Latest Cato Research on Regulatory Studies https://www.cato.org/ en Johan Norberg discusses whether public transit should be free on Free to Choose Media’s Dead Wrong https://www.cato.org/multimedia/media-highlights-tv/johan-norberg-discusses-whether-public-transit-should-be-free-free Wed, 03 Jun 2020 11:10:12 -0400 Johan Norberg https://www.cato.org/multimedia/media-highlights-tv/johan-norberg-discusses-whether-public-transit-should-be-free-free COVID and Churches Go to the Supreme Court https://www.cato.org/publications/commentary/covid-churches-go-supreme-court Walter Olson <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>On Friday evening a&nbsp;closely divided Supreme Court rejected a&nbsp;challenge to the state of California’s executive order—intended to avert spread of the novel coronavirus—which restricts occupancy in churches to 25 percent of building capacity or no more than 100 attendees.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Chief Justice John Roberts joined the four liberals to write for the majority, while Justice Brett Kavanaugh penned a&nbsp;dissent joined by Neil Gorsuch and Clarence Thomas. (Samuel Alito also indicated his support for the challengers but did not explain why.) The split illuminated divisions on the Court that we are almost certain to hear more of in coming terms: Many conservatives have grown discontented with the Court’s modern regime on religious accommodation and want it overturned. But it is not clear that the votes are there to accomplish this revolution.</p> <p>Over the last 60 or so years liberals and conservatives have switched places on the question of religious accommodation. Few foresaw this development.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Over the last 60 or so years liberals and conservatives have switched places on the question of religious accommodation. Few foresaw this development. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>At mid‐​century, it was the Court’s more liberal Justices, such as William Brennan, who championed the idea of a&nbsp;constitutional right to religious accommodation. They prevailed for a&nbsp;while, in cases such as&nbsp;<em>Sherbert</em>&nbsp;v.&nbsp;<em>Verner</em>&nbsp;(1963)—on unemployment compensation for workers who quit a&nbsp;job for religious reasons—and&nbsp;<em>Wisconsin</em>&nbsp;v.&nbsp;<em>Yoder</em>&nbsp;(1972)—on whether compulsory school attendance laws could be applied to the Amish.</p> <p>At length, in 1990, the Court reversed course in the case of&nbsp;<em>Employment Division</em>&nbsp;v.&nbsp;<em>Smith</em>, penned by Justice Antonin Scalia. That decision found that the Constitution does not, after all, require government to modify the application of laws where reasonably feasible in order to accommodate religious believers’ practice. Instead, it is enough that government is enforcing a&nbsp;neutral and generally applicable law, even if doing so incidentally burdens religious belief—so long as the law is not drafted or applied so as to discriminate against religious practice or purposely harm it.</p> <p>In a&nbsp;story by now familiar, the cause of religious accommodation—symbolized by the subsequent passage of the Religious Freedom Restoration Act at the federal level and mini‐​RFRAs in many states (though not California)—then changed political sides. As conservative and orthodox religious thinkers began to feel more under siege from the government, they came to see RFRAs as one of the few defenses they had left. At the same time, many liberal thinkers, concerned that accommodation could come at the expense of discrimination law, began backing off their support for the idea, at least in part.</p> <p>The crux of the California dispute that the Court ruled on last week was whether the California rules were neutral, generally applicable, and not badly motivated—in which case the state would probably win—or if they discriminated against religion—which would lead them to flunk even the permissive&nbsp;<em>Smith</em>&nbsp;test. For both Roberts and Kavanaugh, the question therefore was: Had California treated worship services neutrally with respect to comparable secular gatherings?</p> <p>Yes, it had, wrote Roberts in his brief opinion. He noted that “lectures, concerts, movie showings, spectator sports, and theatrical performances” had all been put under restrictions at least as severe (many in fact were closed down outright, rather than allowed partial operation as were churches).</p> <p>Kavanaugh’s dissent reached instead for a&nbsp;less obviously parallel set of “comparable secular businesses.” For example, the occupancy restrictions had been more lenient toward “retail stores, pharmacies, shopping malls, pet grooming shops, bookstores, florists, hair salons, and cannabis dispensaries.”</p> <p>I’m not sure how this gets around Roberts’ point for the majority that in churches, unlike in drugstores or pet grooming shops, “large groups of people gather in close proximity for extended periods of time.” The point of a&nbsp;congregation is to congregate, no? And extended close contact in enclosed settings is the most common way for the virus to spread.</p> <p>The wider problem is that even after 30&nbsp;years, there is no real agreement on how to apply&nbsp;<em>Smith</em>. To many judges, it amounts to what lawyers call a&nbsp;rational basis test. Which is to say: the government wins so long as it has some non‐​crazy rationale for what it has done, even if its rules are overbroad or mistaken in some details. To other judges, the&nbsp;<em>Smith</em>&nbsp;ruling suggests something stricter: Kavanaugh’s dissent reads like a&nbsp;call for churches to get a&nbsp;sort of most‐​favored‐​nation status, in which they are entitled to whatever are the best deals handed out to any entity and not merely lumped in with the likes of lecture halls and secular choir performances.</p> <p>For two reasons the California case’s importance may be less than it appears. First, Roberts’s language stresses the dispute’s early procedural posture: plaintiffs were asking for a&nbsp;quickie permanent injunction, and while they hadn’t met the heavy burden of proof needed for that, they might still carry the less heavy burden of requesting a&nbsp;stay while arguments unfold. Furthermore, things may not reach that point because California and other states are likely to relax restrictions as the virus comes under control—and in so doing could render the controversy moot.</p> <p>So long as courts restrict themselves to the question posed by&nbsp;<em>Smith</em>&nbsp;in its strong form—whether the state has laid arbitrary burdens on religion—plaintiffs are likely to face a&nbsp;heavy lift.</p> <p>Religious gatherings of many faiths have been prominent spreader events for COVID-19 around the world. As a&nbsp;policy matter you can make a&nbsp;reasonable case that church congregations—the overwhelming majority of which have no wish to defy sound public health advice—deserve ample accommodation. But for now, at least in states such as California that lack a&nbsp;version of the Religious Freedom Restoration Act (RFRA), they may need to seek that accommodation through the political process.</p> <p>Alternatively, this decision can be seen as a&nbsp;fight (without saying so) over whether&nbsp;<em>Smith</em>&nbsp;in strong form is still good law.</p> <p>If you do see it that way, it could be a&nbsp;sign that there are not five votes on today’s Court to overturn it.</p> </div> Tue, 02 Jun 2020 08:54:19 -0400 Walter Olson https://www.cato.org/publications/commentary/covid-churches-go-supreme-court Veronique de Rugy discusses the airline industry on American Radio Journal https://www.cato.org/multimedia/media-highlights-radio/veronique-de-rugy-discusses-airline-industry-american-radio Mon, 01 Jun 2020 12:54:39 -0400 Veronique de Rugy https://www.cato.org/multimedia/media-highlights-radio/veronique-de-rugy-discusses-airline-industry-american-radio Let Investors Decide, Part 1 https://www.cato.org/blog/let-investors-decide-part-1 Jennifer J. Schulp <p>The SEC's "accredited investor" definition bars investors who earn less than $200,000 a year or have a net worth less than $1 million from taking part in private securities offerings. It's a definition even its mother no longer loves: SEC Commissioner <a href="https://d.docs.live.net/aa1321af17d9974a/Desktop/o%09https:/www.sec.gov/news/public-statement/statement-roisman-2019-12-18-accredited-investor" rel="nofollow external noopener noreferrer" target="_blank">Elad Roisman</a> says it "stands between millions of Americans and opportunities for them to invest their wealth in private offerings," while SEC Commissioner <a href="https://www.sec.gov/news/public-statement/statement-2019-12-18-peirce-accredited-investor" rel="nofollow external noopener noreferrer" target="_blank">Hester Peirce</a> calls it "one of the more offensive concepts lurking in our federal securities laws." Although the definition was intended to offer "investor protection," it has instead "shut out all but the wealthiest from upside gains that private companies have made over the last several decades," according to <a href="https://d.docs.live.net/aa1321af17d9974a/Desktop/o%09https:/www.sec.gov/news/public-statement/statement-roisman-2019-12-18-accredited-investor" rel="nofollow external noopener noreferrer" target="_blank">Roisman</a>.</p> <p>In light of such negative opinions from inside the SEC, one might have expected a <a href="https://www.sec.gov/rules/proposed/2019/33-10734.pdf" rel="nofollow external noopener noreferrer" target="_blank">proposed amendment</a> to the rule to be dramatic. Currently, the <a href="https://www.law.cornell.edu/cfr/text/17/230.501" rel="nofollow external noopener noreferrer" target="_blank">SEC's rules</a> define an accredited investor as any natural person: (i) whose net worth, individually or with spouse, exceeds $1,000,000 not counting his primary residence or (ii) who had an individual income of more than $200,000 individually (or $300,000 with spouse) for the past two years and expects to receive the same income this year. But, after taking more than a decade to reconsider it, the SEC's proposal merely expands this old definition, adding certain financial services professionals to the ranks of those well-to-do persons already permitted to invest in private offerings. This is the wrong approach.</p> <p>The right approach is the most simple: eliminate the accredited investor definition altogether. Permit investors to make their own investment decisions. Far from undoing "investor protection," this change would be one that investors—especially less wealthy ones—would have every reason to welcome.</p> <p>To understand why, let's start with a bit of background. (For a more in-depth background reading, see this <a href="https://www.cato.org/publications/policy-analysis/moneys-no-good-here-how-restrictions-private-securities-offerings-harm" rel="nofollow external noopener noreferrer" target="_blank">policy analysis</a>.)</p> <p>The Securities Act of 1933 requires that all offers and sales of securities be registered with the SEC. Issuers of such securities must file a registration statement, which includes a prospectus containing audited financial statements and detailed disclosures about the issuer's business operations, financial condition, risk factors, and management. This disclosure—which is complex and very expensive to complete—is the hallmark of securities sold in our public markets.</p> <p>But public markets represent only a fraction of the capital raised in the United States. Considerably more capital is raised in private markets: <a href="https://www.sec.gov/rules/concept/2019/33-10649.pdf" rel="nofollow external noopener noreferrer" target="_blank">in 2018</a>, private markets raised $2.9 trillion of new capital, compared to $1.4 trillion—less than half as much—in public markets.</p> <p>Private offerings are made possible by the many exemptions from the Securities Act's registration requirements. The exempt offering framework is complicated—a problem in and of itself—but in general, investors in private offerings receive less information about the security being offered than they would in a registered offering, and resales of the securities from private offerings are often restricted. These private offerings are diverse, and include direct investment in individual companies as well as pooled investment into private equity, hedge, or other funds.</p> <p>One of the most popular avenues for exempt offerings is <a href="https://www.law.cornell.edu/cfr/text/17/230.506" rel="nofollow external noopener noreferrer" target="_blank">Rule 506 of Regulation D</a>. More money was raised under Rule 506(b) <a href="https://www.sec.gov/rules/proposed/2019/33-10734.pdf" rel="nofollow external noopener noreferrer" target="_blank">in 2018</a> than in the entirety of the public markets ($1.5 trillion vs. $1.4 trillion). Rule 506 permits an unlimited amount of capital to be raised without registering the offering if the issuer complies with the rule's requirements about, among other things, investor solicitation and eligibility. The accredited investor definition limits who can invest in Rule 506 offerings.</p> <p>The term "<a href="https://www.law.cornell.edu/uscode/text/15/77b" rel="nofollow external noopener noreferrer" target="_blank">accredited investor</a>" was added to the Securities Act in 1980, which directed the SEC to create rules to qualify "any person who, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial matters, or amount of assets under management" as an accredited investor. The <a href="https://www.law.cornell.edu/cfr/text/17/230.501" rel="nofollow external noopener noreferrer" target="_blank">SEC's rules</a> have remained largely unchanged since 1982, limiting private market investment to individuals who are worth more than $1 million or who make more than $200,000 a year. The <a href="https://www.sec.gov/rules/proposed/2019/33-10734.pdf" rel="nofollow external noopener noreferrer" target="_blank">SEC</a> takes for granted that such well-to-do persons are the only ones "whose financial sophistication and ability to sustain the risk of loss of investment or fend for themselves renders the protections of the Securities Act's registration process unnecessary."</p> <p>What's wrong with that?</p> <p>In essence, the SEC is limiting the investment opportunities of less wealthy persons. The SEC decides who gets to invest where: public markets only for most, but public <em>and</em> private markets for the wealthy. Such paternalism is objectionable in itself.</p> <p>What's more, the SEC's justification for its stance—investor protection—makes little sense: yes, private market investing is risky, but so is investing in public securities markets. Even assuming that a particular investor finds the voluminous and lawyered information in a registration statement valuable, these public market disclosures do not mitigate the risk of investing in the company itself. The public market also is <a href="https://www.sec.gov/news/press-release/2014-243" rel="nofollow external noopener noreferrer" target="_blank">no stranger</a> to fraudulent misconduct. Yet the SEC places no limits on investors' freedom to invest in public markets, regardless of an investor's degree of financial sophistication or ability to endure a loss. In light of this, the SEC's limitations on private market investment seem quite arbitrary.</p> <p>Nor is the SEC's interference harmless. On the contrary, SEC intervention has caused less wealthy investors to miss out on good opportunities in private markets. As the number of public companies has declined over the past 20 years, the amount of time it takes for a company to go public has grown to <a href="https://financialservices.house.gov/uploadedfiles/hhrg-116-ba16-wstate-jonesr-20190911.pdf" rel="nofollow external noopener noreferrer" target="_blank">more than 11 years today, up from 4 years in 1996</a>. This extended timeline likely places a company <a href="https://www.wsj.com/articles/todays-tech-ipos-offer-lower-growth-for-top-dollar-11566050580" rel="nofollow external noopener noreferrer" target="_blank">past its high growth phase</a> by the time it goes public. So, not only do investors have fewer choices in the public markets than they once did, those choices may offer more limited opportunity for returns on their investment. Although there's <a href="https://www.economist.com/finance-and-economics/2020/01/30/everyone-now-believes-that-private-markets-are-better-than-public-ones" rel="nofollow external noopener noreferrer" target="_blank">some</a> <a href="https://financialservices.house.gov/uploadedfiles/hhrg-116-ba16-wstate-defontenaye-20190911.pdf" rel="nofollow external noopener noreferrer" target="_blank">debate</a> about whether investors earn better profits in private markets, private markets unquestionably offer investors different investment opportunities than are available in the public markets. More than two-thirds of securities issued in <a href="https://financialservices.house.gov/uploadedfiles/hhrg-116-ba16-wstate-pieciakm-20190911.pdf" rel="nofollow external noopener noreferrer" target="_blank">2018</a> were in the private markets, and the accredited investor definition prohibited 88 percent of Americans from investing in them.</p> <p>The simple truth is that the SEC's arbitrary line-drawing makes little sense. Its wealth test misses the mark both by excluding experienced entrepreneurs who are not wealthy and by including heirs to fortunes, lottery winners, and others whose wealth has nothing to do with investment know-how. Not surprisingly, the wealth test is also discriminatory, <a href="https://www.sec.gov/rules/proposed/2019/33-10734.pdf" rel="nofollow external noopener noreferrer" target="_blank">as the SEC has itself recognized</a>, disproportionately depriving minorities and people in lower cost of living areas of the chance to invest in the private markets. This harms not only investors, but also <a href="https://www.sec.gov/files/2019_OASB_Annual%20Report.pdf" rel="nofollow external noopener noreferrer" target="_blank">businesses</a> seeking to raise capital that may be unable to turn to their communities for support.</p> <p>Nor will it improve matters if the SEC, instead of applying a naive wealth test, defines "accredited investors" as those who can afford to take risks. Investors can be motivated by many goals, not all of which are related to return on investment: for example, the desire to invest in a compelling idea, an interest in supporting a local entrepreneur, the need to diversify their portfolio, or an abiding interest in risk-taking. None of these motivations is captured by a general metric for loss tolerance.</p> <p>The truth is that no simple, blanket rule can capture individual investor sophistication. The SEC's attempts to employ such a rule are poor substitutes for existing investor protections that are more attuned to individual circumstances, including anti-fraud provisions and standards applicable to investment adviser and broker-dealer conduct. Regulating misconduct by issuers and financial professionals on whom investors rely, rather than screening investors, preserves an investor's freedom to invest as he or she sees fit.