Topic: Regulatory Studies

Overregulation, Swing States and D.C. Cynicism

Today’s Wall Street Journal carries a news report on how the Obama administration, after more than two years of pursuing damn-the-costs government control over the private sector, is finally developing more internal debate about whether and when zealous regulations are worth the cost. In particular, Office of Information and Regulatory Affairs chief Cass Sunstein, known as skeptical about some costly rules, has now acquired an important sometime ally in White House Chief of Staff Bill Daley, who played a role in getting EPA to table some very expensive new air-quality standards the other day.

All well and good, but I was stopped short by a paragraph that shouldn’t pass without comment:

The same day, Mr. Daley met with industry groups, who gave the White House a map showing counties that would be out of compliance with the Clean Air Act if the stricter standards were put in place. The map showed that the rule would affect areas in the politically important 2012 election states of Florida, Pennsylvania, Virginia, and Ohio.

Even by Washington standards, isn’t it appallingly cynical to evaluate environmental rules that could (critics have argued) cripple wide sectors of the economy according to whether the worst damage falls on politically vital states like Florida and Ohio, or just ho-hum non-swing states like Oklahoma, North Dakota and Tennessee? True, the article doesn’t say who was cynical enough to draw the connection here – the business groups giving the presentation? The White House listeners? Some third party whose viewpoint this is all being filtered through? But whoever’s being the cynic here, one of the costs is to feed the alienation of citizens of Texas in particular, whose officials and businesses have been complaining for more than a year of being singled out for hostile attention by the Obama EPA. For everyone’s good, I hope someone in the White House at this moment is writing a sharp letter disclaiming any special intent to help Pennsylvania, Virginia et al. And I hope after drafting that letter they will be cleared to send it off for publication in the Journal, not just keep it in the desk to show outraged delegations of Texans.

Davis-Bacon Rules Damage D.C.

The Washington Post reports on a Labor Department decision that applies pro-union Davis-Bacon rules to the CityCenter development in Washington D.C. The ruling could push up costs on the project by $20 million by forcing firms to pay artificially high wages.

The paper says that “area real estate developers and construction executives who have partnered with the District say the ruling, if upheld, is likely to inflate costs on a wide range of projects by as much as 15 percent.” In turn, that could have “unprecedented, significant [and] adverse citywide cost impact upon every economic development project in the District’s portfolio,” said a deputy mayor of the city. So while Democrats in Congress are demanding government action to fix the nation’s supposedly crumbling infrastructure, here the Obama administration has thrown up a new hurdle to investment.

Davis-Bacon rules usually apply to federally funded construction, thus pushing up the costs of public projects. Nationwide, economists at the Beacon Hill Institute found that Davis-Bacon rules cost federal taxpayers about $9 billion annually. For example, repairs to National Park facilities cost more than they should, thus reducing the amount of maintenance the agency can do within its budget. However, the D.C. ruling stretches the Davis-Bacon rules even further because CityCenter is a privately funded project.

In an essay at, economist Charles Baird notes that passage of Davis-Bacon in 1931 was motivated by the faulty economic idea that the government should try to keep wages high during an economic downturn. But Baird describes another reason why Davis-Bacon was misguided from the start—the racist intentions of the bill’s supporters:

Congress wanted to keep black workers from competing for jobs that had hitherto been done by white unionized labor. The racist motivation behind the legislation is plain when reading the Congressional Record of the debate in 1931.

Job Creation, Obama-style

I guess the Labor Department didn’t get the memo on trying to create jobs, rather than destroy them.  As reported by the Wall Street Journal, the Labor Department is investigating several home builders for treating their contractors as…contractors.  Anyone with the slightest understanding of the construction industry knows that much of the relationships are between contractors and subcontractors, rather than employees and employer, largely because the projects regularly change.

But from Obama’s perspective, and that of his union allies, such treatment makes unionizing construction workers all that much harder.  Without such unionization, construction wages might fall.  Obviously that’s the last thing anyone would want when you have about 2 million unemployed construction workers.  If wages fell, a few more of them might actually get hired.  Someone in this Administration really needs to learn how the basics of supply and demand work, in the labor market and elsewhere.

My favorite part of the story is the union representative complaining about home builders trying to lower costs.  She states that home builders need to stop pressuring subcontractors to “go cheaper” on costs: “It’s pretty clear that there’s an enormous pressure to rush to the bottom in terms of keeping costs down.”  Maybe if houses were even cheaper, then not eveyone would have had to get such a large mortgage to buy a house and we could have avoided the financial crisis altogether.  But then when it comes between choosing to make one of life’s basic necessities - shelter - cheaper or helping to line the pockets of special interests, this Administration sadly continues to prefer the later.

Latest ObamaCare Glitch Enables States to Block New Entitlement Spending

Investors Business Daily reports on the latest glitch found in ObamaCare’s 2,000-plus pages:

Because of a quirk in ObamaCare, people who buy health insurance through a federally run exchange may not be eligible for premium subsidies.

Government-created exchanges are places for individuals to shop and purchase health insurance. ObamaCare will require individuals and families to buy insurance, starting in 2014.

