Topic: Regulatory Studies

Short-Sighted Rules for Affordable Housing

The state of Maryland wants more people to have affordable housing – at least if they’ve already got it. Concerned that the owners of mobile home parks might sell the land for other uses, “affordable housing advocates” succesfully lobbied Maryland legislators this year for

legislation that, they say, discourages owners of mobile-home parks from selling their properties. If the landowner does sell, it provides the homeowner with some protection.

Under the law, which was passed earlier this year, a mobile-home park owner who wants to sell and change land use must give written notification to the residents and provide displaced homeowners with a relocation plan and relocation assistance that equals 10 months’ worth of rent. The legislation applies to mobile parks with more than 38 sites.

Now the first thing to be said about this is that it is theft. That’s become so common in legislatures that we’ve become accustomed to it. But we shouldn’t lose sight of what happened here: Some people spent their own money to buy land. They rented that land to people with mobile homes, who knew that they were not buying the land, they were just renting a place to park their mobile homes. (The word “mobile” might be a tipoff that they’re made to move.) And then the government took away the owner’s right to change the use of his land. The owner could still sell it, of course, as long as he gives written notification of his plans, provides the renters with a “relocation plan,” and pays them 10 months’ rent to leave his land. That’s a huge burden; the government has simply appropriated much of the value of the owner’s land.

But there’s an obvious long-term consequence here, too, one that the Washington Post didn’t get to in its 1000-word story. What’s going to occur to a landowner as she reads this story? She’s going to think, if I allow anyone to park a mobile home on my property, I’ll be permanently harnessed to that tenant, like a medieval serf. So maybe I’d better not rent any space to a mobile home owner. But then she’s going to think a bit further: What about other kinds of affordable housing? If I build inexpensive apartments or bungalows, and rent them to people who need affordable housing, will the state of Maryland decide that I shouldn’t be allowed to change the use of the land or sell it? After all, wealthy Montgomery County, Maryland – which doesn’t have many mobile homes – does have a 20-page handbook of rules and restrictions for any owner who might want to convert an apartment building to condominiums, including the county’s right to buy the land and a guarantee of lifetime tenancies for low-income elderly tenants. William Tucker pointed out in a 1997 Cato paper how rent control laws usually had to be followed by condo conversion restrictions, as building owners tried to find some way to make a profit on their buildings. And then of course the whole series of attempts to “protect” affordable housing leads to housing shortages and sky-high rents.

If you want people to supply affordable housing, it’s probably a good idea not to pile taxes, restrictions, and threats of confiscation on the backs of those who do.

Minimum Wage Hikes Deserve Share of Blame for High Unemployment

Even though the Obama Administration claimed that squandering $800 billion on so-called stimulus would  keep the joblessness rate below 8 percent, the unemployment rate today is almost 10 percent. There are many reasons for the economy’s tepid performance, including a larger burden of government spending and the dampening effect of future tax rate increases (tax rates will jump significantly on January 1, 2011, when the 2003 tax cuts expire).

A closer look at the unemployment data, though , suggests that minimum wage laws also deserve a big share of the blame. In this Center for Freedom and Prosperity video, a former intern of mine (continuing a great tradition) explains that politicians destroyed jobs when they increased the minimum wage by more than 40 percent over a three-year period.

Mr. Divounguy is correct when he says businesses are not charities and that they only create jobs when they think a worker will generate net revenue. Higher minimum wages, needless to say, are especially destructive for people with poor work skills and limited work experience. This is why young people and minorities tend to suffer most - which is exactly what we see in the government data, with the teenage unemployment rates now at an astounding (and depressing) 26 percent level and blacks suffering from a joblessness rate of more than 15 percent.

In a free society, there should be no minimum wage law. From a philosophical perspective, such requirements interfere with the freedom of contract. In the imperfect world of politics, thought, the best we can hope for is that politicians occasionally do the right thing. Sadly, the recent minimum wage increases that have done so much damage were signed into law by President Bush. It’s worth noting that President Obama’s hands also are dirty on this issue, since he supported the job-killing measure when it passed the Senate in 2007. When the stupid party and the evil party both agree on a certain policy, that’s known as bipartisanship. In the real world, however, it’s called unemployment.

