Tag: regulation

Another Lesson from Bastiat: So-Called Employment Protection Legislation Is Bad News for Workers

Frederic Bastiat, the great French economist (yes, such creatures used to exist) from the 1800s, famously observed that a good economist always considers both the “seen” and “unseen” consequences of any action.

A sloppy economist looks at the recipients of government programs and declares that the economy will be stimulated by this additional money that is easily seen, whereas a good economist recognizes that the government can’t redistribute money without doing unseen damage by first taxing or borrowing it from the private sector.

A sloppy economist looks at bailouts and declares that the economy will be stronger because the inefficient firms that stay in business are easily seen, whereas a good economist recognizes that such policies imposes considerable unseen damage by promoting moral hazard and undermining the efficient allocation of labor and capital.

We now have another example to add to our list. Many European nations have “social protection” laws that are designed to shield people from the supposed harshness of capitalism. And part of this approach is so-called Employment Protection Legislation, which ostensibly protects workers by, for instance, making layoffs very difficult.

New In the Summer Issue of Regulation

The latest issue of Regulation magazine has been released on the Cato website.

The cover article, by Christopher Robertson and Jamie Cox Robertson of the University of Arizona, examines the extent of over incarceration in the U.S.  Why are so many innocent people convicted of crimes? They review recent scholarship that concludes that many types of evidence introduced by prosecutors to convince jurors of guilt, such as bite mark, fingerprint, and bullet analysis, are not scientifically reliable. The authors suggest various remedies to the wasteful incarceration problem including public rewards for attorneys who demonstrate that a prisoner should be released.

Researchers John Lott and Gary Mauser explore empirical research on firearms. They found that the findings of such research vary systematically with the disciplinary orientation of the authors.  A large majority of articles written by economists find that expanded legal access to firearms reduces crime and does not increase the suicide rate, and that gun owners who are approved for concealed-carry are less likely to commit crimes than ordinary Americans. In contrast Criminologists were more evenly divided on these questions.

Two articles critique regulatory rationales rooted in behavioral economics. In Infantilization by Regulation law professors Jonathan Klick and Greg Mitchell argue that protecting people from the effects of their choices reduces their ability to think critically about them.  Georgetown ethics professor John Hasnas explores how much liberty is preserved under modern “libertarian paternalism.” He then asks whether the insights of behavioral economics apply to public decisions, argues yes, and concludes that U.S. Constitution is an excellent example of choice architecture.

One of the most discussed topics in higher education policy is the rate of inflation in university tuition. Top William and Mary economists find empirical evidence that highly selective schools reduce financial aid to students who receive federal tuition support.

In our Briefly Noted articles economist Ike Brannon argues that cities harm transit riders by over-providing subsidized parking near street corners. Brannon and the American Action Forum’s Sam Batkins question whether expanded family leave policies would harm workers. University of California, Irvine emeritus professor Richard McKenzie shares the results of his survey that found servers at fast-casual restaurants would not support substituting higher hourly wages for the current tipped-wage system. Finally, University of Michigan professor Thomas Hemphill lays out a practical approach to reforming occupational licensing laws.

Book reviews include Free Market Environmentalism reviewed by Timothy Brennan, Robert Reich’s Saving Capitalism and Robert Gordon’s The Rise and Fall of American Growth reviewed by David R. Henderson, and Phil Murray’s review of Dani Rodrik’s Economics Rules.

 

My Working Papers column describes papers on cigarette taxes and food stamps, e-cigarettes and adolescent smoking, corporate inversions, and public housing and crime.

Philadelphia’s Soda Tax

The Philadelphia City Council has voted to become the second city in the United States to impose a tax on the sale of particular types of sweetened beverages. The tax applies to sugared soda, diet soda, sports drinks and more, while excluding drinks that are more than half milk or fruit, as well as drinks to which sugar is added such as coffee. The tax will be 1.5 cents per ounce, amounting to 18 cents per standard size can of soda or $1 per two-liter bottle.

Public health advocates often propose taxes on sugary drinks, colloquially known as “soda taxes,” as a means of improving public health outcomes. They argue that such beverages disproportionately cause obesity and that consumers of sugary beverages impose external costs on others through higher medical costs associated with obesity.