</p> <p>To reiterate: the accredited investor definition should have no place in our securities laws. A better system would preserve firms' options for raising capital, while simultaneously ensuring that investors know what types of information the company is required to disclose. Investors can then judge for themselves whether they wish to have particular information from a company before investing. One way of pursuing this approach has been suggested by <a href="https://www.cato.org/publications/policy-analysis/moneys-no-good-here-how-restrictions-private-securities-offerings-harm#_idTextAnchor033" rel="nofollow external noopener noreferrer" target="_blank">Thaya Brook Knight</a>, who proposes that unregistered offerings come with a mandatory disclosure of protections that investors will forgo. <a href="https://www.sec.gov/comments/s7-25-19/s72519-6898005-211087.pdf" rel="nofollow external noopener noreferrer" target="_blank">Georgetown professor James Angel</a> also has some interesting ideas about a classification system that can assist investors in understanding the amount of disclosure an offering is required to provide.</p> <p>Unfortunately, the SEC seems determined to do no more than tinker with the accredited investor definition. In my next post, I'll discuss the SEC's proposed amendments in more detail and suggest a compromise between them and jettisoning the definition altogether that, while not a perfect solution, would at least expand less-wealthy investors' freedom to invest in private markets.</p> <p>[<a href="https://www.alt-m.org/2020/06/01/let-investors-decide-part-1/">Cross-posted from Alt-M.org</a>]</p> <p></p> Mon, 01 Jun 2020 08:33:50 -0400 Jennifer J. Schulp https://www.cato.org/blog/let-investors-decide-part-1 Jeffrey A. Singer with Caleb O. Brown on the right to test for COVID-19 https://www.cato.org/multimedia/cato-audio/jeffrey-singer-caleb-o-brown-right-test-covid-19 Mon, 01 Jun 2020 03:00:00 -0400 Jeffrey A. Singer, Caleb O. Brown https://www.cato.org/multimedia/cato-audio/jeffrey-singer-caleb-o-brown-right-test-covid-19 Terence Kealey with Caleb O. Brown on the role of science in a pandemic https://www.cato.org/multimedia/cato-audio/terence-kealey-caleb-o-brown-role-science-pandemic Mon, 01 Jun 2020 03:00:00 -0400 Terence Kealey, Caleb O. Brown https://www.cato.org/multimedia/cato-audio/terence-kealey-caleb-o-brown-role-science-pandemic The Coronavirus Pandemic Shows the Folly of Medical‐​Licensing Laws https://www.cato.org/publications/commentary/coronavirus-pandemic-shows-folly-medical-licensing-laws Jeffrey A. Singer, Richard P. Menger <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Of&nbsp;the many lessons of the COVID-19 pandemic, one of the most obvious is the need to reevaluate state‐​licensing laws that impede the free and rapid movement of health‐​care workers to places they are needed. Many governors&nbsp;<a href="https://www.cato.org/blog/states-lead-way-coronavirus-crisis-emergency-removal-occupational-licensing-obstacles-why-not" target="_blank">suspended</a>&nbsp;state‐​licensing requirements in early March so that doctors, nurses, and other health‐​care professionals licensed in other states could help with the public‐​health crisis in their own states. These governors should not resume the ways of the past when the crisis ends.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Individual state‐​licensing requirements for health‐​care professionals do not help patients or ensure quality. Rather, they serve as a&nbsp;mechanism to protect health‐​care provider interests.</p> <p>From its&nbsp;<a href="https://dokumen.tips/documents/the-early-development-of-medical-licensing-laws-in-the-united-states-1875-1900.html" target="_blank">inception</a>&nbsp;in 1847, the American Medical Association sought to reduce the number of practicing physicians by&nbsp;<a href="https://archive.org/stream/proceedingsofnat11847amer/proceedingsofnat11847amer_djvu.txt" target="_blank">promoting</a>&nbsp;state‐​licensing laws. It was largely unsuccessful in its campaign until after the Civil War. Then state chapters of the AMA&nbsp;<a href="https://pubmed.ncbi.nlm.nih.gov/6371126/" target="_blank">persuaded</a>&nbsp;legislatures to enact licensure boards, claiming they would&nbsp;<a href="https://www.healthaffairs.org/do/10.1377/hblog20140218.036973/full/" target="_blank">protect the public</a>&nbsp;from gross incompetence. Unfortunately, as many victims of medical malpractice will attest, the granting of a&nbsp;license offers no such protection. Licensing restrictions do, however, restrict the supply of health‐​care providers at a&nbsp;time when America’s aging population portends a&nbsp;physician&nbsp;<a href="https://www.cnbc.com/2019/09/06/americas-aging-population-is-leading-to-a-doctor-shortage-crisis.html" target="_blank">shortage</a>&nbsp;of crisis proportions.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>They artificially reduce the availability of physicians and the availability of care. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>When states that were badly hit by the COVID-19 pandemic removed licensing barriers, allowing doctors from outside states to practice medicine and to help their residents, the obvious question became why state medical restrictions were necessary in the first place.&nbsp;Is there a&nbsp;legitimate difference between the quality and necessity of additional certifications for a&nbsp;physician in Alabama versus Arizona?</p> <p>The medical‐​school requirement, national medical‐​licensing examination requirements, and residency‐​training requirements are nearly identical in all state‐​licensing processes. Yet in most cases, a&nbsp;medical license is not transferrable from state to state.</p> <p>A physician in New York City cannot practice medicine in New Jersey or Connecticut without three separate medical licenses using the same national‐​board examination, medical degree, and specialty training. These same licensing regulations prevent patients from receiving&nbsp;<a href="https://www.cato.org/publications/policy-analysis/liberating-telemedicine-options-eliminate-state-licensing-roadblock" target="_blank">telemedicine</a>&nbsp;from out‐​of‐​state providers.&nbsp;It’s akin to a&nbsp;state prohibiting someone from driving on their highway with an out‐​of‐​state driver’s license.</p> <p>Furthermore, having a&nbsp;license does not ensure quality care. Private credentialing and certification organizations, such as the American Board of Surgery and the American Board of Neurological Surgery, do the vetting of practitioners’ training and competency that health‐​care consumers need when seeking medical advice. Health‐​care consumer‐​rating sites such as&nbsp;<a href="https://www.healthgrades.com/" target="_blank"><em>Healthgrades</em></a>&nbsp;or&nbsp;<a href="https://www.vitals.com/" target="_blank"><em>Vitals</em></a>&nbsp;rate health‐​care providers, while sites lsuch as&nbsp;<a href="https://www.leapfroggroup.org/compare-hospitals" target="_blank"><em>Leapfrog</em></a>&nbsp;or&nbsp;<a href="https://www.consumerreports.org/health/" target="_blank"><em>Consumer Reports</em></a>&nbsp;rate health‐​care facilities. Licensing boards provide no such tangible function.</p> <p>Once they get a&nbsp;license, physicians in most states may practice any specialty they choose in their&nbsp;<a href="http://academicmedicineblog.org/clarifying-the-difference-between-medical-licensure-and-board-certification/" target="_blank">offices</a>. Many hospitals or insurance companies, on the other hand, may require their panels of providers to be specialty‐<a href="https://www.ama-assn.org/residents-students/transition-practice/licensing-and-board-certification-what-residents-need-know" target="_blank">board certified</a>. For example, a&nbsp;physician with no formal training or certification in psychiatry can post “psychiatrist” on the office door but would not be able to practice psychiatry in a&nbsp;hospital. Licensing doesn’t protect people. Credentialing protects people by carefully examining and verifying physicians’ depth of training and experience in the area in which they claim to have expertise.</p> <p>State license boards’ websites may be cumbersome to navigate. Consumers might find it a&nbsp;challenge to view and fully understand any out‐​of‐​state complaints a&nbsp;physician might have had prior to relocating in their state. Nobel Prize–winning economist Milton Friedman understood&nbsp;<a href="https://www.forbes.com/sites/timworstall/2017/06/04/milton-friedman-told-us-the-answer-decades-ago-now-itll-probably-be-ibms-watson/#505e43231bce" target="_blank">this</a>&nbsp;when he criticized medical‐​licensing laws. The governance of physicians is best done closest to the physician at the hospital, group, or specialty certification level.</p> <p>The licensure apparatus is also a&nbsp;money‐​making scheme.&nbsp;It costs&nbsp;<a href="https://www.albme.org/fees.html" target="_blank">$315</a>&nbsp;to get a&nbsp;license in Alabama.&nbsp;It costs&nbsp;<a href="https://www.medicallicensepro.com/arizona-medical-license/" target="_blank">$500</a>&nbsp;to get a&nbsp;license in Arizona. It costs $375 more to create the portfolio needed to help send the application through the Federation of State Medical Boards. On top of that are the general licensing‐​examination costs, which tally well over $1000.&nbsp;A&nbsp;cottage industry has developed to help physicians navigate the process. Over the past 100 or so years, “organized medicine” guilds have teamed up with legislatures to erect a&nbsp;hidden medical‐​licensing/​industrial complex.</p> <p>In 2019, Arizona became the&nbsp;<a href="https://www.mercatus.org/bridge/commentary/arizona-makes-right-move-occupational-licensing" target="_blank">first</a>&nbsp;state to grant reciprocal recognition to all occupations holding out‐​of‐​state licenses in good standing that wish to set up operations within its borders. Shortly thereafter,&nbsp;<a href="https://www.mercatus.org/bridge/commentary/arizona-makes-right-move-occupational-licensing" target="_blank">Montana and Pennsylvania</a>&nbsp;followed suit.&nbsp;<a href="https://indefenseofliberty.blog/2020/05/12/missouri-passes-historic-bill-to-break-down-barriers-to-work/" target="_blank">Missouri</a>&nbsp;became the latest state to do so this May. These are all steps in the right direction, but these states still require out‐​of‐​state licensees to maintain brick‐​and‐​mortar locations within their borders.</p> <p>A better reform would be to define the “locus of service” as the state in which the provider holds the license, not the state in which the consumer resides. The United States is a&nbsp;50‐​state free‐​trade zone. Consumers can purchase goods and services across state lines without obstructions. Yet they are barred from services provided by people who must obtain a&nbsp;state license to practice their livelihood.</p> <p>Artificial shortages develop wherever there are barriers to entry by new providers. Medical‐ licensing laws artificially reduce the&nbsp;<a href="https://www.cato.org/sites/cato.org/files/pubs/pdf/pa-621.pdf" target="_blank">availability of physicians</a>&nbsp;and the availability of care.&nbsp;By their emergency suspension of state‐​licensing laws, governors of states that are COVID-19 “hot spots” tacitly admitted as much. Hopefully the lesson in this will not be lost on those governors and their legislatures once the crisis is over. The suspensions should be made permanent and form a&nbsp;basis for a&nbsp;comprehensive overhaul of medical‐​licensing laws.</p> </div> Fri, 29 May 2020 10:33:33 -0400 Jeffrey A. Singer, Richard P. Menger https://www.cato.org/publications/commentary/coronavirus-pandemic-shows-folly-medical-licensing-laws Conservative Big Tech Campaign Based on Myths and Misunderstanding https://www.cato.org/publications/commentary/conservative-big-tech-campaign-based-myths-misunderstanding Matthew Feeney <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Earlier this week, President of the United States Donald Trump took to Twitter to rant and rave against Twitter, which fact‐​checked a&nbsp;claim the president made about mail‐​in ballots. Today, he will issue an&nbsp;<a href="https://kateklonick.com/wp-content/uploads/2020/05/DRAFT-EO-Preventing-Online-Censorship.pdf" target="_blank">executive order</a>&nbsp;targeting social media websites. Last week,&nbsp;<a href="https://www.wsj.com/articles/trump-considers-forming-panel-to-review-complaints-of-online-bias-11590238800?emailToken=8797c802502289fa6a35a0e13e44b317G2yhfToqVLEJ1PkQerzGfwk3/pUPD2e7X2BWfC4j1S/7i/1zHN/rtPbFxW5kXm9/xMe7YLssRRdtILB24m0q9PigUTq3j9oZSJd92YpzZIyDQrvf99v3yRyJbJtRESLU&amp;reflink=article_email_share" target="_blank"><em>The Wall Street Journal&nbsp;</em></a>reported that President Trump is considering establishing a&nbsp;White House commission to investigate anti‐​conservative bias within the best‐​known Internet companies such as Facebook, Twitter, and Google. These news stories aren’t a&nbsp;surprise. President Trump and many of his allies have been critical of Silicon Valley for years, alleging that social media companies are engaged in a&nbsp;campaign aimed at silencing conservative viewpoints. This claim is weak, with little empirical support, and conservative responses have revealed an unfortunate enthusiasm for government regulation of speech and a&nbsp;consistent misunderstanding of the law at the heart of online content moderation debates.</p> </div> , <h2 class="heading"> The Claim: Silicon Valley is Engaged in Anti‐​Conservative Censorship </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Allegations that prominent social media companies have been attempting to stifle and/​or remove conservative content are varied and target different companies. Summarizing these arguments is difficult. Some allegations take aim at social media, with Facebook, Twitter, and YouTube being among the most popular targets. Others are more focused on Google’s search engine. The claims vary from allegations of “shadow banning,” tweaked algorithms, “de‐​ranking,” to outright deletion of accounts. For the purposes of this article I&nbsp;will assemble all of these allegations under a&nbsp;broad claim:</p> <p>The most famous U.S.-based Internet companies are engaged in a&nbsp;campaign focussed on limiting access to American conservative‐​oriented content.</p> </div> , <h2 class="heading"> Lack of Evidence for The Claim </h2> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Section 230 is not contingent on politically neutral content moderation, is not a&nbsp;subsidy or special privilege, nor does it make a&nbsp;distinction between publishers and platforms. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>I have addressed allegations of anti‐​conservative bias before. Readers interested in why I’m not convinced by James O’Keefe’s claims about Google’s bias or Dennis Prager’s complaints about YouTube’s treatment of PragerU can read my analysis&nbsp;<a href="https://www.cato.org/blog/misleading-veritas-accusation-google-bias-could-result-bad-law" target="_blank">here</a>&nbsp;and&nbsp;<a href="https://www.cato.org/blog/newspapers-are-spreading-section-230-misinformation" target="_blank">here</a>. In a&nbsp;recent&nbsp;<a href="https://administrativestate.gmu.edu/wp-content/uploads/sites/29/2020/03/Feeney-Defending-the-Indispensable.pdf" target="_blank">working paper&nbsp;</a>for The C. Boyden Gray Center for the Study of the Administrative State at George Mason University’s Antonin Scalia Law School I&nbsp;discuss other claims of bias, including those associated with Google’s search engine made by Robert Epstein of the American Institute for Behavioral Research and Technology (AIBRT). All of the claims of Silicon Valley anti‐​conservative bias suffer from one or both of the following two major issues:</p> <ol> <li>The plural of anecdote is not data: Those paying attention to the ongoing content moderation debate already know that it is common for the conservative activists to highlight a&nbsp;collection of content moderation decisions and to present them as if they constitute evidence of anti‐​conservative bias. In a&nbsp;social media environment as large as the one Internet users can access it would be strange if we didn’t occasionally observe false positive and false negatives that could collectively be presented as evidence of bias. Twitter users post&nbsp;<a href="https://www.brandwatch.com/blog/twitter-stats-and-statistics/" target="_blank">hundreds of millions of tweets&nbsp;</a>each day. In one hour, YouTube users upload more than&nbsp;<a href="https://youtube.googleblog.com/2017/08/an-update-on-our-commitment-to-fight.html" target="_blank">400&nbsp;hours of content</a>. Internet users across the world conduct tens of thousands of Google searches per second. Those looking for persecution can find it if they are looking. In fact, although these days most discussions about politically‐​motivated content moderation focus on conservatives we shouldn’t forget that the political left has its own bias claims. For example, in 2017 the Chairperson of the International Editorial Board of the World Socialist Web Site claimed&nbsp;<a href="https://www.globalresearch.ca/an-open-letter-to-google-stop-the-censorship-of-the-internet/5605654" target="_blank">in a&nbsp;letter to Google and Alphabet</a>&nbsp;executives that “Google is manipulating its Internet searches to restrict public awareness of and access to socialist, anti‐​war and left‐​wing websites.” Twitter’s purported “shadowbanning” of conservatives in July of 2018,&nbsp;<a href="https://slate.com/technology/2018/07/republicans-accuse-twitter-of-shadow-banning-conservatives.html" target="_blank">really a&nbsp;problem with the site’s search feature</a>, also affected the hosts of the left‐​wing podcast Chapo Trap House.</li> <li>The studies suffer from either bad methodology or no methodology at all: One problem Silicon Valley critics have is that the firms they would like to research are understandably wary of sharing content moderation data or details of their search algorithms. The burden of proof is on the party making the positive claim and the lack of data to analyze makes definitively making the argument that Silicon Valley companies engage in anti‐​conservative censorship difficult. Nonetheless, some have tried. For example, AIBRT’s Robert Epstein, who Sen. Ted Cruz (R-TX) invited to testify before the United States Senate Judiciary Subcommittee on the Constitution, wrote a&nbsp;paper arguing that Google’s search results in the months leading up to the 2016 presidential election favored Hillary Clinton over Donald Trump. As I&nbsp;explain in my C. Boyden Gray Center&nbsp;<a href="https://administrativestate.gmu.edu/wp-content/uploads/sites/29/2020/03/Feeney-Defending-the-Indispensable.pdf" target="_blank">paper</a>, Epstein’s study examined search results from fewer than one hundred people in twenty four states and did not control for the fact that Google search results can change depending on the device used and the location of the person making the query. Epstein also rejected data from users with Gmail addresses and used crowd‐​sourcing to determine bias. Such a&nbsp;paper should not be used by activists as evidence of anti‐​conservative bias. The methodology yields a&nbsp;study that cannot provide useful results. In Epstein’s defense, while his methodology is flawed it is at least a&nbsp;methodology. Most claims of anti‐​conservative bias are based on nothing more than the anecdotes I&nbsp;mentioned above.</li></ol> <p>I am sure that many readers are not convinced by 1) or 2) and continue to maintain that left‐​wing bias in Silicon Valley has created a&nbsp;social media environment hostile to conservative views. To those readers I&nbsp;only ask that you consider what an “unbiased” social media landscape would look like, and if they have a&nbsp;theory about what an “unbiased” Google search result or an “unbiased” Twitter would look like to let me know (my email:&nbsp;<a href="mailto:mfeeney@cato.org" target="_blank">mfeeney@​cato.