Topic: Regulatory Studies

Free America’s Energy Future: Drop Washington’s Misguided Export Ban

For years people have been told to expect a dismal energy future.  But because of rapid market innovation Americans now can look forward to an abundant energy future.  The U.S. could even become a leading exporter—if Washington gets out of the way. 

An energy revolution currently is underway, with increasing supplies and falling prices.  Even more could be done if Washington expanded access to federal lands and waters and freed producers to make best use of what they extract.

Arbitrary restrictions bedevil energy exports.  For instance, natural gas licenses are granted automatically for nations with free trade agreements—in this case Canada and Mexico—but otherwise the review process is lengthy and approval is rare.  Last year Energy Secretary Ernest Moniz announced that he was delaying decisions on a score of applications for political reasons even though the department had already concluded that such exports would benefit the U.S. economy. 

The ban on oil is even tougher, with only small amounts being shipped to Canada.  Few licenses have been issued under the law’s “national interest” exception, and none since 2000.

As I point out in my latest Forbes online column:

Forbidding petroleum exports does not make additional oil available to Americans.  Rather, the ban prevents energy companies from saving money.  For instance, it would be cheaper to sell Alaskan crude to Asia and purchase more oil from Latin America.

Meet the Kronies!

If you want to get something done (or, just as often, not done) in Washington, you might just need … the Kronies.

Take, for example, Kaptain Korn:

Kaptain Korn is a mutant hero who can change shape at will. One minute he’s coating your corn flakes; another minute he’s bootleg liquor in your gas tank. Though he’s powerless without G-force, subsidies and mandates give Kaptain Korn the muscle he needs to push puny third world back down into the dust. Kaptain Korn ensures jokes stay corny, rears stay flabby and engines run less efficiently.

If you want to help defeat the Kronies, you might want to take a look at Cato’s DownsizingGovernment.org. Learn more from our video series on how to downsize specific departments (all videos will play below):

The Voting Rights Amendment Act Is a Bad Idea

One of the responses to the Supreme Court’s eminently sensible ruling last year that deactivated part of the Voting Rights Act was to call for a new, updated law to subject particularly bad actors to enhanced federal oversight. We now see the product of that motivation, introduced by the motley bipartisan crew of Reps. Jim Sensenbrenner (R-WI) and Jim Clyburn (D-SC) and Sen. Pat Leahy (D-VT). As I write in my new Forbes.com column:

Last week, a group of lawmakers introduced the Voting Rights Amendment Act of 2014. The timing was no coincidence: The bill was announced on Martin Luther King’s birthday, right before the holiday designated to commemorate the civil rights giant (for which Congress took the week off). This is the long-expected legislation responding to the Supreme Court’s decision in Shelby County v. Holder last June that disabled one part of the Voting Rights Act. But it’s both unnecessary to protect the right to vote and goes far beyond the provision it replaces to rework the machinery of American democracy on racial lines.

Based on the reaction of certain elected officials to Shelby County you could be forgiven for thinking that a congressional fix is badly needed to prevent racial minorities from being disenfranchised. But all the Supreme Court did was strike down the “coverage formula” used to apply Section 5 of the Voting Rights Act, which required certain jurisdictions to “preclear” with the federal government any changes in election regulations—even those as small as moving a polling station from a schoolhouse to a firehouse. The Court found the formula to be unconstitutional because it was based on 40-year-old data, such that the states and localities subject to preclearance no longer corresponded to the incidence of racial discrimination in voting. Indeed, black voter registration and turnout is consistently higher in the formerly covered jurisdictions than in the rest of the country.

Nevertheless, the proposed legislation draws a new coverage formula, resurrecting Section 5’s requirements for states with five violations of federal voting law over a rolling 15-year period. (That formula would currently apply to four states: Georgia, Louisiana, Mississippi, and Texas.) It also sweeps in sub-state jurisdictions that have had one violation and “persistent, extremely low minority turnout”—which can mean simply an average racial-minority turnout rate lower than that nationwide for either minorities or non-minorities.

All that sounds reasonable—Congress is finally updating its coverage formula—until you realize that this reimposition of Section 5 comes without any proof that other laws are inadequate to address existing problems (which is what the Constitution demands to justify the suspension of the normal federalism in this area). After all, Section 5 was an emergency provision enacted in 1965 to provide temporary federal receivership of morally bankrupt state elections, not to enable a constitutional revolution based on arbitrary statistical triggers.

Read the whole thing, and download this longer piece on why the Shelby County ruling actually vindicates Martin Luther King’s dream.

