Topic: Regulatory Studies

Barack Obama, Mr. Deregulation?

In today’s much talked-of Wall Street Journal op-ed, President Obama reaches for common ground with critics of excessive government regulation – not a constituency he’s had much time for in the past. He announced an executive order requiring agencies to review existing regulation for outdated or unwise rules deserving of being struck from the books. That drew measured praise from organized business groups, something the President has not had much of lately.

Many left partisans are aghast, just as they were when Bill Clinton dashed for the political center after his own mid-term electoral “shellacking.” Salon complains that Obama’s op-ed “reads like an apology to the business community,” while Rena Steinzor fears the move signals a decline in influence for the administration’s regulatory ultras, such as Margaret Hamburg (FDA), Lisa Jackson (EPA), and David Michaels (OSHA).

Environmental law expert Jonathan Adler thinks the new executive order might do some good:

The Executive Order is here. It reaffirms the basic principles outlined in President Clinton’s Executive Order 12866, issued in September 1993, and continues to require agencies to conduct cost-benefit analyses of proposed rules. As noted in the President’s op-ed, it also requires agencies to engage in “retrospective analysis” of existing rules so as to accelerate the pace at which outdated regulations are revoked. Specifically, it requires all agencies to develop a plan for such retrospective review within 120 days. If the White House Office of Information and Regulatory Affairs ensures such reviews are meaningful, this could be a significant and positive step.

That’s a big “if.” Over the past two years, OIRA has not restrained its administration colleagues from making 2010 by far the biggest year for new regulatory burdens in memory (Heritage helpfully assembles details.) The most burdensome new rules are not from the best-known areas of new legislation, such as ObamaCare and financial reform, but from the environmental area. That makes it especially disturbing that, as Ted Frank points out, the President’s op-ed “singles out the top-down and economically inefficient fuel-economy regulation as a good one.”

So what does Obama see as an example of an excessive regulation needing repeal? The example he offers is the inclusion of the sweetener saccharin in the category of hazardous waste. Really? Saccharin as hazardous waste? Amid dozens of high-stakes, much-studied regulatory controversies, the only one he could come up with is one that – with all due respect to the people who make the little pink packets – is of hardly any significance to the wider economy, and not much more as a matter of principle?

Even this administration could have made better deregulatory boasts than that. For example, in a fit of sense, the Obama Justice Department a while back adopted regulations specifying that the Americans with Disabilities Act should no longer (as of this March) be interpreted to require restaurants, theaters and other Main Street businesses to admit patrons’ non-canine “service animals” such as monkeys, goats, snakes and spiders.

But it was almost as if his point was to pick a regulation so minor that no one cared much about it one way or the other. Had the President’s speechwriters been looking for an example of a hazardous-substance rule that would actually get people talking about regulatory overreach, they might have picked EPA’s dairy-spill regulations, which (in the words of one report) “treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans….” That one does have big and widespread economic costs.

Whoops – not a good example. That one’s not being repealed – EPA at last report intended to go forward with it. Can we really assume anything much is changing here besides the atmospherics?

UK To Make It Easier To Hire, Fire Workers

In Britain, the coalition government of David Cameron hopes to stimulate much-needed hiring by reducing state interference with private employers’ right to choose their own workforces. Per the Telegraph, Cameron “hopes that relaxed employment laws will help to boost the private sector and encourage firms to take on thousands of new workers.”

For all the high hopes, the changes are in fact quite modest. Newly hired workers will wait two years, rather than one, before obtaining the power to challenge later firings before official tribunals. To discourage doomed or trivial claims, disgruntled workers will be charged a fee for resorting to a tribunal. The smallest employers will be exempted from some portions of the law, and so forth.

Judged by the “employment at will” principle that best exemplifies liberty of individual contract, Britain’s job market will remain far too highly regulated. But the direction of change is interesting. Despite the frequent impression that “Eurosclerosis” (and its equivalents elsewhere) puts the patient on a one-way course of decline, nations around the globe have repeatedly sought to shake off economic malaise by pulling back from labor regulation toward liberty of contract. Often these steps have stimulated exactly the economic expansions hoped for, as with Margaret Thatcher’s reforms in Britain in the 1980s and with New Zealand’s less famous yet more radical 1991 reforms. Alas, in both Britain and New Zealand, later Labour governments reimposed some (not all) of the previous types of regulation in deference to their union and Left constituencies.

