Los Angeles urban areas, where he wants to build his first hyperloop line. But these urban areas are not points: they are huge, each covering thousands of square miles of land.

Airlines deal with these large areas through multiple airports. The Los Angeles area has five commercial airports and San Francisco has three. The hyperloop would only have one station in each region, making it inconvenient for the vast majority of people.

Moreover, airplanes from these airports can reach hundreds of other airports across the country and around the world. Even if Musk’s optimistic cost estimates are valid (and remember, the first cost estimate for California high-speed rail was about $10 billion, less than a tenth of the current estimate), the hyperloop would require billions of dollars spent on more infrastructure to add any new city.

Mexico’s Timid Energy Reform

After weeks of speculation, yesterday Mexican president Enrique Peña Nieto unveiled his proposal to reform the country’s sclerotic energy sector. The move has been heralded by the media as Mexico’s boldest economic overhaul since the signing of NAFTA in 1994. However, even though the reform aims at relaxing the grip of the country’s state-owned monopoly on oil production, it falls short of significantly opening the sector to much needed private investment.

The reason for so much caution is well-known: The government’s monopoly on oil production is the third rail of Mexican politics. Ever since President Lázaro Cárdenas nationalized the sector in 1938, Mexicans commemorate the event every March 18. School textbooks mention the nationalization as a defining moment of Mexico’s history. It is no wonder previous attempts to break up the monopoly of Petróleos Mexicanos (Pemex) have so far failed.

This, of course, is the result of decades of propaganda by Mexico’s long-running governing party, the PRI (to which Mr. Cárdenas belonged). It skillfully embedded a nationalist attachment to the oil industry in the population’s psyche while using Pemex to extract and distribute jobs, rents, and power. However, the party is rapidly coming to an end.

Due to lack of investment and a highly politicized and inefficient corporate structure, Pemex’s oil production has fallen by a quarter in the last decade. The government uses Pemex as a milk cow to finance almost a third of its spending. That leaves little money to invest in the exploration and drilling of the huge reserves of deep water oil that Mexico has in the Gulf of Mexico. Thus, Mexico imports gasoline despite having Latin America’s third largest reserve of oil.

Government Can’t Simply Ignore Judicial Rulings It Doesn’t Like

By design, the federal judiciary is the weakest of the three branches of government. While the executive wields the sword, and Congress holds the purse strings, the courts have no temporal power.

To give effect to their decisions and orders, courts depend on popular legitimacy and the cooperation of the other branches. While that cooperation is normally forthcoming when needed to enforce judicial decisions against private citizens, when the subject of a court’s order is the government itself, there’s always a risk that it will be ignored or avoided.

Such is the case in Hornbeck Offshore Services v. Jewell, which began when the Interior Department (DOI) chose to put itself above the courts and above the law. Following the Deepwater Horizon disaster in April 2010, DOI issued a total ban on drilling activity in the Gulf of Mexico. A district court judge held that this drilling moratorium was irrational and not supported by scientific research or other credible evidence. The judge issued an injunction prohibiting DOI from enforcing its ban.

Instead of obeying the injunction — or appealing it — DOI ignored it. The Secretary of the Interior told Congress that as far as he was concerned, the drilling ban was still in effect. DOI then issued a second ban on drilling that was identical to the first. The district judge held DOI in contempt of court, noting that “each step the government took following the Court’s imposition of a preliminary injunction showcase[d] its defiance” of the court’s authority.

On appeal, a panel of the New Orleans-based U.S. Court of Appeals for the Fifth Circuit sided 2-1 with the DOI’s position that the contempt finding was improper because the issuance of a second (identical) drilling ban was not technically disallowed by the text of the injunction — which explicitly prohibited only enforcement of the initial ban. Cato has filed an amicus brief urging the Supreme Court to hear the case because the appellate court’s ruling undermines the rule of law and the judiciary’s independent authority.

Under the Fifth Circuit’s rule, government agencies will be able to legally avoid court orders with bureaucratic trickery. If only the explicit text of an injunction — and not any of its spirit or clear purpose — binds the federal government, Congress or the executive could simply rename whatever statute or regulation has been declared unconstitutional and continue enforcing the substantively unconstitutional rule. Such an overly technical rule would force district court judges into the role of mind-readers, trying to predict how the government could weasel its way out of a ruling.

Without an effective contempt power to punish the violation of its orders, even the Supreme Court would be unable to enforce its important rulings, such as ending the District of Columbia’s unconstitutional ban on handguns, and striking down section 3 of DOMA. In both of those recent cases, the sort of semantic game-playing endorsed by the Fifth Circuit here would have resulted in hollow victories for liberty and an evisceration of the idea that in our constitutional republic, the government is bound by the same (if not stricter) rules as the rest of us.

The New Republic: Obama Kinda Lied a Little about Obamacare

On Monday, The New Republic’s Jonathan Cohn admitted that President Obama “made a misleading statement about Obamacare rates” during his press conference on Friday. The magazine’s Twitter feed (@tnr) announced:

Whoops! The president (accidentally, we think) told a little #Obamacare lie on Friday.

During his press conference, the president said:

[When it comes to people without access to employer-sponsored coverage,] they’re going to be able to go on a website or call up a call center and sign up for affordable quality health insurance at a significantly cheaper rate than what they can get right now on the individual market. And if even with lower premiums they still can’t afford it, we’re going to be able to provide them with a tax credit to help them buy it. [Emphasis added.]

The problem, Cohn writes, is that:

while some people will pay less than they pay today, some will pay more. They will primarily be young, healthy men who benefited from preferential pricing in the past, were content with coverage that had huge gaps, and are too wealthy to qualify for the law’s tax credits—which are substantial but phase out at higher incomes…

But somebody listening to Obama’s press conference probably wouldn’t grasp that distinction. They’d come away thinking their insurance will be cheaper next year. For some, it won’t be. Obama isn’t doing himself, or the law, any favors by fostering a false expectation.

