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  • New York's Minimum Wage Increase: Severe Trade-Offs

    July 23, 2015 3:09 PM

    New York’s vote to implement a $15 per hour minimum wage isn’t as much a victory for the “99 percent” as Governor Cuomo’s panel thinks it could be.

    CEI Fellow Ryan Young describes the unintended consequences of a minimum wage hike:

    “…[T]he minimum wage has a reverse-Robin Hood effect. Some workers lose their entire income, which gets transferred instead to other workers fortunate enough to keep their jobs, and get raises besides. Income redistribution programs are supposed to flow from better-off people to worse-off people—not the other way around.

    If the goal is to lift as many people as possible out of poverty, minimum wage increases are simply not up to the task. The tradeoffs are too severe.”

    Breaking out of the cycle of poverty is difficult for many people, and the evidence shows that a minimum wage hike adds to the difficulty. In addition to losing non-wage benefits, many of the poorest face the bleak prospect of also losing their jobs.

    Vice President for Strategy Iain Murray explains why the effects of a minimum wage increase damage the most vulnerable in the job market:

    “The minimum wage transfers resources not from the rich to the poor, but among the poor. Some of America’s least well-off workers would get a raise, but many more others would see theirs hours cut, or lose their jobs entirely… There are other workers, particularly inexperienced young ones, who will not be hired in the first place because the cost of their wages is too high.”

  • The good, bad, and ugly of the latest Energy & Commerce bill

    July 22, 2015 4:03 PM

    Today the House Energy and Commerce Committee set to work doing markup on a yet-to-be-named energy bill. CEI’s William Yeatman breaks down the good, the bad, and the ugly of the proposed bill. See the proposed bill here.

    The good: The bill includes some positive regulatory reform in language that would streamline the permitting process for natural gas pipelines. By far the best part of the legislation is §1102, which would give the Federal Energy Regulatory Commission enhanced flexibility if EPA’s war on coal threatens electric reliability.

    The bad: Title III, concerning energy security and diplomacy, would waste government resources on an North American “energy security” plan, as if participating in a global market is inherently bad. And a section within Title I would allow the Energy Secretary to pick winners and losers in the cyber security industry, something the government does poorly.

    The ugly: Title II, concerning the 21st century workforce, would create a vocational program for energy jobs in the Energy Department, even though the 2009 stimulus demonstrated the futility of such programs. Worst of all, §1105 would create a boondoggle in the form of a “strategic reserve” for large electric transformers in a quixotic effort at mitigating risk.

    Overall, this energy bill is nothing to write home about. Only a minority of legislation’s provisions are welcome reforms.

  • Obama’s 2015 Report to Congress on Federal Regulations Is MIA

    July 22, 2015 1:57 PM

    The federal government’s only report that discloses overall costs and benefits of federal regulations is overdue. This is 2015, and it’s almost August. Where is the 2015 Draft Report to Congress on the Benefits and Costs of Federal Regulations in this “most transparent administration in history”?

    Like prior annual reports, it would give us a 10-year look back, in this instance covering October 1, 2004 to September 30 2014, and detail on the fiscal year ending September 30, 2014. On June 15, we did get the final 2014 Report, which covered rules from October 1, 2012 to September 30, 2013 (the period ending nearly two years ago).

    This is the third latest the Draft Report has ever been. It is MIA as of July 21. The chart below shows the month, and day of the month if available, when the Draft Report to Congress has appeared since 2002. The report has appeared most frequently in March, and usually by April at the latest.

     

    Jan

    Feb

    March

    April

    May

    June

  • Utah’s Contact Lens Law Flouts Constitution’s Commerce Clause

    July 22, 2015 11:41 AM

    If you regularly buy contact lenses in the United States, you might have noticed that the price of your preferred contacts is the same wherever you look. This is because several top contact lens manufacturers recently decided to set a minimum price for their contacts. If a retailer undercuts this price, it could lose out on the ability to buy popular contact lens brands on the wholesale market.

    It’s hardly unusual for a company to set a price below which retailers may not sell its products. If you try to buy a new iPhone, odds are you’ll find most stores selling it for the same price—and that’s exactly what Apple wants. The same goes for many other goods, such as golf clubs and many luxury fashion items.

