Archives: 10/2014

How The Supreme Court Can Stop Consumers From Getting Ripped Off

Today, the Supreme Court hears a case about whether dentists and other professions should be allowed to use state licensing boards to engage in anti-competitive behavior that would be illegal if not done under the auspices of state governments. The case is North Carolina State Board of Dental Examiners v. FTC, and involves actions taken by that state’s dental board to prevent non-dentists from providing teeth-whitening services.

In the University of Pennsylvania Law Review, Cato Institute adjunct scholars David Hyman and Shirley Svorny explain:

A majority of the courts of appeals gives state licensing boards and similar entities considerable latitude to engage in anticompetitive conduct, even when that conduct would be clearly unlawful were it undertaken individually by the licensed providers that typically dominate these licensing boards…

[T]he North Carolina Board of Dental Examiners (N.C. Board) became concerned that non-dentists were providing teeth whitening services. In North Carolina, teeth-whitening was available from dentists, either in-office or in take-home form; as an over-the-counter product; and from non-dentists in salons, malls, and other locations. The version provided by dentists was more powerful and required fewer treatments, but was significantly more expensive and less convenient. In response to complaints by dentists that non-dentists were providing lower-cost teeth-whitening services, the N.C. Board sent dozens of stern letters to non-dentists, asserting that the recipients were engaged in the unlicensed practice of dentistry, ordering them to cease and desist, and, in some of the letters, raising the prospect of criminal sanctions if they did not do so. The N.C. Board also sent letters to mall owners and operators, urging them not to lease space to non-dentist providers of teeth whitening services.

The Supreme Court will decide whether the North Carolina dental board should be able to claim a “state action” exemption to federal laws against anti-competitive conduct. Hyman and Svorny argue they should not, noting that doctors, lawyers, and other professions have used government licensing to stamp out competition, to the detriment of consumers:

Other occupations provide no shortage of similar examples, whether it is states requiring hair braiders to obtain cosmetology licenses (even though the requisite training has absolutely nothing to do with hair braiding), laws prohibiting anyone other than licensed funeral directors from selling coffins, states prohibiting anyone other than veterinarians from “floating” horse teeth, or ethics rules prohibiting client poaching by music teachers. 

“Antitrust has historically focused on private restraints on competition, but publicly imposed limitations can pose greater peril,” they write, “since they are likely to be both more effective and more durable.”

Hyman and Svorny make three further recommendations for the courts:

First, in reviewing the decisions of licensing boards, courts should presume that states were not actively supervising the boards, absent compelling evidence to the contrary. Second, defendant–licensing boards should be required to present persuasive evidence of actual harm that their proposed licensing restrictions or restraints will prevent and should be required to show that private market and non-regulatory forces (including brand names, private certification, credentialing, and liability) are insufficient to ensure that occupations maintain a requisite level of quality. Finally, we argue that legislators should take steps to roll back existing licensing regimes.

Hyman signed onto an amicus brief filed by antitrust scholars. (Here are two more amicus briefs filed by public-choice economists and the Cato Institute.) Svorny argues for the complete repeal of government licensing of medical professionals, and illustrates how the market for medical-malpractice liability insurance does more to promote health care quality than licensing

(Cross-posted at Darwin’s Fool.)

Greg Abbott Tells Fifth Circuit Court That Gay Marriage Won’t Stop Heterosexual Irresponsibility

In a brief filed to the Fifth Circuit Court of Appeals on Friday, Texas attorney general Greg Abbott says that the state’s gay marriage ban may help to reduce out-of-wedlock births:

Texas’s marriage laws are rationally related to the State’s interest in reducing unplanned out-of-wedlock births. By channeling procreative heterosexual intercourse into marriage, Texas’s marriage laws reduce unplanned out-of-wedlock births and the costs that those births impose on society. Recognizing same-sex marriage does not advance this interest because same-sex unions do not result in pregnancy.

As I’ve written before, this is a remarkably confused argument. There are costs to out-of-wedlock births. Too many children grow up without two parents and are less likely to graduate from high school, less likely to find stable jobs, and more likely to engage in crime and welfare dependency. All real problems. Which have nothing to do with bans on same-sex marriage. One thing gay couples are not doing is filling the world with fatherless children. Indeed, it’s hard to imagine that allowing more people to make the emotional and financial commitments of marriage could cause family breakdown or welfare spending.

The brief repeatedly says that “same-sex marriage fails to advance the State’s interest in reducing unplanned out-of-wedlock births.” Well, that may be true. But lots of state policies fail to advance that particular interest, from hunting licenses to corporate welfare. Presumably Abbott doesn’t oppose them because they don’t serve that particular purpose.

