Latest Cato Research on International Regulation en Why the Government Should Not Regulate Content Moderation of Social Media Matthew Feeney, John Samples, Jeff Vanderslice <p>Until recently, private social media companies have been free to moderate content on their own platforms. But accusations of political bias have caused some to call for government regulation of the efforts social media companies make to moderate content. Some have even suggested that social media entities ought to be nationalized to ensure they operate in the public interest. Is there a role here for government to play, or would government intervention create unintended consequences while simultaneously stifling free speech? These are just some of the questions addressed in John Samples’s recently published policy analysis, “Why the Government Should Not Regulate Content Moderation by Social Media.”</p> <p>Join us on Monday, April 15, to hear from author John Samples and the director of Cato’s project on emerging technologies, Matthew Feeney.</p> Mon, 15 Apr 2019 15:31:00 -0400 Matthew Feeney, John Samples, Jeff Vanderslice Take the 'Trump News' Google Challenge. Whatever the Results, Presidents Can't Change Them. John Samples <div class="lead text-default"> <p>President Donald Trump has long had a fraught relationship with the news media, particularly the White House press corps. Now he has decided to <a href="" target="_blank" data-track-label="inline|intext|n/a">extend his attacks</a> on the media to internet intermediaries, especially the Google search engine.</p> </div> , <div class="text-default"> <p><a href="" target="_blank" data-track-label="inline|intext|n/a">He tweeted</a> — and later deleted — that Google has rigged the search for "Trump News" to report only bad news about his administration. He also said they are suppressing the voices of conservatives. Trump concluded this is a "very serious situation" which "will be addressed."</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Even if Google biased their search algorithm, the company has no obligation, legal or otherwise, to provide search results favoring or disfavoring the president.</p> </div> </div> </aside> , <div class="text-default"> <p>Is the president correct about Google? I searched for "Trump News" on three search engines: Google, Bing and DuckDuckGo. It's true that links to the mainstream media filled out the results I got back. But my results also included Fox News and, most importantly, the president's tweets attacking Google and other favorable mentions. So a searcher for news about Trump got more than one point of view. And don't trust the president or me: do the search yourself and see what you find.</p> <p>The similarity of results weakens the bias charge against Google. If Google actually were out to get Trump, wouldn't they submerge his original tweets and other positive links? Are all three search engines conspiring against the president? Or more likely, are all three reflecting some underlying fact about the internet, namely that the established media tend to be skeptical about the administration?</p> <p>That may reflect media bias, but so what? The Constitution guarantees freedom of the press, not fairness by the press. Our basic law protects freedom from government action, not least by the president. Some courts have ruled that Google's search results are also protected by the First Amendment. Even if Google biased their search algorithm, the company has no obligation, legal or otherwise, to provide search results favoring or disfavoring the president.</p> <p>But manipulating searches to harm Trump would threaten Google's core obligation to its shareholders to maximize the value of its stock. Google is very profitable in part because of the accuracy of its results. There is also potential competition. If Google did bias its results, a large number of the 60 million people who voted for Trump could try Bing or DuckDuckGo, both of which one suspects would welcome the new users. Google's managers have profound business reasons to avoid political crusades.</p> <p>Not for the first time, Trump's actions should trouble real conservatives. He seems to be fostering a conspiracy theory about Google — "they are controlling what we can &amp; cannot see" — to divert attention from his political difficulties over the past week. But a place where the leader fosters conspiracy theories for political gain is called a banana republic, not a constitutional government.</p> <p>But we are not a banana republic. We still have a government where the president and other elected officials are limited in their powers to control "the freedom of speech and of the press." Trump's barely concealed threat to "address" Google's alleged errors does more damage to American liberty than anything the company might have done. We can hope this was an empty threat. But we can also hope that one day we have a president who recognizes that freedom of speech and the press is a big part of what has made America great.</p> </div> Tue, 28 Aug 2018 09:43:00 -0400 John Samples Financing Broadband Access Should Not Entail Taxing Broadband Access Ike Brannon <div class="lead text-default"> <p>There are few policy goals that the Democrats and Donald Trump share: A desire for universal broadband happens to be one of them.</p> </div> , <div class="text-default"> <p>Extending access to a high speed internet connection to every household in America has long been a part of the Democratic platform. In 2010 merely suggesting that there might be a few homes somewhere in America that are simply too costly to reach resulted in a presumptive FCC commissioner losing his appointment.</p> <p>Last year the Trump Administration established an office of american innovation tasked with a variety of things, including a push to bring broadband for all. Current FCC chairman Ajit Pai is on board, and he has suggested that if the president and congress were to pass a massive infrastructure investment plan that it should include money to pursue universal broadband. A Democratic House of Representatives in 2019 would not change that priority one bit.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>There are few policy goals that the Democrats and Donald Trump share: A desire for universal broadband happens to be one of them.</p> </div> </div> </aside> , <div class="text-default"> <p>In short, there is a very real chance that the federal government will soon increase spending to expand high speed internet access to more Americans.</p> <p>Given this rare convergence of opinions in DC, who would be pushing back on such efforts? The City of Eugene Oregon, for one.</p> <p>Last year the city succeeded in its decade-long attempt to impose a monthly tax on broadband service for all Comcast customers in the city. That tax is on top of the various other fees, taxes and service charges that that the federal and state governments impose on people who purchase broadband, telephone service and cable television from one provider.</p> <p>These fees are not puny: for instance, on our bill in Washington DC these total to nearly $30 a month. Twenty years ago $30 was my entire cable bill. While a tax this size may amount to a mere inconvenience for our family, it is anything but for a working class family.</p> <p>The typical retort to high taxes on cable access may be that they can simply avoid them by purchasing internet access all by itself, but the truth is that they usually don’t. And adding a new tax to get money from those who do choose internet-only option, as Eugene has done, means that even this option is less attractive. A federal push to expand access to high-speed internet is incongruous with and state and local governments increasing their taxes on that service.</p> <p>The holy grail for economists is a tax that does not change the demand for a good at all, and thus has no distortive effects on the economy whatsoever. At one point it could be argued that cable service was a candidate, but as the price for cable television has risen over the decades—abetted by access to content increasingly available on the internet —people have increasingly “cut their cord” of late and there is no indication of this trend receding anytime soon.</p> <p>It’s pretty obvious that the demand for internet access is not imperviousness to cost, at least not for everyone. While the urban middle class cordcutters will keep their internet and watch TV on their computer, it’s not clear that low-income people will do that. These people have affordable, albeit inferior, substitutes for high speed internet access—accessing the internet on their cell phone, for instance, or via a bare bones internet connection that is not high speed, or simply visit the local library. None is particularly desirable if we think that access to the internet helps this cohort look for employment, access government programs, or conduct commerce.</p> <p>Our federal government does not think this is desirable and is prepared to make a sizeable expenditure to increase access to high-speed broadband. To turn around and have another government entity tax the service it is subsidizing—and to use the money not to fund internet access in its community but treat it as general revenue, as Eugene does—defeats a rare bipartisan goal.</p> <p>Expanding the reach of high-speed broadband to those currently underserved will cost billions of dollars—more money than the universal service charge generates. There are no free lunches in government, despite the fact that we desperately pretend to the contrary.</p> <p>A responsible, rational government would discuss ways to pay for expanding internet access at the same time it strategized about how to achieve such a thing, of course. If we did have such a government it is a safe bet that it would not impose a new tax on the very people we are trying to encourage to acquire high speed internet access.</p> </div> Thu, 31 May 2018 08:56:00 -0400 Ike Brannon Comments to the Federal Election Commission: In the Matter of Internet Communications Disclaimers and the Definition of “Public Communication” Ilya Shapiro, Reilly Stephens <div class="lead text-default"> <p><strong>Extensive Online Disclaimer Requirements Raise Serious First Amendment Concerns</strong></p> </div> , <div class="text-default"> <p>The proliferation of online media has democratized the marketplace of ideas as quickly as an electron speeds down a wire. Unfortunately, our regulatory state still moves at an analog pace. The Commission should thus tread lightly in imposing strictures that will hamper innovation and clutter our screens with information that does little to actually inform the few who would even take the time to read it. The right of citizens to communicate the message of their choice is at the core of the freedom of speech. Any burden placed on it must intrude as little as possible.</p> <p>The proposed Alternative A, in particular, has a face made for radio. It would impose "stand by your ad" requirements on all audio and video content and slap full-length disclaimers on everything else, with only limited accommodation for the plethora of formats that proliferate online. A full-page newspaper ad has room to inform the public in detail; the same cannot be said for a promoted tweet. Filling banner ads with boilerplate infringes the rights of citizens—both those who wish to speak, and those who wish to listen. Requiring that online media comport with rules designed for a world of newsprint and vacuum tubes makes about as much sense as requiring smartphones to use a rotary dialing mechanism.</p> <p>The Supreme Court has long recognized the "vital relationship between freedom to associate and privacy in one's associations."<sup>2</sup> This does not mean that the requirement to include an informative disclaimer is never defensible.<sup>3</sup> Such requirements must be tailored, however, to the narrow interest at issue, because "compelled disclosure of affiliation with groups engaged in advocacy may constitute as effective a restraint on freedom of association" as a direct curtailment of the right to speak itself.<sup>4</sup></p> <p>Disclaimer requirements must be no more burdensome than necessary, and even where a necessity exists they may not infringe on the core speech itself. As Justice William Brennan explained, "compelling the publication of detailed . . . information that would fill far more space than the advertisement itself would chill the publication of protected . . . speech and would be entirely out of proportion to the State's legitimate interest in preventing potential deception."<sup>5</sup> While it can be useful for citizens to know the provenance of the messages they receive, "[t]he inherent worth of the speech in terms of its capacity for informing the public does not depend upon the identity of its source."<sup>6</sup> To this end, the Court has held that bans on anonymous pamphleteering violate the First Amendment.<sup>7</sup> If the citizens of Ohio can fairly consider a pamphlet without knowing its author, the rest of the country could do without ads cluttered with federally prescribed verbiage.</p> <p>These concerns are particularly acute when dealing with new formats that cannot accommodate old standards. Even "a newspaper [cannot] proceed to infinite expansion of its column space to accommodate the [disclaimers] that a government agency determines or a statute commands the readers should have available."<sup>8</sup> If there are constitutionally recognized limits on what a newspaper can accommodate, Twitter and Pinterest face a fortiori constraints.</p> <p>If all internet ads are to comport with the full battery of disclaimer requirements, the inevitable result would be that some forms of advertising would be entirely off limits to political communication. The Commission should not get into the business of making such judgments. The Supreme Court admonishes us that "any effort by the Judiciary to decide which means of communications are to be preferred for the particular type of message and speaker would raise questions as to the courts' own lawful authority."<sup>9</sup>Administrative agencies are no less beholden to the First Amendment.