Topic: Regulatory Studies

Litan Warns Dodd Bill Would Harm Startups

I haven’t been following the debate over Sen. Dodd’s financial overhaul closely enough to have an opinion on the overall package, but Mike Masnick flags one aspect of the legislation that seems really troubling. Bob Litan explains:

Under existing law, startup companies can raise money easily and quickly from “accredited investors” – individuals with substantial wealth or income. There is no need for the companies or the investors to gain approval from any state or regulatory official.

All of this would change if Section 926 of the Dodd bill is included in any final reform legislation. That section would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.

The negative impact of the SEC filing requirement would be aggravated by the proposed doubling of the net worth or income thresholds required for investors to be “accredited.”

It’s hard to overstate how important a favorable regulatory climate is to the success of startups. Some of the most important startups have been founded by 20-somethings without the resources to hire lawyers or navigate regulatory bureaucracies. And startups frequently find themselves within weeks of insolvency before they have a big breakthrough. Having a crucial round of funding delayed by four months can be the difference between success and failure. If this description of the bill is accurate (and I have no reason to doubt that it is), this provision would be very bad for the future of high-tech innovation in the United States.

Hot Time in the Old Town Tonight

record-setting heat wave has settled on the Beltway this week, resulting in my thermometer topping the 85°F mark by the time I came into work today.

Did I mention my thermometer is inside my apartment?

“Oh yuck,” you’re probably thinking. “You should get a place with air conditioning.”

But you see, my unit has air conditioning. The problem is that, under Virginia law, it can’t be turned on until May 1.

My apartment is in an older building (1958) with a centralized HVAC system. As a result, the whole building must either be in heating mode or cooling mode. One of the quirks of this system is that it takes a couple of days for it to be converted from one mode to the other.

That physical reality doesn’t jibe well with Virginia law, which requires (in the words of an Arlington County government brochure) that:

Every dwelling unit is … to have heating facilities that are properly maintained and keep all habitable rooms at a temperature of at least 65° during the day and 60° at night during ordinary winter conditions from October 15 - May 1.

The result is that, unless the building superintendent knows for certain that cold-weather conditions have ended for the year, a building with a system like mine (which isn’t uncommon) can only be in compliance with Virginia law if it keeps the air conditioning off until May 1. Hence my 85°F apartment.

No doubt, Virginia regulators will explain that such rules are necessary to protect the comfort and safety of apartment residents. But I wonder what they would say about the comfort and safety of the small children who live in my building and who spent the last few nights trying to sleep in 85°F heat?

Play Ball! But Not With Taxpayer Money

As we enjoy the opening week of the new baseball season, we should reflect on the dastardly organization that spends too much money and raises the price of baseball for everyone.

No, it’s not the New York Yankees: it’s the United States government.

You see, as discussed in this recent New York Times op-ed, the price of baseball has increased all across the Major Leagues because of the tax write-off (read: subsidy) that businesses get to treat clients and employees to ball games:

There are many reasons for the price explosion, but a critical factor has been the ability of businesses to write off tickets as entertainment expenses — essentially a huge, and wholly unnecessary, government subsidy.

These deductions have led to higher ticket prices in two ways. On the demand side, they have fueled competition for scarce seats, with business taxpayers bidding in part with dollars they save through the deductions.

While baseball parks built in the 1960s and before held as many as 56,000 seats, the modern trend is toward smaller-capacity parks, with a higher percentage of total space dedicated to skyboxes. The new Yankee Stadium, the only major-league park built since 2000 with more than 44,000 seats, has 3,000 fewer seats than its 1923 predecessor but almost three times as many skybox suites.

Of course, libertarians support low general taxes for a variety of reasons, but targeted tax breaks for luxury items pad the pockets of billionaire sports team owners, give a discount to companies showing off their “generosity” to clients, and generally distort the economy, all at a cost to taxpayers (including those who aren’t even baseball fans).

Boo! America’s national pastime of baseball should not be corrupted by national and state governments’ parochial pastime of corporate welfare.

