Topic: Regulatory Studies

Winter Regulation: Your Health Choices and Government

The latest issue of Regulation, which has just been released, examines several public health topics.

Many economists argue that “choice architects” should “nudge” Americans toward healthier decisions about their diets and physical activity. These nudges can come from government in the form of food taxes, information requirements, and other mechanisms, or through markets in the form of diet plans, reduced-calorie products, and fitness programs. Cal Poly professor Michael Marlow questions the scientific evidence supporting the governmental nudges because many promote weight-loss strategies that have proven ineffective or even counterproductive.

Cigarette taxes are rationalized as providing public health benefits.  But Professors Kevin Callison and Robert Kaestner demonstrate that because smoking rates are now so low further cigarette tax increases will have very little effect on smoking rates.  Thus future tax increase proposals cannot be justified by health benefits and instead should be debated on traditional public finance criteria.

Thomas Hemphill and Syagnik Banerjee explore the effects of some states enacting mandatory genetically modified organism(GMO) labeling.  These requirements would raise food prices nationwide by requiring fully independent food distribution networks for GMO and non-GMO foods, while implicitly and falsely suggesting to the public that GMO foods are unsafe. 

An article by American University’s Lewis Grossman argues consumers are much more empowered now than 50 years ago in areas of life regulated by the FDA.  The availability of medicines—and even of information about their efficacy and use—were once tightly controlled so that only physicians would have access.  Today, an ever-growing number of drugs are available over the counter, drugmakers can advertise direct to consumers, and drug labels are intended to be comprehensible to the layman.

Saving New England’s Cod Fishery

On Friday, the New York Times ran an op-ed by University of New Hampshire historian W. Jeffrey Bolster describing the long history of the decline of the stock of cod off the coast of New England.  The article corrects the misperception that the decline is recent or the result of modern industrial fishing methods.  Instead the decline started more than 150 years ago and is the not the result of deliberate action by anyone in particular, but the “system” itself.  By “system” he means the exploitation of an open access resource, in which no one owns the rights to harvest the stock.  In such an environment overfishing is the inevitable result because all have incentive to take as much as they can because others will if you do not.  Thus individual efforts at conservation are irrational.

Unfortunately his essay ends there and does not describe policy innovations that would create a better “system.”  In the Spring issue of Regulation, Jonathan Adler and Nathaniel Stewart argue that the best way to regulate fisheries for sustainable exploitation over long periods of time is a system of individual transferable quotas (ITQs), better known as catch shares.  In ITQ systems, the total allowable catch in a fishery is set by biologists to allow sustainable fishing without degradation of the stock. The rights to particular shares of the total catch are allocated to individuals, who may fish themselves, or sell or rent the rights to others. These systems have been successfully in use in a number of countries for decades.  Implementing them in the New England cod fishery would yield similar results.

Food and Cancer—A Complicated Relationship

Cancer, we are told, lurks everywhere: popcorn, non-organic fruit, canned tomatoes, processed meats, farm-raised salmon, potato chips, foods (salted, pickled, and smoked), GMOs (of course), candy, artificial sweeteners, diet soda, alcohol, red meat; even white flour can kill you.

Enough already!

In fact, a recent study by researchers at the Johns Hopkins University School of Medicine contends that most occurrences of cancers are simply a result of bad luck. To wit, “Plain old bad luck plays a major role in determining who gets cancer and who does not, according to researchers who found that two-thirds of cancer incidence of various types can be blamed on random mutations and not heredity or risky habits like smoking.”

So, why do we obsess about what we eat and drink? Why do we see death lurking in every sip of coffee and every piece of bacon (the latter surely being the best proof yet that God truly loves us)?

Well, maybe it is due to evolution. For most of our existence on this blue dot hurtling through the universe, skepticism was perfectly warranted. Sometimes a delicious-looking berry was just a berry, and sometimes it made your stomach explode. (I exaggerate, but only a little.)

(As a side note, in some places skepticism about food and drink continues to be appropriate. Those who spend sleepless nights worrying about big, faceless corporations infusing us with poison may find it illuminating that in Zimbabwe it is generally safer to drink a can of Diet Coke than a glass of tap water.)  

Interestingly, obsession about the purity of food and drink seems to be much more prevalent among one sub-group of our species (and, according to MSNBC, the most highly evolved). I am, of course, talking about Homo Progressivensis.

Licensing Speech in the Big Easy

The First Amendment protects the freedom of speech and of the press because the Framers wanted to prevent the creation in America of a license-based censorship. They were deeply opposed to Britain’s systematic restriction of speech, which treated the right to speak publicly as a privilege conditioned on an express grant of the sovereign’s permission. In order to publish books, newspapers, and pamphlets, or even to perform plays, a speaker had to obtain a permit.