​org</a>). The absence of a&nbsp;conservative outline of what an “unbiased” social media platform would look like has been conspicuous by its absence in the ongoing content moderation debate.</p> <p>Responses to this alleged bias reveal a&nbsp;misunderstanding of law and have resulted in policy proposals that would increase government power over speech and (ironically) result in less conservative online content.</p> </div> , <h2 class="heading"> Section 230 </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Congress passed Section 230 of the Communications Decency Act in 1996. Written by Reps. Chris Cox (R-CA) and Ron Wyden (D-OR), the law aimed to solve the “Moderator’s Dilemma” that had emerged in the early 1990s thanks to a&nbsp;few court cases dealing with alleged defamatory content posted by third party users of online services.</p> <p>In&nbsp;<em>Cubby v. CompuServe</em>&nbsp;(1991), a&nbsp;federal judge found that CompuServe — an online service provider — could not be held liable for alleged defamatory content posted by a&nbsp;third party newsletter. The judge found that CompServe, which did not moderate the newsletter’s automatically uploaded content, was the distributor of the third party content not unlike a&nbsp;news vendor or public library rather than a&nbsp;publisher.</p> <p>A few years later, a&nbsp;New York Supreme Court judge considered a&nbsp;similar case,&nbsp;<em>Stratton Oakmont v. Prodigy Services</em>&nbsp;(1995), and came to a&nbsp;different holding. In that case, the judge ruled that Prodigy Services, which did engage in content moderation, could be considered the publisher of third party content.</p> <p>These two cases gave rise to the “moderator’s dilemma”: either engage in content moderation and be considered the publisher of third party content or take a&nbsp;hands‐​off approach to third party content and be treated like a&nbsp;distributor. Both options are awful for anyone interested in building a&nbsp;website where users can upload content. A&nbsp;hands‐​off approach might save an Internet service provider from legal liability, but it also means users may upload pornography, photos of murders, and images of animals being tortured to death. To anyone trying to make a&nbsp;family‐​friendly service, such a&nbsp;move has obvious downsides. Taking steps to remove such content may be desirable, but not if it means that your service is considered the publisher of third party content. Such an approach would require review every third party piece of content before it appeared on the service. Needless to say, this effectively prohibits an Internet with useful third party upload functions and services.</p> <p>Section 230 solves the moderator’s dilemma by providing interactive computer services with a&nbsp;sword and a&nbsp;shield. The shield, Section 230(c)(1), explicitly rejects the&nbsp;<em>Prodigy&nbsp;</em>holding, stating that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” This protects websites big and small from being considered the publisher of the vast majority of content users upload. The sword, Section 230(c)(2), states that interactive computer services cannot be held civilly liable for “any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.”</p> <p>In sum, interactive computer services are not publishers of the vast majority of third party content (see Section 230 (e) for exceptions) and they cannot be held liable for removing third party content, even if that content is protected by the First Amendment.</p> <p>Section 230 is at the heart of the present policy debates surrounding allegations of online anti‐​conservative bias. If you have been paying attention to these debates you may have heard a&nbsp;few false claims about the law that I’d like to address before turning to serious issues about proposed Section 230 changes.</p> </div> , <h2 class="heading"> Section 230 is Not a&nbsp;Subsidy </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>You may have seen some commentators portraying Section 230 as a&nbsp;subsidy. The argument usually goes something like this: Absent Section 230 Silicon Valley companies would have to spend millions (if not billions) of dollars on lawsuits, so we should consider Section 230 to be a&nbsp;multi‐​million (or multi‐​billion) dollar subsidy. This view is flawed for a&nbsp;few reasons.</p> <p>The most obvious issue with this view is that it distorts what a&nbsp;subsidy is. Subsidies are usually found in bills, where handouts to particular industries or companies are outlined. Section 230 does no such thing. There are laws on the books that protect individuals and companies from lawsuits, but they’re not described as subsidies. See for example anti‐​SLAAP legislation.</p> <p>Leaving aside the semantic issue, this view is particularly misguided when used by conservatives concerned about market incumbents such as Google and Facebook. Section 230 protects those interested in competing against Google and Facebook from having to raise money for potential lawsuits, which will only increase in number as their competing service grows in popularity. For instance, it’s unlikely the video‐​sharing site BitChute, which portrays itself as a&nbsp;YouTube competitor, or Gab, a&nbsp;social media site for the far‐​right, would ever have got off the ground if their founders had to prepare for a&nbsp;deluge of lawsuits. Full30, a&nbsp;firearms friendly alternative to YouTube, is more vulnerable to suit than YouTube. If conservatives are worried about platform bias, they should recognize that changes to Section 230 will fall hardest on competitors. It would be more accurate (though still flawed) to describe Section 230 as a&nbsp;subsidy for social competitors rather than a&nbsp;subsidy for market incumbents.</p> <p>Portraying Section 230 as a “handout” or “special privilege” for “Big Tech” is also misleading, as there is no size requirement for Section 230 protections. Section 230 protects the comments section on a&nbsp;retiree’s baking blog as much as it protects Facebook.</p> </div> , <h2 class="heading"> Section 230, Platforms, and Publishers </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Before turning to misunderstandings of free speech writ large I&nbsp;want to briefly address one other Section 230 myth: the “platform” v. “publisher” distinction.</p> <p>It is not uncommon to see someone claim that when a&nbsp;social media company engages in content moderation it doesn’t deserve Section 230 liability protection because it is “acting like a&nbsp;publisher” or not behaving like a&nbsp;public forum.</p> <p>Anyone who reads&nbsp;<a href="https://www.law.cornell.edu/uscode/text/47/230" target="_blank">Section 230</a>&nbsp;will see that Section 230 does not state that the act of moderating content makes an interactive computer service a&nbsp;publisher. Section 230 merely states that an interactive computer service is not the publisher of most third party content and is free to moderate content.</p> <p>In fact, there are times when a&nbsp;publisher can enjoy Section 230 protection. For example,&nbsp;<em>The Wall Street Journal&nbsp;</em>is a&nbsp;newspaper owned by a&nbsp;corporation. If&nbsp;<em>The Wall Street Journal&nbsp;</em>publishes an oped that defames someone the victim can sue the author of the oped and&nbsp;<em>The Wall Street Journal</em>. As well as publishing a&nbsp;dead tree newspaper,&nbsp;<em>The Wall Street Journal&nbsp;</em>also runs a&nbsp;website, which includes a&nbsp;comments section. This comments section is an “interactive computer service” covered by Section 230. If someone posts defamatory content in the comments section the victim can sue the user who posted the comment, but not&nbsp;<em>The Wall Street Journal</em>.</p> <p>It is important to also note that Section 230 does not protect an interactive computer service from its own content. Remember, Section 230(c)(1) states (italics mine): “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided&nbsp;<em>by another information content provider</em>.” Facebook might not be liable for the vast majority of content Facebook users post, but Facebook could be held liable for information posted by Facebook employees on Facebook’s&nbsp;<a href="https://about.fb.com/news/" target="_blank">newsroom page</a>.</p> <p>Similarly, Twitter is liable for its fact‐​checking of President Trump’s tweet. Such content does not enjoy Section 230 protection. Nonetheless, many Section 230 critics, including Sen. Josh Hawley (R-MO) took advantage of the news of the day to use Twitter’s fact‐​check as an opportunity.</p> </div> , <h2 class="heading"> Silicon Valley as the Public Forum </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Conservative activists unhappy with Silicon Valley’s content moderation have sometimes turned to First Amendment law to argue that Facebook, Youtube, Twitter, etc. should be considered a “public forum.” This approach is confused and reveals a&nbsp;fundamental misunderstanding of how free speech works.</p> <p>Some Section 230 critics, including&nbsp;<a href="https://www.youtube.com/watch?v=Uk2Dp4tYo8M" target="_blank">Sen. Cruz (R-TX)</a>, have argued that the basis of Section 230 is that interactive computer services would be a “neutral public forum.” I&nbsp;am unsure of the genesis of this neutrality myth, but one candidate for a&nbsp;point of origin is the text of Section 230. It is true that Section 230(a)(3) reads: “The Internet and other interactive computer services offer a&nbsp;forum for a&nbsp;true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity.”</p> <p>This is true today, as it was in 1996, and does not impose any obligation on interactive computer services to implement a&nbsp;politically neutral content moderation policy.</p> <p>More recently, Sen. Marco Rubio (R-FL)&nbsp;<a href="https://twitter.com/marcorubio/status/1265442093641732096" target="_blank">took to Twitter</a>&nbsp;to falsely claim that “The law still protects social media companies like @Twitter because they are considered forums not publishers.”&nbsp;<a href="https://www.techdirt.com/articles/20190929/00171443090/senator-mark-warner-repeats-senator-ted-cruzs-mythical-made-up-incorrect-claims-about-section-230.shtml?threaded=false" target="_blank">This is not true.</a>&nbsp;Reps. Cox and Wyden wrote Section 230&nbsp;in part to encourage content moderation, to allow Internet companies to remove content they considered incompatible with their business model.</p> <p>Perhaps the most notable proponent of the view that social media constitutes a&nbsp;public forum is Dennis Prager, who runs the conservative education website Prager University. Prager University — commonly referred to a&nbsp;PragerU — has its own website as well as a&nbsp;<a href="https://www.youtube.com/user/PragerUniversity" target="_blank">YouTube channel</a>&nbsp;with almost 2.5 million subscribers. The channel is best‐​known for its short animated videos, which aim to educate viewers on issues of interest to conservatives. PragerU sued Google, which owns YouTube, alleging that YouTube is a&nbsp;state actor because it performs a&nbsp;public function.</p> <p>PragerU’s complaint stems from the fact that YouTube placed many of its videos in Restricted Mode, which prevents users who have opted into the setting from viewing such videos. Although some activists may like to point out that this is evidence of anti‐​conservative bias, the fact is — as the trade association&nbsp;<a href="https://twitter.com/RobPWJ/status/1151226514186354690/photo/1" target="_blank">NetChoice pointed out</a> — a&nbsp;far higher percentage of videos on liberal channels such as The Young Turks have their videos in Restricted Mode.</p> <p>A Ninth Circuit panel of three judges, two of whom were nominated by Republican presidents,&nbsp;<a href="http://cdn.ca9.uscourts.gov/datastore/opinions/2020/02/26/18-15712.pdf" target="_blank">made short work&nbsp;</a>of PragerU’s argument:</p> </div> , <blockquote class="blockquote"> <div> <p>[…]PragerU argues that YouTube is a&nbsp;state actor because it performs a&nbsp;public function. It is true that a&nbsp;private entity may be deemed a&nbsp;state actor when it conducts a&nbsp;public function, but the relevant function “must be both traditionally and exclusively governmental.” Lee v. Katz, 276&nbsp;F.3d 550, 555 (9th Cir. 2002). This test is difficult to meet. It is “not enough” that the relevant function is something that a&nbsp;government has “exercised … in the past, or still does” or “that the function serves the public good or the public interest in some way.”</p> <p>Halleck, 139&nbsp;S.Ct. at 1928–29. Rather, the relevant function must have been “traditionally the exclusive prerogative of the [s]tate.” Rendell‐​Baker v. Kohn, 457 U.S. 830, 842 (1982) (internal quotation marks omitted). Indeed, “[w]hile many functions have been traditionally performed by governments,” Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 158 (1978), the lean list of the “very few” recognized public functions includes “running elections,” “operating a&nbsp;company town,” and not much else, Halleck, 139&nbsp;S.Ct. at 1929 (internal quotation marks omitted); see, e.g., Terry v. Adams, 345 U.S. 461, 468–70 (1953) (elections); Marsh v. Alabama, 326 U.S. 501, 505–09 (1946) (company town). The relevant function performed by YouTube — hosting speech on a&nbsp;private platform — is hardly “an activity that only governmental entities have traditionally performed.”</p> </div> </blockquote> <cite> </cite> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Nor is YouTube anything like the company town at issue in the Supreme Court case&nbsp;<em>Marsh v. Alabama&nbsp;</em>(1946). In that case, the Court ruled that the First Amendment applies in towns that are owned by a&nbsp;company. As the Ninth Circuit opinion correctly states:</p> </div> , <blockquote class="blockquote"> <div> <p>In&nbsp;<em>Marsh</em>, the Court held that a&nbsp;private entity operating a&nbsp;company town is a&nbsp;state actor and must abide by the First Amendment. […] But in&nbsp;<em>Lloyd Corp.</em>&nbsp;and&nbsp;<em>Hudgens</em>, the Court unequivocally confined&nbsp;<em>Marsh’s</em>&nbsp;holding to the unique and rare context of “company town[s]” and other situations where the private actor “perform[s] the full spectrum of municipal powers.”&nbsp;<em>Lloyd Corp.</em>, 407 U.S. at 569; see also&nbsp;<em>Hudgens</em>, 424 U.S. at 518–20. YouTube does not fit the bill. Unlike the company town in Marsh, YouTube merely operates a&nbsp;platform for user‐​generated video content; it does not “perform[] all the necessary municipal functions,”</p> </div> </blockquote> <cite> </cite> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Analogizing YouTube to Chickasaw, Alabama (the company town at issue in&nbsp;<em>Marsh</em>) is a&nbsp;conceptual mistake. There are many places for Internet users to find video content. YouTube is hardly the only website offering video‐​sharing services. To analogize social media writ large to Chickasaw is to make an even bigger conceptual mistake. Unlike Chichasaw, the Internet’s social media environment isn’t run or regulated by one company. The social media environment is international and includes large and small companies. There is a&nbsp;difference between popular firms and monopolies. Those who do not like Twitter can use Gab, and those who are not fans of Google have alternatives.</p> <p>Complaining about being ejected from the most popular party in town doesn’t entitle you to demand that cops show up to force the host to let you in. Hosts of less popular parties are free to open their doors to you.</p> </div> , <h2 class="heading"> Don’t Forget the First Amendment </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Fortunately the First Amendment to the U.S. Constitution is a&nbsp;formidable barrier to President Trump and his planned commission and executive order doing anything of policy relevance, as Mike Masnick correctly noted at&nbsp;<a href="https://www.techdirt.com/articles/20200525/23222444572/if-youre-reporting-trumps-supposed-plans-anti-conservative-bias-panel-shouldnt-you-mention-1st-amendment.shtml" target="_blank">TechDirt</a>:</p> </div> , <blockquote class="blockquote"> <div> <p>the government simply cannot force platforms to moderate in a&nbsp;certain way. That would violate the 1st Amendment. So even if a&nbsp;panel is formed, it couldn’t actually do anything to change things, beyond just being an annoying pest.</p> </div> </blockquote> <cite> </cite> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The freedom of speech protects those who host speech as much as it does those who wish to speak. At its core, the freedom of speech relies on the freedom of association. No country in the world is better than the United States when it comes to protecting the freedom of speech. Unfortunately, many conservatives seem intent on undermining the United States’ enviable position as the world’s foremost defender of free speech.</p> <p>Some conservatives claim to be supporters of free speech and the First Amendment all while seeking to undermine both and ignoring the fact that Section 230 is&nbsp;<a href="https://poseidon01.ssrn.com/delivery.php?ID=158006120027098092068115126112098023022073004041071075072106110101110068002120077099004009106006041043008021125094085001118121027034008006040082024029028000124072073016004070108088002102117080003092001003092078116112022077099085067104077028076029074&amp;EXT=pdf" target="_blank">better than the First Amendment</a>. As Santa Clara University School of Law Professor Eric Goldman has noted, Section 230 provides defendants with valuable procedural benefits and litigants with more predictive certainty over potential suits than they do not have under the First Amendment.</p> </div> , <h2 class="heading"> Section 230 Reform Will Result in More Government and Less Speech </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Some conservative activists have convinced themselves that the largest social media companies are engaged in a&nbsp;campaign of anti‐​conservative discrimination. There is no compelling evidence of such a&nbsp;campaign, but even if there were it would not justify amending Section 230 or establishing a&nbsp;White House commission.</p> <p>Proposals to rein in Big Tech vary. Sen. Hawley would like to make Section 230 protections for large interactive computer services contingent on politically neutral content moderation, as determined by the Federal Trade Commission (FTC). Other proposals, such as Rep. Gosar (R-AZ)’s “Stop the Censorship Act” aims to limit content moderation to “unlawful content,” leaving social media sites free to those who wish to engage in trolling or to spread of racist and pornographic content. Rep. Gosar’s bill is at least informative insofar as it reveals that many Section 230 critics&nbsp;<a href="https://blog.ericgoldman.org/archives/2019/08/comments-on-rep-gosars-stop-the-censorship-act-another-conservative-attack-on-section-230.htm" target="_blank">fundamentally misunderstand the law</a>. Whoever drafted Rep. Gosar’s bill overlooked the fact (as&nbsp;<a href="https://blog.ericgoldman.org/archives/2019/08/comments-on-rep-gosars-stop-the-censorship-act-another-conservative-attack-on-section-230.htm" target="_blank">Prof. Eric Goldman</a>&nbsp;explained) that courts routinely find that Section 230’s shield, not its sword, preempts suits over content removal.