Topic: Regulatory Studies

EPA Backs Off Dust Standard

Are there enough data points yet to call it a trend? I think there are: the Environmental Protection Agency is now backing off a whole series of deeply unpopular Obama-era initiatives. This time it’s the idea of tightening the federal standard for coarse airborne particulates—better known as “dust”—from the current 150 micrograms per cubic meter to a figure somewhere between 65 and 85, depending on what assumptions are used. That change could have dealt a tough economic blow to businesses, notably farms and ranches, that kick up quantities of dirt in the ordinary course of operation. Unfortunately, the EPA—unable to resist the urge to lash out against its critics—is being less than candid about its latest turnabout.

The retreats have been coming steadily in recent months, since President Obama’s popularity ratings began to tank. In July, following protests from Sen. Olympia Snowe (R-ME) and other lawmakers, the administration dropped a proposal that would have required lead-dust lab testing as part of even relatively minor renovations to older homes. Last month it scuttled costly new smog regulations. A couple of weeks ago it relaxed its so-called Cross-State Air Pollution Rule, which was menacing the continued operation of power plants. And it remains under heavy pressure to scrap its ultra-expensive “Boiler MACT” rules, another utility nemesis.

EPA administrator Lisa Jackson has made it clear that she isn’t happy about some of these about-faces, and her staff spun the latest dust decision in remarkably graceless fashion, accusing critics of spreading “myths” and claiming the agency never had any intention of going after farm dust in the first place. Following the same line, Kate Sheppard at Mother Jones has now twice dismissed the issue as “the tea party-right’s favorite EPA conspiracy theory. Sadly, it’s not true.”

But the farmers and ranchers—and the many lawmakers who stepped up to their defense—weren’t imagining things, as this letter last July from 21 Senators (including a couple of Democrats), or this contemporaneous Reuters coverage, makes clear. Had the standard been lower, various metropolitan areas would have been knocked out of compliance, and although it’s conceivable states could have found a variety of ways to order curbs to dust-raising economic activity, farms and ranches are just too big a target to have been spared. And the issue caused direct political blowback to President Obama, who was irritably dismissive of a farmer’s concerns when asked about it at a “Town Hall” in the rural Midwest.

This, then, seems to be the new Obama administration compromise position on the EPA: they’ll hold off for now on saddling the economy with at least some potentially ruinous regulations—but they’ll make sure you know they’re not happy about having to take that stand.

Insider Trading and the Rajaratnam Case

Alexander R. Cohen of the Business Rights Center at the Atlas Society is sharply critical of the 11-year sentence given Raj Rajaratnam for alleged insider trading. Cohen notes:

And as long as the sentence is—and it is much longer than is typical in insider-trading cases—it’s less than half the maximum the government wanted, 24.5 years. Looking at that number, Rajaratnam’s lawyers offered, as points of comparison, the average sentences for other crimes in 2010:

For sexual abuse, 109 months—nearly two years less than Rajaratnam got.

For arson, 79 months—more than four years less.

For manslaughter, 73 months. That’s right: People who killed people got sentences more than four years shorter than Rajaratnam’s. (They did get longer sentences than his if their crimes rose to the level of murder—though even the average sentence for murder was less than the 24.5 years the government wanted to impose on Rajaratnam.) [emphasis added]

I do wonder how the U.S. attorney would explain those respective sentences. The prosecutor did face a challenge in explaining just how Rajaratnam had harmed people. Cohen isn’t impressed with his answer:

But even the prosecutors admitted that it was hard to identify victims or measure their losses directly. So they argued that the stock-market is a zero-sum game, and that however much profit Rajaratnam made, he took from someone else.

This is nonsense.

First of all, the stock market is not a zero-sum game. If a stock becomes more valuable, perhaps because the issuing company became more productive, it does not somehow take away money from everyone who doesn’t own that stock. It means they’ll have to pay more if they want to buy it—but (unless they’ve sold short) they do not have to buy it. It’s true that people who don’t own a stock when it goes up are missing an opportunity, but missing an opportunity is not the same thing as losing money.

Second, the previous owners of stocks Rajaratnam bought on inside information never owned the profits they would have made had they kept the stock. They only had the right to those profits if they chose to keep the stock long enough for its price to go up, then sell it before it went down. They chose not to keep it. Therefore, they never had the right to the money that Rajaratnam made.

Cato’s Doug Bandow argued in Barron’s at the beginning of the Rajaratnam case that insider trading shouldn’t be a crime. And way back in 1985 Henry G. Manne, one of the pioneering scholars in the field of insider trading, argued that “the economic, moral and legal arguments are very strong against the SEC’s stand on insider trading” in the Cato Journal.