</p> <p>As it happens, the question of how far the government may burden speech with disclaimers is now pending before the Court. NIFLA v. Becerra<sup>10</sup> concerns a California law that requires pro-life pregnancy centers to place a 29-word disclaimer on all advertising, in as many as 13 different languages. While there is some dispute as to how much speech is really covered, justices of every persuasion suggested at oral argument that a disclaimer requirement that ended up dominating the ad would fail constitutional muster. Justice Anthony Kennedy expressly declared such a requirement would be "and undue burden . . . that should suffice to invalidate the statute."<sup>11</sup> Justice Ruth Bader Ginsburg likewise objected to the multilingual requirement as "very burdensome."<sup>12</sup> Justice Sonia Sotomayor suggested that unless the provision was limited it would be "more burdensome and wrong."<sup>13</sup> Accordingly, the Commission should remain cognizant of the First Amendment issues attending overbearing disclaimers.</p> <p>To the extent the Commission feels that guidance should be given, we would encourage it to consider the least restrictive means available, consistent with the right of free expression protected by our founding document. We have confidence that the American people can fairly assess the arguments presented in the marketplace of ideas; believe that drowning them in warnings and provisos will do more to the clutter up that marketplace than it will illuminate.</p> <p>We would also welcome the opportunity to present these and further thoughts, including on specific regulatory proposals, at the Commission's hearing on this matter.</p> <p><strong>Notes:</strong><br /><sup>1</sup> Shapiro is a senior fellow and Stephens a legal associate in the Cato Institute's Robert A. Levy Center for Constitutional Studies; Shapiro is also editor-in-chief of the <em>Cato Supreme Court Review</em>.<br /><sup>2</sup><em>NAACP v. Alabama ex rel. Patterson</em>, 357 U.S. 449, 462 (1958).<br /><sup>3</sup><em>See Citizens United v. FEC,</em> 558 U.S. 310, 366 (2010).<br /><sup>4</sup><em>NAACP</em>, 357 U.S. at 462.<br /><sup>5</sup><em>Zauderer v. Office of Disciplinary Counsel of Supreme Court</em>, 471 U.S. 626, 663–64 (Brennan, J., concurring in part, concurring in the judgment in part, and dissenting in part). <br /><sup>6</sup><em>First Nat'l Bank v. Bellotti</em>, 435 U.S. 765, 777 (1978).<br /><sup>7</sup><em>McIntyre v. Ohio Elections Comm'n</em>, 514 U.S. 334 (1995).<br /><sup>8</sup><em>Miami Herald Pub. Co., Div. of Knight Newspapers, Inc. v. Tornillo</em>, 418 U.S. 241, 256–57 (1974).<br /><sup>9</sup><em>Citizens United</em>, 558 U.S. at 326 (2010).<br /><sup>10</sup><em>Nat'l Assoc. of Family &amp; Life Advocates v. Becerra</em>, 16-1140.<br /><sup>11</sup><em>See NIFLA</em>, Transcript of Oral Argument at 23.<br /><sup>12</sup><em>Id</em>. at 57.<br /><sup>13</sup><em>Id</em>. at 62. </p> </div> Thu, 24 May 2018 08:24:00 -0400 Ilya Shapiro, Reilly Stephens FCPA: An Act of Punitive Moralism Walter Olson <div class="lead text-default"> <p>Scenario: an American city hires an Asian-based bank to float a bond deal. Scandal! Turns out the bank wined and dined the mayor and council and treated them to sports events. After an investigation, the Asian bank agrees to put things right by paying millions of dollars to the government of France.</p> </div> , <div class="text-default"> <p>That’s crazy, right? What does any of this have to do with the government of France? But it’s certainly no crazier than the workings of our own Foreign Corrupt Practices Act, under which European companies have been made to pay penalties of $398 million and $240 million to the U.S. government over bribes paid to officials in Nigeria and Iran, respectively.</p> <p>Enacted in 1977, the Foreign Corrupt Practices Act is a feel-good exercise in overcriminalization that tempts revenue-hungry American regulators to insult coequally sovereign governments by meddling in overseas wrongdoing they would have been willing to check into and punish themselves, and in which Americans had been neither wrongdoers nor victims. It has not managed to reform the culture of corruption that prevails in many foreign nations, and it leaves ways for sophisticated actors to circumvent its rules, such as hiring ask-no-questions local freelancers. Much of the American business community would like Congress to rein in some of its worst flaws. But isn’t it time to reconsider the act more fundamentally? </p> <p>FCPA oversteps the proper bounds of federal lawmaking in at least four ways: it is extraterritorial, vicarious, punitive, and vague. It presumes to punish distant misdeeds, which deprive no Americans of liberty or property. It inflicts penalties on unwitting higher-ups and investor bystanders based on the actions of rogue locals. It menaces targets with long prison terms and huge fines, whether or not conduct is large in scale or of acknowledged wrongness. And it leaves unclear such basic questions as who counts as a foreign “official” (a doctor with a public hospital?) and what is an improper gift (hiring influential officials’ children? That practice is known to go on in Washington, D.C., itself).</p> <p>All of this was bad enough before the FCPA enforcement drive of the past decade. But then it dawned on the feds that ever-tougher enforcement (1) was a lucrative business and (2) could be turned disproportionately against foreign actors with few friends in U.S. politics.</p> <p>Then followed efforts to stretch the law. To find a nexus for U.S. jurisdiction, enforcers could look not only at, say, a foreign company’s listing of ADRs on a U.S. exchange, but even to the routing of conspiratorial messages between persons abroad through e-mail servers in the United States, as happens all the time on the Internet. Conduct that had taken place 15 or 18 years earlier was sifted through. The U.S. Department of Justice took an aggressive stance in interpreting unclear language in the law—and there is a lot of it.</p> <p>The courts pushed back, with federal judges throwing out a series of high-profile cases. Targets pushed back too: A probe of drugmaker Eli Lilly and Company was dropped with no charges after pending for a mere 11 years. A much-ballyhooed probe of WalMart Mexico mostly fizzled, but not until it had destroyed $12 billion in stock market value in one day.</p> <p>Now the U.S. Chamber of Commerce and other business groups want Congress to clarify the law’s provisions and also formalize a compliance defense that at the moment consists of non-binding Justice Department guidance. Fine. But why not go further to consider deeper reform or even repeal?</p> <p>Chicago-Kent law professor Andy Spalding argues that in practice, for all its fine intentions, the law hobbles developments like road projects that would lift rural populations out of poverty. By its nature, the law confers competitive advantage on companies that stay beyond the reach of the U.S. Department of Justice. While it is true that other advanced democracies have enacted anti-corruption laws, principles of mutualism and comity might go further to smooth feelings and coordinate the actions of national competitors than the current unilateral, America-makes-the-rules, one-size-fits-all approach. Making us feel better isn’t a good enough reason for a law.</p> </div> Tue, 08 May 2018 16:54:00 -0400 Walter Olson Promoting Freedom by Breaking down Information Barriers Doug Bandow, Matt Daniels <div class="lead text-default"> <p>Where injustice thrives in the world protests naturally follow. The latest explosion was in Iran. Although the grievances were diverse, the frustrations were great. Many risked their freedom and lives to take a stand.</p> </div> , <div class="text-default"> <p>But technology, too, is proving to be a hero. Twitter, YouTube and Telegram all empower the disenfranchised to make their voices known around the world. Everything from high-level diplomacy between heads of state to street protests by student activists now happens on the Internet, for all the world to see and even participate in.</p> <p>President Donald Trump, of course, tweeted in support of the protests. Iran’s Minister of Information and Communications Technology, Mohammad-Javad Azari Jahromi, tweeted his disapproval, and requested that Telegram’s founder, Pavel Durov, stop encouraging violence. Durov shut down the one (and only) channel that was urging violence, but refused to close those which were advocating peaceful protest.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>What greater counter to human rights abuses and corruption than human connection?</p> </div> </div> </aside> , <div class="text-default"> <p>The Iranian government then blocked public access to Telegram and Instagram. In doing so, however, Tehran raised Telegram’s global profile. The platform allows for groups of up to 50,000 people and includes features such as self-destructing messages that facilitate free expression in repressive countries. An incredible 40 million people in Iran, roughly half the country’s population, use Telegram.</p> <p>That number reflects the relative youth of Iran’s population. Many Iranian protestors are college-aged and grew up in the Digital Age. The Internet is their natural habitat. That also prepares them to resist government attempts to block information access, turning to VPNs, for instance. They then can continue to communicate, share information and coordinate efforts. Last year a Chinese crackdown on bitcoin and WeChat pushed users to Telegram and other encrypted online services.</p> <p>Iran is not the only authoritarian state struggling with digital age protestors. Even North Korea, where most people have no access to the Internet, is no longer able to insulate its citizens from the global information network. The preferred medium has gone from CDs to USB flash drives to SD cards. In fact, the latter are known as “nose cards,” which describes where they can be hidden during body searches. Often these tools of freedom are simply filled with Western and South Korean films, TV shows, music, and Internet-free access to Wikipedia, and other elements of modern culture.</p> <p>While the political power of Hollywood films and other forms of entertainment might baffle some in the West, they have the power to transform. The Soviet Union would show gangster movies to demonstrate that American society was corrupt and violent. Viewers apparently would fixate on the overflowing supermarkets.</p> <p>North Korean defectors speak of their shock at seeing pictures of cities filled with cars. But the message communicated sometimes is much deeper. Yeonmi Park explained that when she saw the movie Titanic for the first time, she “was very confused. I never heard my father telling my mother that he loved her. And my mother never told me she loved me, either. To me, love was only expressed [for] the Dear Leader. So, it was a very odd concept to me – how can a man die for a woman?” Inducing such cognitive dissonance is highly subversive for any authoritarian regime, causing even a once true believer to question the party line.</p> <p>The Internet also has turned national protests into international events. In 2003 a half million residents of Hong Kong protested against a proposal for repressive national security legislation. Since then demonstrations have become commonplace. Author Emily Parker observed: “There are many differences between 2003 and now, especially in terms of duration, but perhaps the biggest distinction is that the 2003 protests felt mostly like a Hong Kong story, separate from the rest of the world. There was some media coverage, but Beijing did not have to worry nearly as much about protest images spreading to the mainland. In 2003, the Hong Kong protesters were relatively isolated. Today, they enjoy a global network of online support. In the social-media age, protests are no longer ‘local’.” Demonstrators speak of being encouraged by knowing they are not alone.</p> <p>Such examples demonstrate that what dissidents most need are not new propaganda programs from Western governments, but freer access to private information networks. Simply allowing the Internet to pull back the curtain and reveal truth will stoke the innate desire for a better life and to understand the transcendent.</p> <p>The Digital Age has taken human connection outside the plethora of dictators and authoritarian regimes. And what greater counter to human rights abuses and corruption than human connection? Of course, the fight against human tyranny remains an enormous challenge. Yet the increased ability to enlist people in the cause for liberty around the globe should give us greater hope for the future.</p> </div> Mon, 26 Feb 2018 07:30:00 -0500 Doug Bandow, Matt Daniels No, Scrapping Net Neutrality Laws Won't Kill the Internet Ryan Bourne <div class="lead text-default"> <p>The decision by the US Federal Communication Commission (FCC) to remove so-called “net neutrality” laws last week produced a flurry of outrage.</p> </div> , <div class="text-default"> <p>The American media company Netflix was most vociferous, declaring on Twitter: “we’re disappointed in the decision to gut #NetNeutrality protections that ushered in an unprecedented era of innovation, creativity, and civic engagement.”</p> <p>Such sentiment has echoed around the world. But all of this seems odd.</p> <p>Netflix itself has been streaming media online since 2007, and the specific President Obama-era net neutrality laws only came into force in 2015.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The whole reaction to this has been overblown. Repeal of the laws will allow ISPs to experiment in providing packages that consumers want.</p> </div> </div> </aside> , <div class="text-default"> <p>Was the internet before 2015 really the barren, innovation-free zone painted by critics of last week’s change? Or are opponents of the FCC decision prone to hyperbole?</p> <p>The economics of this debate are well-known.</p> <p>The internet is a means of transporting content, or packages of information, from one computer to another.</p> <p>In essence, net neutrality regulation requires that internet service providers (ISP) treat and price all packages of information in the same way, regardless of origin or content.