Topic: Regulatory Studies

Government Can’t Team Up with Your Competitors to Deny You Just Compensation

In the late 1970s, Congress passed the Wright Amendment to encourage the development of Dallas/Fort Worth Airport by restricting a nearby airport, Love Field, to servicing final destinations only in Texas and four contiguous states. Over time, pressure began mounting to “Free Love Field” and allow more interstate air travel. Love Terminal Partners (“LTP”) owned a lease of 26.8 acres of Love Field that gave it access to the runways and the ability to offer air passenger service. In 2000, LTP built a six-gate terminal on its acreage near Lemmon Avenue. Although it could not operate profitably due to the Wright Amendment, LTP invested tens of millions of dollars in this terminal on the reasonable view that that the restrictions would eventually be lifted and cause the terminal’s value to increase significantly.

But in 2006, five interested parties—Dallas (which owned Love Field), Fort Worth, Southwest Airlines, American Airlines, and the Dallas-Fort Worth Airport Authority—joined with the federal government to rewrite the Wright Amendment and wipe out LTP as a viable competitor. Under their “Five Party Agreement,” the parties sought to reduce the total number of gates at Love Field, six of which would be removed from the Lemmon Avenue terminal. Dallas also agreed to acquire and demolish LTP’s terminal. This arrangement was codified in federal law through the Wright Amendment Reform Act (“WARA”), after which LTP stopped paying rent and the City of Dallas evicted the company and demolished its terminal.

LTP brought a takings claim against the United States in the Court of Federal Claims, alleging that WARA resulted in a regulatory taking of its valuable property rights and a physical taking of the Lemmon Avenue terminal. The court found that Dallas’s acquisition and demolition of the Lemmon Avenue terminal constituted a physical taking under the Fifth Amendment. Moreover, it found a regulatory taking under both the Lucas and Penn Central tests—derived from cases in 1991 and 1978, respectively—because WARA limited LTP’s use of its lease such that it rendered it without economic value. The court awarded LTP $133.5 million in just compensation for these takings. The U.S. Court of Appeals for the Federal Circuit reversed that decision, finding that the gates had no economic value before the passage of WARA and thus had lost no value after they were shut down. The court insisted that no compensation was required because LTP could not prove that the gates had any market value before their destruction, even though the lower court found that LTP’s long-term lease was valuable given that the Wright Amendment restrictions on Love Field were unsustainable.

LTP is now petitioning the Supreme Court to review the Federal Circuit’s misguided decision. Cato has joined the National Federation of Independent Business and four other organizations on an amicus brief in support of LTP. We argue that the Court should clarify that courts should consider a property’s prospective economic value when evaluating the just compensation due from regulatory takings.

Private Satellite Firm Aids Boeing 737 Investigation

Canada privatized its air traffic control (ATC) system in 1996. Today, Nav Canada is on the leading edge of ATC innovation worldwide. With Iridium, Nav Canada co-founded Aerion in 2012, which produces satellite-based tracking of global airliner movements. This is the future of air traffic control as it promises greater safety, fewer delays, savings of fuel, and more efficient use of airspace. The U.S. ATC system is not an investor in this revolutionary project.

Our government-run ATC is falling behind the privatized systems in Canada and the United Kingdom. ATC is a high-tech business, yet we run our system as an old-fashioned and mismanaged bureaucracy within the Federal Aviation Administration (FAA).

Aerion made the news last week when it provided crucial data on the Ethiopian Airlines Boeing 737 MAX crash, which killed 157 people. CNBC reported, “Even after dozens of countries grounded Boeing’s 737 Max, the FAA did not. It was only until ‘actionable data’ arrived from Aireon that the FAA made the decision, acting Administrator Daniel Elwell told CNBC.”

And here is what the Wall Street Journal reported:

When the Federal Aviation Administration reversed course and grounded Boeing Co.’s 737 MAX jetliner, it moved partly after seeing data from a little-known aerospace newcomer that is changing the way the aviation industry tracks planes.

