December 3, 2020 2:34PM

The Wide World of ESG

Remember the Wide World of Sports?

Spanning the globe to bring you the constant variety of sport… the thrill of victory… and the agony of defeat… the human drama of athletic competition.

I loved it. You never knew exactly which sport you'd be watching when you tuned in, but you knew you'd be in for drama. Lately, I've begun to think about the term "ESG" in the same way. You never know exactly which concept you're discussing, but you know there will be drama.

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December 2, 2020 7:08PM

What’s the Libertarian Position on How to Distribute Vaccines?

The federal Advisory Committee on Immunization Practices (ACIP) has voted to recommend that the Centers for Disease Control recommend state governments give the new COVID-19 vaccines to certain groups before others. “If we had vaccine for every person in the United States, it would be an easy decision,” ACIP chairman Jose Romero said. “But we don’t, and that’s why we have to make a prioritization scheme for the initial set of vaccines.” The committee voted to prioritize health care workers and nursing‐​home residents and staff. But not without some uncertainty. The Washington Post reports, “several panel members say[] there was insufficient vaccine safety and efficacy data to support immunizing [nursing‐​home residents] right away.” The Post continues:

The advisory committee has expressed support for, but not yet voted on, the likely order for three groups who should get the shots next: essential workers (about 87 million people, not including health‐​care personnel) in Phase 1b, and people 65 and older (about 53 million) and adults with underlying medical conditions that put them at higher risk of getting very sick with covid‐​19 (about 100 million) in Phase 1c.

Among those ACIP considers “essential workers” are “people who work in meatpacking plants and other food‐​processing facilities; police and firefighters; teachers; and the transportation industry.”

Who should get the vaccines first? There are no easy answers to the question, nor does there appear to be a libertarian answer.

Consider the facts at hand.

At first, the demand for a COVID-19 vaccine will vastly outstrip the supply. If this were a typical private good—even an essential good amid an emergency, like bottled water after a hurricane—libertarians would say the government should let private actors decide where the available resources should go, and not intervene through “price gouging” laws or other means of rationing. Letting market forces ration the available stock would do the best (not perfect, just best) job of putting those resources to their highest‐​valued use and would expand the stock of that resource. As consumers bid up the price, more producers would enter the market.

A vaccine is not a private good, however. It has “public good” characteristics, or positive externalities, which means that because consumers do not capture all the benefits of using vaccines, market forces alone might not produce the socially optimal quantity. Vaccines are even more interesting because their positive externalities come from eliminating the negative externalities of other activities. Since the negative externalities a vaccine eliminates are literally violent physical assaults with a deadly pathogen, there’s a stronger argument for government playing a role in the allocation of vaccines than bottled water or even many other goods with positive externalities (e.g., fireworks displays).

If the government leaves allocation of vaccines to market forces, vaccines could go to the highest bidders rather than to the highest‐​value recipients—i.e., those whose vaccination will do the most to save lives/​block further violent assaults. If the government could allocate vaccines in a way that gets more of them to the highest‐​value recipients than market forces would, then that would be a case of government doing what even libertarians want it to do: using its coercive power to stop individuals from violently (if unintentionally) assaulting each other.

The prospect of government outperforming market forces here is a bigger “if” than most people recognize. Leaving vaccine allocation to market forces does not automatically mean the rich would get it first. The patent‐​holding pharmaceutical companies care both about their reputations and about saving lives. They will engage in a non‐​zero number of strategies to allocate vaccines to the highest‐​value recipients as opposed to those with the highest willingness to pay.

To improve on market forces, government must:

  1. actually know who the highest‐​value recipients are, a difficult question on which many people disagree;
  2. actually be able to allocate vaccines on that basis, rather than on the basis of politics;
  3. not detract from whatever good market forces would do on their own, or at least produce enough additional benefit to make up for any such “crowd out”; and
  4. not diminish the incentives for pharmaceutical companies to boost production.

I don’t worry about (4), but I do worry about (1) and (2), and even somewhat about (3).

Regarding (1), does the government (or anyone) actually know who the highest‐​value recipients are? One’s first impulse might be to prioritize the elderly and health professionals. But if most transmissions occur through young adults, one could make a strong argument that they are the highest‐​value use of vaccines and should therefore get vaccines first. I don’t know the answer. I suspect government officials don’t either.

Regarding (2), suppose for the sake of argument that vaccinating young adults first would save the most lives. Do we expect governments would give young adults the vaccine first? Or do we suspect government might give seniors the vaccine first—even if doing so cost more lives—simply because seniors vote in greater numbers, and entrepreneurial politicians would reliably demagogue any decision to vaccinate young adults first?

