Topic: Regulatory Studies

No Soccer for Oil!

Fans of soccer and liberal democracy — I’m in both groups — were disappointed to hear that the FIFA grandees awarded the 2018 World Cup to Putinland Russia and the 2022 event to Qatar (!).  My friend Grant Wahl has a typically sharp immediate reaction for Sports Illustrated that boils down to three points: (1) the choices prove once again that FIFA is not exactly a model of integrity and transparency; (2) Qatar?  Really?  Really?; and (3) the U.S. put together a strong bid and left everything on the pitch.

I would expand Grant’s first point to darned-near all elite international organizations, from the International Olympic Committee all the way to the United Nations (though the Wall Street Journal today said FIFA makes the UN look like a model).  Where there is no democratic accountability and plenty of rent-seeking opportunities, is corruption and non-merit-based decisionmaking all that surprising?

And of course this isn’t a matter of the United States losing out to a nation with a deep soccer (or any athletic) tradition, or even to a developing country set to burst onto the geo-political stage (like awarding the 1968 Olympics to Mexico City, the 1988 Games to Seoul, or the 2008 Games to Beijing).  No, this was a matter of petro-wealthy sheiks buying a major sporting event.  Bully for commercial competition, of course, but (a) those are sovereign, not private funds in play (though the distinction is observed in the breach in the Middle East); (b) playing in 110-degree heat can’t make sense (see the problems with the relatively balmy 1996 Atlanta Olympics — and I’ll believe the air-conditioned outdoor stadiums when I see them); and (c) who knows what the political situation will be in the region 12 years hence.  Plus bribing officials and riding anti-American sentiment — shocking, I know, given that George W. Bush was not part of the Bill Clinton/Morgan Freeman-led lobbying team — ain’t exactly a testament to the free market.

Speaking of economics, though, one silver lining to the U.S. disappointment — and that of England, once favored for the 2018 Cup but finishing with only two votes — is that hosting a “mega-event” like the World Cup or Olympics really doesn’t do much for a national economy (and more often than not has a detrimental economic impact).  And while I haven’t studied the details of the U.S. bid, it’s safe to assume that whatever public stadium and other subsidies were in it — probably not much compared to luring/keeping pro sports teams — paled in comparison to Qatar’s bid (let alone Russia’s).  And so American soccer fans’ loss is almost certainly American taxpayers’ gain.

In short, the Russia-Qatar double is a cynical course of events that will harm soccer’s long-term prospects in the United States and the reputation of international athletic bodies everywhere.  (Just in time for the annual peak in anti-BCS vitriol among lovers of American football, this time with a neat antitrust twist — on which more at some later point.)

Perhaps the biggest question, though, is how will Qatar’s strict alcohol laws affect fans’ enjoyment of “the beautiful game”?

Robert H. Frank’s Non-argument for Higher Tax Rates

In The New York Times, Robert H. Frank of Cornell University repeated his perpetual argument that high tax rates on the rich do no harm to demand (not supply) because the rich can just draw down savings, year after year,  to pay more taxes yet maintain a showy lifestyle.   Then he resorts to the old trick of asserting there is no “credible” evidence that tax disincentives and distortions have any ill effects on the economy.

Frank asks, rhetorically, if an increase in top tax rates might reduce economic growth.  And he replies, “There’s no credible evidence that it would.”   This is a timeworn trick among people too intellectually lazy to look for a single academic study or statistical fact.  

As I have shown before, Mr. Frank has a history of abusing bogus statistics culled from dubious sources. 

To simply assert “there’s no credible evidence,” however, is much worse than distorting the facts. 

It amounts to claiming that he has the ability and the right to suppress facts not to his liking. 

Over the past year I have repeatedly cited several major studies showing that pushing the highest marginal tax rates even higher is extremely dangerous to economic growth; Stanford economist Michael Boskin lists half a dozen of them in his latest Wall Street Journal op-ed.   

