Topic: Regulatory Studies

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.

Independent Agencies Test Tea Party Mettle

Is there something special about December? Perhaps it’s the spirit of giving that had the Federal Communications Commission voting yesterday to regulate Internet service. At the beginning of the month—December 1st—the Federal Trade Commission issued a report signaling its willingness to regulate online businesses.

No, it’s not the fact that it’s December. It’s the fact that it’s after November.

November—that’s the month when we had the mid-term election. The FCC and FTC appear to have held off coming out with their regulatory proposals ahead of the elections because the Obama administration couldn’t afford any more evidence that it heavily favors government control of the economy and society.

There was already plenty of evidence out there, of course, but the election is past now, and the administration has taken its lumps. It’s an open question whether there will be a second Obama term, so the heads of the FCC and FTC are swinging into action. They’ll get done what they can now, during the period between elections when the public pays less attention.

And that is a challenge to the Tea Party movement, which would be acting predictably if it lost interest in politics and public policy during the long year or more before the next election cycle gets into full swing. Politicians know—and the heads of independent agencies are no less political than anyone else—that the public loses focus after elections. That’s the time for agencies to quietly move the agenda—during the week before Christmas, for example.

So it’s not the spirit of giving—it’s the spirit of hiding—that has these independent agencies moving forward right now. It’s up to the public, if it cares about liberty and constitutionally limited government, to muster energy and outrage at the latest moves to put the society under the yoke of the ruling class. Both the FCC and the FTC lack the power to do what they want to do, but Congress will only rein them in if Congress senses that these are important issues to their active and aware constituents.

The FCC Should Not Regulate the Internet

The FCC moves forward with a proposal to regulate Internet service today. It’s a bad idea.

The one thing that pleases me about the ongoing debate over Internet regulation is the durability of Tim Lee’s November, 2008 Cato Policy Analysis, “The Durable Internet: Preserving Network Neutrality without Regulation.” My introduction of it is a good synopsis.

The arguments against government regulation in the name of “net neutrality” have not changed: A good engineering principle is not made better if dogmatized and given to lawyers and bureaucrats to enforce as law. The FCC and its regulatory regime are almost sure to be captured by major ISPs and turned to their benefit, used to suppress competition and blunt innovation.

A premise of net neutrality regulation—and much other regulation—is that consumers can’t be relied on to defend their own interests. Taking that premise, which I don’t, it follows that regulators must step in. But that syllogism skips over an additional premise: that regulators can do a better job.

The Istituto Bruno Leoni (Italy) recently published a terrific paper by Slavisa Tasic (a former Cato intern) that applies the insights of behavioral economics to regulators. Academics have typically used behavioral economics to illustrate the fallibility of market actors, but Tasic turns the tables. The paper is called “Are Regulators Rational?”, and it examines the cognitive biases that are likely to produce flawed decision-making on the part of regulators.

Yes, it’s tit-for-tat to the attack on markets implicit in behavioral economics, but it’s a sound and fair paper that opens new insights onto regulation. This is a good time to do that. Too many take it as an article of faith that the FCC will do better than consumers at protecting consumers’ interests.

This is also a good time to remember that the FCC is our national censor. The U.S. government’s censorious reaction to l’affaire WikiLeaks should serve as counsel to people who would subject Internet service providers to even greater federal regulation. Regulated ISPs will be more compliant with government speech controls.

It’s a point worth emphasizing: Regulated ISPs will be more compliant with government speech controls.

For these reasons, in addition to the ones that have come before, federal regulation of the Internet is a bad idea.

Consumer Group Sues McDonald’s Over Happy Meals

The Center for Science in the Public Interest (CSPI), which has long agitated for wider government intervention in food and nutritional matters, has filed a lawsuit charging that McDonald’s is violating California consumer laws by marketing Happy Meals with toys. It wants to force the burger chain either to drop the toy, or to replace the meals’ food components with something more whole-grain-and-vegetable-y. The New York Daily News invited me to have my say on the controversy, and I did. I pointed out that the lawsuit seemed to be aimed at an end run around the reality of individual choice:

No one forced [named plaintiff Monet] Parham to take her daughters to McDonald’s, buy them that particular menu item, and sit by as they ate every last French fry in the bag (if they did).

