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OpenMarket: March 2014

  • Minimum Wage Increase Is Still Bad Policy

    March 10, 2014 12:45 PM

    Obama RacineFor the past two years, President Obama has proposed raising the federal minimum wage in his State of the Union address. The main arguments for raising the minimum wage have typically ignored economic arguments against it, and relied upon more politically charged arguments. This time around the argument is a bit different because progressives are now using new studies in economics as intellectual ammunition. Shortly before the State of the Union address, 600 economists signed a letter to the president endorsing a raise in minimum wage, citing the new studies. These studies have argued that moderately increasing the minimum wage would have a negligible impact on employment levels.

    Obama himself relied on these revisionist economists in his announcement of the executive order: “Just last month, 600 economists, including seven Nobel Prize winners, wrote the leaders of houses of Congress to remind them that the bill before Congress would have little or no negative effect on hiring, on jobs. So it's not going to depress the economy. It will boost the economy.”

    The mistake being made by using these studies is that 79 percent economists have not actually changed their longstanding consensus against a high minimum wage, and are skeptical of the new studies. The 600 signatories do not necessarily represent the field as a whole, and their suggestions, as such, should be taken with caution.

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

    March 10, 2014 9:18 AM

    84 new regulations, from soybean referendums to jaguars.

  • "Muscle Milk Magnificence"

    March 6, 2014 6:58 PM

    A former CCAF intern files an entertaining objection to a bad lawyer-driven settlement that doesn't comply with Ninth Circuit Law, and Above the Law is ON IT.

  • The "California Rule" and the "The Fall of Pacific Grove"

    March 6, 2014 3:36 PM

    In my previous post, I described the "California rule," which puts state governments in a legal straitjacket when trying to reform underfunded public pensions. Specifically, it places pensions in a privileged position relative to other types of compensation, like salary or health insurance benefits, by making them more difficult to change. This post highlights a real-world example of the California rule's dangers.

    The place is Pacific Grove, California, a town of 15,000 residents on the Monterey Peninsula's northern tip, with an annual budget of $11 to $12 million. In 2008, John Moore, a Pacific Grove resident and retired attorney, learned that the City of Pacific Grove had issued $19 million of pension bonds two years earlier, while at the same time it gave the police union a 30% raise.

    After making several requests under California's Public Records Act, Moore uncovered a tale of self-dealing by Pacific Grove and union officials to rip off California taxpayers. The result of Moore's investigation, "The Fall of Pacific Grove," was published in The Pine Cone, a Monterey County paper; it's now available online thanks to the California Public Policy Center.

    In 2002, the Pacific Grove city council adopted a 50 percent pension increase for public safety workers, after being told by the city manager that the increased benefit would cost around $51,500 per year. However, the city manager withheld from the council an actuary report that estimated the benefit at over $800, 000 per year. The hidden actuary report was not discovered until 2009. The results have been predictable and dire. Pacific Grove's pension deficit has ballooned to $45 million, plus $20 million in pension bonds, and is growing at 7.5 percent a year, according to Moore.

  • Reining in the Executive Branch Bureaucracy, Part 10: Congress Should Create an Annual Regulatory Reduction Commission

    March 6, 2014 2:38 PM

    Since the Federalist Papers, America has debated “Energy in the Executive.” But President Obama’s 2014 agenda framed by his State of the Union address heralds a class warfare agenda, one fusing an “income inequality” theme with federal industrial policy and other activism.

    When I can act on my own without Congress, I’m going to do so,” Obama promises. This spend-and-transfer fixation makes Americans poorer and dependent except for the lucky few running things.

    Others have argued for federal budget rationality as essential to any anti-poverty agenda. This series proposes a greater prosperity enhancing opportunity, streamlining the nearly $2 trillion regulatory state and ending the uncertainty, wealth destruction and job loss it creates.