Scalia the Unlikely Swing Vote in Big Workers Rights Case

Today the Supreme Court heard oral argument in Harris v. Quinn, the case regarding the forced unionization of home healthcare workers in Illinois (and by extension the 10 other states with similar laws). To me this is a pretty easy case: just because the state is paying these workers through its Medicaid program doesn’t mean it employs them – just like my doctor isn’t employed by my health-insurance company – which means that it can’t force them to pay dues to a union that negotiates Medicaid reimbursement rates. 

Like most of the labor cases in recent years, however, this one is likely to go 5-4. The so-called “liberal” justices were all openly hostile to the workers’ position, so the challengers will have to sweep the rest of the bench of to win. Fortunately, such an outcome is more than possible – though much will depend on the thinking of Justice Scalia, who was hostile to everyone.

The argument began in a frustrating manner, with a focus on the right to petition the government for redress of grievances, and whether a union asking for a pay increase was different from an individual public-sector employee (a policeman, say) asking for the same raise. Justice Scalia correctly pointed out that this wasn’t really the right at issue here, but he further confused the matter in distinguishing the right to petition from the First Amendment (when in fact that right is found in that amendment). He meant to invoke the First Amendment right to the freedoms of speech and association, but also indicated that he was prepared to give the government plenty of leeway when it was acting as an employer.

Justice Alito was the most skeptical of the union/government position, pointing out that unions don’t necessarily act in all workers’ interest, even when they succeed in negotiating certain “gains.” For example, a productive young worker might prefer merit pay to tenure provisions or a defined-benefit pension plan. Chief Justice Roberts was similarly concerned about administering the line between those union expenses that could be “charged” even to nonmembers (because related to collective bargaining) versus those that can’t because they involve political activity. Justice Kennedy, meanwhile, noted that in this era of growing government, increasing the size and cost of the public workforce is more than simple bargaining over wages and benefits; it’s “a fundamental issue of political belief.” In no other context could a government seek to compel its citizens to subsidize such speech. A worker who disagrees with the union view on these political questions is still made to subsidize it. 

It was also heartening to see that the continuing vitality of Abood v. Detroit Board of Education (1977) was in play. That case established that, in the interest of “labor peace,” a state could mandate its employees’ association with a union, forcing them to subsidize that union’s speech and submit to it as their exclusive representative for negotiating with the government regarding their employment. (Abood simply assumed, without further analysis, that the Supreme Court had recognized labor peace as a compelling interest.)

Justices Breyer and Kagan were particularly concerned that so many employers and unions had relied on the Abood doctrine over the years, so touching it would implicate significant reliance interests. But overruling or severely limiting Abood would only be one more step in the Court’s trend of protecting individual workers from having to support political activities. More workers could thus opt out of supporting a labor union – but if unions truly provide valuable services for their members, few workers would do so.

Of course, the Court could shy away from touching Abood and simply rule that being paid by state funds alone isn’t sufficient to make someone a state employee. Such a position might more easily attract Justice Scalia’s vote – and that of Chief Justice Roberts, who goes out of his way to rule narrowly – even if it leaves unresolved some of the contradictions at the heart of the jurisprudence in this area, such as the duty of courts to police the murky line between “chargeable” and “nonchargeable” union expenses.

For more on the case, see George Will’s recent op-ed and the Wall Street Journal’s editorial.

Does Banning Walmart Help Mom-and-Pop Retailers?

As “Big-Box” retailers like Walmart have proflierated in recent years, “Mom-and-Pop” retailers have asked local governments to ban or limit Big Boxes, arguing that Walmart and their ilk drive small, independent retailers out of business.

One response to this complaint is, “Too bad.”  Walmart’s large size allows it to operate efficiently and offer low prices; independents are less efficient and so should get driven out of business.  Independents may be better than Big Boxes at service, convenience, specialty items, and “personality,” so many will survive despite nearby Big Boxes.  But if some fail and exit, that is what economic efficiency demands.

A different response is that, even if Big Box entry hurts independents, laws that limit Big Boxes do not necessarily help independents.  That is precisely the conclusion of new research by Raffaella Sadun (Harvard Business School).  Analyzing entry regulation in the United Kingdom, she finds that

independent retailers were actually harmed by the creation of entry barriers against large stores. Instead of simply reducing the number of new large stores entering a market, the entry barriers created the incentive for large retail chains to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline.

Thus even if policymakers want to protect small retailers, the “treatment” (government intervention) can be worse than the “disease” (competition)!

The Minimum Wage: Immoral and Inefficient

Democratic politicians are desperate to make up for ObamaCare’s disastrous roll-out.  Thirteen states are increasing their minimums this year, and some Democrats believe raising the national minimum wage is a winning campaign issue for November.

There’s no doubt that raising the minimum wage would reduce employment and slow economic growth.  Worse, government wage-setting is immoral.  It is unfair and wrong for politicians to posture as philanthropists while forcing other people to pay higher salaries.

