Topic: Regulatory Studies

How Firms Will Adapt to Avoid ObamaCare’s Mandates (and Drive up Its Cost)

By
Michael F. Cannon

An oped in today’s Wall Street Journal explains:

How big can a company get with just 50 employees? We’re about to find out.

Thousands of small businesses across the U.S. are desperately looking for a way to escape their own fiscal cliff. That’s because ObamaCare is forcing them to cover their employees’ health care or pay a fine—either of which will cut into profits and stymie future investment and growth…

“Going protean” offers a better strategy for many businesses. Owners of protean companies create a core of strategic employees who manage the big-picture elements of the enterprise—the culture, business model, product mix, vision, strategy, etc. This core then outsources the business tasks to other corporations…

Non-core tasks could include things like accounting, marketing, product development, manufacturing, IT, PR, legal, finance, etc. There is almost nothing that cannot be outsourced…

These new contracts will be a mix of large corporations, small businesses, micro-corporations and even nano-corporations (an individual doing business as a corporation). But to be a protean solution, it must involve a corporation-to-corporation relationship…

In the context of ObamaCare, a small business could go protean by offering current employees contracts for doing their current work as a corporate entity instead of as an employee…

[A]s government continues to impose itself into the marketplace and reduce the freedom of the commercial sector through statist programs like ObamaCare, businesses will have to look for creative solutions to survive. Going protean is only one way, and others will emerge.

Keeping the core company below 50 full-time employees will allow such companies to avoid the employer mandate. But it will also drive up ObamaCare’s cost, because most of the workers in the new corporate entity will be eligible for government subsidies through ObamaCare’s health insurance “exchanges.” This will drive up the cost of ObamaCare wherever those subsidies exist.

Topics: 
General, Health Care, Regulatory Studies

The Real Problem with Highly Regulated “School Choice”

By
Andrew J. Coulson

A Fordham Institute paper released today seeks to answer the question: do private schools really refuse to participate in heavily regulated school choice programs? Its authors tell us that “many proponents of private school choice… take [this] for granted,” citing two examples—one of them being the Cato Institute, whose Center for Educational Freedom I direct. The authors even cite a relevant commentary by former Cato policy analyst Adam Schaeffer.

The only problem is that the cited commentary says precisely the opposite. Describing Indiana’s voucher program, Schaeffer writes: “Because participating schools will have a significant financial advantage over non-participating schools, lightly regulated [non-participating] schools will face increasing financial pressure to participate.” This captures Schaeffer’s concern as well as my own (which I expressed over a decade ago in the political economy journal Independent Review): We do not fear that private schools will refuse to participate in heavily regulated school choice programs. We know that they ultimately will participate, or be driven out of business by their subsidized counterparts.

We know this because there is extensive evidence to that effect from all over the world and across history. Everywhere that private elementary and secondary schools are eligible for government subsidies, the share of unsubsidized school enrollment falls. The higher the subsidy and the longer it has been in place, the more the unsubsidized sector is generally diminished. The Dutch enacted a heavily regulated nationwide voucher program nearly a century ago. Unsubsidized private schooling remains legal, but has been reduced to a statistical asterisk—now making up less than one percent of enrollment, compared to roughly 70 percent for subsidized private schools.

Our reason for concern over this pattern is also grounded in empirical evidence: it is the least regulated, most market-like private schools that do the best job of serving families. That is the consensus of the worldwide within-country research, which I reviewed and tabulated for a 2009 paper in the Journal of School Choice. The Fordham paper does not discuss this evidence.

Despite imputing to Cato scholars the exact opposite of the view we hold, the paper does include some interesting data. In particular, it offers a new corroboration that voucher programs are more heavily regulated than tax credit programs (a difference whose magnitude and statistical significance was previously established here). This will make it even harder for objective observers to cling to the notion that vouchers and credits are functionally equivalent.

Topics: 
Education and Child Policy, Regulatory Studies

Milton Friedman on Business’s ‘Suicidal Impulse’

By
David Boaz

In a Wall Street Journal column titled “Silicon Valley’s ‘Suicide Impulse’” (Google the title if you can’t access it), Gordon Crovitz cites Milton Friedman’s speech to a Cato Institute conference in Silicon Valley in 1999:

In 1999, economist Milton Friedman issued a warning to technology executives at a Cato Institute conference: “Is it really in the self-interest of Silicon Valley to set the government on Microsoft? Your industry, the computer industry, moves so much more rapidly than the legal process that by the time this suit is over, who knows what the shape of the industry will be? Never mind the fact that the human energy and the money that will be spent in hiring my fellow economists, as well as in other ways, would be much more productively employed in improving your products. It’s a waste!”

