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OpenMarket: Business and Government

  • Billionaire Diversity: Foreign vs. Domestic

    September 17, 2014 10:46 AM

    Brookings Institution scholar Darrell West, whose new book Billionaires: Reflections on the Upper Crust is being released later this week, has another intriguing graphic on the political influence of the extremely wealthy. Last week Brookings posted an interactive grid of the top players in domestic politics, the U.S. Billionaire Political Power Index. This ranking put Charles and David Koch predictably at #1, but followed by Michael Bloomberg and hedge fund manager/global warming activist Tom Steyer, with the likes of George Soros, Bill and Melinda Gates, Warren Buffett and Alice Walton filling out the rest of the list. As I pointed out at the time, the list shows that the exclusive club of politically active billionaires is hardly composed entirely of conservative or libertarian types, as some on the Progressive left would have us believe.


    This week the rankings go international as West releases the Global Billionaires Political Power Index. This one includes a few crossovers from the U.S. influence list, such as Bill and Melinda Gates (#1), George Soros (#2), and Rupert Murdoch (#7). Interestingly absent are the joint-ranked Koch brothers, who despite being West’s most politically influential billionaires in the U.S., didn’t manage to even crack the top 15 worldwide. It seems Charles and David are only a threat to democracy (so sayeth Robert Reich) here at home.

  • STB Reauthorization Bill Threatens Rail Investment

    September 16, 2014 3:31 PM

    The U.S. Senate Committee on Commerce, Science, and Transportation has scheduled a markup for tomorrow afternoon of the Surface Transportation Board (STB) Reauthorization Act (S.2777). If enacted, the bill (specifically, Section 14) would threaten much needed investment in railroad infrastructure and reverse three decades of progress on railroad regulation.


    Senate Commerce chair Sen. Jay Rockefeller (D-W.V.), irresponsibly joined by Sen. John Thune (R-S.D.), has for years sought to reverse the partial deregulation enacted by Congress over 30 years ago. Since 1980, when the Staggers Act was enacted, average real freight rates have fallen by nearly 50 percent, railroad employee productivity and safety have dramatically improved, and the industry is now healthy and reinvesting more than $20 billion of its own funds every year.


    But hydraulic fracturing revolution has led crude oil shipments to skyrocket in recent years—since 2005, originated carloads of crude oil on major railroads have increased by more than 6,500%. With continued steady growth in intermodal movements, new capacity investments are needed to ensure America’s freight rail system remains the envy of the world. Unlike road and air carriers, the railroad industry owns and manages its own networks and uses its own funds for infrastructure investment.


    While singling out the private railroad industry for its alleged sins, Sen. Rockefeller has often championed subsidies for other modes of transportation. West Virginia’s highway system has long been one of the most federally subsidized in the nation, and Sen. Rockefeller never misses an opportunity to protect wasteful taxpayer subsidies of government-owned Amtrak and the completely misnamed and unessential Essential Air Service.


  • Celebrate Billionaire Diversity

    September 12, 2014 11:15 AM

    Darrell West, a Vice President at the Brookings Institution, has a new book coming out next week on the political influence of the very wealthy, titled Billionaires: Reflections on the Upper Crust. West has come up with a savvy promotional idea by assembling a list of the top 20 billionaires (and billionaire couples) ranked by political influence. Bloomberg TV had him on yesterday to discuss the list and Philip Bump at The Washington Post wrote about it last week, taking issue with some of West’s choices.

  • Obama “Fair Pay and Safe Workplaces” Executive Order Will Punish Firms in Pro-Worker States

    August 25, 2014 11:01 AM

    Earlier, we discussed President Obama’s recent Executive Order 13,673, which “will allow trial lawyers to extort larger settlements from companies, and enable bureaucratic agencies to extract costly settlements over conduct that may have been perfectly legal.”


    But it turns out that President Obama’s executive order (which allows the Labor Department to cut off firms’ government contracts over state or federal employment law verdicts or fines against them) has another, more ironic effect: It penalizes companies based in states like California that vigorously enforce labor and civil-rights laws, leading to employers in those states racking up more fines and verdicts against than similarly-behaving employers in other states. That’s the conclusion of Warren Meyer, the head of a campground-operation company based in Arizona, who recently closed his operations in neighboring California to avoid lawsuits.


    He says that “government contractors would be insane to operate in California,” given its “regulatory and judicial culture that assumes businesses are guilty until proven innocent. If state labor violations or suits lead to loss of business at the national level, why the hell would a contractor ever want to have employees in California?”


