Topic: Regulatory Studies

‘May Cause Drowsiness, Use Caution Around Machinery’

Frank Harty of the Iowa law firm Nyemaster Goode describes a new kind of employer headache arising from the Obama administration’s hardline enforcement efforts on the Americans with Disabilities Act (ADA) front:

…Common sense dictates that any medication that carries with it a warning that it “may cause drowsiness” or that the patient should “use caution” if operating machinery may pose a risk in the workplace. It is for this reason that many employers adopt a policy requiring employees to self report the use of prescription pain killers. This is especially important in potentially dangerous workplaces such as manufacturing and construction.

In a recent action that defies common sense, the Equal Employment Opportunity Commission has taken the position that such policies are unlawful under the Americans With Disabilities Act. The ADA prohibits an employer from conducting “medical inquiries” without a business reason to do so. In EEOC v. Product Fabricators, Inc., an action in federal court in Minnesota, the EEOC required a manufacturing employer to abandon its policy of encouraging employees to inform supervisors if they are under the influence of narcotic pain killers such as Vicodin. The EEOC took the position that an employer cannot ask about prescription pain killer usage unless it has “objective” evidence that an employee is impaired on the job.

This places employers in a very difficult position….

In particular, it puts employers to a choice between waiting until there is an actual accident caused by an employee’s nodding off or zoning out – thus at last providing “objective” evidence of risk – and the risk of a large judgment payable to an employee who has not yet gotten into accidents and whose lawyer will claim that there was no objective evidence to support a suspicion of impairment.

The Eighth Circuit upheld the agency’s stance earlier this year and an EEOC press release from February notes that the company agreed to pay $40,000 to settle the dispute. Harty notes that one “thing is certain: it will be employers, not the Equal Employment Opportunity Commission, who deal with the fallout from the loss of life and limb in the workplace.”

How Tech Can Render Regulations Uber Obsolete

In the most recent issue of The Atlantic, Megan McArdle looks at the regulatory travails of Uber, the innovative smartphone-enabled car service that has found itself in the crosshairs of competition-averse taxi commissions from D.C. to San Francisco. For the uninitiated, Uber is the answer to the question that has occurred to every harried commuter with a smartphone at some point: If these things have GPS chips, and cabs have GPS, shouldn’t I be able to use my phone to find a cab, rather than just hoping I’m in the right place when one passes? In other words, it’s the Electronic Thumb from The Hitchhiker’s Guide to the Galaxy. Uber’s plush sedans come at a premium price, but for those in need of a pickup outside a high-traffic area, it’s the convenience factor that justifies the markup. Users register their credit cards with the service in advance, and when they need a ride, fire up a slick app that shows all the Uber cars in service on a realtime map, with an estimate of how long the closest free driver will take to reach your location. At the end of the journey, the fare and gratuity are charged automatically, with a receipt and travel map delivered via email, and the app gives passengers an opportunity to rate each driver—allowing the company to ensure that it only contracts with those who are consistently safe, reliable, and courteous. By most accounts, users adore it.

Naturally, regulators hate it. DC Taxi Commissioner Ron Linton has condemned the company as a scofflaw—and seems hell bent on finding some rule they’re violating, even though his initial complaint against Uber seems to have been legally confused. Most of Linton’s public comments on the matter leave the distinct impression that these are secondary details for him: What’s outrageous is that some upstart would dare to do something new without first coming to kiss the Don’s ring and beg permission. There’s also the inevitable element of regulatory capture: Conventional cab companies would rather not face an innovative competitor, so they’re asking the government to ensure consumers don’t have the option of taking their business elsewhere. So far, a familiar story that could be told about dozens of industries. What even many of Uber’s defenders seem slow to recognize, however, is that the company’s business model doesn’t just require regulators to catch up with the tech and the times: It eliminates the rationale for having a regulator.