What of the United States? For the most part, we’ve resisted the worst Euro labor-market practices — which has required us to ignore prevailing opinion among labor and employment specialists in our law schools, most of whom (as I’ve argued at book length in the past, and mention again in my forthcoming book on the influence of law schools) tend to support a great many bad proposals to restrict private employers’ liberty to hire and fire. Yet in our own distinctive way — which owes more to lawsuits and less to administrative tribunals — we keep edging toward European-style notions of workplace tenure. Newly released numbers show that federal complaints of employment bias surged to record levels last year, up 7 percent, led by a 17 percent spike in disability-discrimination claims, which now represent one-quarter of the nearly 100,000 total.

The newly activist posture of the Obama Equal Employment Opportunity Commission may have contributed to the trend a bit, and so may the state of the economy: laid-off workers may be more willing to pursue lawsuits when job prospects are bleak. But the main responsibility goes to the ADA Amendments Act passed by Congress in 2008 and signed by none other than Republican President George W. Bush, in this respect continuing his father’s tradition of uncritically endorsing almost any measure labeled as a matter of disabled rights. Among its other provisions, the 2008 ADA Amendments Act reversed a series of U.S. Supreme Court decisions that had tended to limit the scope of coverage of the ADA to persons with more severe disabilities. It also bestowed new rights to sue on persons “regarded as” disabled whether or not their actual medical condition so qualifies. The overall effect of the changes is to make it hard if not impossible to argue that a disability is too minor to deserve accommodation: “Challenging the employee’s ‘disability’ status is a waste of time with the new expanded definition of ‘disability’,” per one employer advisor. Karen Harned and Katelynn McBride have much more on the amendments in a new article in the Federalist Society publication “Engage.”

Once again, both major political parties pave the way to excessive regulation. And that makes it harder politically for an equivalent of Cameron’s reforms to come along here.

Bill Daley and ‘Too Big To Fail’

MIT Professor Simon Johnson recently argued that Bill Daley’s appointment as Obama’s Chief of Staff signals that “too big to fail,” as it relates to our largest financial institutions, is here to stay.  Personally I never thought it was in doubt.  With Geithner at Treasury and Dodd-Frank further codifiying “too big to fail,” its been clear for some time that the bailout net is larger than it’s ever been, and is not being pulled back. 

That said, Professor Johnson’s focus on Daley distracts from the real issue, which is changing our bank regulatory structure to end bailouts.  The focus on Daley has the potential to lead us down that path of “if we just had the right people in government…”  We shouldn’t be designing our regulatory structures with the “right” people in mind, but rather with the rule of law in mind.  In fact, one of the benefits of the Obama administration is that it serves as a great test of the “right people” hypothesis of government.  One is unlikely to see a more left-leaning White House than this one, so if this one gets captured by special interests, including Wall Street, than it’s a safe bet that any future administration will as well. 

Since I believe most of us actually want to end “too big to fail,” the real question is how to do it.  It strikes me that we have three options:  regulate the largest institutions to death (or competitive disadvantage), break them up, or credibly impose losses on their creditors.  Ultimately I think the regulation approach is bound to fail, if for no other reason than regulatory capture.   (Even Elizabeth Warren seems to get this: “Regulations, over time, fail. I want to see Congress focus more on a credible system for liquidating the banks that are considered too big to fail.”)  Breaking them up might sound attractive in theory, but I have a hard time seeing how it truly works in practice.  After all, few in Washington viewed Bear Stearns as “too big to fail.”  Accordingly, I believe the best approach would be to force creditors to take losses or be converted into equity.  To make this credible, we must bind the hands of the regulators.  As long as the Fed, Treasury, or the FDIC can inject money, then bailouts are always on the table.    

