Topic: Regulatory Studies

Transgender Rights Can Be Vindicated Without Constitution-Bending

The debate over transgender rights has risen in prominence in recent years, with the fight over access to public restrooms and locker rooms receiving particularly heavy public attention. The legal question at the heart of the first such lawsuit to reach the Supreme Court, however, is one not of civil rights law, but of administrative law: Should courts defer to agency interpretations of their own regulations, even when those interpretations constitute major, substantive changes to public policy via informal, non-binding pronouncements?

G.G. is a transgender high school student—minors are identified by letters in sensitive cases—who argues that Gloucester (Va.) High School’s policy disallowing him from using the facilities that correspond with his preferred gender identity violates federal law (Title IX of the Education Amendments) regarding sex discrimination in education. Upon being informed of G.G.’s conflict with the Gloucester County School Board, James A. Ferg-Cadima—a civil servant in the DOE’s Office of Civil Rights (OCR)—decided to get involved. He wrote a letter purporting to interpret the relevant regulation, stating that “[w]hen a school elects to separate or treat students differently on the basis of sex in [situations like this], a school generally must treat transgender students consistent with their gender identity.”

While the district court rejected this interpretation, the U.S. Court of Appeals for the Fourth Circuit deferred to the agency. The Gloucester County School Board now seeks Supreme Court review. Cato, along with three respected law professors (Jonathan Adler, Richard Epstein, and Michael McConnell), has filed an amicus brief supporting that petition.

We do so not because we necessarily oppose OCR’s position as a matter of policy—that’s a question for another day—but because we oppose its unconstitutional method of enacting that policy. OCR seeks to change federal law not through notice-and-comment rulemaking as required by the Administrative Procedure Act, but through an informal, unpublished letter written by a low-level bureaucrat.

Supreme Court precedent under Auer v. Robbins, 519 U.S. 452 (1997), says that courts must give such agency interpretations of their own regulations controlling deference. But deferring in this way incentivizes agencies to write vague regulations because they can be confident that they will then be free to reinterpret them at a later date without having to go through the trouble and expense of the rulemaking process—changing the law with no notice to regulated entities or the general public. Auer deference also allows executive agencies to consolidate both legislative and judicial power by effectively rewriting regulations beyond the scope delegated by Congress and then judging for themselves whether they’ve overstepped that authority.

We call on the Court to take this opportunity to overrule Auer and declare that the judiciary will no longer blindly accept self-serving agency interpretations, but make their own independent determinations based on a searching and reasoned reading of the regulations at issue. Should the Court choose not to overrule Auer, we suggest that—at minimum—it hold that only agency interpretations that have received the public scrutiny of notice-and-comment rulemaking merit judicial deference. 

The justices will consider whether to take the case of Gloucester County School Board v. G.G. later this fall.

How the FDA - And Other Agencies - Shape What You Read About Them

An important investigation by Charles Seife in Scientific American looks at how scientific newsmakers – in this case the U.S. Food and Drug Administration (FDA) – use “close-hold embargoes” to manipulate news coverage on breaking stories. Embargoes in themselves are a common enough practice in journalism; the special feature of a “close-hold” embargo is that it conditions a reporter’s access to a forthcoming story on not seeking comment from outside, that is to say independent or adversary, sources. 

The result of this kind of embargo, critics say, is to turn reporters into stenographers by ensuring that no expert outside perspective contrary to the newsmaker’s makes it into the crucial first round of coverage. And the FDA uses the technique to go further, according to Seife: it “cultivates a coterie of journalists whom it keeps in line with threats.” In fact, it even “deceives” disfavored major news organizations like Fox News “with half-truths to handicap them in their pursuit of a story.” 

The FDA has used this means of forestalling informed critical reaction on major, controversial regulations such as the recent “deeming” rule governing e-cigarettes and vaping. It also used the same technique in unveiling a major public health ad campaign – taking measures, as you might put it, to shape opinion about its shaping of opinion. An FDA official even upbraided a New York Times reporter who, unlike her colleagues, noted the close-hold embargo in her report. The agency resented its news-shaping methods becoming public. 

The whole article is a case study in how government-as-newsmaker - and by no means just the Food and Drug Administration - can get the coverage it wants.