Aireon LLC, based in McLean, Va., was founded less than a decade ago—the brainchild of satellite maker Iridium Communications Inc. and Canada’s air-traffic managers. It collects and then distributes to partners, including air-traffic-control providers around the world, some of the operational data that passenger jets automatically send out in real time.

Using gear it has placed on satellites, Aireon gathers data such as a plane’s speed, heading, altitude and position. It gets updates every eight seconds or less. Air-traffic-control providers increasingly use the data to track planes from tarmac to tarmac—a capability only made possible with the development of sophisticated satellite networks.

In the case of Ethiopian Airlines Flight 302, which crashed Sunday killing 157, Aireon said it started furnishing its raw data as early as Monday to the FAA, the National Transportation Safety Board, Canadian officials and other authorities. The data would have required some time to analyze, according to an Aireon spokeswoman.

Once recipients crunched the numbers, they found similarities between the six-minute flight path of the crashed Ethiopian Airlines 737 MAX and that of a Lion Air 737 MAX that crashed, after 11 minutes, killing all 189 aboard, less than five months earlier. Canadian officials said they had finished analyzing the Aireon-provided data only by Wednesday morning. They decided to ground the jet a few hours later. President Trump announced a U.S. grounding a few hours after that.

The FAA isn’t an Aireon investor, though the two have worked together previously.

… Aireon is owned by Iridium; Nav Canada, the Canadian air-traffic-control agency; and a handful of other air-traffic-control providers, including those in Britain and Ireland. … Aireon currently offers its services to 11 air-traffic-service providers spanning 28 countries. … No U.S. airline has said it is using the system.

Do Minimum Wage Increases Raise Crime Rates?

They do for younger workers and property crimes, finds a new paper by Zachary S. Fone, Joseph J. Sabia and Resul Cesur.

Back in 2016, President Obama’s Council of Economic Advisors (CEA) claimed raising the minimum wage to $12 per hour could prevent up to half a million crimes annually. The basic idea was simple: there is good evidence criminal behavior is negatively related to wages. The CEA thought raising the minimum wage would raise the opportunity cost of low-paid workers engaging in crime.

Implicitly they were saying this crime-reduction effect would dominate any impact of job losses or hour reductions leading to more property crime, for economic reasons, or violent crime, for despair-related reasons. But this new paper suggests the CEA’s intuition on the balance of the effects was wrong, for younger workers especially.

The economists use three large crime datasets over a two-decade period to undertake regression analysis of the effect of minimum wages on different crime rates. They control for policing characteristics, crime policy, demographics, health and social welfare policies, minimum high school dropout ages and government lifestyles regulation. Doing so presents robust evidence that minimum wage hikes do not reduce crime. In fact, they increase property crime arrests among 16-24 year olds – the group for whom the minimum wage is most likely to bite.

Their regressions find little evidence minimum wage hikes affect violent or drug crime, or net crime among older individuals. But the impact on young people is positive and strongest when the minimum wage hikes are larger. Digging deeper, they find that the property crimes spike is driven larcenies rather than burglaries, motor vehicle theft or arson. The results are strongest for counties with populations over 100,000 and are likely driven by the traditional labor demand impact of minimum wage hikes (fewer jobs or reduced hours).

The results they obtain of the crime responsiveness to minimum wage hikes implies that a 10 percent increase in the minimum wage between 1998 and 2016 led to nearly 80,000 additional property crimes committed by 16-to-24 year olds. This would imply that implementing the $15 per hour Raise The Wage Act today could generate another 410,000 property crimes.

Bump Stock Ban Bumps Up Against the Constitution

After the tragic mass shooting in Las Vegas, the phrase “bump stock” entered the public lexicon. What was, and always has been, a gun-range novelty was suddenly the subject of national discussion. In the months following the tragedy, Congress considered and ultimately rejected a law banning these devices. Eager to seize political capital, however, the Trump administration sought to ban them anyway.

The administration faced one problem, though: the Constitution. As anyone who’s seen School House Rock can tell you, only Congress has the ability to write new laws. So the administration attempted to give itself such a power by “reinterpreting” an existing law: the National Firearms Act of 1934 (NFA), which heavily regulates “machineguns.”

