Topic: Regulatory Studies

The Supreme Court Helps Out the Economy

Today the Supreme Court, in one of the most important securities law rulings in years, Stoneridge Investment Partners v. Scientific-Atlanta, decided that fraud claims are not allowed against third parties who did not directly mislead investors but were business partners with those who did. Investors, the Court said in a narrow 5-3 ruling (Justice Breyer took no part in the case), may only sue those who issued statements or otherwise took direct action that the investors had relied upon in buying or selling stock – whether that involved public statements, omissions of key facts, manipulative trading, or other deceptive conduct. One impact of the decision is likely to be the end of a $40 billion lawsuit against financial institutions growing out of the Enron scandal.

Although this was the result expected by Court-watches, the split decision – along the usual “liberal/conservative” lines, with Justice Kennedy writing the opinion as he has tended to in such situations – was a bit of a surprise. The opposite result would have been disastrous for Wall Street, with massive ramifications on the economy as a whole. It would also have greatly expanded the court-created private right of action that is not expressly spelled out in the relevant securities laws. Ultimately, the Court’s ruling in Stoneridge wisely prevents an implied cause of action against the whole marketplace in which those who do directly mislead investors do business.

Tag-Team Battle: Rats and Bureaucrats vs. Cats and Entrepreneurs

Tens of millions of Americans have cats in their homes, notwithstanding the possibility that some cat hair may get in their food. Bureaucrats in New York City, however, want to save consumers from this horrifying possiblity, so they fine store owners who keep cats on their premises. But the Grinches at the Health Department fail to realize that the cats are the most effective way of controlling rodents. This creates a no-win situation for entrepreneurs. They can keep a cat in the store and risk getting fined, or they can go without a cat and get fined for rodent infestation. The New York Times reports:

Amid the goods found in the stores, there is one thing that many owners and employees say they cannot do without: their cats. And it goes beyond cuddly companionship. These cats are workers, tireless and enthusiastic hunters of unwanted vermin, and they typically do a far better job than exterminators and poisons. When a bodega cat is on the prowl, workers say, rats and mice vanish. … But as efficient as the cats may be, their presence in stores can lead to legal trouble. The city’s health code and state law forbid animals in places where food or beverages are sold for human consumption. Fines range from $300 for a first offense to $2,000 or higher for subsequent offenses. … Still, many store owners keep cats despite the law, mainly because other options have failed and the fine for rodent feces is also $300. “It’s hard for bodega owners because they’re not supposed to have a cat, but they’re also not supposed to have rats,” said José Fernández, the president of the Bodega Association of the United States.

To understand what this really means, the article tells the story of Mr. Martinez, who is trying to earn a living while dealing with the mindless bureaucracy:

…last winter, a friend brought Mr. Martinez a marmalade kitten in need of a home. Mr. Martinez, who was skeptical of how one slinky kitten could fend off an army of hungry rats, set up a litter box in the back of the store, put down an old fleece jacket and named the kitten Junior. Within two weeks, Mr. Martinez said, “a miracle.” “Before you’d see giant rats running in off the streets into the store, but since Junior, no more,” he said. Junior sometimes brings Mr. Martinez mouse carcasses as gifts, which he said bothers him less than the smell that permeates his store when the exterminator’s victims die and rot under a freezer. In October, a health inspector fined Mr. Martinez $300 and warned him that if Junior was still there by the time of the next inspection he would be fined $2,000. “He wants me to get rid of the cat, but the rats will take over if I do,” Mr. Martinez said. “I need the cat, and the cat needs a home.” Because stores do not get advance notification of an inspection, Mr. Martinez is trying to keep Junior in his office as much as possible. Many bodega owners reason that a cat is less of a health threat than an army of nibbling rats. “If cats live in homes and apartments where people have food, a cat shouldn’t be a threat in a store if it’s well maintained,” Mr. Fernández said.

I don’t have much opportunity to patronize New York City bodegas, but I prefer cats over rats. Too bad the city’s bureaucracy doesn’t let the market decide which animal should take precedence.

Medical Guild Busts Doc for Attempted Quality Competition

According to The Austin-American Statesman:

[A]n Austin doctor [is] among the 64 doctors the Texas Medical Board recently disciplined….

Dr. Marci Roy, an Austin neurologist, must pay a $1,000 fine because of Web site advertising that suggests she has a superior ability to treat carpal tunnel syndrome at her clinic than other doctors who provide similar services, according to the board.

When confronted about the wording, Roy said that it was not a violation of the board’s advertising rules but that she changed the language after a complaint was filed, the order says.

Roy said Friday that the problem was “a typographical error that was corrected immediately.”

“It was certainly inadvertent on my part,” she said.

And we wonder why patients can’t judge physician quality.

Hat tip: MKS.

Media Bias

There’s an interesting new blog called The Monkey Cage written by three political scientists at the George Washington University.  Any blog that takes its motto from H.L. Mencken deserves a look from libertarians, even if the authors are not libertarians (I have no idea whether they are or not).

The blog has only been up for a few days, but it already has some interesting posts on voter ID, campaign finance, and negative advertising in campaigns. The authors don’t follow the conventional wisdom on those issues. For example, they praise the work of Cato visiting research fellow John Mueller on the bias in threat assessments of terrorism. (You can find the short version of Mueller’s work here).

One of the group, John Sides, has a concise and interesting post on media bias.