Because of the ADA, Universities May Withdraw Free Online Course Content

On September 13, the University of California at Berkeley announced that it may have to take down online lecture and course content that it has offered free to the public: 

Despite the absence of clear regulatory guidance, we have attempted to maximize the accessibility of free, online content that we have made available to the public. Nevertheless, the Department of Justice has recently asserted that the University is in violation of the Americans with Disabilities Act because, in its view, not all of the free course and lecture content UC Berkeley makes available on certain online platforms is fully accessible to individuals with hearing, visual, or manual disabilities.

That Berkeley is not just imagining these legal dangers is illustrated by this clip from Tamar Lewin of the New York Times from February of last year: “Harvard and M.I.T. Are Sued Over Lack of Closed Captions.” 

I’ve been warning about this, to no apparent avail, for a long time. In a July post in this space, I noted the tag-team alliance of the U.S. Department of Justice, disabled-rights groups, and fee-seeking private lawyers in gearing up web-accessibility doctrine: when extreme positions are too politically unpalatable for DoJ to endorse directly, it supports private rights groups in their demands, and when a demand is too unpopular or impractical even for the rights groups, there’s nothing to stop the freelance lawyers from taking it up. 

Neither political party when in office has been willing to challenge the ADA, so there is every reason to believe this will continue. If you appreciate high-level course content from leading universities, but are not a paying enrolled student, you’d better enjoy it now while you can.   

Dose of Reality

From my new policy analysis (joint with Angela Dills and Sietse Goffard) on state marijuana legalizations:

In November 2012 voters in the states of Colorado and Washington approved ballot initiatives that legalized marijuana for recreational use. Two years later, Alaska and Oregon followed suit. As many as 11 other states may consider similar measures in November 2016, through either ballot initiative or legislative action. Supporters and opponents of such initiatives make numerous claims about state-level marijuana legalization.

Advocates think legalization reduces crime, raises tax revenue, lowers criminal justice expenditures, improves public health, bolsters traffic safety, and stimulates the economy. Critics argue that legalization spurs marijuana and other drug or alcohol use, increases crime, diminishes traffic safety, harms public health, and lowers teen educational achievement. Systematic evaluation of these claims, however, has been largely absent.

This paper assesses recent marijuana legalizations and related policies in Colorado, Washington, Oregon, and Alaska.

Our conclusion is that state marijuana legalizations have had minimal effect on marijuana use and related outcomes. We cannot rule out small effects of legalization, and insufficient time has elapsed since the four initial legalizations to allow strong inference. On the basis of available data, however, we find little support for the stronger claims made by either opponents or advocates of legalization. The absence of significant adverse consequences is especially striking given the sometimes dire predictions made by legalization opponents.

Did The U.S. Lose 2.4 Million Jobs from China Imports?

A major Wall Street Journal article claims, “A group of economists that includes Messrs. Hanson and Autor estimates that Chinese competition was responsible for 2.4 million jobs lost in the U.S. between 1999 and 2011.”  In a recent interview with the Minneapolis Fed, however, David Autor said, “That 2 million number is something of an upper bound, as we stress.” The central estimate was a 10% job loss which works out to 1.2 million jobs in 2011, rather than 2.4 million.  Since 2011, however, the U.S. added 600,000 manufacturing jobs – while imports from China rose by 21% – so both the job loss estimate and its alleged link to trade (rather than recession) need a second look.

“The China Shock,” by David Autor, David Dorn and Gordon Hanson examined the effect of manufactured imports from one country (China) on local U.S. labor markets. That is interesting and useful as far as it goes.  But a microeconomic model designed for local “commuting zones” cannot properly be extended to the entire national economy without employing a macroeconomic model.  

For one thing, the authors look only at one side of trade – imports – and only between two countries.  They ignore rising U.S. exports to China - including soaring U.S. service exports to China.  They are at best discussing one side of bilateral trade. And they fail to consider spillover effects of China’s soaring imports from other countries (such as Australia, Hong Kong and Canada) which were then able to use the extra income to buy more U.S. exports. 

Autor, Dorn and Hanson offer a seemingly rough estimate that “had import competition not grown after 1999” then there would have been 10% more U.S. manufacturing jobs in 2011.  In that hypothetical “if-then” sense, they suggest that “direct import competition [could] amount to 10 percent of the realized job loss” from 1999 to 2011. 

