Tag: regulation

Bubbles, Uncertainty, and QE2

Within the Federal Reserve System, there is a tug of war over QE2 (2nd Quantitative Easing).  Some, mostly outside the system, are calling for $1 trillion-plus purchases of long-term bonds.  Within the Fed, there is little taste for purchases that large. I expect a compromise, with an initial purchase perhaps as low as $100 billion.

There is widespread doubt as to the efficacy of further purchases of long-term bonds. They will supply additional liquidity, but liquidity isn’t what is needed. Businesses and banks are suffering from fear and uncertainty: new taxes, new regulations, new mandates, and, for financial services, the uncertainty of the Dodd-Frank banking bill. 

Lower interest rates on long-term bonds will do nothing to diminish fear and uncertainty. Instead, QE2 will further inflate the bond bubble and the commodities bubbles.

Competing Naïvetés: How to Produce a Privacy-Protective Society

My Economist.com debate on whether governments should “do far more to protect online privacy” has now concluded. The vote on the motion went to my opponent, supporting government involvement by a margin of 52 to 48 percent.

I won a moral victory, perhaps, moving the vote from 70 percent in favor of government intervention to the very close ending tally. My commentary highlighting the substantial role of government in undermining privacy seems to have begun moving the dial in my direction.

A pleasant side-effect of the debate was to open lines of communication with a number of my privacy-advocate colleagues, many of whom do not share my libertarian outlook. One called me naïve to think consumers can successfully demand privacy given the imposing wall of corporate practices that rely on intensive and comprehensive data collection.

Full health privacy, for example, would require a marketplace in which consumers can pay cash for services or demand that information about their treatments not be shared. It is illegal for a pharmacy to fill a prescription without identifying the patient apparently, a requirement that sets up the conditions for nationwide tracking of patients’ medicines and, inferentially, their health conditions.

This prescription tracking is facilitated and reinforced by government regulation, of course. Consumers cannot exercise privacy self-help when the law requires pharmacies to collect information about them. Freedom to pay cash for medicines, and to do so unidentified, is at best a long way off, to be sure.

But I had suggested the naïveté of the pro-government view as well:

The arguments for government control certainly seem to rest on good-hearted premises: if we just elect the right people, and if they just do the right thing, then we can have a cadre of public-spirited civil servants dispassionately carrying out a neutral, effective privacy-protection regime.

But this romantic vision of government seems never to come true. Crass political dealmaking inhabits every step, from the financing of elections, to logrolling in the legislative process, to implementation that favours agencies’ interests and the preferences of the politically powerful.

For government to protect privacy, the ideal of “clean government” would have to be realized. But proposals to move policy in that direction, such as regulations on how elections are financed, happen to conflict with fundamental American rights like freedom of speech and petition. Public financing would make the government itself politicians’ most important constituent, ripping it loose from the moorings that protect individual rights and liberties.

A host of legislative process reforms might only begin to drive a wedge between politicians and what they do best. And the ideal of a neutral, scientific regulatory process has not materialized. Regulation is a different, more obscure forum for expressions of political power. For this reason and others, regulation is poorly suited to balancing all the interests of consumers compared to market processes, which are the best method we have for discovering consumers’ true interests and apportioning resources accordingly.

I’ll take my naïveté over the alternative. Reducing the power of government and thereby setting the conditions for consumer-centered privacy protection seems a more likely prospect than taking the politics out of politics, which is an even bigger, even more forbidding project.

Journalists Warn of Regulation’s Costs

All too often, news stories about proposed new regulations mention all the supposed benefits of the regulation while ignoring such potential costs as higher prices, reduced service, or even the demise of the business. Today I’m glad to see journalists noting those costs right up front in their discussions of a new regulation proposed by Virginia attorney general Ken Cuccinelli. Public radio WAMU says:

Currently there are 21 abortion clinics in Virginia. Abortion service providers say at least 17 of those might shut down if state officials use their authority to regulate those clinics.

Attorney General Ken Cuccinelli says abortion clinics provide many other medical services beyond abortions, so they’re subject to the same regulations as larger medical facilities.

That opinion was issued in response to a request from Virginia State Senator Ralph Smith, who says his only interest is to protect the health of the patient.

