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  • 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.

  • Honeybee Population in Decline—Or Not?

    August 13, 2014 4:14 PM

    If you read the news about honeybee survival, it’s all very confusing. Some sources sound the alarm by pointing out that the number of honeybee hives has dropped significantly in recent decades. Others say just the opposite: There are more hives today than ever before.

    Which is it? Actually, both.  Some regions of the world have fewer hives, while globally there are more commercial hives now than there were in 1960. The key here is to understand which dataset is more important to the debate about sustaining these helpful creatures.

    The Hoover Institution’s Dr. Henry Miller notes in a Wall Street Journal op-ed: “The reality is that honeybee populations are not declining. According to U.N. Food and Agriculture Organization statistics, the world's honeybee population rose to 80 million colonies in 2011 from 50 million in 1960.” Meanwhile Jennifer Sass of the Natural Resources Defense Council responds in a letter to the editor: “The number of managed honeybee colonies in the U.S. has dropped from four million hives in 1970 to 2.5 million today, according to White House statistics.”

    Surprisingly, both of these claims are correct. Miller points to the “global” commercial honeybee-hive count, which has grown considerably. Sass points to domestic colony numbers only, which have in fact declined.

    Miller’s numbers are more relevant because if honeybee survival is really at stake, we would see declines on a global scale. Miller also points out that U.S. and European hive numbers are relatively stable, and Canadian numbers increased. Miller is certainly correct to point out that honeybees are not about to disappear.

  • Michael Grunwald's High-Speed Rail Fantasies

    August 13, 2014 1:55 PM

    Perhaps the one thing Time magazine's Michael Grunwald loves more than drone assassinations of American citizens and dissident journalists is heavily subsidized passenger rail. This is not the first time I’ve criticized Grunwald’s sloppy high-speed rail reporting, and it probably won’t be the last.

    Over at Time, Grunwald takes issue with a recent New York Times story on President Obama's high-speed rail initiative. In particular, Grunwald attacks the Times article for referring to the over $10.5 billion in high-speed rail obligations as "$11 billion." Grunwald also argues that the Times' use of "spending" is an inaccurate way to describe the total obligations since actual outlays so far are only around $2.5 billion.

    First, rounding up from $10.5 billion to $11 billion does not work against the main thrust of the Times article. And note that if Grunwald wanted to be really accurate, he would have noted, as the federal government has, that “approximately $10.6 billion” has been made available for high-speed rail projects.

    Second, Grunwald doesn't seem to fully grasp budget lingo, yet spends much of his piece attacking the Times for supposedly misusing it. Now, "spending" is an imprecise term that could mean either apportionments, obligations, or outlays—or it could simply refer to the spending process, which involves apportionments, obligations, and outlays.

    Grunwald is equating “spending” to mean “outlays,” i.e., funds disbursed by the Treasury. But it is unclear that the Times was referring to anything beyond the apportionments and obligations. Indeed, these appear to be the two offending sentences in the Times article:

    High-speed rail was supposed to be President Obama’s signature transportation project, but despite the administration spending nearly $11 billion since 2009 to develop faster passenger trains, the projects have gone mostly nowhere and the United States still lags far behind Europe and China.

    And the second:

    Instead of putting the $11 billion directly into those projects, critics say, the administration made the mistake of parceling out the money to upgrade existing Amtrak service, which will allow trains to go no faster than 110 miles per hour.

    The second sentence implies the projects funded by the federal government have yet to be completed—“which will allow trains…” Anyone familiar with the budget process knows reimbursements are generally how the federal government involves itself in infrastructure investment. It works a little like this: a state applies for a grant, the federal agency approves a grant, the state builds whatever project is supported by the grant, the state is reimbursed by the federal government when the project is completed. This is why the Federal Railroad Administration wrote in its 2011 announcement regarding the availability of funds rejected by Florida for the Tampa-Orlando I-4 rail corridor that “[t]he funding provided under these cooperative agreements will be made available to grantees on a reimbursable basis.”

    While it is possible some readers of the Times believed, despite language to the contrary, that $11 billion is gone and all work funded by that money is completed, I am skeptical. The main point of the Times article is to compare President Obama’s lofty claims a few years ago to the reality today. Objectively, very little has happened and very little is likely to happen in terms of huge future high-speed rail investments necessary to support the president’s plan to give 80 percent of Americans access to high-speed rail by 2025, a project that would likely cost between $600 billion and $1 trillion to deliver. This simply isn’t going to happen and that's why the president's plan has been a complete failure.

