Government Can’t Ban Businesses from Telling their Customers the Truth

In a unanimous decision yesterday, the U.S. Court of Appeals for the Eleventh Circuit vindicated Ocheesee Creamery’s free speech rights when it reversed a district court’s decision that prevented the creamery from telling its customers the truth about the products it sells.

Ocheesee Creamery is a small, all-natural dairy farm located in rural Florida that prides itself on selling organic products to its customers. This mission requires that they not add ingredients to the food they sell. One such product the creamery offered was “skim milk”—which is simply milk that has had the cream removed. For a number of years, Ocheesee sold its milk and accurately labeled it as pure pasteurized skim milk—nothing more, nothing less.

In 2012, however, the Florida Department of Agriculture and Consumer Services (FDACS) told the small business that it had to inject its all-natural milk with artificial vitamins or quit telling its customers that what they were offering was skim milk, and instead call it “imitation milk product.” FDACS regulations define skim milk as milk that is not just milk, but as milk injected with vitamins A and D. Now, you might ask yourself how injecting artificial ingredients into all-natural product transforms it into something that is considered “imitation”. Yet that’s precisely what the FDACS requires under its regulations.

This left Ocheesee with a Hobson’s choice: it could mislead its customers by labeling its milk as “imitation”; it could pump the milk full of artificial ingredients and thus violate its mission to sell all-natural products; or it could quit selling skim milk and lose substantial profits. Faced with this dilemma, the creamery offered to put a disclaimer on its labels that would tell customers that its milk doesn’t include added vitamins. But this wasn’t good enough, so, aided by the Institute for Justice, the creamery sued the Florida bureaucrats in federal court.

Ocheesee lost its opening battle when a district court granted the government’s Motion for Summary Judgment, but the Eleventh Circuit reversed the decision. The court found that the First Amendment protects the creamery’s labeling of its skim milk because the labeling did not relate to an illegal activity and it is not false or inherently misleading speech. The court pointed to Webster’s Dictionary, which defines “skim milk” as “milk from which the cream has been taken”—which is exactly what the creamery was offering its customers. The court elaborated that while “[i]t is undoubtedly true that a state can propose a definition for a given term … it does not follow that once a state has done so, any use of the term inconsistent with the state’s preferred definition is inherently misleading.” Because if the government were allowed to do so, “[a]ll a state would need to do in order to regulate speech would be to redefine the pertinent language in accordance with its regulatory goals… . Such reasoning is self-evidently circular.”

House GOP Leadership Gives ObamaCare-Forever Bill a Touch-Up Job

Responding to conservative protests that the American Health Care Act would immortalize ObamaCare rather than repeal it, the House Republican leadership has announced several amendments. (See my initial analysis of the bill here, and my analysis of the Congressional Budget Office score).

The amendments do not even come close to fixing the problems with this fatally flawed bill. Indeed, by expanding the AHCA’s tax-credit entitlement, it will make the bill resemble ObamaCare even more.

ObamaCare’s Medicaid Expansion                                 

Original AHCA provisions:

As introduced, the AHCA includes language that supposedly repeals ObamaCare’s expansion of Medicaid to able-bodied, childless adults. In fact, it would expand the Medicaid expansion and make it permanent.

The original bill would have allowed the 19 non-participating states to implement the expansion until 2020, allowed participating states to expand enrollment until 2020, and would have kept paying states the enhanced, 90 percent federal “match” for each expansion enrollee until that enrollee disenrolled. Expansion advocates in those 19 states hailed the bill for removing obstacles to those states implementing the expansion.

The bill thus would have repealed the Medicaid expansion in name only. By 2020, there would have been so many more Medicaid expansion states and enrollees, that Congress would rescind the repeal and keep the expansion in perpetuity.

Amendment:

The amendment would prevent the 19 states that have not implemented the expansion from doing so. This is a welcome change—but it is not nearly sufficient.

Even with this change, there would more Medicaid-expansion enrollees after “repeal” than before. The 31 expansion states could keep adding new enrollees to the expansion until 2020, and keep receiving the enhanced, 90 percent federal “match” for those enrollees after 2020. The AHCA would still reward state officials who did the wrong thing (expanding Medicaid) and punish state officials who did the right thing (refused to implement the expansion). The bill would still create increased pressure on Congress to rescind this “repeal” before 2020.

The amendment would allow states to impose work requirements for able-bodied Medicaid enrollees. Again, this is a welcome change, but not nearly sufficient.

Work requirements could reduce dependence on Medicaid, reduce Medicaid spending, and reduce pressure for Congress to preserve the expansion. Yet work requirements are only (politically) feasible for able-bodied adults. And the states where work requirements are most needed—the 31 states that have implemented the Medicaid expansion—are the least likely to impose a work requirement. Why would they? States that use work requirements to help Medicaid-expansion enrollees achieve financial independence would see only 10 percent of the savings. The other 90 percent goes to Washington. The amendment’s optional work requirements are a fig-leaf proposal that does little if anything to improve the AHCA.

