Topic: Regulatory Studies

Cato Makes Dick Durbin’s Enemies List

As reported on the Wall Street Journal’s editorial page and picked up by the Chicago Tribune among many others, Senator Dick Durbin (D-IL) has been sending out letters to anyone he has determined to have funded the American Legislative Exchange Council since 2005. He wants to know these supporters’ position on “stand your ground” laws, which ALEC (a group of state legislators pushing center-right reform ideas) advocated around the country.

After Trayvon Martin was killed in Florida—which had passed a stand-your-ground law before ALEC started pitching its model legislation—liberal activists pressured ALEC’s corporate donors to cut their ties with the group (never mind that “stand your ground” didn’t play a role in George Zimmerman’s trial for Martin’s death), which is partly why ALEC closed its task forces on non-economic issues.

Durbin smelled blood in the water and, continuing his rampage against corporate political speech—pretty rich for someone who inserted a consumer-unfriendly provision into Dodd-Frank at the behest of Walgreens and other large retailers in his home state of Illinois—is now seeking to shame anyone ever associated with ALEC.

That includes Cato. Earlier this week, we received a letter from Durbin asking two questions (you’ll have to pardon the awkward grammar; this went out to hundreds of groups, so Durbin’s staff apparently had no time for proofing):

  1. Has Cato Institute served as a member of ALEC or provided any funding to ALEC in 2013?
  2. Does Cato Institute support the “stand your ground” legislation that was adopted as a national model and promoted by ALEC?

And, by the way, Durbin wants recipients of his polite inquiry to know, “I plan to convene a hearing of the Senate Judiciary Committee Subcommittee on the Constitution, Civil Rights and Human Rights to examine ‘stand your ground’ laws, and I intend to include the responses to my letters in the hearing record. Therefore, please know that your response will be publicly available.”

Well, I’m proud to say that Cato isn’t going along with this charade.  Our president John Allison has responded to Durbin with a letter that I’ll quote in its entirety:

Some Trade Links, and Today’s “Shamelessly Pandering Congressman” Exhibit

A few items that crossed my desk today. All the emphases in the blockquotes are my own.

Imported Food Regulations

Following up from Doug’s post yesterday advocating for a “deregulatory stimulus,” here’s a story from Inside U.S. Trade [$] that shows how even obscure areas of federal law can serve as examples of, as the article puts it, a “paradigm shift” in the way regulations are written and applied:

The [Food and Drug Administration] proposal represents something of a paradigm shift in the way that imported food is currently regulated. FDA generally allows food to come into the country unless it has information that an exporter has lax safety practices or that a specific shipment is tainted – although it tests only a tiny percentage of imported food.

In essence, the [Foreign Supplier Verification Program, or FSVP] rule is shifting some of the burden to show that food is safe to the private sector. It also creates a basis for FDA to reject food imports besides finding a shipment to be adulterated. Under the proposed rule, food can be turned away if FDA finds that an importer does not have an adequate FSVP in place.

This is all part of a broader change in the way FDA operates that is being brought about under the Food Safety Modernization Act. That law, which was signed by President Obama in January 2011, also requires a frequency of overseas facility inspections by FDA that some observers say are unrealistic given its current funding levels….

In other words, the new Food Safety Modernization Act no longer just requires that imported food be safe. Now imported food can be rejected simply because of the absence of certain documentation. Proving food to be safe is a lot more burdensome than preventing unsafe food from entering the country. It does indeed represent a paradigm shift, and an unwelcome one.

How is the private sector coping with all of this?

Reaction from the private sector to the proposed rule has been fairly positive, according to industry sources. Many were pleased by the fact that FDA narrowed the scope of who is subject to the requirements to the party that actually caused the food to be imported, rather than including the agents who often act as middlemen in trade transactions.

England [a consultant to food importers] also generally praised FDA for limiting the importers’ responsibilities to interacting with the last party involved in exporting the food, and not imposing requirements for importers to go through their suppliers’ entire supply chain, which he said would have been unworkable.

I think that’s code for “not as bad as it could have been.” Kind of sad, don’t you think?

Anemic Business Investment Indicts U.S. Policies

Since the beginning of the Great Uncertainty – the period that began with the “stimulus,” the auto bailout, the push for another major entitlement program, Dodd-Frank, the regulatory dam burst, the subsidies for favored industries, and the proliferation of distinctly anti-business rhetoric from the White House – President Obama has appeared puzzled by the dearth of business investment and hiring. Go figure.

Nonresidential fixed investment fell off a cliff in 2009, and has yet to recover even in nominal terms. As a share of GDP and relative to the trend in investment growth prior to the 2008 recession, the picture is more troubling still. If tomorrow’s wealth and living standards are functions of today’s investment – and they are – reversing the decline in investment should be the economic priority of U.S. policymakers. 

Instead, the administration has been cavalier about the problem and aloof to real solutions, choosing to view investment as a casualty of partisan politics, as though business is intentionally holding back to sully the economy on this president’s watch. Such narcissism has obscured the White House’s capacity to grasp the power of incentives.