His claim that newspapers are in the business of confirming the prior beliefs of their readers seems accurate, and yet it confirms the original concern (or, at least, a legitimate concern) about liberal bias: responding to readers or viewers leads to a biased or distorted account of reality.

Is there a market for unbiased reporting? You would think so, but perhaps not. Maybe it doesn’t matter. We may just dump media messages, bias and all, into the marketplace of ideas and trust that something like an unbiased political result will come out the other end.

Reading Sides, some might wonder: Why not relieve the media of market pressure as a way of dealing with bias? That prompts another question: Are NPR and the CPB free of political bias in their reporting and analysis?

The post also prompted the following thought: I have worked on the campaign finance issue for many years now and I have never talked to a reporter from major media who doubted any part, much less the whole, of the reform case. Political scientists have not found that campaign contributions have much effect on members of Congress (see the earlier link). But that has not affected the prior beliefs of reporters . One raw assertion of corruption by Fred Wertheimer outweighes a hundred careful studies of the influence of money on politics. That might suggest that how monolithic liberalism is in the media depends on the issue. But still, do reporters favor reform because they are liberal or because they get to write “Look, corruption!” a couple times a week? Or do they favor reform because it tends to suppress accounts of reality and messages that compete with the product offered by their employers? In other words, do they support regulations that confer directly nonproductive deadweight rents on their employers?

Finally, Sides does not discuss the Milyo-Groseclose study of media bias. Maybe he will in future posts.

Consumer Product Info - Regulation or Markets?

60 Minutes had an interesting and balanced piece last night on proposals to mandate that fast-food restaurants promote calorie information by placing it directly on their menus.

This fits in a category of regulation that is increasingly prominent: mandated disclosure and promotion of product information. There are plenty of examples: financial privacy notices, real estate purchasing notices, nutrition labeling, etc.

If consumers had unlimited attention, the surfeit of notices would be an unqualified good thing. But consumer attention is not unlimited. Consumers quickly learn to ignore notices that don’t interest them. Notices can easily confuse consumers. Mandated notices often provide information that consumers would already get in more accessible ways.

Nutrition labeling is the sacred cow of mandated disclosure, of course, and mandating calorie notices in restaurants is one of its calves. Everyone who talks about nutrition labeling uses nutrition labeling and so can’t believe that anyone doesn’t. But it certainly hasn’t done anything to change the trend in U.S. obesity since the 1990 law requiring nutrition labeling went into effect.

Note in the 60 Minutes piece how proponents of calorie labeling really are just social engineers. They can’t outlaw you buying that Big Mac, so they’re going to put discouragement in your face using the intermediary of Mickey D’s. They mean well, but I’d just as well have them mind their own business.

Information about products and services is subject to market demand just like every other feature of the things we buy. If you don’t believe me, try running a grocery store without putting price tags on or near the canned peaches.

Renewable Energy BS at U.S. News & World Report

In an article posted the other day at U.S. News & World Report, Marianne Lavelle reports on the state of affairs in the renewable energy industry. While the story she tells is a good one, she makes two stunning errors that lead me to question every other figure reported in the article.

Error #1 -

Historically, ethanol has been more expensive than gasoline, but crude oil prices are now so high that ethanol would be cheaper even without its 51-cent-per-gallon subsidy. Indeed, one reason pump prices have not skyrocketed along with the price of crude oil is that so much fuel is blended with 10 percent ethanol.

Really? Ethanol (E100) prices on U.S. spot markets last week averaged $1.87 a gallon. That is indeed cheaper than the price of conventional gasoline in those same markets ($2.25 per gallon), but ethanol has only two-thirds of the energy content of gasoline. If you want to buy enough ethanol to displace the energy you get from a gallon of gasoline, you would have to spend $2.80 per gallon. Hence, ethanol is not cheaper than gasoline, and federal mandates to use ethanol in transportation fuel does not reduce pump prices.

Error #2 -

The plug-in advocacy group CalCars estimates that with today’s electricity prices, drivers would be paying the equivalent of 75 cents per gallon [were they to run their cars on electricity rather than gasoline].

Again, really? Electricity prices last week averaged 9.57 cents per kilowatt hour. Given that there are 3,400 BTUs in a kilowatt hour of electricity and about 124,000 BTUs in a gallon of gasoline, simple math dictates that it would cost almost $3.50 to buy enough electricity to get the same amount of energy we get from a gallon of gasoline.

Reporters have got to stop taking figures at face value from policy activists with political axes to grind. And editors have got to start asking reporters to independently back their numbers up. Until that happens, don’t bother with the print media. The “facts” bandied about therein are a crap shoot. Some are correct, some are not, but you never know which.

Globalization and Food Safety

The Washington Post has an interesting story today about E. coli on lettuce. A batch of lettuce produced in California last month passed through numerous screenings and was sent to U.S. grocery stores. Some of it was also sent to Canada, and the government there found E. coli, which led to a major recall across both countries.

Here are some speculations:

  • Globalization increases the safety of American-produced goods because those goods must often pass muster in foreign markets where consumers and governments have different standards and safety procedures.
     
  • I don’t know whether American or Canadian food safety procedures are better, but a diversity of systems generates greater information, which allows producers and governments everywhere to improve quality.
     
  • Globalization doesn’t lead to a “race to the bottom” on environmental standards as critics often claim. Some countries, such as Japan, apparently have very high standards on food, and that tends to push up standards elsewhere. When Japanese importers demand strict standards from Chinese food producers, Americans consuming Chinese products also benefit.