Trading with Germany

I’ve mentioned before on this blog the strange idea apparently supported by some in the Trump administration that the U.S. government should conduct trade talks with individual EU member states, even though the EU itself has responsibility for trade policy and under EU law member states are not allowed to negotiate on these issues bilaterally.  The Trump administration view on this issue may be based on a number of factors, including a general skepticism about international institutions such as the EU.  But I suspect one reason is their misguided focus on bilateral U.S. trade deficits.  They see a big trade deficit with Germany, and they want to go after it.  

The issue came up last Friday when German Chancellor Angela Merkel met with President Trump.  Trump offered the following comment on trade with Germany:

On trade with Germany, I think we’re going to do fantastically well.  Right now, I would say that the negotiators for Germany have done a far better job than the negotiators for the United States.  But hopefully we can even it out.  We don’t want victory, we want fairness.  All I want is fairness.  

Germany has done very well in its trade deals with the United States, and I give them credit for it, but – and I can speak to many other countries.  I mean, you look at China, you look at virtually any country that we do business with.  It’s not exactly what you call good for our workers.  

When Trump says German negotiators have “done very well,” presumably he is referring to the existence of a U.S. trade deficit with Germany.  In his mind, a trade deficit means the U.S. negotiators did a bad job, and the Germans “won” the negotiation.  But as Merkel pointed out, “When we speak about trade agreements, … the European Union is negotiating those agreements for all of the member states of the European Union, … .”  So regardless of the U.S. trade balance with Germany, German negotiators did not play much of a role here.

Earlier this month (before the Merkel visit), White House Trade Council Director Peter Navarro (read more about him herespelled out the Trump view in a little more detail, during a Q & A session after a talk he gave:

Question: Let’s move to Germany now. Here’s a question about Germany. You mentioned the possibility of negotiating a trade deal with Germany. Is that a goal of the administration, and how would you do that, since Germany is a member of the EU and doesn’t have an independent trade policy?

Peter Navarro: Sure. This is the problem with Germany. It is able, basically, to use the argument that they’re in the eurozone, therefore they can’t have any kind of discussions with the United States about reducing their almost $70bn trade deficit. That may or may not be true. I think that it would be useful to have candid discussions with Germany about ways that we could possibly get that deficit reduced outside the boundaries and restrictions that they claim that they are under. But it’s a serious issue. Germany is one of the most difficult trade deficits that we’re going to have to deal with, but we’re thinking long and hard about that and I know that Angela Merkel is coming here soon, and perhaps there will be some discussions about how we can improve the German-U.S. economic relationship. And I’m sure they can teach us a thing or two about how to get more of the workforce in manufacturing.

Topics:

Minimum Wages and Bad Use of Terminology

A news story today leads with the headline “Minimum-wage hikes could deepen shortage of health aides” (h/t David Boaz). The key section (reported on ABC News):

It’s a national problem advocates say could get worse in New York because of a phased-in, $15-an-hour minimum wage that will be statewide by 2021, pushing notoriously poorly paid health aides into other jobs, in retail or fast food, that don’t involve hours of training and the pressure of keeping someone else alive.

Contained within this story is some bad economic reasoning and terminology but also an interesting, but rarely discussed, effect of minimum wages.

First, the mistake. Take the headline. The basic economics of the minimum wage tells us the raising the statutory price of labor above some equilibrium will lead to a reduction in the quantity of labor demanded. But it also says there will be an increase in the quantity of labor supplied. Far from causing a “shortage” of health aides then, raising the minimum wage leads to a surplus of labor. Raising the pay rate increases the return to working in the industry relative to being on welfare, and presuming budgets are unchanged (the article explains that most home care is paid by government programs), the quantity demanded falls at the same time. The gap that arises is precisely the “unemployment effect.”

It’s not clear then why raising a minimum wage would lead to fewer people seeking to be home care or health aides. Assuming demand is fixed, it would lead to fewer people being health care aides or health care aides being less available (shorter working hours etc). Yet that is not what the article claims—it suggests supply of available workers is falling, despite the pay-off to the job increasing.

What’s the point that the article is getting at then? It can be the case that raising a minimum wage changes wage rate differentials between industries. The article states that the average home care wage is about $11 per hour, whereas a quick Google search suggests many low-paid retail and fast food jobs may pay less than that in certain regions. If a hypothetical fast food job would pay $9 per hour in a free market and a home care job $11 per hour, then raising the statutory minimum to $15 can eliminate the differential. This makes fast food jobs more attractive on the margin, particularly given the home care training, and could mean the relative supply of workers increases in these industries compared to home care.

Puerto Rico’s Half-Hearted Stab at Fiscal Reform Threatens the Island’s Long-Term Prospects

Puerto Rico Governor Ricardo Rossello and Federal Oversight Board Chairman Jose Carrion III will be in Washington this week to testify before Congress on the progress the Commonwealth has made since President Obama signed The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) into law last summer. At the time, the press heralded the legislation as a bipartisan achievement and a legislative victory for House Speaker Paul Ryan, but that declaration of victory is beginning to appear a bit premature.

