Topic: Regulatory Studies

Online Gambling: According to the Feds, You’ll Be Holding Today

From The Wall Street Journal today, an article about the federal freezing or seizing of 27,000 online gambling accounts (including that of one of my colleagues, who shall remain nameless but is $150 short today).

I blogged a few weeks ago about some (admittedly very dim) light on the horizon so far as the freedom to gamble online is concerned, but this is a setback indeed. The Poker Players’ Alliance (a lobby group for online poker players) says this is the first time that players’ accounts (as opposed to the gambling site operators themselves) have been targeted.

U.S. laws  against gambling online, and the way those laws are administered, are an affront to personal freedom and a threat to our trading relationships.

FDA to Regulate Tobacco? Big Mistake

Handing tobacco regulation over to the FDA, as Congress is poised to do, is an epic public health mistake. It is tantamount to giving the keys of the regulatory store to the nation’s largest cigarette manufacturer, Philip Morris.

The legislation that will be voted on shortly in the Senate was cooked up out of public sight by Philip Morris, Sen. Ted Kennedy, Rep. Henry Waxman, and anti-tobacco lobbyists. Philip Morris staffers themselves even wrote large portions of the bill.

There are significant, and numerous, problems with the FDA regulating tobacco, and virtually no benefits to public health. Kennedy, Waxman, and the public health establishment present their legislation as a masterful regulatory stroke that will end tobacco marketing, prevent kids from starting to smoke, make cigarettes less enjoyable to smoke, and reduce adult smoking. But FDA regulation of tobacco will do none of these things.

The bill fails to correctly identify the reasons why young people begin to smoke, and concentrates almost exclusively on restricting tobacco marketing, while leaving the other risk factors for adolescent smoking unaddressed. There is nothing in the proposed legislation that shows the FDA understands the well-documented connections between education, poverty and smoking status, connections that provide the key to helping adults stop smoking.

Obama’s FCC Pick to Seek Internet Regulation

Politico reports that President Obama’s nominee to head the Federal Communications Commission, Julius Genachowski, is expected to pursue “ ‘net neutrality” regulation of broadband Internet service.

In his paper, The Durable Internet: Preserving Network Neutrality without Regulation, Tim Lee shows why regulation is not needed to preserve the good engineering principle he calls “end-to-end.” His paper also shows how regulation intended to serve consumer-friendly ends is often captured and used by regulated industries to suppress competition and artificially raise profits, denying consumers the benefits of free markets.

GM’s Nationalization and China’s Capitalists

GM’s restructuring under Chapter 11 includes plans to sell off the Hummer, Saab, and Saturn brands. Well, just one day after GM’s bankruptcy filing, a Chinese firm has come forward with a $500 million offer to purchase Hummer. The prospective buyer is Sichuan Tengzhong Heavy Industrial Machinery Co Ltd, a manufacturing company in western China, which hopes to become an automaker.

Not only is the Hummer offer the first bid for a GM asset in bankruptcy, but the bidder is foreign. Not only is the bidder foreign, but Chinese. And not only is the bidder Chinese, but the Hummer was first developed by the U.S. military. Thus, this is certain to be characterized as a national security matter, and the Committee on Foreign Investment in the United States (CFIUS) will have to review the proposal. There should be little doubt that the economic nationalists will be out in full force, warning CFIUS against transferring sensitive technologies to Red China.

Let me offer two quick points, as the bulging veins in my temples pulsate with disdain for official Washington.

First, if this deal is rejected (even if the bidder is scared away by detractors), any remaining credibility to the proposition that the United States will once again become that beacon on a hill, exemplifying for the world the virtues of free markets and limited government, will vanish into the ether. There has been too much U.S. hypocrisy on free trade and cross-border investment and too much double talk about the impropriety of government subsidizing national champions, that another indiscretion in a high profile case will blow open the already-bowing flood gates to economic nationalism worldwide. Considering that U.S. companies sell five times as much stuff to foreigners through their foreign subsidiaries than by exporting from the United States, investment protectionism is as advisable as nationalizing car companies.

Second, the willingness of this Chinese company to purchase Hummer serves as a stark reminder of what could have been. Had George W. Bush not allocated TARP money to GM last December, in circumvention of Congress’s rejection of a bailout, then GM likely would have filed for bankruptcy on January 1. At that point, there would likely have been plenty of offers from foreign and domestic concerns for individual assets to spin off or for equity stakes in the New GM. There would have been plant closures, dealership terminations, and jobs losses, as there is under the nationalization plan anyway. But taxpayers wouldn’t be on the hook for $50+ billion, a sum that is much more likely to grow larger than it is to be repaid. It is also a sum that will serve as the rationalization for further government interventions on GM’s behalf.

Haywood v. Drown

The Supreme Court ruling in Haywood v. Drown got lost in the news last week, but it was an important constitutional case involving the principle of federalism.  The issue concerned the  extent to which the central government can commandeer state judicial systems.  Unfortunately, by a narrow 5-4 vote, the Court gave the central government a green light.

Justice Clarence Thomas filed  another one of his sober, scholarly opinions in dissent and I think he makes the case rather well.  Excerpt:

The Court holds that New York Correction Law Annotated §24, which divests New York’s state courts of subject-matter jurisdiction over suits seeking money damages from correction officers, violates the Supremacy Clause ofthe Constitution, Art. VI, cl. 2, because it requires the dismissal of federal actions brought in state court under42 U. S. C. §1983. I disagree. Because neither the Constitution nor our precedent requires New York to open its courts to §1983 federal actions, I respectfully dissent.

