Topic: Regulatory Studies

Electric Power in Montgomery County: Spot the Fallacy

Some politicians in Montgomery County, Md. want the county government to take over the provision of electric power from the private Potomac Electric Power Co. (Pepco). One councilman quoted in the D.C. Examiner seems to think the killer argument is that money laid out by the county government has no opportunity cost:

“Pepco pays out … $200 million in dividends,” said Councilman Marc Elrich, D-at large. “If I’m not paying shareholders dividends, I have $200 million I can invest in infrastructure.”

Surely Councilman Elrich’s insight is too profound to confine to the utility business alone. It suggests that the government – enjoying, it seems, the power to lay out taxpayer dollars with Greece-like insouciance about boring old concepts like “return on investment” – could do better than dividend-paying corporations at almost any business. Why not have it take over the running of fast-food restaurants and dry cleaners too?

As it happens, Pepco has been the target of consumer anger in recent years in considerable part because windstorms in its service area have resulted in prolonged and costly outages. And in the suburbanized Northeast, at least, one of the single most important predictors of severe windstorm outages is the extent to which utilities trim back trees near power lines: well-off counties like Montgomery that prize a leafier, more natural tree canopy pay the price in occasional electric interruption, a phenomenon likewise seen in places like Greenwich, Ct.

So who’s led the opposition in the past when Pepco has tried to accelerate cutting? You guessed it:

Councilman Marc Elrich (D-at large) says he is considering legislation to stop widespread tree-cutting by Pepco.

There is perhaps no single right way of resolving the trade-offs here, but demagoguing the issue up one side of the street and down the other is almost certainly the wrong way.

Unions Can’t Force Non-Members to Pay for Political Advocacy

As recent events in Wisconsin have demonstrated, public-sector unions are powerful political constituencies that can shape government to their ends. The Service Employees International Union, for example, the defendant in Knox v. SEIU Local 1000, has been ranked by OpenSecrets.org as the fifth biggest “heavy hitter” in federal politics in terms of campaign spending.

In 2005, the SEIU initiated a mid-year campaign against two California ballot measures, one that would cap state spending and another that would restrict the use of union dues for political purposes. In states such as California that do not have “right to work” laws, unions are allowed to take dues from non-union workers to finance collective-bargaining activities that, arguably, benefit all employees.  Since 1977, however, unions have not been allowed to take dues from non-union members to pay for pure political advocacy without adequate protections for possible dissenters.

To distinguish political money from collective-bargaining money, the Supreme Court requires that a “Hudson notice” be given to all non-union workers. This notice gives non-members the opportunity to challenge political expenditures. But when the SEIU began garnishing 25-33% more wages to fight the California ballot initiatives, it issued no new Hudson notice, effectively forcing 28,000 non-member employees to finance its political speech.

As Judge J. Clifford Wallace wrote in dissent from the Ninth Circuit’s ruling in favor of the SEIU, “it is undeniably unusual for a government agency to give a private entity the power, in essence, to tax government employees.”  Now before the Supreme Court, Cato joined the Pacific Legal Foundation, the Center for Constitutional Jurisprudence, and the Mountain States Legal Foundation, on a brief supporting the non-union workers and arguing that the Court should focus not on the extent of the burden Hudson places on unions (as the Ninth Circuit did) but on the paramount reasons why the notice requirements exist in the first place: to ensure that an individual’s right to speak or remain quiet receives the protection it deserves.

As Judge Wallace put it, “the union has no legitimate interest … in collecting agency fees from nonmembers to fill its political war-chest.”

We also highlight the numerous unscrupulous tactics that unions have used over the years that violate the rights of dissenting workers – the same kind of rights that the Ninth Circuit treated with indifference. Finally, in light of the extreme political power that unions enjoy, the Court should find that the only way to adequately protect the rights of dissenting workers is to require that all non-union members must “opt-in” to any garnishment of wages for political purposes.

The Supreme Court will hear the Knox case in early 2012.  Here again is Cato’s brief.

Peter Schiff: For Jobs, Look to Microeconomics

Peter Schiff’s testimony to a House committee yesterday on the nation’s economic crisis provides a refreshing contrast to the Keynesian-dominated commentary that saturates the mainstream media.

Peter talks about how:

  • The president’s jobs plan would create perverse hiring and firing incentives
  • Infrastructure investment needs to earn a positive net return else it’s not worth doing.
  • The minimum wage increases unemployment for low-skill workers
  • Regulation and litigation reduce hiring
  • Extended unemployment benefits exacerbate unemployment.

It’s all Econ 101 microeconomics, but it’s often forgotten these days by economists and pundits who only see the world through the lens of “aggregate demand.”

Sen. Rubio to Sec. Duncan: Dear Sir, Obey the Law

Senator Marco Rubio has just written to Secretary of Education Arne Duncan, requesting that he not break the law. At issue is the administration’s plan to offer states waivers from the No Child Left Behind act if they agree to adopt national standards or pursue other educational goals of the administration. Rubio states that these conditional waivers violate the U.S. Constitution, the Department of Education Organization Act, and the No Child Left Behind Act. He’s right.

As my Cato colleagues and I have noted many times, the Constitution mentions neither the word “school” nor the word “education,” and so, under the 10th Amendment, reserves power over those concerns to the states and the people.

