Topic: Regulatory Studies

New at Cato

Here are a few highlights from Cato Today, a daily email from the Cato Institute. You can subscribe, here

  • The new edition of Regulation examines the Employee Free Choice Act (EFCA), the legal drinking age and climate change policies.
  • In The Week, Will Wilkinson argues that the Obama administration should rethink its drug policy and that prominent marijuana users should “come out of the closet.”
  • Gene Healy points out in the Washington Examiner why the Serve America Act (SAA) is no friend to freedom.
  • The Cato Weekly Video features Rep. Paul Ryan discussing the Obama administration’s budget.
  • In Wednesday’s Cato Daily Podcast, Patri Friedman discusses seasteading and the prospects for liberty on the high seas.

Fight Moral Panics — With Beer!

In the UK and here at home, brewers have increasingly been producing specialty beers with the alcohol content of wine. Naturally, it’s time for a moral panic:

The new breed of bitters, with their intense flavours and alcohol contents of up to 12 per cent, are the work of young brewing entrepreneurs trying capture the attention — and cash — of lager-guzzling twentysomethings.

Beer writers and aficionados have welcomed the speciality bottles, which can contain 10 times as much hops as a traditional pint, as a necessary revitalisation of a market dominated by corporate giants turning out similar 4 per cent brown bitters.

But alcohol campaigners have complained that drinkers may be unaware of the strength of the new products, a single 330ml bottle of which is enough to make an adult exceed their daily recommended alcohol intake.

In January the Portman Group, the alcohol industry watchdog, ruled the brashest exponent of the movement, BrewDog brewery in Aberdeen, had broken its code on responsible marketing for its Speed Ball beer, named after the cocktail of cocaine and heroin which killed the actor John Belushi, star of The Blues Brothers.

Despite the group rejecting complaints against three of BrewDog’s other beers, Punk IPA, Rip Tide and Hop Rocker, its managing director, James Watt, accused Portman of being “outdated” and “out of touch”. He did, however, concede that his company had been provocative. “We thought we would give them something worth banning us for,” he said.

Good for them.

Note the comically low, and comically named, “recommended daily alcohol intake,” which would apparently forbid splitting a standard bottle of wine with another drinker. (Is there any better way to drink wine?) Incidentally, today’s 750 mL bottle derives from the “fifth,” or fifth of a gallon, which in the good old barrel-chested days of yore may well have been a single-serving portion.

It’s fascinating how the narrative of moral panic just keeps getting recycled, as if journalists only ever had this one idea in their heads. Is it their fault, or is it the watchdog groups? A question worth asking.

Either way, it works like this: Someone does something faux-provocative, often as a marketing stunt (to beer connoisseurs, brews with 12% alcohol are a fine old tradition, not a terrible new menace). But a group of Very Concerned People takes it all quite seriously and issues a worried press release. An interview is set up. The young are always invoked, as are previous moral panics. Anxious stories are written. Entirely fake concerns arise. (Hops, for example, don’t intoxicate, and strong hop flavors incline one to drink less beer, not more.)

If a moral panic keeps up for long enough, the legislators will get called in, because it’s their job to protect us naive ordinary folk from the dangers of the world. Maybe something will be done about it, or maybe not. Either way, the average member of the public goes away worried, which is just what the Very Concerned People want. They feed on worry.

They hope for a perpetual climate of worry, a feeling of unease that will carry over from this issue to the next one and to the one after that. It makes what they do — taking away freedoms — that much easier. It’s our job, as freedom-loving citizens, to deny them this perpetual undercurrent of worry. And if we can do it while drinking beer, then so much the better.

Government Motors

Washingtonpost.com collected and posted sundry opinions about Rick Wagoner’s dismissal as GM CEO yesterday. Those opinions, including mine, are posted here. But to spare you the click, here’s what I wrote:

President Obama’s newly discovered prudence with taxpayer money and his tough-love approach to GM and Chrysler would both have more credibility if he hadn’t demanded Rick Wagoner’s resignation, as well. By imposing operational conditions normally reserved for boards of directors, the administration is now bound to the infamous “Pottery Barn” rule: you break it, you buy it. If things go further south, the government is now complicit.

It also means that Wagoner was perceived as an obstacle to whatever plans the administration has for GM. And that’s the real source of concern. If getting these companies back on their feet is the objective, a bankruptcy judge can make a determination pretty quickly about the viability of the firms and the steps necessary to get there. But if the objective is something more grandiose, such as transforming the industry into a model of green production, government oversight and close scrutiny of operations will be necessary. CEOs must be compliant and pliant. It is worth noting that a return to profitability and the metamorphosis of the industry according to a government script work at cross purposes.

Real Regulators: Madoff’s Accomplices

In his “Talking Business” column, Joe Nocera explores Bernie Madoff’s accomplices: the victims themselves, and the SEC. He quotes James R. Hedges IV of LJH Global Investments:

“It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.” And that’s the point. People did abdicate responsibility — and now, rather than face that fact, many of them are blaming the government for not, in effect, saving them from themselves. Indeed, what you discover when you talk to victims is that they harbor an anger toward the S.E.C. that is as deep or deeper than the anger they feel toward Mr. Madoff. There is a powerful sense that because the agency was asleep at the switch, they have been doubly victimized. And they want the government to do something about it.