The default in a free society is that you can start most kinds of business, and charge whatever rate the market will bear for your services, without the approval of some municipal bureaucrat. The argument for treating cabs differently rests on the idea that, on the conventional model, they’re not as effectively regulated by normal market pressures. Comparison shopping isn’t particularly feasible when you hail a cab the old fashioned way: You just flag down the first one that happens to pass, with the understanding that when the ride’s over, you’re unlikely to ever do business with that particular driver ever again. If you’re from out of town, odds are you won’t ever do business with the company again either, and barring an exceptionally unpleasant experience, most passengers aren’t going to take the time to call the dispatcher with a review. The opportunistic, one-off nature of traditional cab transactions, in short, makes a standardized price structure more attractive, and diminishes the reputation-based incentives to compete on price and quality. So goes the usual argument, anyway.

Uber—or rather, the Uber model—changes all of that.

You accept a price structure in advance, when you sign up for an account, and can be clearly notified of any price changes. The app’s  review system makes it easy for the company to monitor driver quality without demanding too much effort from passengers. Customers automatically get a full and instantaneous accounting of when and where they were picked up and dropped off, and how much they paid. Because the company expects, and strives for, lots of repeat business—and on word of mouth from satisfied customers as a growth strategy—all the normal market forces and incentives that apply to any other online business are in full effect. Which means the question isn’t whether the regulations need to be updated to accommodate a new kind of cab service: It’s why this kind of service needs a regulator at all.

Judging by Linton’s own assessment of the conflict in the Washington Post, the commissioner at least vaguely understands that Uber makes him superfluous. His attempt to justify a continuing need for regulation—for consumers to be “protected” from a company they’re overwhelmingly flocking to defend—is a small masterpiece of incoherence:

[A Post contributor] suggest that taxis or limousines arranged for via smartphone technology be allowed to charge whatever they want in an all-out price war. He should be careful what he wishes for. It isn’t just riders and drivers who would be affected if such a system became the norm. Given the congestion, confusion and pedestrian hazards likely to result, those using private vehicles, buses, bicycles, trucks and even sidewalks to move about the city would be sure to share their unhappiness with public officials, leading us right back to what? Regulation, of course.

To which the sane reader can only say: What? At the risk of stating the obvious: What Linton calls “all-out price war” to make it sound radical and anarchic is what the rest of us call “competitive pricing,” and is the normal way businesses operate in this country. Absent extraordinary circumstances, which smartphones obliterate here, it turns out it works pretty well. As for congestion, confusion, and pedestrian hazards… what, exactly, makes these likely to result? And how does Linton know? Is there even one scintilla of evidence that this has happened in other cities where Uber operates? Why would anyone think professional drivers—especially ones being rated on each ride—create more “pedestrian hazards” than other motorists? Why would buying a service online at clearly posted rates yield more “confusion” when the service is transport than it does for every other type of service people can purchase online? Wouldn’t greater adoption of smartphone-enabled cabs yield less congestion by efficiently matching drivers with fares?

The answers to these questions are obvious enough: On the Uber model, any rationale for subjecting driving services to a special regulatory regime—beyond the rules that apply to every business—simply evaporates. With smartphones on a fast track to the kind of ubiquity cell phones already enjoy, that model seems likely to become the norm rather than the exception over time. But as Upton Sinclair famously said, “it is difficult to get a man to understand something, when his salary depends on his not understanding it,” which means bureaucrats like Linton are sure to keep clutching at any pretext to justify their jobs.

Cato’s Amicus Brief Helps Persuade Supreme Court to Protect Private Property Rights

This blogpost was co-authored by Cato legal associate Anna Mackin.

Today, the Supreme Court agreed to hear Arkansas Game & Fish Commission v. United States, the Fifth Amendment Takings Clause case whose cert petition Cato supported with an amicus brief. In that brief, we joined the Pacific Legal Foundation in urging the Court to preserve a remedy long-recognized in American courts: compensation for government destruction of private property.

Over a year ago, the Federal Circuit blithely ignored this constitutionally guaranteed protection, ruling that so long as it might be characterized as “temporary,” no government flooding of private land can constitute a Fifth Amendment violation. If upheld, this sweeping opinion could prevent recovery for the destruction of private property whenever the government characterizes its own actions as “temporary,” without any assurances of the length of this “temporary” loss.

Notable Supreme Court commentators saw the importance of this case early on, and our amicus brief was featured on SCOTUSblog’s “petition of the day” page. Many thanks to Brian Hodges at PLF for working with Cato on the brief – one of just four filed in the case. Congratulations also and especially to Matthew Miller & Julie Greathouse of Perkins & Trotter, who represent AGFC, for their successful legal strategy.

