Topic: Regulatory Studies

What if We Ran a Public School System… and No-One Came?

The New Jersey Office of Legislative Services, which estimates the budgetary impact of proposed laws, has just released its analysis of a private school choice bill called the “Opportunity Scholarship Act.” The most remarkable thing about its report is the amount of money it assumes that districts would save for each student they no longer have to teach: $0.

On that assumption, if every student were to leave for the private sector tomorrow, districts would keep right on spending exactly the same amount they spend today. Inefficient though it is, not even state-run monopoly schooling is that bad.

The OLS report does not explain why it assumes that the per pupil savings for students leaving public schools (the “marginal cost”) would be $0. It states that this figure is “indeterminate,” but by not counting it at all is effectively treating it as zero.

In fact, the marginal cost of public schooling is not “indeterminate” at all. Economists “determine” it all the time, and it’s quite easy to do. You simply observe how district spending actually rises and falls with enrollment, using a time-series regression, as I did in 2009 to calculate the marginal cost of public schooling in Nevada (see Appendix A).

Even if the NJ OLS does not conduct a marginal cost estimate specific to New Jersey, they could have done–and should still do–the next best thing: take the marginal cost estimates for other states as a rough guide and estimate the NJ district savings from them. I estimated that Nevada district spending falls by 85% of average per-pupil spending when a student leaves, and Grecu and Lindsay, a couple of years earlier, estimated the figure at 80% for South Carolina.

If they want to be conservative, the NJ OLS could use the lower of these figures, and perhaps also run the numbers for estimates 10% higher and 10% lower.

Any of the above options is preferable to the logical impossibility of their current analysis, which effectively treats the marginal cost of public schooling as $0.

Book ‘Em, Danno

I hope you’ve got your NCAA bracket in by now. The NCAA estimates that 35 million Americans will do so. But keep in mind: As the Washington Post notes, you’re breaking the law:

Office pools, despite the warnings of law enforcement officials, are among the country’s most popular illegal activities. The FBI estimates that roughly $2.5 billion is gambled on the NCAA tournament, and only $80 million is bet legally through Nevada sports books. A good portion of the rest takes the form of $5 or $10 entry fees to participate in a bracket-pick NCAA tournament pool.

Is this the most popular illegal activity in America? Well, the Office of National Drug Control Policy says that 104 million Americans have used marijuana, 28.5 million in the past year.

Does it make sense to criminalize peaceful activity that tens of millions of Americans enjoy? Discuss.

ADA Service Animals: The Silence of the Goats

As I note in a New York Post opinion piece published on Sunday, today marks an unusual milestone: the executive branch of the U.S. government is actually rolling back a significant burden imposed on business owners and others under the Americans with Disabilities Act (ADA). Because the subject matter is an unusually colorful one – the widespread misclassification of household pets, including such exotic species as iguanas, goats, and boa constrictors, as “service animals” under the ADA – you’d think there’d be major press coverage. And yet with scattered exceptions here and there, public attention has been muted. And there’s a story in that too.

In the early years of the law (as I observe in the Post piece) the ADA’s mandate that businesses admit service animals caused little stir because dogs trained to help persons with blindness, deafness and some other disabilities are skillfully trained to stay on task while ignoring such distractions as food, strangers and the presence of other animals. But given the law’s lack of definitions, combined with lopsided penalties should a defendant guess wrong – $10,000 is possible for a first violation – shop owners began seeing more and more rambunctious spaniels and irritable purse dogs, to say nothing of rabbits, rats, ferrets, lizards and critters of many other sorts. Doctors obligingly wrote notes testifying that the animals were helpful for mood support or to fend off depression; you can buy “therapy dog” vests online with no questions asked.

The new rules toughen things up. With a minor exception for miniature horses, service animals will now have to be dogs; they’ll have to be trained to perform a service; and while that service can relate to an “invisible” disability, including one of a psychiatric nature, it cannot be based simply on mood support or similar goals. Also, they’ll need to be on-leash unless their service requires otherwise.

In revising the rule, the Obama administration was heeding the wishes not of frazzled retailers but of disabled-rights advocates themselves. As press coverage recounts, persons who employ well-trained service animals suffer not only from public backlash but also from more tangible setbacks such as disturbances that can arise when other, less well-trained animals challenge their dog in an indoor setting. If the new change counts as deregulation, it’s a sort of accidental and tactical deregulation not arising from any notion that it’s better to leave private owners free to set their own rules.

And that helps explain the absence of fanfare, not to say stealth, with which the Obama administration is letting the new rule go into effect. Knowing that the change will be unpopular with some of its own constituents, it seems happy to forgo credit with constituencies that might favor deregulation – notwithstanding the public fuss a few weeks ago about the President’s newfound interest in reducing regulatory burdens. That interest remains, to say the least, untested.