</p> <p>So when we have some highly-demanded video content, such as Netflix or adult entertainment websites, ISPs cannot charge these providers a connection fee to have its content transported to customers on a faster lane.</p> <p>On the consumer side, ISPs are likewise unable to offer packages that charge more for certain types of content, or restrict access to certain sites (though they can of course discriminate via internet speeds).</p> <p>This is a textbook example of old debates about “producers” and “transporters” of goods.</p> <p>For net neutrality advocates, an open internet requires all content to be transported equally. Advocates worry that ISPs may otherwise block content entirely, that consumers in areas without much ISP competition will face higher prices, and that without the laws there will be an incentive for ISPs to “vertically integrate” with providers of content, potentially prioritising their own materials.</p> <p>For sure, these are valid questions. But do they require such heavy-handed state regulation?</p> <p>The reputational damage to an ISP of restricting access to popular content is likely to be severe.</p> <p>Indeed, if consumers overwhelmingly want a “neutral” internet, then ISPs are likely to at least offer a package which provides it.</p> <p>Existing competition laws can likewise be applied to monopolistic concerns. In fact, a non-net neutral world actually is likely to facilitate more dynamic competition and investment in the ISP market, since the ability to price discriminate will increase the pay-offs by investing to serve rural or other difficult-to-reach communities (a particularly important concern here).</p> <p>It’s worth noting that in the two years since the Obama-era, when net neutrality laws were rolled out, investment in broadband networks fell 5.6 per cent.</p> <p>But there’s a broader principle at stake: should transporters of content be able to price discriminate depending on what content you access?</p> <p>In other areas of life, this isn’t a particularly controversial idea.</p> <p>In many hotels, two wifi internet packages are offered based on different speeds. One package is suitable for video streaming, while the other is mainly suitable for basic browsing and checking email.</p> <p>Explicit packages that charge more for priority content (such as Netflix) could in fact improve overall efficiency.</p> <p>Economists recognise that charging more for use of content that congests the network would improve efficiency. According to an IGM survey of top economists, 44 per cent agreed that it’s a good idea to let companies that send content to consumers pay more to internet service providers for the right to send that traffic using faster or a higher quality service. Just 14 percent disagreed.</p> <p>Net neutrality laws essentially make those who use little in the way of high congestion content subsidise those who do.</p> <p>The key point then is ultimately the consumer will be king in deciding what he or she wants to pay for – repeal of the laws simply changes who determines the packages of services offered to them from the government to ISPs.</p> <p>The whole reaction to this has been overblown. Repeal of the laws will allow ISPs to experiment in providing packages that consumers want.</p> <p>As my colleague Peter Van Doren concluded in a recent piece: “repeal of the net neutrality rules will not be the death of the internet. It will simply return us to the hands-off regulatory framework that has nurtured the past two-plus decades of the internet revolution”.</p> </div> Tue, 19 Dec 2017 08:56:00 -0500 Ryan Bourne Berninger v. FCC Sam Kazman, Ryan Radia, Ilya Shapiro, Manuel S. Klausner <div class="lead text-default"> <p>The Federal Communications Commission, at least under previous chairmen, desperately wanted to control the internet. To further this objective, the FCC reversed its prior determination that providing broadband internet access was an “information service,” rather than a “telecommunications service,” under Title II of the Communications Act of 1934, thereby granting itself more power. The commission also determined that Section 706 of the Telecommunications Act of 1996 constituted an independent grant of regulatory authority over the internet. Relying on both these interpretations, the FCC then sought to outlaw paid prioritization—to institute “net neutrality”—by issuing a new policy cloaked in an Orwellian title; the “Open Internet Order.” Despite its label, the order actually had the practical effect of closing the internet to Daniel Berninger’s new start-up, Hello Digital, a social media platform designed to allow users to discuss issues featured on the site in real time. The website’s high-definition voice feature would require that its content be prioritized to function properly, so when the FCC’s order prevented Berninger from paying for that priority, he was left with little choice but to sue. In deciding the case, the U.S. Court of Appeals for the D.C. Circuit ruled for the commission after granting so-called <em>Chevron</em> deference to the FCC’s statutory interpretations. (Under <em>Chevron U.S.A. v. Natural Resources Defense Council</em>, if an agency is charged with administering an ambiguous statute, courts will defer to that agency’s interpretation as long as it is deemed a “permissible construction.”) But when Congress passed the 1996 Act, it directed that only some of that law’s provisions be inserted into the FCC-administered Communications Act of 1934. One such addition was Section 230, which specifically said that “[i]t is the policy of the United States . . . to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.” Section 706, however, was noticeably absent from congressional inclusion into the original 1934 Act. Furthermore, there’s no evidence that Congress meant to give the FCC regulatory authority over Section 706, a fact that the FCC itself recognized until 2010. Finally, the FCC’s purported limitations on its own regulatory authority under the provision are practically meaningless. These illusory limits basically amount to: (1) we will only regulate communications by radio or wire (but the internet uses wires); (2) we will only issue rules designed to encourage broadband deployment (but courts should just take our word for it when we claim this is our purpose); and (3) we will not create rules that conflict with the 1934 Act (even though Congress decided not to make Section 706 part of that law in the first place). Because Section 706 was never meant to be administered by the FCC and the agency believes its authority is subject to virtually no practical constraints, Cato has joined the Competitive Enterprise Institute, Reason Foundation, and Individual Rights Foundation on an amicus brief urging the Supreme Court to place the task of interpreting these statutory provisions where it rightfully belongs: in an independent judiciary. Or the new FCC could rescind its previous order and save the Court the trouble.</p> </div> Thu, 02 Nov 2017 08:53:00 -0400 Sam Kazman, Ryan Radia, Ilya Shapiro, Manuel S. Klausner Jones Act Is a Swamp Creature That's Strangling Puerto Rico Colin Grabow <div class="lead text-default"> <p>President Trump’s administration has wisely chosen to waive outdated regulations that are getting in the way of Puerto Rico’s recovery from Hurricane Maria. The regulations, known as the Jones Act, make it more expensive for the U.S. territory to affordablyimport goods from the mainland. And while it’s commendable that Trump has temporarily waived this obstacle, it shouldn’t have taken a major disaster to realize the harm it was causing.</p> </div> , <div class="text-default"> <p>But like so many federal laws and regulations, there’s one big reason the Jones Act remains — and while <a href="" target="_blank">talking to reporters</a> on Wednesday, Trump gave the game away. Stating that he was considering the waiver, Trump admitted he was hesitant to do so because “a lot of people that work in the shipping industry ... don’t want the Jones Act lifted.”</p> <p>So much for draining the swamp.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>If Trump and the GOP are serious about deregulation, spurring economic growth and taking on special interests, they'll repeal this archaic law.</p> </div> </div> </aside> , <div class="text-default"> <p>This same president once vowed to take on the established interests, and promised at his first address to Congress that he would undertake “A historic effort to massively reduce job-crushing regulations.” Yet the fact that Trump needed a historically destructive hurricane as the impetus for temporarily waiving the Jones Act should come as no surprise. Occupants of the White House come and go, and control of Congress occasionally shifts from one party to the next, but for almost 100 years no one has mustered the necessary courage to take on the interests behind this protectionist and economically backwards law.</p> <p><strong>A swamp creature is born</strong></p> <p>More formally known as the Merchant Marine Act of 1920, the Jones Act mandates that goods travelling by water between U.S. ports be carried on ships that are built in the U.S., registered in the U.S., at least 75% American-owned, and at least 75% U.S.-crewed.</p> <p>The results have been universally abysmal. The Jones Act reduces choice and competition among shipping providers, driving transportation costs higher. A 2015 report by a group of economists, including former World Bank Chief Economist Anne Krueger, found that <a href="" target="_blank">shipping costs to Puerto Rico are twice</a> that of neighboring islands — costs that are then passed along to consumers. And the law certainly hasn’t achieved its stated goal to “develop and encourage the maintenance” of a merchant marine capable of supporting the U.S. in time of war. As economist Thomas Grennes notes, from 2000 through 2016 the number of large <a href="" target="_blank">Jones Act-eligible ships</a> in the U.S. fleet actually declined from 193 to 91. Fewer ships means fewer jobs, and those which remain do so at the eye-popping figure of $250,000 per position, according a study conducted by former President Clinton’s Council of Economic Advisers.</p> <p>It's easy to see how harmful this could be for Puerto Rico. Puerto Ricans needlessly pay higher prices for the many goods and products they import from the rest of U.S., driving up their cost of living for the sake of protecting unions, American shippers and the U.S. shipbuilding industry. And although they're getting some relief for 10 days, once the Jones Act comes back into effect, Puerto Ricans will be right back where they started.</p> <p>In spite of this hardship, the law persists. In fact, the sad reality is that recent efforts to outright repeal the Jones Act haven't even come close to succeeding. In January 2015, Sen. John McCain, R-Ariz., presented an amendment to repeal parts of the law but ultimately failed to gather the necessary support to even have a vote. Last week McCain and Sen. Mike Lee, R-Utah, introduced a bill to <a href="" target="_blank">permanently exempt Puerto Rico </a>from the century-old shipping law. The success or failure of this bill will reveal much about where Trump and the Republican-controlled Congress stand on draining the swamp.</p> <p>Maddeningly, the Jones Act even enjoys support from politicians who purport to represent constituents harmed by its provisions. The four members of <a href="" target="_blank">Hawaii's congressional delegation</a> are a case in point — they're uniformly in favor of the Jones Act. While the precise impact on Hawaii is difficult to calculate, a 1999 U.S. International Trade Commission report found Jones Act requirements to be the equivalent of a 65% tariff on shipping services, an impact that is surely felt on an island which imports 90% of its food and much else of what it consumes.</p> <p>Perhaps, however, the devastation in Puerto Rico can serve as something of a turning point.</p> <p>As outrage mounts over the plight of Americans on the island, there are signs of a growing recognition of the human costs the Jones Act imposes. If Republicans in Congress and Trump are serious about deregulation, spurring economic growth, and taking on the special interests, they will set their sights firmly on finally repealing this archaic and counterproductive law. It's time to finally drown this swamp creature.</p> </div> Sun, 01 Oct 2017 08:37:00 -0400 Colin Grabow Foxes, Hedgehogs, and Regulators Mon, 25 Sep 2017 03:00:00 -0400 Stuart Shapiro What Agency Improves Rulemaking the Most? Mon, 25 Sep 2017 03:00:00 -0400 Sam Batkins Regulatory Budgets Mon, 20 Mar 2017 15:01:00 -0400 Richard A. Williams A More Optimistic View Mon, 20 Mar 2017 14:47:00 -0400 David R. Henderson Regulation at 40 Mon, 20 Mar 2017 14:45:00 -0400 Peter Van Doren, Thomas A. Firey 55. Toward a New and Improved Regulatory Apparatus <div class="text-default"> <p><strong><em>Congress should</em></strong></p> </div> , <div class="text-default"> </div> , <blockquote class="blockquote"> <div> <p>• abandon wholesale efforts to jettison regulations that are already in place; and<br />• instead, pass legislation to improve the analysis of major federal regulations by removing the task of creating Regulatory Impact Analyses from the executive branch agencies that write the regulations and authorizing a new, independent agency to do the analyses.</p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>Few people paying attention are pleased with the current state of regulatory oversight. On the one hand, progressives argue that the Office of Information and Regulatory Affairs (OIRA), the entity within the Office of Management and Budget (OMB) tasked with reviewing agency rules, stifles consumer and environmental protections and places too much emphasis on costs. Liberal entities also complain about the strictures of the regulatory oversight process, which they claim slow down necessary and sometimes urgent regulatory reforms and merely substitute one set of analyses for another.</p> <p>Conservatives, on the other hand, protest that OIRA is little more than a political arm of the White House that is loath to push back on even egregious rules issued by cabinet agencies and has no ability to oversee independent agencies such as the Federal Communications Commission or Consumer Financial Protection Bureau. As a result, agencies merely go through the motions to ensure that their proposed regulations pass a cost-benefit test.