Eight months later, and six weeks before the bill’s stay on litigation expires, Governor Rossello and Chairman Carrion are expected to put forth a rosy picture of the situation on the status of PROMESA. However, it’s clear that the island’s government is headed in the wrong direction, precisely because the Commonwealth has failed to adhere to the tenets of the law.

The intent of PROMESA was to help Puerto Rico resume economic growth and achieve fiscal solvency after a decade of recession and budget deficits. Once that occurred the next goal was the eventual return to capital markets: since its default on general obligation bonds—which the island’s constitution explicitly guarantees—Puerto Rico has been shut off from capital markets.

PROMESA attempted to facilitate negotiations with the island’s many creditor groups. One way it did so was by imposing a stay on any litigation related to the island’s default on its secured bond payments. The stay expires on May 1st. It also created a court-supervised debt restructuring mechanism under Title III of the Act, which congressional leaders and the Oversight Board intended to be used only if negotiations with creditors prove fruitless.

DOJ Enters the Fray…Against the CFPB

There’s another installment in the ongoing saga of PHH v. CFPB, the legal case challenging the constitutionality of the newest federal agency, the Consumer Financial Protection Bureau. And this installment is a weird one. The Department of Justice has now joined in, filing a briefagainst the CFPB. Yes, the federal government is now effectively on opposing sides of this case.

If you haven’t been following the story, I have a few posts that can bring you up to speed. At this point, a panel of judges has ruled against the CFPB, and a majority of them found that the CFPB’s structure is unconstitutional. (I find it difficult to see how anyone could find otherwise.) Part of the problem with the agency’s structure, as the court found, is that it has a single head who is removable only for cause. The director is not accountable to any elected official. To cure this problem, the court decided that the director should be removable by the president at will. This would make the agency more like a traditional executive agency—like the Department of Justice, for example—and less like existing independent agencies. Although it is important to note that even most independent agencies, like the Securities and Exchange Commission, are headed by a multi-member board and the chair of that board serves as chair at the will of the president. 

Now the federal appeals court in D.C. is rehearing the case en banc. That means that all 11 of the active judges on the court will hear the case and issue an opinion together. On Friday, the DOJ filed a friend of the court brief in support of PHH.

While it is extremely rare (although not unheard of) for one part of the government to file a brief in opposition to another part, it is not entirely surprising in this case. In ruling against the CFPB in the earlier hearing, the court handed the president a new bit of power. One of the reasons that our government has three co-equal branches is to allow them to serve as checks on one another. As Judge Kavanaugh noted in his opinion for the panel in the original hearing, quoting Justice Scalia “The purpose of the separation and equilibrium of powers in general, and of the unitary Executive in particular, was not merely to assure effective government but to preserve individual freedom.” Arguably, the government filing on both sides of a case is a sign the system is working as planned. 

Immigration Myths - Crime and the Number of Illegal Immigrants

Last week Cato published a new immigration research and policy brief called “Criminal Immigrants: Their Numbers, Demographics, and Countries of Origin” that estimates the illegal immigrant incarceration rate—a subject long avoided in academic and policy research circles due to data limitations. 

Our headline finding is that both illegal immigrants and legal immigrants have incarceration rates far below those of native-born Americans—at 0.85 percent, 0.47 percent, and 1.53 percent, respectively. Excluding illegal immigrants who are incarcerated or in detention for immigration offenses lowers their incarceration rate to 0.5 percent of their population—within a smidge of legal immigrants. As a result, native-born Americans are overrepresented in the incarcerated population while illegal and legal immigrants are underrepresented, relative to their respective shares of the population. 

The relatively low number of incarcerated illegal immigrants places some immigration restrictionists in an uncomfortable position: choosing which myth to believe. The first myth is that illegal immigrants are especially crime-prone. The second myth is that there are actually two to three times as many illegal immigrants as is commonly reported. The usual number used by the government and most demographers is that there are 11 to 12 million illegal immigrants in the United States but a steady drumbeat of skeptics claim the real number is about 22 to 36 million. 

No matter how you dice the numbers, a larger illegal immigrant population in the United States means that their incarceration rate is even lower that what we report. Without adjusting for age, a total illegal immigrant population of 22 million would lower their incarceration rate to 0.56 percent using Cato’s estimate of the size of the incarcerated illegal immigrant population. Using the higher (and sillier) 36 million illegal immigrant population estimate by Ann Coulter lowers their incarceration rate to 0.34 percent. 

For the sake of argument, let me assume you do not like Cato’s numerical estimate of incarcerated illegal immigrants and you would prefer to use another estimate. The America American Survey form S2601B (2014 1-year sample) reports that there were 157,201 non-citizens in adult correctional facilities in 2014. That is the absolute maximum possible number of illegal immigrants incarcerated in that year. Using the ACS estimate lowers the illegal immigrant incarceration rate to 0.71 percent if the population is an estimated 22 million and to 0.44 percent if their total population is 36 million. 

Immigration restrictionists cannot have it both ways. They cannot assume that illegal immigrants are super-criminals and that their population in the United States is several times higher than it really is. No matter how you dice the numbers, their incarceration rate falls as their estimated population increases. For consistency’s sake, it’s time for immigration restrictionists to choose which myth they want to believe.