Topic: Regulatory Studies

Chris Christie Bets on Federalism

While he may be in the news for being on the outs from the Trump transition, as well as for legal troubles regarding Bridgegate, New Jersey Governor Chris Christie is also leading a challenge to federal law that could have a quite beneficial effect in rebalancing federal-state relations.

First, some background. Why do we even have states? While a fairly common question now in light of the federal Leviathan, it likely would have seemed quite foreign to the Constitution’s authors. The Framers saw federalism’s decentralization of government authority as a central bulwark of ordered liberty, preventing any one entity or bloc from gaining too much power over the nation while encouraging innovative competition among the several “laboratories of democracy.”

Unfortunately, federalism’s safeguards against centralized authority have slowly eroded, particularly since the New Deal Supreme Court’s expansive reinterpretation of the Commerce Clause paved the way for aggressive federal expansion under Presidents Roosevelt, Johnson, and beyond. One firewall that has survived, however, is the anti-commandeering doctrine: the idea that the federal government may not compel states or state officials to implement federal policies. In other words, states cannot be made into mere “puppets of a ventriloquist Congress.” Printz v. United States (1997).

It is this anti-commandeering doctrine that is under threat in Christie v. NCAA. The Professional and Amateur Sports Protection Act (PASPA) is a federal statute that does not allow states to “authorize” sports gambling “by law.” So when New Jersey wanted to repeal some of its old gambling laws, it was stopped from doing so by PASPA, prompting Gov. Christie to sue on the grounds that the law infringes on New Jersey’s sovereignty and further undermines the United States’ federalist structure.

The U.S. Court of Appeals for the Third Circuit interpreted this prohibition to bar states not just from affirmatively licensing sports gambling, but also from repealing or modifying preexisting state prohibitions. It held that PASPA did not violate the anti-commandeering doctrine because New Jersey wasn’t being compelled to pass new legislation, just forbidden from repealing existing laws. In doing so, it accepted an argument based almost entirely on semantics. Regardless of whether the federal government compels or forbids particular action, the result—a state’s being forced to regulate behavior that its duly elected representatives prefer to leave unregulated—is the same.

If allowed to stand, this absurd loophole may have wide-ranging implications across many policy areas and poses a serious threat to what remains of state sovereignty. Cato has joined the Pacific Legal Foundation and the Competitive Enterprise Institute on a brief supporting New Jersey’s petition for Supreme Court review.

We urge the court to take up the case so that it can clarify the proper scope of the anti-commandeering doctrine and ensure that the sovereignty of the individual states—so critical to the republic’s constitutional system of checks and balances—is not further eroded by an overreaching national government.

You Ought to Have a Look: Advice for Trump’s Transition Team

You Ought to Have a Look is a regular feature from the Center for the Study of Science.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

In this You Ought to Have a Look, we hope that some of the “You” are members of, or influencers of, President-elect Trump’s transition teams.

With so much talk about the Trump’s plans on killing the Clean Power Plan, withdrawing from the Paris Climate Agreement, reversing the Keystone XL pipeline rejection, removing energy subsidies and reigning in the EPA (all good ideas in our opinion), we want to make sure the transition team doesn’t overlook other, invasive, burdensome, costly, and climatologically-meaningless regulations that were put in place in President Obama’s Climate Action Plan.

Here’s a rundown of some of the more significant of them.

Energy Efficiency Regulations from the Department of Energy. 

The DoE and put forth a seemingly endless string of regulations governing the energy efficiency of all manner of power-consuming appliances large and small, from industrial boilers and refrigeration systems, to microwave ovens, and ceiling fans (and most things in between). The reason?

We have repeatedly submitted public comments as to why the climate change angle should be a non-starter (our latest in this long line is here). But besides that, the DoE standards result in appliances that work less well, cost more, and reduce consumer choice. Our big brother government thinks it’s doing us all a favor because we aren’t savvy enough to value long-term cost saving from energy consumption over other values. Not everyone agrees. Sofie Miller, senior policy analyst at the George Washington University Regulatory Studies Center, recently wrote:

This line of reasoning overlooks the possibility that consumers may have legitimate preferences for less-efficient appliances based on household characteristics or other observable product qualities (such as size, durability, reliability, or noise level). Also, the assumptions underpinning the DOE’s analyses may not be accurate; for instance, some consumers may have high discount rates, making future energy savings less important than immediate purchase savings. By regulating away the option for consumers to purchase less efficient appliances, the DOE claims to be improving consumers’ choice structure by removing choices. These rules aren’t technology-forcing, they’re consumer-forcing.