    Whether a large company is sued for discrimination or labor law violations often has more to do with its location than whether it violated the law. A recent study shows that “California has the most frequent incidences of [employment-practices] charges in the country, with a 42 percent higher chance of being sued by an employee for establishments . . . over the national average. Other states and jurisdictions where employers are at a high risk of employee suits include the District of Columbia (32% above the national average) [and] Illinois (26%).” It’s because of their location, not because California employers are more racist or anti-union than employers in other states (indeed, California employers spend more time and money on compliance mechanisms than employers elsewhere).


    The president probably thought his order would incentivize compliance with federal labor norms (it allows contracts to be cut off for violations of federal labor laws and roughly “equivalent” state laws). But in effect it punishes employers in states that vigorously enforce civil-rights and labor norms through state laws that ban the same thing as federal law, but through much harsher penalties. (For example, federal law bans sex discrimination in hiring, but caps emotional distress and punitive damages for even the largest employers at $300,000 under Title VII of the Civil Rights Act. But California’s Fair Employment and Housing Act allows unlimited compensatory and punitive damages for the same exact discrimination, leading to multi-million dollar damage awards in some seemingly ordinary discrimination cases.)


    The variation between California and other states in how often workers sue reflects the fact that some parts of the country are much more generous to workers who sue their employer than other parts of the country. How many lawsuits an employer faces is a function of how much workers and their lawyers expect to recover if they win a lawsuit.


  • Duplicative New Affirmative-Action Rule Drives Up Taxpayer Costs and Restricts Competition

    August 20, 2014 4:42 PM

    Does it make sense to require a park campground operator that has a few hundred employees at 120 different locations to come up with 120 separate affirmative-action plans, one for each site? Just because it also receives a measly $52,000 federal contract to clean bathrooms used by tourists (which it does very cheaply, at cost, in order to make its nearby concessions more attractive)?


    To any economist, the answer would be “no.” But to the Obama administration, the answer is “yes.” If a federal contractor gets $50,000 annually from the federal government, or “serves as a depository of Government funds in any amount” or has “government bills of lading” worth $50,000, it generally has to have a separate affirmative action plan for “each of its establishments,” under a regulation issued by the Department of Labor in March 2014. 

  • The Not-So-Free Market at Work

    August 19, 2014 3:24 PM

    In the mail, I recently received a brochure from a firm called Solar Solution LLC, claiming to be the District of Columbia’s #1 solar installer. Included was the following table showing the initial estimated cost and then, in subsequent columns, the multiple layers of subsidies one might obtain. These include the 30 percent federal tax credit, the D.C. solar grant, and the Solar Renewable Energy Credit.



    The effects are significant – a system initially estimated at $29,400 translates into an out-of-pocket cost of only $6,300. Clearly, Solar Solution is doing a brisk business with their current business plan. Given their success, they may be tempted to branch out to other services. The list of technologies that would become commercially successful with a 79 percent taxpayer discount is long indeed.


  • Executive Order Pressures Employers to Capitulate to Baseless Demands and Meritless Claims

    August 15, 2014 7:39 AM

    A July 31 executive order from President Obama, E.O. 13,673, will make it very costly for employers to challenge dubious allegations of wrongdoing against them, if they are government contractors (which employ a quarter of the American workforce). It will allow trial lawyers to extort larger settlements from companies, and enable bureaucratic agencies to extract costly settlements over conduct that may have been perfectly legal. That’s the conclusion of The Wall Street Journal and prominent labor lawyer Eugene Scalia.


    The order allows the government to cut off the contracts of contractors and subcontractors that do not "consistently adhere" to a multitude of complex federal labor, antidiscrimination, harassment, and disabilities-rights laws. Never mind that every large national business, no matter how conscientious, has at least one successful lawsuit against it under federal labor and employment laws, which is inevitable when a company has thousands of employees who can sue it in hundreds of different courts that often have differing interpretations of the law. Liability under federal labor and employment laws doesn’t require a showing of wrongdoing by a company’s senior management (a violation can be treated as “willful” even when committed by an employee the CEO has never met), and many laws are vague or expansive enough that even well-intended employees or managers can inadvertently run afoul of them (such as disabilities-rights laws that require costly, murky “reasonable accommodations” that trigger disagreements even among veteran judges as to what is “reasonable,” and overtime laws that are vague about what employees are covered versus exempt). Moreover, agencies often find violations based on perfectly legal conduct; the Obama NLRB has often found companies guilty, only to have federal appeals courts overturn its ruling years later.


    If a company can lose a billion-dollar contract over a discrimination or harassment claim, it may settle the claim even if it is baseless. This executive order creates incentives for just such extortionate settlements, driving up the long-run cost of government contracts by making them more risky and less desirable. That reality is at odds with the justification given for past executive orders dealing with contracting, which was to “promote efficiency in federal contracts.”