It is gratifying to see the Court snap up this opportunity to protect private property rights – it is more likely than not that it will reverse the lower court – implicitly validating the position Cato and PLF advanced in this case. We’ll now be filing a brief on the merits that will urge the Court to maintain constitutional protections against government intrusions on private property. The Court will hear the case next term, probably this fall, with a final decision expected by early 2013.

For more on AGFC v. United States, check the case’s SCOTUSBlog page or its Supreme Court docket page. Jonathan Adler also blogged about the case at the Volokh Conspiracy.

Do We Need a FDA for Financial Journalists?

The normally insightful Gretchen Morgenson ran a column Saturday that I at first suspected must have been intended for April Fools’ Day.  She discusses a paper by University of Chicago professors Eric Posner and E. Glen Weyl that suggests we create an agency like the Food and Drug Administration for financial products.

I haven’t yet read the paper, but given some of the remarks, I am not sure its worth the effort.   For instance, Weyl states, ”[w]e tried an experiment with a very radical form of deregulation that has very little basis in sound economic science.”  In what universe does one live in to believe our financial system had a “very radical form of deregulation”.  Our financial markets are, and have been for a long time, massively regulated.  That’s the problem.  The moral hazard and perverse incentives created by our existing system of financial regulation should be clear to anyone with a basic understanding of “sound economic science”.

Take the example of credit default swaps (CDS). The good professors posit “[i]magining a credit default swap being brought before a financial protection agency,” Mr. Posner and Mr. Weyl wrote: “We would expect the F.P.A. to treat it skeptically.” Really?  CDS were brought before the NY Fed, who signed off on them as a great way for banks to manage their risk (and hence reduce their capital).

We had a massive financial crisis because households, banks, bureaucrats and politicians rationally responded to the perverse incentives they faced.  What’s crazy about defaulting on a mortgage when you’ve put nothing down and there’s no recourse.  (Let’s not forget it was some politician that decided that recourse was a bad thing).  If you want a better system, fix the incentives.  Thinking that the same failed regulators who missed, and contributed to, the last crisis are going to fix the next one strikes me as naive, as well as having “very little basis in sound economic science”.

Biometrics—-and the Curious Relevance of Occupational Licensing

Yesterday, I testified (by remote communications) in the Alaska House of Representatives’ Health and Social Services Committee, which is considering a bill to heavily regulate the collection and use of biometrics. The bill is inspired by a man who was denied entry into the CPA exam when he refused to have his fingerprints scanned for that purpose. You can read more about his campaign at the PrivacyNOWalaska.org site.

I’m entirely sympathetic to his concerns about potential overcollection of biometrics in digital form, and what may happen to biometric data after it is collected. As I said in my testimony, “a digital record of a biometric can be stored indefinitely, copied an infinite number of times, and transmitted around the globe at the speed of light. This creates security and privacy concerns cutting against the use of machine-biometrics.” On the other hand, the CPA exam apparently has a problem with imposter fraud and faux test-takers who go simply to memorize questions and sell them on a test-prep black market.

Unfortunately, the bill is not callibrated to balance the competing interests at stake. It would create a “notice and consent” regime for biometrics collection, an idea that has failed to produce privacy protection in other areas. It would require massive and expensive re-tooling of data systems to provide consumers a right to amend or revoke their permission to use biometrics or order destruction of biometric data. And it would flatly outlaw marketing that uses biometric information—not just the stuff we learned to be spooked about in the film Minority Report, but knowingly agreed-to tailoring of discounts at the grocery store if we used a biometrically-secured payment system, for example.

I urged the Alaska legislators to ensure that biometrics collectors account for and prevent potential harm to Alaskans when they design and use their systems, but not to constrain biometrics so much that their security benefits never materialize.

There are a number of things Alaska and other states could do to help society callibrate the use of biometrics. They could ensure that biometrics collectors are liable and subject to jurisdiction in the state of collection when contract violations and harms arise from the use or misuse of biometric data.

