Topic: Regulatory Studies

Air Traffic Control: Too Important for Government

The government’s air traffic controllers have been sleeping on the job, watching movies rather than guiding planes, and misdirecting the First Lady’s plane over Washington. There have been soaring numbers of airplane near misses caused by ATC errors over the last year.

Yesterday, the president said that federal government technology systems are “horrible” “across-the-board,” which isn’t good news for citizens hoping that the Federal Aviation Administration’s computers will land them safely.

The government’s air traffic controllers are very highly compensated, but they are unionized and they work for a mismanaged bureaucracy. The federal ATC system has had serious labor and management problems since the 1960s. And the president’s comment on technology rings true with regard to ATC – the FAA has had huge troubles for decades efficiently implementing new technologies. And things could get worse as air traffic volumes rise and the FAA struggles to implement next generation ATC systems.

The solution is privatization, as discussed in this essay and these blogs. Privatization promises better management, a more disciplined workforce, more efficient financing, better technology, and safer skies.

If There Were An Annual ‘Regulation Day’

As Iain Murray points out at National Review’s “Corner,” there’s no date on the calendar each year that reminds us, the way income tax filing day does, of the huge share of our economic labors that the government commands in the name of regulation. In part this is because the costs of regulation are even better disguised than those of taxation: while paycheck withholding may lull us into complacency about our income tax burden, it is downright transparent compared with the costs of regulation, which the ordinary citizen may never recognize when passed along in the form of higher utility bills or sluggish performance by some sector of the economy. Iain notes the good work done by his colleagues at the Competitive Enterprise Institute:

Regulations cost $1.75 trillion in compliance costs, according to the Small Business Administration. That’s greater than the record federal budget deficit — projected at $1.48 trillion for FY 2011 — and greater even than all corporate pretax profits. This is only one of many findings of the new edition of Wayne [Crews’] “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State,” a survey of the cost and compliance burden imposed by federal regulations.

As is now becoming evident, the Obama Administration is presiding over one of the most extraordinary expansions of regulation in all American history, in areas from health care to consumer finance, university governance to “obesity policy,” labor and employment law to the environment. Not all these developments originated with Obama appointees – some had their start under President George W. Bush or with lawmakers in Congress – but this administration has pursued stringent regulatory measures with extraordinary zeal, notwithstanding the odd feint to soothe business-sector misgivings.

Here are three more or less random samplings from recent days of the quiet momentum that’s built up in Washington toward a much bigger regulatory state:

  • Reflecting the historical development of the Food and Drug Administration, the introduction of new medical devices such as pacemakers and joint replacements is still somewhat less intensively regulated than the introduction of new pharmaceutical compounds. As Emory’s Paul Rubin relates at Truth on the Market, pressure is building in Washington to correct this supposed anomaly by intensifying the regulation of devices. As Rubin notes, “virtually all economists who have studied the FDA drug approval process have concluded that it causes serious harm by delaying drugs,” yet the premise of the new campaign for regulation “is that we should duplicate that harm with medical devices.”
  • Much of the new regulation of consumer finance has taken the form of rules governing what information lenders can ask for or consider about borrowers’ situation in extending credit. One such proposed rule, from the Federal Reserve, “would require credit card issuers to consider only a person’s independent income, and not the household’s income, when underwriting credit cards in an effort to protect young adults unable to repay debt.” Great big unforeseen consequence: many stay-at-home parents will now be unable to establish credit in their own names (via).
  • Among a slew of other high-profile regulations, the Environmental Protection Agency (EPA) has chosen this moment to demand very rapid new reductions in emissions from industrial boilers (“Boiler MACT” rules). Per ShopFloor, Thomas A. Fanning, who runs one of the nation’s largest electric utilities, the Southern Company, thinks trouble lies ahead:

    EPA has proposed Utility MACT rules under timelines that we believe will put the reliability and affordability of our nation’s power system at risk. EPA’s proposal will impact plants that are responsible for nearly 50 percent of total electricity generation in the United States. It imposes a three-year timeline for compliance, at a time when the industry is laboring to comply with a myriad of other EPA mandates. The result will be to reduce reserve margins—generating capacity that is available during times of high demand or plant outages—and to cause costs to soar. Lower reserve margins place customers at a risk for experiencing significant interruptions in electric service, and costs increases will ultimately be reflected in service rates, which will rise rapidly as utilities press ahead with retrofitting and projects to replace lost generating capacity due to plant retirements.