It’s not just domestic investment that is lagging. Foreign direct investment in real U.S. assets is also on the decline. The United States is part of a global economy, which means that U.S. and foreign based businesses can invest, hire, develop, produce, assemble and service almost anywhere they choose. And that means the United States is competing with the rest of the world to attract and retain investment. Of course, the implication of this – whether policymakers know it or not and whether they like it or not – is that globalization is serving to discipline bad public policy. Policies that are hostile to wealth creators chase them away, while smart policies attract them and harvest their fruits.

Business investment is ultimately a judgment about a jurisdiction’s institutions, policies, human capital, and prospects. As the world’s largest economy featuring a highly productive work force, world-class research universities, a relatively stable political climate, strong legal institutions, accessible capital markets, and countless other advantages, the United States has been able to attract the investment needed to produce the innovative ideas, revolutionary technologies, and new products and industries that have continued to undergird its position atop the global economic value chain. 

The good news is that the $3.5 trillion of foreign direct investment parked in the United States accounted for 17 percent of the world’s direct investment stock in 2011 – more than triple the share of the next largest single-country destination. The troubling news is that in 1999 the United States accounted for 39 percent of the world’s investment stock.

Obama’s Housing Speech: The Good, The Bad, & The Ugly

Yesterday, President Obama went to what was perhaps ground-zero of the housing crisis: Phoenix. He laid out his vision for the role of housing in building a middle class, as well as his solutions for avoiding bubbles.    

On the rhetorical side, the president certainly laid out some principles that anyone would be hard-pressed to disagree with. For instance, he characterized the business mode of Fannie Mae and Freddie Mac as “heads we win, tails you lose”–which of course it was. The president was correct in calling it “wrong.”  If only then-Senator Obama had aided the efforts to reform Fannie and Freddie by Senator Richard Shelby and others, perhaps this mess could have been avoided. But, hey–better late than never.  

The president is also correct in highlighting the issue of local barriers that increase the cost of housing. Both Cato’s Randy O’Toole and I have written regularly on this topic. You don’t get bubbles without supply constraints. But then every president since Reagan, at least, has pointed to this problem and yet it has only gotten worse. If the president has a substantial plan to bring down regulatory barriers in places like California, then I would love to see it.

Perhaps most importantly, the president recognized that what we had was a housing bubble, and the solution isn’t to “just re-inflate” it. As the president urged, we must “turn the page on the bubble-and-bust mentality” behind the housing crisis. That was the good, and again I applaud the president for recognizing those facts.  

Unfortunately, what details we have of his vision are not exactly consistent with these facts–which are bad and ugly. The president wants “no more leaving taxpayers on the hook for irresponsibility or bad decisions,” but then he implies that government should continue to stand behind risk in the housing market. The primary purpose of FHA, which the president commends, is to allow lenders to pass along the costs of their mistakes to the taxpayer.  

Mr. President, there is only one way to take the taxpayer off the hook:  get the government out of the mortgage market.  Anything short of that will continue to undermine the incentive for lenders to make responsible loans.  

Who Works at the Minimum Wage?

Recent protests by fast food workers have renewed interest in the minimum wage. Often, these protests focus on the inability of an individual worker to support a family on the minimum wage. Such a question spurred McDonald’s to release a mock budget for low wage workers. McDonald’s first mistake, however, was in accepting the premise of the question. 

Whoever claimed the minimum wage was supposed to be enough to support a family? Certainly, when I started my first job flipping burgers at Burger King, I didn’t take that job expecting to support a family. It was an avenue to earn some spending money (I wasn’t born a Kennedy, so my family could not provide a generous allowance) and a way to learn some basic job skills. I haven’t been alone in viewing minimum wage restaurants jobs in that light. According to the Bureau of Labor Statistics, in 2012 (latest numbers) over half of minimum wage workers are under age 25. In fact, only 3 percent of workers over the age of 25 earn at or below the minimum wage. Two-thirds of minimum wage workers only work part-time, again illustrating the point that these jobs aren’t viewed as a career but rather the first rung on the job ladder.

The biggest driver of who works at minimum wage is education. Only 8 percent of minimum wage workers have a college degree. Around one third lacks a high school degree. Cost of living also drives the difference. Despite the higher state minimum wages found in the Northeast, about half of all minimum wage workers live in the South, a relatively more affordable place to live. Sadly, opponents of the current minimum wage level are getting their wish, but not in the way they wanted. Since 2010, the number of minimum wage workers has declined by over 800,000. Given the increase in minimum wage in 2009 and the relatively weak labor market, I think it’s a safe bet that most of these workers left the labor force rather than received a big raise. 

Even if all minimum wage workers were trying to support a family on their own, I ultimately do not believe it’s the role of the government to inject itself into consensual private agreements. Nor do I believe it’s the role of the government to pick sides in private disputes. The government has no more moral authority to choose the “right” wage for someone than I do. Only free individuals can make those choices for themselves. Even if it wasn’t a policy choice about freedom of contract, do we really want, as a matter of policy, to encourage a large portion of individuals in their 30s and 40s to make a career of flipping burgers?  I certainly didn’t start my job at Burger King with the intention of staying.  