For Mr. Frank to assert that such studies are not “credible” simply reveals his own inability to find credible evidence to support his own untenable position.

Bright Spots in Fiscal Commission Report

President Obama’s Fiscal Commission has produced a serious and sobering analysis of the government’s budget mess, and it provides some of the needed solutions. Three of the report’s main themes are on target: the need to make government leaner, the need to cut business taxes to generate economic growth, and the need to impose tighter budget rules to discipline spending.

The report rejects the view of many Democratic leaders that the welfare state built over the last 80 years must be defended against any and all budget cuts. “Every aspect of the discretionary budget must be scrutinized, no agency can be off limits, and no program that spends too much or achieves too little can be spared. The federal government can and must adapt to the 21st century by transforming itself into a leaner and more efficient operation.” How lean the government should be, and how many agencies to eliminate, will be the central fiscal debate in coming years. Downsizing government is the order of the day.

The report recognizes the need to spur economic growth, particularly by cutting the corporate tax rate. “The corporate income tax, meanwhile, hurts America’s ability to compete… statutory rates in the U.S. are significantly higher than the average for industrialized countries … and our method of taxing foreign income is outside the norm…. the current system puts U.S. corporations at a competitive disadvantage against their foreign competitors.” The report recommends cutting the 35 percent federal corporate tax rate to 28 percent or less to respond to the Global Tax Revolution and to “make America the best place to start a business and create jobs.”

Finally, the report suggests that Congress impose new procedures to enforce budget restraint. However, the rules suggested by the commission are complex and not tight enough. It would be simpler and more powerful to impose a cap on overall federal spending. For example, a law could require that the government’s overall budget not grow faster than general inflation each year else the president would sequester spending across-the-board. Such a cap would be easy for the public to understand and enforce.

In sum, the report provides a useful menu of reform options that incoming members of a more conservative Congress can pursue next year. We need bigger spending cuts than the commission has laid out—as I’ve outlined in this balanced-budget plan—but the commission deserves credit for spurring a national discussion on how to downsize the federal government.

The CPSC’s Defective New Complaints Database

We are told constantly that government can play a beneficial role in the marketplace by taking steps to make sure consumers are more fully informed about the risks of the goods and services they use. But what happens when the government itself helps spread health and safety information that is false or misleading? That question came up recently in the controversy over New York City’s misleading nutrition-scare ad campaign, and it now comes up again in a controversy over a new database of complaints about consumer products sponsored by the federal Consumer Product Safety Commission (CPSC).

As part of the Consumer Product Safety Improvement Act of 2008 (CPSIA), Congress mandated that the CPSC create a “publicly available consumer product safety information database” compiling consumer complaints about the safety of products. Last week, by a 3-2 majority, the commission voted to adopt regulations that have dismayed many in the business community by ensuring that the database will needlessly include a wide range of secondhand, false, unfounded or tactical reports. The Washington Times editorializes:

…[Under the regulations as adopted last week] anybody who wants to trash a product, for whatever reason, can do so. The commission can leave a complaint on the database indefinitely without investigating its merits “even if a manufacturer has already provided evidence the claim is inaccurate,” as noted by Carter Wood of the National Association of Manufacturers’ “Shopfloor” blog….

Trial lawyers pushing class-action suits could gin up hundreds of anonymous complaints, then point the jurors to those complaints at the “official” CPSC website as [support for] their theories that a product in question caused vast harm. “The agency does not appear to be concerned about fairness and does not care that unfounded complaints could damage the reputation of a company,” said [Commissioner Nancy] Nord.

Commissioners Nord and Anne Northup introduced an alternative proposal (PDF) aimed at making the contents of the database more reliable and accurate but were outvoted by the Democratic commission majority led by Chairman Inez Tenenbaum. Nord: “under the majority’s approach, the database will not differentiate between complaints entered by lawyers, competitors, labor unions and advocacy groups who may have their own reasons to ‘salt’ the database, from those of actual consumers with firsthand experience with a product.” Commissioner Northup has published posts criticizing the regulations for their definitions of who can submit a report, who counts as a consumer, and who counts as a public safety entity.