    Congressional accountability and even something as dramatic as passage of the REINS Act (to require Congress to affirm major agency rules) would target future mandates rather than the existing regulatory state.

    The Office of Management and Budget (OMB) pegs costs at up to $84 billion as of 2013 (Draft Report on Benefits and Costs of Federal Regulation, p. 3), a far from inclusive underestimate.

    To deal with the existing enterprise of hundreds of billions of dollars annually, Congress should implement an ongoing Regulatory Reduction Commission to streamline aggregate regulation. Former Senator Phil Gramm (R-Texas) first proposed such an idea, modeled on the military Base Closure and Realignment Commission (BRAC).

    The Progressive Policy Institute has embraced a similar idea, calling it a Regulatory Improvement Commission, perhaps making this now bipartisan idea capable of the most traction in a regulatory reform campaign.

  • CEI Podcast for March 6, 2014: The ALERT Act and Regulatory Transparency

    March 6, 2014 11:08 AM

    Last week was Stop Government Abuse Week in Congress, and the House passed a number of reform bills that would increase government transparency. One of the bills that passed, the ALERT Act, was partially based on reform ideas from CEI Vice President for Policy Wayne Crews.

  • The Law Should Not Enable Union Violence

    March 5, 2014 1:59 PM

    A general contractor is approached by a representative of a local union and told he “needed to hire a certain number of his guys.” When the contractor declines, union members proceed to destroy some of his equipment, including a forklift. The contractor doesn’t bother reporting the vandalism to police stating, “I didn’t think anything would happen.” Other employers, taking the threats seriously, hire the union members, who then perform little or no work.

  • How the "California Rule" Holds Back Pension Reform

    March 5, 2014 12:52 PM

    These days, local governments announcing bankruptcy seems like routine in California. Since the onset of the 2008 financial crisis, many state and local governments have seen their pension funds take huge losses. Yet, many of the underlying problems that have made pension shortfalls difficult to address go back many years -- more than half a century, in fact.

    One major reason public pensions have been so difficult to reform is their having a special legal status above other kinds of employee compensation. A new Federalist Society paper by Emory University law professor (and CEI alumnus) Alexander Volokh explains how this strange situation came to be and offers some ideas for reform.

    One of the most important developments in public pension policy occurred in 1955. That's when the California Supreme Court created what became known as the "California rule" regarding the legal status of public pensions. The case, Allen v. City of Long Beach, concerned a challenge to a 1951 city charter amendment that increased the employee pension contribution and changed the formula for determining payouts.

  • To Enact Pension Reform, Make Good Policy Good Politics

    March 5, 2014 11:34 AM

    broken-piggy-bankIn my previous post, I looked at some basic principles that should guide state policy makers when tackling pension reform. Now, we turn to the politics. And in that regard, Rhode Island's 2011 pension reform offers a useful example for other states to consider.

    In his Brookings study, "Pension Politics: Public Employee Retirement System Reform in Four States," Drew University political science professor Patrick McGuinn looks at recent reform efforts in four states' experience in implementing pension reform.

    Two of these states—Utah and Rhode Island—enacted significant structural changes to their pension systems while the two others—New Jersey and Illinois—enacted more limited changes that were less innovative.

    Drawing lessons from those four states, he then outlines some basic principles for how to implement reform, citing examples.

  • Who Wants to See Their State Go Broke?

    March 5, 2014 11:30 AM

    Few people would raise their hands when asked that question. But actually putting a state's financing on sound footing is difficult in practice. That makes Rhode 's Island's pension reform not only unique, but also a good example for other states to consider.  Rhode Island got not only the policy, but also the politics right, according to Drew University political science professor Patrick McGuinn in a new Brookings Institution study.

    In other words, how pension reform is accomplished is as important as what the reforms entail. In his study, McGuinn offers some sound principles on the politics -- the "how" -- of pension reform. Another new study, commissioned by the Society of Actuaries (SOA), offers some basic principles on the policy -- the "what".

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