Topic: Regulatory Studies

Peter Schiff: For Jobs, Look to Microeconomics

Peter Schiff’s testimony to a House committee yesterday on the nation’s economic crisis provides a refreshing contrast to the Keynesian-dominated commentary that saturates the mainstream media.

Peter talks about how:

  • The president’s jobs plan would create perverse hiring and firing incentives
  • Infrastructure investment needs to earn a positive net return else it’s not worth doing.
  • The minimum wage increases unemployment for low-skill workers
  • Regulation and litigation reduce hiring
  • Extended unemployment benefits exacerbate unemployment.

It’s all Econ 101 microeconomics, but it’s often forgotten these days by economists and pundits who only see the world through the lens of “aggregate demand.”

Sen. Rubio to Sec. Duncan: Dear Sir, Obey the Law

Senator Marco Rubio has just written to Secretary of Education Arne Duncan, requesting that he not break the law. At issue is the administration’s plan to offer states waivers from the No Child Left Behind act if they agree to adopt national standards or pursue other educational goals of the administration. Rubio states that these conditional waivers violate the U.S. Constitution, the Department of Education Organization Act, and the No Child Left Behind Act. He’s right.

As my Cato colleagues and I have noted many times, the Constitution mentions neither the word “school” nor the word “education,” and so, under the 10th Amendment, reserves power over those concerns to the states and the people.

The Act creating the Department of Education is equally clear:

No provision of a program administered by the Secretary or by any other officer of the Department shall be construed to authorize the Secretary or any such officer to exercise any direction, supervision, or control over the curriculum, program of instruction, administration, or personnel of any educational institution, school, or school system… .[Section 3403(b)]

Nor is the NCLB particularly ambiguous:

‘Nothing in this title shall be construed to authorize an officer or employee of the Federal Government to mandate, direct, or control a State, local educational agency, or school’s specific instructional content, academic achievement standards and assessments, curriculum, or program of instruction. [Section 1905]

The Secretary’s conditional waivers from NCLB mandates, in return for dancing as he desires on national standards, seem to violate all of the above. I wonder if any education reporter will have the temerity to ask Arne Duncan on what grounds he believes he is entitled to ignore these laws? Senator Rubio’s letter certainly gives them a golden opportunity to do so.

Overregulation, Swing States and D.C. Cynicism

Today’s Wall Street Journal carries a news report on how the Obama administration, after more than two years of pursuing damn-the-costs government control over the private sector, is finally developing more internal debate about whether and when zealous regulations are worth the cost. In particular, Office of Information and Regulatory Affairs chief Cass Sunstein, known as skeptical about some costly rules, has now acquired an important sometime ally in White House Chief of Staff Bill Daley, who played a role in getting EPA to table some very expensive new air-quality standards the other day.

All well and good, but I was stopped short by a paragraph that shouldn’t pass without comment:

The same day, Mr. Daley met with industry groups, who gave the White House a map showing counties that would be out of compliance with the Clean Air Act if the stricter standards were put in place. The map showed that the rule would affect areas in the politically important 2012 election states of Florida, Pennsylvania, Virginia, and Ohio.

Even by Washington standards, isn’t it appallingly cynical to evaluate environmental rules that could (critics have argued) cripple wide sectors of the economy according to whether the worst damage falls on politically vital states like Florida and Ohio, or just ho-hum non-swing states like Oklahoma, North Dakota and Tennessee? True, the article doesn’t say who was cynical enough to draw the connection here – the business groups giving the presentation? The White House listeners? Some third party whose viewpoint this is all being filtered through? But whoever’s being the cynic here, one of the costs is to feed the alienation of citizens of Texas in particular, whose officials and businesses have been complaining for more than a year of being singled out for hostile attention by the Obama EPA. For everyone’s good, I hope someone in the White House at this moment is writing a sharp letter disclaiming any special intent to help Pennsylvania, Virginia et al. And I hope after drafting that letter they will be cleared to send it off for publication in the Journal, not just keep it in the desk to show outraged delegations of Texans.

Davis-Bacon Rules Damage D.C.

The Washington Post reports on a Labor Department decision that applies pro-union Davis-Bacon rules to the CityCenter development in Washington D.C. The ruling could push up costs on the project by $20 million by forcing firms to pay artificially high wages.

The paper says that “area real estate developers and construction executives who have partnered with the District say the ruling, if upheld, is likely to inflate costs on a wide range of projects by as much as 15 percent.” In turn, that could have “unprecedented, significant [and] adverse citywide cost impact upon every economic development project in the District’s portfolio,” said a deputy mayor of the city. So while Democrats in Congress are demanding government action to fix the nation’s supposedly crumbling infrastructure, here the Obama administration has thrown up a new hurdle to investment.