The first question is the minimum’s impact on employment and price levels.  The answer is clear:  the cost of higher wages will be borne in varying degrees by customers, workers, and investors.  As I wrote in the American Spectator:

as Nobel Laureate Milton Friedman observed, there ain’t no such thing as a free lunch.  Arbitrarily raising the cost of labor—there is no principled basis for choosing any particular government minimum—will increase prices, reduce investor returns, and cut employment levels.

Most vulnerable are workers with the least education, experience, and skills, who tend to be young and minorities.  Forcing up wages will not only reduce overall employment, but shift jobs toward higher-skilled workers who are more productive and thus warrant higher pay.  The minimum wage also encourages mechanization, since it makes economic sense for companies to invest more in machines to spend less on labor. 

In effect, the minimum wage is a tax on labor-intensive companies.  No surprise, then, as explained by Mark Wilson of Applied Economic Strategies in a Cato Institute Policy Analysis:  “The main finding of economic theory and empirical research over the past 70 years is that minimum wage increases tend to reduce employment.” 

The strangest claim may come from the Financial Times, which editorialized:  “a higher wage would stimulate the economy without adding a dime to federal spending.”  However, to the extent raising the minimum increases the total amount of wages, it does so by redistributing the money from other people, who end up with less to spend on consumption. 

No doubt, the employment impact of a small increase, especially if salary levels have been rising, would be modest, which explains recent economic studies demonstrating lesser job loss.  But the less significant the increase, the less meaningful any potential benefit.

In contrast, those who claim that raising today’s minimum would have no impact on employer behavior fail to demonstrate the courage of their convictions.  If government can hike wages without harm, why stop at $10 or $15 an hour?  Why not go to $1000 or $1500?  Then everyone in America could be rich at no cost to anyone!

Yet there is an even more fundamental issue.  The minimum wage is the modern perversion of compassion into coercion:  I believe there is a moral imperative for you to earn more, so I force someone else to pay more.  I feel moral while sticking someone else with the bill. 

However, if “we,” the citizens of America, believe people should earn more, then “we,” the citizens of America, not a few labor intensive businesses, should pay for those above-market wages.  Opposing the minimum wage is simple fairness.

While many advocates no doubt are true believers, for some fairness talk is pure twaddle.   John Cassidy wrote in the New Yorker:  “In the current political environment, there is little chance of pushing through another hike in income-support programs.  Raising the minimum wage pushes the burden onto corporations and consumers.” 

Washington should be systematically reducing, not increasing, the cost of doing business.  Yet the regulatory-happy Obama Administration has been imposing multiple burdens on commerce, starting with ObamaCare. 

The next time someone rises to support arbitrary government wage-setting, they should be asked what they are doing personally to help the economically disadvantaged.  Raiding the wallets of others does not count as compassion

Is Free Trade in Energy Finally on the Horizon?

Over the last few months, the media and the policy world have discovered that America’s archaic crude oil export restrictions are really bad policy. Two new and important developments give this welcome and growing movement even more momentum:

  • In a much-publicized speech yesterday, Sen. Lisa Murkowski (R-AK), ranking member of the Senate Energy Committee, advocated modernizing U.S. export restrictions on energy products, particularly natural gas and crude oil. Accompanying her speech was a new white paper on the same topic, which (i) highlights the serious economic problems caused by the current crude oil export licensing system (which is effectively a ban on exports to all countries except Canada); (ii) confirms the widely held view that oil exports won’t cause higher gas prices; and (iii) recommends that the president, the Commerce Department, or–if they continue to do nothing–Congress relax the export ban. Just as importantly, Murkowski’s views were recently echoed by Sen. Mary Landrieu, (D-LA) who stands to take over the Senate Energy Committee this year. Thus, there could be bi-partisan support for easing the U.S. crude oil ban on the Senate committee arguably most integral to any such reforms.
  • Also, today, the American Petroleum Institute’s president and CEO Jack Gerard reiterated his organization’s support for lifting the crude oil export ban:

Gerards’s formal announcement echoes a few previous statements from folks at API (which is the largest U.S. energy trade association and a big player on Capitol Hill) and is a good sign that they’re going to push harder on this issue in the future. (API’s related blog post, which calls the crude export ban “obsolete,” certainly indicates as much.)

These two developments should be welcome news for anyone concerned with free markets, economic growth, and well-functioning energy markets. As I argued in a February 2013 Cato paper (and subsequent podcast), the crude oil export restrictions–and the similar, more well-known restrictions on U.S. natural gas exports–raise a host of economic, legal, and policy concerns. These restrictions should be replaced with a simple, transparent, and automatic licensing system for all exports of U.S. energy goods (not just fossil fuels).