“I certainly feel that for the safety of all involved that they should be as regulated as other procedures,” says Smith.

For most clinics, meeting a higher regulatory standard could mean additional equipment or space renovation.

Tarina Keene director of NARAL Pro-choice Virginia says the cost involved could drive some clinics out of business.

Yes, indeed, they noted those potential costs right there in the first line. And so did the Washington Post, front page, third sentence:

Virginia Attorney General Ken Cuccinelli II has concluded that the state can impose stricter oversight over clinics that perform abortions, a move immediately decried by abortion-rights organizations and others as an attempt to circumvent the General Assembly, which has repeatedly rejected similar measures.

Cuccinelli’s legal opinion empowers the Board of Health, if it chooses, to require the clinics to meet hospital-type standards. Abortion-rights advocates say that could force some clinics to close because they would be unable to afford to meet the new requirements.

Now if only we could get journalists to take such prominent note of the costs that new regulations impose on other kinds of services, from lemonade stands to local restaurants to for-profit colleges to internet service providers.

Are These Examples of Washington Corruption?

The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. A snippet:

President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout. The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year. Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times. But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall. …The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.

Why did Citigroup decide to hire Lew, a career DC political operator, for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure?

See if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.

Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to such recipients as the state’s university system. Here are some of the sordid details:

Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer. In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records. …Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.

Some people think the answer to such shenanigans is more ethics laws, corruption laws, and campaign-finance laws, but that’s like putting a band-aid on a compound fracture. Besides, it is quite likely that no laws were broken, either by Lew, Citigroup, Shelby, or his former aides. This is just the way Washington works, and the beneficiaries are the insiders who know how to milk the system. The only way to actually reduce both legal and illegal corruption in Washington is to shrink the size of government. The sleaze will not go away until politicians have less ability to steer our money to special interests — whether they are Wall Street banks or Alabama universities. This video elaborates:

Obama Tells It Like It Is

The New York Times reports:

President Obama signed into law on Wednesday a sweeping expansion of federal financial regulation….

A number of the details have been left for regulators to work out, inevitably setting off complicated tangles down the road that could last for years…complex legislation, with its dense pages on derivatives practices….

“If you’ve ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print,” Mr. Obama said.

Unleashing an Internet Revolution in Cuba

By now the name of Yoani Sánchez has become common currency for those who follow Cuba. Through the use of New Media (blog, Twitter and YouTube) Yoani has challenged the Castro regime in a way that various U.S. government-sponsored efforts have  failed to do before, earning the respect and tacit admiration of even those who continue to sympathize with the Cuban regime. As my colleague Ian Vásquez put it a few months ago, Yoani keeps speaking truth to power.

Although she’s a remarkable individual, Yoani is not alone in fighting repression with technology. Other bloggers are making their voice heard, and that makes the Castro dictatorship nervous. As Yoani wrote in a paper recently published by Cato, despite the many difficulties and costs that regular Cubans face when trying to access Internet,

… a web of networks has emerged as the only means by which a person on the island can make his opinions known to the rest of the world. Today, this virtual space is like a training camp where Cubans go to relearn forgotten freedoms. The right of association can be found on Facebook, Twitter, and the other social networks, in a sort of compensation for the crime of “unlawful assembly” established by the Cuban penal code.

As recent events in Iran and elsewhere have shown, once a technology becomes pervasive in a society, it is extremely difficult for a totalitarian regime to control it. A new paper published today by the Cuba Study Group highlights the potential of technology in bringing about democracy and liberty to Cuba. The document entitled “Empowering the Cuban People through Technology: Recommendations for Private and Public Sector Leaders,” also recommends lifting all U.S. restrictions that hinder the opportunities of companies to provide cell phone and Internet service to the island. For example, the paper reviews the current U.S. regulatory framework on technology investment in other repressive regimes such as Iran, Syria, Burma and North Korea, and finds that “the U.S. regulations governing telecommunications-related exports to Cuba are still some of the most restrictive.”

By removing these counterproductive restrictions, Washington could help unleash an Internet revolution in Cuba. More Yoanis will certainly bring about more change in the island than 50 years of failed U.S. trade and travel bans.