Regarding (3), given those challenges, are we really confident asserting that government allocation of vaccines would produce net benefits relative to allocation by market forces? It is not sufficient to say, “The government must intervene because the benefits of getting the economy moving again are so great.” That’s begging the question. It assumes the government knows how to improve on a situation where the government does nothing.

The fact that governments are themselves purchasing vaccines is why I don’t worry about (4). Subsidies juice demand and increase the quantity supplied. (Government could increase production even more by paying for other manufacturers to license the relevant patents—a proposal similar offering “prizes” for pharmaceutical innovation, which my Cato colleagues Charlie Silver and David Hyman discuss in their book Overcharged.) But while government purchasing means the question of how government should allocate vaccines is unavoidable—government has already bought them—it doesn’t do anything to solve problems (1) and (2), and maybe not even (3).

Once governments have purchased vaccines, it’s not clear libertarian principles have anything useful to say about how they should distribute them. The question of how then to maximize social welfare—or alternatively, to reduce violent assaults—is an empirical one. It’s a fascinating question. But I’m not sure anyone knows the answer.

In such situations, it is best not to offer one answer, but to let different governments offer different answers, so we can see which were correct.

December 2, 2020 3:44PM

Walter Williams, RIP

Walter E. Williams portrait

As if 2020 wasn’t bad enough, today comes the sad news that Walter Williams has died at 84. He was a scholar who made an impact on the public debate, and a great teacher of economics. I’m old enough to remember when he was just breaking into public view in the mid‐​1970s. In fact, this past weekend I was trying to prune some of my old files, and I found Walter Williams clips in several of them, including a study, “Youth and Minority Unemployment,” published by the Joint Economic Committee, and a full‐​page ad in the Wall Street Journal, sponsored by the SmithKline Corporation, featuring his essay “Minimum Wage, Maximum Folly.” As editor of New Guard magazine, I published his article “How Big Government Hurts Minorities” in 1978. And he was for many years an adjunct scholar of Cato, where he contributed to Regulation and Cato Journal and gave many lectures.

After early stints as a cab driver, a soldier in Korea, and a probation officer, Walter focused on education and got a Ph.D. in economics from UCLA in 1972. From 1973 to 1980 he taught at Temple University in Philadelphia before moving to George Mason University for the rest of his career.

In 1982 he published a book of original research and provocative ideas, The State Against Blacks, which Don Boudreaux describes in today’s Wall Street Journal as “an eloquent, data‐​rich broadside against occupational licensing, taxicab regulations, labor‐​union privileges and other fine‐​sounding government measures that inflict disproportionate harm on blacks by restricting the employment options and by driving up the costs of goods and services.”

His work in these areas and his outgoing, engaging, effective style of communications brought him broader public attention. He appeared in Milton Friedman’s PBS series “Free to Choose” in 1980. He became a frequent guest host on the Rush Limbaugh Show. (I was fortunate enough to hear him conduct a rare live interview with his friend and mentor Thomas Sowell on one of those appearances.) He was the subject of a few columns by William Raspberry, the first black op‐​ed columnist for the Washington Post. As I recall, in many such columns, including this one, Raspberry would give Williams or Sowell plenty of space, then conclude that he just couldn’t quite buy the argument. But the columns had a great impact in getting those ideas a hearing on the most important “ideas” page in Washington.

In 1989 the Cato Institute and Praeger published Walter’s book South Africa’s War against Capitalism. In it he showed, with detailed economic and historical analysis, that South Africa’s apartheid regime was not “capitalist,” as its critics often believed. Rather, “South Africa’s apartheid is not the corollary of free‐​market or capitalist forces. Apartheid is the result of anticapitalistic or socialistic efforts to subvert the operation of market (capitalistic) forces.”

People often lumped “Sowell and Williams” together, since they were both African‐​American economists with a strong free‐​market bent. But they really were very different. Sowell was, and still is at age 90, a private and reserved scholar, the author of more than 40 books on topics including Marxism, race and ethnicity, education, ideology, and economics. Williams was a much more public‐​facing intellectual: An engaging teacher of Econ 101, in a classroom or on the lecture circuit. A missionary for sound economics and clear thinking, happy to engage in public debate. A newspaper columnist and frequent radio/​TV guest or host.

Walter Williams challenged a lot of conventional wisdom during his almost 50 years in the public eye. He will be missed.