For those interested in reading further, Rick Woldenberg, a leading private critic of the law who blogs at AmendTheCPSIA.com, has critically commented on the politics of the proposal here, here, here, here, and here. More coverage: ShopFloor with followups here and here, New York Times, Sean Wajert/Mass Tort Defense. I’ve been blogging for the past two years at my website Overlawyered about the wider problems with the CPSIA law, including its effects on books published before 1985, thrift stores, natural wooden toys, ballpoint pens, bicycles, plush animals, Irish dance costumes, rocks used in science class and many more. Most of these problems remain unresolved thanks to the inflexible wording of the law as well as, sometimes, the unsympathetic attitude of the commission majority. I’ve heard that bringing overdue investigative oversight to the ongoing CPSIA disaster is shaping up as a priority for many incoming lawmakers on the (newly Republican-led) House Energy and Commerce Committee, whose outgoing chair, California Democrat Henry Waxman, is closely identified with the law and its consumer-group backers.

Lame Ducks and Locavores On Food Safety

Last week the New York Times reported on the story of Estrella Family Creamery, an award-winning, very-small-scale producer of raw milk farmstead cheeses in Montesano, Wash. The family faces a Food and Drug Administration ban on its products because the food pathogen listeria has been found in its facilities; when it expressed defiance, the FDA proceeded to stage a raid to seize its entire cheese stock. It’s not easy to sort out how large a health risk may be involved (listeria, a widely disseminated form of bacteria, poses a real danger of food poisoning, but no actual illness has been traced to Estrella cheese). I was struck, in any event, by these paragraphs from the Times account:

“If the F.D.A. wanted to shut down the U.S. artisan cheese industry, all they’d have to do is do this environmental surveillance and the odds of finding a pathogen would be pretty great,” said Catherine W. Donnelly, co-director of the Vermont Institute for Artisan Cheese of the University of Vermont, referring to the listeria testing at cheese plants. “Is our role to shut these places down or help them?”

Kurt Beecher Dammeier, owner of Beecher’s Handmade Cheese, an artisan cheesemaker and retailer in Seattle, said the F.D.A. needed to work harder to understand artisans like Ms. Estrella. “The F.D.A. comes from an industrial, zero-defect, highly processed, repeatable perspective, and she comes from a more ancient time of creating with what she gets,” he said. “I’m not sure they can really even have a conversation.”

What lends some urgency to these continuing debates is that that the Senate is expected to vote as early as this week on a bill that will conscript thousands of food producers, processors and “facilities” – including many that produce or import relatively low-risk foods for specialty, local or ethnic clienteles – into a best-industrial-practices safety model with extensive recordkeeping requirements and other regulatory burdens. The bill cleared a Senate cloture vote the other day 74-25 and is scheduled for floor consideration Monday.

Much of the bill’s press coverage – as with a USA Today editorial which followed ridiculously slanted coverage in that paper – appears blithely unaware of the apprehension the bill has raised among small farmers and organic/”locavore” advocates. Some of those fears played out in a battle over an amendment offered by Sen. Jon Tester (D-Mont.) to lessen regulatory burdens on smaller local producers, and strongly backed by (e.g.) foodie guru Michael Pollan. Most big “consumer” groups, however, including Consumers Union and the Center for Science in the Public Interest, lined up against the small farmers and facilities, as did (following their lead) the New York Times, whose editorial managed to denounce the Tester amendment without actually saying what it did, lest its readers (who of course include many foodie/locavore believers) be confused. Moreover, many big agribusiness sectors have actively opposed the Tester amendment as well, on the view that any regulatory regime they have to live with, Uncle Perry with his parsnip patch should have to live with too, even if it means he won’t manage to stay in business while they will. Despite that line-up, Senate leaders have now reportedly accepted a watered-down version of the Tester amendment, which does not by any means exempt small producers from federal regulatory control – they will face plenty of it – but at least nods toward the principle of “tiering” burdens. (Earlier here, here, here, here, etc.)

