Archives: 09/2014

Edwards’ Law of Cost Doubling

Large government projects often double in cost between when they are first considered and when they are finally completed. This pattern—call it “Edwards’ Law”—is revealed in story after story about highways, airports, computer systems, and other types of government infrastructure.

It looks like New York’s World Trade Center train station is the latest example of Edwards’ Law. The Wall Street Journal reports:

The most expensive train station in the U.S. is taking shape at the site of the former World Trade Center, a majestic marble-and-steel commuter hub that was seen by project boosters as a landmark to American hope and resilience.

Instead, the terminal connecting New Jersey with downtown Manhattan has turned into a public-works embarrassment. Overtaking the project’s emotional resonance is a practical question: How could such a high-profile project fall eight years behind schedule and at least $2 billion over budget?

An analysis of federal oversight reports viewed by The Wall Street Journal and interviews with current and former officials show a project sunk in a morass of politics and government.

Edwards’ law takes effect:

When completed in 2015, the station is on track to cost between $3.7 and $4 billion, more than double its original budget of $1.7 billion to $2 billion.

ObamaCare Exchanges Recklessly, Often Unlawfully, Throwing Taxpayer Money At Health Insurance Companies

Robert Laszewski, health policy wonk, blogger, and president of Health Policy and Strategy Associates, tells Inside Health Insurance Exchanges:

The Obama administration has no idea how many people are currently enrolled [in exchanges] but they keep cutting checks for hundreds of millions of dollars a month for insurance subsidies for people who may or may not have paid their premium, continued their insurance, or are even legal residents.

And if you think they’re doing those “enrollees” a favor, remember that if it turns out a recipient wasn’t eligible for the subsidy, he or she has to pay the money back.

Surprised? Don’t be. This is part of a deliberate, consistent strategy by the Obama administration to throw money at individual voters and key health care industry groups—lawfully or not—to buy support for this consistently unpopular law.

Are Democratic-Appointed Judges a Sure Thing for ACA?

Jason Millman of the Washington Post’s Wonkblog casually assumes that Democratic-appointed judges can be counted on to uphold the Affordable Care Act and its implementation against any legal challenge:

The Obama administration and supporters of the president’s health-care law are probably breathing a little easier this morning after some pretty big news from the U.S. Court of Appeals for the District of Columbia.

A few months after a three-member panel of the court ruled the federal government can’t provide insurance subsidies through federal-run exchanges in 36 states, the court on Thursday granted the Obama administration’s request for the entire panel to re-hear the case. The en banc hearing, as it’s known, wasn’t entirely unexpected—and with a heavy makeup of Democratic-appointed judges on the panel, it seems likely the administration will get a more favorable ruling when the entire court reconsiders the case later this year.

I don’t know. I know that Obamacare passed in both the House and Senate on straight party-line votes, over unanimous Republican opposition. But judges aren’t politicians. With a slew of Reagan- and Bush-appointed judges striking down gay marriage bans, I hope and expect that Democratic-appointed judges will show similar nonpartisan judiciousness when they consider the challenge to the IRS’s illegal implementation of insurance subsidies.

The FDA vs. Fine Cheese: A Wedge Too Far

[cross-posted, slightly adapted, from Overlawyered]

It’s happening just as warnedJanet Fletcher at the Los Angeles Times reports:

…cheese counters could soon be a lot less aromatic, with several popular cheeses falling victim to a more zealous U.S. Food and Drug Administration. Roquefort — France’s top-selling blue — is in the agency’s cross hairs along with raw-milk versions of Morbier, St. Nectaire and Tomme de Savoie. …

Of course, French creameries haven’t changed their recipes for any of these classic cheeses. But their wheels are flunking now because the FDA has drastically cut allowances for a typically harmless bacterium by a factor of 10.

The new rules have resulted in holds even on super-safe Parmigiano Reggiano, and the risk of losing a costly shipment of a perishable commodity is likely to be enough to drive many European producers out of the market for export to America entirely. Highly praised artisanal cheese makers in the United States are facing shutdown as well.

Earlier on the FDA and cheese regulation in this space here (predictions before the Food Safety Modernization Act of 2010, or FSMA, passed) and at Overlawyered hereherehere, etc.

They told us this administration was going to be run by wine-and-cheese liberals. Now where are they when they could do us some good?

Auto Dealers Attempt to Ban Tesla from Georgia

Rather than selling cars through independent dealers, the upstart electric car maker Tesla sells its automobiles directly to consumers. However, many states prohibit direct auto sales, thanks to laws from the mid-20th century that ostensibly were intended to protect dealers from automakers’ market power. The need for that protection was questionable when the laws and regulations were adopted and are even more dubious in today’s highly competitive auto market. But they are especially inappropriate when applied to a small new automaker that solely wants to engage in direct sales.

This week, the Georgia Automobile Dealers Association filed a petition with the state’s Department of Revenue in an attempt to bar further sales of Tesla sedans. Such battles have erupted in numerous states, from Missouri to New Jersey. In the latest issue of Regulation, University of Michigan Law professor Daniel Crane argues that dealer distribution restrictions are based on faulty ideas of consumer protection. Traditional dealers claim that competition among a brand’s dealers prevents the manufacturer from “gouging” consumers and extracting monopoly profits. Crane argues that standard economic theory demonstrates that these claims are nonsense. Firms with market power will be able to claim monopoly profits, regardless of whether middlemen, such as dealerships, are involved.

Moreover, by restricting competition among business models for auto sales, laws such as those in Georgia stifle competition among automakers. When companies such as Tesla seek to lower costs through innovative business designs, they face costly regulatory hurdles and legal challenges such as the sales ban in Georgia. These laws protect existing dealers and hurt consumers.

Savings and the Decline of Small Business Entry

A recent paper from the Brookings Institute raises an important observation that businesses are “becoming older,” that is, the age profile of American business is increasingly dominated by older firms.  One reason is that the entry rate of new businesses has been steadily declining for decades. 

While this decline has been witnessed across firm size, it has been most dramatic among small firms.  One potential contributor to the decline in new small businesses is the long run decline in the personal savings rate.  According to the Census Bureau’s Survey of Business Owners, the number one, by a long shot, source of capital for new businesses is the personal savings of the owner.  For firms with employees, about 72 percent relied upon personal/family savings for start-up capital.  The other dominate sources of capital, credit cards and home equity, were much less frequently used.  Recent legislative changes (2009 Card Act) and a volatile housing market have made those sources less reliable in recent years.

The chart below compares the trend in entry rates for new business establishments with less than five employees with the personal savings rate.  The correlation between the two is 0.62.  While both the decline in business entry and savings are likely driven by common macroeconomic factors, it seems plausible that if households have fewer saving, they are also less likely to be able to start a business.  My preferred response would be to eliminate policies, such as those in the tax code or current monetary policy, which penalize savings.  I suspect others might have different suggestions.

The D.C. Circuit Grants En Banc Review of Halbig

My reaction to the D.C. Circuit’s decision to grant en banc review of Halbig v. Burwell in a nutshell:

  1. It is unnecessary.
  2. It is unwise.
  3. It is unfortunate.
  4. It appears political, as would a decision to overrule Halbig.
  5. It will likely only delay Supreme Court review.
  6. En banc review does not necessarily mean the court will overturn Halbig, though it doesn’t look good.
  7. I predict that even if the court overturns Halbig, the Obama administration will lose ground.
  8. The D.C. Circuit will not have the last word.

If you want to go outside the nutshell, where I unpack all this with more words and facts and links, go here