Archives: 09/2013

Reason’s “Obamacare Video Contest Song”

Lyrics:

What’s hated by unions

has businesses wary

and dropping coverage 

like the ‘Skins secondary?

Causing thousands of layoffs

taking it’s toll?

What’s so good for people

that they’re forced to enroll?

What’s a law that’s so good

folks who passed and defended it

see it and got waivers

to be exempted? It’s

like Olestra, at first 

it sounded hip

but we quickly found ourselves

dealing with a whole lot of sh…

Obamacare, Obamacare

Unions and businesses both in despair

So to recap, young people,

your hours get cut

and your income goes down

and your premium’s up

and the taxes you pay

with the cash you have left

go to pay for a stupid 

video contest, touting

Obamacare, Obamacare

Unions and businesses both in despair

It’s hated by doctors and unions are mad.

Not since Billy Ray Cyrus 

has someone made something this bad.

A Familiar Pattern of Futility in the International Drug War

The UN Office on Drugs and Crime announced last week that the production of coca, the raw ingredient for cocaine, has shifted away from Colombia toward Peru.  Observers of the war on drugs are not surprised by that development. During the early and mid-1990s, drug warriors hailed the decline of coca production in Peru and neighboring Bolivia, thanks to a crackdown that Washington heavily funded through aid programs to Lima and La Paz, as a great victory in the crusade against illegal drugs.  They ignored the inconvenient fact that cultivation and production had merely moved from Peru and Bolivia into Colombia–and to a lesser extent into nearby countries such as Ecuador, Venezuela, and Brazil.

That phenomenon is known as the “balloon” or “push down, pop up” effect.  Strenuous efforts to dampen the supply of illicit drugs in one locale simply cause traffickers to move their production to other locations where the pressure is weaker for the moment.  When Washington and Bogotá launched Plan Colombia in 2000, the multi-billion-dollar, multi-year program to attack the coca industry in that country, cultivation and production gradually began to shift back to Peru and Bolivia.  The latest UN report confirms that trend.  As Ricardo Soberón, the former heard of Peru’s drug policy office, put it: “The carousel has come full circle.”  Adam Isacson, an expert on Latin American drug issues with the Washington Office on Latin America, noted that the new map of coca production “looks an awful lot like the old” map from the early 1990s.

The latest development underscores how proclamations of victory in the international war on drugs invariably prove to be ephemeral.  Trying to suppress the supply of a product that is in high demand is a classic case of rearranging the deck chairs on the Titanic.  The illegal drug trade is conservatively estimated to be a $350 billion per year industry, and global consumer demand is growing.  Even if a new crackdown in Peru causes a temporary disruption of the supply coming out of that country, all that we will see is a new “balloon” episode in neighboring states.  Indeed, there are indications that Brazil and Argentina already are becoming far more prominent participants in drug trafficking, in part because they are convenient transshipment points for sending drugs to Africa, Europe, and the Middle East, where consumption is on the rise.

We have ample evidence over the course of many decades that drug prohibition does not work; a prohibition policy merely guarantees that violent criminal elements instead of legitimate business enterprises will control the trade.  Focusing on which countries are supplying most of the drugs at a particular moment, and cheering about a temporary victory in one arena, is an exercise in futility.

Burrowing In at the Bank — And Your Business Next?

John Cochrane, who is an adjunct scholar at Cato as well as a professor at the University of Chicago Booth School of Business, had a nice post on the evolving nature of modern regulation earlier this month. He starts by quoting a Wall Street Journal account:

Your No. 1 client is the government,” John J. Mack, Morgan Stanley’s chairman and chief executive from 2005 to 2009, told current CEO James Gorman in a recent phone call. Mr. Gorman, who was visiting Washington that day, agreed…

….regulators prowl the office floor looking for land mines, and Mr. Gorman phones Washington before making major decisions…

About 50 full-time government regulators are now stationed at Morgan Stanley. There were none before 2008, when it was regulated as a brokerage firm instead of a bank.

Cochrane adds that this is “a useful anecdote to remind people what ‘regulation’ means.” People often imagine, he says, that it means something like enacting a knowable, impartial equivalent of a speed limit and enforcing it by putting more cops on the road.