December 2, 2020 2:57PM

“Drug Lag” and the COVID Vaccine

The U.K’s Medicines and Healthcare products Regulatory Agency (MHRA) announced this morning that it has approved the Pfizer/​BioNTech COVID vaccine and expects to begin immunizing its population within a week. This vaccine, along with one independently developed by Moderna Pharmaceuticals, are the first ever mRNA vaccines, which use a new process that can potentially be used against other infectious diseases and even to treat or prevent cancer. Clinical trials show both of these vaccines to be 95 percent effective. They also have an excellent safety profile thus far—in part because they don’t involve injecting people with live or attenuated infectious material.

This announcement comes one day after Politico reported that Trump administration officials, including Secretary of Health and Human Services Alex Azar and White House Chief of Staff Mark Meadows, admonished U.S. Food and Drug Administration Commissioner Stephen Hahn for not moving more quickly in reviewing the Emergency Use Authorization applications for the two vaccines. They were upset that the reviews are not scheduled until December 10, one month after Pfizer/BioNTech’s EUA request and three weeks after Moderna’s. The Politico article emphasized that President Trump was worried that the U.K would beat the U.S in starting an immunization program. It suggested Trump wanted the U.S to be the first out with a vaccine as a part of his legacy.

But this shouldn’t be a matter of politics and legacies. This is about saving lives. For example, the Politico article quoted Walid Gellad, director of the Center for Pharmaceutical Policy and Prescribing at the University of Pittsburg as stating:

Every day that goes by is 2,000 people dead. I don’t know another circumstance where waiting on drug approval has such an impact on mortality. The implications of this are huge medically, if you put aside politics…Sometimes in a crisis, you might have to cut corners.

Gellad also criticized the October decision by the FDA to require manufacturers to provide two months of safety data before they can apply for an EUA.

Gellad was describing a phenomenon called “drug lag.” It refers to the fact that seriously ill people suffer and even die while waiting for the FDA to approve a drug that might be already available in other parts of the world. Cato research associate Jalisa Clark recently explained how drug lag spurred civil disobedience from AIDS activists in the late 1980s and inspired the “Right to Try” movement that ultimately led Congress to pass the “Right to Try” Act in 2018.

One reason why the U.K approved the vaccine more quickly is because the MHRA’s regulatory review process is less cumbersome than the FDA’s. For example, the FDA re‐​analyzes all of the raw data supplied by the manufacturers, whereas the MHRA relies more on the manufacturers’ reports. MHRA CEO June Raine stressed at a press conference that the Pfizer/​BioNTech vaccine underwent “an extremely thorough review,” “the most rigorous scientific assessment,” and that the MHRA standards are “equivalent to all international standards.”

It appears likely that the FDA will grant Emergency Use Authorization to the two mRNA vaccines in the next couple of weeks, and immunizations will begin in the U.S. before the end of December. I recently argued that such ‘fast‐​tracking” of the approval process should become the new norm. But while that would be a great step in the right direction, it doesn’t go far enough. Fast‐​tracking treats the symptoms but doesn’t get to the root of the problem. And that requires much more comprehensive reform.

Michael F. Cannon and I show in our recent paper that the FDA regulatory process violates the rights of individuals to access the medicines they want, stunts pharmaceutical innovation, may make patients less safe—not more, and how to bring this country what it needs: a Drug Reformation.

December 2, 2020 10:04AM

It’s Time to End Any Level of Federal Marijuana Prohibition

Either today or later this week, the House will likely take the historic step and actually hold a vote on whether to deschedule marijuana from the Controlled Substances Act (CSA). In addition, the Marijuana Opportunity Reinvestment and Expungement (MORE) Act would expunge low‐​level marijuana offenses and impose a 5 percent federal sales tax. The bill is unlikely to get past the Republican Senate, and there are many other proposals—some with the seeming support of President‐​elect Biden—that would reschedule rather than deschedule the plant. But descheduling—removing the drug from the CSA entirely—is the only sensible path forward for marijuana reform, not rescheduling—moving the drug to a different section of the CSA. Like alcohol, the federal government should have very little involvement in regulating marijuana.

The CSA separates drugs into five schedules based on the perceived danger. Schedule I has the supposed worst drugs, those that have no accepted medical uses and a high potential for abuse. That’s where you’ll find heroin, ecstasy, LSD, psilocybin, and, yes, marijuana.