Pielke’s Problem

I generally admire the work of Roger Pielke Jr., a political scientist in the University of Colorado-Boulder’s Center for Science and Technology Policy Research. His new book on climate change is refreshingly honest and non-ideological, if a bit overly technophilic. His broader work offers the important insight that science alone cannot direct public policy, but rather it can only lay out possible results of different policy choices.

Given the quality of his work, I was disappointed by Pielke’s op-ed in today’s NYT defending Congress’s legislated obsolescence of the incandescent light bulb. He argues that government standard-setting is an important contribution to human welfare, and the light bulb standard is just part of that standard-setting (though he does suggest some minor policy tweaks to allow limited future availability of incandescents). 

To justify his argument, Pielke points out the great benefit of government-established standard measures, as well as quality standards:

Indeed, [in the United States of the late 19th century] the lack of standards for everything from weights and measures to electricity — even the gallon, for example, had eight definitions — threatened to overwhelm industry and consumers with a confusing array of incompatible choices.

This wasn’t the case everywhere. Germany’s standards agency, established in 1887, was busy setting rules for everything from the content of dyes to the process for making porcelain; other European countries soon followed suit. Higher-quality products, in turn, helped the growth in Germany’s trade exceed that of the United States in the 1890s.

America finally got its act together in 1894, when Congress standardized the meaning of what are today common scientific measures, including the ohm, the volt, the watt and the henry, in line with international metrics. And, in 1901, the United States became the last major economic power to establish an agency to set technological standards.

 Alas, this argument doesn’t support Pielke’s light bulb standard.

The weights-and-measures and product standards that he cites are examples of government response to market failures—instances where private action is unable to reach efficient results. Concerning weights and measures, a type of market failure known as the collective action problem can make it difficult to establish standard measures privately. Getting everyone to agree can be like herding cats, and there is ample incentive to secretly defect from that standard — e.g., a gas station would love to sell you a 120-ounce “gallon” that you assume is a standard 128 ounces. (OTOH, there are plenty of examples of private action overcoming this problem, such as the standardization of railroad track gauges in the late 19th century.) Likewise, quality standards can be understood as a response to a kind of market failure known as the information asymmetry problem— e.g., a producer of low-quality goods may knowingly try to pass them off as high-quality goods. (Again, there are plenty of examples of private action overcoming this problem.)

As libertarians, we recognize that there are market failures, and that government can sometimes mitigate them. (That’s why we’re not anarchists.) Also as libertarians, we recognize that government intervention can result in outcomes even less efficient than the original market failure. (That’s why we’re not run-of-the-mill Democrats or Republicans.)

But where is the market failure with incandescent bulbs? After nearly 125 years of use, people know the drawbacks and advantages of incandescents—that they use more electricity than other types of bulbs and have a shorter lifespan, but they cost very little and work much better in certain applications—from dimmer switches to Easy-Bake Ovens—than other bulbs. Besides, CFL bulbs were widely available before Congress’s 2007 legislation, and LED lights were already in the R&D pipeline.

Perhaps Pielke would argue that there is a market failure with incandescents: the negative externality of air pollution, including greenhouse gas emissions. But incandescent lighting is only one of many, many electricity-using devices, and electricity generation is just one of many, many sources of air pollution. So why the focus on just this one externality source instead of advocating a policy that broadly addresses emissions? And why devote his op-ed to discussing technology standards, and make no mention of air pollution?

Obligatory Charlie Sheen Post

Is this the last blog in America that hasn’t commented on the Charlie Sheen meltdown? There isn’t much of a public policy angle, of course. Oh sure, employment-law analysts are looking at whether Warner Bros. has the right to fire Charlie Sheen. John Stossel and Bill O’Reilly talked about that question Tuesday night. But I’ve got another contribution. If Sheen is gone, Warner Bros. is going to need another actor – and a new “situation” – to keep its hit show “Two and a Half Men” on the air. Here’s my treatment:

A womanizing actor (John Stamos) is delighted to buy a Malibu beach house at a fire-sale price when the owner (Charlie Sheen) suddenly leaves town. Then he’s shocked to discover that the brother and nephew of the previous owner are living in the house, not paying rent, and refusing to leave. He tells them to get out, but Stamos brings in a lawyer (Julianna Margulies) who tells him that under California lawyer-tenant law he can’t evict the people who are living there.