Those with incomes at 100% to 400% of the federal poverty level will be eligible for taxpayer funded subsidies — a tax credit to help pay for the premium.

It turns out that the legislation isn’t so clear, the latest example of what analysts predicted would be a stream of surprises from the mammoth health law.

Section 1311 of ObamaCare instructs state governments to set up an exchange. If a state refuses, Section 1321 lets the federal government establish an exchange in the state.

Yet ObamaCare states that the tax credit is available to people who are enrolled in an “an exchange established by the state under (Section) 1311.” It makes no mention of people enrolled in federal exchanges being eligible for the tax credit.

“There is this technical problem in the law,” said James Blumstein, a professor at Vanderbilt Law School. “I don’t see how you get around that.”

I guess the folks who chanted, “Read the bill!” seem a little less crazy now.

Regrettably, the IRS has tried to “get around” the clear meaning of the law.  In a proposed rule, the IRS writes that taxpayers will be eligible for ObamaCare’s “tax credits” – which are more government spending than  – if they are enrolled in a health plan “established under section 1311 or 1321” [emphasis added].  But that’s not what the law says.  As I told IBD:

“Congress did not delegate this discretion to the IRS,” Cannon said. “Congress created a tax credit for A, and the IRS is saying it applies to A and B. If the IRS offers this tax credit to federally run exchanges, the IRS will be assuming powers the Constitution vests only in Congress to alter the tax code and spend money.”

Citizens have until October 31 to share with the IRS their thoughts about the agency’s overly broad interpretation of its powers (see here).

More broadly, this bug feature means that states can block ObamaCare’s new entitlement spending, and possibly the entire law, just by refusing to create an Exchange:

“The whole structure of the law collapses without a state-run exchange,” said Michael Cannon, director of health policy studies at the libertarian Cato Institute. “That forces Congress to either repeal ObamaCare or significantly alter it.”

Yesterday, Rep. Michael Burgess (R-Texas) helpfully suggested that the so-called “Super Committee” should meet its target of $1.5 trillion in spending reductions by cutting ObamaCare’s new entitlement spending:

The Select Committee is getting to work, and I encourage both parties, all 12 members, to put the Affordable Care Act on the table, alongside other entitlements in need of reform…The easiest money to save is money you haven’t yet spent…This new select committee could easily achieve almost their entire target of reducing the nation’s deficit, and…almost every dollar would come from benefits that do not yet exist.

The wonderful thing about this newly discovered feature of ObamaCare is that states don’t have to wait for Congress to act.  They can reduce federal spending simply by not creating a health insurance Exchange.

Whose Axe Made Your Axe? You Better Find Out

For the second time in two years, federal agents from the U.S. Fish and Wildlife Service have raided two Tennessee factories that make iconic Gibson guitars. The government alleges that Gibson imported woods in violation of the Lacey Act, a century-old law that makes it a federal crime to trade in plants, wildlife, or timber that have been harvested in violation of “any foreign law.”

While this seems simple enough, and the anti-poaching/conservation impulses behind the law are certainly commendable, the Lacey Act has become one of many federal statutes that create invisible minefields of federal regulations into which anyone can stumble unknowingly.

A Gibson Les Paul

In the Wall Street Journal today, Eric Felten discusses the Gibson raid and points out just how dangerous and overblown the Lacey Act has become. Since plants and timber were added to the act in 2008, even individual owners of vintage guitars can run afoul of the act. Felten writes:

If you are the lucky owner of a 1920s Martin guitar, it may well be made, in part, of Brazilian rosewood. Cross an international border with an instrument made of that now-restricted wood, and you better have correct and complete documentation proving the age of the instrument. Otherwise, you could lose it to a zealous customs agent—not to mention face fines and prosecution.

In addition, all the confusing forms must be filled out completely and perfectly, or you could face heavy penalties.

As a guitarist with an appreciation for vintage gear, as well as a Gibson fan, I’ve been following these stories with both a personal and professional interest. Perhaps Gibson has committed bona fide violations of the Lacey Act and perhaps not. I would guess, given the incentives the law creates, that Gibson has done its best to comply. But complying with a law that requires interpreting the interaction of vague foreign laws with vague domestic laws is easier said than done. Like a legal Heisenberg Uncertainty Principle, the laws may not exist until federal prosecutors observe them.

One of the most heartbreaking stories of federal prosecutors running amok with the Lacey Act is the story of Abner Schoenwetter, a grandfatherly Miami seafood importer who spent six years in a federal prison for importing lobster tails that violated the laws of Honduras. Except they didn’t. Honduras filed briefs and testified on behalf of Schoenwetter and his co-defendants, pointing out that what federal prosecutors thought to be Honduran law was not actually Honduran law. Federal prosecutors were unperturbed, however, determined to wipe this menace to society from our streets. (You can read the full, sad story of the case here.)

Although I’m not an insider to the Gibson case, it seems something similar may be going on. During the first raid two years ago, the government seized ebony fingerboards that allegedly violated Madagascar’s laws. To date, however, no charges have been filed. According to Gibson’s press release, the company “obtained sworn statements and documents from the Madagascar government” that the fingerboards “seized in 2009 were legally exported under Madagascar law and that no law has been violated.”