    And while this price floor may sound like bad news for consumers, many people pay less today for contacts than before the major manufacturers announced their “unilateral” pricing policy. Getting the best deal on contacts once involved navigating through complicated rebate schemes. But now, the price for a particular type of contact lens is generally transparent and consistent across the country. The downside: Some savvy consumers pay more for contacts than they used to.

    In general, it’s not against the law for companies to decide to do business only with retailers who don’t undercut a specified price. Although many manufacturers don’t care how much retailers mark up their goods, some companies think they’re better off with their products selling for a uniform price. And businesses that sell popular items aren’t the only ones who like unilateral pricing policies; consumers stand to benefit as well.

  • Dodd-Frank Is Five Years Old

    July 21, 2015 2:04 PM

    On July 21, 2010, Congress passed the Dodd-Frank financial regulation bill. Today, that bill turns five. It is not a happy anniversary.

    As CEI’s John Berlau points out in a new paper, Dodd-Frank haS reduced competition in the financial sector. By codifying Too Big to Fail and imposing price controls and other regulatory hoops—27,669 total regulatory restrictions and counting—Dodd-Frank insulates incumbent banks from pesky upstart competitors. In fact, in the last five years, precisely one new bank has opened for business. This stagnation is not healthy for innovation or for competition—or for capital-hungry entrepreneurs throughout the economy.

    A few other Dodd-Frank facts worth pondering:

  • Dodd-Frank’s Dire Legacy: The Durbin Amendment

    July 21, 2015 1:40 PM

    Today is the fifth anniversary of the passage of the Wall Street Reform and Consumer Protection Act, better known as Dodd-Frank. As the Mercatus Center revealed this week, it may be the biggest law ever written, because it gives the administration so much discretionary power to make secondary law. It has harmed consumers by reducing choice in financial services and failed to solve the problems it was purported to solve, as I outline in my new paper, How Dodd Frank Harms Main Street. One of the worst examples of this stems from the Durbin Amendment, a last minute addition to the bill that gives the Federal Reserve the power to cap interchange fees  charged by debit and credit card networks.

    An interchange fee is a facility fee paid by a merchant when a customer pays using an electronic card network like MasterCard or Visa. The customer gets the convenience of using a card rather than cash, the merchant gets paid with protections against fraud, the card issuing bank gets an incentive to keep issuing the cards, and the card network gets some money to reinvest in improving the efficiency and security of its network. The merchant, bank, and network all get some profit and the customer gets an item of value. All parties see some gain from the trade.

    So far, so much Adam Smith. Yet unfortunately merchants all over the world bridle at having to pay the fee. In yet another example of Bastiat’s “seen and unseen,” they see the fee and have formed powerful lobby groups all over the world aimed at persuading governments to impose limits on the fees.  Merchants argue they will be able to cut prices once a cap is introduced and that the fee is a hidden charge on the  consumer.

  • Happy “No Food is Junk Food” Day!

    July 21, 2015 1:29 PM

    Yes, there’s a holiday for everything, but National Junk Food Day has particular relevance in light of a recent decision by the Food and Drug Administration. As the Cato Institute pointed out, the foods we indulge in today may be very different when we celebrate next year. That is because the FDA decided to create a de facto ban on partially hydrogenated vegetable oils (aka artificial trans fats). While most food producers eliminated the much maligned additive in the last 15 years and Americans have reduced consumption from 4.6 grams per day in 2003 to less than a gram in 2013, some products still contain trans fats—most of which are sweets that require long shelf-life. Despite a dearth of research on the effect of consuming trans fats at the low levels Americans do, the FDA asserted that trans fats were still leading to a certain number of deaths each year. So, the agency decided to revoke the “GRAS” (generally recognized as safe) status of partially hydrogenated vegetable oils, requiring food producers to petition the government and prove their use of PHOs is safe before they can use it.

  • Reports of Capitalism’s Demise Have Been Greatly Exaggerated

    July 20, 2015 2:31 PM

    British journalist Paul Mason has famously declared that capitalism is dying, and he is in no sniffling state of mourning about it. In advance promotion for the publication of his forthcoming book, Postcapitalism, he was penned a nearly 5,000-word article for the Guardian that covers quite a bit of anti-capitalist/leftist/techno-utopian theory. There’s a lot to respond to in this piece (not to mention the full 368 pages of his book), but one assumption in particular strikes me as misplaced.