He predicted: “You will rue the day when you called in the government. From now on, the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust very quickly becomes regulation. Here again is a case that seems to me to illustrate the suicide impulse of the business community.”

You can find the full text of Friedman’s talk here.

For more on business’s suicidal impulses, see “Why Silicon Valley Should Not Normalize Relations With Washington, D.C.” by entrepreneur T. J. Rodgers; “The Sad State of Cyber-Politics” by Adam Thierer; and my own “Apple: Too Big Not to Nail.”

Topics: 
Regulatory Studies, Telecom, Internet & Information Policy

Don McGahn and Ray LaRaja on Citizens United

By
John Samples

Don McGahn is a member and former chair of the Federal Election Commission. He has many years’ experience practicing election law, and he has thought a lot about both the law and politics of his subject. The other day, after the Cato conference on Citizens United, he sat down with Cato’s Caleb O. Brown to discuss that famous decision and its aftermath. McGahn’s thoughts are worth your time:

At the same conference, University of Massachusetts political scientist Ray LaRaja discussed his research on the impact of Citizens United on elections, spending, and the political parties. For my money, LaRaja is among the best of the young scholars working on campaign finance.

Topics: 
Government and Politics, Regulatory Studies

Gruber: No Reason for States to Establish ObamaCare Exchanges This Year

By
Michael F. Cannon

On Tuesday, I testified before the Florida Senate’s Select Committee on the Patient Protection and Affordable Care Act. Also testifying was economist Jonathan Gruber. Gruber is an architect of RomneyCare, and one of ObamaCare’s leading proponents. So it was significant when Gruber agreed that there is no reason for states to establish Exchanges this year:

Michael Cannon, director of health policy studies at the Cato Institute, and Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology, agreed on little about the federal health law, [yet] one bit of common ground emerged: Florida should go slow in its approach to a health-insurance exchange.

Gruber thinks that for 2014, states would be better off opting for a type of federal Exchange called a type of “partnership” Exchange, and then maybe running the Exchange themselves after that. I argue there is no reason for states to lift a finger to implement this law, now or ever, and that states would benefit from refusing both to establish an Exchange and to expand their Medicaid programs.

But now that ObamaCare’s leading proponent has acknowledged there is no reason for states to establish Exchanges this year, it will be easier for states who are still wrestling with that question (e.g., Idaho, Utah, North Carolina, Kentucky, Mississippi) to make up their minds.

Topics: 
Health Care, Regulatory Studies

Obama Overplays “We” in Inaugural Speech

By
Chris Edwards

When liberals make reference to U.S. economic history, they typically: 1) downplay the role of entrepreneurs, 2) suggest that bold government action has driven growth, and 3) fail to mention the scandals and screw-ups caused by federal interventions.

President’s Obama’s inaugural address reflected some of those mistakes:

Together we determined that a modern economy requires railroads and highways to speed travel and commerce….

No single person can … build the roads and networks and research labs that will bring new jobs and businesses to our shores… Now, more than ever, we must do these things together, as one nation, and one people.

It is not true that America first invested in railroads and highways because “we determined” to do it through the federal government. In the 19th century, those investments were made by thousands of entrepreneurs and businesses. My new study on infrastructure notes:

Before the 20th century, for example, more than 2,000 turnpike companies in America built more than 10,000 miles of toll roads. And up until the mid-20th  century, most urban rail and bus services were private. With respect to railroads, the federal government subsidized some of the railroads to the West, but most U.S. rail mileage in the 19th century was in the East, and it was generally unsubsidized.

Railroads, streetcars, bus systems, and, to an extent, roads were financed and developed over many decades by innovative businesses taking risks and making gutsy decisions in the marketplace.

The typical pattern has been for the private sector to experiment with new technologies, and then, once certain products or types of infrastructure take off,  politicians want to get in on the action by subsidizing and regulating them. In turn, those interventions have usually led to distortions, scandals, and cost inflation.

Entrepreneurs, for example, had already put in place about 30,000 miles of railroads before the federal government started subsidizing them through the Pacific Railroad Act of 1862. And in an early illustration of the problems with such crony capitalism, the railroad subsidies led to the huge Credit Mobilier scandal of 1872.

It also turned out that America didn’t need subsidies for railroads. With his Great Northern Railway, entrepreneur James Hill showed that you could build a cross-country rail system without federal help. Federal involvement in U.S. transportation history is discussed further here and here.