No, we put 50 cops in your car. And how long can this possibly go on before the cops start asking where you’re going and why? How long can 50 regulators sit in the bank approving every decision, before “you know, you haven’t made any green energy loans in a long time” starts coming up? But contrariwise, how long before those 50 regulators come to the view that Morgan Stanley’s survival and prosperity is their job? 50 full-time government employees calling the shots on every deal at a supposedly private bank is a good picture to keep in mind of what “regulation” means.

And it isn’t just banking. On-site government inspectors are becoming more common in other lines of business, especially when a company has copped a deal to some earlier charge of regulatory violations – and few big companies have not been hit with charges of that sort. Notre Dame law professor Veronica Root explains what happens next:

…the corporation and the government often enter into an agreement stating that the corporation will retain a “monitor.” … A monitor, unlike the probation officer, is not solely charged with ensuring that the corporation complies with a previously determined set of requirements. Instead, a corporate compliance monitor is responsible for (i) investigating the extent of the wrongdoing already detected and reported to the government, (ii) discovering the cause of the corporation’s compliance failure, and (iii) analyzing the corporation’s business needs against the appropriate legal and regulatory requirements. A monitor then provides recommendations to the corporation and the government meant to assist the corporation in its efforts to improve its legal and regulatory compliance — the monitor engages in legal counseling.

Something to keep in mind next time you wonder why government officials and the leadership of big business so often seem to be working in harness, on issues where you might expect them to oppose each other. 

Maybe the Real Lesson Is That It’s Best to Shut Down the Federal Government Before a New Fiscal Year Begins

The politicians, bureaucrats, lobbyists and interest groups in Washington are hyperventilating that the federal gravy train may get sidetracked for a day or two by a shutdown fight between Republicans and Democrats.

I’m not sure why they’re so agitated. After all, the shutdown is really just a slowdown since only non-essential bureaucrats are sent home. And everyone winds up getting paid for those unplanned vacations, which is why the bureaucrats I know are crossing their fingers for a lengthy confrontation.

But that describes what may happen when the new fiscal year begins tomorrow. What’s been happening in recent days, culminating today, is a feeding frenzy of end-of-the-fiscal-year wasteful spending.

Here are some details from a Washington Post expose.

This past week, the Department of Veterans Affairs bought $562,000 worth of artwork. In a single day, the Agriculture Department spent $144,000 on toner cartridges. And, in a single purchase, the Coast Guard spent $178,000 on “Cubicle Furniture Rehab.” …All week, while Congress fought over next year’s budget, federal workers were immersed in a separate frantic drama. They were trying to spend the rest of this year’s budget before it is too late. …If they don’t, the money becomes worthless to them on Oct. 1. And — even worse — if they fail to spend the money now, Congress could dock their funding in future years. The incentive, as always, is to spend. So they spent.

If you’re a taxpayer, you’ll be especially delighted to know that the “use it or lose it” spending orgy is so intense that federal contractors have to cater lunches for their sales staff. Can’t have them away from their desks, after all!

It was the return of one of Washington’s oldest bad habits: a blitz of expensive decisions, made by agencies with little incentive to save. Private contractors — worried that sequestration would result in a smaller spending rush this year — brought in food to keep salespeople at their desks. Federal workers quizzed harried colleagues in the hallways, asking if they had spent it all yet. …“Use it or lose it” season is not marked on any official government calendars. But in Washington, it is as real as Christmas. And as lucrative. …In 2012, for instance, the government spent $45 billion on contracts in the last week of September, according to calculations by the fiscal-conservative group Public Notice. That was more than any other week — 9 percent of the year’s contract spending money, spent in 2 percent of the year.

The IRS may win the prize for the most egregious example of last-minute waste.

In 2010, for instance, the Internal Revenue Service had millions left over in an account to hire new personnel. The money would expire at year’s end. Its solution was not a smart one. The IRS spent the money on a lavish conference. Which included a “Star Trek” parody video starring IRS managers. Which was filmed on a “Star Trek” set that the IRS paid to build. (Sample dialogue: “We’ve received a distress call from the planet NoTax.”)

But it’s not just tax collectors who flush our money down the toilet in creative ways.