Nocera ably acknowledges the hurt and suffering of Madoff’s victims while pointing out their thoroughgoing irresponsibility — especially in the suggestion that someone else should pick up the pieces.

I’m less sanguine: The more thoroughly their cascading delusions of government aid and protection are shattered, the better. And yours, too. And mine. No bailout.

(Earlier posts in this “real regulators” thread here and here.)

Not-so-COOL Rules Stoke Xenophobia

Come Monday you can thank the federal government for making food more expensive by requiring retailers to provide useless information.

On March 16, federal regulations will finally kick in that require perishable food at the grocery store to sport “country of origin labeling,” known as COOL. The rules were originally passed by Congress as part of the 2002 farm bill, but are only being implemented now because of understandable resistance from retailers.

The COOL regulations will require that all perishable food products be labeled at retail to indicate the country of origin. The regulations cover beef, pork, lamb, goat, chicken; wild and farm-raised fish and shellfish; fresh and frozen fruits and vegetables; peanuts, pecans, macadamia nuts, and ginseng.

In a recent statement announcing final implementation, Obama administration agriculture secretary Tom Vilsack said, “I strongly support Country of Origin Labeling — it’s a critical step toward providing consumers with additional information about the origin of their food.”

This is nothing but a form of regulatory harassment designed to play to anti-foreign prejudices. COOL provides zero health or safety information; foreign meat and produce must conform to exactly the same health and safety standards that apply to domestic-made goods.

In the past, the U.S. Department of Agriculture had estimated that COOL regulations will cost $89 million to implement in the first year and $62 million annually. (My Cato colleague Dan Ikenson wrote the definitive critique of COOL not long after Congress first mandated the rules.)

The fact that a piece of meat or a fresh vegetable comes from a foreign country tells us nothing about its quality or safety. In the past three years, Americans have been sickened and even killed by baby spinach from California and ground beef from Nebraska tainted by E. coli bacteria, chicken from Pennsylvania tainted with listeria, and peanut butter and peanut products from Georgia tainted with salmonella. Would Americans have been any safer if those products had been labeled, “From California” or “From Georgia” or “From Nebraska”?

Country-of-origin labeling was not meant to serve the public but instead to provide yet another unfair advantage to domestic producers at the expense of the public.

Why Bank Stocks Rose on Bernanke’s Remarks

In a CNBC spot with Steve Liesman & Erin Burnett, I tried to explain why investors in bank stocks had good reason to be pleased with part of Fed Chairman Ben Bernanke’s speech.  Judging by the response of Steve and Erin, and others on CNBC over the following day,  I must not have been persuasive.

For clarification, I am quoting the exact language from Bernanke’s talk, with my emphasis added.

My main point is that Bernanke admitted that when it comes to the “financial crisis” of some big banks, this is largely an artifact of unduly harsh regulation being applied at the worst possible time:

There is some evidence that capital standards, accounting rules, and other regulations have made the financial sector excessively procyclical–that is, they lead financial institutions to ease credit in booms and tighten credit in downturns more than is justified by changes in the creditworthiness of borrowers, thereby intensifying cyclical changes.

For example, capital regulations require that banks’ capital ratios meet or exceed fixed minimum standards for the bank to be considered safe and sound by regulators. Because banks typically find raising capital to be difficult in economic downturns or periods of financial stress, their best means of boosting their regulatory capital ratios during difficult periods may be to reduce new lending, perhaps more so than is justified by the credit environment. We should review capital regulations to ensure that they are appropriately forward-looking…

Bernanke emphasized the regulators’ dangerous habit of raising capital requirements and loan loss reserves simply because of a strict mark-to-market misinterpretation of the “fair value” of mortgage-backed securities.

He noted that:

Determining appropriate valuation methods for illiquid or idiosyncratic assets can be very difficult, to put it mildly. Similarly, there is considerable uncertainty regarding the appropriate levels of loan loss reserves over the cycle. As a result, further review of accounting standards governing valuation and loss provisioning would be useful, and might result in modifications to the accounting rules that reduce their procyclical effects without compromising the goals of disclosure and transparency.

The key here is Bernanke’s criticism of the rigid use of Basel capital standards, not mark-to-market information per se (which would be harmless if it did not trigger foolish regulations). When combined with Barney Frank’s similar comments on the same day, it begins to look as though sensible economics might finally take priority over dubious bookkeeping.

Regulations vs. Rate Cuts

A set of stories in International Tax Review today illustrate the backwards nature of U.S. corporate tax policy. The first story discusses the high-profile chest-thumping in Washington over corporate “tax haven abuse.” The congressional response to greater international tax competition is to load even more regulations on American businesses.

The second story is entitled “Taiwan Slashes Corporate Tax Rate”:

Taiwan’s government has approved plans to cut the country’s corporate tax rate from 25% to 20%. Ministers hope the cut will encourage investment in the country and stimulate growth in the economy…

America is in the worst recession in decades and it desperately needs to cut its 40 percent corporate tax rate to reinvigorate business investment. Why are U.S. policymakers so clueless about the most obvious way to spur investment when that policy imperative is clear to leaders just about everywhere else?