Choosing Financial Stability

Tomorrow the House Financial Services Committee moves to “mark-up” (amend and vote on) the Financial Choice Act, introduced by Committee Chair Jeb Hensarling.  The Choice Act represents the most comprehensive changes to financial services regulation since the passage of Dodd-Frank in 2010.  Unlike Dodd-Frank, however, the Choice Act moves our system in the direction of more stability and fewer bailouts.

At the heart of the Choice Act is an attempt to improve financial stability by increasing bank capital, while improving the functioning of our financial system by reducing compliance costs and over-reliance on regulatory discretion.  While I would have chosen a different level of capital, the Choice Act gets at the fundamental flaw in our current financial system: government guarantees punish banks for holding high levels of capital which, unfortunately, leads to excessive leverage and widespread insolvencies whenever asset values (such as houses) decline.  Massive leverage still characterizes our banking system, despite the “reforms” in Dodd-Frank.

The Choice Act also includes important, even if modest, improvements in Federal Reserve oversight (see Title VII).  There was perhaps no contributor to the housing boom and bust that has been as ignored by Congress as the Fed’s reckless monetary policies in the mid-2000s.  Years of negative real rates (essentially paying people to borrow) drove a boom in our property markets.  The eminent economist John Taylor has written extensively and persuasively on this topic, yet it remained ignored by legislators prior to Hensarling’s efforts.  Such reforms are too late to unwind the Fed’s current distortionary policies, but they may prove helpful in moderating future booms and busts.

Despite its daunting 500+ pages, the Choice Act is still best viewed as a modest step in the right direction.  Considerably more needs to be done to bring market discipline and accountability to our financial system.  But at least the Choice Act moves us in the right direction, for that the bill merits applause and consideration.

 

Using Antitrust Law to Protect the Right to Earn a Living

Teladoc, Inc. is a health services company that provides access to state-licensed physicians through telecommunications technology, usually for a fraction of the cost of a visit to a physician’s office or urgent care center. Teladoc sued the Texas Medical Board—comprised mostly of practicing physicians—because the board took steps to protect the interests of traditional physicians by imposing licensing rules such as requiring the in-person examination of patients before telephonic treatment is permitted.

Because the board isn’t supervised by the Texas legislature, executive, or judiciary, Teladoc argues that its self-dealing violates federal antitrust laws—and the federal district court agreed. The Texas Medical Board has now appealed to the U.S. Court of Appeals for the Fifth Circuit, where Cato filed an amicus brief urging the court to affirm the lower-court ruling and protect the fundamental right to earn a living.

Our brief argues that the Supreme Court has consistently held that the right to earn a living without unreasonable government interference is guaranteed by the Constitution, and that this protection dates back much earlier, to Magna Carta and the common law. Indeed, the right to earn a living is central to a person’s life and ability to pursue happiness. As Frederick Douglass wrote in his autobiography, “To understand the emotion which swelled in my heart as I clasped this money, realizing that I had no master who could take it from me—that it was mine—that my hands were my own, and could earn more of the precious coin—one must have been in some sense himself a slave… . I was not only a freeman but a free-working man.”

Licensing laws, which can be valid if protecting a legitimate public interest, are a tool of the state often employed by private market participants to restrict competition. By creating barriers to entry, existing firms or practitioners mobilize the state to wield monopoly power. This results in higher prices and fewer choices for consumers and diminished opportunities for entrepreneurs and workers.

While it may be appropriate to create a regulatory body exempt from antirust laws to achieve a specialized purpose, it’s inappropriate to grant private actors populating a licensing board limitless ability to claim such state-action immunity unless they are appropriately supervised by state officials. Without active supervision, private parties may wield state regulatory power purely for their own self-interest.

The Supreme Court has said that this active supervision standard is “flexible and context-dependent,” N.C. State Bd. of Dental Exam’rs v. FTC (2014), but not flimsy and porous. Moreover, there are other ways for states to obtain the specialized knowledge of professionals without creating regulatory bodies that rubber-stamp the assertions of active practitioners.

Teladoc offers an innovative service that makes obtaining healthcare easier and more affordable. The Fifth Circuit should protect its right to do so and the right of all persons to pursue a trade or career without onerous government-backed constraints instituted by private actors.