The wider question is whether the bill as a whole, with its massive ramp-up of federal regulation to displace both voluntary market choices and state-level regulation, is a good idea. As I observed to TownHall’s Jillian Bandes, despite the panic atmosphere generated over the issue in recent years, the best evidence is that the incidence of food poisoning continues to fall, not rise; one reason for the greater press coverage of the issue is that science has gotten better at identifying and tracing the sorts of outbreaks that were happening all along. To some who promote a more intensive regulatory state, the resulting “crisis” presents a welcome opportunity, even though, on these advocates’ own terms, the existing array of laws provides ample means by which federal agencies can crack down on food actually shown to pose a hazard.

When the new Congress convenes in January, it will bring to Washington dozens of new lawmakers with more skeptical views about regulation, who may listen with favor to colleagues like Sen. Tom Coburn (R-Okla.), who has argued against the pending FSMA as an unjustified power grab. Could that be why Sen. Harry Reid (D-Nev.) is determined to force through the bill during the lame duck session? In this case – as with the very bad Paycheck Fairness Act, which Republicans managed to stop earlier this month, and the even more appalling “Public Safety Employer-Employee Cooperation Act” to force unionization on local public safety workers – it’s almost as if the point of the post-election session is to push controversial measures that would encounter more resistance if held over to the next Congress. Is this really a proper use of the lame duck?

Happy National Entrepreneurs’ Day?

President Obama has proclaimed today to be National Entrepreneurs’ Day. The president who has brought us regime uncertainty, more regulations, more government intrusion into the economy, more debt, and is proposing to raise taxes on productive businesses and individuals wants to celebrate entrepreneurship?

I was alerted to National Entrepreneurs’ Day via an email (not online) from the Department of Commerce’s Economic Development Administration. The EDA email makes it clear that the administration wishes to celebrate political entrepreneurship, not market entrepreneurship.

In his book, The Myth of the Robber Barons, historian Burton Folsom explains the difference:

A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn’t. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America’s competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.

As Obama administration achievements, the EDA touts increased Small Business Administration subsidies and a smorgasbord of industrial planning contained in last year’s stimulus package:

The American Recovery and Reinvestment Act served as the cornerstone for this new foundation by pumping $100 billion into the economy to help us tackle some of the grand challenges of the 21st century in diverse fields from healthcare IT and health research, to clean energy, to smart grids, and high speed trains. Recovery Act investments are creating a virtuous cycle of investment, innovation, and job creation that have so far led to the creation of 3 million new jobs.

Wrong. The stimulus has fueled an unvirtuous cycle of political entrepreneurship in which business interests chase federal hand-outs for endeavors sanctioned by inside-the-Beltway planners. Political entrepreneurs have less incentive to innovate and are naturally reluctant to criticize the government because they don’t want to bite the hand that’s feeding them. As Chris Edwards puts it, they become “tools of the state.”

If the administration were really interested in promoting entrepreneurship, it would repudiate the anti-market policies it has pursued thus far. That’s obviously not going to happen, so it’s going to be up to congressional Republicans to repudiate their own history of supporting federal subsidies. In other words, the GOP’s re-found fondness for limited government rhetoric is going to have to actually be matched by action.

A Successful IPO Does Not a Justifiable Bailout Make

There seems to be a lot of confusion about the meaning of GM’s IPO today.  A common narrative in today’s media is that GM’s return to the stock market affirms the wisdom of the auto bailout.  Some tougher customers in the media insist on a higher threshold being met—that taxpayers get back the entirety of their $50 billion investment in GM—before declaring “mission accomplished.” And then there are the rabid partisans who—in their seething animosity toward the Obama administration—reach conclusions devoid of logic and rich only in conspiratorial-mindedness.  For example, yesterday I was contacted by a media outlet vetting this conclusion: “The IPO is evidence of the failure of the bailout because taxpayers were excluded from buying shares at the IPO price and, therefore, denied the opportunity to get their money back.”  Huh?