Although the majority decides this case on the basis of the Supremacy Clause, see ante, at 5–13, the proper starting point is Article III of the Constitution. Article III, §1, provides that “[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.” The history of the drafting and ratification of this Article establishes that it leaves untouched the States’ plenary authority to decide whether their local courts will have subject-matter jurisdiction over federal causes of action.

Until this setback, the Court’s conservatives were doing well in this corner of the law.  In New York v. United States (1992), the Court ruled that state legislatures were not subject to federal direction.  In Printz v. United States (1997), the Court ruled that state executive officers were not subject to federal direction.  This case stood for the proposition that state courts are not subject to federal direction.  Alas, Justice Anthony Kennedy joined the liberals to subordinate the states to federal control.

Here’s a practical example to illustrate the problem.  It’s bad enough when Congress wants to pass a law like the Americans with Disabilities Act (pdf)–a law that will create a flood of litigation.  But what if Congress goes a step further and writes the law in such as way as to say ”take all those time-consuming lawsuits to the state courts. Federal judges and personnel can’t be bothered with that stuff!”  So state courts get clogged or state lawmakers must raise taxes to alleviate the added burden, which blurs accountability.  That’s what is likely to happen. Or, to be precise, continue to happen with increasing frequency.  The feds have permission to foist costs on to the states.

But, to be clear, the main issue here is the proper division of federal and state authority.  Even if Congress were to get around the problem of unfunded mandates by throwing money at the states, each state should retain control over its judiciary.  As Justice Thomas notes, the issue of federal supremacy is too often distorted by liberals.  Within its proper sphere, the feds are supreme.  Liberals want supremacy and federal authority that is plenary.  Wrong.  Obama’s Supreme Court nominee should be asked about federalism and the doctrine of enumerated powers at the confirmation hearings.

A Compelling Government Interest in… Fabulous Drapes!

Libertarians often disagree with their non-libby friends about the need for government-mandated occupational licensing in fields like medicine. The idea behind such licensing is that the government has a compelling interest in protecting citizens and that licensing actually achieves that end. The evidence is not as cut and dried on the latter point as many people assume, but at least there’s enough meat there to warrant a discussion.

Whatever you think about occupational licensing in the context of medicine, there’s one field where the government’s “compelling interest” – and ability to successfully execute on it – is particularly hard to defend: interior design.

In three U.S. states, government officials are, right now, “protecting” their citizens from bad Feng Shui, misguided uses of prints with plaids, gauche arrangements of bric-a-brac, and other crimes against fabulosity. No one in Florida, for instance, can call himself an interior designer lest he receives the official imprimatur of the state. The Institute for Justice has filed suit to overturn the licensing requirement. Imagine the harm to Floridians if they succeed….

No. I can’t imagine any either.

In this field, more than any other, the real reason for most occupational licensing becomes apparent: cartelization to protect incumbent businesses from competition.

UPDATE: Check out this video by ReasonTV about the interior design license laws around the country.

Wal-Mart: Health Food Store?

As someone who believes in liberty, my natural inclination is to defend a company like Wal-Mart from the usual attacks.  You know, the company should pay its employees more (sure, just like all other companies, including libertarian think tanks!).  Wal-Mart destroys local businesses (that is, enterprises which offer fewer choices but at higher prices, and whose customers cheerfully flee when given an alternative).  The people most likely to attack Wal-Mart are those who would never shop there and don’t know anyone who does shop there.

It’s always nice to find evidence to back my inclinations.  It turns out that Wal-Mart not only lowers prices for poor people, but improves their health.  Reporting on this improbable result is Radley Balko, formerly at Cato and now at Reason:

In the popular imagination, a big-box store such as Wal-Mart is more often seen as part of the problem than part of the solution: We associate Wal-Mart with large women in stretch pants, fat kids sucking down tubs of soda, and morbidly obese men inching down the snack-food aisle in motorized shopping carts. The store makes candy, chips, and soda ridiculously cheap—so wouldn’t Wal-Mart contribute to the obesity problem?

That’s what economists Art Carden of Rhodes College and Charles Courtemanche of the University of North Carolina at Greensboro suspected. So they conducted a study to find out. Carden and Courtemanche have done a number of studies on Wal-Mart. Carden insists they get no funding from the company, directly or indirectly. Rather, he says, the two free-market economists have been intrigued by the Wal-Mart debate and wanted to test some of the more common criticisms of the store. Generally, they’ve found that the worst fears about Wal-Mart are unfounded, and that the stores have a mostly positive impact on their communities.

But they thought this one might be different. “We expected the study to show an increase in obesity in communities with a Wal-Mart,” Carden says. “We know that Wal-Mart lowers the cost of food, but we figured it’s not always the best food for you.”

To their surprise, they found the opposite—there was a small but statistically significant reduction in obesity rates in communities with a Wal-Mart, perhaps because the store also sells fresh produce of good quality at a good price.

Broadening the study to big-box stores in general, the effect was even more pronounced. “People actually bought more produce, more fruits and vegetables,” Carden says. “Instead of just eating more, they ate a higher-quality diet—a lower-fat diet than the rest of the population.”

It appears that people aren’t as stupid as paternalistic politicians believe.  And markets ain’t half bad either.