</p> <p>Currently, executive branch agencies that propose "economically significant" regulations (meaning those with an impact on the economy estimated to be over $100 million) must submit a Regulatory Impact Analysis to OIRA that demonstrates the estimated benefits exceed potential costs. The process of analyzing the costs and benefits for proposed regulations and acting on this information should be straightforward. But White House politics and the nation's entrenched regulatory apparatus have made it anything but.</p> <p>The most egregious problem with the current system is that the entities performing the cost-benefit analysis are the agencies issuing the regulations, which creates an enormous conflict of interest. The economists at the Environmental Protection Agency understand full well that their task is to deliver a cost-benefit analysis that demonstrates the regulation being considered is efficacious — no matter what. Promotions, raises, professional plaudits, and the potential for future jobs all depend on the implementation of regulations.</p> <p>Conservatives and libertarians who have worked at OIRA have lamented this problem and have proposed various ways to fix it. Some have argued for greater congressional oversight; others have suggested that OIRA, which is frequently rolled by the agencies themselves or by the White House in whatever bureaucratic tussle they engage in, be given more power.</p> <p>The optimal solution to this decades-long problem of regulatory overreach is to create a new entity that would be tasked with doing the cost-benefit analysis of regulations issued by the executive branch agencies as well as all independent federal agencies. Creating such an entity would do much more good than continued unrealistic efforts to reform current regulatory policy.</p> <h2><em>Regulatory Rollback Is Hopeless and Unnecessary</em></h2> <p>Despite the acrimony among the Republicans who ran for president in 2016, there was actually a fair amount of agreement when it came to their policy proposals. For instance, nearly every candidate put together a major tax reform proposal, none of which differed much from one another save for the size of the revenue loss. For what it's worth, the candidate who proffered the biggest cut happened to be the one who gained the nomination.</p> <p>The candidates also agreed on the need for some sort of regulatory "reform." The reform plans were usually as vague as the tax plans, but they typically consisted of a promise to do a comprehensive analysis of current regulations to determine whether they pass a cost-benefit test based on a revised set of metrics. Those that do not pass muster would then be repealed.</p> <p>The government has undoubtedly issued a plethora of regulations that would not have survived an objective comparison of their costs and benefits at the time they were issued. Agencies are adept at putting their thumbs on the scale to achieve their goals (which is invariably to issue more regulations). When that isn't sufficient, they do their best to avoid the scrutiny of cost-benefit analysis altogether. For instance, the Treasury Department recently gave its "emergency" regulations on corporate inversions to OMB's Office of Information and Regulatory Affairs, the office tasked with determining whether rules do indeed pass a cost-benefit test, a mere two hours before Treasury was to make its determination. Another trick that regulatory agencies use is to diminish the estimated cost impact of a regulation to the limits of reason to ensure that it ends up below the $100 million threshold that triggers an automatic review by OMB.</p> <p>However, the campaign promises to reform regulatory policy are not only as unrealistic as a $10 trillion tax cut, but they would do little to reduce compliance costs and save economic resources. The unfortunate reality is that no economic gain will be achieved from reviewing and repealing rules that have been in force for any period of time. And the notion that any administration can — or should — wipe the slate of existing regulations is not only politically unrealistic, but unwanted.</p> <p>The problem is that the costs to businesses from existing, flawed regulations have already been spent and cannot be recaptured, for the most part. Power plants have installed the coal scrubbers; gas stations have reinforced storage tanks; human resource departments have redone their software; and other agencies affected by other regulations have already made their investments in human or physical capital or whatever else it took to conform to the regulations. In most instances, a repeal saves them close to nothing.</p> <p>Even if the original regulation did not make sense, repealing the edict usually makes little more sense. In some instances, repeal could disrupt the entire market, and not in a good way. For instance, if a regulation that required a costly investment to comply was repealed, new entrants could appear, unburdened with the need to make the costly investment themselves, and drive out the incumbents. In that case, nothing would be gained because the new entrants would have nearly the same operating costs as the incumbents they drove out, but we would lose whatever benefits resulted from the original regulation, such as lower emissions. While it is a valid point that our government does too much to help entrenched businesses at the expense of businesses yet to be conceived, repealing a costly rule that has already been met and has a modicum of benefits amounts to sheer sabotage.</p> <p>In 2011, OIRA administrator Cass Sunstein announced plans to have federal agencies do a rigorous analysis of rules that could be repealed in a cost-effective way. As a result, a handful of inconsequential regulations were set aside, the most famous of which was one that required spills from milk trucks to be treated as if they were hazardous waste. It was a welcome change to be sure, but it represented a minor cost savings for an event that happens infrequently. Sam Batkins, director of regulatory analysis for the American Action Forum, estimated that the savings from repealing that regulation would be less than $1 million a year.</p> <p>We can and should improve regulatory policy, and there are ways to do so without merely undoing the rules of the previous administration. The most important change would be to remove the agency proposing a regulation from doing the cost-benefit analysis used to determine its worthiness. The current system rests on an enormous conflict of interest, akin to letting a parent be the judge at a beauty pageant. A separate entity within the executive branch, funded with money clawed back from the agencies, should perform the cost-benefit analysis instead. While it is fair to ponder whether such an office could eventually be subject to regulatory capture itself, it would doubtless be better than the system in place now. The new entity — and not the agency issuing the regulation — should also determine whether a rule should be construed as "major" and thus subject to the cost-benefit analysis critique.</p> <h2><em>Potential Regulatory Reforms</em></h2> <p>A number of reforms of the regulatory process have been suggested in the last few years. One idea that received majority support in the House is the Regulations from the Executive in Need of Scrutiny (REINS) Act. The REINS Act would require Congress to hold an up-or-down vote on all major regulations before final promulgation. This proposal is the inverse of the Congressional Review Act currently in place, under which Congress must affirmatively vote to repeal a regulation after an agency issues a final rule.</p> <p>Some scholars believe that Congress is ill-equipped to deal with every new federal regulation. John Morrall, a longtime OIRA veteran, is wary of more legislative oversight, fearing it would do nothing to make regulatory analysis less political, but merely more explicit. Given the current political environment in Congress, it is unlikely the administration and Congress will agree to the sort of comprehensive regulatory reform envisioned by the REINS Act. Reforming OIRA, however, and instituting more procedural checks could garner sufficient bipartisan support.</p> <p><em>OIRA 2.0</em></p> <p>Leaders on Capitol Hill have advocated for a more powerful OIRA. For instance, Sen. John Barrasso (R-WY) has suggested six specific steps to reform the office:</p> <p>1. OIRA needs to review not only executive branch regulations, but also those of independent agencies.</p> <p>2. Every significant rule should have a complete cost-benefit analysis independent from politics, which could mean an analysis done by another entity.</p> <p>3. OIRA needs greater transparency such that those affected by a regulation have an opportunity to exchange views with the government.</p> <p>4. OIRA needs to "call a regulation a regulation" and make agency "guidance" extremely rare, forcing agencies to go through the formal process for every significant regulatory change it seeks.</p> <p>5. OIRA needs to be proactive in seeking out and eliminating duplicative or contrary rules across government.</p> <p>6. OIRA should continually seek rules to eliminate and constantly check the effectiveness of rules.</p> <p>Perhaps the strongest case for extending OIRA's power over independent agencies is that the market influence of these regulators, to some extent, has outpaced cabinet-level agencies. The Federal Communications Commission now regulates the Internet, which is close to 5 percent of the nation's gross domestic product, and its regulatory bill has grown larger in the last four years.</p> <p>The new world of financial regulations under the Dodd-Frank Act also begs for more analysis. The legislation spelled out more than <a href="">400 rules</a>, and a majority of them will likely never monetize costs or be subjected to a comprehensive cost-benefit analysis. The role of independent agencies has outgrown the 1980s, and regulatory oversight should evolve with those agencies.</p> <p><em>A Congressional Budget Office for Regulations</em></p> <p>Perhaps the most popular idea for regulatory process reform is to create a new agency dedicated to independent review of major regulations. Such an agency would avoid the moral hazard problem engendered by having agencies doing their own cost-benefit analyses.</p> <p>There is no reason that this agency would have to cost the government more money: OMB could simply claw back the money the agencies currently allocate to the task of economic analysis and use that to fund the new agency. Some have suggested that to save money and improve the scope of its work, some of the regulatory analysis could be handled by outside economists in a government version of an academic peer review.</p> <p>Where this entity would be housed would matter and is worth debating. Some have suggested that this new agency be the regulatory equivalent of the Congressional Budget Office and placed within the legislative branch. Others would prefer that it be an executive branch agency. And others have suggested that it operate as an appendage to OIRA.</p> <p>Former OIRA administrators do not like the idea of having the new entity housed inside the executive branch. They note that the current problem OIRA faces is that political considerations invariably trump economic reasoning and that proximity to the White House, both literally and figuratively, makes that more likely to occur. Presumably, a new entity would be subject to the same pressures if it were housed in an office within the OMB, as OIRA currently is.</p> <p>Fiscal conservatives on Capitol Hill are cool to the idea of a Regulatory Budget Office. They doubt it could be done without costing more money than the current arrangement, and they would prefer a reform that gives them more oversight over the regulatory process. As a result, if this were to pass, political exigencies would probably require such an entity to be an entity of Congress akin to the Congressional Budget Office.</p> <p>One drawback to this plan is that a distinct office of regulatory oversight would not solve all the myriad problems with our current regulatory activities. Given the very nature of who goes into government, it is hard to see how we could keep the office from being captured by the agencies and their pro-regulatory agendas. However, the fact that the denizens of OIRA continue to display independent thinking decades after its creation does inspire some hope that it would be a long-term improvement over the current arrangement.</p> <h2><em>Lessons from History</em></h2> <p>No matter what a new administration does to reform the issuance of regulations, it is important to recognize that the regulatory battle will never end. Regulators regulate. It is why they joined the agency that employs them; how they get promotions, plaudits from interest groups, and interesting jobs in the future; and how they exert a modicum of power. Their bias will always be to issue new regulations, and even the most even-handed bureaucrat will have every incentive in the world to push forward on a regulation. We will always need independent entities to monitor our regulatory bureaucracy, both inside and outside of government.</p> <p>Students of government and policy can learn a lot from studying the 1986 tax reform. Although it was not perfect, it created a tax code that removed many of the special interest deductions, exclusions, and credits that made the tax code maddeningly complicated and forced tax rates to be high in order to collect sufficient revenue to (less than wholly) fund our government. Since passing the 1986 reform, Congress has steadily picked apart the code; now we've reached the point at which our economy is saddled with a tax code less conducive to economic growth than it was before the 1986 reform.