Federal Contractors Shouldn’t Lose First Amendment Rights

From the Boston Tea Party of 1773 to today’s Tea Party movement, from suffragettes to Occupiers, freedom of political association has always been this country’s hallmark. Importantly, this First Amendment freedom extends to campaign contributions. As the Supreme Court affirmed in the 1976 case Buckley v. Valeo,“the right of association is a basic constitutional freedom that is closely allied to freedom of speech and a right which, like free speech, lies at the foundation of a free society.”

The Buckley ruling has since survived many assaults—including, most notably, Citizens United v. FEC—though Citizens United exposed certain instabilities in Buckley’s frameworkIn any event, challenges continue to arise at the intersection of campaign finance law, political association rights, and the freedom of speech.

An important one comes from three individuals who have business contracts with the federal government. Under the Federal Election Campaign Act’s section 441c(a), “any person who is negotiating for, or performing under, a contract with the federal government is banned from making a contribution to a political party, committee, or candidate for federal officer.” Accordingly, the three plaintiffs are prohibited from making their intended campaign contributions and thus from an important form of political participation. This rule applies even to someone like name plaintiff Professor Wendy E. Wagner, who derives only a fraction of her income from the federal contract.

Together with the Center for Competitive Politics, Cato last week filed an amicus brief with the U.S. Court of Appeals for the D.C. Circuit, arguing that the plaintiffs should be able to exercise their right to political association and speech by contributing to political campaigns. Specifically, we argue that section 441(c) is unique in that it entirely bans contributions by a class of individual citizens. 

In McConnell v. FEC,the only case where the Supreme Court addressed an outright ban on contributions by a class of individuals—the ban on campaign contributions by minors originally in the McCain-Feingold campaign finance “reform,” which McConnell otherwise substantially upheld—the Court struck it down as overly broad and because the government didn’t give sufficient justification. What’s clear from that ruling is that for a ban on political speech and association to be constitutional, the government must show that its targeted class of people is somehow too dangerous to be allowed to participate in the political process, and also that the ban applies only to that set of uniquely dangerous people. Section 441(c) doesn’t meet this test.

If the government wants to ban her from this important form of political participation, then it must give more than bare assertions of the specter of potential corruption.

The D.C. Circuit will hear argument in Wagner v. FEC on September 30.

Community Associations Have Property Rights Too

The U.S. housing market has seen a major shift in the past 30 years: the rise of the community association. In 1970, only 1 percent of U.S. homes were community association members; today, more than half of new housing is subject to association membership, including condominium buildings. These organizations provide substantial benefits, including community facilities, maintenance, and rules designed to preserve property values, in exchange for assessment fees.

Accordingly, Mariner’s Cove Townhomes Association v. United States affects the rights of the more than 60 million Americans currently living in these associations. This case arises from the federal government’s taking 14 of 58 townhouses from one development in the wake of Hurricane Katrina. Mariner’s Cove owned a right to collect dues that was appended to those 14 townhomes, and sued the government for extinguishing that valuable right without just compensation under the Fifth Amendment’s Takings Clause.

In contrast to most lower courts, however, the U.S. Court of Appeals for the Fifth Circuit held that “the right to collect assessments, or real covenants generally” are not subject to Takings Clause analysis. In other words, the government can take those rights without paying anything to the owners. Cato and a group of esteemed professors, including Richard Epstein, James W. Ely Jr., and Ilya Somin, has submitted an amicus brief supporting Mariner’s Cove and arguing that the Supreme Court should take the case to clarify whether community association fees are compensable property under the Fifth Amendment.

Without such clarification, these beneficial private communities will be undercut. Such associations often shoulder the burden of providing and maintaining infrastructure, services, and utilities, which allows for more diverse and customizable amenities for homeowners than if those decisions were left with remote municipal governments. Because of these benefits, and because they increase the tax base, local governments are increasingly requiring developers to structure developments as community associations.

The perverse implications of the Fifth Circuit’s ruling are clear: it would allow for local governments to require he creation of a community association, benefit from the resulting private delivery of services while collecting taxes from its members, and later take the property without even paying back the very fees that enabled the government’s benefit. And the Fifth Circuit’s holding affects more than simply community associations. The court’s reference to “real covenants generally” implicates conservation easements, for example, which restrict the development and use of land for preserving the land’s natural, historic, or ecological features. This precedent would make association land an attractive option for uncompensated government takings.

The ruling also clashes with the Supreme Court’s recent decision in Koontz v. St. John’s River Water Management District: that an income stream from real property is a compensable interest under the Fifth Amendment. For these reasons, we urge the Supreme Court to take the case and to recognize the compensable property rights of the Mariner’s Cove Townhomes Association and the millions of other Americans choosing—and paying—to live in a community association.