Topic: Regulatory Studies

U.S. Postal Service Likely to Seek ‘Emergency’ Increase in Stamp Prices

The U.S. Postal Service is structured to subsist on the revenues it generates from the sale of its products and services. In recent years, however, USPS expenses have exceeded revenues and the government agency now finds itself effectively broke, having maxed out its $15 billion line of credit with the U.S. Treasury.   

Postal employee unions blame a 2006 law that forces the USPS to prefund retiree health benefits (a benefit that a small and declining number of private sector workers enjoy) for the government agency’s financial woes. But as a recent Congressional Research Service paper notes, the USPS would be in trouble even without the required payments: 

While [Retiree Health Benefits Fund] payments have affected the USPS’s profitability, the USPS would have run deficits each of the past four years even if the agency did not have to make RHBF payments. These non-RHBF deficits would total $14.7 billion, an amount nearly equal to the USPS’s total borrowing authority. [T]hese deficits were produced by a sharp drop in revenues. (Expenses did not fall equivalently.)

Congress has been fumbling around with postal reform legislation for a couple of years now. And as I’ve noted more times than I can count, congressional micromanagement makes it difficult for the USPS to downsize its operations to match 21st century realities. So the USPS is reportedly looking to generate more revenue through higher stamp prices. 

The USPS is limited in its ability to increase stamp prices. For “market-dominant” (the government’s amusing euphemism for “monopoly”) products, annual price increases cannot exceed inflation (as measured by the Consumer Price Index for All Urban Consumers). The USPS can, however, request a rate increase above inflation on the basis of extraordinary or exceptional circumstances from its regulator, the Postal Regulatory Commission (PRC). 

The PRC rejected such a request in 2010, but it appears that the USPS will try again. And both the Washington Post and The Hill are reporting that industries forced to use the USPS (greeting card companies, magazines, direct marketers, etc.) are none-too-pleased with the prospect of higher prices. The mailers argue that an excessive price increase to deliver their products will speed up the diversion from physical mail to electronic alternatives (and thus hurt their bottom lines). 

Building Housing That Some People Can’t Afford Isn’t Racist

“Disparate impact” theory holds someone liable for discrimination for a race-neutral policy that statistically disadvantages a specific racial group — say, blacks score lower on a firefighter-promotion test than whites — even if that negative “impact” was neither foreseen nor intended. The application of this theory has been fraught with controversy, to say the least, but it comes up again and again, in contexts ranging from employment to education to voting.

While disparate impact claims have sometimes been sustained under the federal Fair Housing Act (which makes it unlawful to deny housing on the basis of race) since the 1970s, the Supreme Court has only recently agreed to decide whether these claims are lawful. Two years ago, the Court was about to hear such a case, Magner v. Gallagher, when the Justice Department, led by now-Labor Secretary Tom Perez, pressured the city of St. Paul, Minnesota to settle it. The same sort of political pressure is now being brought to bear on Mount Holly Township, New Jersey; supporters of disparate impact theory simply don’t think that it can survive legal scrutiny.

The current case involves a redevelopment plan for a blighted Mount Holly neighborhood (“the Gardens”) that would transform the neighborhood into mid-range single-family dwellings. (Thus far, the township has acquired 259 of 329 properties through various financial incentives, without yet resorting to eminent domain.) The Gardens’ residents sued, arguing that the redevelopment plan violated the FHA because a majority of them would not be able to afford the new homes.

The district court dismissed this argument, holding that the redevelopment plan affected Gardens residents equally, without regard to race, and was tied only to economic considerations. The court of appeals reversed that ruling, holding that the residents’ association had set out a case of discrimination under the theory of disparate impact because a majority of the affected residents were non-white.

Cato has now joined the Pacific Legal Foundation and four other public-interest organizations on an amicus brief arguing not only that disparate impact claims are impermissible under the text of the FHA, but that such claims force unconstitutional actions when applied to governments. Before putting race-neutral policies into effect, government agencies would have to determine whether a particular racial group would be disproportionately impacted and take steps to remedy that difference. By mandating an equality of ends — as opposed to an equality of opportunity — disparate impact liability encourages the adoption of discriminatory quota systems.