At least we’ll be able to avert brownouts by switching over readily to fracked-natural-gas, Alberta tar-sands, and latest-generation-nuclear options – or we would had all those options not been put under regulatory clouds as well.

Death by Decorator

The Wall Street Journal reports on a heated battle in Florida over whether to deregulate commercial interior designers – that is, to allow just anyone to hang out a shingle and seek customers looking for office design. It turns out the question is fraught with more danger than one might have realized. Herewith, the opening of the Journal’s comprehensive report:

MIAMI—Interior designers may seem to inhabit a genial world of pastel palettes and floral motifs. But right now in this state, their industry is locked in an indecorous pillow fight over who has the right to design.

Florida is one of only three states that require commercial interior designers to become licensed before they hang a single painting in an office building, school or restaurant. A bill making its way through the state legislature, however, would deregulate the occupation, along with more than a dozen others, including yacht brokers and hair braiders.

That possibility has the state’s licensed interior designers ruffled. They’ve hired Ron Book, one of the state’s most influential lobbyists, to fight the bill. And they’ve stormed legislative hearings to warn of the mayhem that would ensue if the measure passes.

Among the scenarios they’ve conjured: flammable carpets sparking infernos; porous countertops spreading bacteria; jail furnishings being turned into weapons.

The thought of “someone in my position that thinks they know what they’re doing because they watched HGTV for two weeks scares me,” licensed interior designer Terra Sherlock said at a hearing in March.

Another licensed designer, Michelle Earley, argued that use of the wrong fabrics in hospitals could spread infection. By deregulating, she told lawmakers, “what you’re basically doing is contributing to 88,000 deaths every year,” citing a study by the Centers for Disease Control and Prevention on deaths from hospital-acquired infections.

Though the CDC study doesn’t mention interior design as a cause of infections, Ms. Earley says that bacteria can spread if moisture-resistant fabrics aren’t used on things like chairs and mattresses. That, in turn, can lead to urinary tract infections, staph and other life-threatening conditions, she says.

Interior design “sounds like this simple hanging curtains on a wall,” said Ms. Earley in an interview. But “it only takes a couple things to go wrong for people to lose their lives.”


For a more skeptical look at the need to protect the public from unlicensed hair braiders, ballroom-dance-studio owners, and interior designers, see this column by Cato chairman and Floridian Bob Levy. In February the Wall Street Journal reported that occupational licensing is actually spreading, despite decades of criticism from economists.

All Part of the Plan (National Security Wisdom from the Joker)

Batman’s archnemesis the Joker—played memorably by Heath Ledger in 2008’s blockbuster The Dark Knight—might seem like an improbable font of political wisdom, but it’s lately occurred to me that one of his more memorable lines from the film is surprisingly relevant to our national security policy:

You know what I’ve noticed? Nobody panics when things go “according to plan.” Even if the plan is horrifying! If, tomorrow, I tell the press that, like, a gang banger will get shot, or a truckload of soldiers will be blown up, nobody panics, because it’s all “part of the plan.”

There are, one hopes, limits. The latest in a string of videos from airport security to provoke online outrage shows a six-year-old girl being subjected to an invasive Transportation Security Administration patdown—including an agent feeling around in the waistband of the girl’s pants. I’m somewhat reassured that people don’t appear to be greatly mollified by TSA’s response:

A video taken of one of our officers patting down a six year-old has attracted quite a bit of attention. Some folks are asking if the proper procedures were followed. Yes. TSA has reviewed the incident and the security officer in the video followed the current standard operating procedures.