Warning on a Go-Cart: ‘This Product Moves When Used’

For the 13th year, Bob Dorigo Jones has compiled the finalists for his annual Wacky Warning Label contest. Another, on a Bluetooth unit: “use of a headset that covers both ears will impair your ability to hear other sounds.” A few years back Jones compiled some of these into an amusing book entitled Remove Child Before Folding (from a stroller warning). For many more examples, check my blog Overlawyered, including warnings on not putting birthday candles in your ears, using your cocktail napkin for navigation, and ironing clothes while you’re wearing them.

Although regulatory agencies account for some of it, the main driving force behind over-warning is the “failure to warn” branch of modern product liability law, and the uncertainty it creates through its inability to generate clear guidance on what will and will not be considered adequate warning. Rather than invite suit – with its attendant risk of encountering a paternalistic, sympathy-driven or redistributionist judge or jury – most companies would rather include a silly or overbroad warning on the product, even at the cost of numbing consumers to the occasional warnings that really do deserve their attention.

A Soda Tax Completely, Utterly, and Totally Unrelated to Individual Choice

An interesting article in Slate today about the social psychology of “sin taxes”  and how people in general resent being told what to do. They may, in fact, react by consuming even more of the sinning item than before the nannies intervened, just to prove a point.

Unfortunately, the point of the article seems to be how to implement sin taxes – in this case, a soda tax – without annoying people to the point where the tax is counterproductive.  Something about “refram[ing]” the tax so it doesn’t tip people off as to its real purpose. The author concludes with this gem:

If we want to implement a sweetened beverage tax and maximize its effectiveness, the best approach would be to dissociate it from the larger issue of individual choice and focus on its immediate practical benefits, such as the revenue it produces. Over time, we’ll get used to it. We might even wonder why we didn’t do it sooner.

To end on a positive note, many of the comments are striking a distinctly libertarian tone.

The Sleazy Combination of Big Business and Big Government

There’s an article today in the Wall Street Journal showing how already-established companies and their union allies will use the coercive power of government to thwart competition. The article specifically discusses efforts by less competitive supermarkets to block new Wal-Mart stores. Not that Wal-Mart can complain too vociferously. After all, this is the company that endorsed a key provision of Obamacare in hopes its hurting lower-cost competitors. The moral of the story is that whenever big business and big government get in bed together, you can be sure the outcome almost always is bad for taxpayers and consumers.

A grocery chain with nine stores in the area had hired Saint Consulting Group to secretly run the antidevelopment campaign. Saint is a specialist at fighting proposed Wal-Marts, and it uses tactics it describes as “black arts.” As Wal-Mart Stores Inc. has grown into the largest grocery seller in the U.S., similar battles have played out in hundreds of towns like Mundelein. Local activists and union groups have been the public face of much of the resistance. But in scores of cases, large supermarket chains including Supervalu Inc., Safeway Inc. and Ahold NV have retained Saint Consulting to block Wal-Mart, according to hundreds of pages of Saint documents reviewed by The Wall Street Journal and interviews with former employees. …Supermarkets that have funded campaigns to stop Wal-Mart are concerned about having to match the retailing giant’s low prices lest they lose market share. …In many cases, the pitched battles have more than doubled the amount of time it takes Wal-Mart to open a store, says a person close to the company. … For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say. …Former Saint workers say the union sometimes pays a portion of Saint’s fees. “The work we’ve funded Saint to do to preserve our market share and our jobs is within our First Amendment rights,” says Jill Cashen, spokeswoman for the United Food and Commercial Workers Union. Safeway declined to comment. …Mr. Saint says there is nothing illegal about a company trying to derail a competitor’s project. Companies have legal protection under the First Amendment for using a government or legal process to thwart competition, even if they do so secretly, he says.

Heckuva Job on the Auto Bailout, Rattie

Puffing out his chest in Tuesday’s Washington Post, Steven Rattner, former-head of President Obama’s auto task force and architect of GM’s and Chrysler’s restructurings, asks, rhetorically: “Isn’t it time to agree that the auto rescue has been a success?”

Rattner’s declaration of “Mission Accomplished”—based on one calendar quarter of mediocre financial results—is a galling display of arrogance and deception, and betrays a disturbing cluelessness about the broader costs and consequences of the government’s heavy-handed intervention.