Unlike drugs that are discrete, scientifically identifiable compounds, such as diacetylmorphine (heroin), MDMA (ecstasy), or LSD, marijuana is a whole plant containing a complex assortment of psychoactive and therapeutic compounds giving it a broad range of effects. Many of those substances are capable of being refined out of the plant and put into different uses, such as salves, candies, therapeutic oils, and of course smokable substances. To place the whole plant into any schedule of the CSA affects the use of every substance that is derived from the plant, whether it is psychoactive THC or therapeutic CBD or CBN.

The analogy to alcohol is apt. Schedule I drugs are those with no accepted medical uses and a high potential for abuse. Given that language, where should alcohol be scheduled if we were to try to fit it into the scheduling system? Seems like there’s a good case for it being in Schedule I. Except for odd circumstances, doctors don’t tend to prescribe shots of bourbon, and the high potential for abuse of alcohol is obvious.

But what is “alcohol,” and what would it mean if “alcohol” were put under the CSA? That word encompasses everything from Uncle Clarence’s moonshine to White Claw, from Bacardi 151 to a glass of champagne. Any reasonable regulation of alcohol would require acknowledging that a shot of 151 is not the same as a wine spritzer. Because of that wide variance, putting “alcohol” in the CSA would be absurd. The substance should be regulated on a state and local level to ensure that people can use the drug responsibly within reasonable limits for public safety.

States already regulate alcohol this way. Everclear 190, a potent spirit that is 95 percent pure alcohol, is illegal in 14 states. Other states regulate shot size, drink style, and of course what days and hours bars can be open. This type of more localized regulation makes sense for such a broadly used and diverse substance as alcohol.

And it makes sense for marijuana. Not only does marijuana have at least as much variance in product type and potency as alcohol, but it has many more therapeutic and medicinal uses. Some would say that means marijuana should be rescheduled to a lower level of the CSA that acknowledges medical uses. Schedule II, for example, contains morphine, fentanyl, methamphetamine, and cocaine, which, despite their dangers, have acknowledged medical uses.

But rescheduling marijuana would solve few of the issues that plague recreational and medicinal users in the states that have legalized, and it certainly wouldn’t solve the challenges that face the growing cannabis industry. Unauthorized possession of cocaine, despite its acknowledged medical uses, still carries stiff penalties under federal law. Similarly, if a state wishes to recognize a broad set of medicinal marijuana uses, the federal government is in no way obligated to comport itself to that state’s judgment. Finally, rescheduling, without more, won’t solve the longstanding problems with banking faced by cannabis‐​based businesses.

Federal marijuana prohibition in America began as a largely unnoticed tax act in 1937. It seems clear that many members of Congress who voted for the law didn’t even realize that marijuana and cannabis are the same thing. Over the next decades, federal and state marijuana prohibition have ruined countless lives, orders of magnitude more than the lives ruined by the actual drug. It’s time to take the sensible step and get the federal government out of marijuana prohibition altogether.

December 1, 2020 4:23PM

Greenhouse Gases and the California Waiver Again

General Motors recently announced that it is terminating its participation in the Trump administration’s lawsuit to deny California the ability to set more stringent Corporate Average Fuel Economy (CAFE) standards. As I have discussed before, CAFE standards, which were originally devised to reduce fuel use during the oil shocks of the 1970s, have been repurposed as climate change (CO2) emissions controls. But the standards are an inefficient method to reduce CO2 emissions.

Last year, the Trump administration froze future CAFE standards at 2020 levels and denied California’s request to set higher fuel economy standards than the federal government. California and 22 other states filed a lawsuit challenging the Trump administration’s denial of the waiver from the more lax federal standard. General Motors, Toyota, and Fiat Chrysler joined the lawsuit on the side of the administration while Ford, Honda, BMW, Volkswagen, and Volvo agreed to follow California’s more stringent standard. General Motors’ decision to stop participation in the lawsuit increases the likelihood that the ultimate result for the country will be California’s standard of 51 mpg rather than the Trump 40 mpg.

This ongoing saga and its portrayal in the media illustrate a deficiency of much environmental journalism. Environmental journalists write about these disputes as if there is a good side and a bad side. The bad side opposes more stringent environmental regulation and the good side supports them.

Why don’t journalists ever ask what the optimal amount of environmental protection would be and how we would achieve it? Their black and white view of environmental regulations ignores the legitimate debate over what level of environmental protection is appropriate and what regulatory tools offer the most cost‐​effective way to accomplish those goals.