The evidence supporting the disproportionate effect of sugar beverages on obesity is not powerful.  An article in Obesity Review concluded, “The current evidence does not demonstrate conclusively that nutritively sweetened beverage consumption has uniquely contributed to obesity or that reducing NSB consumption will reduce BMI levels in general.” 

And the externalities of the obese also appear to be minimal.  “The existing literature … suggests that obese people on average do bear the costs and benefits of their eating and exercise habits.”

But for purposes of discussion assume that consumption of such beverages does result in obesity and its health effects, which, in turn, create costs for others.  Are the taxes a good corrective?

Crazy Law Allows “Discounts” for Cash but Not “Surcharges” for Credit

In Federalist 10, James Madison warned of “a number of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens or to the permanent and aggregate interests of the community.” These groups—“factions” in Madison’s terms—come together to seek concentrated benefits from favorable legislation and regulation rather than competing in the marketplace, while spreading the costs throughout society.

While Madison conceded that such interests could not be stopped completely, he acknowledged that certain steps could be taken to mitigate the “effects” of these groups, and the damage that they can do to the public interest. The First Amendment is one such protection. The New York legislature, however, ignored the First Amendment rights of both merchants and consumers when—at the behest of the credit-card lobby—it passed a law restricting how retailers can convey pricing schemes, as well as the public’s right to know about them. 

New York’s no-surcharge law—like those in 10 other states—insulate credit-card companies from consumer knowledge about who is actually causing the higher prices on goods when they use their credit card (“swipe fees”). The law does this not by restricting the merchants’ ability to charge different prices as between cash and credit payments—that’s legal everywhere—but by regulating the communications regarding the different prices.

To put it simply: the law allows merchants to offer “discounts” to cash-paying customers, but makes it a crime to impose economically equivalent “surcharges” on those who use plastic. By mandating how these merchants convey their pricing structure, New York is restricting speech on the basis of its content, which would seem to be an obvious First Amendment violation.

A federal district court agreed—as have two other federal courts, including the U.S. Court of Appeals for the Eleventh Circuit when it struck down a similar Florida law. The district court held that the law “plainly regulates speech”—not conduct—by drawing a line between prohibited “surcharges” and permissible “discounts” based solely on words and labels. The Second Circuit disagreed, however, holding that the law regulates “merely prices,” not speech.

Cato has now filed an amicus brief urging the Supreme Court to take up this important case and rule that collusion between business interests and state government can’t be used to circumvent constitutional rights. Indeed, the Framers sought to protect speech from the type of crony capitalism New York’s no-surcharge law manifests. We also argue that the Court should clarify that the First Amendment covers speech even if it involves commercial matters. When legislatures abridge these protections, judges should apply the highest form of scrutiny to these laws rather than limply deferring to majoritarian will. 

The Supreme Court will decide later this month, or possibly this fall, whether to take up Expressions Hair Design v. Scheniderman.

Thanks to former Cato legal intern Frank Garrison, who’ll be starting as a legal associate later this summer, for help with this brief.

More Mixed Results from Louisiana’s Highly Regulated Voucher Program

New research on Louisiana’s voucher program revealed mixed resultsYesterday, the Education Research Alliance for New Orleans (Tulane University) and the School Choice Demonstration Project (the University of Arkansas) released four new reports examining the Louisiana Scholarship Program’s impact on participating students’ test performance and non-cognitive skills, level of racial segregation statewide, and the effect of competition on district-school students. Here are the key findings:

  • Students who use the voucher to enroll in private schools end up with much lower math achievement than they would have otherwise, losing as much as 13 percentile points on the state standardized test, after two years. Reading outcomes are also lower for voucher users, although these are not statistically different from the experimental control group in the second year.
  • There is no evidence that the Louisiana Scholarship Program has positive or negative effects on students’ non-cognitive skills, such as “grit” and political tolerance.
  • The program reduced the level of racial segregation in the state. The vast majority of the recipients are black students who left schools with student populations that were disproportionally black relative to the broader community and moved to private schools that had somewhat larger white populations.
  • The program may have modestly increased academic performance in public schools, consistent with the theory behind school vouchers that they create competition between public and private schools that “lifts all boats.” [Emphasis added.]

The positive impact on racial integration and evidence that competition improved district-school student performance are both positive signs, but the significant negative impact on the performance of participating students is troubling. (Ironically, the evidence suggests that the voucher program may have improved the performance of non-voucher students more than the voucher students.) That said, although the impact on student performance is negative, the second year results show improvement over the first year. 