For decades, Congress, the executive branch, and the people shared a common understanding: the definition of “machinegun” in the NFA was clear, applying only to weapons that fired continuously from a single function. Bump stocks, which require substantial user input to fire, had never been considered “machineguns,” with precedent spanning multiple administrations. President Trump announced that his administration was changing course. The president expressly declined to go through Congress, instead directing officials to redefine bump-stock devices as “machineguns.” In turn, the Bureau of Alcohol, Tobacco, and Firearms (ATF) broke from decades of precedent and granted itself a new power to ban a widely owned firearm accessory.

This expansion of regulatory authority, motivated by political expediency, cannot stand. Whether one agrees that bump stocks should be regulated or not, this change is not limited to a ban on bump stocks. ATF has asserted the complete authority to ban any new class of weapons that federal law did not address. This approach impermissibly expands the executive branch’s power to rewrite criminal laws and threatens to stifle new developments in firearm technology.

The new rule, making felons of an unknowable number of Americans, was set to take effect March 21. To prevent this, a group of Second Amendment organizations filed a lawsuit in federal court. They sought a preliminary injunction to stop the government from enforcing the new rule, but were denied. Because the effective date is so close, the appeal to the U.S. Court of Appeals for the D.C. Circuit was expedited. Cato filed a brief addressing issues that no other amicus discusses: that the executive branch cannot use the administrative process to accomplish legislative goals that Congress declined to enact.

The implications of this case extend far beyond bump stocks. Regardless of what public opinion is at this moment, the law means what it says. The executive branch has the power to interpret existing law, not write new ones. The administration argues, essentially, that because the statute did not provide a separate definition of the terms that make up the definition of “machinegun,” that it gets to insert their own meaning. That simply isn’t the case. Administrative interpretations are supposed to do just that—interpret existing law—not give new meaning to an old one.

If the government really wants to regulate bump stocks, it needs to do so by passing a new law, not by assigning new meaning to an old one. The Founders weren’t short-sighted; there’s a reason laws that affect the entire nation have to come through Congress, not through bureaucratic reimagination.

The D.C. Circuit hears argument in Guedes v. BATFE on March 22.

Lightbulb Efficiency Standards

The Washington Post recently criticized the Trump administration for proposing to eliminate an Obama administration rule that would extend minimum lightbulb energy efficiency standards to specialty bulbs and add them to a list of incandescent lights that will be effectively banned in 2020. The Post argues that the policy of imposing energy efficiency standards on lightbulbs “has no downside.” Energy efficiency regulations are often described as the equivalent of a free lunch, but these rules, like all regulations, have both benefits and costs.

Lightbulb efficiency standards were included in the Energy Independence and Security Act of 2007 (EISA), which established efficiency standards for “general service lamps.” These standards applied to various technologies, including traditional incandescent bulbs, CFLs, and LEDs, but excluded many types of specialty bulbs, such as decorative candelabra bulbs. The act also required the Department of Energy (DOE) to initiate procedures to determine whether the lightbulb standards should be increased and required a final rule to be published before 2017. If the DOE was unable to fulfill this requirement, the act created a backstop that would impose a 45 lumen (a measure of light intensity) per watt (lm/W) minimum on lightbulbs starting January 1, 2020. A traditional 100 watt incandescent bulb emits 1600 lumens of light, only 16 lumens per watt, and thus would be banned. 

After passage of the EISA, Republicans in Congress stymied implementation of the standards by inserting language in DOE appropriation bills prohibiting the use of federal money for their implementation and enforcement. During the Obama administration the DOE attempted to circumvent the appropriation restrictions by creating new rules that expand the lighting standards to include many of the originally exempted lightbulbs and apply the 45 lm/W backstop in 2020. These regulations were published shortly before Trump’s inauguration in January 2017. The new proposed rules eliminate the Obama revisions.

Despite the Post’s assertion, the Obama regulations do impose costs. As the 2017 rule notes,

DOE acknowledges that manufacturers may face a difficult transition if required to comply with a 45 lm/W standard. Manufacturers have voiced concern regarding the loss of domestic manufacturing jobs, the stranding of inventory, the ability to meet the demand for all general service lamps with lamps using LED technology, and the burden associated with testing and certifying compliance for all general service lamps.