No, she’s suing because when she said no, her kids became disagreeable and “pouted” – for which she wants class action status. If she gets it, McDonald’s isn’t the only company that should worry. Other kids pout because parents won’t get them 800-piece Lego sets, Madame Alexander dolls and Disney World vacations. Are those companies going to be liable too?

The center’s [CSPI’s] longtime shtick is to complain that businesses like McDonald’s, rather than our own choices, are to blame for rising obesity. So let’s take Happy Meals as an example. When you buy one, you get a string of choices. Milk or soda? (Is that really a hard choice for a parent worried about nutrition?) You can swap out the fattening French fries for “apple dippers” with caramel sauce and plenty of kid appeal. But your choices do not end there. If you think the scoop of fries is too big for a kid serving, you can tell the kid to share it with the grownup on hand, namely you. (You’re the grownup. You make the rules.) You can even, shocking as this sounds, toss the surplus French fries into the disposal bin.

…[I]t’s unlikely that even California courts will approve this suit. But in the mean time, the Center for Science in the Public Interest will fatten off the publicity, unattractively.

You can read the whole thing here. As I’ve noted at my website Overlawyered, the case is one element in a wider campaign that includes newly enacted bans on Happy Meals in San Francisco and nearby Marin County. In June, California blogger Bruce Nye predicted that CSPI would try to build on a 1983 California Supreme Court precedent, Committee on Children’s Television, Inc. v. General Foods Corp., that invites suits over advertising to kids that is purportedly “predatory,” but that they’d run into trouble proving (as the law has required since California voters passed Prop 64 in 2004) that its client, Ms. Parham, is “a person who has suffered injury in fact and has lost money or property” owing to the advertising. Even under California law, having to say “no” to one’s kids is not a legal injury.

Unintended Consequences of Money-Laundering Laws, Cont’d

As Dan Mitchell pointed out this morning, proposals to abolish the $100 bill, on the grounds that it’s too easily used in underground-economy activities such as tax evasion and drug dealing, are another instance in which ordinary citizens are called on to sacrifice convenience and privacy to help in the ever-expanding federal fight against “money laundering.” I’ve long been fascinated by the unintended consequences that arise from these laws, especially from the federal “know your customer” rules under which banks (and increasingly other businesses) are required to pry into their customers’ earnings sources, family relationships, overseas ties and other sensitive matters. Those who cannot furnish satisfactory answers – such as Americans who lack a suitable recent domestic credit record because they have long lived as dependents, overseas, or even as nuns in convents – may find that banks turn them away as customers or even freeze their existing accounts. The same is true of established customers who cannot explain a large or irregular series of cash deposits or remittances from abroad to a bank officer’s satisfaction.

A new example of this has emerged this fall, and it’s embarrassing even by the standards of federal government foul-ups. According to a Foreign Policy report last month, no fewer than 37 foreign governments with embassies in the United States are on the brink of losing, or have already lost, access to the routine banking services they need to pay their staff salaries and keep the lights and heat on in their consulates. The reason? These governments cannot prove to the satisfaction of U.S. banks that their accounts are not potentially open to use for illicit money transfers. From the banks’ point of view, there is no particular benefit to be had from an account which is relatively small in the first place – the countries involved are mostly poorer nations, many in Africa, with small embassy staffs – when these are dwarfed by the paperwork costs and potential legal exposures from a misstep.

The consequences for American foreign interests have already been unpleasant, and will become more so if the problem isn’t fixed. Angola, which saw its accounts closed down by Bank of America, has already had to cancel planned national independence day celebrations and has hinted at retaliation against unrelated U.S. companies that happen to do business in Angola. Extend that sort of anger to 37 countries, and some significant international frictions could result.

Now, I have no doubt that some embassy bank accounts, of smaller and bigger countries alike, are pressed into service for improper or even criminal money transfers. (I always assumed the whole point of “diplomatic pouches” was to transfer things back and forth that the host country would have preferred to stop and inspect). But the odds are near zero, I think, that the latest wave of bank refusals-to-deal was somehow a planned or intended consequence of the original federal calls for wide-ranging bank regulation in the name of money-laundering prevention. How many such unintended consequences will the new Dodd-Frank law turn out to have?

To Track or Not to Track? That’s Actually Not the Question.