Alaska could also establish that there is no “third-party doctrine” under its state constitution. A person sharing data under contractual or regulatory protections should maintain his or her search-and-seizure rights in that data. The government should not be able to access such data—though shared—without proper suspicion, warrants, and subpoenas.

Alaska has rejected the REAL ID Act, and it could do more to prevent the emergence of national identity systems by rejecting any E-Verify mandate. I encouraged the Alaskans to follow the lead of New Hampshire and bar state identity data from being shared with any national ID system.

The root of the problem in Alaska, though, may be the accountancy cartel. This is an area I know precious little about, but it appears that you must take the CPA exam to act as an accountant in the state. This positions the administrators of the CPA exam to make unreasonable, privacy-invasive demands for biometric data on a take-it-or-leave-it basis.

Oh what a tangled web we weave, when first we practise to … restrict the right to earn a living!

My testimony starts with a primer on biometrics. We have much to learn yet about biometric technologies, their uses, and their consequences. Banning them would deny the public many benefits. Using them promiscuously would have many costs.

EPA and the ‘Necessary Bankrupting’ of Coal

In its proposed rulemaking on emissions from coal-fired power plants, the Environmental Protection Agency has fulfilled President Obama’s campaign statement that his administration would “essentially bankrupt” anyone who had the audacity to hope to build a new generation facility. By essentially prohibiting the production of new plants, the administration is again picking winners and losers in our energy economy, something which is best done by the market.

Supporters of this policy will claim that it is cheaper to generate electricity from natural gas, and that is true for now.  But major producers using hydraulic fracturing and new horizontal drilling techniques in shale formations have recently stopped drilling new wells because the price is so low.

If it ultimately costs more to produce electricity from gas than it does from coal, the administration will have slapped yet another energy price hike on us—in addition to what we already pay to subsidize solar power, windmills, and Chevrolet Volts while taxpayers absorb the debt from the multiple bankruptcies of other politically correct energy concerns like Solyndra, Range Fuels, and a host of others.

In Defense of ‘Stand Your Ground’ Laws

Amid the ongoing furor over “Stand Your Ground” laws, adopted in Florida and about half the other states, the New York Times invited me to take part in a “Room for Debate” round-table on the subject. An excerpt from my contribution:

Under any criminal law, injustice can result if cops get the facts wrong. The Sanford, Fla., police, accused of buying a dubious self-defense tale after the Trayvon Martin shooting, will now come under searching scrutiny for that decision. Sanford’s mayor says his town is eager to stand corrected by the evidence as a fuller story emerges.

So who’s left to disagree? Not the authors of Florida’s Stand Your Ground law, who told The Miami Herald that the law they sponsored applies only to cases of genuine self defense and won’t protect neighborhood-watcher George Zimmerman if critics of the Martin shooting are right about what he did that night. …

I go on to point out ways in which a robust right of self-defense has historically proved to protect the interests of victims of domestic violence and racial minorities. (On the latter, see, for example, cases from Ossian Sweet’s in the 1920s to the present day; more here and here, and from my Cato colleague Jonathan Blanks here.)

What really set off the NYT commenters was my observation that “Despite doomful predictions from gun foes, concealed carry (now the dominant rule) and liberalized self-defense laws (adopted by half the states) haven’t touched off the great warned-of surge of gun violence.” Here are some particulars. Between 2004 (the year before the law’s enactment) and 2010 violent crime in Florida dropped sharply, and homicides per capita also dropped, though not sharply. News stories often mention that (quoting ABC): “Since the law was enacted seven years ago, justified homicides in Florida have jumped threefold, according to the Florida Department of Law Enforcement.” But a tripling in the assertion of this defense (from a low base) tells us little in itself since the whole idea of the law was to make the defense more available. In particular it does not signify that some sort of killing began to happen three times as often, even if some seem determined to interpret it that way.

I agree that the details of Florida’s or similar laws are not to be assumed optimal and can properly be revisited to make sure they work well. But I note with alarm the number of seemingly liberal-minded persons, at the Times and elsewhere, who seem perfectly comfortable with calls for gutting self-protection as a criminal defense at the behest of prosecutors who would find their jobs easier that way. Have they now decided that the goal of punishing more guilty persons is worth relaxing our vigilance about not mistakenly punishing the innocent among them?