The fact that manufacturers are upset by the rule indicates there are some costs. Furthermore, limiting consumer choice itself is costly; some specialized incandescent bulbs may not be available after 2020.

The benefits of the standards also may be small. The Post states that the lack of the mandate would cost consumers $12 billion per year and 140 billion kilowatt-hours in energy waste. But these estimates assume that consumers will not choose LED and more energy efficient lamps over incandescent bulbs on their own.

Ever since the first oil shocks in the 1970s there has been a debate about the necessity of energy efficiency standards for autos, trucks, and appliances. Consumer groups and engineers, often working at federal energy laboratories, have argued consumers fail to purchase vehicles and appliances that are more expensive initially but save money over time through less energy use. Economists have responded with evidence that consumers make appropriate tradeoffs between initial costs and savings over time and that public programs to promote energy conservation have costs that are greater than benefits.

As I have previously summarized, the most extensive evidence exists for cars. According to this research, consumers are quite willing to pay more initially for a vehicle that saves them money in gasoline costs over the ownership life. The same argument applies for appliances and lightbulbs. As the president of the Alliance to Save Energy, a pro-efficiency standard group, argued,

There aren’t many people out there clamoring for outdated light bulbs that use four or five times as much energy. Consumers have moved on and embraced high-efficiency bulbs like LEDs because prices are plummeting and because they’re getting a better-performing, longer-lasting product that saves them money.

I recently replaced the incandescent candelabra bulbs in the outdoor lights outside my front door that used 40 watts of electricity with LED equivalents that used 4. The market provided me with an energy saving option even though no regulation required it to do so. If the light is used 3 hours a day 365 days a year and the electricity costs 10 cents per kWh, then the annual savings is $3.94 per year ($4.38 annual costs for the 40 watt bulb vs. $.438 for the 4 watt) which pays for the $8.26 cost of the LED bulb in a little over 2 years.

As the economic literature, manufacturers, and even some proponents of efficiency standards recognize, I am not unique. Consumers understand the cost savings of LEDs, so the economic and environmental benefits propounded by the Post will occur without the tradeoffs required by government mandate.

Written with research assistance from David Kemp.

Philadelphia’s Ban on Cashless Stores

In an attempt to help lower-income consumers, Philadelphia has just become

the first major U.S. city to ban cashless stores, placing it at the forefront of a debate that pits retail innovation against lawmakers trying to protect all citizens’ access to the marketplace.

As with other regulation that allegedly helps the poor (e.g., restrictions on pay-day lending), this new regulation is misguided.

Some stores, in response to this ban, will keep accepting cash but raise prices. Other stores will close their Philadelphia locations entirely. Both effects harm lower-income consumers in particular.

Regulation adds costs, so it normally exacerbates rather than ameliorates poverty.

A better way to help “the unbanked” is to reduce regulation of debit cards and other non-cash payment mechanisms.


Subsidizing Passenger Rail Makes Little Sense

A Wall Street Journal article on an upgrade to a Midwest rail line illustrates the shortcomings of pumping tax dollars into passenger rail.

Amtrak’s route from Chicago to St. Louis would seem an ideal place for the U.S. to adopt high-speed rail such as in Europe and Asia, where passenger trains can race along at 200 miles an hour. The stretch in Illinois is a straight shot across mostly flat terrain.

In fact, a fast-rail project is under way in Illinois. Yet the trains will top out at 110 mph, shaving just an hour from what is now a 5½-hour train trip.

After it’s finished, at a cost of about $2 billion, the state figures the share of people who travel between the two cities by rail could rise just a few percentage points.

Behind such modest gains, for hundreds of millions of dollars spent, lie some of the reasons high-speed train travel remains an elusive goal in the U.S.

Laying dedicated track is expensive but relying on existing track owned by freight rail firms limits speed and on-time performance. The latter approach also undermines the freight rail system, which is an efficient and powerful engine of the U.S. economy.