American law has firmly rejected this sort of “prior restraint” on speech. While licenses to engage in potentially dangerous activities like the practice of medicine — or even driving — are often necessary to prevent great harm, the value judgment represented by the First Amendment is that the harm a “license to speak” would do to individual liberty is far greater than any potential harm that could be caused by “unqualified” speakers. It is for this reason that authors, publishers, filmmakers, journalists, and talk-show hosts don’t need to pass a test or ask the government for permission before engaging in their vocation.

Unfortunately, several municipalities seem to think that tour guides should be treated differently. Fearing the calamitous consequences of allowing “ignorant” guides to “mislead” tourists, these cities have instituted licensing regimes that make it a crime for tour guides to operate without a license — a license which can only be obtained by passing a test of history and culture. 

Last year, Cato, joined by First Amendment expert Prof. Eugene Volokh, filed briefs supporting lawsuits challenging the licensing schemes in Washington and New Orleans. While the U.S. Court of Appeals for the D.C. Circuit agreed with us that the law was unconstitutional, the Fifth Circuit upheld the New Orleans ordinance, claiming that it was a “content neutral” restriction on speech necessary to protect tourists and the city’s reputation. Joined again by Prof. Volokh, Cato has filed a brief urging the Supreme Court to take this case and reverse the Fifth Circuit’s decision to allow the very kind of licensing scheme that the First Amendment was intended to preempt.

New York Tells Private Company: Fire Your CEO

From yesterday’s Wall Street Journal [$], word that the New York Department of Financial Services has strong-armed Ocwen Financial Corp., a leading mortgage servicer, into a legal settlement that not only extracts $150 million from the company and puts it under the thumb of a state-appointed monitor but even requires its executive chairman to resign

The range of penalties assessed in the case is unusual and may set a new precedent of state regulatory involvement in financial companies’ affairs. Federal and state regulators have slapped banks with tens of billions of dollars in fines before, but Ocwen stands as a rare case of a firm having a top executive forced out to settle charges of mismanagement and misconduct and being obliged to consult with authorities when it appoints board members….

“You’re basically taking away from shareholders the ability to run their company,” said Ira Lee Sorkin, a former senior official at the Securities and Exchange Commission and now a lawyer who defends people and companies in regulatory actions. He isn’t involved in the Ocwen case. “You’re telling the company in effect that the regulator is now running the company.”

It might be one thing if the departing chairman, William Erbey, who built up the company over decades and owns part of it, had himself been convicted of some disqualifying offense, but the article makes no mention of his facing personal charges at all, let alone being found guilty. 

The modern pioneer in seeking the personal ouster of executives as part of regulatory enforcement actions was then-New York attorney general, and later disgraced governor, Eliot Spitzer. Six years ago I wrote about two of the most celebrated of Spitzer’s wins: 

As prosecutor, part of Spitzer’s distinctively relentless style was to demand the decapitation of large organizations by the firing of their CEOs, even in the face of arguments that such steps presumptively punished the execs without a trial and might badly disrupt the enterprises they led. The arch example is Spitzer’s vendetta against Hank Greenberg of American International Group (AIG), without peer the most highly regarded executive in the insurance sector over the past half century. AIG, long known as three steps ahead of its industry and a huge asset to American business presence and prestige abroad, has now entered a tailspin without Greenberg, destroying billions and billions in value for shareholders and others, even as the charges against its former chieftain have mostly wilted on the vine. On a smaller but still significant scale, Spitzer forced Marsh, the biggest insurance broker, to oust its CEO, which it replaced with an old crony of Spitzer’s; that didn’t work out either, and further fortunes were lost.

Unlike AIG and Marsh, Ocwen Financial isn’t even a New York company, being headquartered in Atlanta. Its stock has lost many billions in value since last October, and fell yesterday by another 17%. The settlement requires Mr. Erbey to depart by the middle of next month.

Had the dispute proceeded to trial, it’s unlikely a judge would have ordered Mr. Erbey’s ouster. But large businesses today facing charges from financial regulators seldom dare insist on their right to a day in court – the risks of going to trial are just too high, as law professor Brandon Garrett and commenter James Copland explained at a recent Cato panel discussion on Garrett’s book Too Big to Jail: How Prosecutors Compromise with Corporations. Until that calculus changes, they will be at the mercy of whatever arbitrary if not vengeful terms regulators may insist on.

 

 

Senate Leaders Demand Treasury, HHS Inform Consumers About Risks Of HealthCare.gov Coverage

The Obama administration is boasting that 2.5 million Americans have selected health insurance plans for 2015 through the Exchanges it operates in 36 states under the Patient Protection and Affordable Care Act, and that they are well on their way to enrolling 9.1 million Americans in Exchange coverage next year. But there’s a problem. The administration is not warning ObamaCare enrollees about significant risks associated with their coverage. By mid-2015, 5 million HealthCare.gov enrollees could see their tax liabilities increase by thousands of dollars. Their premiums could increase by 300 percent or more. Their health plans could be cancelled without any replacement plans available. Today, the U.S. Senate leadership – incoming Majority Leader Mitch McConnell (R-KY), Majority Whip John Cornyn (R-TX), Conference Chairman John Thune (R-SD), Policy Committee Chairman John Barrasso (R-WY), and Conference Vice Chairman Roy Blunt (R-MO) – wrote Treasury Secretary Jacob J. Lew and Health and Human Services Secretary Sylvia M. Burwell to demand the administration inform consumers about those risks.