</p> <p>These kinds of proposals would result in more government regulation of speech. A&nbsp;scheme such as Sen. Hawley’s that relies on four out of five FTC commissioners deciding which large social media sites deserve Section 230 protection is one we should expect to be abused for partisan aims. In addition, if implemented the anti “Big Tech” bill would result in unintended casualties. Sen. Hawley’s bill would only affect interactive computer services with 30 million U.S. monthly average users, 300 million global monthly average users, or global revenue of at least $500 million a&nbsp;year. Services that have nothing to do with social media but nonetheless rely on Section 230 would be affected. Did Sen. Hawley’s staff not consider that Dropbox, Etsy, and Amazon would also be dragged into this mess?</p> <p>If Internet companies were faced with a&nbsp;regulatory environment in which content moderation is reserved to legal content they are back in the “moderator’s dilemma” I&nbsp;outlined above. The result would either be less speech across the board — harming conservatives and everyone else with views to share — or an Internet that increasingly looks more like PornHub and 8chan.</p> <p>As conservatives continue to argue for infringements on free speech be sure to keep an eye out for the common myths I’ve outlined. Social media companies are not modern public fora. Section 230 is not contingent on politically neutral content moderation, is not a&nbsp;subsidy or special privilege, nor does it make a&nbsp;distinction between publishers and platforms.</p> <p>It is bizarre to consider that “conservative” proposals these days include commissions, executive orders, and bills that would grow the power of an alphabet soup agency, allow for more spread of pornography, and infringe on free speech. But that’s where we are. Welcome to modern American conservatism.</p> </div> Thu, 28 May 2020 10:57:53 -0400 Matthew Feeney https://www.cato.org/publications/commentary/conservative-big-tech-campaign-based-myths-misunderstanding Escaping Paternalism https://www.cato.org/policy-report/may/june-2020/escaping-paternalism Mario Rizzo, Glen Whitman <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>In summer 2019, news broke of an emerging health threat associated with vaping. In mid‐​August, the Centers for Disease Control and Prevention (CDC) reported its investigation into 94 cases of a&nbsp;mysterious lung condition affecting users of e‐​cigarettes. The number of cases of vaping‐​associated pulmonary illness (VAPI) mounted rapidly. By the end of the year, the number of cases had risen to more than 2,500, with 55 confirmed deaths.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>As the VAPI crisis emerged in August and September, we were reviewing the final page proofs for our book, <em>Escaping Paternalism: Rationality, Behavioral Economics, and Public Policy</em>. The news put us in a&nbsp;quandary, as our book included a&nbsp;section in which we had used vaping as an illustrative example of paternalism in practice. Our analysis relied, in part, on then‐​current evidence that vaping was most likely safer than traditional smoking.</p> <p>Knowing that the science might change, we had already included the following sentence: “Genuine health harms from e‐​cigarettes may yet be found. But thus far, and to the best of our knowledge, no study has shown genuine and systematic health problems among direct users of e‐​cigarettes, to say nothing of second‐​hand users.” Nevertheless, we worried that the VAPI crisis could be used to discredit our overall argument. We therefore prevailed on the editors to insert a&nbsp;last‐​minute footnote acknowledging VAPI (and also noting its tentative link to vitamin E&nbsp;acetate, an additive used primarily in black‐​market vape capsules). We hoped the footnote would serve to blunt any criticism.</p> <p>But as time passed, we realized that the VAPI episode instead strengthened many key arguments in the book. If we were writing the book now, we wouldn’t omit the vaping section — we would expand it. But to see why, we need to explain the broader argument of our book.</p> <p><strong>THE BIAS OF BIASES</strong><br><em>Escaping Paternalism</em> documents the rise of a&nbsp;new form of paternalism, built on evidence from behavioral economics indicating that people are affected by irrational biases. The “behavioral paternalists,” as we call them, argue that policies to correct those biases could therefore result in better personal decisionmaking. The purpose of our book is to rebut this argument.</p> <p>If biases can indeed justify paternalism, then modern‐​day paternalists have an embarrassment of riches. Wikipedia lists about 175 different cognitive and behavioral biases. Many of these are just scientific names for phenomena known since ancient times: impatience (“hyperbolic discounting”), greater attention to potential losses than gains (“loss aversion”), being affected by strong emotions (“hot‐​cold empathy gap”), and so forth. Other alleged biases are entirely novel. For very few is there a&nbsp;clearly defined mental process that produces the bias; for most, it is just a&nbsp;label given to a&nbsp;phenomenon.</p> <p>The growing list of supposed biases serves as a&nbsp;grab bag of possible deviations from “rationality,” and hence justifications for interventions. What is rarely explained, however, is that the “rationality” in question is a&nbsp;special and technical concept created by economists for model‐​building purposes. It is certainly not synonymous with reasonability or justifiability, and deviations from it are not necessarily self‐​defeating or counterproductive. More often, deviations simply indicate preferences that differ from what economists have historically assumed.</p> <p>For example, it is said that in certain circumstances people are “loss averse”; that is, they value a&nbsp;potential loss of $50 more than a&nbsp;potential gain of $50. In terms of traditional economic rationality, they “should” weight both equally. But why? Where, in general, is the harm in this? It is true that loss‐​averse individuals may fail to maximize their lifetime wealth — but given loss‐​averse preferences, maximizing wealth is apparently not their goal. There is no error to correct here.</p> <p>Similarly, in some cases people may exhibit inconsistent preferences over time. On New Year’s Day, they resolve to eat less chocolate, but by the end of January (or sooner), they revert to their previous level of consumption. But why? The paternalists, assuming longer‐​term preferences are the “true” ones, blame weakness of will. But this is not the only interpretation available. Perhaps it is easier to give something up in the abstract moment of planning than in the concrete moment of doing. Thinking about the benefits of reducing chocolate consumption when one is full of food and good cheer is not the same as reckoning the cost. So maybe it is short‐​term preferences that are more reflective of the truth. Or maybe individuals simply have conflicting preferences within themselves, which they have not yet resolved (and possibly never will). Why should the state resolve the dispute for them?</p> <p>Yet there are no doubt cases where people really want to change their behavior but require help. Reasonable people have many resources at their disposal. There are calorielimited packages of snack food, smaller cans of soda, and diet plans. Some people ban fattening foods from their cupboards. Others announce their plans to other people to generate support or subject themselves to shame if they depart from the plan. Not all deviations from a&nbsp;plan are failures, however. Rigid plans may not be the most effective. Rewarding oneself with periodic treats often makes the overall effort more sustainable — or not; it all depends on the specific individual and the context. Outside observers are apt to underestimate the degree to which individuals engage in selfregulation. If so, then they overestimate the degree to which these individuals need additional help.</p> <p>Examples like these raise the question of how much corrective medicine for supposed biases is appropriate. Much of the research on this important quantitative issue is seriously flawed. In part this is because, as we stated earlier, would‐​be paternalist planners don’t know the extent of self‐​regulation. Perhaps more importantly, studies tend to look at one bias at a&nbsp;time, even though an individual can exhibit multiple biases, not all of which move the individual in the same direction or to the same degree.</p> <p>Concerns like these should drastically complicate the process of designing corrective interventions, especially given the behavioral paternalists’ promise of a “careful, cautious, and disciplined approach” to policymaking. In practice, policymaking rarely approaches that optimistic ideal.</p> <p>An example should make this clear. In the case of cigarettes, at one time it was considered sufficient simply to warn people about the dangers of smoking tobacco; all they lacked was information. But today, behavioral economists say that mere information is not enough because people suffer from optimism bias. Even if smokers and potential smokers are aware of the statistics showing the increased health risks from smoking, the same people may feel that somehow they are protected; it won’t happen to them. To counter optimism bias, behavioral paternalists suggest harnessing yet another bias: availability bias. This is the idea that an event will be considered more likely if it stands out in a&nbsp;person’s mind. So the proposed solution — already implemented in many places — is to present smokers (and potential smokers) with graphic images of sick people and diseased organs. The images may also be accompanied by “risk narratives” describing real instances of bad outcomes. Note that these presentations are highly biased, inasmuch as they typically represent the worst possible outcomes — not the median or most common outcomes. This is deliberate. The purpose is to use exaggeration to trigger an offsetting bias that will make people think, “Yes, this can happen to me.” In effect, the policy raises the subjective probability of a&nbsp;bad outcome to the smoker.</p> <p>So far, so good, you may think. However, as economist W. Kip Viscusi and others have shown, smokers tend to believe that smoking is more dangerous than it really is. So now we have at least three relevant biases — optimism, availability, and overestimation — which somehow must be balanced so as to approximate the (potential) smokers’ “true” preferences, all things considered. Does anyone believe that regulators have in fact engaged in a&nbsp;calculation along these lines? Or have they simply mandated policies intended to reduce smoking, irrespective of people’s genuine preferences?</p> <p>Another smoking‐​related example: The FDA has admitted that certain tobacco products that are not smoked — like snus — are safer than smoked tobacco. However, the FDA won’t allow the sellers to advertise this because some people might think “safer” means completely safe. So here we have the government purposely depriving people of relevant and true information because of how they might respond. Again, we ask: Did these regulators really “do the math” to determine that this policy would advance people’s genuine preferences, or did they simply wish to reduce tobacco use, full stop?</p> <p>Old‐​fashioned paternalists would not care about this. Their objective is to reduce the incidence of “bad” behaviors. But modern paternalists say they’re just trying to help you do what you really want to do or to implement your “true preferences.” Furthermore, they admit that vices have their virtues; people do get pleasure from things that have costs. So what modern, scientific paternalists want is a&nbsp;correct costbenefit analysis in terms of people’s real preferences, somehow stripped of all bias. This means they should care about how policies are crafted in the real world.</p> <p><strong>PATERNALISM IS FOR CHILDREN</strong><br>And so we return to the vaping/​VAPI panic, which turns out to be emblematic of paternalistic policymaking in general. By December 2019, the CDC had concluded that VAPI was indeed a&nbsp;new phenomenon, not an older syndrome that had previously gone unnoticed, and that it was strongly associated with vitamin E&nbsp;acetate.</p> <p>A judicious regulatory approach might have controlled the use of vitamin E&nbsp;acetate (a substance rarely if ever used in legal vape products anyway). But what did the actual public policy look like?</p> <p>A panic‐​driven rush to action, of course. As we write in the book, “When disaster strikes, politicians react. From high‐​profile terrorist attacks to the latest mass shooting, the immediate response is nearly always a&nbsp;demand for action, often with little regard for efficacy or unintended consequences.” If we want to speak the language of biases, we could call this an “action bias.” The VAPI crisis bolstered support for a&nbsp;new federal law raising the minimum age for all tobacco products, vapes included, from 18 to 21. Some states and localities banned flavored vapes in the immediate wake of the crisis, and the FDA has now announced its intention to ban flavored vapes nationwide (with an exception for the less popular “tank” delivery systems). All of this, despite no evidence whatsoever of a&nbsp;link between flavors and VAPI.</p> <p>Much of the vaping discussion has focused on young people because sweet flavors are presumed to appeal to them. If there is any group of people for whom paternalism is appropriate, surely it is children, as the word itself suggests. The problem with paternalism is not treating children like children, but treating adults like children. But notice that the actual policies are not directed solely at children. Prior to VAPI, vaping was already illegal nationwide for people under 18. The new laws target flavored vape capsules irrespective of consumers’ ages. Notably, the vast majority of adult users — approximately 90 percent — prefer nontobacco flavors, usually sweet ones. And, of course, the higher minimum age affects a&nbsp;significant group of nonminors: 18–20-year-olds. If advocates were truly concerned about protecting minors while respecting the choices of adults, surely more‐​targeted policies were available.</p> <p>We have to speculate that, in truth, many advocates of vaping regulation harbor paternalistic motives across the board, not merely for children. Indeed, this was a&nbsp;primary point of our book’s section on vaping: that antivaping campaigns have exposed the underlying paternalistic motives behind smoking regulation in general. The public justification for smoking regulation often relies on seemingly nonpaternalistic goals, such as the protection of bystanders from secondhand smoke. But for vaping, the evidence of harm to third parties is close to nonexistent, in part because evidence of harm even to direct users is (at the moment) scant, and in part because vapes emit very little sidestream vapor that could affect nonusers. Absent the bystanders justification, we argued, paternalism is all that’s left. However, the current VAPI‐​driven focus on flavors suggests that paternalists have found a&nbsp;different fig leaf to cover their across‐​the‐​board paternalism: the hackneyed plea to “think of the children.” This is a&nbsp;common feature of paternalistic regulation in general: that it interacts with other arguments in a&nbsp;way that makes true motives difficult to discern.</p> <p>A second way the response to VAPI mirrors paternalistic intervention in general is the seeming indifference of advocates to evidence. Even if you agree that it’s the state’s job to protect individuals from themselves, evidence of actual harm would seem to be necessary. But for paternalists, the mere potential for harm is enough. The campaign against vaping began long before any genuine evidence of harm had emerged, with arguments resting on the unknown effects of chemicals in vape fluid — or sometimes on the known effects of these chemicals when consumed at levels unseen in actual use. Then, when VAPI emerged, anti‐​vaping advocates used the new syndrome to justify interventions entirely disconnected from the most likely suspect: vitamin E&nbsp;acetate used primarily in blackmarket capsules. When and if evidence emerges of other genuine harms from vaping — which is certainly possible — we should expect more of the same: hasty policy interventions, uncoupled from evidence, motivated by a&nbsp;preexisting anti‐​vape agenda.</p> <p>A third way the response to VAPI follows the pattern of other paternalistic interventions is in neglecting how the affected people may react, often in ways that thwart policymakers’ intentions. Higher taxes on vape products will tend to push smokers toward the most obvious substitute: traditional cigarettes. A&nbsp;recent National Bureau of Economic Research study indicates that vape taxes tend to reduce quitting rates for cigarette smokers. Given the widespread preference for flavored vapes, including among former smokers, flavor bans could easily have a&nbsp;similar effect. Bans and high taxes will both tend to encourage the growth of black markets — precisely the context where the additive responsible for VAPI was most prevalent.</p> <p>But policymakers — driven by the desire to do something and facing pressure from activists — paid little attention to such concerns. Again, this is a&nbsp;common feature of modern paternalism grounded in behavioral economics. Models of “optimal sin taxes” rarely consider the possibility of consumers switching to other harmful products that serve similar needs. Proposals for default (or mandatory) enrollment in savings plans rarely account for people who offset their now‐​higher savings by incurring greater consumer debt or making early withdrawals. Proposals intended to focus people’s self‐​control on some goal, such as weight control or smoking cessation, fail to consider that doing so may divert selfcontrol resources (like attention and focus) away from other goals, such as studying or working productively. In general, behavioral paternalists employ relatively simple models that include only one or (if we’re lucky) two alleged biases at a&nbsp;time, with little attention to how biases interact.</p> <p>Taken as a&nbsp;whole, the VAPI episode should lead to greater skepticism about both vaping regulation and paternalism in general. Even in the abstract, the behavioral case for paternalism is weak, resting on conceptual confusions and unfilled empirical gaps. Wouldbe paternalist planners simply lack the knowledge needed for the “careful, cautious, and disciplined approach” they promise. It should come as no surprise, then, that actual policy falls short. As we write in our book, “In the rough‐​and‐​ready world of practical politics, policy is shaped in a&nbsp;maelstrom of idealism, activism, ignorance, time constraints, power struggles, and special‐​interest pressures. It would be genuinely shocking for real‐​world policies to resemble those imagined by hopeful academics.”</p> </div> Thu, 28 May 2020 03:00:00 -0400 Mario Rizzo, Glen Whitman https://www.cato.org/policy-report/may/june-2020/escaping-paternalism Do Board Gender Quotas Affect Firm Value? Evidence from California Senate Bill No. 826 https://www.cato.org/publications/research-briefs-economic-policy/do-board-gender-quotas-affect-firm-value-evidence Daniel T. Greene, Vincent J. Intintoli, Kathleen M. Kahle <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>On September 30, 2018, California became the first U.S. state to mandate a&nbsp;corporate board gender quota when Gov. Jerry Brown (D-CA) signed Senate Bill No. 826 (SB 826) into law. SB 826 requires public companies headquartered in California to have had at least one female director by the end of 2019 and at least two female directors on boards with five members (or three female directors on boards with six or more members) by the end of 2021. We provide important new evidence on the effects of board gender quotas by examining stock market reactions to announcements regarding the law, direct costs of compliance, and board adjustments post–SB 826.