</p> <p>The regulatory apparatus can never get us to such a copacetic state as the tax code's post-1986 honeymoon. Given the nature of our dynamic $18 trillion economy, the government must constantly adjust the nation's regulatory framework as new businesses develop, old ones decline, and our citizens' priorities change. Not only will we never be able to achieve any sort of short-term regulatory nirvana, but also any procedural reforms Congress does manage to achieve are likely to be perpetually under attack from various special interests. Those special interests will fight vigorously to nudge, shove, or browbeat the regulatory bureaucracy to help move new and expanded regulations through the maw of government.</p> <p>Thus, it is important to recognize that we will never be "done" with regulating. As our regulators do their business, the best we can hope for are regulators cognizant of their biases, an administration that's willing to remove some of the inherent biases in the regulatory framework when they become apparent, and a Congress that's eternally vigilant about regulatory overreach. Because each of these is difficult to attain, we should also do more to encourage a rigorous outside review of our agencies' regulatory activities — separate from the actions of industry. Sadly, this component is lacking at present. Trade associations and large corporations may find it worth their while to invest in the human capital necessary to defend their business. And the environmental nonprofit sector has a wealth of resources available to spend on its agenda and a generation of men and women who see protecting the environment as a secular religion and well worth the sacrifice of pay and free time to achieve. But there is a paucity of scholars willing and able to study the regulatory actions of the government in an objective way.</p> <p>Congress's detachment from most regulatory activity has resulted in a lack of the expertise that is needed to intelligently weigh in on most regulatory activities. This lacuna also makes it difficult for Congress to think cogently about what can and should be done to improve the regulatory apparatus. As a result, its rhetoric to that effect has usually been more fodder for the consumption of voters and donors than a precept for future action.</p> <h2><em>The Current Broken System</em></h2> <p>There are myriad problems with how the regulatory apparatus currently functions. Agencies invariably go dark before presidential reelection campaigns and then unleash a torrent of new regulations after the vote, regardless of the outcome. In 2016, the last year of Barack Obama's presidency, we saw an almost unprecedented pace of regulatory activities from the Department of Labor, with the Environmental Protection Agency not far behind. There were also an amazing number of regulations that are thought to cost just under $100 million, the threshold at which they must undergo stricter scrutiny by OIRA.</p> <p>Again, there is no silver bullet that can fix the problems that plague our regulatory apparatus. The basic constraint is that the federal government tends to attract people who believe that the government is the solution to the problems that ail the economy; and the economists who perform cost-benefit analyses in the government fully comprehend the incentives that incline them to justify any and all regulations that come their way. What's more, the political might that any White House can exert on an agency can behoove them to act with political expediency. In both Democratic and Republican administrations, that almost invariably entails doing more, not less.</p> <p>An entirely new entity that performs cost-benefit analysis cannot change who goes into government or change the inherent incentives in place, but it can insulate those who perform this task from a modicum of political and agency pressure to conform. It might not amount to a complete and permanent fix of our regulatory environment, but it would be a dramatic improvement over the status quo and a necessary (but not sufficient) ingredient in a process that would work better for taxpayers and consumers.</p> <h2><em>Suggested Readings</em></h2> <p>Batkins, Sam, and Ike Brannon. "<a href="">Obama, Ryan, and the Future of Regulatory Reform</a>." <em>Regulation</em> (Fall 2011).</p> <p>---. "<a href="">Examining the U.S. Regulatory Budget</a>." <em>Regulation</em> (Winter 2012-2013).</p> <p>---. "<a href="">The Need for Retrospective Review of Regulations</a>." <em>Regulation</em> (Summer 2013).</p> <p>Brannon, Ike. "<a href="">What Is a Life Worth?</a>" <em>Regulation</em> (Winter 2004-2005).</p> <p>Gordon, Richard L. "<a href="">An EPA War on Coal?</a>" <em>Regulation</em> (Spring 2013).</p> <p>Viscusi, W. Kip. "<a href="">Regulating the Regulators</a>." <em>University of Chicago Law Review</em> 63, no. 4 (1996): Article 3.</p> </div> Thu, 16 Feb 2017 03:00:00 -0500 7. Regressive Regulation Brink Lindsey <div class="text-default"> <p><strong><em>Congress should</em></strong></p> </div> , <div class="text-default"> </div> , <blockquote class="blockquote"> <div> <p>• eliminate or reduce criminal penalties for copyright infringement and stop the use of civil asset forfeiture in infringement cases;<br /><br />• end all liability for noncommercial copying;<br /><br />• substantially reduce copyright terms;<br /><br />• end patent protection for software and business methods;<br /><br />• enact procedural reforms to limit abusive litigation by "patent trolls";<br /><br />• increase the number of green cards awarded on the basis of worker skills, educational attainment, and economic value;<br /><br />• end country-specific caps on green cards for highly skilled immigrants;<br /><br />• raise the cap for H-1B visas and eliminate restrictions that lessen their value;<br /><br />• mandate the recognition of valid occupational licenses in all states;<br /><br />• authorize interstate compacts on mutual recognition of licenses; and<br /><br />• eliminate antitrust immunity for state licensing boards dominated by private-sector members.</p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>Chapter 6 demonstrated, reviving economic growth is an urgent task with appeal across the political spectrum. But given the current polarization of American politics, is it really possible to unite left and right on a common approach to achieving this shared goal?</p> <p>Yes, it is possible — and seizing this possibility offers a promising opportunity to reverse the growth slowdown through policy change. To pursue a truly "transpartisan", pro-growth reform agenda, Congress should focus on changing policies whose primary effect is to inflate the incomes and wealth of the rich, the powerful, and the well-established by shielding them from market competition. To apply a convenient label, let's call these policies "regressive regulation," — regulatory barriers to entry and competition that work to redistribute income and wealth up the socioeconomic scale.</p> <h2><em>Avoiding Polarization and Gridlock</em></h2> <p>A policy agenda of reforming regressive regulation can take advantage of an ideological no-man's-land in contemporary American politics. Conservatives tend to valorize business and the well-off ("job creators") and take a dim view of government regulators ("bureaucrats"); progressives, meanwhile, identify with government regulators ("public servants") and the disadvantaged, while casting a suspicious eye toward business and the successful ("plutocrats"). Regressive regulation scrambles these ideological loyalties, and the effect is to mute both support for and opposition to such policies along ideological lines. Conservatives generally cheerlead for deregulation, but they don't tend to focus on the regulations that favor their constituencies. Progressives, on the other hand, instinctively defend regulation as necessary and beneficial, but that impulse weakens considerably when regulation's obvious effect is to entrench privilege and deepen disadvantage.</p> <p>This peculiar state of affairs, in which ideological passions on both sides are substantially neutralized, creates an opening to cut through the prevailing polarized gridlock and effect significant policy change. Here the main conflict is not between the left and right's conflicting visions of the public interest. Instead, there is a fairly robust intellectual consensus on where the public interest lies: economists, whether they tend to vote Republican or Democratic, are likely to support reform — the status quo has few disinterested defenders. In the case of regressive regulation, the conflict can thus be persuasively framed as the perennial one between the public interest and private privilege. The only vociferous supporters that these policies can count on are the narrow interest groups that are profiting from them at the expense of the rest of us.</p> <p>These circumstances suggest that the reform and repeal of regressive regulation now represent the most promising way to reinvigorate the U.S. economy's long-term growth prospects. The economic evidence is strong that dismantling barriers to entry and competition can have a significant impact on both the level of total output and the permanent rate of output growth. Meanwhile, efforts to reform those barriers that redistribute wealth and income upward can take advantage of a political environment relatively free of the polarized ideological conflict that now plagues policymaking in so many other domains. In other words, the economic gains are large and the political conditions for realizing those gains are relatively favorable.</p> <p>Three policy areas in particular offer inviting targets for action by Congress: (1) excessive protection of copyrights and patents; (2) restrictions on high-skill immigration; and (3) protection of incumbent service providers through occupational licensing.</p> <h2><em>Intellectual Property</em></h2> <p>Copyright and patent laws are supposed to promote innovation and growth by granting temporary monopolies that raise the return on producing new ideas. But copyrights and patents impose costs as well as confer benefits. First, they raise the price of protected goods and thereby burden consumers with a deadweight loss. Second, by helping some innovators, they end up hurting others. Innovation frequently occurs through borrowing and adapting others' ideas; by restricting access to those ideas, copyrights and patents raise the cost of innovation and thus push in the direction of slower growth. In recent years, the costs imposed by copyright and patent law have escalated dramatically: in the case of copyright, through the wildly excessive extension of copyright terms, criminalization of copyright violations, and ongoing hostility to new copying technologies that may be used to reproduce copyrighted material; in the case of patents, through the extension of patent protection to vaguely defined innovations in software and business methods, and the rise of "patent trolls" that buy up patent portfolios and monetize them through litigation. Because of these ill-advised developments, these laws now cause a significant drag on innovation and growth.</p> <p>There is much that Congress could do to improve intellectual property law. Regarding copyrights, Congress should end or reduce criminal penalties for copyright infringement, stop the use of civil asset forfeiture in infringement cases, end any liability for noncommercial copying, and significantly reduce the term of copyright protection from the absurdly over-long present term of life plus 70 years. As for patents, Congress should simply end patent protection for software and business methods, where patents have been so badly abused; failing that, Congress should implement procedural reforms to limit abusive litigation by "patent trolls."</p> <h2><em>High-Skill Immigration</em></h2> <p>Immigrants are a major catalyst of U.S. entrepreneurship and innovation. According to one study of a large sample of engineering and technology companies founded between 1995 and 2005, 25 percent of those companies had at least one foreign-born founder. Yet current immigration laws make it very difficult for such highly talented individuals to live and work in our country. Out of roughly 1 million permanent resident visas awarded each year, only about 70,000 go to individuals on the basis of their work skills or economic value. Temporary visas allow about 650,000 high-skilled workers to reside in the United States at any given time — a mere 0.4 percent of the workforce.</p> <p>There are many possible steps that Congress could take to reduce barriers to high-skill immigration. Congress should expand the total number of green cards awarded annually on the basis of worker skills, educational attainment, and economic value, ideally granting green cards to any college graduate who wants to live and work here. Further, Congress should eliminate country-specific caps on high-skill immigration that currently discriminate heavily against immigrants from China and India. In addition, Congress should raise the cap on temporary H-1B visas and reduce the restrictions that limit their use, in particular, the rules that tie visas to a specific employer and prohibit spouses from working here.</p> <h2><em>Occupational Licensing</em></h2> <p>Occupational licensing has expanded dramatically in recent decades. Back in 1970, about 10 percent of all U.S. jobs were subject to licensing requirements; today the figure stands at around 30 percent. These laws are justified in the name of consumer protection, but research shows that the laws' restrictions do little or nothing to benefit consumers. They do, however, protect incumbent service providers from competition: licensing is associated with an 18 percent increase in wages for its beneficiaries. In the process, licensing slows down new business formation and job creation: for occupations licensed in some states but not others, employment growth is 20 percent lower in the restrictive states. These laws amount to a frontal assault on entrepreneurship, reducing entry by new businesses that frequently are the vessels of new ideas. Furthermore, by conditioning entry on passing exams that test knowledge of current ways of doing things, they help to cement the status quo in place and discourage the development of new business models.