Tag: consumer protection

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.”

Congress Begins Conference on Financial Regulation

Today begins the televised political theatre that Barney Frank has been waiting months for:  the first public meeting of the House and Senate conferees on the two financial regulation bills.  While there are a handful of important differences between the House and Senate bills, these differences are overshadowed by what the bills have in common.  The most important, and tragic, commonality is that both bills ignore the real causes of the financial crisis and focus on convenient political targets.

As our financial system was brought to its knees by an exploding housing bubble, fueled by government mandates and distortions, one would think, just maybe, that Congress would roll back these distortions.  Despite their role in contributing to the crisis and the size of their bailout, however, neither bill barely mentions Fannie Mae and Freddie Mac.   Except, of course, to continue their favored and privileged status, such as their exemption from a proposed new “consumer protection” agency.  What we really need is a new “taxpayer protection” agency.

Nor will either bill change the government’s meddling in what is probably the most important price in the economy:  the interest rate.  Given the overwhelming evidence that loose monetary policy was a direct cause of the housing bubble, one might expect Congress to spend time and effort preventing the Fed from creating another bubble.  Not only does Congress ignore the issue, the Senate won’t even allow GAO to look at the Fed’s conduct of monetary policy.

Instead of spending the next few weeks gazing into the camera, Congress should stop and gaze into the mirror.  This was a crisis conceived and born in Washington DC.  The Rayburn building serving as the proverbial back-seat of the housing bubble.

Should We Break Up the Banks?

When it comes to banking policy, there are few people I respect more than Jonathan Macey and Arnold Kling; so when these two, independently, argue that we should be breaking up the largest banks, it is idea that merits consideration.  Yet I still have my doubts.

First, lets start with what we are fairly certain of.  There is a large empirical literature that suggest most US mega-banks are beyond their efficient size.  There is a good survey of the literature by former Fed Economist Allen Berger .  So, at a minimum, the academic literature suggests the largest banks are beyond a size that is justified by the social benefits.

However, there is also a small literature that suggests more concentrated banking systems are more stable, and less prone to crisis.  Some of this literature has grown out of research efforts by the World Bank.  While this literature is largely cross-country comparisons, recalling our own banking history gives several examples - the savings & loan crisis, the mass of small banks failures in the 1920s and 1930s, and current day Georgia - where lots of small bank failures have been associated with significant economic damage.  So, at minimum, there is some question of whether breaking up the largest banks would give us a more stable, less crisis-prone system.  In fact, there is considerable evidence to suggest that breaking up the banks would make our financial system more fragile.

To some extent, the debate over breaking up the large banks is about reducing political power.  The argument is that, because of their vast resources, these large banks unduly influence and capture our political system.  Undoubtedly, I believe the largest banks have substantial influence over both our legislative and regulatory systems.  However, so do smaller banks.  From my seven years as staff on the Senate Banking Committee, I would definitely argue that the Independent Community Banks Association (ICBA), as a group, has far more pull than does say Bank of America, as a single company.  One need only witness the various exemptions for small banks in the Dodd bill, for instance from the consumer protection bureau, to illustrate the lobbying power of small bankers.  One could also argue that the economic history of progressive era legislation, like the Sherman Act, is one of smaller, organized interests winning against larger sized firms.  Despite its appeal, the assertion that bigger is always better in politics is just an assertion.  Yet this is at heart an empirical argument, and perhaps one that can be tested.  Until then, I still have my doubts.

The Negative Feedback Loop Begins

I wrote on the Tech Liberation Front blog a couple of months ago about the shady practice among a few Internet retailers of handing off customers who accept a “special offer” to a company that charges people a monthly fee for some kind of credit monitoring service. And I argued hopefully that maybe technologists and the Internet community could generate a response to this problem:

Being a smart, informed, and aggressive consumer is each person’s responsibility if a free market is to operate well. The alternative is a negative feedback loop in which government authorities protect us, we rely on that protection and stop policing retailers. Thereby we abandon the field of consumer protection to government authorities, who—try as they might—can never do as good a job for us as we can for ourselves.

The Senate Commerce Committee is having a hearing today on “Aggressive Sales Tactics on the Internet and Their Impact on American Consumers.”

Health Care - One Way to Reduce Costs

In a debate with Larry McNeely in the L.A. Times, Cato’s Michael Cannon suggested “eliminating barriers to competition by nurse practitioners and other mid-level clinicians.”

McNeely responded, “By ending all state licensing and monitoring of physicians…not only qualified nurses but also any quack with a scalpel and some drugs would be able to set up a shingle, call himself a doctor and start cutting.”

Does McNeely pick his doctors at random? How does he know his cardiologist has any relevant experience or training? Licensing creates the impression that all licensed physicians are adequate. Not true. Ask any medical malpractice insurance underwriter.

A state medical license does not restrict a physician’s practice to any particular specialty. If McNeely wants information about a medical professional, he will have to look elsewhere.

State regulation of medical professionals does not insure quality, but does limit access to care and make health care more expensive. Not all audiologists or advanced practice nurses need a doctorate. Physician assistants and advanced practice nurses have been shown to be fully capable of taking over the majority of primary care, yet many states restrict their scope of practice.

McNeely has faith in state licensing and monitoring of physicians that can’t be substantiated with facts. The majority of consumer protection comes from non-governmental entities. Consumers are protected by the annual evaluation and continuing oversight of medical professionals by hospitals, managed care organizations, and medical malpractice insurance underwriters. Malpractice underwriters verify a physician’s training and experience, limit what risky doctors can do, penalize physicians for negligent behavior, reward risk management, and go so far as to assess whether specific equipment and techniques are up-to-date). Consumers are also protected by brand name (as with hospital chains and retail clinics). Private organizations and boards offer certification of education and experience.

More than 80 percent of physicians in the U.S. are specialty board certified; a variety of national organizations certify physician assistants, advanced practice nurses, and other medical professionals.

Does the Left Know We Had a Housing Bubble?

Over the last week, speaking at a variety of events, I heard three different representatives of the Left; first a Democrat US Senator, then a senior member of the Obama Administration, and finally a “consumer” advocate, all repeat the same narrative:  all was fine in the housing market until predatory lenders forced hard-working honest families into foreclosure, which reduced house prices, bringing the economy to a crash.  That’s correct, apparently the Left believes we all would still be seeing double-digit home price appreciation if it wasn’t for those evil lenders.

Undoubtedly foreclosures, especially those that result in houses that remain vacant for a considerable amount of time, have an adverse impact on surrounding property values.  Many constitute a serious eye-sore and provide a haven for criminal activity.  But did foreclosures really drive down prices, or were foreclosures first driven by price declines resulting from a bursting housing bubble?  While causality is always difficult to establish with certainty, we do know that the rate of house price appreciation peaked and started declining about 18 months before the dramatic up-turn in mortgage delinquencies.  If one prefers a more rigorous test, economists at the Boston Fed have directly tested if prices first drove foreclosures or whether foreclosures drove prices.  Their results conclude that its was declining prices that matter, and that the price effect of foreclosures is minimal.

Why does any of this ultimately matter?  Because if we craft policies to avoid the adverse impacts of the next property bubble based upon a narrative of “consumer protection” – as is being pushed by the Obama Administration, we will do little to avoid the creation of the next housing bubble and its damaging aftermath.  Instead we should be focusing attention on those policies that contributed to the creation of the housing bubble: expansionary monetary policy and the Federal government’s blind pursuit of ever-expanding home-ownership rates at any cost.