For example, economic analysis of the original Obama CAFE standard of 54.5 mpg concluded that it would reduce emissions as much as a carbon tax of $27 a ton (27 cents per gallon) but cost six times as much. Additional analysis of the Obama proposal also has concluded that it is regressive. So why do journalists praise a policy proposal that is the equivalent of a revenue‐​neutral federal carbon tax of $162 a ton ($1.62 per gallon) with a rebate of the revenue to those with above‐​median family income?

December 1, 2020 12:37PM

What to Expect from China’s New Export Control Law

China’s Export Control Law went into effect today. Ostensibly meant to bolster Chinese national security, the choice to enact it at this particular moment was likely spurred by a desire to provide Beijing with the legal ground to retaliate against export restrictions put in place by the Trump administration targeting China. Given such motivations, the new law could have a significant impact on bilateral trade and investment flows.

One of the most immediate results of the law, which features vague language and broad provisions, will be to increase the compliance burden on U.S. companies. But its impact could also prove much more sweeping. As some observers in China have pointed out, the law could enable Beijing to impose new restrictions on rare earth exports, either as retaliation against U.S. export restrictions or negotiating leverage. Beyond its immediate harm to U.S. supply chains, such a move would further roil the bilateral relationship and further fuel calls for decoupling the two economies.

China’s law could also motivate other countries to take similar measures. Japan, for example, recently imposed export controls on three key semiconductor materials to South Korea, citing concerns such materials could be used for military purposes. Unsurprisingly, South Korea views the decision as politically motivated.Although international adjudication could help limit the abuse of export controls, the crippled state of the World Trade Organization’s dispute settlement body means that such measures could prove ripe for abuse. This could disrupt international trade at a moment the global economy can least afford it.

The TikTok Deal

Beyond its abstract and theoretical consequences, the law could quickly and concretely impact the lives of U.S. citizens. Chinese company ByteDance, parent company of the wildly popular social media app TikTok that claims usage by 100 million Americans, was requested by President Trump to divest its U.S. operation by November 12 (later extended to December 4). At the center of this issue is TikTok’s algorithms, which industry analysts say are the “secret sauce” to the company’s success.

TikTok’s algorithms, however, appear to fall into two categories under China’s export control law: (1) personalized information push service technology based on data analysis, and (2) artificial intelligence interactive interface technology. ByteDance already submitted an application for an export license pursuant to China’s export control rules, but it is unclear when Beijing will announce its decision. In the meantime, to avoid running afoul of Chinese laws ByteDance and Oracle negotiated a deal under which Oracle will be ByteDance’s technology partner and assume management of TikTok’s U.S. user data but will not receive the algorithms from ByteDance.

However, this effort to comply with China’s new export restrictions may result in the Trump administration’s rejection of the deal, with Treasury Secretary Steven Mnuchin insisting that “All of the code will have to be in the United States. Oracle will be responsible for rebuilding the code, sanitizing the code.” If the divestiture effort fails, millions of U.S. TikTok users could lose access to the application.

The Ambiguous Export Control Law

China traditionally has implemented export controls through regulations, and its effort to craft a comprehensive Export Control Law did not begin until 2017. A final text was approved in October. Despite the years‐​long process, some key parts of the law are still vague, which creates some uncertainties and challenges for the business community as it navigates these new rules.

This lack of clarity begins with the law’s key stated objective. Although the text declares the law’s goal as the protection of “national security and interests,” it does not provide further elaboration and the exact scope is unknown. Relatedly, the law authorizes agencies to take reciprocal measures if “any country or region abuses export control measures to endanger the national security and interests” of China. Again, under what circumstance this provision will be invoked is unclear.

In addition, the law provides for the establishment of a list of controlled items, which has not been published. This list is likely to include items already found on existing lists subject to China’s export control regime. However, the law also has a catch‐​all provision, which allows export restrictions to be placed on items not currently on the controlled lists. This provision allows the authority to subject ad hoc items to export controls without going through an additional regulatory process first, adding another layer of uncertainty for the trade community.

The extra‐​territorial jurisdiction of the law is similarly murky. The current law restricts re‐​exports of Chinese goods and technology, but it does not define “re‐​exports.” An earlier draft stipulates that foreign products that contain a certain percentage of China‐​origin controlled items will also be subject to the law. However, this language has been taken out in the final text. As a result, the law’s extra‐​territorial impact will not be known until Beijing enforces it.

How the Chinese Export Control Law will be carried out remains to be seen. At a first glance, it gives China another powerful legal tool in the trade war with the United States. As bilateral relations further deteriorate, we may see the law become a prominent feature of the trade landscape.