Topic: Regulatory Studies

European Nations Fail to Ease Regulatory Burdens

The European Commission is notorious for cranking out new red tape, so it is somewhat ironic that the bureaucrats have been lecturing member nations to reduce their regulatory burdens. Presumably, the Commission thinks that supra-national regulations are good, whereas national regulations are bad. This does not make much sense, but it is a bit of a moot issue since national governments are refusing to make binding commitments for deregulation. As the EU Observer reports, the economic costs of excessive regulation are substantial:

EU industry ministers have dealt a blow to the European Commission’s “better regulation” agenda by refusing binding targets to cut national bureaucracy which accounts for half of the bloc’s administrative costs. … The commission believes red tape reduction would boost the EU economy with the equivalent of 3.5 percent of GDP and free up an estimated €150 billion for investment. But although there has been a lot of rhetoric in favour of the initiative, it is proving difficult to implement both at EU and national level. … While the UK, the Netherlands, Sweden and Denmark argued in favour of the national red tape cuts, most other delegations were against any fixed goals. Mr Verheugen admitted the commission has no power to force the governments into anything more than they have agreed - given that national legislation and competences are at stake.

Travelin’ (Jet) Blues

JetBlue CEO David Neeleman issued a mea culpa yesterday in an attempt to explain why hundreds of JetBlue passengers were stuck in nine of their planes on the tarmac at John F. Kennedy International Airport for six hours last week.  He partly blamed a “shoestring communications system” that was insufficient to assist airline managers during the confusion caused by a massive ice storm.

That’s not the whole story, although you wouldn’t know if from reading most news reports of the incident.  It turns out that Federal Aviation Administration regulations had a role, too.  The FAA presides over a system of rules that virtually guarantees flight delays by encouraging pilots to stay on the tarmac instead of losing their place in the take-off queue.

As Scott McCartney of the Wall Street Journal reports today (subscription required):

Part of the problem is that airlines, pilots and often passengers are reluctant to throw in the towel. Planes wait in line hoping for a break in the weather. And wait. And wait …

The FAA’s air-traffic-control system can penalize flights that go back to a gate, even for a temporary bathroom break. Air-traffic controllers generally take flights first-come, first-serve, unless the airline can badger officials into giving a flight higher priority, or trade places in line with another of its own flights.

Indeed, last month a JetBlue flight ended up on the ground for eight hours at JFK because it returned to the gate and then was required to file a new flight plan, the FAA says.

It’s enough to make you wonder if there is a better way to allocate take-off and landing slots at our nations airports.  And, indeed, there is.  Nobel economist Vernon Smith has proposed an auction system that, like the stock market, would allocate scarce resources – like the use of a runway – much more efficiently than current practices.

As Smith explains in a 2002 interview with Reason magazine:

We’re doing work on creating a market for the exchange of landing and takeoff slots at airports. In normal circumstances, those rights have been fully allocated among the airlines at a given airport. But let’s say a bad weather front moves in, so there’s a ground delay. They’ve been doing maybe 60 landings and takeoffs per hour, but now they’ve got to reduce that to 30. What airports tend to do is just stretch out the existing schedule, which leads to cancellations and other problems. What you need is a market mechanism so that the flights that have higher priority get out. What would be a higher priority? Bigger planes, probably, but also full planes and planes with a lot of passengers who have connecting flights.

Suppose we’re talking about planes leaving LaGuardia in New York. If a plane’s going to Los Angeles, it’s probably the final destination for a lot of the passengers. Planes going to Chicago or Dallas probably have a lot of passengers who are catching connecting flights. Maybe those flights should have a higher takeoff priority in bad weather. In any case, you need a market mechanism where the airlines can compensate one another-and their passengers-to cancel their flights and trade takeoff slots.

The power of market forces unleashed by federal deregulation of the airlines has put air travel – once a luxury – within the reach of virtually everybody. Now perhaps it’s finally time to deregulate the act of actually taking off. 

Genes, Patents and Honest Dealings

Michael Crichton wrote an excellent op-ed, “Patenting Life,” in Tuesday’s New York Times.

I find it hard to disagree with Crichton’s comments, but it might be worth mentioning that his article really deals with two separate arguments. One is that taking something that belongs to others, i.e., actual physical material, without their permission is wrong. The second issue is that innovation is the proper subject of patents, not mere discovery. In the first situation, the question is whether patients should have a right to share in patents developed using their tissue or genes. In the second, the question is whether the genes themselves – not just the products created with them – should be patentable.

Self-determination and self-ownership are essential in a free society. Actual physical material such as tissue samples or actual genes taken from a person’s body should not be acquired or used without informed consent – that includes not using a patient’s tissue to develop and market cell lines or to develop and market medical therapies without the patient’s express consent. It is dishonest to provide patients with misleading consent forms. Some give the impression a patient’s tissue is medical waste that the hospital or doctor should be free to dispose of as necessary. Other consent forms acknowledge that a patient’s tissue may be used to gain knowledge but say nothing of the potential profits to be gained either from that knowledge or from the actual use of the tissue itself.

For consent to tissue acquisition to be informed it must clearly identify a patient’s options: 1) Is the patient making a gift of the tissue and expressly relinquishing any potential profits from medical products developed with that tissue? 2) Is the patient being paid for his tissue and willingly relinquishing any claim to profits from products that may be developed using that tissue? Or, 3) Is the patient being promised a percentage of the profits, should any materialize? Patients must not only be aware of these options but also understand them for there to be true informed consent. To do otherwise is to take something from them under false pretenses.