The Act creating the Department of Education is equally clear:

No provision of a program administered by the Secretary or by any other officer of the Department shall be construed to authorize the Secretary or any such officer to exercise any direction, supervision, or control over the curriculum, program of instruction, administration, or personnel of any educational institution, school, or school system… .[Section 3403(b)]

Nor is the NCLB particularly ambiguous:

‘Nothing in this title shall be construed to authorize an officer or employee of the Federal Government to mandate, direct, or control a State, local educational agency, or school’s specific instructional content, academic achievement standards and assessments, curriculum, or program of instruction. [Section 1905]

The Secretary’s conditional waivers from NCLB mandates, in return for dancing as he desires on national standards, seem to violate all of the above. I wonder if any education reporter will have the temerity to ask Arne Duncan on what grounds he believes he is entitled to ignore these laws? Senator Rubio’s letter certainly gives them a golden opportunity to do so.

Overregulation, Swing States and D.C. Cynicism

Today’s Wall Street Journal carries a news report on how the Obama administration, after more than two years of pursuing damn-the-costs government control over the private sector, is finally developing more internal debate about whether and when zealous regulations are worth the cost. In particular, Office of Information and Regulatory Affairs chief Cass Sunstein, known as skeptical about some costly rules, has now acquired an important sometime ally in White House Chief of Staff Bill Daley, who played a role in getting EPA to table some very expensive new air-quality standards the other day.

All well and good, but I was stopped short by a paragraph that shouldn’t pass without comment:

The same day, Mr. Daley met with industry groups, who gave the White House a map showing counties that would be out of compliance with the Clean Air Act if the stricter standards were put in place. The map showed that the rule would affect areas in the politically important 2012 election states of Florida, Pennsylvania, Virginia, and Ohio.

Even by Washington standards, isn’t it appallingly cynical to evaluate environmental rules that could (critics have argued) cripple wide sectors of the economy according to whether the worst damage falls on politically vital states like Florida and Ohio, or just ho-hum non-swing states like Oklahoma, North Dakota and Tennessee? True, the article doesn’t say who was cynical enough to draw the connection here – the business groups giving the presentation? The White House listeners? Some third party whose viewpoint this is all being filtered through? But whoever’s being the cynic here, one of the costs is to feed the alienation of citizens of Texas in particular, whose officials and businesses have been complaining for more than a year of being singled out for hostile attention by the Obama EPA. For everyone’s good, I hope someone in the White House at this moment is writing a sharp letter disclaiming any special intent to help Pennsylvania, Virginia et al. And I hope after drafting that letter they will be cleared to send it off for publication in the Journal, not just keep it in the desk to show outraged delegations of Texans.

Davis-Bacon Rules Damage D.C.

The Washington Post reports on a Labor Department decision that applies pro-union Davis-Bacon rules to the CityCenter development in Washington D.C. The ruling could push up costs on the project by $20 million by forcing firms to pay artificially high wages.

The paper says that “area real estate developers and construction executives who have partnered with the District say the ruling, if upheld, is likely to inflate costs on a wide range of projects by as much as 15 percent.” In turn, that could have “unprecedented, significant [and] adverse citywide cost impact upon every economic development project in the District’s portfolio,” said a deputy mayor of the city. So while Democrats in Congress are demanding government action to fix the nation’s supposedly crumbling infrastructure, here the Obama administration has thrown up a new hurdle to investment.

Davis-Bacon rules usually apply to federally funded construction, thus pushing up the costs of public projects. Nationwide, economists at the Beacon Hill Institute found that Davis-Bacon rules cost federal taxpayers about $9 billion annually. For example, repairs to National Park facilities cost more than they should, thus reducing the amount of maintenance the agency can do within its budget. However, the D.C. ruling stretches the Davis-Bacon rules even further because CityCenter is a privately funded project.

In an essay at www.DownsizingGovernment.org, economist Charles Baird notes that passage of Davis-Bacon in 1931 was motivated by the faulty economic idea that the government should try to keep wages high during an economic downturn. But Baird describes another reason why Davis-Bacon was misguided from the start—the racist intentions of the bill’s supporters:

Congress wanted to keep black workers from competing for jobs that had hitherto been done by white unionized labor. The racist motivation behind the legislation is plain when reading the Congressional Record of the debate in 1931.

Job Creation, Obama-style

I guess the Labor Department didn’t get the memo on trying to create jobs, rather than destroy them.  As reported by the Wall Street Journal, the Labor Department is investigating several home builders for treating their contractors as…contractors.  Anyone with the slightest understanding of the construction industry knows that much of the relationships are between contractors and subcontractors, rather than employees and employer, largely because the projects regularly change.

But from Obama’s perspective, and that of his union allies, such treatment makes unionizing construction workers all that much harder.  Without such unionization, construction wages might fall.  Obviously that’s the last thing anyone would want when you have about 2 million unemployed construction workers.  If wages fell, a few more of them might actually get hired.  Someone in this Administration really needs to learn how the basics of supply and demand work, in the labor market and elsewhere.

My favorite part of the story is the union representative complaining about home builders trying to lower costs.  She states that home builders need to stop pressuring subcontractors to “go cheaper” on costs: “It’s pretty clear that there’s an enormous pressure to rush to the bottom in terms of keeping costs down.”  Maybe if houses were even cheaper, then not eveyone would have had to get such a large mortgage to buy a house and we could have avoided the financial crisis altogether.  But then when it comes between choosing to make one of life’s basic necessities - shelter - cheaper or helping to line the pockets of special interests, this Administration sadly continues to prefer the later.