The brief does note that same-sex marriage may very well produce other societal benefits, such as increasing household wealth or providing a stable environment for children raised by same-sex couples [or] increasing adoptions.” But the attorney general wants to hang the state’s ten-gallon hat on the point that it won’t reduce out-of-wedlock births by opposite-sex couples.

In a previous case, Judge Richard Posner declared that the states of Indiana and Wisconsin had not produced any rational basis for banning gay marriage. Attorney General Abbott seems determined to prove him right.

Falling Oil Prices Put Producers Between a Rock and a Hard Place

Over the last few months, the price of Brent crude oil lost over 20% of its value, dropping below $90 just yesterday and hitting its lowest level in over two years. In consequence, oil producers will no longer be able to rely on oil revenues to pay their bills. The fiscal break-even price – a metric that determines the price per barrel of oil required for a nation to balance its budget at current levels of production – puts the problem into perspective.

Using data from Bloomberg and Deutsche Bank, I prepared a chart showing the break-even prices for the world’s major oil producers and the price on Brent crude. Over the past six months, Brent crude fell far below the break-even price for eleven of the top oil producers in the world; Iran, Venezuela, Nigeria, and even Saudi Arabia can no longer finance their governments’ largess through oil revenues.

The combination of oil markets flying into a perfect storm and excessive government spending puts most of the world’s oil producers between a rock and a hard place, where they will stay for some time.

Newsweek: Back in Print, Confused as Ever

Dumb arguments against libertarianism are increasing, as guardians of the expansive state begin to worry that the country might actually be trending in a libertarian direction. This may not be the dumbest, but as Nick Gillespie said of a different argument two weeks ago, it’s the most recent:

‘You Ready to Step Up?’

The deadly drug war in Long Island’s Hempstead ghetto is a harrowing example of free-market, laissez-faire capitalism, with a heavy dose of TEC-9s
To be fair, author Kevin Deutsch never uses the terms “laissez-faire” or “free-market” in his detailed article, so we should probably direct our disdain at Newsweek’s headline writers. Deutsch does portray the second-ranking guy in the Hempstead Crips as a businessman seeking to “recruit talent, maximize profits and expand their customer base.” But even the drug dealer gets the difference between selling prohibited substances and doing business in a free market:
“We’re looking to market, sell and profit off drugs the way any business would handle their product,” Tony says. “Only our product is illegal, so more precautions need to be taken. It’s all systematic and planned, all the positions and responsibilities and assignments. All of that’s part of our business strategy. It’s usually real smooth and quiet, because that’s the best environment for us to make bank. But now, we at war, man. Ain’t nothing quiet these days.”
Deutsch describes the competition between the local Crips and Bloods in terms not usually seen in articles about, say, Apple and Microsoft or Ford and Toyota:
As for strategies, they seem to have settled on a war of attrition, aiming to kill or maim as many of their enemies as possible….
 
They’re far better armed and willing to use violence than the smaller neighborhood cliques scattered throughout Nassau County….
 
They’re also able to keep out other competitors through use of brute force….
 
It’s one of hundreds of similar conflicts being fought by Bloods and Crips sets throughout the country. These battles breed shootings, stabbings and robberies in gang-plagued, low-income neighborhoods each day. 
These are, of course, just the sorts of consequences that libertarians and economists expect from prohibition. As Tim Lynch and I wrote in the Cato Handbook on Policy a decade ago,

drug prohibition creates high levels of crime. Addicts commit crimes to pay for a habit that would be easily affordable if it were legal. Police sources have estimated that as much as half the property crime in some major cities is committed by drug users. More dramatic, because drugs are illegal, participants in the drug trade cannot go to court to settle disputes, whether between buyer and seller or between rival sellers. When black-market contracts are breached, the result is often some form of violent sanction, which usually leads to retaliation and then open warfare in the streets.

Jeffrey Miron of Harvard’s economics department and Cato made similar points in his book Drug War Crimes, as have such economists as Milton Friedman and Gary Becker. Miron also noted that prohibition drives up the prices of illegal drugs, making the trade attractive to people with a high tolerance for risk. And so in that sense, it’s true that some people will usually enter the prohibited trade – in alcohol, gambling, prostitution, crack, or whatever – and will employ some techniques that are also used in normal business enterprises. As Tyler Cowen says, there are markets in everything. Given our natural propensity to truck, barter, and exchange in order to improve our own situation, we can expect people to step into any trade, prohibited or not. Better that such trade should take place legally, within the rule of law, than underground, where violence may be the only recourse in disputes.