Patents on genes themselves is a different issue. I’m not a patent lawyer, but if Crichton is correct, it seems the courts have confused the discovery of something new in nature with the creation of something new, i.e., confused pure discovery with innovation. Scientists are awarded Nobel Prizes for discovering new elements, new species, or new diseases, but they usually aren’t, and shouldn’t be, awarded patents for such discoveries. Patents should only be awarded if something new is created – a new process, a new test, a new technique, a new cure, etc. Imagine if Casey and Jacobi had been awarded patents for their 1973 discovery of the Hawaiian Po’ouli Honeycreeper. Anyone who wanted to go looking for the Po’ouli bird would have to pay Casey and Jacobi a licensing fee. Innovative processes used to test for certain genes or their mutations or special processes for recording information about genes should potentially be patentable, but, not the genes themselves – no more than it makes sense to patent the rare and hard to find Po’ouli.

One further distinction is worth making. A patent might be justified if a scientist manipulated a gene to create something new. If a patent were awarded, the patent holder should be required to share his profits with the person from whom the original gene was acquired unless, after full and complete disclosure, that person had willingly and with full understanding relinquished his rights to such profits.

Montgomery County Socialism

For readers in or around the DC area, the Washington City Paper has a nice cover story on the draconian Department of Liquor Control in the People’s Republic of Montgomery County, Md. The DLC is a government agency that controls the supply and distribution of every drop of alcohol sold in MC.

The piece sketches out some of the nightmarish experiences that business owners in MC have to go through to procure otherwise widely-available wines, and how the county outrageously cranks up the prices and provides godawful service to the business owners. (For example, a bottle that sold for $240 at a shi-shi DC restaurant is available for MC restaurant owners to purchase from the county for $260. They’d then have to mark it up themselves, again, to make a profit.)

Finally, the author of the piece interviews the director of the DLC, George Griffin, and asks him, “What gives?”

Griffin then proceeds to reel off some impressive statistics on how control jurisdictions have lower rates of underage drinking and fewer alcohol-related traffic fatalities for people under 21 than open jurisdictions. (An independent study forwarded to me by the National Alcohol Beverage Control Association seems to confirm his stats.) But then Griffin pauses briefly and delivers a disarmingly direct kicker to his list of justifications for MoCo’s system: “And that’s in addition to the $22 million that we give the county in unrestricted funds.”

Since taking over the DLC in 2001, after disgraced director Howard L. Cook Jr. was forced to leave for misusing a county credit card (among other misdeeds), Griffin will be the first to admit the contradictory nature of his job. It’s both to promote the “moderation and responsible behavior in all phases of distribution and consumption”…and to make a buttload of money to dump into the county’s budget. In the last five and a half years alone, the DLC has transferred more than $100 million to the general fund.

It isn’t just fine wines, either. When I was in college, I worked at a Bethesda pizza place to pay the bills. I recall during one of our busiest seasons, we ran out of all draft pilsner beer — Bud, Bud Light, Miller Light, etc. We begged, pleaded, beseeched the county to bring us more. Business had gone into the toilet, with no beer to serve with the pizza. The response from the DLC? ”We’ll be there when we get there.” They got there about a week later.

Meanwhile, DC restaurant owners are laughing all the way to the bank:

Some drinkers are already laughing at the wine choices in MoCo. “Nobody can think of a single restaurant that’s in Montgomery County that has anything approaching a noteworthy wine list,” says Mark Slater, chef sommelier at Citronelle, who once co-owned a restaurant in the county. “I don’t know why the citizens of the county even let that stuff go on. It’s punitive.”

Get the whole sorry scoop here.

Paduda Cuts (Closer) to the Heart of the Matter…

…when he responds to my post thus:

I think this is because libertarians don’t believe in health insurance as a means to help people with health conditions pay their bills.

I would put it this way:

Insurance is a voluntary arrangement where consumers agree to subsidize each other. By definition, sick people have higher medical expenses. Thus, some seek to charge healthy people more than they cost to insure, so that insurers can reduce the premiums they charge to the sick.

There are lots of reasons why healthy people may agree to that. They may be very risk-averse, and so they are willing to pay more than they cost to insure. They may be altruistic, deriving satisfaction from knowing that their higher premiums are making coverage more affordable for others. Or they may precommit to such subsidies before it is known who in the insurance pool will develop a chronic illness (read: guaranteed renewable insurance).

As a libertarian, I have no problem with the healthy subsidizing the sick via private health insurance — so long as the arrangement is voluntary. But problems arise when public policy tries to get healthy consumers to provide, shall we say, “extra-voluntary” subsidies:

  • The healthy people eventually figure out that they are being over-charged, and they bolt. That makes the risk pool less-healthy, premiums rise, and more healthy people leave. Lather, rinse, repeat, and you’ve got your very own adverse selection death spiral.
  • The insurers realize they can’t make money off the sick people, so they avoid diabetics and such as if they had the plague. 
  • And it doesn’t help the situation that forced subsidies lead to greater moral hazard among the very people who already use lots of medical care. That just fuels the first two responses.

So to tweak Paduda’s characterization, libertarians think private insurance is a wonderful vehicle for voluntary subsidies and a lousy vehicle for forced subsidies.

In a world without such forced subsidies, Paduda is correct that we would purchase a lot less health insurance. And I find this comment instructive:

[I]nsurance would not be available at any kind of affordable price for anyone who really needs it if Cannon’s prescription becomes reality” [emphasis in original].

Sick people don’t need insurance. Insurance doesn’t make sick people healthy. They need medical care. They may even need subsidies. So why not try to provide them those things, rather than wreck the markets for both health insurance and health care?

Many equate insurance with subsidy. In fact, one is a subset of the other.