    The order also prohibits the use of certain mandatory arbitration agreements, a prohibition that lacks a valid fiscal or taxpayer-protection rationale or any logic under the Procurement Act. The Supreme Court has repeatedly upheld binding arbitration of employment-law claims, and arbitration clearly saves taxpayers money (arbitrators’ fees are paid by the parties, whereas judges’ and court employees’ salaries are paid for by the taxpayers, making arbitration much cheaper for taxpayers). The justification commonly given for executive orders regulating contracting is that such regulations save taxpayers money by promoting efficiency in contracting, which is plainly not true here. Thus, this executive order is of doubtful validity under the Procurement Act.


  • The Let Me Google That for You Act

    August 5, 2014 3:22 PM

    When it comes to government transparency, more is better. As a general principle, the government should make public as many of its documents as possible (a principle CEI is currently litigating for against a number of agencies). Despite transparency shortcomings elsewhere, a bright spot since 1950 has been the Commerce Department’s National Technical Information Service (NTIS).  The NTIS collects a slew of scientific and technical government documents from a variety of agencies, and offers them for sale to the public. But a new bill from Sens. Tom Coburn (R-Ok.) and Claire McCaskill (D-Mo.) would eliminate the NTIS altogether.


    Why would Senators as outspoken on transparency issues as Coburn and McCaskill favor eliminating an agency that does nothing but increase transparency? Because for some years now, the NTIS has unofficially been part of the federal government’s Department of Redundancy Department. As National Journal notes, “the Government Accountability Office has asked NTIS to stop selling its reports, as that agency posts them on its own site for free.”


    Coburn and McCaskill’s bill, the Let Me Google That For You Act, makes that point in its very name. The NTIS doesn’t just charge people for documents that can be found for free with a simple Google search. It also has a staff of 150 and a $66 million budget, which modern technology has rendered completely wasteful.

  • New Study Estimates around $70 billion in Financial Regulatory Costs

    July 31, 2014 7:00 PM

    Complying with regulations is part of the cost of doing business. For bigger businesses that can absorb those costs (or rather, pass them on to the consumer), it means armies of compliance officers and hefty fees. But for smaller businesses, like community banks, the costs can be so great that it means ceasing operation.


    Typically, this scenario works to the larger institutions’ advantage, as they are better placed to handle regulatory compliance costs than are their smaller competitors. But large financial institutions are also subject to certain regulations to which smaller banks are not. The Wall Street Journal cites a new study that estimates the cost to these larger banks of complying with these regulations at roughly $70 billion.


    Some of these costs are fair, such as, for example, premiums charged by the Federal Deposit Insurance Corp for insuring deposits. Others seem less fair, such as the $2.06 billion lost to interchange fee restrictions—which incidentally, have led to more and more banks to stop offering free checking in order to compensate for this loss of income. 


  • The American (Business) Revolution

    July 3, 2014 2:52 PM

    On our nation’s 238th birthday, a flood of public events, political speeches, and TV specials will remind us of the courage of our colonial ancestors in throwing off the authoritarian government of King George III. The Revolutionary War sparked a movement for democratic government that spread rapidly, eventually serving as an inspiration to billions around the globe.


    But the separation from Great Britain was also a revolution for commerce. In the 1770s, American merchants and consumers labored under a burden of high taxes, administrative red tape, and punitive import duties. It was the passage of the Tea Act in 1773, which worsened that burden, which drove the patriots known as the Sons of Liberty to destroy the East India Company’s famous cargo during the Boston Tea Party.


    We often forget that the taxes and regulations on tea that the Sons of Liberty found so odious were not just there to raise revenue for the crown. They were what we would call today a case of crony capitalism –a system of government policies that give a company preferential treatment over its competitors. Parliament passed the Tea Act in large part to bail out the British East India Company, which by that time had accumulated such an overstock of unsold tea that it was on the verge of bankruptcy.


    While many colonists objected to the government in London imposing taxes on them at all, the policies that led to the Boston Tea Party—and eventually the American Revolution—went beyond that by stacking the deck in favor of moneyed British interests. The King’s government routinely granted exclusive monopolies and privileges to for-profit ventures, often via cozy arrangements that, not surprisingly, benefitted the already wealthy and well-connected.


    Americans knew then what most Americans still believe today—that there is nothing wrong with making an honest profit from an honest product. Small merchants and skilled craftsmen thrived throughout colonial America by providing their neighbors with everything from horseshoes and barrels to clothing and beer. When an out-of-touch government raised taxes and passed laws to bail out big business interests, however, they protested the injustice. Sound familiar?


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