On Wednesday, the government apparently seized materials imported from India that, in alleged violation of Indian law, had not been fully finished by Indian workers. And again, according to Gibson’s press release, the searches were predicated on the “Justice Department’s interpretation of a law in India,” and the “action was taken without the support and consent of the government in India.” Also, notice that the Indian law allegedly violated here has little or nothing to do with preventing poaching or promoting conservation. No matter, however, because the Lacey Act prohibits importation in violation of “any foreign law.”

For those of us who want Gibson to continue making world-class guitars, the legal standards for those who import timber need to be clarified and differentiated from those who are subject to other parts of the Lacey Act, that is, fish and game importers. Unlike smaller, more regional markets for lobsters and other animals, the timber market is a vast supply chain. The timber at the Gibson factory has often gone through many intermediaries, making it incredibly difficult to identify its origins.

Without clarifying the standard of care that Gibson must employ, overzealous federal prosecutors enforcing the vague laws of two countries create a legal black hole around which companies like Gibson must take a wide berth lest they get sucked in. As a result, they may inefficiently over-comply by, for example, stopping importation of all timber from any “problem” area of the world. In other words, Gibson guitars of the future may not have signature ebony fingerboards, even when those fingerboards could have been legally imported. To guitarists everywhere, these details make a difference and they help make Gibson a premiere guitar-maker. Hopefully, it stays that way.

How’s Our ADA Compliance? Dial 1-800-HIRE-SOTS

It seems that Old Dominion Freight Line, Inc., an interstate trucking company, doesn’t want to put drivers with a history of drinking problems behind the wheel. According to a press release issued last week by the federal Equal Employment Opportunity Commission (EEOC) (hat tip: Roger Clegg), that’s a violation of the drivers’ rights under the Americans With Disabilities Act:

[Per the EEOC’s suit] the driver at the Fort Smith location had worked for the company for five years without incident. In late June 2009, the employee reported to the company that he believed he had an alcohol problem. Under U.S. Department of Transportation regulations, the employer suspended the employee from his driving position and referred him for substance abuse counseling. However, the employer also informed the driver that the employer would never return him to a driving position, even upon the successful completion of a counseling program. …

Alcoholism is a recognized disability under the Americans With Disabilities Act (ADA), and disability discrimination violates this federal law. The EEOC said that the company violated both the ADA and the Americans With Disabilities Act Amendment Act of 2008 (ADAAA) by conditioning reassignment to non-driving positions on the enrollment in an alcohol treatment program. In addition, the EEOC argued that Old Dominion’s policy that bans any driver who self-reports alcohol abuse from ever driving again also violates the ADA.

Even well-run alcohol rehab programs are known for having high relapse rates, and Old Dominion would almost certainly face legal liability following a calamitous highway collision caused by a driver’s relapse. But according to the EEOC’s interpretation, requiring the driver to accept permanent reassignment to a less safety-sensitive position (let alone terminating him entirely) is also grounds for liability.

For years the ADA has provided legal muscle to employees terminated for alcohol problems — just the other day, for example, a Florida State University administrator dismissed after frictions with staff sued the university for not accommodating his alcohol abuse. But that’s just the academic setting, where many administrators can glide by in a bit of a haze for years without causing real problems. (UCLA’s Steve Bainbridge quips that the college official’s description of drinking as a “handicap” is off base: “it’s always come in handy for me.”) Are we really required to take chances with 18-wheelers on the highway?

Rachel Maddow’s Big Thoughts on Infrastructure

Is Rachel Maddow sure she wants the government to “think big,” as she says here standing in front of the Hoover Dam?

Maddow’s advertisement on MSNBC caught my eye because it captures the naïve liberal belief in the goodness of large government projects. Liberal pundits keep telling us that we need a giant boost in federal infrastructure spending to aid the recovery. But the pundits never seem to worry about the quality of government investments. And they seem blissfully unaware of the history of damage caused by governments that have thought big on infrastructure.

Hoover Dam was built by the U.S. Bureau of Reclamation, an agency with an appalling history of environmental damage and support of boondoggle projects. For most of the 20th century, the agency ran amok pouring concrete in every river system in the West, and in the process destroying wetlands and salmon fisheries. The government’s Corps of Engineers has a similar record of environmental damage and economic miscalculation on its big infrastructure projects.

It’s not just water infrastructure where “thinking big” by the government has been damaging. Thinking big led to the federal government’s disastrous high rise public housing projects in Chicago and elsewhere. Thinking big led to awful “urban redevelopment” projects that paved over city neighborhoods and replaced them with hideous Soviet-style office blocks.

I don’t want the federal government thinking big on infrastructure, and I doubt if Maddow would either if she knew more about the history. I encourage her to read the classic Cadillac Desert to get a better understanding of what government infrastructure spending on dams is all about. Then I would suggest she do her next MSNBC spot at the site of the Teton Dam in Idaho (see also this and this), which was an economic joke and a federal engineering disaster.