When the government bans the use and sale of a substance, and imprisons hundreds of thousands of people in an attempt to enforce that prohibition, that’s not “laissez-faire, free-market capitalism.” Duh. 

China’s Curious Restraint

Beijing’s behavior on the international stage over the past few months has been surprisingly restrained—in marked contrast to an earlier, lengthy period of assertive, if not abrasive, conduct toward its neighbors. Not too long ago, policymakers in the United States and throughout East Asia were alarmed by China’s initiatives. Beijing’s territorial claims in the South China Sea were breathtakingly broad, leading to nasty incidents with the Philippines, Vietnam, and other nations.  Even worse were the confrontations between China and Japan over islands in the East China Sea, along with Beijing’s unilateral proclamation of an extensive Air Defense Identification Zone in that same area, which led to a surge of tensions with Japan, South Korea, and the United States.

Two developments illustrate the new, less confrontational trend in China’s policy. One is Beijing’s concerted diplomatic courtship of such countries as South Korea, Vietnam, and Sri Lanka. As I discuss in a recent article in China-U.S. Focus, even such longstanding rivals as Japan and India have been recipients of this Chinese “charm offensive.” 

The other sign of uncharacteristic restraint is Beijing’s handling of the ongoing pro-democracy demonstrations in Hong Kong. True, there are indications that the Chinese government may have organized and paid for counterdemonstrators to confront and harass democracy activists.  But, at least to this point, there is no indication that Xi Jinping’s government intends to intervene directly with its security forces, much less trigger a bloodbath reminiscent of the 1989 Tiananmen Square massacre. Instead, Beijing has allowed its appointed authorities in Hong Kong to manage the turbulence.  

That is a smart move because the United States and the nations of East Asia are closely watching how the Chinese government handles the democratic ferment in Hong Kong. Taiwan is an especially interested spectator, and if Beijing wants to preserve the possibility of the island’s eventual return to the Chinese fold, a brutal crackdown in Hong Kong would doom those hopes for a generation or more. Conversely, the toleration of even limited moves toward free elections for Hong Kong’s leadership would increase the chances of seducing Taiwan regarding the desirability of gradual re-unification. It appears that Xi and his associates may understand that.

Of course, further developments bear close watching, since they could move quickly in an undesirable direction. It is possible that Beijing’s more conciliatory stance toward its Asian neighbors and its restraint regarding Hong Kong is merely a temporary tactical shift, and that we will soon see a return to a bold, confrontational approach. But if the current restraint instead is the harbinger of a more cautious, cooperative policy over the long term on geopolitical issues, China would become easier to accommodate as a rising great power. That would be good for the peace and security of East Asia and for harmonious relations between Beijing and Washington.

Governor Brownback’s Tax Cuts

Kansas Gov. Sam Brownback (R) has become a punching bag for liberal pundits. They particularly dislike his tax reforms, which they say are causing a state budget disaster. Nicole Kaeding and I awarded Brownback an “A” on our “Fiscal Report Card.” So let’s take a look at how liberal and libertarian views on Governor Brownback differ.

John Judis at the New Republic writes, “the heart of his program consisted of drastic tax cuts for the wealthy…”

Brownback did sign into law large tax cuts, but that is a good thing. Legislation in 2012 replaced income tax rates of 3.5, 6.25, and 6.45 percent with lower rates of 3.0 and 4.9 percent, while substantially increasing the standard deduction. Those cuts provided savings for taxpayers at all income levels, not just the wealthy. 

Judis continues, “Brownback’s tax cuts had produced a staggering loss in revenue—$687 million, or nearly 11 percent.” Tax Foundation shows the revenue effects of 2012 and 2013 tax legislation here. Judis gets the numbers about right, but I don’t think that magnitude of revenue change is “staggering.” In 2011, Gov. Dan Malloy (D) increased overall Connecticut taxes about 15 percent. That same year, Gov. Pat Quinn (D) increased overall Illinois taxes about 25 percent—now that is “staggering.” (Details on both increases here).

The important thing with tax cuts is that politicians need to match them with spending cuts so they are sustainable. Brownback has been frugal on spending, but it is true that Kansas needs further budget reforms so that future spending growth matches projected revenues. However, that restraint will be beneficial, as it will encourage policymakers to trim low-value programs in the budget.

Paul Krugman slammed Brownback’s tax cuts, saying, “the state’s budget has plunged deep into deficit, provoking a Moody’s downgrade of its debt.”

One problem with that assessment is that state budgets don’t really “plunge deep into deficit” like the federal budget does. Nearly all states must legally balance their general funds. They often cheat a bit with accounting maneuvers, but they generally get it done.