Davis-Bacon rules usually apply to federally funded construction, thus pushing up the costs of public projects. Nationwide, economists at the Beacon Hill Institute found that Davis-Bacon rules cost federal taxpayers about $9 billion annually. For example, repairs to National Park facilities cost more than they should, thus reducing the amount of maintenance the agency can do within its budget. However, the D.C. ruling stretches the Davis-Bacon rules even further because CityCenter is a privately funded project.

In an essay at www.DownsizingGovernment.org, economist Charles Baird notes that passage of Davis-Bacon in 1931 was motivated by the faulty economic idea that the government should try to keep wages high during an economic downturn. But Baird describes another reason why Davis-Bacon was misguided from the start—the racist intentions of the bill’s supporters:

Congress wanted to keep black workers from competing for jobs that had hitherto been done by white unionized labor. The racist motivation behind the legislation is plain when reading the Congressional Record of the debate in 1931.

Job Creation, Obama-style

I guess the Labor Department didn’t get the memo on trying to create jobs, rather than destroy them.  As reported by the Wall Street Journal, the Labor Department is investigating several home builders for treating their contractors as…contractors.  Anyone with the slightest understanding of the construction industry knows that much of the relationships are between contractors and subcontractors, rather than employees and employer, largely because the projects regularly change.

But from Obama’s perspective, and that of his union allies, such treatment makes unionizing construction workers all that much harder.  Without such unionization, construction wages might fall.  Obviously that’s the last thing anyone would want when you have about 2 million unemployed construction workers.  If wages fell, a few more of them might actually get hired.  Someone in this Administration really needs to learn how the basics of supply and demand work, in the labor market and elsewhere.

My favorite part of the story is the union representative complaining about home builders trying to lower costs.  She states that home builders need to stop pressuring subcontractors to “go cheaper” on costs: “It’s pretty clear that there’s an enormous pressure to rush to the bottom in terms of keeping costs down.”  Maybe if houses were even cheaper, then not eveyone would have had to get such a large mortgage to buy a house and we could have avoided the financial crisis altogether.  But then when it comes between choosing to make one of life’s basic necessities - shelter - cheaper or helping to line the pockets of special interests, this Administration sadly continues to prefer the later.

Latest ObamaCare Glitch Enables States to Block New Entitlement Spending

Investors Business Daily reports on the latest glitch found in ObamaCare’s 2,000-plus pages:

Because of a quirk in ObamaCare, people who buy health insurance through a federally run exchange may not be eligible for premium subsidies.

Government-created exchanges are places for individuals to shop and purchase health insurance. ObamaCare will require individuals and families to buy insurance, starting in 2014.

Those with incomes at 100% to 400% of the federal poverty level will be eligible for taxpayer funded subsidies — a tax credit to help pay for the premium.

It turns out that the legislation isn’t so clear, the latest example of what analysts predicted would be a stream of surprises from the mammoth health law.

Section 1311 of ObamaCare instructs state governments to set up an exchange. If a state refuses, Section 1321 lets the federal government establish an exchange in the state.

Yet ObamaCare states that the tax credit is available to people who are enrolled in an “an exchange established by the state under (Section) 1311.” It makes no mention of people enrolled in federal exchanges being eligible for the tax credit.

“There is this technical problem in the law,” said James Blumstein, a professor at Vanderbilt Law School. “I don’t see how you get around that.”

I guess the folks who chanted, “Read the bill!” seem a little less crazy now.

Regrettably, the IRS has tried to “get around” the clear meaning of the law.  In a proposed rule, the IRS writes that taxpayers will be eligible for ObamaCare’s “tax credits” – which are more government spending than  – if they are enrolled in a health plan “established under section 1311 or 1321” [emphasis added].  But that’s not what the law says.  As I told IBD:

“Congress did not delegate this discretion to the IRS,” Cannon said. “Congress created a tax credit for A, and the IRS is saying it applies to A and B. If the IRS offers this tax credit to federally run exchanges, the IRS will be assuming powers the Constitution vests only in Congress to alter the tax code and spend money.”

Citizens have until October 31 to share with the IRS their thoughts about the agency’s overly broad interpretation of its powers (see here).

More broadly, this bug feature means that states can block ObamaCare’s new entitlement spending, and possibly the entire law, just by refusing to create an Exchange:

“The whole structure of the law collapses without a state-run exchange,” said Michael Cannon, director of health policy studies at the libertarian Cato Institute. “That forces Congress to either repeal ObamaCare or significantly alter it.”