First, some background.

  • The PPACA directs states to establish health-insurance Exchanges and requires the federal government to establish Exchanges in states that fail to do so.
  • The statute authorizes subsidies (nominally, “tax credits”) to certain taxpayers who purchase Exchange coverage. Those subsidies transfer much of the cost of ObamaCare’s many regulations and  mandates from the premium payer to the taxpayer. For the average recipient, Exchange subsidies cover 76 percent of their premium.
  • But there’s a catch. The law only authorizes those subsidies “through an Exchange established by the State.” The PPACA nowhere authorizes subsidies through federally established Exchanges. This makes the law’s Exchanges operate like its Medicaid expansion: if states cooperate with implementation, their residents get subsidies; if not, their residents get no subsidies.
  • Confounding expectations, 36 states refused or otherwise failed to establish Exchanges. This should have meant that Exchange subsidies would not be available in two-thirds of the country, and that many more Americans would face the full cost of the PPACA’s very expensive coverage.
  • Yet the Obama administration unilaterally decided to offer Exchange subsidies through federal Exchanges despite the lack of any statutory authorization. Because those (illegal) subsidies trigger (illegal) penalties against both individuals and employers under the PPACA’s mandates, the administration soon found itself in court.
  • Two federal courts have found the subsidies the administration is issuing to 5 million enrollees through HealthCare.gov are illegal. The Supreme Court has agreed to resolve the issue. It has granted certiorari in King v. Burwell. Oral arguments will likely occur in February or March, with a ruling due by June.
  • If the Supreme Court agrees with those lower courts that the subsidies the administration is issuing through HealthCare.gov are illegal, the repercussions for enrollees could be significant. Their subsidies would disappear. The PPACA would require them to repay the IRS whatever subsidies they already received in 2015 and 2014, which could top $10,000 for many enrollees near the poverty level. Their insurance payments would quadruple, on average. Households near the poverty level would see even larger increases. Their plans could be cancelled, and they may not be able to find replacement coverage.
  • The Obama administration knows it is exposing HealthCare.gov enrollees to these risks. But it is not telling them.

Senator Coburn’s Final Report

One the best U.S. senators of recent decades is leaving. No one has spotlighted the ongoing waste in federal spending more than Tom Coburn of Oklahoma. In his farewell address, he advised his colleagues: “Your whole goal is to protect the United States of America, its Constitution and its liberties … it’s not to provide benefits for your state.” As if to underline Coburn’s point, the Washington Post yesterday described how Senator Roger Wicker helped pour $349 million down the drain on an unused NASA facility in his home state of Mississippi.

One of Coburn’s strategies has been to use his expert staff to write investigative reports on federal activities. The huge collection of reports his staff has produced is remarkable. Each one is a big fat indictment of malfunctioning government.

Seeing this stream of high-quality and fun-to-read reports over the years has made wonder what the staffs of the other 99 senators do with their time. Every senator ought to be using his taxpayer-funded staff to try to save taxpayer money. Every senator ought to be digging into the giant $3.6 trillion spending empire that they have collectively created and trying to cut out some of the fat.

Coburn’s final report released last week is another impressive document. Coming in at 320 pages, Tax Decoder digs through the massive federal tax code and highlights hundreds of special deals, carve-outs, and illogical breaks. Tax Decoder’s findings are too voluminous to summarize here, and even seasoned tax wonks will find interesting stuff that they did not know.

Consider the chapter on nonprofit organizations, which spans 42 pages and is buttressed by 462 endnotes. This part of the tax code is a complex mess rife with abuse. Coburn’s staff found that Lady Gaga’s charity raised $2.6 million and handed out just $5,000 one year in benefits, while spending the rest on salaries, promotions, and parties. The Kanye West Foundation spent $572,383 one year, but not a dime on charity.The Cancer Fund for America raised $80 million, but handed out just $890,000 to cancer patients.

While the GAO—an arm of Congress—investigates federal activities, its reports are usually dry and timid. The agency’s role is not to upset its political masters. Similarly, most members of Congress don’t want to upset their colleagues, and so they shy away from criticizing wasteful spending directed to any state, not just their own. It’s easier for them to follow the herd, play the game, grab benefits, and hopefully cruise to safe reelection. Many outside groups and reporters do a great job investigating the government, but senators are in a uniquely powerful and privileged position to lead the charge. 

That’s why Senator Coburn and his staff filled a void with their reports. They uncovered idiocy in the budget, and they informed the public with the juicy details. Many members of Congress say that the government spends too much, but they shy away from specifics. But now that Tom Coburn is going, which members are willing to step up to the plate?