</p> <p>Most occupational licensing occurs at the state level, but there is still significant scope for Congress to improve matters. For example, Congress could mandate that, for widely licensed occupations, anyone with a valid license in one state would be entitled to do that job in all other states. Alternatively, Congress could preemptively authorize interstate compacts for mutual recognition of licenses. In addition, Congress could follow up on the Supreme Court's decision in <em>North Carolina State Board of Dental Examiners v. Federal Trade Commission</em> and clarify that there is no antitrust immunity for actions of licensing boards dominated by private-sector members.</p> <h2><em>Barriers to Entry</em></h2> <p>The policy areas discussed above all feature regulations that erect explicit barriers to entry — whether in the economist's sense of barriers to market entry, or in the literal sense of barriers to geographic entry. Copyright and patent laws and occupational licensing limit who can engage in particular kinds of commercial activity; immigration laws limit who can enter the country.</p> <p>Moreover, all of these entry barriers undermine economic growth by restricting vital inputs to innovation. Copyright and patent protections restrict the recombination of ideas that is the essence of innovation by making some ideas artificially inaccessible. Immigration laws restrict the inflow of highly skilled individuals who are disproportionately entrepreneurial and innovative. Occupational licensing restricts the formation of new businesses, which frequently are the vessels for new products or new production methods.</p> <p>Finally, all these policy domains have similar distributional consequences: all of them redistribute income and wealth to the well-off and privileged. Copyright and patent laws pinch consumers for the benefit of huge pharmaceutical and media corporations. Immigration laws expose America's lowest-skilled workers to intensifying competition from foreign-born workers while shielding high-skilled workers from equivalent competitive pressures. Occupational licensing boosts the earnings of protected incumbents by restricting supply, especially in higher-income professions, while thwarting upward mobility for the less advantaged.</p> <h2><em>Beyond Left and Right</em></h2> <p>In all likelihood due to these underlying similarities, none of these policy areas have become zones of ideological or partisan conflict. To be sure, there are vigorous debates over proper policy in all of these areas, but the contending sides are not divided along left-right or Republican-Democratic lines. In striking contrast to the polarization and gridlock that now dominate most national policy debates, opposition to regressive regulatory controls has brought together politicians and policy experts across the political spectrum.</p> <p>Thus, in 2011, in the field of intellectual property, Rep. Nancy Pelosi (D-CA) joined forces with Rep. Darrell Issa (R-CA) and then-Rep. Ron Paul (R-TX) to oppose the Stop Online Piracy Act, a failed legislative effort to toughen criminal penalties for copyright violations. Among policy experts, leading critics of copyright and patent law excesses include progressives Lawrence Lessig and Dean Baker and libertarians Tom W. Bell and Jerry Brito.</p> <p>With regard to high-skill immigration, a number of bipartisan reform bills have been introduced in recent years. To take a recent example, in January 2015, a group of six senators — including Orrin Hatch (R-UT), Mark Warner (D-VA), and Marco Rubio (R-FL) — introduced the Immigration Innovation Act to boost the numbers of both temporary and permanent visas for highly skilled workers. And among policy experts, scholars from the libertarian Cato Institute and the progressive Center for American Progress supported the most recent comprehensive immigration legislation passed by the Senate in 2013.</p> <p>As for occupational licensing, the Obama administration issued a special report in July 2015 criticizing occupational licensing, and in 2016, it made a small amount of federal funding available to states that undertake reform. Meanwhile, in July 2014, Rep. Paul Ryan (R-WI) released a widely discussed plan for combating poverty. In the section on regulatory reform, Ryan singled out occupational licensing laws as prime examples of the "regressive regulations" that too often constrict economic opportunity for the least advantaged. Among policy experts, Alan Krueger of Princeton University, who served as chairman of the Council of Economic Advisers under President Barack Obama, is a leading critic of these regulatory restrictions; and the libertarian Institute for Justice has a long track record of challenging and overturning licensing rules in court.</p> <p>It's not simply the case that one can find policy experts on both sides of the ideological spectrum who support reform of these regressive regulatory policies. More than that, it's difficult to find disinterested policy experts anywhere on the spectrum who support the status quo. Certainly, there are strong defenders of intellectual property protection, but even in their ranks you will find recognition that current policies are seriously flawed. Thus the economist Carl Shapiro, a prominent supporter of patents generally, has written, "[While] there is no doubt that the patent system taken as a whole plays an important role in spurring innovation, the general consensus is that the U.S. patent system is out of balance and can be substantially improved." In similar fashion, the economist William Fischel, who has written sophisticated defenses of zoning, acknowledges that its exclusionary impact has increased since 1970 and that the "social and economic costs" of contemporary land use regulation are "not trivial." As far as high-skill immigration restrictions, it is difficult to find any scholar who has anything nice to say about the current state of policy.</p> <p>This combination of qualities — negative impact on entrepreneurship and innovation, absence of political polarization, and an intellectual consensus in favor of reform — makes regressive regulation an especially inviting target for any campaign to enact pro-growth policy reforms. For all who are interested in better long-term U.S. economic performance, this is the low hanging fruit. Reforming these policies is something that we know will make a positive difference, and "we" here refers to the vast bulk of disinterested experts. Yes, it is true that plucking this fruit won't be easy, as the interest groups that benefit from the status quo are politically powerful, well organized, and highly motivated. But knowing what clearly needs to be done, however difficult it might be, is an advantage that should not be underestimated.</p> <p>Of course, there are many other possible targets for pro-growth policy reforms that Congress could set its sights on. Many big policy battles with important implications for growth are already raging in Washington: the never-ending wrangling over tax policy, resolving the long-term fiscal imbalance, the future of health care reform after the Affordable Care Act, the future of financial regulation after Dodd-Frank. Here, often while pursuing other objectives, policymakers are confronting issues whose resolution will have a significant impact, for better or worse, on the U.S. economy's future prospects. Everyone interested in a brighter growth outlook has a stake in the outcome of these big showdowns.</p> <p>That said, pursuing an agenda of curbing regressive regulation would allow us to open a new front in the policy fight. Unlike the all-too-familiar policy disputes now ongoing, a campaign against regressive regulation would feature issues new to the national policy spotlight. That is especially true in the case of occupational licensing, since it occurs largely at the state level and thus is typically ignored by Washington. Meanwhile, the organizing rubric of regressive regulation packages together disparate issues in a novel way and can thereby impart new energy to reform efforts in each of its constituent policy domains.</p> <p>This new front would look very different from the other, ongoing policy debates. Instead of the opposing forces being arrayed along the left-right axis, here the contest pits an expert consensus across the political spectrum against the interest groups who profit from existing policy. Instead of yet another left-right fight, this time the contest could be framed as a choice between the public interest and vested interests.</p> <p>The idea of a left-right coalition to push deregulation may sound farfetched, but it is not without precedent. Consider the country's last major episode of pro-market regulatory reform back in the late 1970s and early 1980s. During that brief period of time, price-and-entry regulation of airlines, trucking, and railroads was systematically dismantled; price controls on oil and natural gas were lifted; interest rate caps for checking and savings accounts were removed; and the AT&amp;T monopoly was dismantled, paving the way for competition in long-distance telephony. Those too young to remember can be forgiven for associating all of this with Ronald Reagan, but, in fact, Democrats and progressives played a major role. Jimmy Carter signed the legislation that deregulated airlines, trucking, railroads, and natural gas. On Capitol Hill, Sen. Edward Kennedy (D-MA) led the fight for airline deregulation, ably assisted by his aide Stephen Breyer. Yes, the rise of Chicago-school economics and especially the law-and-economics movement supplied momentum for these sweeping policy changes, but so did the activism of Ralph Nader.</p> <p>History never repeats itself, but sometimes it rhymes. As in the 1970s, the U.S. economy today is delivering disappointing results. Back then the problem was "stagflation" today we worry about a "great stagnation." And once again, the shifting currents of political debate are bringing together unlikely allies with a common interest in reviving prosperity and a common hostility to the entrenched interests that stand in the way. With luck, contemporary reformers can follow their predecessors' good example.</p> <h2><em>Suggested Readings</em></h2> <p>Department of the Treasury Office of Economic Policy, Council of Economic Advisers, and Department of Labor. “Occupational Licensing: A Framework for Policymakers.” July 2015.</p> <p>Lindsey, Brink. "<a href="">Low-Hanging Fruit Guarded by Dragons: Reforming Regressive Regulation to Boost U.S. Economic Growth</a>." Cato Institute White Paper, June 22, 2015.</p> <p>---. "<a href="">A New Growth Agenda</a>." <em>Cato Policy Report</em>, November/December 2015.</p> <p>---. ed. <em>Reviving Economic Growth: Policy Proposals from 51 Leading Experts</em>. Washington: Cato Institute, 2015.</p> </div> Thu, 16 Feb 2017 03:00:00 -0500 Brink Lindsey Susan E. Dudley and Peter Van Doren evaluate the Trump regulatory agenda Wed, 01 Feb 2017 11:24:00 -0500 Susan E. Dudley, Peter Van Doren Suggestions for President Trump’s First Deregulatory Push Tue, 13 Dec 2016 12:02:00 -0500 Sam Batkins The TPP's Contribution to Public International Law Wed, 02 Dec 2015 09:11:00 -0500 Simon Lester The Rhetoric and Reality of ISDS Simon Lester <div class="lead text-default"> <p>In the coming debate over the Trans-Pacific Partnership (TPP), one of the most controversial issues is likely to be Investor–State Dispute Settlement (ISDS), a legal mechanism in many trade agreements and investment treaties by which foreign investors can sue host governments in an international tribunal. For lawyers who specialize in these issues, the rhetoric about ISDS can be extremely frustrating. Critics make exaggerated claims, such as the assertion that <a href="" target="_blank">ISDS allows lawsuits</a> whenever investors can show that a law "could hurt expected future profits," while supporters <a href="" target="_blank">make it sound like</a> ISDS addresses only laws that discriminate against foreigners. Both arguments are misleading.</p> </div> , <div class="text-default"> <p>ISDS provisions vary a bit across the thousands of treaties that include them, but generally speaking, here's how they work. Foreign investors can sue host governments for various actions taken by those governments, the most prominent of which are expropriation, nationality-based discrimination, and treatment that falls below a "minimum standard."</p> <p>Expropriation is familiar to anyone who has studied U.S. constitutional law, with its takings clause in the Fifth Amendment. In the context of international investment law, the expropriation rules are similar.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>In the modern world of global trade, it may be an anachronism.</p> </div> </div> </aside> , <div class="text-default"> <p>The non-discrimination provisions prohibit government actions that discriminate against foreign investors as compared with domestic investors, or against investors from one nation as compared to those from another nation.</p> <p>Finally, the "minimum standard of treatment" obligation covers a variety of government behavior. It is often elaborated with the term "fair and equitable treatment," and it covers government behavior that is arbitrary, manifestly arbitrary, or outrageous, depending which treaty is at issue and which tribunal is hearing the case.</p> <p>If the foreign investor proves that a host government has violated one of these obligations, there will then be a determination of how much economic harm the investor has suffered as a result.</p> <p>With this legal framework in mind, how do we think about the value of ISDS as a policy matter?</p> <p>Supporters see ISDS as a way to promote the rule of law and encourage international investment. Many countries around the world, they say, lack basic protections of the sort provided by ISDS. Where governments cannot offer these, ISDS can step in to provide an external legal system, thereby reassuring investors and making them feel better about investing in poor but unstable countries that desperately need the investment.</p> <p>There is a grain of truth to this argument. However, the historical background tells a more complicated story, and empirical evidence <a href="" target="_blank">does not clearly support</a> the argument about increased foreign investment.