All of those analyses are wrong.  Let me dispense with the last one first, as it simply betrays a gross misunderstanding of how taxpayers are on the hook.  By divesting of GM (i.e., selling its shares), the government is beginning to make the taxpayer whole.  But just as there were no checks written directly from taxpayers to GM, there will be no checks written to taxpayers, as the Treasury liquidates the public’s share of GM.  Whether main street Americans could participate in the IPO has nothing to do with making the taxpayer whole.  And, by the way, IPOs typically limit sales of shares at the initial price to a chosen few.  So let’s just shelve the canned indignation on this claim.  It’s a distraction.

Here’s the real issue.  Today’s IPO is nothing more than testament to the fact that the government threw GM a lifeline, enabling the company to expunge most of its debts and firm up its balance sheet on terms more favorable than a normal bankruptcy process would have yielded.  That enabled GM to partake of the cyclically growing U.S. auto market in 2010 and turn a profit through the first three quarters.  So what?  Did anyone really think that a chosen company so coddled and insulated from market realities couldn’t turn a short-run profit?  Yes, even GM, under those favorable conditions should have been expected to turn a profit this year.

But at what cost?  That answer—even the question—seems to be elusive in the public discussion of the IPO.  The cost was not only $50 billion—the amount diverted to GM in the first place.  Nor was it that $50 billion minus the proceeds raised in today’s IPO (and minus the proceeds raised later when the government divests entirely of GM – it will still hold 33% of GM after today).  In other words, making taxpayers whole does not absolve the Bush and Obama administration’s for the auto intervention.  Recouping the $50 billion only gets us partially out of the hole.  (And I’m not even sure who “us” includes because the costs are so far reaching.)

Yes, GM is making sales and accounting for market share, but only at the expense of the other automakers.  Had GM been forced to severely atrophy or liquidate, the other automakers would have had greater revenues, more market share, and probably higher profits).  They would have been able to attract GM’s best engineers and line workers.  They would have more money to invest in R&D and to lead the industry into the future.  Instead, by keeping GM in the mix, some of those industry resources remain misallocated in a company that the evolutionary market process would have made smaller or extinct. 

The auto industry wasn’t rescued with the GM bailout.  GM was “rescued.”  By rescuing GM, the government overrode market forces, and there are significant costs to assign for that.  Witness the stagnant economy with 9.6 percent unemployment.  Is it not plausible that businesses are sitting on their cash and not investing or hiring because of the fear inspired by the government interventions starting with the bank and auto bailouts?  It’s more than plausible.  The regime uncertainty that persists to this day was spawned by the GM bailout and other interventions.

What about the weakening of the rule of law?  Doesn’t the diversion of TARP funds by the Bush administration, in circumvention of congress’s wishes and in contravention of the language of the law, represent a cost?  How about the property right of preferred bondholders who were forced to take pennies on their investment dollars under the Obama bankruptcy plan?  Any costs there?  What about U.S. moral authority to dissuade other goverments from meddling in their markets or indulging industrial policy?  That may be costly to U.S. enterprises.  And with the government still holding a third of GM, its hard to swallow the idea that public interest will be the driver of policies affecting the auto industry.  And that suggests even more costs.

But don’t mistake this blog post for an anti-IPO rant.  I’m in favor of the IPO.  It couldn’t have happened sooner.  But I suspect the investment bankers, the administration, and the other members of GM’s Board of Directors reckoned that, with the hype over the new Chevy Volt and the recent newsleak of GM’s $43 billion in unorthodox tax deferrments on the balance sheet, now was the perfect time to go public.