Rattner’s verdict rests on the singular consideration that “a year after the government-sponsored bankruptcies of GM and Chrysler, both patients are alive and progressing well toward recovery.” But that’s like hailing the stable medical condition of a drunk driver after an accident, while ignoring the injuries to the family in the vehicle he struck.

The impact of the auto intervention on its victims doesn’t factor into Rattner’s analysis.

Rattner’s claim of auto “rescue” success is the product of a straw-man set-up. The most compelling objections to the bailout were not rooted in the belief that the government couldn’t use its assumed power to help GM and Chrysler.  On the contrary, the most compelling objections were over concerns that the government would do just that.  It is the consequences of that intervention—the undermining of the rule of law, the confiscations, the politically-driven decisions, and the distortion of market signals—that animated the most serious objections.

Thus, any verdict on the outcome of the auto industry intervention must take into account, among other things, the billions of dollars in property confiscated from the auto companies’ debt-holders; the higher risk premium built into U.S. corporate debt, as a result; the costs of denying Ford and the other more successful auto producers the spoils of competition (including additional market share and access to the resources misallocated at GM and Chrysler); the costs of rewarding irresponsible actors, like the United Autoworkers union, by insulating them from the outcomes of what should have been an apolitical bankruptcy proceeding; the effects of GM’s nationalization on production, investment, and public policy decisions; the diminution of U.S. moral authority to counsel foreign governments against market interventions that can adversely affect U.S. businesses competing abroad, and; the corrosive impact on America’s institutions of the illegal diversion of TARP funds under two presidential administrations.

In the Washington Post analysis that leads to his pronouncement of success, Rattner considers none of those costs.

Instead, citing GM’s positive first quarter 2010 financial results, higher prices, smaller inventories, and a reduction in the use of rebates and other sales incentives, Rattner attributes the company’s success to the efforts of his task force, which oversaw the establishment of a new board of directors and reduced GM’s North American operating costs by $8 billion.

Indeed it may tempting for Rattner to take credit for GM’s first quarterly profit in nearly three years, but the truth is that cost reductions and the appointment of a new board of directors would have happened under a normal Chapter 11 reorganization (without the task force) anyway.  Likewise, economic recovery would have increased demand for and prices of GM vehicles—even without the guiding wisdom of Rattner’s task force.

Despite claiming success, Rattner recognizes that making taxpayers whole for their $81 billion investment in the auto indutry would help sell his version of history.  He even hints that it may soon be in the cards.  But even under the extremely unlikely condition that taxpayers get all of their money back, there are still the more difficult to quantify short- and long-term economic and institutional costs of the intervention that should counsel against ever doing something like this again.

Remember, the FCC Is Our National Censor II

Last week, I referred obscurely to “folks wanting to install the FCC as the Internet’s regulator,” cautioning that this same Federal Communications Commission is our national censor.

A friendly correspondent points me to an article in Ars Technica about the demand for speech controls coming from the same groups that want the FCC to control the Internet’s infrastructure, groups such as Free Press, the Media Access Project, and Common Cause.

Is there a parry to the charge that this is a demand for censorship? The signatories to the regulatory filing “respectfully request[] that the FCC … inquire into the extent and effects of hate speech in media, and explore possible non-regulatory ways to counteract its negative impacts.”

The filing does not contain the words “First Amendment” or “free speech.” It means “non-regulatory” the way a cop eyeballing someone and slapping his palm with a billy club is “non-regulatory.”

The FCC is experienced with “non-regulatory” coercion. Hearings in Congress have explored how the agency uses arm-twisting to get what it wants outside of formal regulatory processes. As law professor Lars Noah testified in 1999:

Arm twisting refers to an agency’s use of threats either to impose a sanction or withhold a benefit in hopes of encouraging nominally voluntary compliance with a request that the agency could not impose directly on a regulated entity. This informal method of regulation often saddles parties with more onerous regulatory burdens than Congress had authorized, accompanied by a diminished opportunity to pursue judicial challenges.

An FCC with the power to regulate Internet access services would use it to control Internet content.  There’s no place for the FCC in monitoring or administering speech controls, nor in controlling our communications infrastructure, the Internet.