…the fact that consumers choose not to purchase efficient appliances indicates only that they do not value these attributes as much as the DOE does. As a result, these rules impose huge net costs on consumers, rather than benefits.

Yet the DoE has a lot more of these efficiency standard regulations in the offing (the public comment period is currently open for two more proposed regulations—governing walk-in refrigerators and residential furnaces).

These Scope of Practice Laws Don’t Improve Health Outcomes, Serve Mainly as Barriers to Entry

Scope of practice (SOP) restrictions in health care professions are often portrayed as a necessary intervention to protect consumer health and safety. Given how common this argument is, there have been surprisingly few studies trying to determine whether SOP restrictions actually have any impact on such outcomes. A new working paper seeks to fill this gap in the literature by determining whether SOP laws for certified nurse midwives (CNMs) affect health outcomes. On average, it turns out that the restrictions do not have a significant impact on maternal behaviors or infant health outcomes. Instead, they “primarily serve as barriers to practice and removing these restrictions has the potential to improve the efficiency of the health care system for delivery and infant care.”

SOP laws are determined at the state level, and regulate which activities and tasks certain professions can perform within the state. Physicians are generally unaffected, but other health practitioners are—in this case, CNMs specifically. Their level of restriction ranges from states with “no barriers,” where CNMs do not have oversight requirements, to states with “high barriers,” where they have to be under the direct supervision of a physician and may not write prescriptions. In heartening news, more states seem to be recognizing the wasteful nature of these laws. The recent trend for this specific case has been a move towards a more relaxed scope of practice environment.  

Scope of Practice for Certified Nurse Midwives by State, 1994 vs. 2013

Source: Markowitz et al.

Why Don’t We Allow Markets to Dictate Parking Policy?

There are two types of markets for parking in Washington DC: the private market, which tends to charge what the market will bear, and the government, which charges a price that’s deemed to be “fair” and “non-exploitative” to the constituents in residential areas. How’s that working out for everyone?

Not very well, it turns out. The “fair” price on residential streets is just $25 a year, which is less than one percent of the private market rate. As a result there’s a large excess demand for parking on city streets, which has created a few predictable and undesirable consequences: For starters, people spend a lot of time driving around looking for “free” on-street parking, which congests streets, increases pollution, and makes streets less safe for pedestrians, as automobiles do quick U-turns and other risky maneuvers to claim a spot that suddenly opens.

The pro-free-on-street parking people will acknowledge these costs to some degree but would dismiss them in the name of “fairness” by trotting out the canard that some poor people drive to work and therefore this reduces inequality. The problem is that most people with cars parked on city streets are wealthy and most of the attendant consequences of the lousy deal are all borne by the less-well-off, most of whom do not own cars.

Making residential on-street parking nearly free means that those who avail themselves of it fight fiercely to limit competition for those spots. As a result, every proposed housing development in these neighborhoods are bitterly fought in the name of (pick one) historical preservation, neighborhood harmony, architectural purity, or some other vague sentiment that belie the true motive. In the last few years residents of Northwest DC have sought to declare an empty lot and a parking lot as “historic” and prevent any development on them, for no reason other than some fraction of those in the new apartment buildings to be constructed may also want to park on the street.

New developments in the city take years to get approved and are invariably shorter than the existing buildings they abut. The result of all this is that housing becomes more expensive, and middle-income residents find themselves struggling to remain in the neighborhood.

Seattle Millennials Should Move to Houston

The Seattle Post-Intelligencer says it has found the best Seattle homes for Millennials. Judging by the former paper’s suggestions, Seattle Millennials should move to Houston. Houston may not have Mt. Rainier, but it has beautiful lakes, a sea coast that is just about as nice as Washington’s (though not as nice as Oregon’s), and most important, it doesn’t have urban-growth boundaries which means it has much more affordable housing.


Click any photo to go to the listing for that property.

The P-I’s first suggestion is a 720-square foot, two-bedroom, one-bath home on a 5,000-square-foot lot. On the plus side, the living room has hardwood floors. On the minus side, the asking price is $259,950–and if Seattle’s housing market is anything like Portland’s, it will go for more than that. At the asking price, the cost is $361 per square foot.