  • The Ex-Im Bank’s Unilateral Disarmament Fallacy

    August 12, 2014 12:12 PM

    One of the weakest arguments against free trade is the "unilateral disarmament" fallacy--that a country should refuse to liberalize its trade policies until other countries liberalize theirs. If your opponent uses it, you almost automatically win the debate. The Export-Import Bank's defenders must be getting desperate, because they are now having to resort to the unilateral disarmament fallacy. Here's a letter I sent to the Cleveland Plain-Dealer setting the record straight:

    Editor, Cleveland Plain-Dealer:

    George Landrith’s argument that the U.S. should subsidize certain businesses because other countries subsidize some of their businesses is equivalent to saying the U.S. government should stop ripping off its citizens only when foreign governments stop ripping off their own citizens (“Why keep the Ex-Im Bank? Unilateral economic disarmament is as unsound as unilateral defensive disarmament,” August 10).

    The Export-Import Bank’s special favors make U.S. businesses less competitive by rewarding political connections over customer service, and have led to 74 corruption allegations during the last five years. If other countries want such problems, fine. But the U.S. can, and should, do better by closing the Ex-Im Bank this fall, regardless of what other countries do.

    Ryan Young

    Fellow, Competitive Enterprise Institute

    Author of the study, “Ten Reasons to Abolish the Export-Import Bank.”

  • Red Tapeworm 2014: Tell Us -- Which Regulations Hurt Your Business as You Grow?

    August 12, 2014 11:59 AM

    This is Part 24 of a series taking a walk through some sections of Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State (2014 Edition)

    The number of federal regulations for which the Regulatory Flexibility Act requires a so-called “Regulatory Flexibility Analysis” to asses burdens on small business is on the upswing.

    The level under President Barack Obama is higher than that of his predecessor, despite the strategic reporting of fewer regulations in the semi-annual Unified Agenda of Federal Regulations

    Sustainble, robust economic health is not about artificial stimulation of favored industries while simultaneously overruling prices and plans in crucial sectors like telecommunications, energy and finance.

    Every intervention has been tried, and more are touted. For a change, political leaders should better appreciate the increase in regulation as firms grow, and seek to liberalize the economy rather than inflict ever more “management. We can cut regulations that impede wealth creation and job prospects.

    I’ve been interested in inventorying laws and regulations that impact a business as it grows. It’s a useful exercise on the road to rolling back excesses.

    Below is a rough inventory I’ve compiled, but, it does not address industry-specific rules, which are themselves desperately in need of reform and probably dominate in most sectors (also, the tally doesn't address that which will issue from new financial reform and Obamacare legislation).

    Such industry-specific information is all too rare: I came across a superb survey done by the National Automobile Dealers Association, polling their members on an array of costs. There’s one by the American Aviation Institute that’s less comprehensive but very useful.

    We need many more bottom-up assessments for the entrepreneurial community to send a collective outburst to Washington D.C. about addressing the federal regulatory burden.

  • Due Process Eroded by Bills like CASA That Let Agencies Keep Fines They Impose

    August 11, 2014 2:42 PM

    Due process is being eroded by recent bills that would authorize agencies to impose massive fines on regulated industries, and then keep those fines for themselves, giving them an incentive to find regulated entities guilty based on weak or equivocal evidence. To protect due process, such fines should be payable to the U.S. Treasury, not the prosecuting agency. 

    I write about one such bill at The Examiner:

    Disturbing provision harms due process in Campus Accountability and Safety Act

    It is a conflict of interest — and sometimes a violation of due process — for a fine to go to the very unit of government that employs the judge or official who imposed the fine. That gives the official an incentive to find the accused guilty in order to enrich the official’s agency. But such fines are apparently authorized by a provision of the Campus Accountability and Safety Act (CASA) (also known as S. 2692 and H.R. 5354).

  • CEI’s Battered Business Bureau: The Week in Regulation

    August 11, 2014 8:18 AM

    Despite another 47 proposed regulations and 80 final regulations last week, 2014 remains on pace to have the smallest number of new regulations of any year in either of the last two administrations.

  • The Case for Closing the Export-Import Bank

    August 8, 2014 11:34 AM

    Over at American Banker’s BankThink blog, I have a piece making the case for closing the Export-Import Bank, mostly on corruption grounds:

    The Wall Street Journal reported on June 23 that four Ex-Im employees have been removed or suspended in recent months, "amid investigations into allegations of gifts and kickbacks."