One recent study, for instance, found that information technology contracts signed at year’s end often produced noticeably worse results than those signed in calmer times. …they listed dumb things they had seen bought: three years’ worth of staples. Portable generators that never got used. One said the National Guard bought so much ammunition that firing it all became a chore. “When you get BORED from shooting MACHINE GUNS, there is a problem,” an anonymous employee wrote.

Impressive examples of waste, though I confess I’m curious about the part about ammo and the National Guard. Does this mean bullets are like milk and have to be fired before an expiration date?

Beats me, but at least someone in the government acknowledged that (at least up to a point) it’s cool to fire a machine gun. Maybe that person should hook up with the Texas cop who likes tanks.

Oh, and you’ll be happy to know that spendaholic bureaucrats and crafty interest groups keep track of time zones so they can squander money until the very last second.

On Monday, Richer’s people will sell until midnight. Then they will keep selling. “Money rolls across the continent,” the feds say. Cash not spent in Washington might be spent by federal offices in California in the three hours before it is midnight there. When it is midnight in California — 3 a.m. in Washington — they will keep on. There are federal offices in Hawaii, after all. And it will still be three hours until midnight there.

Makes me think that we may need a slogan for the bureaucracy. Perhaps this modification of the Postal Service’s unofficial motto: “Neither snow nor rain nor heat nor gloom of night - nor even different time zones - stays these bureaucrats from spending every possible penny of other people’s money.”

But let’s close on an upbeat note. Whether you give credit to the Tea Party, to Republicans, to gridlock, or to Obama, the good news is that the federal government in the past two years has been wasting money at a slower rate.

So taxpayers can smile…or at least not frown as much. The bureaucracy and contractors may be throwing a party today, but not with the same reckless abandon they displayed a between 2001 and 2010.

The Stupid Party

Word on the street is that today House Republicans will pass a bill that would keep non-essential government functions open until mid-December, delay ObamaCare for one year, but not block the illegal ObamaCare exemption President Obama’s Office of Personnel Management granted to members of Congress and their staff. If Republicans fail to include language blocking that exemption, they truly deserve the moniker of The Stupid Party.

ObamaCare blocks members of Congress and their staffs from participating in the Federal Employees Health Benefits Program where most of them now purchase health insurance, and thereby denies them the “contribution” the federal government had been making toward their premiums. Starting in 2014, members and staff must obtain coverage either through an ObamaCare Exchange or whatever other options that can scrape together. The purpose of this provision was to ensure that members and staff would experience ObamaCare the same way the rest of the country does – so that just in case the law is a disaster, Congress will have to suffer just like everybody else. Since ObamaCare is throwing lots of Americans out of their prior health coverage, and causing lots of people to take pay cuts due to job losses and reduced hours, so far, so good.

Naturally, members don’t like the way ObamaCare is treating them and people about whom they care. By all accounts, members are extremely agitated about the impact on their staffs. But because Democrats don’t want to repeal the entire law, and neither Republicans nor Democrats want to get caught giving themselves an ObamaCare exemption that others don’t get, a coalition of Republican and Democratic members begged the president for a special exemption. For his part, President Obama didn’t want Congress to reopen the law, so he obliged. His administration announced that OPM will make the same “contribution” to each member and staffer’s Exchange premiums that it made to their FEHBP premiums, despite having absolutely no statutory authority to do so. And thus the political class set itself above the people it governs. The administration’s defenders, like Uwe Reinhardt, note that ObamaCare says “absolutely nothing” about whether OPM can continue to make those payments. Exactly. If Congress has not authorized those payments, OPM cannot make them. Moreover, no one else who works for a large employer may receive a tax-free “contribution” from their employer toward their Exchange premiums. Why should members and staff enjoy such privilege, when the law doesn’t provide for it and allowing it would fly in the face of this provision’s purpose?

This issue gives ObamaCare opponents tremendous leverage, if they are willing to use it. Senate Democrats are likely to strip a one-year delay of ObamaCare’s major provisions from the House Republicans’ “continuing resolution.” But few Democrats would dare to strike a provision blocking the OPM rule. Heather Higgins and Bill Pascoe write, ”92 percent of the public does not think it is right that Congress and their staff are letting the Obama administration exempt them from the costs of Obamacare.” Moreover, “with a minimal push, the issue makes inroads even [against incumbents] most analysts thought beyond reach.” In other words, if the House Republicans’ CR blocks Congress’ ObamaCare exemption, then either vulnerable Senate Democrats will vote to preserve it, or they will be turned out by voters. If the Senate preserves it, which is likely, then even more Senate Democrats will be accept a one-year delay so that Congress can work out some arrangement that eliminates this pay cut for members and staff while providing equivalent relief to average Americans.