While I suppose it would be disturbing if individual agents were just improvising groping protocol on the fly (so to speak), the response suggests that TSA thinks our concerns should be assuaged once we’ve been reassured that everything is being done by the book—even if the book is horrifying. But in a sense, that’s the underlying idea behind all security theater: Show people that there’s a Plan, that procedures are in place, whether or not there’s any good evidence that the Plan actually makes us safer.

This mode of argument gets particularly frustrating when it comes to the vastly expanded surveillance powers our intelligence agencies have been handed over the past decade. “If these are such a threat to civil liberties,” surveillance hawks demand, “show us the abuses!” This is a somewhat disingenuous demand, since part of the problem is precisely that the powers in question are exercised behind a veil of extreme secrecy. Still, thanks to internal auditing, some fairly serious and systematic abuses of the most discretionary powers have, indeed, become public. If these can’t successfully be dismissed as mere “clerical” or “record-keeping” problems (but how will abuses ever be discovered if those rules are flouted?), there’s always the catch-all Catch-22: Since the abuses are by definition violations of the rules, they’re no evidence against the expanded powers themselves, but only show the need for better training and strict enforcement of internal guidelines.

The simplest way to ensure that there are no abuses, of course, is simply to make the rules so permissive that nothing counts as an abuse. Once upon a time, if it had been revealed that he FBI was vacuuming up the telephone, e-mail, and Internet browsing records of thousands of people who were not even suspected of being linked to terrorism—can’t be too careful, might as well check out everyone—we would have called that an abuse in itself. We wouldn’t have waited for someone to put that improperly collected information to some obviously nefarious use, since the history of American intelligence abuses suggests this wouldn’t occur through formal channels that leave a paper trail anyway. Now, however, we’ve changed the rules, and this kind of sweeping, suspicionless collection of telecommunications records is All Part of the Plan.

Terror attacks, of course, are not Part of the Plan. And we appear to be unwilling to accept that there might be limits to our ability to entirely eliminate the risk of such attacks, however much surveillance power we give government domestically, however many brave men and women we sacrifice in combat overseas. We’ll call those losses tragic—the “price of security,” we’ll say, whether or not there’s evidence they’re buying us much security—but we’ll accept them. Because they’re Part of the Plan. Even if the plan is horrifying.

GE and Obama: A Betrothal at the Altar of Industrial Policy

The angry Left has been calling for President Obama to fire Jeffrey Immelt from his position as head of the President’s Council on Jobs and Competitiveness. I think that would be a good idea, but for different reasons.

Sen. Russ Feingold, Moveon.Org, and the regular scribes at the Huffington Post see Immelt, the chairman and CEO of General Electric, as unfit to advise the president because GE invests some of its resources abroad and, despite worldwide profits of $14.2 billion, paid no taxes in 2010. No illegalities are alleged, mind you; GE — like every other U.S. multinational — responds to incentives, including those resulting from tax policy and regulations concocted in Washington. 

But there are more substantive reasons for why Immelt is unfit to advise the president.  In particular, GE is a major player in several industries that President Obama has been promoting as part of his administration’s cocksure embrace of industrial policy. With over $100 billion in direct subsidies and tax credits already devoted to “green technology,” President Obama is convinced that America’s economic future depends on the ability of U.S. firms to compete and succeed in the solar panel, wind harnessing, battery, and other energy storage technologies. Concerning those industries, the president said: “Countries like China are moving even faster… I’m not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine of the future.”

Well, just yesterday GE announced plans to open the largest solar panel production facility in the United States, which nicely complements its role as the largest U.S. producer of wind turbines (and one of the largest in the world). The 2011 Economic Report of the President describes the taxpayer largesse devoted to subsidizing these green industries:

[T]he Recovery Act directed over $90 billion in public investment and tax incentives to increasing renewable energy sources such as wind and solar power, weatherizing homes, and boosting R&D for new technologies. Looking forward, the President has proposed a Federal Clean Energy Standard to double the share of electricity produced by clean sources to 80 percent by 2035, a substantial commitment to cleaner transportation infrastructure, and has increased investments in energy efficiency and clean energy R&D.