Yesterday, Rep. Michael Burgess (R-Texas) helpfully suggested that the so-called “Super Committee” should meet its target of $1.5 trillion in spending reductions by cutting ObamaCare’s new entitlement spending:

The Select Committee is getting to work, and I encourage both parties, all 12 members, to put the Affordable Care Act on the table, alongside other entitlements in need of reform…The easiest money to save is money you haven’t yet spent…This new select committee could easily achieve almost their entire target of reducing the nation’s deficit, and…almost every dollar would come from benefits that do not yet exist.

The wonderful thing about this newly discovered feature of ObamaCare is that states don’t have to wait for Congress to act.  They can reduce federal spending simply by not creating a health insurance Exchange.

Whose Axe Made Your Axe? You Better Find Out

For the second time in two years, federal agents from the U.S. Fish and Wildlife Service have raided two Tennessee factories that make iconic Gibson guitars. The government alleges that Gibson imported woods in violation of the Lacey Act, a century-old law that makes it a federal crime to trade in plants, wildlife, or timber that have been harvested in violation of “any foreign law.”

While this seems simple enough, and the anti-poaching/conservation impulses behind the law are certainly commendable, the Lacey Act has become one of many federal statutes that create invisible minefields of federal regulations into which anyone can stumble unknowingly.

A Gibson Les Paul

In the Wall Street Journal today, Eric Felten discusses the Gibson raid and points out just how dangerous and overblown the Lacey Act has become. Since plants and timber were added to the act in 2008, even individual owners of vintage guitars can run afoul of the act. Felten writes:

If you are the lucky owner of a 1920s Martin guitar, it may well be made, in part, of Brazilian rosewood. Cross an international border with an instrument made of that now-restricted wood, and you better have correct and complete documentation proving the age of the instrument. Otherwise, you could lose it to a zealous customs agent—not to mention face fines and prosecution.

In addition, all the confusing forms must be filled out completely and perfectly, or you could face heavy penalties.

As a guitarist with an appreciation for vintage gear, as well as a Gibson fan, I’ve been following these stories with both a personal and professional interest. Perhaps Gibson has committed bona fide violations of the Lacey Act and perhaps not. I would guess, given the incentives the law creates, that Gibson has done its best to comply. But complying with a law that requires interpreting the interaction of vague foreign laws with vague domestic laws is easier said than done. Like a legal Heisenberg Uncertainty Principle, the laws may not exist until federal prosecutors observe them.

One of the most heartbreaking stories of federal prosecutors running amok with the Lacey Act is the story of Abner Schoenwetter, a grandfatherly Miami seafood importer who spent six years in a federal prison for importing lobster tails that violated the laws of Honduras. Except they didn’t. Honduras filed briefs and testified on behalf of Schoenwetter and his co-defendants, pointing out that what federal prosecutors thought to be Honduran law was not actually Honduran law. Federal prosecutors were unperturbed, however, determined to wipe this menace to society from our streets. (You can read the full, sad story of the case here.)

Although I’m not an insider to the Gibson case, it seems something similar may be going on. During the first raid two years ago, the government seized ebony fingerboards that allegedly violated Madagascar’s laws. To date, however, no charges have been filed. According to Gibson’s press release, the company “obtained sworn statements and documents from the Madagascar government” that the fingerboards “seized in 2009 were legally exported under Madagascar law and that no law has been violated.”

On Wednesday, the government apparently seized materials imported from India that, in alleged violation of Indian law, had not been fully finished by Indian workers. And again, according to Gibson’s press release, the searches were predicated on the “Justice Department’s interpretation of a law in India,” and the “action was taken without the support and consent of the government in India.” Also, notice that the Indian law allegedly violated here has little or nothing to do with preventing poaching or promoting conservation. No matter, however, because the Lacey Act prohibits importation in violation of “any foreign law.”

For those of us who want Gibson to continue making world-class guitars, the legal standards for those who import timber need to be clarified and differentiated from those who are subject to other parts of the Lacey Act, that is, fish and game importers. Unlike smaller, more regional markets for lobsters and other animals, the timber market is a vast supply chain. The timber at the Gibson factory has often gone through many intermediaries, making it incredibly difficult to identify its origins.

Without clarifying the standard of care that Gibson must employ, overzealous federal prosecutors enforcing the vague laws of two countries create a legal black hole around which companies like Gibson must take a wide berth lest they get sucked in. As a result, they may inefficiently over-comply by, for example, stopping importation of all timber from any “problem” area of the world. In other words, Gibson guitars of the future may not have signature ebony fingerboards, even when those fingerboards could have been legally imported. To guitarists everywhere, these details make a difference and they help make Gibson a premiere guitar-maker. Hopefully, it stays that way.