A subcommittee of the House Committee on Energy and Commerce held a hearing last week to consider a proposal, floated in a recent Federal Trade Commission report, for “Do Not Track” legislation aimed at giving Web users greater control over how information about their online activities is collected and used by sites and advertisers. The name is a deliberate reference to the wildly popular “Do Not Call” list, a sort of virtual “No Tresspassing” sign for the telephone, which has spared scores of Americans the annoyance of telemarketers pitching FABULOUS DEALS! and LOW INTEREST RATES! during dinner. Subcommittee Chair Bobby Rush repeatedly invoked the Do Not Call program’s success in his opening remarks. And under the headline “Don’t Track technology is simple, experts say” USA Today declared that a “Do Not Track” policy for the Internet would be even “simpler and more powerful than Do Not Call.”

But as technology researcher Harlan Yu has argued, it’s actually a good deal less simple than it sounds—and the analogy to “Do Not Call” may obscure more than it illuminates. The experts consulted by USA Today are right that a Do Not Track policy would, in one respect, be technically simpler to implement than Do Not Call. It would not be necessary—or, indeed feasible—to have some kind of centrally administered list of people who have opted out of tracking. Instead, the idea seems to be that browsers could incorporate a “Do Not Track” mode which, when activated by users, would send a legally enforceable signal to deactivate tracking in the header of all communications, which would be automatically recognized by sites and ad networks.

What’s not so simple—as the FTC official who testified at last week’s hearing acknowledged—is determining exactly what “tracking” means, who is obligated to listen to the Do Not Track request, and what compliance with it entails. The appeal of a legally enforceable Do Not Track header is that it targets a functional class of behavior rather than any particular technological tracking mechanism, with the goal of ending the “arms race” that characterizes individual efforts by users to safeguard their privacy. So as users learn that they can delete tracking cookies, or block cookies from ad networks using their browser’s privacy settings, the advertisers turn to Flash cookies. When users figure that out, the trackers turn to system fingerprinting or history sniffing. How much simpler for users to simply be able to know they can demand not to be tracked without worrying about whether they’ve anticipated the latest clever method.

There’s the rub, though: There are many different kinds of information sites collect when interacting with users—much of which can be used for tracking, but which is also necessary for other purposes. So, for instance, IP addresses are not a particularly good way of tracking users for behavioral marketing purposes—on many networks they’re dynamically assigned and change frequently, and a single IP may actually represent many different computers and users behind a NAT firewall. Nevertheless, they often will be relatively persistently identified with a particular user—yet it would be utterly infeasible to suggest that sites be forbidden from maintaining their own server logs, including visitor IPs, for any connection that includes a Do Not Track header. Similarly, while sites can collect information about a user’s system configuration for the purpose of “fingerprinting” and tracking, there are lots of other reasons to collect that data—providing browser or OS-specific functionality or a smoother user experience, diagnosing bugs, and so on.

A browser-embedded header may be technically simpler than a government-administered “Do Not Call” list, but “Do Not Call” is conceptually much simpler: A marketer either places an unsolicited call to a particular number, or it doesn’t. When it comes to the information generated by the interaction between a user and a Website, the datastream may be binary, but the question of whether someone is being “tracked” or not is anything but. And as the “arms race” alluded to above shows, it’s not always going to be clear in advance which kinds of information will facilitate tracking. And of course, users will find it useful and convenient to permit the collection of certain types of information even as they prohibit others, making it desirable, as the FTC’s David Vladeck put it in his testimony, for Do Not Track to enable “granular control” by users, rather than a simple on-off switch. But the more types of data collection and sharing need to be controlled—including new types that become prevalent as technology evolves—the more elusive the clarity and simplicity promised by Do Not Track (relative to mechanism-specific self help) becomes.

Maybe there’s a solution to these difficulties—it would be premature to declare it hopeless a priori without seeing a proposed standard. But while the Internet is global, the reach of the FTC is confined to the United States. Even if the arms race could be halted within those borders, many users would frequently—and probably unwittingly—visit sites that are based abroad, or include content from third-party sites that are. (Expect that to increase if legislation gives those foreign ad networks a competitive advantage.) If the sense of security provided by Do Not Track therefore proves to be largely illusory, a more openly acknowledged arms race might be preferable.