Illinois didn’t have the money, or the right-of-way, to lay tracks that would be exclusively for a high-speed service. So its fast passenger trains will have to share the track with lumbering freight trains.

“To build the kind of infrastructure that is stand-alone—that is, just for high-speed passenger rail—it is just absurdly expensive and just takes years and years and years to get through the permitting and environmental process,” said Randy Blankenhorn, who was Illinois’s transportation secretary until this year.

“Land acquisition alone [would] take half a decade,” he said. “If we were to have said from the beginning, right off the bat go to 200-mile-an-hour service, we’d still be in the implementing and design phase.”

Illinois settled for weaving improvements along the route and rebuilding an existing single-track line that is owned by freight railroads. In effect, it chose higher-speed rail rather than actual high-speed.

… The Illinois rail project has consisted of making major improvements to the route on which Amtrak provides service. Work started in September 2010 and was supposed to finish in seven years. A federal mandate requiring trains to have an automatic mechanism to prevent certain accidents helped push back the timeline.

It has been a monumental undertaking that required dealing with railroad companies, cities and landowners, said John Oimoen, deputy director of railroads in the state transportation department. More than 300 road crossings had to have separate agreements covering upgrades or closures.

By late 2015, agency officials feared the project was dead, simply because so many deals needed to be negotiated before a deadline to spend the federal grant. The agency ultimately assigned its highway real-estate department to help finish the project.

Upgrading road crossings often meant rebuilding them, from drainage pipes up, to smooth passage for faster trains. Two extra signal arms were added to many crossings to keep drivers from going around them.

Another problem is federal micromanagement. Anything involving federal subsidies includes layers of regulations, which adds costs and delays.

[Illinois] also faced years of delays in getting new rail cars. Nippon Sharyo of Nagoya, Japan, landed a contract in 2012. Because the federal grant that funded the work required cars to be built in the U.S. from U.S.-made parts, the Japanese company expanded a 460,000-square-foot factory in Rochelle, Ill., and rebuilt its supplier network.

The company struggled to adapt designs and failed U.S. crashworthiness tests. In 2017 it withdrew from the contract and later closed the plant, meaning a side benefit Illinois hoped for—local jobs assembling rail cars—fizzled. The work moved to a Siemens AG facility in California.

Amtrak is plagued by lousy customer service. Trains do not run frequently and they have a poor on-time record.

Heidi Verticchio takes the train a few times a week between her home in Carlinville, Ill., north of St. Louis, and Bloomington-Normal, where she directs a speech and hearing clinic for Illinois State University. Because the trains don’t run frequently enough, she often has to drive the 120 miles when she needs more flexibility.

A higher speed won’t mean Ms. Verticchio will be taking the train more often. She estimates it might cut 10 to 15 minutes from her ride.

“It’s not going to make any difference,” she said.

Most of the Chicago-St. Louis train corridor remains a single track. Freight railroads Union Pacific and Canadian National own most of the route. They coordinate all traffic, including passenger trains.

In the year that ended with November, according to an Amtrak report, Canadian National caused 1,672 minutes of delay per 10,000 Amtrak train-miles logged on the route. Union Pacific caused 1,036 minutes of delay per 10,000 Amtrak train-miles, Amtrak said. Both exceeded Amtrak’s target of 900.

The report attributed about two-thirds of the delays to “freight-train interference.” It found that 73% of rail passengers arrived on time, but for those who faced delays, these averaged 45 minutes.

Finally, U.S. passenger rail is run by the government There is more private-sector involvement abroad, which is a better approach. So I agree with Puentes that the Florida and Texas projects bear watching.

Robert Puentes, president of the Eno Center for Transportation in Washington, notes that the U.S. has used just one approach to passenger rail since the 1970s, Amtrak. The government-owned corporation was cobbled together from remnants of major railroads’ passenger services. It is funded through fares and state and federal subsidies.

European rail networks feature a mix of government and business owners and operators. Mr. Puentes said new investor-owned passenger rail ventures in Florida and Texas bear watching.

More on Amtrak here.

Romance of the Rails can be ordered here.