    Former Ex-Im employee Johnny Gutierrez allegedly accepted cash payments from an executive of a Florida-based construction equipment manufacturer that has received Ex-Im financing on multiple occasions. In a July 28 congressional hearing, Gutierrez chose to plead the Fifth Amendment rather than deny the allegations. The other cases involve two "allegations of improperly awarding contracts to help run the agency" and another employee who accepted gifts from an Ex-Im suitor.

    Read the whole thing here. There are, of course, many other reasons to close Ex-Im. I compiled some of them in a paper here.

  • Red Tapeworm 2014: Small Businesses Beaten Down by Recordbreaking Federal Regulations

    August 7, 2014 4:36 PM

    This is Part 23 of a series taking a walk through some sections of Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State (2014 Edition)

    The “Small Business Anthem,” heard on the Small Business Advocate syndicated radio program, goes in part:

    Even though you make payroll every Friday,

    you don’t have a guaranteed paycheck.

    You’re a small business owner, and you eat what you kill.

    Policy hairsplitters like to proclaim that small busnesses aren’t the main engines of new jobs, that it’s new businesses that do.

    Well, OK. Maybe, or maybe it’s different ways of saying the same thing. Regardless, upstarts and small firms take it on the chin when it comes to regulation. Neither can suck it up the way large companies do, especially when large companies seek out regulation, crony-style.

    Something called the Regulatory Flexibility Act directs federal agencies to assess their rules’ effects on small businesses. Further, as the Federal Register notes:

    The Regulatory Flexibility Act requires that agencies publish semiannual regulatory agendas in the Federal Register describing regulatory actions they are developing that may have a significant economic impact on a substantial number of small entities.

    The chart nearby shows the number of rules annually requiring a Regulatory Flexibility Analysis (RFA) since 2001. It also shows other rules anticipated by agencies to impact small business, but that happen to not require the RFA.

  • Uber and Regulation: Pro-Business Is Not Pro-Market

    August 7, 2014 4:30 PM

    “Republicans love Uber. Young urban voters love Uber. And Republicans hope that means young voters can learn to love the GOP.”

    That was the opening line of Byron Tau and Kevin Robillard’s piece for Politico after the Republican Party rolled out a pro-Uber petition/prospecting campaign. Notice I say “pro-Uber” rather than “pro-market” or “free market.” Here’s the GOP appeal in full:

    Our country was built on the entrepreneurial spirit. Our cities deserve innovative and effective solutions without government getting in the way. 

    That’s what innovative businesses like Uber provide. And that’s why our cities need Uber. 

    But across the country, taxi unions and liberal government bureaucrats are setting up roadblocks, issuing strangling regulations and implementing unnecessary red tape to block Uber from doing business in their cities. 

    We must stand up for our free market principles, entrepreneurial spirit and economic freedom. 

    Show your support for Uber by signing the petition today.

    Despite the appeal to “free market principles,” the petition fails to mention actual free market policies beyond letting Uber operate lawfully. Furthermore, the notion that “liberal government bureaucrats” are only now “setting up roadblocks, issuing strangling regulations and implementing unnecessary red tape” in the transportation services market ignores many decades of stifling, anti-consumer regulation from these bureaucrats.

    I am a huge fan of the services offered by Uber, Lyft, and others. I understand their political strategy; I’d probably do the same thing in their shoes. But it is important to remember that being pro-business is not the same as being pro-market. As I’ve noted several times in the past, it appears the current legislative and regulatory advocacy coming from incumbent ridesharing providers is one of accommodation, not deregulation. Most unfortunately, many in the free market policy world also appear to be adopting this outlook as their own.

    This is most likely unintentional, as the current ridesharing policy debate in the free market movement is dominated by technology policy analysts or generalists, rather than transportation policy wonks. What this means is that many appear to be ignorant of the years of work by transport economists supporting the broad deregulation of the transportation services sector. As a result, legislative and regulatory proposals that merely grant Uber et al. a carve-out from existing regulations while piling on new rules—all while doing little to reduce barriers to entry for future firms with potentially very different shared-use mobility business models—are gaining support from some quarters of the free market movement. In advocating broad liberalization of transportation services, political realities dictate that compromises will sometimes be needed—particularly in the short run. But to accept accommodations and new regulations of Uber et al. as a victory for the free market is to miss the forest for the trees.


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