Customers Don’t Need Protection from Low Prices

Some things seem obvious: Puppies are cute. Freedom is good. Paying less for something is better than paying more.

Unless you live in the Tampa area and work for the Hillsborough County Public Transportation Commission (PTC). The PTC was created, ironically, to protect Tampa’s transportation customers. Apparently, that means protecting those customers from low prices.

This is not one of those stories about unintended consequences or safety regulations that, in the long run, result in higher prices and therefore unsafe practices. The PTC left the agencies that impose those sorts of economics-challenged agencies in its dust. Instead, the PTC actually passed a rule requiring Tampa’s sedan and limo drivers to overcharge their customers. The rule mandates that all drivers must charge at least $50 per ride – no matter how short the ride, and even when the driver is willing to charge much less.

Let me repeat: The PTC is expressly protecting customers from low prices.  What’s next for the PTC?  Protecting us from pillows that are too soft or food that’s too tasty? (Don’t give Michael Bloomberg any ideas.) There are many good things in this world that undoubtedly must be stopped, so the PTC is going to be quite busy.

Ronald Coase, 1910-2013

The immensely influential scholar and winner of the 1991 Nobel Prize for Economics was 102 years of age and a productive scholar to the end. An excellent short introduction to Coase’s work is found in the Concise Encyclopedia of Economics, edited by David Henderson.

Coase’s famous, seminal article “The Problem of Social Cost,” while the most widely cited in the law and economics canon, is also persistently misunderstood and misrepresented by both friends and foes, as Robert Ellickson shows devastatingly in this essay (h/t Jonathan Adler). Many, even most popular attempts to formulate the “Coase Theorem” veer far from what Coase intended and sometimes into the reverse, above all when they idealize the power of negotiation to overcome the problems of externalities in a highly fictional world that assumes away transactions costs.

As Coase himself pointed out: “The world of zero transactions costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave.” Precisely because across a wide range of circumstances the transactions costs of negotiation are too high to permit reallocations of rights between parties, some initial assignments of liability or property rights do impair real output compared with others.

The University of Chicago’s well-meaning notice, I fear, is among those that misstate the Coase Theorem. “Coase believed the incentives of private parties to resolve disputes in their own best interests, even if there needs to be adjudication by courts, should result in an efficient, mutually beneficial solution that is always preferable to government intervention.” (No, that’s not at all what he wrote, even if one succeeds in disentangling the court adjudication from the “government intervention.”) Likewise, Bloomberg: “Holding the [polluting] company liable and ordering it to pay money to an affected property holder is less likely to yield an optimal result than having the parties negotiate, he wrote.” (No, that’s not it at all either. At most, his theory implies that the optimal liability rule is fact-contingent and should not invariably be assumed to be the one that makes the smokestack owner pay.)

A Microeconomic Look at Regulatory Overkill

In this new paper, I argue that an overly burdensome U.S. regulatory state is partly responsible for the downward trend in domestic and foreign investment in U.S. factories, professional services operations, distribution centers, and research and development facilities. EPA mandates, Obamacare’s costly, complicated new health care directives, and the slowly emerging financial services restrictions stemming from Dodd Frank, are just some of the new regulations that have thickened the Federal Register to more than 80,000 pages per year and added 16,500 new pages to the Code of Federal Regulations during the Obama presidency, undoubtedly deflecting and chasing investment and business creation to foreign shores.

Oddly, this massive expansion of federal rules has evolved as President Obama has simultaneously expressed concerns about the impacts of both declining investment and regulatory overkill on economic growth. In 2011, the president issued Executive Order 13563 under the heading “Improving Regulation and Regulatory Review.” Section 1 states:

Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness and job creation. It must be based on the best available science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty. It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends. It must take into account benefits and costs, both quantitative and qualitative. It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand. It must measure, and seek to improve, the actual results of regulatory requirements.