As an alternative, allow me to suggest this 720-square-foot home in Houston’s University Area, not too far from downtown. It has new paint and an updated kitchen and, like the Seattle home, it is on a 5,000-square-foot lot. Unlike the Seattle home, the cost is just $86,500, just under a third of the Seattle house. That’s just $120 per square foot–and the sellers will probably accept a little less.

Land Use and Economic Mobility: You Could Have Read It Here First

Wednesday’s Wall Street Journal contains a great page 3 article on how stricter land use regulations are slowing the growth of housing in areas that need it most. Laura Kusisto reports on a developer’s fight to build middle-class housing in downtown San Francisco, but she notes that similar problems can be seen in wealthy communities from New York and Connecticut to San Diego and Portland, Ore. She also cites academic research on the topic:

According to research by Daniel Shoag, an associate professor of public policy at Harvard University, and Peter Ganong, a postdoctoral fellow at the National Bureau of Economic Research, a decadeslong trend in which the income gap between the poorest and richest states steadily closed has been upended by growth in land-use regulations.

Moving to a wealthier area in search of job opportunities has historically been a way to promote economic equality, allowing workers to pursue higher-paying jobs elsewhere. But those wage gains lose their appeal if they are eaten up by higher housing costs. The result: More people stay put and lose out on potential higher incomes.

For on-the-ground reporting, you need newspapers. But you could have read about that paper twice in Cato Institute publications. Regulation magazine editor Peter Van Doren wrote about it in Winter 2013-2014 in his “Working Papers” column on new research (page 78). 

And just two months ago a summary version of the paper appeared in the Research Briefs in Economic Policy series edited by Jeff Miron, director of economic studies. 

I hope state and local policymakers will take note of the findings in this paper.

Stay tuned to the Cato Institute for more ahead-of-the-curve ideas.

Courts Should Stop Approving Unfair Class Action Settlements

Class actions play a vital role in our legal system. These lawsuits are often the only vehicle for injured plaintiffs to receive compensation when a defendant’s wrongs are widely dispersed and it would be impractical for a single individual to sue.

Yet the process of settling these suits is subject to perverse incentives on the part of the lawyers representing the injured parties. Class counsel often will seek the largest portion of the settlement award for themselves—structuring the settlement to maximize attorney fees—at the expense of class members.

Sadly, this sort of self-dealing on the part of class counsel is exactly what happened in Blackman v. Gascho. The case centers on a consumer class action filed against Global Fitness Holdings LLC, alleging that the between 2006 and 2012, the company sold gym memberships and incorrectly charged fees pertaining to cancellation, facility maintenance, and personal-training contracts. A group of plaintiffs sued Global Fitness over the fees, and the parties entered into a “claims-made” settlement.

This type of settlement allows the defendant to make a large amount of money “available” to class members, but in order for the members to collect, they must jump through the hoops of correctly filing claims. Because of the low response rate in such settlements, the defendants will end up paying much less than the funds made available. Indeed, of the $8.5 million made available to the class members, Global Fitness paid only $1.6 million—a payout of approximately 10 percent of the settlement funds. Despite this low payout to plaintiffs, class counsel are still paid a certain rate based on the funds that were made available—not the funds that were actually paid out—in some instances giving them attorney fees larger than the class members’ damages award!

The class counsel here were paid $2.4 million, nearly $1 million more than the class members collected. Josh Blackman, also a Cato adjunct scholar, just happened to be one of the class members. He challenged the settlement, arguing that the agreement was giving the class attorneys preferential treatment over the class members who did not collect. The district court approved the settlement, however, and the U.S. Court of Appeals for the Sixth Circuit agreed with the district court by a 2-1 vote.

Cato has now filed an amicus brief urging the Supreme Court to review the case. Federal Rule of Civil Procedure 23(e)(2)—and fundamental tenets of due process—require that a settlement that binds class members be “fair, reasonable, and adequate.” In this case, the Sixth Circuit upheld approval of a settlement that provided zero compensation for over 90 percent of class members, and in the process broke with the Third, Seventh, and Ninth Circuits. 

The Supreme Court will likely decide by the end of the year whether to take up Blackman v. Gascho.