Sadly, what the Daley appointment reminds us is that any attempt to end “too big to fail” will likely have to wait until the next administration.  Not only is this one wed to bailouts, the President would likely veto any bill that really tied the hands of the Fed.

Privatize the FAA

Bloomberg is reporting more bad news for the nation’s air traffic control system, which is run by the Federal Aviation Administration. The FAA is $500 million overbudget and six years behind schedule on a $2.1 billion technology upgrade project.

The FAA has a long history of mismanaged technology projects, and so the latest screw-ups are nothing new. Yet the nation needs high-tech advances in air traffic control more than ever to ease our increasingly congested airspaces.

There is a better way to run air traffic control—a private sector way, as Canada has been demonstrating. In 1996, Canada converted its government air traffic control system to a private nonprofit corporation. Nav Canada has been a smashing success, providing an excellent model for possible U.S. reforms.

A December 24 story in the Financial Post describes how Nav Canada is a world leader in efficiency, safety, and technology under private management. “A once troubled government asset, the country’s civil air traffic controller was privatized 14 years ago and is now a shining example of how to create a global technology leader out of a hulking government bureaucracy.” It really is an impressive story of pro-market reform.  

Canada’s system recently won an award from the International Air Transport Association. The IATA said that “Nav Canada is a global leader in the efficient implementation and reliable delivery of air traffic control procedures and technologies.”

We should have that type of efficient air traffic control system in this country. Privatizing the FAA should be a high priority for the next Congress.

See here for a discussion on privatizing air traffic control.

Recommended Reading

Assorted media clips worth catching up with over the holiday:

  • You’ve probably seen the ongoing scandal about how local officials used the southern California city of Bell to enrich themselves at taxpayer expense. A Los Angeles Times investigation finds that the city was milking small tradespeople too: “Legal experts point to a lack of due process and judicial oversight in hundreds of ‘civil compromises,’ in which plumbers, carpet cleaners and bottle-gatherers paid up to $1,000 for alleged code violations.”
  • “To get the check, you’ve got to medicate the child”: a horrifying Boston Globe series exposes how the incentives created by the federal SSI dependent disability program result in the overdiagnosis of disability among school-age kids. The result can be lifelong dependency, especially when grown kids realize that entering the labor force would make their families worse off by losing the “disability money.” [first, second, third parts, more]
  • A U.S. Congressman ousted by Ohio voters in last month’s election is suing a PAC that campaigned against him, saying its unfair ads deprived him of his “livelihood” [Cincinnati Enquirer, Politico]
  • The supposedly poisoned town of Hinkley, Calif., made famous by the Julia Roberts vehicle Erin Brockovich, turns out to have cancer rates a bit below the average, a new epidemiological study finds [more];
  • Aside from the morality aspects, there are really good reasons not to steal a meerkat (via).

Are Republicans to the Right of Pat Robertson?

On his “700 Club” program this week, Christian Coalition founder Pat Robertson endorsed the decriminalization of marijuana. He says, “We’ve got to take a look at what we’re considering crimes. I’m not exactly for the use of drugs, don’t get me wrong, but I just believe that criminalizing marijuana, criminalizing the possession of a few ounces of pot, that kinda thing it’s just, it’s costing us a fortune and it’s ruining young people. Young people go into prisons, they go in as youths and come out as hardened criminals. That’s not a good thing.” Check out the video:


Robertson’s comments come a few days after other conservatives, including Ed Meese and Gov. Rick Perry, have joined to encourage new conservative thinking about who should go to jail. Now far be it from me to recommend any policy on the grounds that it’s endorsed by Pat Robertson. But I do have this question for Republican members of Congress: Do you really want to be to the right of Pat Robertson on the issue of marijuana prohibition?

Related: For an interesting look at how socially and economically conservative different Republican presidential candidates are, check out this graphic by Ben Adler at Newsweek. There’s actually some surprising consistency. Mike Huckabee is the least libertarian candidate on economic issues, and exceeded only by Rick Santorum in his un-libertarianism on social issues. Gary Johnson and Ron Paul are most libertarian on both economic and social issues.