DoT’s Road-Sign Mandate: ‘Wrong Way,’ Not Just ‘Slow Down’

In Washington, one is expected to be grateful for even small breakouts of relative sanity. Consider, for example, the Department of Transportation’s decision to scale back its widely blasted regulations meant to force local and state governments around the country to replace perfectly good street and road signs with new signage of prescribed lettering, size and “retroreflectivity.” (If you missed the announcement – it was dropped into the news just before Labor Day – here are the Detroit News and New York Times accounts.) Instead of requiring local authorities to replace all old signs by 2018, DoT will now (with some exceptions) let them wait until signs wear out before having to follow the new design standards. That means New York City won’t be obliged to drop many other projects in favor of a crash program to replace its more than 300,000 signs, Delaware can spread the $60 million plus it expects to spend over a longer period, and so forth for thousands of other towns, counties and states that had flinched at billions in new mandated spending.

The delay in implementation is welcome, but what’s still absurd is the idea of there being any mandate at all. The Framers prescribed a federal government of limited powers, which did not include the power to prescribe the retroreflectivity, size or lettering of everyone’s local street signs. Supposedly, older drivers will find the new big-and-reflective signage a boon, though I suspect no one has actually asked them whether they expect their navigation to improve once the town has ripped out all their familiar signs. And while safety may be advanced by standardized designs for, say, stop signs and one-way arrows, the great bulk of signage, on street names in particular, will work fine without national standardization, which indeed may choke off fruitful experimentation adapted to local conditions.

One group quoted as supportive of the full mandate is the American Road and Transportation Builders Association. According to the group’s website: “On behalf of its more than 5,000 public and private sector members, ARTBA’s primary goal is to aggressively grow and protect transportation infrastructure investment” – that is, to keep more and more money flowing for roads and their improvers.

Steve Jobs, Prosperity Creator

The all-too-early death of Steve Jobs was reported on the day that President Obama made another defense of his so-called jobs bill. Which one actually benefited (or would benefit) Americans and the American economy? Lots of people have talked about the way Steve Jobs changed technology, changed business, changed the world. And I trust there’ll be no more churlish complaints about his alleged lack of philanthropy. As Dan Pallotta definitively pointed out,

What a loss to humanity it would have been if Jobs had dedicated the last 25 years of his life to figuring out how to give his billions away, instead of doing what he does best…. [T]he world has no greater philanthropist than Steve Jobs. If ever a man contributed to humanity, here he is.

Two years ago Portfolio magazine did a great graphic on “The Steve Jobs Economy,” trying to assess just how much value he himself had created for the economy. The conclusion: Jobs’s personal wealth at the time was estimated at $5.7 billion. But he was generating $30 billion a year in revenue for Apple, its partners, and its competitors (who were spurred to get better). Here’s the analysis (sorry for the imperfect tear sheet):

Click image to enlarge. And for text but not graphics at Portfolio, click here.

According to Portfolio and the experts it consulted, Jobs was producing $30 billion a year in value for various companies. And of course that means that consumers believed they were getting at least that much value themselves, or they wouldn’t buy the products. That’s a wealth creator. And that number pales in comparison to this one: After returning to Apple in 1997, Jobs took the total value of the company from about $2 billion to $350 billion.

How much value is the Post Office creating this year? Or Amtrak? Or Solyndra? And if you point out that the Post Office does create value for its customers even though it loses money every year, I would ask, how much more value might its competitors create, if it allowed competition?

Instead of another bag of taxpayers’ money for state and local governments and politically favored businesses, a real jobs program would encourage the next Steve Jobs to create value. What would that involve? Keep taxes on investment and creativity low. Reduce the national debt and its threat of huge tax hikes to come. Ease the burdens of regulation, especially regulations that make it difficult to open a business, hire and keep the best employees, and develop new ideas. Open the huge, stagnant postal and schooling businesses to competition, innovation, and entrepreneurship. Repeal some of the licensing laws that now afflict 1,100 occupations. Renew progress toward free trade. Make it smart for businesses to invest their time, money, and brainpower in productive activity, not lobbying.

‘Loser-Pays’ in Texas: a ‘Triumph of Packaging’

The latest round of litigation reform in Texas drew big national attention because of its “loser pays” label. But in reality, as I told Reuters reporter Moira Herbst in her new story, by the time the bill reached enactment the label wasn’t really deserved.

Texas courts will apply the loser-pays principle to only a small fraction of unsuccessful actions. The package also includes new rules shifting costs in some cases where litigants turn down a settlement offer and then do less well at trial; that’s welcome, but doesn’t venture much beyond what other states have tried with success in their legal systems. As before, Alaska (which has had its rule since territorial days) is the only state to enjoy the benefits of a comprehensive loser-pays principle.

For more background on loser-pays, see my Maryland Law Review article with co-author David Bernstein, or this more popular Reason piece. For more on the recent Texas enactment, see links at Overlawyered here, here, here, etc.

Orszag and the People

Former OMB Director Peter Orszag has written a provocative New Republic essay calling for less democracy. Most people, myself included, would be inclined to dismiss his effort as an obviously self-serving call for rule by progressive experts. I believe that temptation should be put aside. After all, in 1789 and afterwards, the American people have not created a democracy but rather a republic. So we should address Orszag’s arguments on their merits while asking whether he is proposing a “Republican remedy for the diseases most incident to Republican Government.”