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>SB 826 is an ideal setting to study the impact of corporate board mandates for several reasons. First, while the endogenous nature of corporate boards has historically made it difficult to fully understand the relation between board gender diversity and firm value, SB 826 creates an exogenous shock to board composition that allows us to study the impacts of gender quotas on U.S. firms. Evidence in Norway, the first country to enact a&nbsp;gender quota law, suggests a&nbsp;negative impact of mandated female representation on firm performance. Because of cultural differences and a&nbsp;heavier reliance on equity financing, it is not clear whether U.S. firms should experience similar effects. Second, the signing of the law by Gov. Brown was unexpected, as he offered no public guidance on his views. The unexpected nature of the passage of SB 826 enables us to isolate the stock market reaction to an exogenous change in board structure. Third, more than 12 percent of all publicly held U.S. firms are headquartered in California, so the mandate affects a&nbsp;large and diverse set of firms with a&nbsp;combined market capitalization of over $5 trillion. Studying the effects of SB 826 enables us to exploit cross‐​sectional variation in firm characteristics in multivariate tests.</p> <p>We begin by building a&nbsp;sample of 602 public firms headquartered in California. We find that 171 (28 percent) of these firms needed to add a&nbsp;female director by the end of 2019 and 531 (88 percent) need to add one or more women by 2021. In total, SB 826 requires more than 1,000 additional female directors on corporate boards by 2021. We find a&nbsp;statistically significant and economically large stock market reaction of −1.2 percent at the announcement, suggesting that SB 826 is costly for affected firms. The magnitude of this return is robust to multiple methodologies, including tests that control for cross‐​correlation in announcement returns and match California firms to control firms not directly affected by SB 826. Given that California firms represent more than $5 trillion of market value, a&nbsp;back‐​of‐​the‐​envelope calculation provides a&nbsp;total loss in value in excess of $60 billion. Stock returns are decreasing in the number of female directors needed, with a&nbsp;mean of −1.06 percent for firms that must add one female director by 2021 and a&nbsp;mean of −1.64 percent for firms that must add three female directors by 2021. Multivariate analysis implies a&nbsp;0.5 percent decline in shareholder wealth for every female director that a&nbsp;firm is required to add by 2021.</p> <p>We develop several cross‐​sectional predictions of the effects of SB 826. The mandate forces firms to either replace existing directors or expand board size. Regardless of which option a&nbsp;firm chooses, the impact of SB 826 depends on the supply of female candidates. Consequently, we examine two proxies for the supply of female directors: a&nbsp;dummy equal to one if there are no female CEOs in an industry and a&nbsp;dummy for industries with an above‐​median number of female directors. We find that the negative effect of SB 826 on stock returns is accentuated for firms with a&nbsp;restricted supply of female candidates.</p> <p>If the firm chooses to replace existing directors, the negative impact of the law should be lessened in firms that can more easily do so. In our next cross‐​sectional tests, we use several proxies for ease of replacement, including board committee service, director age, and the presence of directors associated with venture capital (VC) funds. Overall, our results suggest that stock returns are less negative when directors are easier to replace.</p> <p>Our final cross‐​sectional tests examine the market reaction to SB 826 based on the firm’s ability to attract female directors. We predict that younger, lesser‐​known companies will have more difficulty attracting female candidates. Indeed, the negative effect of SB 826 is strongest for firms that are below the median age. However, this negative effect on younger firms is offset for firms associated with VC funds with a&nbsp;female presence. This finding is consistent with the prediction that VCs with a&nbsp;female presence can help young firms attract and recruit female directors.</p> <p>We next estimate the direct costs of compliance for new director appointments, assuming board expansion. The median firm needs to add two female directors by 2021 at a&nbsp;total annual cost of $345,636. Although the dollar cost of compliance is higher for larger firms due to higher director pay, the economic effect of the law is greater for smaller firms. When scaled by market capitalization, additional annual director compensation averages only 0.0007 percent of market capitalization for the largest firms but 0.76 percent for the smallest firms, an increase of more than 1,000 percent.</p> <p>Finally, we compare pre– and post–SB 826 board composition for 488 California firms that filed proxy statements from January to July 2019. The aggregate number of board seats held by female directors increases by 23 percent (143 board seats) from pre– to post–SB 826. This increase is greater for California firms than for control firms in other states, so it is not driven by a&nbsp;general trend of increasing female board representation. Of the 136 firms that add a&nbsp;female director, 40 percent replace male directors while 60 percent expand the board. Firms choose to expand their boards when their pre–SB 826 board size is small and choose to replace directors when their board size is large, suggesting that increasing a&nbsp;board above a&nbsp;certain size is costly.</p> <p>As a&nbsp;follow‐​up exercise, we checked whether firms had a&nbsp;female director on their boards as of January 13, 2020. We found 16 firms (out of 650) with no female directors, indicating that nearly all firms in California are in compliance with SB 826. The firms without female directors tend to be smaller and younger than other firms in California. In addition, 8&nbsp;of the 16 firms were at risk of being delisted from public stock exchanges, which would exempt them from the requirements of SB 826. Finally, we find evidence of a&nbsp;rush to comply with SB 826 before the year’s end, as 19 firms added a&nbsp;female director in December 2019, compared with 5&nbsp;firms that did so in November and 6&nbsp;firms in October.</p> <p><strong>NOTE:</strong><br>This research brief is based on Daniel T. Greene, Vincent J. Intintoli, and Kathleen M. Kahle, “Do Board Gender Quotas Affect Firm Value? Evidence from California Senate Bill No. 826,” <em>Journal of Corporate Finance</em> 60 (February 2020), <a href="https://doi">https://doi</a>. org/10.1016/j.jcorpfin.2019.101526; and “California Senate Bill No. 826: List of Non‐​compliant Firms,” January 13, 2020, working paper, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3514041" target="_blank">https://​papers​.ssrn​.com/​s​o​l​3​/​p​a​p​e​r​s​.​c​f​m​?​a​b​s​t​r​a​c​t​_​i​d​=​3​5​14041</a>.</p> </div> Wed, 27 May 2020 03:00:00 -0400 Daniel T. Greene, Vincent J. Intintoli, Kathleen M. Kahle https://www.cato.org/publications/research-briefs-economic-policy/do-board-gender-quotas-affect-firm-value-evidence A Fuller Picture of the Trump Administration’s Regulatory Agenda https://www.cato.org/publications/commentary/fuller-picture-trump-administrations-regulatory-agenda William Yeatman <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Now that President Donald J. Trump has entered his fourth year in office, we can assess his Administration’s regulatory strategy with the benefit of hindsight.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Last month,&nbsp;<em>The Regulatory Review</em>&nbsp;published two such performance evaluations.&nbsp;<a href="https://www.citizen.org/about/person/amit-narang/" target="_blank">Amit Narang</a>&nbsp;of&nbsp;<a href="https://www.citizen.org/" target="_blank">Public Citizen</a>&nbsp;<a href="https://www.theregreview.org/2020/03/23/narang-trumps-regulatory-budgeting-experiment-categorically-failed/" target="_blank">argued</a>&nbsp;that the President’s regulatory budget has been utterly ineffective; in contrast,&nbsp;<a href="https://policyintegrity.org/about/bio/bethany-a-davis-noll" target="_blank">Bethany Davis Noll</a>&nbsp;and&nbsp;<a href="https://its.law.nyu.edu/facultyprofiles/index.cfm?fuseaction=profile.overview&amp;personid=20228" target="_blank">Richard Revesz</a>&nbsp;of&nbsp;<a href="https://www.law.nyu.edu/" target="_blank">New York University School of Law</a>&nbsp;<a href="https://www.theregreview.org/2020/03/16/davis-noll-revesz-regulatory-rollbacks-changed-nature-presidential-power/" target="_blank">argued</a>&nbsp;that the Administration has been too effective in rolling back Obama‐​era rules.</p> <p>Although both essays provide important insights, each is incomplete. With this response, I&nbsp;hope to flesh out a&nbsp;fuller historical record of President Trump’s regulatory agenda.</p> <p>Amit Narang&nbsp;<a href="https://www.theregreview.org/2020/03/23/narang-trumps-regulatory-budgeting-experiment-categorically-failed/" target="_blank">writes</a>&nbsp;that President Trump’s “1‐​in‐​2‐​out regulatory budgeting has been an abject policy failure on multiple levels.”</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>President Trump’s deregulatory agenda may have lasting effects beyond the term of his presidency. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>For the most part, Narang is right. There is much less than meets the eye when it comes to the President’s signature deregulatory reform. President Trump, like every self‐​styled dealmaker&nbsp;<a href="https://www.businessinsider.com/trump-stood-next-to-a-huge-pile-of-paper-showing-big-government-2017-12" target="_blank">sells</a>&nbsp;the sizzle—“2 for 1!”—not the steak. And most of President Trump’s critics, including Narang, have&nbsp;<a href="https://www.washingtonpost.com/news/fact-checker/wp/2018/08/03/has-the-trump-administration-repealed-22-regulations-for-each-new-one/?arc404=true" target="_blank">focused</a>&nbsp;on what the President is selling.</p> <p>Yet there is more to the story. As President Trump and his detractors&nbsp;<a href="https://www.nytimes.com/2018/02/23/us/politics/trump-says-no-president-has-ever-cut-so-many-regulations-not-quite.html" target="_blank">debate</a>&nbsp;the sizzle over regulatory budgeting, his Administration has been preparing other steaks, and they are looking juicy.</p> <p>Consider, for example, the Administration’s measures to stop agencies from abusing the&nbsp;<a href="https://www.justice.gov/sites/default/files/jmd/legacy/2014/05/01/act-pl79-404.pdf" target="_blank">Administrative Procedure Act’s</a>&nbsp;(APA)&nbsp;<a href="http://www.administrativelawreview.org/wp-content/uploads/2018/10/ALR-70.2_Levin.pdf" target="_blank">exception</a>&nbsp;to notice‐​and‐​comment requirements for guidance documents. Typically, agency guidance&nbsp;<a href="https://digitalcommons.law.yale.edu/yjreg/vol36/iss1/4/" target="_blank">helps</a>&nbsp;regulated parties by providing clarity. Sometimes, however, agencies treat the procedural exception for guidance like a&nbsp;loophole used to escape regulatory safeguards.</p> <p>Closing this loophole started with a&nbsp;2017&nbsp;<a href="https://www.justice.gov/opa/press-release/file/1012271/download" target="_blank">memo</a>&nbsp;by then‐​Attorney General&nbsp;<a href="https://www.justice.gov/ag/bio/attorney-general-jeff-sessions" target="_blank">Jeff Sessions</a>, which barred the&nbsp;<a href="https://www.justice.gov/" target="_blank">U.S. Department of Justice</a>&nbsp;from using guidance to “effectively bind private parties without undergoing the rulemaking process.” In January 2018, former Associate Attorney General&nbsp;<a href="https://www.justice.gov/archives/asg/staff-profile/former-associate-attorney-general-rachel-brand" target="_blank">Rachel Brand</a>&nbsp;effectively&nbsp;<a href="https://www.justice.gov/file/1028756/download" target="_blank">extended</a>&nbsp;the Sessions memo to all non‐​independent agencies.</p> <p>In a&nbsp;2019&nbsp;<a href="https://www.federalregister.gov/documents/2019/10/15/2019-22623/promoting-the-rule-of-law-through-improved-agency-guidance-documents" target="_blank">order</a>, President Trump built on these reforms by requiring agencies to “establish or maintain” on their websites “a single, searchable, indexed database that contains or links to all guidance documents in effect.” The President further&nbsp;<a href="https://www.federalregister.gov/documents/2019/10/15/2019-22623/promoting-the-rule-of-law-through-improved-agency-guidance-documents" target="_blank">directed</a>&nbsp;agencies—within ten months—to establish notice‐​and‐​comment procedures for the issuance of all “significant” guidance.</p> <p>Assuming agencies comply with the President’s directive, then the Trump Administration would achieve a&nbsp;significant overhaul of agencies’ use of guidance documents. That is a&nbsp;big deal—the APA’s guidance exception “may well be the single most frequently&nbsp;<a href="http://www.administrativelawreview.org/wp-content/uploads/2018/10/ALR-70.2_Levin.pdf" target="_blank">litigated</a>&nbsp;and important issue of rulemaking procedure” in contemporary administrative law.</p> <p>Judicial deference is another important area of administrative law where the Trump Administration has had a&nbsp;lasting effect. About a&nbsp;year ago, in&nbsp;<a href="https://scholar.google.com/scholar_case?case=13006095287647774922&amp;q=kisor+v+wilkie&amp;hl=en&amp;as_sdt=20003" target="_blank"><em>Kisor v. Wilkie</em></a>, Solicitor General&nbsp;<a href="https://www.justice.gov/osg/staff-profile/meet-solicitor-general" target="_blank">Noel Francisco</a>&nbsp;<a href="https://www.documentcloud.org/documents/5750676-Brief-of-Robert-Wilkie-Secretary-of-Veterans.html" target="_blank">urged</a>&nbsp;the&nbsp;<a href="https://www.supremecourt.gov/" target="_blank">U.S. Supreme Court</a>&nbsp;to narrow deference for an agency’s interpretation of its own rules, under a&nbsp;legal tenet known as the&nbsp;<a href="https://ballotpedia.org/Auer_deference" target="_blank"><em>Auer</em>&nbsp;doctrine</a>. The Court agreed, and&nbsp;<em>Auer</em>&nbsp;deference&nbsp;<a href="https://scholar.google.com/scholar_case?case=13006095287647774922&amp;q=kisor+v+wilkie&amp;hl=en&amp;as_sdt=20003" target="_blank">emerged</a>&nbsp;“maimed and enfeebled,” in the words of Justice Neil Gorsuch. For this, the Trump Administration&nbsp;<a href="https://www.cato.org/blog/trump-administration-proposes-check-itself-remarkable-kisor-brief" target="_blank">deserves</a>&nbsp;credit for making a&nbsp;big assist.</p> <p>Potentially the biggest reform is occurring behind the scenes on Capitol Hill. Last December, Deputy Attorney General&nbsp;<a href="https://www.justice.gov/dag/staff-profile/meet-deputy-attorney-general" target="_blank">Jeffrey Rosen</a>&nbsp;<a href="https://www.justice.gov/opa/speech/deputy-attorney-general-jeffrey-rosen-delivers-keynote-remarks-department-justice-summit" target="_blank">announced</a>&nbsp;that the Justice Department, for the first time, would make “modernizing and improving the APA…an important mission.”</p> <p>The U.S. Congress wrote the APA almost 75&nbsp;years ago, and its procedural provisions have&nbsp;<a href="https://www.yalejreg.com/nc/d-c-circuit-review-reviewed-73-years-of-apa-evolution-in-one-chart/" target="_blank">aged</a>&nbsp;poorly. Prominent scholars and the&nbsp;<a href="https://www.americanbar.org/" target="_blank">American Bar Association</a>&nbsp;have&nbsp;<a href="https://www.ssrn.com/abstract=2962142" target="_blank">called</a>&nbsp;for the APA to be&nbsp;<a href="http://www.americanbar.org/content/dam/aba/directories/policy/2016_hod_midyear_106B.docx" target="_blank">updated</a>. These concerns animate the Justice Department’s push to amend the statute. Notably, the Justice Department played an important role in supporting passage of the original APA.</p> <p>This is not an exhaustive account of all ongoing efforts by the Trump Administration to reform administrative policymaking—others include the&nbsp;<a href="https://www.whitehouse.gov/omb/" target="_blank">U.S. Office of Management and Budget</a>&nbsp;<a href="https://www.federalregister.gov/documents/2020/01/30/2020-01632/improving-and-reforming-regulatory-enforcement-and-adjudication" target="_blank">inviting</a>&nbsp;feedback on regulatory enforcement and proceedings, and a&nbsp;<a href="https://www.transportation.gov/" target="_blank">U.S. Department of Transportation</a>&nbsp;rulemaking that&nbsp;<a href="https://www.forbes.com/sites/susandudley/2019/12/19/dot-asserts-more-control-over-regulatory-traffic/#de01ba31a031" target="_blank">provides</a>&nbsp;insight into the agency’s internal regulatory process.</p> <p>Suffice it to say here, there is a&nbsp;lot happening apart from President Trump’s empty sloganeering on deregulatory ratios.</p> <p>Indeed, Bethany Davis Noll and Richard Revesz&nbsp;<a href="https://www.theregreview.org/2020/03/16/davis-noll-revesz-regulatory-rollbacks-changed-nature-presidential-power/" target="_blank">argue</a>&nbsp;that the Trump Administration pioneered three “instruments” for “aggressive regulatory rollbacks” that “are likely to result in a&nbsp;significant reconceptualization of presidential power.”</p> <p>The first instrument is the&nbsp;<a href="https://uscode.house.gov/view.xhtml?path=/prelim@title5/part1/chapter8&amp;edition=prelim" target="_blank">Congressional Review Act</a>, which establishes a&nbsp;streamlined legislative process to check new regulations. Noll and Revesz correctly&nbsp;<a href="https://www.theregreview.org/2020/03/16/davis-noll-revesz-regulatory-rollbacks-changed-nature-presidential-power/" target="_blank">observe</a>&nbsp;that President Trump has used this law to sign 16 “legislative vetoes” of regulations, a&nbsp;dramatic increase over past practice. But why do Noll and Revesz impute these regulatory rollbacks to Trump? After all, it is called the Congressional Review Act; its&nbsp;<a href="https://www.brookings.edu/research/how-powerful-is-the-congressional-review-act/" target="_blank">nickname</a>&nbsp;is the&nbsp;<em>legislative</em>&nbsp;veto. These measures are functions of Congress; they are not a&nbsp;presidential “strategy,” as&nbsp;<a href="https://www.theregreview.org/2020/03/16/davis-noll-revesz-regulatory-rollbacks-changed-nature-presidential-power/" target="_blank">claimed</a>&nbsp;by Noll and Revesz.</p> <p>The second instrument is the Trump Administration’s pursuit of abeyances in legal challenges to Obama‐​era rules to “<a href="https://www.theregreview.org/2020/03/16/davis-noll-revesz-regulatory-rollbacks-changed-nature-presidential-power/" target="_blank">help</a>&nbsp;avoid the risk that a&nbsp;court will uphold” an Obama Administration rule. But is there anything new here? Early in the Obama Administration, agencies boldly employed “voluntary remands” to “avoid judicial scrutiny of Bush‐​era regulations,” as observed by&nbsp;<a href="https://www.linkedin.com/in/joshua-revesz-a4503b20" target="_blank">Joshua Revesz</a>&nbsp;in a&nbsp;brilliant&nbsp;<a href="http://www.administrativelawreview.org/wp-content/uploads/2018/10/ALR-70.2_Revesz.pdf" target="_blank">article</a>&nbsp;for the&nbsp;<a href="http://www.administrativelawreview.org/" target="_blank"><em>Administrative Law Review</em></a>. By contrast, “the Trump Administration has declined to file voluntary remand motions on politically salient policies,”&nbsp;<a href="http://www.administrativelawreview.org/wp-content/uploads/2018/10/ALR-70.2_Revesz.pdf" target="_blank">according</a>&nbsp;to Joshua Revesz. Simply put, the Trump and Obama Administrations used different means—abeyances and voluntary remands, respectively—to achieve the same ends.