Warner Bros. might want to seek out the writer of  Pacific Heights, a 1990 thriller that is almost a documentary on the horrors of landlord-tenant law. A young couple (Matthew Modine and Melanie Griffith) buy a big house in San Francisco and then rent an apartment to a young man (Michael Keaton). He never pays them, and they can’t get him out, and then things get really scary. The lawyer lectures the couple – and the audience – on how “of course you’re right, but you’ll never win.” I just knew this happened to someone – maybe the screenwriter or someone he knew. Sure enough, when Cato published William Tucker’s book Rent Control, Zoning, and Affordable Housing, and I asked the director of Pacific Heights, the legendary John Schlesinger, for a jacket blurb, he readily agreed to say “If you thought Pacific Heights was fiction, you need to read this book”; and he told me that the screenwriter had a relative who had gone through a tenant nightmare.

Of course, Warner Bros. might prefer to hire that screenwriter for a movie about a company that hires a charming and handsome new employee (Charlie Sheen) who brings in lots of money but turns out to be a nightmare to work with. Can they fire him? Hilarity ensues.

Regulation, The FDA, And Shortages Of Hospital Drugs

In recent weeks the press has been reporting widespread alarms about shortages of many frequently used hospital drugs [L.A. Times/Chicago Tribune, Scranton Times-Tribune, KMGH (Colorado hospitals swapping drugs in short supply), The Columbian] The drugs running short include various antibiotics, anesthetics, chemotherapy drugs and others, including many generic compounds long since approved by the federal Food and Drug Administration (FDA). “The most troubling aspect is that it is critical drugs for which there are limited alternatives. Many are involved in cancer care and surgery,” one hospital pharmacist told the Chicago Tribune’s reporter.

While a variety of factors have played a role in the shortages, including lawsuits and economic retrenchment by some drugmakers, there seems to be little dispute that one major factor is the federal government’s widely publicized crackdown in recent years on pharmaceutical manufacturing and quality-control practices, which has meant that closing down a production line or halting shipments of a drug for a while is often the only way to be sure of staying in compliance with demanding new substantive benchmarks or paperwork requirements.

The lesson? To some Senators, it’s that we need to intensify regulation yet further:

The drug shortages have gained the attention of members of Congress. This month, Sens. Amy Klobuchar (D-Minn.) and Bob Casey (D-Pa.) introduced legislation that would require drugmakers to give the FDA an early notification “when a factor arises that may result in a shortage,” according to a joint statement.

Which prompts Overlawyered commenter Greg S. to write:

In other words, when critical shortages of pharmaceuticals arise because of a tough new regulatory environment in Washington, the impulse of those in Congress is to address the problem by adding more regulations – i.e., by adding another bureaucratic compliance requirement. And how, exactly, will notifying the FDA help with the shortage? And what if the “factor” that’s causing the shortage is the FDA’s rules themselves – will the company find itself facing investigation and retaliation if it is perceived as blaming the FDA for the shortage?

The Other For-Profit College Scandal

Because the evidence of wrongdoing and evasion is so clear, and the effect has been so damaging, I have devoted a lot of pixels to the GAO’s horrendous ”secret shopper” report on for-profit colleges, as well as the stonewalling about what caused the initial report to be so biased. A potentially even bigger story, though, is what appears to be the machinations of an unholy alliance of Department of Education officials, Senate HELP Committee chairman Tom Harkin (D-IA), and Wall Street short-sellers hoping to make big bucks off the demise of for-profit schools. This Daily Caller article, and the connected video of Senator Tom Coburn (R-OK), are good places to start learning more about this, as is the website of Citizens for Responsibility and Ethics in Washington.

The problems with understanding scandals like this, of course, are trying to get the truth about things that have gone on almost entirely in real or virtual back rooms; knowing what is legal and what isn’t; and just figuring out who’s who. Such scandals also reveal little about whether for-profit schools are actually more or less effective than other higher ed sectors, arguably the main public policy concern.

What this sort of thing does start to reveal, though, is just how far out of public view policy is often made, as well as how people try to profit directly from government action. In other words, it’s a great case study in public-choice theory, and just how un-Schoolhouse Rock Washington really is.

So I can’t tell you everything about who said what to whom. However, at the very least it is clear, for instance, that famed short seller Steve Eisman had a huge amount to gain by testifying that for-profits are bad and there is a “bubble” in proprietary higher ed about to burst. After all, were either the Education Department or Senator Harkin – or both – to use his testimony to attack for profits, as indeed they have, Eisman would have a highly profitable self-fulfilling prophecy on his hands.

No matter how you feel about for-profit colleges – and my feelings are decidedly mixed– learning about how policy is really made can be a very unsettling thing. In fact, it can make you feel more than just a little sick.