Unfortunately, House Republicans appear unwilling to tap their greatest source of leverage. I wish I could say that failure is inexplicable. But the reason is obvious. House Republicans got their ObamaCare fix, and (for now) that is more important to them than saving the rest of the country from this law. President Obama’s “OPM rule” is an attempt to buy their votes, and it appears those votes are for sale. They must not be thinking about what their base will do to them.

It’s great that House Republicans are sending the Senate a bill delaying ObamaCare for a year. Why don’t they want it to pass?

SSDI (Problems) in the News

My recent paper on the rising cost of Social Security Disability Insurance is proving to be timely. 

First, the Washington Post’s Michael Fletcher provides a good overview of SSDI’s “issues.” Fletcher highlights a Maine county where the disability rolls have jumped as the local paper mills have shed jobs. That’s because the program has become a quasi-unemployment program, a problem that’s been exacerbated by the economic downturn. One former mill worker who said that he would rather be working now collects disability and “spends a lot of his free time riding his Harley-Davidson motorcycle to bike rallies around New England.” 

Second, The Economist points to research that suggests that SSDI is contributing to a reduction in the labor force participation rate: 

These results suggest that if it were not for people receiving disability insurance, reported unemployment would be far higher. Although DI recipients may initially have climbed because the economy was weak, their numbers will almost certainly not decline when it strengthens again; only 4% of beneficiaries return to work within ten years. The proportion of working-age adults on DI has risen from 1.3% in 1970 to 4.6% in 2013. The impact on participation rates may be cyclical at first and then become structural.

Third, a new Government Accountability Office report estimates that the Social Security Administration paid out $1.3 billion in benefits over two years to individuals who probably shouldn’t have received them. I should caution, however, that although fraud is an inherent problem with federal disability programs (and an improper payment doesn’t necessarily mean fraud was involved), it’s abuse of the system that is the bigger problem–i.e., people legally qualifying for benefits who arguably shouldn’t. 

But yes, fraud certainly exists and that leads to the fourth story. In June, a former Democratic state representative in Missouri pled guilty “to illegally taking $58,816 in federal disability payments while he was working as a state legislator earning $30,000 a year.” Ah, there are so many wisecracks to be made here, but I’ll just go with one: A politician stealing taxpayer money is illegal? Who knew!  

Copyright: The Gift that Keeps on Giving (for a long time)

Did you know that the song “Happy Birthday” was under copyright? If you read my colleague Walter Olson’s Overlawyered blog, you did. Back in June, he reported on a lawsuit to put an end to the claim of copyright:

Warner/Chappell Music continues to demand and collect royalties for public performance of the ditty, although its melody was first published more than 120 years ago and the familiar celebratory words have been sung to it for more than a century. A new lawsuit seeks a judicial ruling that the song is in the public domain and asks a return of wrongfully collected royalties.

I used this lawsuit as a hook for a piece in the National Interest that expands on an earlier blog post I wrote on the subject. The basic point is this: The Happy Birthday copyright claim may sound absurd, but given the current length of U.S. copyright terms, it’s actually not implausible for such an old song to be under copyright. For individual authors, life of the author plus 70 years is now the standard. That’s a long time!

And through trade negotiations, the United States is pushing these terms on other countries. In my view, this is bad for copyright and also bad for trade policy:

The appropriate focus of copyright policy right now should not be on using international trade agreements to extend copyright terms abroad. Rather, there needs to be a debate that focuses on how long copyright terms should be. Including provisions on copyright terms in trade agreements without first having that debate, and with ever-longer terms, is pushing intellectual property policy in the wrong direction and at the same time undermining the goal of free trade by bringing in unnecessary controversies.

Trade agreements are much broader than they used to be, and they cover a lot of different issues. Much of the mainstream coverage of trade agreements takes a simple “pro” or “con” view. But it’s more complicated than that; it’s worth picking them apart, seeing what all they do, and having a debate on each particular aspect. Copyright terms would be a great place to start.

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