</p> <p>The third instrument is the Trump Administration’s use of regulatory suspensions to defer compliance of Obama‐​era rules while the current regime works on a&nbsp;replacement. Again, this tool does not seem to be novel. In 2010, for example, industry lawyers&nbsp;<a href="https://www.jstor.org/stable/25802028?read-now=1&amp;seq=1#page_scan_tab_contents" target="_blank">complained</a>&nbsp;that President Obama’s agencies went “far beyond the traditional practice of a&nbsp;new presidential administration” by “unilaterally re‐​writing rules and approvals where the ink is long dry and the final rule is on the library shelf.” Back in 2010, the instruments were voluntary remands and—allegedly—sweetheart settlements with public interest organizations; today, they are “suspensions.”</p> <p>If, as I&nbsp;suspect, the current Administration is not doing anything special, then it would follow that Noll and Revesz&nbsp;<a href="https://www.theregreview.org/2020/03/16/davis-noll-revesz-regulatory-rollbacks-changed-nature-presidential-power/" target="_blank">overstate</a>&nbsp;their case when they posit that President Trump pioneered an ultra‐​effective template for regulatory rollback—supposedly so effective that “a single electoral victory will be insufficient to implement significant policy priorities through regulation.” Assuming, unlike Noll and Revesz, that there is no novel threat to a&nbsp;single‐​term president’s regulatory agenda, then President Trump’s legacy is on relatively safe ground.</p> <p>Usually, regulatory reform is the sort of issue that Presidents take on in their second term, if at all. President George W. Bush, for example,&nbsp;<a href="https://ballotpedia.org/Presidential_Executive_Order_13422_(George_W._Bush,_2007)" target="_blank">announced</a>&nbsp;his major regulatory agenda during his penultimate year in office. President Trump, by contrast, campaigned hard on the issue, and his regulatory push commenced from the start of his tenure. Having made reform a&nbsp;first‐​term issue, his Administration has had the wherewithal to insulate certain priorities—especially guidance reform—from a&nbsp;reversal should President Trump lose in 2020.</p> </div> Mon, 25 May 2020 09:33:43 -0400 William Yeatman https://www.cato.org/publications/commentary/fuller-picture-trump-administrations-regulatory-agenda Why the ‘Reopen Maryland’ Lawsuit Failed https://www.cato.org/publications/commentary/why-reopen-maryland-lawsuit-failed Walter Olson <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>On Wednesday, U.S. District Judge Catherine Blake rejected the lawsuit filed by Emmitsburg attorney and District 4&nbsp;delegate Daniel Cox on behalf of businesses, lawmakers and clergy challenging Gov. Larry Hogan’s use of emergency public health powers. In some other states, challengers have won rulings striking down at least some portions of state stay‐​home orders. But this suit’s claims failed all down the line, and here’s why.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>To begin with, the U.S. Constitution does not generally bar restrictive state public health measures. Under the leading Supreme Court case of Jacobson v. Massachusetts, on mandatory vaccination, such laws fail only if they have “no real or substantial relation” to preventing disease. Courts will substitute their judgment for that of public health officials only in a&nbsp;few circumstances, as when they conclude that the orders have no real relationship to battling a&nbsp;health risk, or even that the whole emergency is imaginary.</p> <p>In what you might call a&nbsp;long‐​shot move, Cox’s suit did seek to minimize the seriousness of what it called the “<em>alleged</em>&nbsp;on‐​going catastrophic health pandemic” — which has killed more than 2,000 Marylanders so far — and drew sharp rebuke from the judge, who wrote: “even if these assertions were true, the plaintiffs ignore the likelihood that the restrictions that were put in place reduced the number of deaths and serious disability the State has experienced.”</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The text of this lawsuit was full of rhetorical flights and digressions into points not germane to law. It appeared to be written with some audience in mind other than federal judges. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>In his statements outside the court, Del. Cox has told a&nbsp;radio audience that “ninety‐​nine percent of the population is not in danger with this virus,” and has said on Twitter that “Studies show up to 70–86% of the public already have or had coronavirus.” Many medical authorities would sharply disagree with both contentions.</p> <p>In Wisconsin, Oregon, and Ohio, challengers were able to convince judges that governors overstepped the authority granted under state emergency laws, which may require, for example, legislative say‐​so for an emergency order’s extension. But Maryland grants its governor broader power than many other states, one good reason being that ours is not a&nbsp;year‐​round legislature. The General Assembly has been adjourned for weeks and is not going to reconvene in Annapolis every 30&nbsp;days — in the middle of a&nbsp;pandemic! — to give thumbs up or down on each Hogan order. Nor should it have to. The judge found Hogan had not overstepped Maryland law.</p> <p>In some states, challengers have successfully argued that governors’ orders were too restrictive toward churches. Those claims failed here too.</p> <p>Under the relevant standard, articulated by the late Justice Antonin Scalia in a&nbsp;1990 Supreme Court opinion, neutral and general laws that burden religion do not violate the U.S. Constitution so long as 1) they are not improperly motivated by a&nbsp;wish to restrict religion, and 2) they do not arbitrarily restrict religious activity when genuinely similar non‐​religious activity is permitted. This court, like other federal courts, rejected the argument that if stores are to stay open to sell plywood or soft drinks, all other gatherings must be permitted as well. As the judge pointed out, the federal government’s own guidelines designate sale of food and cleaning supplies as essential. And shop‐​and‐​leave arrangements can be rationally distinguished from gatherings whose whole point is to congregate closely for a&nbsp;lengthy period. (Religious gatherings have been an important source of outbreaks both in the U.S. and abroad.)</p> <p>An unusual aspect of the suit was Del. Cox’s claim to have been personally threatened by an aide to Gov. Hogan. Shortly before filing the lawsuit Cox repeatedly asked the aide if he, Cox, could be arrested for speaking at a&nbsp;Reopen rally, and the aide answered that the delegate should read the text of the relevant order if he wanted to know what it said. Cox characterized this exchange as a&nbsp;threat. (No one was arrested for speaking at the rally.)</p> <p>Judge Blake ruled that the restriction on large gatherings is what the law calls a “time, place, and manner” restriction not based on the content of speech, noted that “there is no evidence that the order is being applied selectively to discourage speech that the Governor disagrees with,” and summed things up: “the Governor has not silenced Cox or any other legislator.”</p> <p>The court made short shrift of most of the suit’s other claims, some of which seemed thrown against the wall to see what might stick. For instance, the constitution’s Commerce Clause might come into play had the governor arranged the rules so as to discriminate against out‐​of‐​state merchants, but he hadn’t.</p> <p>The text of this lawsuit was full of rhetorical flights and digressions into points not germane to law. It appeared to be written with some audience in mind other than federal judges.</p> <p>That’s one reason, when Cox takes the case to the Fourth Circuit federal appeals court — as he has vowed to do — he will find his work cut out for him.</p> </div> Sat, 23 May 2020 13:28:20 -0400 Walter Olson https://www.cato.org/publications/commentary/why-reopen-maryland-lawsuit-failed Jeffrey A. Singer discusses the chronic pain issue and opioid epidemic on CKOM’s The Roy Green Show https://www.cato.org/multimedia/media-highlights-radio/jeffrey-singer-discusses-chronic-pain-issue-opioid-epidemic-ckoms Sat, 23 May 2020 12:29:00 -0400 Jeffrey A. Singer https://www.cato.org/multimedia/media-highlights-radio/jeffrey-singer-discusses-chronic-pain-issue-opioid-epidemic-ckoms FinCEN’s Suspicious Statistics https://www.cato.org/blog/fincens-suspicious-statistics Diego Zuluaga <p>It’s difficult to outdo the crypto community when it comes to making <a href="https://www.buybitcoinworldwide.com/dollar-devaluation/" rel="nofollow external noopener noreferrer" target="_blank">bold quantitative claims</a> that, stripped out of context, mislead the incautious. But Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco recently came close.</p> <p>In <a href="https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-concensus-blockchain" rel="nofollow external noopener noreferrer" target="_blank">remarks</a> last week to the annual (and, alas, virtual) Consensus conference for crypto professionals and enthusiasts, Blanco declared that, “since 2013, FinCEN has received nearly 70,000 Suspicious Activity Reports (SARs) involving virtual currency exploitation.” That impressive figure was bound to get attention—and <a href="https://www.coindesk.com/fincen-crypto-sars" rel="nofollow external noopener noreferrer" target="_blank">it did</a>. The speech is also likely to reinforce the widespread view that cryptocurrency is a&nbsp;hotbed of financial crime. But Blanco omitted to say that, in 2019 alone, financial institutions filed more than 2.3 million SARs regarding all sorts of transactions, and that, according to FinCEN’s own statistics, virtual currency SARs make up just 0.56 percent of all such reports filed since 2014.<a href="#_ftn1" name="_ftnref1" id="_ftnref1">[1]</a></p> <p>Whom to believe—Blanco, or his agency’s numbers? Were FinCEN an obscure or unimportant agency, the answer might not matter very much. But as the U.S. Treasury Department’s illicit finance watchdog, FinCEN is a&nbsp;crucial enforcer of financial regulations—ones which, according to a&nbsp;2018 <a href="https://www.communitybanking.org/~/media/files/compliance%20costs%20economies%20of%20scale%20and%20compliance%20performance.pdf" rel="nofollow external noopener noreferrer" target="_blank">survey</a>, community bankers consider the costliest to comply with. Yet, despite FinCEN’s significance, the SAR database (FinCEN’s main resource for law enforcement) is bloated and opaque, and the usefulness of its contents impossible for outsiders to evaluate. Blanco ostensibly believes that crypto is a&nbsp;source of growing mischief. But absent major improvements to FinCEN’s database and reporting, that hunch will remain unverifiable.</p> <p>To be sure, Blanco’s agency is relatively underresourced despite its leading role in writing and enforcing the Bank Secrecy Act’s many rules. Its 333 employees and $118 million budget look paltry in comparison with another Treasury agency, the <a href="https://www.occ.treas.gov/about/what-we-do/key-data-and-statistics/index-occ-and-federal-banking-system-at-a-glance.html" rel="nofollow external noopener noreferrer" target="_blank">Office of the Comptroller of the Currency</a> (3,699 employees and $1.09 billion), and independent financial regulators such as the <a href="https://files.consumerfinance.gov/f/documents/cfpb_performance-plan-and-report_fy20.pdf" rel="nofollow external noopener noreferrer" target="_blank">Consumer Financial Protection Bureau</a> (1,465 and $510 million) and the <a href="https://www.sec.gov/files/sec-2019-agency-financial-report.pdf" rel="nofollow external noopener noreferrer" target="_blank">Securities and Exchange Commission</a> (4,350 and $2.5 billion). Although FinCEN <a href="https://www.law.cornell.edu/cfr/text/31/1010.810" rel="nofollow external noopener noreferrer" target="_blank">delegates</a> BSA‐​related supervision to the primary regulators of different financial institutions, only it has overall authority for enforcement of the statute.</p> <p>Perhaps owing to its limited resources, FinCEN has tended to deputize financial institutions to perform the oversight that other regulators undertake directly. For example, BSA regulations <a href="https://fas.org/sgp/crs/misc/R44776.pdf" rel="nofollow external noopener noreferrer" target="_blank">require</a> banks and others to collect, verify, and maintain an up‐​to‐​date record of their customers’ personal information, such as their name, address, date of birth, and taxpayer identification number. They must also develop due diligence policies designed to subject risky customers to additional scrutiny. Since May 2018, FinCEN has also <a href="https://www.govinfo.gov/content/pkg/FR-2016-05-11/pdf/2016-10567.pdf" rel="nofollow external noopener noreferrer" target="_blank">required</a> financial firms to collect beneficial ownership information from their corporate accountholders, so that they might include it in their SARs.</p> <p>Shifting the bulk of the BSA’s burden to the private sector serves to conceal its weight. But the regulations are onerous, whatever view one holds of their impact on financial crime. According to FinCEN’s own conservative <a href="https://www.fincen.gov/sites/default/files/shared/CDD_RIA.pdf" rel="nofollow external noopener noreferrer" target="_blank">estimate</a>, over the next decade financial institutions may spend as much as $1.5 billion just to comply with its May 2018 rule. That figure only reflects direct compliance costs: staff training, longer account opening processes, and so on. The indirect costs of FinCEN’s regulations may, however, be even greater. For instance, their <a href="https://www.gao.gov/assets/700/690310.pdf" rel="nofollow external noopener noreferrer" target="_blank">adverse impact</a> on banks’ willingness to take on customers FinCEN might deem risky is substantial. Residents of border states who hold foreign passports, conduct cross‐​border business, and deal in cash are particularly affected. While these residents may fit the BSA’s archetype of a&nbsp;money launderer, most are not criminals. But banks may shun them all because serving them isn’t worth the extra due diligence cost.</p> <p>Banks’ strong desire to avoid considerable <a href="https://fas.org/sgp/crs/misc/R45076.pdf" rel="nofollow external noopener noreferrer" target="_blank">penalties</a> and reputational damage makes them eager to avoid falling foul of BSA regulations. But this precautionary zeal comes at the cost, not only of lost business, but of resources that might be employed much more productively elsewhere. One example of waste is so‐​called “defensive reporting”: among the 2.3 million SARs filed in 2019, more than 11 percent (262,987) bore the tag “Other Other Suspicious Activity,” hinting that the reports were filed only as a&nbsp;precaution.</p> <p>Such precaution may be warranted in certain cases. Perhaps a&nbsp;few defensive SARs have even helped to bring financial criminals to justice in the past. It’s difficult to know because FinCEN doesn’t make such information publicly available. Still, many experts point out the <a href="https://regtechconsulting.net/uncategorized/rules-based-monitoring-alert-to-sar-ratios-and-false-positive-rates-are-we-having-the-right-conversations/" rel="nofollow external noopener noreferrer" target="_blank">alarming rate</a> of “false positive” reports, a&nbsp;finding that should concern advocates of greater financial inclusion because SARs are a&nbsp;<a href="https://www.gao.gov/assets/700/690310.pdf" rel="nofollow external noopener noreferrer" target="_blank">decisive factor</a> in banks’ decision whether to close customer accounts. And while some of the SARs with imprecise tags like “Other Other” include additional, more specific classifiers, many don’t. Again, one can’t know the exact proportion of each because FinCEN’s public database doesn’t list information on individual reports.</p> <p>In forums public and private, FinCEN officials often state that criminal financial activity is on the rise, that they need all the information they can get from financial institutions, and that every single report counts. But most of the time, FinCEN’s word is all the supporting evidence outsiders can hope for. That must change. If, as Director Blanco has repeatedly <a href="https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-american-bankers" rel="nofollow external noopener noreferrer" target="_blank">suggested</a>, financial malefactors are warming up to cryptocurrency, FinCEN should be the first to take this trend seriously by listing “virtual currency” (the agency’s preferred term) as a&nbsp;discrete SAR category. FinCEN should also take a&nbsp;leaf out of the CFPB’s book and release regular reports about suspicious activity trends across the financial system, as the Bureau does for consumer finance trends. Despite mounting SARs, FinCEN has published very little in the last 15&nbsp;years on the growth of new payments instruments. Yet greater provision of information and data may help not only to alert market participants to rising threats, but to clear up the cloud of suspicion that presently hovers over the crypto industry.</p> <p>If Blanco is serious about demonstrating his agency’s efficiency and value, he must be transparent with policymakers and the public. Any other approach is likely to hobble beneficial financial activity, without deterring those who seek to undermine our security.</p> <p>*******</p> <p><a href="#_ftnref1" name="_ftn1" id="_ftn1">[1]</a> The SARs database on FinCEN’s website yields 12,533,814 reports since 2014. Data for 2013 are unavailable.</p> <p>[<a href="https://www.alt-m.org/2020/05/22/fincens-suspicious-statistics/">Cross‐​posted from Alt​-​M​.org</a>]</p> Fri, 22 May 2020 08:33:57 -0400 Diego Zuluaga https://www.cato.org/blog/fincens-suspicious-statistics Americans Have Always Politicized Public Health https://www.cato.org/publications/commentary/americans-have-always-politicized-public-health Chelsea Follett <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>A deadly disease has emerged. There is no known treatment. Public opinion is split on how to tackle the outbreak. Those words could apply to the COVID-19 pandemic. In fact, they also apply to the yellow fever outbreak that swept through America’s capital city not long after the American Revolution. The 1793 episode shows us that the medical response to a&nbsp;crisis is easily politicized.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Yellow fever is a&nbsp;viral disease that’s spread by mosquitoes. It often causes jaundiced or yellowed skin (hence its name), vomiting, bleeding and death. In the late summer of 1793, refugees from a&nbsp;yellow fever epidemic in the Caribbean fled to Philadelphia, which was then the capital city of the young United States of America. Their ships unfortunately also carried&nbsp;<em>Aedes aegypti&nbsp;</em>mosquitoes—vectors of the yellow fever virus.