</p> <p>At the end of the colonial era, following World War II, there was a wave of expropriation of foreign investment by newly independent, nationalist governments. This was of great concern to Western companies, and they found a solution in investment treaties, which would allow affected companies to argue for compensation in a neutral forum.</p> <p>Today, though, the world of foreign investment is a very different place. <a href=";attredirects=0" target="_blank">Expropriations have fallen</a> from around 40 per year in the 1970s to 3 or 4 per year recently. Instead, many governments now lavish subsidies on foreign investors rather than treating them badly. There is a global competition for foreign investment, and big companies are the beneficiaries.</p> <p>Yet ISDS remains and has proliferated. Business groups like having the option to sue and have pushed hard to keep it, even though the original rationale often does not apply. ISDS has even become a part of treaties between countries that have strong domestic rule of law.</p> <p>Legal scholars and policy wonks have been talking about ISDS for years. With trade agreements such as the TPP up for debate, the controversy over ISDS has now been brought into the public eye, offering a great opportunity to think about how we should approach ISDS.</p> <p>The main protections of international investment law, described above, are nothing radical. They are commonly found in domestic law. What is radical is that ISDS provides a basis for claims by <em>individuals</em> under international law. That is not the norm in international law, which generally relies on government-to-government claims. What you have with ISDS, in effect, is a great expansion of the enforceability and effectiveness of international law, for the benefit of one group: foreign investors.</p> <p>That creates a perception of unfairness. To be sure, we might want to offer such international rights to various people. But if we did, foreign investors are not the obvious place to start.</p> <p>Significantly, many concerns about ISDS could be reined in with modest tweaks, such as removing the "fair and equitable treatment" provision. This is a broad and vague obligation that allows companies to bring a very wide range of claims. A simple reformulation of international investment law, to focus it on discrimination based on nationality, would center these obligations more firmly in the international economic-relations issues that they supposedly address.</p> <p>But more fundamentally, we should rethink the need for the system. These treaties were designed to address a problem from decades ago that is fading from memory. What, if any, problems arise with foreign investment today? The most prominent one is probably lavish subsidies from governments that are regularly given to foreign investors, and international limits on such practices could be of value.</p> <p>As Congress considers the TPP, probably sometime in the next year, it should think deeply about what to do with ISDS. Often policy seems to just get carried over from a prior template. However, as conditions change, we should be flexible enough to design new policies that match our current needs.</p> </div> Tue, 10 Nov 2015 09:48:00 -0500 Simon Lester The Global Taxers Are after You Richard W. Rahn <div class="lead text-default"> <p>Are you aware that the American government has been slowly giving away its power to international bureaucrats to determine how its businesses and citizens are taxed?</p> </div> , <div class="text-default"> <p>Most wars do not turn out the way the people who started them intended. Setting aside the hot military wars, look at the consequences of the “war on drugs” and the “war on money laundering and tax evasion.” The global war on money laundering and tax evasion has failed in the three decades since it began in earnest, and it is now on its way to undermining the rule of law around the world, the legitimate role of financial institutions, and the right of sovereign governments to determine their own tax policies.</p> <p>The new anti-money-laundering laws and regulations have resulted in millions of Americans who live abroad and others living outside their home countries being unable to get bank accounts and other financial services in the countries where they live. Rather than protecting people who need financial services, government regulations are increasing their misery. Banks avoid potential government fines by dumping customers, whose source or use of their money is too difficult to figure out. International money-laundering expert, Burke Files, reported to me from Mombasa last week that in central Africa “more and more money is leaving the banking system to seek alternative remittances. The money is now out of the system and being shipped in bulk currency, and the remitters are being forced to pay about 9 percent — from what was 3 percent to 4 percent.” The Financial Stability Board based in Basel, Switzerland, released a damning report last week on the decline in corresponding banking as a result of excess money-laundering regulations.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>What happened to 'no taxation without representation'?</p> </div> </div> </aside> , <div class="text-default"> <p>The first federal laws on money laundering and international prohibitions were passed three decades ago, with the excuses that the law enforcement authorities needed them to fight the drug war and other assorted criminality, even though money laundering is almost impossible to tightly define — being a crime of intent rather than action.</p> <p>In 1998, the Organization for Economic Cooperation and Development (OECD) — which has been captured by the global big-government, high-tax lobby — published a report titled “Harmful Tax Competition,” which was widely and rightly ridiculed because it ignored the fact that competition is good, including tax competition. Imagine how much higher tax rates would be in New York, Illinois and California if their rates and inefficiencies were not at all disciplined by better-managed states that do well without state income taxes, such as Texas and Florida. Other things being equal, both individuals and businesses tend to move from high-tax places to lower-tax places around the globe as a rational response to bloated and oppressive government.</p> <p>The statist bureaucrats at the OECD and their big-government masters were undeterred in their fight for higher taxes on others (despite their own tax-free salaries). They claimed that they were only trying to make sure that money from Americans and others was not being hidden in foreign banks to evade taxes. The non-American banks then agreed to implement withholding on payments to Americans and others so that the governments would get their tax money. The OECD first agreed to it, but then reneged, demanding to know the names of the banks’ clients. This showed it was not just about money, but control over others by the political class. Having no choice, the banks agreed. So then the OECD started going after corporations, claiming it was “unfair” that they had some of their activities in low-tax jurisdictions. Now the international political class is demanding that they determine where and how much a company should be taxed. But this is still not enough for these greedy politicians and bureaucrats, who are now demanding a “global minimum corporate tax,” as Democratic Sen. Sherrod Brown of Ohio advocated in the Nov. 2 <em>Wall Street Journal</em>.</p> <p>Most businesses are taxed at individual — not corporate — rates, because they are set up as sole proprietorships, partnerships and LLCs. You can be sure that the next effort will be to establish a minimum tax for all businesses everywhere on the globe, which will be quickly extended to all individuals. What right does the United States or France have to tell other countries what their tax rates must be? As global taxes are increasingly implemented, Americans and citizens of other countries will lose their democratic right to determine their own taxes — and Americans will be right back where they were under King George III. What happened to “no taxation without representation”?</p> </div> Mon, 09 Nov 2015 08:51:00 -0500 Richard W. Rahn Reforming the International Investment Law System Wed, 06 May 2015 10:30:00 -0400 Simon Lester At I.C.C., Due Process Deficiencies Mar Credibility Ted Galen Carpenter <div class="lead text-default"> <p>Problems with the I.C.C. go far beyond the specifics of the Kenyatta case. Although holding political leaders accountable under international law for odious acts they may have committed is desirable in theory, there are major drawbacks regarding the I.C.C. and similar bodies.</p> </div> , <div class="text-default"> <p>For one, threatening to prosecute dictators and other offenders creates a powerful incentive for them to cling to power, even when a diplomatic deal might get them to go quietly into exile. There may be difficult tradeoffs between securing justice for victims and hastening the end of a brutal regime, but I.C.C. supporters tend to ignore that dilemma.</p> <p>Even more troubling are the many due process deficiencies in the I.C.C., including the admission of hearsay evidence and testimony from anonymous witnesses. The willingness of international tribunals to reach verdicts and impose long prison sentences based on a simple majority vote is another alarming feature. That situation is exacerbated when a panel sometimes consists of no more than three judges, as in the recent <a href="" target="_blank">conviction of a Congolese warlord by a two-to-one vote</a>. At a minimum, larger panels should be required, along with a unanimous vote for conviction.</p> <p>A related defect is that there are insufficient protections against bias, even blatant bias, on the part of judges. Individuals assessing the guilt or innocence of a defendant may be appointees of a government that is an adversary of the defendant’s government or political movement. A bedrock principle of due process is that members of a tribunal ought to be objective, but the makeup of I.C.C. panels can violate that fundamental requirement.</p> <p>The United States is not a participant in the International Criminal Court. Given such problems, it is unsurprising that American leaders have been wary about embracing it. That wariness is warranted and should continue.</p> </div> Thu, 11 Dec 2014 07:22:00 -0500 Ted Galen Carpenter Elonis v. United States Stephen R. Shapiro, Brian M. Hauss, Lee Rowland, Jack M. Balkin, Emma Llanso, Ilya Shapiro <div class="lead text-default"> <p>To ensure that public discussion remains “uninhibited, robust, and wide-open,” the First Amendment protects speech that is “vituperative, abusive, and inexact.” While nobody will argue that Anthony Elonis’s speech—the subject of a Supreme Court case this coming term—was anything but “vituperative, abusive, and inexact,” there is considerable disagreement over whether his speech should be protected by the First Amendment. Elonis’s chosen form of speech was a series of rap lyrics he posted on Facebook under the pseudonym “Tone Dougie.” Many of the lyrics were violent and lurid, and some of these violent images were made in reference to Elonis’s estranged wife, who took them as a threat to her life. As a result of his crude posts, Elonis was fired, his wife obtained a protective order against him, and he was arrested and charged with violating 18 U.S.C. § 875(c), which makes it a federal crime to transmit in interstate commerce “any communication containing any threat to injure the person of another.” Elonis argued that his rap lyrics were an artistic expression and that since he did not intend them to be a threat, his speech should be protected. The federal district court hearing his case didn’t see it that way. The judge rejected his request that the jury be instructed to consider his actions based on whether he expressed a subjective intent to threaten and instead instructed the jury to judge his speech based on whether a reasonable person would have interpreted the lyrics as a serious expression of intent to inflict bodily injury. Elonis was thus convicted, and the U.S. Court of Appeals for the Third Circuit also rejected his argument that a subjective intent to threaten is required before speech loses First Amendment protection. Now before the Supreme Court, Cato has joined the ACLU, the Abrams Institute for Freedom of Expression at Yale School, and two other groups on a brief supporting Elonis’s position. We argue that Supreme Court precedent shows that (1) a subjective intent to threaten is an essential element of a “true threat,” (2) requiring a finding of subjective intent is in line with First Amendment principles, and (3) drawing the line between threat and protected speech carefully is particularly important given the rise of the internet as a forum of communication—one where it can be easy to take things out of context. As a matter of most people’s taste, the internet may well be better off without violent rap lyrics like Anthony Elonis’s. But that shouldn’t matter to this case or how it’s analyzed under the First Amendment, which requires a high standard of proof regarding incitement or threats of violence before individuals can be jailed for their speech. The Supreme Court should take this opportunity to speak that truth freely across all mediums.</p> </div> Fri, 22 Aug 2014 15:40:00 -0400 Stephen R. Shapiro, Brian M. Hauss, Lee Rowland, Jack M. Balkin, Emma Llanso, Ilya Shapiro A Case against Child Labor Prohibitions Benjamin Powell <div class="lead text-default"> <p>Halima is an 11-year-old girl who clips loose threads off of Hanes underwear in a Bangladeshi factory.<sup>1</sup> She works about eight hours a day, six days per week. She has to process 150 pairs of underwear an hour. At work she feels "very tired and exhausted," and sometimes falls asleep standing up. She makes 53 cents a day for her efforts. Make no mistake, it is a rough life.</p> </div> , <div class="text-default"> <p>Any decent person's heart would go out to Halima and other child employees like her. Unfortunately, all too often, people's emotional reaction lead them to advocate policies that will harm the very children they intend to help. Provisions against child labor are part of the International Labor Organization's core labor standards. Anti-sweatshop groups almost universally condemn child labor and call for laws prohibiting child employment or boycotting products made with child labor.