A bit of historical context offers a way into Orszag’s argument. Progressives did favor expert influence over government, but they also plumped for direct democracy; the referendum and the initiative were progressive reforms. They believed direct rule of the people would bypass corrupt and “reactionary” state legislatures who refused to enact progressive legislation. Orszag does not propose reforms introducing direct rule; he is thus left with the expert aspect of the progressive legacy. Why not more democracy?

The people are dysfunctional. Orszag reasons that legislative gridlock does harm to the nation and will do more in the future, that gridlock is rooted in polarization of the masses and not just of elites, and that polarization arises from people living and interacting only with people who share their views. Representatives in DC reflect these divisions. The problem, according to Orszag, is not in our agents but in ourselves. In response, we should sever the link between policymaking and the problematic people.

You need not equate the voice of the people with the voice of God to find Orszag’s analysis unconvincing. Is it really so surprising that the people are so polarized? For decades, we have lived under a redistributive government. Your gain is my loss and vice-versa. The politics of redistribution also foster a rhetoric of blame and contempt. You are the cause of my problems and vice-versa. In the zero sum struggles around the redistributive state, people begin to see each other as friend and enemy. Big Government leads to Big Polarization.

Orszag offers three general ways around the people and their representatives: automatic policies, backstop rules (like the sequester governing the supercommittee), and institutions more independent of the dysfunctional people. I focus on the last of these.

Is the independent judgment of experts what we need? Policies are means to ends, and the latter are tied to values. For example, Cato experts often argue for a policy of deregulation to limit government and thereby increase individual liberty. Experts have special knowledge about means not ends, about the effects of policies and not about the worth of values.

However, Orszag might say, Americans agree about ends/values. Everyone wants more, not less, economic growth. Politicians (and their constituents) bicker over the policies needed to bring growth; in contrast, experts agree about the effects of policies. If we turn over policy to experts, we will get policies that achieve the ends everyone wants. Is this true?  Consider for a moment the expert debates about the stimulus, the most recent policy designed to renew growth. Would you say those debates reflect expert agreement or a polarization not unlike what Orszag ascribes to the public?

Orszag’s case for more independent institutions cites policies that involve ends as much as means, values as much as facts. Tax policy might be given to a board of independent experts similar to the Federal Reserve. But making tax policy requires making tradeoffs between liberty and equality (among other values). Why would a board of experts have special knowledge about the proper tradeoff between those two cardinal values? In fact, mainstream economics assumes such values and their proper relationship cannot be known. Hence, economists begin with exogenous preferences which are not a matter of knowledge but rather, of will. The most important decisions about tax policy are simply not within the competence of experts.

You might think that Orszag takes as his slogan “taxation without representation” but that would be unfair. He does allow that the legislature could overrule his various independent institutions and their judgments about ends and means. But the experts would set the agenda, and political scientists have found that those who set the agenda usually win the policy battle. So actually Orszag is proposing “taxation (usually) without representation.” The original Tea Party Patriots of 1773 might wonder: has it really come to this?

Orszag does have a point. Americans do deeply disagree about public ends and means and thus about the size and scope of government. Why must all those disagreements be resolved in Washington? Must we always be at one another’s throats? Actually, no. The same political tradition that promised “no taxation without representation” also endorsed a division of power between national and subnational governments. Federalism offers an chance for people who deeply disagree about values to live at some distance politically from one another. We are too centralized and too much a nation for the people that we have become.

But we can and should deal with this challenge by drawing on, not repudiating, American political culture.

Update: I did a podcast on this topic with Cato’s Caleb Brown.

English Fluency? Correct Pronunciation? Why Would Teachers Need Those?

As Pat Kossan reports in the Arizona Republic, the state of Arizona has averted a threatened civil-rights lawsuit from Washington by agreeing to stop monitoring teachers’ English fluency and pronunciation in the classroom. “In November, federal officials told Arizona that its fluency monitoring may violate the Civil Rights Act of 1964 by discriminating against teachers who are Hispanic and others who are not native English speakers.”

Does this strike you as perhaps a bit crazy? If so, it’s craziness with quite a pedigree. It was way back in the first Bush administration that the Equal Employment Opportunity Commission (EEOC) began filing lawsuits against employers for “discriminating” against employees with difficult-to-understand or heavily accented speech, the theory being that this served as an improper proxy for discrimination based on national origin. The scope for allowable exceptions was exceedingly narrow, too narrow to cover most teaching positions, as I wrote quite a while back when the issue had just come over the horizon in a Massachusetts case. Indeed, the National Education Association (I pointed out) had been prevailed on to pass a resolution “decrying disparate treatment on the basis of ‘pronunciation’ – quite a switch from the old days when teachers used to be demons for correctness on that topic.”

Don’t assume you can escape by choosing one of your local private schools. Their employment of teachers falls under the EEOC’s jurisdiction too.