</p> <p>Within months, 11,000 people, or 20 percent of Philadelphia’s population at the time, contracted the disease. Of that number, around 5,000 people or 45 percent died. That amounted to about 10 percent of Philadelphia’s total population.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>As humanity tackles the serious, global problems presented by the current pandemic, we should learn the lessons of the past and know that beating COVID-19 will require clear heads and a&nbsp;reliance on reason and data. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>For comparison, the World Health Organization has&nbsp;<a href="https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---3-march-2020" target="_blank">estimated</a>&nbsp;that the fatality rate for COVID-19 is 3.4 percent and a&nbsp;study in the British medical journal&nbsp;<em>The Lancet&nbsp;</em><a href="https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30185-9/fulltext%23tbl1" target="_blank">suggested</a>the fatality rate to be 3&nbsp;percent. Other estimates&nbsp;<a href="https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(20)30243-7/fulltext" target="_blank">claim</a>&nbsp;that the fatality rate is much lower than that. While experts are still unsure of the true fatality rate of the current pandemic, no research suggests it to be anywhere near what the Philadelphians endured in 1793.</p> <p>Philadelphia’s yellow fever epidemic understandably created a&nbsp;mass panic in the capital and prompted 17,000 people, including President George Washington and many other government officials, to leave the city and seek refuge in the countryside.</p> <p>Dr. Benjamin Rush, one of the&nbsp;signers of the Declaration of Independence, chose to remain in the city and tirelessly tended to the sick. It is said that he sometimes visited a&nbsp;hundred patients in a&nbsp;single day.</p> <p>Unfortunately, medicine was still primitive and many of Rush’s&nbsp;<a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1312212/" target="_blank">treatments</a>&nbsp;were counterproductive. They included bloodletting and prescribing calomel (i.e. toxic mercury chloride). Rush believed that his methods saved his own life from the illness. For most patients, however,&nbsp;Rush’s interventions almost certainly did more harm than good.</p> <p>Another Founding Father who chose to remain in Philadelphia was the then Secretary of the Treasury, Alexander Hamilton. Hamilton and his wife survived the disease and he attributed their recovery to comparatively mild treatments, including the quinine‐​rich&nbsp;bark&nbsp;of the cinchona tree. It is now known that quinine, a&nbsp;stimulant and malaria treatment, does not destroy the yellow fever virus. But it may have acted as a&nbsp;placebo.</p> <p>The question of yellow fever treatment quickly became political. Rush was a&nbsp;member of the Democratic‐​Republican Party, while Hamilton was a&nbsp;Federalist. Whether one favored mercury and bloodletting or milder treatments such as cinchona bark became a&nbsp;partisan issue.</p> <p>Which treatments Philadelphians read about depended on their preferred media outlet. The Federalist‐​sympathizing&nbsp;<em>Gazette of the United States</em>&nbsp;exclusively printed medical recommendations from Hamilton’s favored physician. The ostensibly impartial&nbsp;<em>Federal Gazette</em>&nbsp;<a href="https://www.jstor.org/stable/20093070?seq=1" target="_blank">overwhelmingly</a>&nbsp;published Rush’s advice and omitted conflicting viewpoints.</p> <p>The cause of the illness was also a&nbsp;partisan matter. The Democratic‐​Republicans believed that the disease was local in origin, while the Federalists blamed the recent refugees and their ships.&nbsp;“More than one‐​third of the most prominent national and local political leaders in Philadelphia took a&nbsp;public position on the cause of the epidemic,”&nbsp;<a href="https://www.jstor.org/stable/pdf/1917393.pdf?ab_segments=0%2525252Fbasic_SYC-5152%2525252Ftest&amp;refreqid=excelsior%25253A24a6b14124b9e8e73f32b66ce301f7fe" target="_blank">according</a>&nbsp;to University of Michigan historian Martin Pernick.&nbsp;“With few exceptions the [Democratic-]Republicans backed a&nbsp;domestic source of the fever, while Federalists largely blamed importation.”</p> <p>In that climate of extreme politicization, little progress was made toward finding an effective treatment. In the end, the yellow fever outbreak was defeated by luck—a cold winter killed off the disease‐​carrying mosquitoes and ended the epidemic. Over the years, as ships brought in more mosquitoes from abroad, other outbreaks of yellow fever flared up occasionally in coastal U.S. cities. A&nbsp;vaccine would not come into use until 1938.</p> <p>As the country combats the current pandemic, we should refrain from politicizing the issue and evaluate available treatments based solely&nbsp;on scientific evidence.&nbsp;Unfortunately, health policy discussions are often driven by party loyalty rather than evidence. Polling shows that opinions on the seriousness of the pandemic have become divided along partisan lines.</p> <p>Early on, President Donald Trump&nbsp;<a href="https://www.washingtonpost.com/graphics/2020/politics/trump-coronavirus-statements/" target="_blank">dismissed</a>&nbsp;the threat posed by COVID-19, and Republicans remain considerably&nbsp;<a href="https://www.nytimes.com/2020/03/13/us/politics/coronavirus-trump-polling.html" target="_blank">less worried</a>&nbsp;about the virus than Democrats. Nowadays, it is the Democrats who stand in the way of more rapid re‐​opening of the economy pushed by the Republicans. Of course, the true death rate of the novel coronavirus is still being studied, and hopefully political pressures will not hamper the search for the objective truth, whatever it may be.</p> <p>Treatments for COVID-19 have also become politicized. Remdesivir, a&nbsp;drug that combats Ebola, and hydroxychloroquine, an anti‐​malaria drug, are both being studied as possible COVID-19 treatments. In both cases, we have some initial ideas about their effectiveness, but more trials are needed to assess their efficacy against COVID-19. Yet&nbsp;<a href="https://www.wired.com/story/the-info-war-over-chloroquine-has-slowed-covid-19-science/" target="_blank">partisan fighting</a>&nbsp;about hydroxychloroquine has slowed down the process of determining the truth about that drug’s effectiveness against COVID-19. Let’s hope that similar pressures do not hamper further investigation of Remdesivir.</p> <p>As another example of politicization, consider the use of ultraviolet light against the virus. The method involves intermittently shining ultraviolet light through an endotracheal catheter, and is being explored as a&nbsp;potential treatment for coronavirus and other respiratory infections. After President Trump’s seeming endorsement of the technique, there has been a&nbsp;considerable&nbsp;<a href="https://www.wsj.com/articles/an-experimental-ultraviolet-light-treatment-for-covid-19-takes-political-heat-11588005938" target="_blank">backlash</a>&nbsp;against ultraviolet light therapies. Under pressure from political activists, YouTube and Vimeo removed videos about the experimental treatment, which is being studied at Cedars‐​Sinai Medical Center in Los Angeles. Similarly, Twitter suspended the account of a&nbsp;biotechnology company behind the new therapy.</p> <p>The research is still in an early phase, but it should not be dismissed purely on partisan grounds—whatever the current president’s opinion on the subject.</p> <p>We should not allow politics to drive what we believe about the virus or the best medical response, instead reviewing the available evidence with an open mind. Reflexively supporting or opposing a&nbsp;particular medical approach because of the endorsements of politicians makes no sense.</p> <p>The novel coronavirus pandemic may feel unprecedented, but of course humanity has&nbsp;<a href="https://humanprogress.org/article.php?p=2526" target="_blank">dealt</a>&nbsp;with the horrors of plagues and epidemics throughout history. As humanity tackles the serious, global problems presented by the current pandemic, we should learn the lessons of the past and know that beating COVID-19 will require clear heads and a&nbsp;reliance on reason and data.</p> </div> Wed, 20 May 2020 16:09:08 -0400 Chelsea Follett https://www.cato.org/publications/commentary/americans-have-always-politicized-public-health Chris Edwards discusses the future of the USPS on NPR’s On Point https://www.cato.org/multimedia/media-highlights-radio/chris-edwards-discusses-future-usps-nprs-point Wed, 20 May 2020 15:09:38 -0400 Chris Edwards https://www.cato.org/multimedia/media-highlights-radio/chris-edwards-discusses-future-usps-nprs-point Don’t Forget People Living in Pain: War on Opioids and Chronic Pain Patients during COVID-19 https://www.cato.org/multimedia/events/dont-forget-people-living-pain-war-opioids-chronic-pain-patients-during-covid-19 Andrea Trescot, MD, Kate Nicholson, JD, Richard Lawhern, PhD, Jeffrey A. Singer <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Governments are responding to the COVID-19 pandemic by temporarily suspending or relaxing regulations that block access to health care. State and federal officials should also suspend regulations that restrict access to opioids for as many as 50 million adults living with chronic pain.</p> <p>Social‐​distancing measures exist to protect health by stopping the spread of COVID-19. But shelter‐​in‐​place orders, lockdowns of nonessential businesses, and prohibitions on elective medical procedures can threaten the health of patients suffering from chronic illnesses, immobilizing disorders, substance use disorders, and mental health problems. The combination of preexisting regulatory barriers and social distancing is causing increased suffering, isolation, and despair among these Americans.</p> <p>Please join us for this event, where chronic pain patients, those who advocate for them, and those who treat them will discuss how current opioid policy is making the public health emergency doubly dangerous.</p> </div> Wed, 20 May 2020 11:51:00 -0400 Andrea Trescot, MD, Kate Nicholson, JD, Richard Lawhern, PhD, Jeffrey A. Singer https://www.cato.org/multimedia/events/dont-forget-people-living-pain-war-opioids-chronic-pain-patients-during-covid-19 Veronique de Rugy discusses the airline industry on The Lars Larson Show https://www.cato.org/multimedia/media-highlights-radio/veronique-de-rugy-discusses-airline-industry-lars-larson-show Wed, 20 May 2020 11:14:48 -0400 Veronique de Rugy https://www.cato.org/multimedia/media-highlights-radio/veronique-de-rugy-discusses-airline-industry-lars-larson-show David Bier discusses the Optional Practical Training (OPT) program on PRI’s The World https://www.cato.org/multimedia/media-highlights-radio/david-bier-discusses-optional-practical-training-opt-program-pris Wed, 20 May 2020 11:07:06 -0400 David J. Bier https://www.cato.org/multimedia/media-highlights-radio/david-bier-discusses-optional-practical-training-opt-program-pris Broad Lockdowns Are No Longer Constitutionally Justified https://www.cato.org/publications/commentary/broad-lockdowns-are-no-longer-constitutionally-justified Ilya Shapiro <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Now into the third month of the coronavirus crisis, Americans are getting restless. Having for the most part accepted in March that fighting a&nbsp;pandemic with incomplete data required taking drastic steps, they now want the benefit of the lose‐​lose bargain that COVID-19 forced on them. We flattened the curve, the thinking goes, preventing our medical system from being overwhelmed—heck, health care workers are being laid off!—so now it’s time to resume our lives and recoup as much as we can.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The constitutional analysis of the various shutdown orders tracks that popular sentiment: States have the “police power” to govern for the general health, welfare and safety of society, so long as they have sufficient justification for doing so. But that doesn’t mean that there’s no limit on the actions that state and local officials can take, or that actions that were justified at one point will continue to be justified forever, regardless of underlying developments.</p> <p>In other words, it’s prudent in a&nbsp;pandemic to restrict activities that would otherwise bring people together in a&nbsp;way that facilitates viral transmission, but it doesn’t mean governors get to “shut down” anything and everything on a&nbsp;whim. Recall that viral video of the guy running along the beach in California, chased by a&nbsp;hapless cop. Or that dad who got arrested for playing catch with his kids in a&nbsp;public park. Or mayoral edicts that stop drive‐​in church but permit drive‐​thru liquor sales. Or the Michigan order banning motorboats but not sailboats; the sale of seeds but not weed.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Just because certain expansive state actions are lawful at the outset of a&nbsp;pandemic doesn’t mean they continue to be lawful for as long as the government wants to maintain them. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>State officials also have to follow their own constitutions. A&nbsp;pandemic is an emergency in a&nbsp;certain sense, at least initially, but it goes on for months, which allows for both legislative action and the observance of due process. I’m no expert in Wisconsin administrative law, but I&nbsp;was heartened to see that state’s supreme court throw out the health secretary’s shutdown order because it violated the separation of powers and didn’t follow proper procedures. Ditto the Oregon court’s injunction—now temporarily stayed—against the governor’s extension of that state’s shutdown order without seeking legislative approval. We don’t throw away the rule of law in a&nbsp;pandemic, even when we allow the government to do things it otherwise can’t.</p> <p>Just because certain expansive state actions are lawful at the outset of a&nbsp;pandemic doesn’t mean they continue to be lawful for as long as the government wants to maintain them. A&nbsp;long‐​term shutdown of all productive activity, including most of what makes life sustainable and worth living, is unrealistic—and, as we’re learning, unnecessary. It’s particularly unnecessary for those whose jobs can’t be done over the internet, or for whom telecommuting is unfeasible given childcare demands.</p> <p>As the facts on the ground change, government actions that once were grudgingly accepted now simply don’t pass the constitutional smell test. That’s especially so given the fundamental error that was made in ordering shutdowns based on arbitrary definitions of “essentiality,” as opposed to issuing rules according to the safety of various activities.</p> <p>With unemployment going through the roof, why shut down landscaping businesses just as spring arrived? Why close outdoor recreational facilities? The benefit of sunlight and exercise outweighs the risk that a&nbsp;contagious stranger will sneeze in your face while you hike or apply mulch. My own city of Falls Church, Virginia, closed tennis courts&nbsp;<em>in week seven of quarantine</em>—not even because tennis is dangerous, but because a&nbsp;busybody complained about teenagers congregating. Yeah, chaining courts will definitely stop teens from hanging out.</p> <p>Instead of such blunt and ineffective measures, if the goal is social distancing to prevent viral spread, why not regulate social distancing to prevent viral spread? For example, instead of roping off certain aisles at Walmart, why not limit the number of people per square foot and have them travel in a&nbsp;set direction through the store, as IKEA has always done? And have guidelines on mask‐​wearing that focus not on virtue‐​signaling, but on indoor spaces where avoiding shared HVAC systems is unavoidable. This might sound crazy, but hear me out: Let restaurants put tables outside, regardless of zoning rules.</p> <p>Perhaps most emblematic of the coronavirus overreach is the jailing of Shelley Luther, who opened her Dallas, Texas hair salon before Dallas County lifted its stay‐​at‐​home order. Punishing someone for trying to make a&nbsp;living is outrageous, but this episode is an object lesson for why all government orders, emergency or otherwise, need to be well considered. Legislatures and executives alike need to think long and hard before creating mandates that carry punishments—because the ultimate enforcement of any law, including for the non‐​payment of a&nbsp;fine or a&nbsp;tax, involves a&nbsp;police officer with a&nbsp;gun and a&nbsp;jailer with a&nbsp;cage.</p> <p>Some regulations are definitely worth that price—the prohibition on murder and other violent crime comes to mind—but that doesn’t mean that we should presume every government edict to be legitimate. Just because there’s a&nbsp;role for government in promoting public health doesn’t mean that anything goes.</p> </div> Wed, 20 May 2020 09:18:08 -0400 Ilya Shapiro https://www.cato.org/publications/commentary/broad-lockdowns-are-no-longer-constitutionally-justified California’s Budget and Rainy Day Fund https://www.cato.org/blog/californias-budget-rainy-day-fund Chris Edwards <p>Congress is considering passing additional financial aid for state and local governments. I argued against further aid in <a href="https://www.cato.org/publications/commentary/dem-plan-3-trillion-new-coronavirus-aid-too-costly-states-must-cut-spending">this <em>Fox News</em> op‐​ed</a>. One reason is that many states have built substantial <a href="https://www.cato.org/blog/state-rainy-day-funds">rainy day funds</a>, which will help them balance their budgets even as tax revenues decline. Federal bailouts would undermine incentives to build such useful funds going forward.</p> <p>California has built a substantial rainy day or reserve fund over the past five years, as shown in the chart below from this <a href="https://lao.ca.gov/reports/2018/3905/calfacts-2018.pdf">state report</a>. State residents passed a referendum in 2014 to create the fund structure, and so kudos to Californians <a href="https://ballotpedia.org/California_Proposition_2,_Rainy_Day_Budget_Stabilization_Fund_Act_(2014)">for approving Proposition 2 by 69–31</a>. The state is in a better place today both because the reserve fund can be tapped during the crisis and because contributions to the fund during the boom helped to reduce program growth.</p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="7f5a2493-ce09-4a9f-b819-4d249871d17e" data-langcode="en" class="embedded-entity"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-05/calif%20rainy%20day.png?itok=gHwr0iXK 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-05/calif%20rainy%20day.png?itok=BoJ97opE 1.5x" width="700" height="423" src="/sites/cato.org/files/styles/pubs/public/2020-05/calif%20rainy%20day.png?itok=gHwr0iXK" alt="s" typeof="Image" class="component-image" /></div> <p>California political leaders who supported Proposition 2 should also be commended, including former Governor Jerry Brown. Brown scored poorly on Cato’s <a href="https://www.cato.org/fiscal-policy-report-card-americas-governors">Report Cards</a>, but <a href="https://www.cato.org/publications/white-paper/fiscal-policy-report-card-americas-governors-2016">I did note</a> his support of expanding the rainy day fund.</p> <p>California needs a larger rainy day fund than most states because its revenue system is so volatile. The system is heavily dependent on highly “progressive” income and capital gains taxes, which are <a href="https://lao.ca.gov/reports/2018/3805/ca-tax-system-041218.pdf#page=3">tied to</a> growth in Silicon Valley. The top 1 percent of earners pay <a href="https://data.ftb.ca.gov/stories/s/2it8-edzu#tax-statistics-">almost half</a> of California’s income and capital gains taxes, which is remarkably lopsided.