Topic: Regulatory Studies

Frank: Nonbank “Designation” Goes Too Far

An interesting op-ed in today’s WSJ echoing my own previous op-eds (http://www.cato.org/publications/commentary/treasury-departments-regulatory-overreach-expands and http://www.cato.org/publications/commentary/too-big-fail-too-foolish-continue). The WSJ quotes former House Financial Services Chairman Barney Frank as saying that he does not favor designating large asset managers such as BlackRock or Fidelity as “systemically important” and that this was not the intent of his law. Those are pretty strong words from one of the chief architects of Dodd-Frank and all the more remarkable since Frank has seldom acknowledged an aspect of the financial sector he didn’t think could use more regulation.

According to the Journal, Frank noted that “overloading the circuits isn’t a good idea” and said that the Financial Stability Oversight Council (FSOC) created by Dodd-Frank “has enough to do regulating the institutions that are clearly meant to be covered—the large banks.”

Implicit in this this statement, is the idea that the FSOC is somewhat out of its depth when it comes to identifying “systemic risks” in the nonbank financial system. Unsurprising, since most of the Council’s staffers are young political appointees with no financial sector experience. Even more fundamental, as Frank alludes to, is the lack of evidence that the industries being targeted in any way contribute to widespread systemic risk. Frank concentrated on the lack of evidence that asset managers transmit risk through the system, but the same logic can be applied to insurers and hedge funds as well.

Absent a full repeal of the Dodd-Frank, and given the growing bipartisan recognition of the dangers of extending bank-like supervision to the nonbank sector, at the very least, Congress should limit the application of Titles I and II of Dodd-Frank to bank holding companies only.

Another Battle Against Silly Tour-Guide Regulations

For the second time this fall, Cato has filed a brief supporting a lawsuit challenging the power of cities to stifle and regulate speech by licensing tour guides—effectively restricting who may lawfully speak to an audience about the city’s history. 

In September, we filed a brief supporting “Segs in the City,” a segway touring company challenging a D.C. law which made it illegal to give tours in Washington, D.C., without completing a licensing process that involves a thorough history exam. Now we’ve filed a brief in the U.S. Court of Appeals for the Fifth Circuit, again joined by First Amendment expert Eugene Volokh, in support of a group of tour guides challenging New Orleans’ licensing scheme. (Both the D.C. and New Orleans guides are represented by our friends at the Institute for Justice.)

Like D.C., New Orleans only licenses guides who can pass a history test. In addition to that blatantly unconstitutional speech restriction, the Big Easy also requires licensees to submit to periodic drug tests. All that just so they can talk about the history and culture of New Orleans without spending five months in prison!

We argue that the licensing regime is a content-based restraint on speech and therefore must pass the strictest judicial scrutiny, so the government needs a compelling reason for it and has no other way of accomplishing the same goal. The law is a content-based speech regulation in that it is (a) triggered by the content of speech, and (b) justified on the basis of the content that it regulates. The Supreme Court has repeatedly held that a law regulating the content of speech—as opposed to its location, timing, or manner—is subject to strict scrutiny. The justifications offered for the licensing law refer to the “sufficient knowledge” of the guides and the accuracy of their speech. That is as much a content-based justification as saying that people need to be protected from hearing “erroneous” political opinions or “controversial” historical theories.

Finally, we argue that tour guides are not members of a “profession,” such as lawyers, doctors, and accountants, which could merit less First Amendment protection in order to protect the public from harm. Unlike those professions, tour guides don’t have intimate relations with clients. Instead, like most businesses, they simply have customers. The government can’t possibly require authors, public lecturers, or documentary filmmakers to get licensed in order to protect the public from “misinformation,” and it has no more basis for licensing tour guides.

The Fifth Circuit will hear argument in Kagan v. City of New Orleans early in the new year.

PISA School Test Results

New international student test results called PISA have been released. See here and here. Once again, U.S. high-school kids did poorly. American kids ranked 36th in math, 24th in reading, and 28th in science among 65 countries and jurisdictions. The U.S. scores were below the average of other countries in all three subject areas.

A number of Asian countries scored the highest on all three tests. But Canadian kids also did very well, scoring toward the top on all the tests. On math, for example, Canadian kids ranked 13th, compared to U.S. kids at 36th.   

American policymakers often react to such dismal U.S. results by calling for more central planning of education through federal subsidies and mandates. But note that Canada has no federal education department and no federal subsidies for its K-12 schools. Canadian education is entirely controlled at the provincial and local levels.  

The Canadian test score advantage over the United States doesn’t prove that decentralization alone leads to higher scores, but it does prove that the United States does not need any federal involvement in order to become a top-ranked schooling nation. Indeed, Cato scholars have long argued that we would better off abolishing the U.S. Department of Education and ending all federal subsidies

My colleagues have opined on the PISA results here and here.

More on Canada’s decentralized government here and here.

Against Forced Unionization

The Supreme Court has long applied exacting scrutiny to limitations placed on the freedoms of speech and association. Unfortunately, the Court has not extended such protection to those forcibly unionized.

In Abood v. Detroit Board of Education (1977), the Court accepted that promoting “labor peace”—limiting the number of competing workplace interests that bargain over the conditions of employment—was an interest so compelling that a state may mandate its employees’ association with a labor 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. Since that time, more than a dozen states have forcibly unionized independent contractors who are paid through Medicaid.