CPSC Sues Defiant CEO Individually in Buckyball Case

A year ago I wrote: “It’s rare for a regulated company to mount open and disrespectful resistance to a federal regulatory agency, but that’s what the maker of BuckyBalls, the popular desktop magnetic toy, is doing in response to the Consumer Product Safety Commission’s effort to ban its product.” The maker in question had devised cheeky, sarcastic ads asking why other products with injurious potential (coconuts, hot dogs) weren’t banned on the CPSC’s logic. 

One reason it’s rare to mount open and disrespectful resistance to a federal agency is that agencies have so many ways to make businesspeople’s lives unhappy. This spring, breaking new legal ground, the CPSC reached out and named CEO Craig Zucker personally as a respondent in its recall proceeding. According to a Gibson Dunn commentary,

For the first time, the CPSC is pursuing individual and personal liability against an executive for a company’s alleged violations of the Consumer Product Safety Act. Although it remains to be seen whether the CPSC will adopt this approach in other cases, at minimum, this demonstrates just how far the CPSC is willing to push the envelope.

It’s just the latest example, the law firm says, of a pattern in which “the CPSC has aggressively enforced its governing statute and regulations, repeatedly pushing the limits of its expanded authority.” If the move succeeds, Zucker could be ordered to foot the bill personally for offering consumers full refunds for all products sold, reimbursing retailers for recall costs, and various other expenses potentially reaching into the millions.

Big Business Gets Yet Another Obamacare Delay That Individuals Don’t

“I didn’t simply choose to delay this on my own,” President Obama reassured the nation about his unilateral decision to delay Obamacare’s employer mandate. “This was in consultation with businesses all across the country,” he said, as if that made the situation better instead of worse. Obama threw his “consultants” another bone when he decided to delay the reporting requirements the law imposes on employers, also until 2015. The president’s generosity toward large corporations will be financed by the American taxpayer. The Congressional Budget Office projects these delays will cost taxpayers another $3 billion in new government spending and reduce federal revenues by $9 billion, for a total increase in the federal debt of $12 billion. Yet the president fails to show the same concern for individual taxpayers. When the House of Representatives, including dozens of Democrats, voted to extend the same break to individuals by delaying Obamacare’s individual mandate by one year, President Obama threatened to veto that bill. Bizarrely, he also threatened to veto another bill (approved by an even broader bipartisan majority) that would make legal his illegal delay of the employer mandate.

So perhaps we should not be too surprised now that the New York Times reveals yet another delay the president approved at the behest of big business:

In another setback for President Obama’s health care initiative, the administration has delayed until 2015 a significant consumer protection in the law that limits how much people may have to spend on their own health care.

The limit on out-of-pocket costs, including deductibles and co-payments, was not supposed to exceed $6,350 for an individual and $12,700 for a family. But under a little-noticed ruling, federal officials have granted a one-year grace period to some insurers, allowing them to set higher limits, or no limit at all on some costs, in 2014…

[F]ederal officials said that many insurers and employers needed more time to comply because they used separate companies to help administer major medical coverage and drug benefits, with separate limits on out-of-pocket costs…

A senior administration official, speaking on condition of anonymity to discuss internal deliberations, said: “We knew this was an important issue. We had to balance the interests of consumers with the concerns of health plan sponsors and carriers, which told us that their computer systems were not set up to aggregate all of a person’s out-of-pocket costs. They asked for more time to comply.”…

Theodore M. Thompson, a vice president of the National Multiple Sclerosis Society, said: “The promise of out-of-pocket limits was one of the main reasons we supported health care reform. So we are disappointed that some plans will be allowed to have multiple out-of-pocket limits in 2014.”

It is a sign of Obamacare’s complexity that the Obama administration felt it needed to issue this delay. It is a further sign of the law’s complexity that this delay was announced in February, yet is only coming to light now.

Guess Who’s One of the Hill’s ‘100 People to Watch This Fall’

I guess I’ll have to tout this myself. Last week, the Hill newspaper put me on its list of “the 100 people you can’t ignore this fall if you’re wondering how events in Congress and the White House will play out.” Here’s the write-up

Michael Cannon Director of health policy studies at the Cato Institute
 
Think the Supreme Court has settled the question of ObamaCare’s legality? Not if Cannon has anything to say about it. Cannon is a tireless advocate for the argument that the IRS has illegally implemented the healthcare law’s insurance subsidies, which will help low-income households cover the cost of their premiums. 
 
His argument is that healthcare law, as written, does not allow for the subsidies to be used in healthcare marketplaces that are set up by the federal government.
 
He helped the state of Oklahoma file a lawsuit against the subsidies, and a group of small businesses filed a separate suit on the same grounds, in case Cannon’s runs into procedural roadblocks.
 
If the lawsuits Cannon has spearheaded are successful, they could have a devastating impact on the healthcare law. A final decision in favor would stop the flow of tax subsidies to people in more than half of the states, making ObamaCare far less attractive to consumers and stripping away much of the law’s promise of affordability.

Corrections and amplifications. The argument is as much Jonathan Adler’s as mine; we develop it together in this law-journal article. The argument is not that the IRS is illegally implementing otherwise lawful subsidies; it is that the IRS is trying to dispense some $700 billion in illegal subsidies that Congress expressly did not authorize, and impose illegal taxes on millions of employers and individual Americans starting in 2014; that the Obama administration is attempting to tax, borrow, and spend nearly $1 trillion without congressional authorization. Finally, I am neither a party nor counsel nor financier to either Pruitt v. Sebelius or Halbig v. Sebelius.