So, no Mr. Obama, we don’t need Washington to build our “roads and networks and research labs.” Indeed, more than ever we should be encouraging entrepreneurs to take on those tasks. You and your economic advisors, for example, should check out the beautiful new Jordan Bridge in Virginia, which was constructed with $142 million of private funds.

Topics: 
Government and Politics, Regulatory Studies, Tax and Budget Policy

Raisin Farmers Have Constitutional Rights Too

By
Ilya Shapiro

Long-time California raisin farmers Marvin and Laura Horne have been forced to experience firsthand the costs that America’s regulatory state imposes on entrepreneurs, especially innovative members of the agriculture industry. 

No longer do farmers enjoy the ancient right to sell their produce and enjoy the fruits of their labor.  Indeed, Horne v. U.S. Dept. of Agriculture exemplifies the extent to which all property and business owners are made to suffer a needless, Rube Goldberg-style litigation process to vindicate their constitutional rights.  

In this case, the USDA imposed on the Hornes a “marketing order” demanding that they turn over 47% of their crop without compensation.  The order—a much-criticized New Deal relic—forces raisin “handlers” to reserve a certain percentage of their crop “for the account” of the government-backed Raisin Administrative Committee, enabling the government to control the supply and price of raisins on the market.  The RAC then either sells the raisins or simply gives them away to noncompetitive markets—such as federal agencies, charities, and foreign governments—with the proceeds going toward the RAC’s administration costs.  

Believing that they, as raisin “producers,” were exempt, the Hornes failed to set aside the requisite tribute during the 2002-2003 and 2003-2004 growing seasons.  The USDA disagreed with the Hornes’ interpretation of the Agricultural Marketing Agreement Act of 1937 and brought an enforcement action, seeking $438,843.53 (the approximate market value of the raisins that the Hornes allegedly owe), $202,600 in civil penalties, and $8,783.39 in unpaid assessments.  After losing in that administrative review, the Hornes brought their case to federal court, arguing that the marketing order and associated fines violated the Fifth Amendment’s Takings Clause.  

After litigating the matter in both district and appellate court, the government—for the first time—alleged that the Hornes’ takings claim would not be ripe for judicial review until after the Hornes terminated the present dispute, paid the money owed, and then filed a separate suit in the Court of Federal Claims.  The U.S. Court of Appeals for the Ninth Circuit proved receptive to the government’s reversal.  Relying on Williamson County v. Hamilton Bank (1985)—the Supreme Court case that first imposed ripeness conditions on takings claims—the court ruled in a revised opinion that the Tucker Act (which relates to federal waivers of sovereign immunity) divested federal courts of jurisdiction over all takings claims until the property owner unsuccessfully sought compensation in the Court of Federal Claims.  In conflict with five other circuit courts and a Supreme Court plurality, the Ninth Circuit also concluded that the Tucker Act offered no exception for those claims challenging a taking of money, nor for those claims raised as a defense to a government-initiated action.  

The ruling defies both law and common sense.  It stretches the Supreme Court’s ripeness rule beyond its moorings and it forces property owners to engage in utterly pointless, inefficient, and burdensome activities just to recover what should never have been taken in the first place.  Having filed an amicus brief that supported the Hornes’ successful petition for Supreme Court review, Cato has again joined the National Federation of Independent Business, Center for Constitutional Jurisprudence, and Reason Foundation on a new brief that urges the Court to affirm its plurality decision in Eastern Enterprises v. Apfel (1998), which held that an unjustified monetary order is inherently a taking without just compensation.  Any ruling to the contrary imposes a pointless burden on property owners, particularly when the government initiated the original proceeding.  

We argue that the Ninth Circuit’s overbroad reading of Williamson County stretches the ripeness doctrine beyond any sensible reading; it allows the government to initiate a claim and then block an important constitutional defense on the fallacious notion that it has been brought prematurely.  We advocate a rule that is more compatible with the history and text of the Fifth Amendment—that the most natural reading of the Takings Clause demands that compensation be offered as a prerequisite to government action.  Indeed, from the time of Magna Carta, just compensation has been required before property was seized. 

Moreover, just as the Court wouldn’t permit the government to seize property without some prior “due process of law,” it shouldn’t permit the government to seize property without prior “just compensation.”  The Court has no reason to treat takings claims with less deference than rights anchored in other constitutional provisions.

Horne will be argued at the Supreme Court on March 20.

Topics: 
Law and Civil Liberties, Regulatory Studies

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