</p> <p>The California Legislative Analyst’s Office (LAO) includes this graphic in its <a href="https://lao.ca.gov/reports/2018/3905/calfacts-2018.pdf">CalFacts publication</a>:</p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="6d666c4b-2217-411c-929f-8a6462905fcb" data-langcode="en" class="embedded-entity"> <img srcset="/sites/cato.org/files/styles/pubs/public/2020-05/calif%20pit.png?itok=sg_yq_9e 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-05/calif%20pit.png?itok=eTqyTMj2 1.5x" width="700" height="258" src="/sites/cato.org/files/styles/pubs/public/2020-05/calif%20pit.png?itok=sg_yq_9e" alt="b" typeof="Image" class="component-image" /></div> <p>To better handle downturns and promote economic growth going forward, California should restructure its tax system to rely more on sales taxes and less on income and capital gains taxes.</p> <p>California also needs budget reform because spending rises too quickly during booms. General fund spending <a href="https://lao.ca.gov/PolicyAreas/state-budget/historical-data">rose</a> 6.2 percent in 2018 and 12.1 percent in 2019. The governor has <a href="http://www.ebudget.ca.gov/budget/2020-21MR/#/BudgetSummary">just released</a> projections showing slower 3.3 percent spending growth in 2020 and spending cuts in 2021. The rainy day fund helps, but California government will need to downsize in coming months as revenues fall. Hopefully, the sobering new projections will encourage policymakers to reopen the state economy as quickly as possible.</p> <p>Over the longer term, California should shrink overall taxing and spending. But its experience shows that even states on the political left can build substantial reserve funds. I argue <a href="https://www.cato.org/publications/commentary/dem-plan-3-trillion-new-coronavirus-aid-too-costly-states-must-cut-spending">here</a> and <a href="https://www.cato.org/blog/state-rainy-day-funds">here</a> that when the current crisis passes and the economy starts growing, states should begin building reserves for the next rainy day.</p> <p>By the way, <a href="https://lao.ca.gov/">California’s LAO</a> produces excellent data and studies, perhaps superior to that produced by federal agencies. The <a href="https://lao.ca.gov/reports/2018/3905/calfacts-2018.pdf">CalFacts</a> booklet, for example, has many interesting charts on taxes, budgets, education, and other topics.</p> Fri, 15 May 2020 16:00:22 -0400 Chris Edwards https://www.cato.org/blog/californias-budget-rainy-day-fund Randal O’Toole’s Downsizing Government article, “Public Transit’s Decline,” is cited on NPR’s Texas Standard https://www.cato.org/multimedia/media-highlights-radio/randal-otooles-downsizing-government-article-public-transits Fri, 15 May 2020 12:56:57 -0400 Randal O'Toole https://www.cato.org/multimedia/media-highlights-radio/randal-otooles-downsizing-government-article-public-transits Stores That Reopen Face ADA Compliance Puzzles https://www.cato.org/blog/stores-reopen-face-ada-compliance-puzzles-5 Walter Olson <p>Around much of the country&nbsp;retail stores and small businesses are struggling with how to reopen, or carry on operations online, consistent with public health recommendations on social distancing and protection of customers and workers. And as they do&nbsp;they find their task complicated in many ways by the requirements of the Americans With Disabilities Act (ADA) and related state laws. So I&nbsp;conclude from an <a href="https://www.adatitleiii.com/2020/05/reopening-businesses-face-thorny-customer-facing-ada-issues/">advice column</a> by Minh Vu and John Egan of the law firm Seyfarth Shaw. Some questions:</p> <p>* <strong>Can you make customers wait outside, and if so how?</strong> Under one format commonly approved for reopening, stores must close all but one entrance and have someone watch that entrance to make sure the number of customers does not exceed a&nbsp;given capacity. Once the maximum is reached, customers waiting for admittance need to stand outside in distanced lines. Unfortunately, under the ADA, if only one of multiple entrances is accessible, that one must be used, even if it’s hard to watch, isn’t good for spacing people out, or is exposed to the rain. “Customers with physical disabilities who cannot stand for long periods may ask to go to the front of the line as a&nbsp;reasonable modification. Businesses may be reluctant to allow this as the claimed disability may not be obvious and the request may be fraudulent.”</p> <p>* <strong>Can you take customers’ temperatures before letting them in?</strong> Some big U.S. employers already use non‐​contact forehead temperature guns to check arriving employees for fever, and in places like Singapore such methods are also common for customers entering stores. Although the devices have been criticized as unreliable and they don’t catch everyone who’s contagious, they may improve the odds of avoiding in‐​store spread of the novel coronavirus. But the ADA exposes you to legal risk if you use them:</p> <blockquote><p>Title III of the ADA does not allow public accommodations to impose or apply eligibility criteria that screen out or tend to screen out an individual with a&nbsp;disability or any class of individuals with disabilities from fully and equally enjoying any goods, services, facilities, privileges, advantages, or accommodations.</p> </blockquote> <p>You might try to take refuge in one of two exceptions, one that excludes from relevant protection someone who “poses a&nbsp;direct threat to the health or safety of others,” and another that permits “legitimate safety requirements that are necessary for safe operation.” The “direct threat” exception, however, requires “an individualized inquiry into whether a&nbsp;specific person poses a&nbsp;direct threat” and courts have been very stringent with businesses that try to use it. They’ve also been strict with the “necessary for safe operation” defense. Do you think you might get sued on the grounds that forehead guns can’t really be a&nbsp;requirement of safe use if some of your competitors aren’t using them? Yes, you just might.</p> <p>* <strong>What kind of seating will you leave in place?</strong> To reflect capacity constraints, many sit‐​down businesses such as restaurants find it best to remove a&nbsp;portion of their tables and seating. Careful about this reshuffling, or it could get legally expensive once you find that you no longer have the required proportion of seating with “a work surface that is between 28” and 34” above the ground, with clear space underneath that is at least 27” high, 17” deep, and 30” wide.”</p> <p>* <strong>How do you move service online?</strong> This will be the biggest headache of all for countless small operators who have moved personal services online — tutors, coaches, counselors of all sorts. For more than 20&nbsp;years now Congress has determinedly refused to clarify when and how online services must provide web accessibility enabling blind, deaf, and fine‐​motor‐​challenged computer users to access all the same services as others. Freelance private lawyers have already sued many thousands of businesses both large and small over alleged web accessibility violations — it takes just one cooperative client to launch a&nbsp;hundred suits or more — and settlements in the thousands or even tens of thousands of dollars are common. Note one problem here with a&nbsp;law that is enforced, by design, by private lawsuits: no official regulator can lift the requirements to reflect the COVID-19 emergency, as is often possible with, say, trucking or occupational‐​licensure rules. Maybe one local ADA lawyer will decide to be reasonable and not sue over a&nbsp;website&nbsp;hastily thrown together in March by a&nbsp;small business trying to keep some revenue coming in during shelter in place. That’s no reason a&nbsp;second lawyer has to hold back.</p> <p>We’ve covered ADA compliance headaches in many earlier posts (some links in&nbsp;<a href="https://www.cato.org/blog/ada-lawyers-sue-retailers-not-putting-braille-gift-cards">this post</a>). In March, we noted how disabled‐​schooling statutes were complicating the effort to <a href="https://www.cato.org/blog/feds-okay-schools-teach-new-content-online-during-emergency">move K-12 education online in response to the pandemic</a>.</p> Thu, 14 May 2020 17:11:52 -0400 Walter Olson https://www.cato.org/blog/stores-reopen-face-ada-compliance-puzzles-5 Do the State Shutdowns Violate the U.S. Constitution? https://www.cato.org/publications/commentary/do-state-shutdowns-violate-us-constitution Walter Olson <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Here’s something you probably didn’t know: states like Michigan, Maryland, Virginia, and Kentucky have all ceased in recent weeks to be organized in political terms as republican forms of government. The culprits in each case are the states’ governors—Gretchen Whitmer, Larry Hogan, Ralph Northam, and Andy Beshear respectively—and the actions each has taken in response to the spread of the novel coronavirus. All four states, or so it would seem, are therefore in violation of the U.S. Constitution, which specifies that every state in the union shall be guaranteed a&nbsp;republican form of government.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>That may sound like a&nbsp;wacky theory. All right, let’s face it—it <em>is</em> a&nbsp;wacky theory. But it’s a&nbsp;common thread in lawsuits filed against all four governors in recent weeks challenging the virus shutdowns. Moreover, claims that the governors have violated the Constitution’s Guarantee Clause have been circulating in some <a href="https://dailycaller.com/2020/04/08/church-why-a-governors-fiat-is-not-a-constitutional-republican-form-of-government/">populist corners of Trumpland</a> for <a href="https://twitter.com/search?q=%22republican%20form%20of%20government%22%20trump&amp;src=typed_query">weeks</a>, sometimes helping to furnish a&nbsp;scenario under which the president might have an inherent power to give direct orders to state governors, as the current White House occupant <a href="https://thebulwark.com/trump-claims-total-authority-to-order-states-open/?amp">briefly seemed</a> to imagine he had the constitutional power to do.</p> <p>There’s little prospect any of these notions will convince a&nbsp;judge to enjoin a&nbsp;shutdown anytime soon. Since the 1849 case <em><a href="http://sites.gsu.edu/us-constipedia/luther-v-borden-1849/">Luther v. Borden</a></em>, involving a&nbsp;Rhode Island dispute, the U.S. Supreme Court has consistently held that the Guarantee Clause does not create any rights that can be enforced in federal court—as a&nbsp;nonjusticiable “political question,” it is instead entrusted to the elected branches. Just last year, in the gerrymandering case of <em><a href="https://scholar.google.com/scholar_case?case=6090361490276671133&amp;q=rucho+v+common+cause&amp;hl=en&amp;as_sdt=80000006">Rucho v. Common Cause</a></em>, Chief Justice John Roberts reminded everyone that the clause creates no rights that can be sued over. Ironically, while there has been no shortage of legal commentators yearning to breathe life into the clause as a&nbsp;means for courts to reshape state government, such interest has come above all from progressives. Conservatives have a&nbsp;lot to lose policy‐​wise should the courts ever decide to rouse the Guarantee Clause from its slumber—and even more ironically, Trump fans may have more to lose than do conservatives.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The flawed lawsuits alleging states are violating the Guarantee Clause.</p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The clause—Article IV, Sec. 4&nbsp;of the document—reads in its entirety:</p> <p>The United States shall guarantee to every State in this Union a&nbsp;Republican Form of Government, and shall protect each of them against Invasion; and on Application of the Legislature, or of the Executive (when the Legislature cannot be convened) against domestic Violence.</p> <p>Scholars agree on one thing about this clause: It was meant to exclude monarchical forms of government, in which elections are dispensed with or high office could be inherited within a&nbsp;family. And it worked: No state, not even Massachusetts with the Kennedys, has adopted formally dynastic methods of filling high office.</p> <p>How much more than that does the clause require? Agreement soon breaks down, as many schools of thought will argue that <em>their</em> preferred ways of organizing political life are indispensable to a&nbsp;properly functioning republic and should be seen as implied requirements under the clause. In the dispute that the Court refused to resolve in the 1849 case, Rhode Island had retained a&nbsp;high property qualification that essentially kept the government in the hands of larger landowners while excluding the majority of male citizens. Later cases sought to challenge as departures from republicanism innovations that made government too democratic—for example, the use of initiative and referendum was assailed on this basis as bypassing the aspect of republicanism under which power is ordinarily exercised through representative institutions rather than directly by the people. Those challenges failed too.</p> <p>In truth, the more modest readings of the clause are the most persuasive. In our day, as in the Founders’, republics can be organized in all sorts of ways, including dysfunctional and regrettable ways, while still counting as republics. Switzerland is an archetypal republic whose structure influenced the Founders; its cantons are not all organized the same way, just as no two American states organize their legislature in the same way. The Republic of Italy may be a&nbsp;dysfunctional polity in many ways, but it would be idle to deny it the status of republic. Gerrymandering is an ill typical of republics, but it does not keep them from being so—in fact you might say it even perversely serves to confirm their status as republics, the way certain ailments specific to canines confirm that your suffering pet is indeed a&nbsp;dog. And so forth.</p> <p>As Ryan Williams recounts in the introduction of <a href="https://harvardlawreview.org/wp-content/uploads/2018/12/602-688_Online.pdf">this <em>Harvard Law Review</em> piece</a>, notable left‐​of‐​center law professors have long wished and hoped for an invigoration of the Guarantee Clause that would empower the Court to impose on the states modern ideas of how a&nbsp;good republic should function. One <a href="https://scholarship.law.umn.edu/cgi/viewcontent.cgi?article=1862&amp;context=mlr">early effort</a> proposed that courts should begin forcing more equal spending on K-12 education because, after all, an educated populace is essential for a&nbsp;well‐​functioning republic. Other, more recent proposals would use the clause to set the Court up as a&nbsp;corrector both of <a href="https://newrepublic.com/article/154486/guarantee-clause-hindering-gerrymandering-reform">gerrymandering</a> and of what critics blast as <a href="https://ilr.law.uiowa.edu/print/volume-105-issue-3/waking-the-giant-a-role-for-the-guarantee-clause-exclusion-power-in-the-twenty-first-century/">voter suppression</a>. Libertarian thinkers have sometimes <a href="https://www.cato.org/blog/what-compulsory-public-sector-union-dues-violate-guarantee-clause">gotten into the act</a> as well.</p> <p>Needless to say, the results of inviting courts to begin redesigning state voting and electoral systems would probably dismay many Republican partisans, as well as others who doubt the all‐​round reform competence of federal courts. But the new round of lawsuits aimed at “reopening” the states—I analyzed the very bad <a href="https://bloximages.newyork1.vip.townnews.com/fredericknewspost.com/content/tncms/assets/v3/editorial/d/a4/da45cb4b-a84b-5ac8-9291-cceeed333765/5eb07fbfa1e3f.pdf.pdf">Maryland</a> one <a href="https://threadreaderapp.com/thread/1257001063787479040.html">here</a>, while Prof. Sam Bagenstos of the University of Michigan <a href="https://threadreaderapp.com/thread/1257502890966552577.html">did the same</a> for <a href="https://www.courthousenews.com/wp-content/uploads/2020/05/Paul-Mitchell-III-v.-Gretchen-Whitmer-et-al.pdf">his state’s</a>—are weirdly lacking in any real engagement with the electoral processes that you might think define a&nbsp;republic. Of course the governors of all four states are duly elected, as are the legislatures. In each case the governors are purporting to act on the basis of public health and emergency powers conferred on them by statutes enacted by those same elected legislatures. It is possible, of course, that one or more of the governors might have overstepped the letter of these authorizing laws, and if so the courts of those states can yank them back into line. But unless one of the governors has sent out the National Guard to keep the state supreme court from hearing such a&nbsp;challenge, that doesn’t implicate a&nbsp;Guarantee Clause claim, which contends that the whole system has ceased to be republican.</p> <p>The <a href="http://lc.org/041720ComplaintVerifiedComplaintforDeclaratoryandInjunctiveReliefandDamagesFINAL.pdf">Kentucky lawsuit</a> contends that the governor’s “impermissible exercise of exclusive and unaccountable executive authority” violates “the right of the people to choose their own governmental administration and pass their own laws.” The suits in <a href="http://lc.org/042420LighthouseFellowshipChurchVerifiedComplaint.pdf">Virginia</a> and the other states use similar language. So if the complaints mean anything, it is that there is some sort of separation of powers problem going on here. Maybe the thinking is that governors should somehow be conferring more with legislators while using the emergency powers those legislators have expressly delegated to them—although that’s not actually how separation of powers works.</p> <p>It may be worth noting that Virginia, Maryland, and Kentucky all have part‐​time legislatures that have adjourned for the year. The whole idea of emergency power statutes, especially in states without continuously serving legislatures, is that emergencies sometimes come up while the legislature isn’t there to help hold the reins of the sleigh. This isn’t new. It isn’t unconstitutional. It’s the way things work and are supposed to work in state government.</p> <p>But imagine for a&nbsp;moment that the plaintiffs in these cases find a&nbsp;friendly jurist, one who decides that under proper republican principles judges should start rigorously scrutinizing a&nbsp;chief executive’s unilateral issuance of executive orders even when those orders are based on powers well spelled out in law, and even if that means second‐​guessing the traditional scope of executive discretion during an emergency. Do you think that might open up a&nbsp;new front by which federal judges could begin overseeing the actions of Donald J. Trump?</p> <p>They never think through the implications of these things, do they?</p> </div> Tue, 12 May 2020 10:41:47 -0400 Walter Olson https://www.cato.org/publications/commentary/do-state-shutdowns-violate-us-constitution Chris Edwards’ blog post, “U.S. Postal Service in Crisis,” is cited on American Radio Journal https://www.cato.org/multimedia/media-highlights-radio/chris-edwards-blog-post-us-postal-service-crisis-cited-american Sun, 10 May 2020 12:18:26 -0400 Chris Edwards https://www.cato.org/multimedia/media-highlights-radio/chris-edwards-blog-post-us-postal-service-crisis-cited-american