For more in-depth analysis on the business of sports, read anything by Andrew Zimbalist or Home Team by my former professor Michael Danielson.  (Danielson taught a great class on the political economy of sports; my classmates who thought it would be a gut were in for a rude awakening.)

H/T: Above the Law

When Regulators Attack

No, that’s not the name of a new TV series. We should be so lucky.

It’s actually a good description of the government’s approach to tobacco.

Instead of letting adults make up their own minds about costs and benefits of risky choices (which includes most things in life, such as crossing a street and eating a cheeseburger), nanny-state officials have decided to investigate menthol-flavored cigarettes. And since the Food and Drug Administration has been given authority over the tobacco industry and since the FDA’s supposed purpose is to ensure drugs are “safe and effective,” that almost certainly means this latest campaign will lead to either further restrictions on free speech or outright bans.

Here’s a blurb from the Wall Street Journal:

Congress last year added the tobacco industry to the FDA’s regulatory mix and today a panel of health experts making up the agency’s new Tobacco Products Scientific Advisory Committee is kicking off a two-day meeting. First on the agenda: how menthol flavoring in cigarettes affects smokers’ habits. Small wonder that menthol is getting early attention, says the New York Times, which notes menthol butts account for almost a third of the $70 billion U.S. cigarette market.

After more meetings, the advisory panel will send recommendations to the FDA, which could eventually decide to ban menthol products or take steps to curtail their marketing.

One can only wonder how far down the slope we will slide. There already are attacks against fatty foods and sugary soft drinks. Both provide pleasure to many people, but that no longer means much in Washington. Will regulators, either at the FDA or elsewhere, eventually decide that anything linked to obesity must be regulated and/or taxed?

And now that government is going to pick up the tab for an even larger share of health costs, how long before the politicians use obesity-related costs as a major justification for further efforts to control our private lives? Maybe some day we will have a Federal Health Police to enforce daily exercise mandates? I better stop now before I give them any ideas.

Pot, Protectionism, and Unions

Lobbying reporter Tim Carney notes that some California marijuana growers are worried that a proposed legalization initiative could drive down the price of the product and adversely affect their incomes. They’re holding meetings to deal with the threat.  Some growers are just talking about creating an official Humboldt seal of approval. Maybe they could even get legal restrictions on who can use the Humboldt name, like Champagne and Roquefort. But some local stores sport bumper stickers reading “Save Humboldt County — keep pot illegal.”

The story reminds Carney of this Reason.tv video featuring a spokeswoman for the purported American Marijuana Growers Association, who urge smokers to buy only American-grown bud:

And that video reminds me of this classic Saturday Night Live video, from those heady days in the ’70s when television shows could joke about marijuana, featuring the American Dope Growers Union reminding viewers that when you buy pot from Mexico or Colombia, “you’re putting an American out of work.” (The SNL sketch was based on a much-broadcast commercial by the International Ladies Garment Workers Union singing “Look for the Union Label,” to discourage Americans from buying foreign-made products.)

Union rules, protectionist laws, and sometimes even outright bans are all ways of avoiding the rigors of competition, seeking to prevent consumers from buying products and services where they’re cheapest. Sometimes there are laws banning or taxing the purchase of goods from another country. Sometimes there are appeals to compassion and patriotism, like “Buy American” or “Buy Local” campaigns. Sometimes an outright ban on the sale of a product actually products the market for established illegal sellers, as the Humboldt County marijuana growers are thinking, and as economist Bruce Yandle theorized in his work on “bootleggers and Baptists.”

O’Reilly: No Freedom, No How

Bill O’Reilly teases an interview with John Stossel this way:

Should Americans be able to use their body for any purpose? John Stossel says yes and joins us to explain!

And Bill O’Reilly says no! No to legal prostitution, no to polygamy, no even to legal markets for vitally needed organs. Check it out:

More Stossel videos on personal freedom here. Cato research on organ markets here. And don’t forget to watch John Stossel every Thursday night at 8 on the Fox Business Network.

Tuesday Links

  • Price controls have failed in the past and there is no reason to think they will work now. So why is the president proposing price controls on health care? Michael Tanner: “Attempts to control prices by government fiat ignore basic economic laws – and the result could be disastrous for the American health-care system.”