How to Dissuade Congressional Action

A recent Cato policy forum on European over-regulation took an unexpected turn when my friend and colleague Richard Rahn suggested that falling prices and increasing availability of writing paper may have been responsible for increasing the number and length of our laws and regulations. (Dodd-Frank is longer than the King James’ Bible, to give just one obvious example.)

Goodness knows what will happen when new legislation stops being printed on writing paper and starts appearing only on the internet. (I never read Apple’s “terms and conditions,” do you?)

Anyhow, Richard’s hypothesis will soon be put to the test in Great Britain, where the lawmakers have just decided to stop writing the Acts of Parliament on calfskin – a tradition dating back to the Magna Carta – and use paper instead. Will the length of British laws increase, as Rahn’s hypothesis predicts? We shall see.

In the meantime, Americans remain stuck with a Niagara Falls of laws and regulations that our lawmakers generate every year. Many distinguished scholars have wondered how to slow our Capitol Hill busybodies down a little. The great Jim Buchanan had some good ideas, but the most effective, if not harshest, means of preventing over-regulation was surely developed by the Locrians in the 7th century BC.

As Edward Gibbon narrates in The History of the Decline and Fall of the Roman Empire, “A Locrian who proposed any new law, stood forth in the assembly of the people with a cord round his neck, and if the law was rejected, the innovator was instantly strangled.” (Vol. IV, chapter XLI; V pp. 783–4 in volume 2 of the Penguin edition.)

Ours is, of course, an enlightened Republic, not an iron-age Greek settlement on the southern tip of Italy. The life and limb of our elected officials must, therefore, remain safe. But, what if instead of physical destruction, a failed legislative proposal resulted in, so to speak, “political death?” What if the Congressman or Senator, whose name appeared on a bill that failed to pass through Congress, were prevented from running for reelection after their term in office came to an end? 

Just a happy thought before the weekend.

Proposed Stricter OSHA Regulations on Airborne Silica Exposure Seem Needless

The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) is soon set to release new exposure limits to air-borne silica dust. The rulemaking has been in the works for about three years with a final rule scheduled to be announced this year. The silica industry is not enthused.

Silica dust is known to cause respiratory illnesses (e.g., silicosis, lung cancer, other airways diseases) that may contribute to or lead directly to death when it is breathed in high enough concentrations over long enough time periods.

OSHA explains that exposure to respirable silica “occurs in operations involving cutting, sawing, drilling and crushing of concrete, brick, block and other stone products and in operations using sand products, such as in glass manufacturing, foundries and sand blasting.”

OSHA’s proposal, generally, is to lower the existing permissible exposure limits (adopted in 1971) by about 50%, dropping them from around 0.1mg/m3  to 0.05mg/m3 (specific details here). OSHA explains:

The agency currently enforces 40-year-old permissible exposure limits (PELs) for crystalline silica in general industry, construction and shipyards that are outdated, inconsistent between industries and do not adequately protect worker health. The proposed rule brings protections into the 21st century.

And, as the government likes to claim with all of its regulations, the added restrictions will save lots of lives, and in doing so, will save lots of money:

OSHA estimates that the proposed rule will save nearly 700 lives and prevent 1,600 new cases of silicosis per year once the full effects of the rule are realized.

The proposed rule is estimated to provide average net benefits of about $2.8 to $4.7 billion annually over the next 60 years.

Interestingly, a visit to the Centers for Disease Control in search of deaths from silica inhalation produces this chart graphing silicosis mortality over time. The numbers have dropped considerably over the past 40+ years, and by 2010 had fallen to about 100 or so deaths per year (U.S. residents over the age of 15) attributed to silicosis as either the underlying or contributing cause.

Figure 1. Silicosis: Number of deaths, crude and age-adjusted death rates, U.S. residents age 15 and over, 1968–2010 (Source: CDC).

Figure 1. Silicosis: Number of deaths, crude and age-adjusted death rates, U.S. residents age 15 and over, 1968–2010 (Source: CDC).

The CDC data shows that silicosis deaths have been declining and although the decline has slowed, it continues to drop while under the current OSHA guidelines. And further, the 100 or so deaths that are occurring annually are several times less than the annual number of deaths that OSHA predicts will be saved by the new regulations. That’s a pretty neat trick—the new regs are going to save several times more lives than are actually lost!

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