And Box 6.2 on page 129 of the 2011 ERP conveniently breaks out those subsidies by specific industry, most of which are spaces in which GE competes.

Tim Carney gave his impressions of this budding relationship between GE and the Obama administration in the DC Examiner last July:

First, there’s the policy overlap: Obama wants cap-and-trade, GE wants cap-and-trade. Obama subsidizes embryonic stem-cell research, GE launches an embryonic stem-cell business. Obama calls for rail subsidies, GE hires Linda Daschle [wife of former South Dakota Senator and Obama confidante Tom Dachle] as a rail lobbyist. Obama gives a speeeh, GE employee Chris Matthews feels a thrill up his leg. I could go on.

And Carney does go on in a December 2009 Examiner piece:

Look at any major Obama policy initiative — healthcare reform, climate-change regulation, embryonic stem-cell research, infrastructure stimulus, electrical transmission smart-grids — and you’ll find GE has set up shop, angling for a way to pocket government handouts, gain business through mandates, or profit from government regulation.

One month after President Obama proposed subsidizing high-speed rail because, in his words, ”everybody stands to benefit,” the head of GE’s Transportation division proclaimed, “GE has the know-how and the manufacturing base to develop the next generation of high-speed passenger locomotives. We are ready to partner with the federal government and Amtrak to make high-speed rail a reality.”

About the optics of these related events, Carney writes: “This was typical — an Obama policy pronouncement in close conjunction with a GE business initiative. It happens across all sectors of the economy and in all corners of GE’s sprawling enterprise.” And he goes on to list other examples.

Jeff Immelt should step down as head of the President’s Council on Jobs and Competitiveness because there is simply no avoiding a conflict of interest.  Even if he recommends courses of action to the president that don’t advance GE’s bottom line, it’s hard to see how that wouldn’t be an abrogation of his fiduciary responsibility to GE’s shareholders.

But more troubling is that Immelt and the president appear to be two peas in a pod when it comes to faith in government-directed industrial policy.  Immelt admires the German model of industrial policy because the Germans believe in “government and business working as a pack.”  He admires China’s “incredible unanimity of purpose from top to bottom.”  And days after Obama’s inauguration, Immelt wrote to shareholders:

[W]e are going through more than a cycle. The global economy, and capitalism, will be “reset” in several important ways. The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.

Citizens of a country that owes so much of its unmatched economic success to innovation and entrepreneurship and an absence of heavy-handed top-down mandates should be wary of the changes the presdient and Mr. Immelt are fostering.

Cato Unbound - There Ain’t No Such Thing As Free Parking

This month at Cato Unbound we’re discussing a practical, everyday issue – parking!

Yes, Cato Unbound is supposed to cover big ideas, deep thoughts, and the like, but parking policy is both important in its own right and also points to what I consider a very interesting problem: Given a theoretical or abstract commitment to free markets, well, how do we get there in the real world? What would a free-market policy look like in this or that issue area?

The answer isn’t always obvious, and the map isn’t the territory. Parking is interesting in this respect and possibly helpful. Parking is all around us, most of us deal with it every day, and the unintended consequences of parking policy are I think maybe easier to see than the unintended consequences in other fields. Parking affects how we live, how we shop, and how we work. It touches our cities, our family life, our environment, and even our health. Learning to look for such unintended consequences is part of developing a political culture that values economic insights and puts them to work.

That’s why this month we’ve invited four urban economists, each of whom can fairly be said to value the free market. Still, there will be a few disagreements among them – as I said, the map isn’t the territory. Donald Shoup leads the issue with his essay “Free Parking or Free Markets?” – arguing that our expectation of abundant free parking is both bad for our communities and the product of anti-market planning.

The conversation will continue throughout the month, with contributions from Professor Sanford Ikeda, Dr. Clifford Winston of the Brookings Institution, and Cato’s own Randal O’Toole. Be sure to stop by throughout the month, or else subscribe via RSS.