In 2003, Illinois forced its home healthcare workers to join and pay dues to the Service Employees International Union as their sole representative before the state. Workers subject to this coerced association have challenged the law as a violation of their First Amendment rights and the case is now before the Supreme Court. Cato, joined by the National Federation of Independent Business, has filed an amicus brief in support. We argue that Abood was wrong when it was decided and should now be overturned. Abood simply assumed without analysis that the Supreme Court had already recognized “labor peace” as a “compelling interest.”

But the cases Abood relied on only regarded “labor peace” as justifying Congress’s exercise of its Commerce Clause authority to regulate labor relations, not as a basis to override workers’ First Amendment rights—and a Commerce Clause analysis is logically irrelevant to the First Amendment. Furthermore, Abood turns the logic of the First Amendment on its head: Unions are designated as the exclusive representatives of those employees that are compelled to support them for the sole purpose of suppressing the speech of dissenting employees, but under Abood it is exactly this suppression of speech that validates coerced association under the First Amendment. Such logic can’t be reconciled with the Court’s strict scrutiny of laws in other First Amendment contexts.

Even if the Court chooses to maintain Abood, it should reject the coercive programs at issue here because they’re unsupported by Abood’s rationale and serve no other compelling state interest. The homecare workers subject to the law aren’t employed by the state. Although they’re paid through a Medicaid disbursal, every crucial aspect of the employment relationship, including workplace conditions, hiring, and firing, is determined by the individual cared-for by the worker. The union is thus limited to petitioning the state for greater pay and benefits. Given this limited scope, there can be no serious claim that SEIU’s exclusive representation of some workers has freed Illinois from any great burden due to “conflicting demands” from other workers. Whatever Abood’s long-term vitality, that flawed case doesn’t support the compelled unionization of workers who are in no way managed by the state.

The Supreme Court will hear Harris v. Quinn on January 21.

This blogpost was co-authored by Cato legal associate Lauren Barlow.

The Dangers of a Soda Tax

Discussing the problems with a soda tax is both easy and difficult. It is easy because the main argument is fairly obvious: If taxing soda in the name of public health is a legitimate function of government, then there is no functional limit on what government can do under the guise of public health.

But this argument, though straightforward, is a difficult sell because it is not terribly convincing. This is partially because it is a slippery slope argument (“step 1 will inexorably lead to step 10”), and slippery slope arguments are often straw-man arguments. Arguing against step 10 (“so why don’t we just tax all bad foods?”) is not actually the argument being made at step 1 (“I think we should tax soda.”).

The other reason the argument is difficult is because it is hard to ignore the science. Perhaps it is true that a tax on soda will help public health. In fact, I’ll concede for the sake of argument that taxes on soda will increase public health.

So, as someone who opposes soda taxes, what arguments do I have left if I’ve made these concessions? There are three: 1) The Primitivism of Politics; 2) The Modern Fallacy of “Public Health”; and 3) A Properly Formulated Slippery Slope Argument

The Court Revisits Obamacare

Obamacare’s legal troubles were far from ended when Chief Justice Roberts ruled in 2012 that the law’s “penalty” for failing to buy health insurance was really a “tax,” purportedly rendering the Act constitutional under Congress’s power to tax, even though neither he nor anyone else could say whether the Constitution recognized or allowed so sui generis a tax.

So far is the litigation from over, in fact, that if you’re planning a legal challenge to Obamacare, you’ll have get in line. Two of those in line got good news today: The Supreme Court has agreed to hear their challenges. Both concern Obamacare’s mandate that employer provided health insurance policies cover such things as sterilization, contraceptives, and abortifacients, even in the face of an employer’s religious objections. In Sebelius v. Hobby Lobby Stores, Inc. the U.S. Court of Appeals for the Tenth Circuit ruled for the individual employer. In Conestoga Wood Specialties Corp. v. Sebelius the U.S. Court of Appeals for the Third Circuit ruled against the corporate employer. At issue are both constitutional and statutory claims under the Religious Freedom Restoration Act (RFRA).

Ilya Shapiro has discussed the issues more fully here. And earlier on I had a short post on the subject here. The Court will likely hear oral argument in March. Maybe the website will be running by then.

Peter Lewis, RIP

Progressive Corp. Chairman Peter B. LewisThe Washington Post brings us some sad news today: Peter Lewis has died of a heart attack.

If you watch any television at all, you will see many TV commercials for Progressive Auto insurance, featuring the wise-cracking, Flo, with her 1960s hairdo, but Peter Lewis was the man who took the helm of the company as CEO in 1965 and turned a small company into one of the largest auto insurers in the USA.

After serving as CEO for 35 years, Lewis retired to focus on philanthropy.  He saw the futility and countless injustices of America’s drug war policies and financially supported organizations that worked to end drug prohibition, including the Cato Institute.

In ten years (less?) marijuana will be a legally sold product in much of the United States, and too many people will casually assume that it was somehow inevitable.  Last December, following the successful initiatives to legalize marijuana in Colorado and Washington, I told an adviser to Lewis that when the history of the drug war is written, he will be remembered as one of the heroes.   I am glad Lewis lived to see the turning of the tide on drug policy here in the USA.