</p> <p>In my recent book, <em>Out of Poverty: Sweatshops in the Global Economy</em>, I argue that much of what the anti-sweatshop movement agitates for would harm workers and that the process of economic development, in which sweatshops play an important role, is the best way to raise wages and improve working conditions. Child labor, although the most emotionally charged aspect of sweatshops, is not an exception to this analysis.</p> <p>We should desire to see an end to child labor, but it has to come through a process that generates better opportunities for the children—not from legislative mandates that prevent children and their families from taking the best option available to them. Children work because their families are desperately poor, and the meager addition to the family income they can contribute is often necessary for survival. Banning child labor through trade regulations or governmental prohibitions often simply forces the children into less-desirable alternatives. When U.S. activists started pressuring Bangladesh into eliminating child labor, the results were disastrous.</p> <p><strong>Effects of Child Labor Bans</strong><br />In 1993 Sen. Tom Harkin (D-IA) introduced the Child Labor Deterrence Act, which would have banned imports from countries employing children. In response, that fall Bangladeshi garment companies let go approximately 50,000 children. According to the U.S. Department of Labor, "It is widely thought that most of them have found employment in other garment factories, in smaller, unregistered subcontracting garment workshops, or in other sectors."<sup>2</sup> That makes the introduction of the bill seem simply ineffective. The Department of Labor is sugarcoating the situation. Paul Krugman summarizes what happened more bluntly: "The direct result was that Bangladeshi textile factories stopped employing children. But did the children go back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced child workers ended up in even worse jobs, or on the streets—and that a significant number were forced into prostitution."<sup>3</sup> Based on the information they have, families tend to choose the best available job for their children. Taking that option away does not eliminate the necessity of work; it forces them to take a less-desirable job. As repulsive as a child working in a sweatshop may be, it is not nearly as repulsive as a child forced into prostitution through the actions of unthinking Western activists.</p> <p>The Bangladesh story is a dramatic one, but it illustrates the general point that when children lose factory jobs they find less desirable jobs to replace the jobs they lost. In countries where sweatshops locate, child labor is often the norm, and most of the children work in less remunerative sectors with fewer opportunities for advancement than manufacturing, such as agriculture or domestic services.</p> <p>In 2003 the World Bank measured the percentage of children aged 10 to 14 that were working in most countries.<sup>4</sup> As Table 1 shows, child labor is not uncommon. Rates of child labor range from a high of nearly 27 percent of children in Bangladesh to a low of 3.3 percent in Costa Rica.<sup>5</sup></p> <p class="center"><a href=""> <div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="9c23ee15-0471-47e1-87c3-9d4644347be6" data-langcode="en" class="embedded-entity"> <img width="450" height="274" alt="Media Name: edb21-sm.jpg" class="lozad component-image lozad" data-srcset="/sites/ 1x, /sites/ 1.5x" data-src="/sites/" typeof="Image" /></div> </a></p> <p>The World Bank also collects data on the economic sectors in which children are employed. Figure 1 presents the distribution of employment of economically active children between the ages of 7 and 14 by sector.<sup>6</sup></p> <p class="center"><a href=""> <div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="e66a8aca-4b10-45d4-bef6-ae65e3d2c952" data-langcode="en" class="embedded-entity"> <img width="450" height="303" alt="Media Name: edb21-sm2.jpg" class="lozad component-image lozad" data-srcset="/sites/ 1x, /sites/ 1.5x" data-src="/sites/" typeof="Image" /></div> </a></p> <p>In seven of the nine countries for which data exists, most children were employed in agriculture, often by a wide margin.<sup>7</sup> In the two exceptions, Costa Rica and the Dominican Republic, the leading sector employing children was service. India had the highest proportion of children employed in manufacturing, and there it was a little over 14 percent. Protests against sweatshops that use child labor implicitly assume that ending child labor in sweatshops by taking away the option to work in a factory will, on net, reduce child labor. Evidence on child labor in countries that have sweatshops indicates that is wrong. It is not a few "bad apple" firms exploiting children in factories. Child labor is common. Employment in agriculture is not necessarily safer, either. A 1997 child labor survey showed that 12 percent of children working in agriculture reported injuries, compared with 9 percent of those who worked in manufacturing.<sup>8</sup></p> <p><strong>Child Labor and Economic Development</strong><br />The thought of Third World children toiling in factories to produce garments for us in the developed world to wear is appalling, at least in part because child labor is virtually nonexistent in the United States and the rest of the more developed world.<sup>9</sup> Virtually nowhere in the developed world do kids toil long hours every week in a factory in a manner that prevents them from obtaining schooling.</p> <p>Children typically worked throughout human history, either long hours in agriculture or in factories once the industrial revolution emerged. The question is, why don't kids work today? Rich countries do have laws against child labor, but so do many poor countries. In Costa Rica the legal working age is 15, but an ILO survey found 43 percent of working children were under the legal age.<sup>10</sup> Similarly, in the United States, Massachusetts passed the first restriction on child labor in 1842. However, that law and other states' laws affected child labor nationally very little.<sup>11</sup> By one estimate, more than 25 percent of males between the ages of 10 and 15 participated in the labor force in 1900.<sup>12</sup> Another study of both boys and girls in that age group estimated that more than 18 percent of them were employed in 1900.<sup>13</sup> Economist Carolyn Moehling also found little evidence that minimum-age laws for manufacturing implemented between 1880 and 1910 contributed to the decline in child labor.<sup>14</sup> Similarly, economists Claudia Goldin and Larry Katz examined the period between 1910 and 1939 and found that child labor laws and compulsory school-attendance laws could explain at most 5 percent of the increase in high school enrollment.<sup>15</sup> The United States did not enact a national law limiting child labor until the Fair Labor Standards Act was passed in 1938. By that time, the U.S. average per capita income was more than $10,200 (in 2010 dollars).</p> <p>Furthermore, child labor was defined much more narrowly when today's wealthy countries first prohibited it. Massachusetts's law limited children who were under 12 years old to no more than 10 hours of work per day. Belgium (1886) and France (1847) prohibited only children under the age of 12 from working. Germany (1891) set the minimum working age at 13.<sup>16</sup> England, which passed its first enforceable child labor law in 1833, merely set the minimum age for textile work at nine years old. When these countries were developing, they simply did not put in place the type of restrictions on child labor that activists demand for Third World countries today. Binding legal restrictions came only after child labor had mostly disappeared.</p> <p>The main reason children do not work in wealthy countries is precisely because they are wealthy. The relationship between child labor and income is striking. Using the same World Bank data on child labor participation rates we can observe how child labor varies with per capita income. Figure 2 divides countries into five groups based on their level of per capita income adjusted for purchasing power parity. In the richest two fifths of countries, all of whose incomes exceed $12,000 in 2010 dollars, child labor is virtually nonexistent.</p> <p class="center"><a href=""> <div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="6a3e461c-0576-4a6c-b1cf-487e8c3c0f0f" data-langcode="en" class="embedded-entity"> <img width="450" height="281" alt="Media Name: edb21-sm3.jpg" class="lozad component-image lozad" data-srcset="/sites/ 1x, /sites/ 1.5x" data-src="/sites/" typeof="Image" /></div> </a></p> <p>It is only when countries have an income less than $11,000 per year that we start to observe children in the labor force. But even here, rates of child labor remain relatively low through both the third and fourth quintiles. It is the poorest countries where rates of child labor explode. More than 30 percent of children work in the fifth of countries with incomes ranging from $600 to $2,000 per year. Economists Eric Edmonds and Nina Pavcnik econometrically estimate that 73 percent of the variation of child labor rates can be explained by variation in GDP per capita.<sup>17</sup></p> <p>Of course, correlation is not causation. But in the case of child labor and wealth, the most intuitive interpretation is that increased wealth leads to reduced child labor. After all, all countries were once poor; in the countries that became rich, child labor disappeared. Few would contend that child labor disappeared in the United States or Great Britain prior to economic growth taking place—children populated their factories much as they do in the Third World today. A little introspection, or for that matter our moral indignation at Third World child labor, reveals that most of us desire that children, especially our own, do not work. Thus, as we become richer and can afford to allow children to have leisure and education, we choose to.</p> <p><strong>Conclusion</strong><br />The thought of children laboring in sweatshops is repulsive. But that does not mean we can simply think with our hearts and not our heads. Families who send their children to work in sweatshops do so because they are poor and it is the best available alternative open to them. The vast majority of children employed in countries with sweatshops work in lower-productivity sectors than manufacturing. Passing trade sanctions or other laws that take away the option of children working in sweatshops only limits their options further and throws them into worse alternatives. Luckily, as families escape poverty, child labor declines. As countries become rich, child labor virtually disappears. The answer for how to cure child labor lies in the process of economic growth—a process in which sweatshops play an important role.</p> <p></p><br /><hr width="75%" /><b>Notes</b> <p>1. National Labor Committee, "Child Labor: 11 year-old Halima Sews Clothing for Hanes," 2006. A video of this interview with Halima is available at <a href="" target="_blank"></a>.<br />2. U.S. Department of Labor, Bureau of International Labor Affairs, <em>1994 Child Labor Report</em>, Bangladesh, <a href="" target="_blank"></a><br />3. Paul Krugman, "Reckonings; Hearts and Heads," <em>New York Times</em> (April 22, 2001), p. 17. Similarly, UNICEF, <em>The State of the World's Children</em> (Oxford: Oxford University Press, 1997), <a href="" target="_blank"></a>, reports that many of these children turned to prostitution.<br />4. World Bank, <em>World Development Indicators</em>, CD-ROM (Washington: World Bank, 2005).<br />5. Mauritius is excluded from Table 1 because it is an outlier that is not representative of the general situation as I explain in <em>Out of Poverty</em>.<br />6. For each country, an average was taken for all years between 2000 and 2009 for which data are available.<br />7. The World Bank database does not include data for Vietnam, but Eric V. Edmonds and Nina Pavcnik, "Child Labor in the Global Economy," <em>Journal of Economic Perspectives</em> 19, no. 1 (Winter 2005): 204, report that 92 percent of children working in Vietnam in 1998 worked in agriculture.<br />8. Kebebew Asshagrie, <em>Statistics on Working Children and Hazardous Child Labour in Brief</em>, Geneva: International Labor Organization (1997).<br />9. The International Labor Organization (ILO) estimates that 18 percent of children aged 5 to 14 are economically active worldwide. Of these, it estimates that 94 percent of them are in low-income countries, and only 2 percent are in what it classifies as developed countries. ILO, <em>Every Child Counts: New Global Estimates on Child Labour</em>, Geneva: ILO (2002).<br />10. International Labor Organization, Summary of the Results of the Child and Adolescent Labour Survey in Costa Rica, Geneva: ILO (2002), <a href="" target="_blank"></a>.<br />11. The remainder of this paragraph and the next draws on research found in Joshua C. Hall and Peter T. Leeson, "Good for the Goose, Bad for the Gander: International Labor Standards and Comparative Development," <em>Journal of Labor Research</em> 28, no. 4 (September 2007): 658–76.<br />12. Robert Whaples, "Child Labor in the United States," in EH.Net Encyclopedia, ed. R. Whaples, retrieved from <a href="" target="_blank"></a>.<br />13. Samuel Lindsay, "Child Labor in the United States," <em>American Economic Association</em> 8, (February 1907): 256–259.<br />14. Carolyn Moehling, "State Child Labor Laws and the Decline in Child Labor," <em>Explorations in Economic History</em> 36, no. 1 (1999): 72–105.<br />15. Claudia Goldin and Larry Katz, "Mass Secondary Schooling and the State: The Role of State Compulsion and the High School Movement," <em>NBER Working Paper</em> No. 10075 (2003).<br />16. France and Prussia both had earlier laws prohibiting child labor, but they were not enforceable. See Hall and Leeson (2007).<br />17. Edmonds and Pavcnik, (2005): 210.</p> </div> Tue, 29 Jul 2014 14:44:00 -0400 Benjamin Powell