Let’s Not Lose Sight of a Real Education Market

Over the last few days Jay Greene, the Fordham Institute’s Kathleen Porter-Magee, and several other edu-thinkers have been arguing about whether national curriculum standards would destroy a competitive market in education, and a market that already provides the uniform standards Fordham wants Washington to impose. But let’s be very clear: We haven’t had a real market – a free market – in education for a long time.

Sadly, I’m afraid Jay started this whole mess, though he certainly knows what a free market in education would look like and I don’t think he intended to confuse the issue.  Indeed, he doesn’t use the term “free market,” but mainly writes about the “competitive market between communities.” His argument is that Americans over time picked standardized curricula and schools by moving to districts that provided such things. He is no doubt at least partially right, though the case is hardly open and shut. Indeed, there is strong historical evidence that district consolidation and uniformity was often pushed on small districts from outside, especially in urban areas. It is also quite possible that many people moved to districts with uniform offerings not in search of such offerings, but in search of something else that happened to coincide with them. Most notably, industrialization brought many people to cities in search of employment, and school uniformity often came with that. Finally, the economist whose work inspired Jay’s post notes that while he believes small rural districts died largely due to residents abandoning them, he concedes that there is a “lack of direct evidence connecting rural property values with local decisions about consolidation.”

Those caveats aside, Jay’s point is a still good one that I have made before, most notably when discussing schooling and social cohesion: People will tend to have their children learn many ”common” things because that is the key to personal success. People will learn what they need to in order to work effectively and successfully in society.  Moreover, people will simply tend to gravitate toward things that work.

So the main problem in the Greene-Fordham debate is not that Jay’s points are necessarily wrong, it’s that “competitive market between communities” is too easily misconstrued as “free market,” and it fails to acknowledge the gigantic inefficiencies that come from government monopolies, whether controlled at the district, state, or federal level. Those include the massive, expensive waste that fills the pockets of special interests employed by the system; constant conflict over what the schools will teach; and at-best very ponderous competition – if you want a better school you have to buy a new house – that quashes crucial innovation and specialization. Worse yet, it leads to the following kind of crucial, damaging misunderstanding by Porter-Magee:

For more than a decade we have been conducting a natural experiment where we let market forces drive standards setting at the state level. The result? A swift and sure race to the bottom. A majority of states had failed to set rigorous standards for their students—and had failed to create effective assessments that could be used to track student mastery of that content. In fact, the whole impetus behind the Common Core State Standards Initiative was to address what was essentially a market failure in education.

This is wrong, as they say, on so many levels!

First, we do not have real market forces anywhere at work in the current, NCLB-dominated regime. Using the quick list of market basics that John Merrifield lays out in his Policy Analysis on school choice research, a truly free market needs ”profit, price change, market entry, and product differentiation.” None of these are meaningfully at work in public schooling, with profit-making providers at huge tax-status disadvantages; public schools artificially “free” to customers; high legal barriers to starting new institutions that can meaningfully compete with traditional public schools; and requirements that all public schools teach the same things, at least at the state level. 

Moreover, if you want to talk about competition between states – which is more in line with what Jay was discussing – under NCLB all states have faced the same, overwhelming incentives to establish low standards, weak accountability, or both: If they don’t get their students to something called “proficiency” – which they define – the federal government punishes them! In light of that, of course they have almost all set very low “proficiency” bars. But that is about as far from “a natural experiment where we let market forces drive standards setting” as you can get! Indeed, it is a brilliant example not of market failure, but government failure!

Ultimately, Jay’s point is right: People on their own will tend to select educational options that are unifying, as well as gravitate to what appears to work best, so there is no need for the federal government to impose it. Moreover, as Jay points out, there are huge reasons to avoid federal standardization, including that special interests like teachers unions will likely capture such standards. But that problem has been at work with state and local monopolies, and it, along with myriad other government failures, will not be overcome until we have a real market in education – a free market in education.