The president issued this EO in the wake of his party’s mid-term election rebuke, perhaps to indicate that he understood the concerns of business. He even required that his agencies formulate plans for undertaking systematic, retrospective reviews of their rules and regulations with an eye toward making them less imposing on society:

Sec. 6. Retrospective Analyses of Existing Rules. (a) To facilitate the periodic review of existing significant regulations, agencies shall consider how best to promote retrospective analysis for rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned…

In the words of a former chief economist at the Council of Economic Advisers:

The single greatest problem with the current system is that most regulations are subject to a cost-benefit analysis only in advance of their implementation. That is the point when the least is known and any analysis must rest on many unverifiable and potentially controversial assumptions.

New Mexico Court Is Wrong: Government Must Treat People Equally, but Individuals Should Have Liberty to Speak, Associate, and Believe

On Thursday, the New Mexico Supreme Court ruled in Elane Photography v. Willcock that the First Amendment doesn’t protect a photographer’s right to decline to take pictures of a same-sex wedding against the requirements of the state’s Human Rights Act, which forbids discriminating against people on the basis of sexual orientation. This is a terrible result, for the freedom of speech and association, and for religious liberty. As I’ve argued before, even supporters of marriage equality (and equality generally) should not be blind to other violations of fundamental rights.

The New Mexico law is one of multiple state and federal “public accommodations” laws that prohibit private discrimination by companies that offer services to the public. These laws are antithetical to liberty and forbidden by the Constitution. The Supreme Court held in 1883’s Civil Rights Cases that the 14th Amendment – the provision that speaks to equal protection – doesn’t authorize Congress to legislate against discrimination by private citizens.

A hundred years later, however, the Court held that such power exists under the Commerce Clause – even where the business is confined to a single state. This is just one more instance of Commerce Clause abuse, something Cato has fought on numerous occasions, including the successful Commerce Clause challenge to Obamacare’s individual mandate.           

The legislation at issue in Elane Photography didn’t come from Congress, so the question of federal power doesn’t arise. But even if a state legislature has the authority to act in a specific area, that authority can’t be exercised in a manner that violates the constitutional rights of the those subject to it. Yet the New Mexico high court disagreed with the position we took in our amicus brief and held that compelling someone to engage in artistic photography somehow doesn’t violate the freedom of speech if they aren’t forced to broadcast a government-sponsored message (for more on the inadequacy of the court’s ruling see comments by Dale Carpenter and Hans Bader). 

Even if you agree with the court that New Mexico’s law doesn’t violate Elane Photography’s speech rights, however, it clearly violates the company’s freedom of association and freedom of contract – two rights which, while not explicitly named in the Constitution, are clearly implicit in our understanding of “liberty.” The right to freely associate and contract with others must include a negative right not to do so – or the right is meaningless. This isn’t a defense of bigoted business practices, but a defense of choice, and it applies across the board: I don’t like homophobia, or racism, or any other number of irrational or even deplorable attitudes, but as I said on 20/20 earlier this month, being a jerk isn’t illegal.

If a restaurant doesn’t like how you’re dressed, it has the right not to serve you. No shirt, no shoes, no service, no problem – or, at least that’s the way it should be. My property is my property and my time is my time. I have the right to sell or rent both to anyone I want – or not to, as the case may be. We don’t need a government forcing businesses to serve people because the market will do that for us: refusing customers – refusing to make a profit – over something as irrelevant as a customer’s skin color or sexual orientation is a losing business strategy. 

Unfortunately, the Supreme Court has been hostile to freedom of association and contract since the 1930s, notably in the 1984 case of Roberts v. U.S. Jaycees, where the Court upheld a law that required the Jaycees, a private self-help and leadership training group, to begin admitting women, over the membership’s objections. More recently, Christian Legal Society v Martinez, (in which Cato also filed a brief), the Court ruled that a Christian student group couldn’t restrict candidacy for leadership and ministerial positions to students who shared the group’s faith. (Accordingly, Democrats apparently have to admit Republicans, PETA has to admit meat-lovers, and so forth.) In these cases, the Supreme Court, like the New Mexico court, held that the government’s interest in equality and “non-discrimination” allows it to run roughshod over individual liberties.

While the last few terms at the Court have included numerous important victories for freedom – and we may be living what I like to call the Court’s “libertarian moment” – the Court’s protection of individual liberty is patchy. The rights of criminal suspects, the religious, property owners, businesses, and many others, are all occasionally sacrificed in the name of “progress”.