    Mason charmingly begins by lamenting that the free market system wasn’t overthrown by violent revolution during the course of the 20th Century (“Capitalism, it turns out, will not be abolished by forced-march techniques”), but then goes on to point out the many ways in which information technology has changed economic life in the past few decades. Indeed, the “main contradiction” in Mason’s modern world is between a tech-enabled economy where goods are “free” and “abundant” and one where they are “scarce and commercial.”

    There’s an interesting discussion to be had about the way in which copyright and other intellectual property laws create an artificial scarcity of the kind of information goods that Mason thinks are key. But for now I’m interested in his dichotomy between economic goods, which are assumed to be “free” just because they are non-commercial, and the idea that widespread non-commercial provision of certain goods and services is somehow antithetical to capitalism.

  • Not Dodd-Frank, Not Glass-Steagall, But Real Competition to End TBTF

    July 20, 2015 9:46 AM

    Progressives cheered Hillary Clinton last week when she said policy makers need to “go beyond Dodd-Frank.” She didn’t rule out repeal of some sections, but most took it to mean preserve virtually all of the law—which turns five on July 21—plus expand government intervention further into banking.

    But that praise was short-lived when Clinton’s economic adviser Alan Blinder told Reuters, “You’re not going to see Glass-Steagall” reinstated in her administration. The New Deal-era Glass-Steagall Act separated commercial and investment banking until it was partially repealed by the Gramm-Leach Bliley Act, which passed Congress overwhelmingly in 1999 and was signed into law by Clinton’s husband, President Bill Clinton.

    There seems to be a bipartisan chorus for Glass-Steagall restoration, from Clinton’s self-proclaimed socialist rival Bernie Sanders to conservative GOP candidate Ben Carson. These politicians tap into a frustration on the left and right that on the fifth anniversary of the so-called Dodd-Frank “financial reform,” too-big-too-fail banks are more entrenched than ever.

    In my new paper for the Competitive Enterprise Institute, I note that this frustration is well-grounded. “Today the banking industry is more concentrated than ever,” I write. But I and plenty of others have noted that much of the reason is Dodd-Frank itself, plus the effects of regulation put into place and signed into law by GOP Presidents George W. Bush, Richard M. Nixon, and Dwight D. Eisenhower. To really tackle too-big-to-fail and end bank bailouts for good, I argue, we need to lift these barriers to real competition in banking.

    “In the financial industry, as in any other industry, greater competition can help bring stability, innovation, and choice,” I write. It’s easy to forget that when it comes to bailouts, the financial industry is largely unique. There was virtually no call in recent years to bail out Blockbuster Video, Borders, Eastman Kodak, and, most recently, Radio Shack, even though their bankruptcies cost thousands of jobs and wiped out shareholders

    Why? The short answer is that unlike with bank failures, no consumers were threatened with shortages in supply in these other industries, thanks in large part to new entrants. Blockbuster’s customers could stream Netflix or rent their movies from Redbox. Borders customer could order their books from Amazon.

    Yet both before the financial crisis and after, there has been a dearth of new entrants in banking. In fact, since 2010, only one new bank has received federal regulators’ permission to open—the Bird-in-Hand Bank in the Amish country of Pennsylvania.

  • HUD's "Affirmatively Furthering Fair Housing" Rule Is about Social Engineering, Not Desegregation

    July 20, 2015 9:41 AM

    Failure to meet a racial quota is not the same thing as segregation. That basic fact has eluded the federal Department of Housing and Urban Development, which recently adopted a rule called “Affirmatively Furthering Fair Housing” that seeks to alter the racial makeup of America’s cities and towns even when there is no justifiable reason to do so.

    This recently issued Fair Housing Act rule wrongly defines “segregation” as a “high concentration of persons of a particular race” or “religion.” (See 78 Fed. Reg. 43709, 43730.)

    But mere “concentration” is not segregation. For example, Orthodox Jews are concentrated in certain neighborhoods because they have to walk to synagogue, not because of segregation.

    The rule wrongly treats communities as segregated if they lack racially “balanced living patterns.” That ignores the 1964 Civil Rights Act, which states that school “‘desegregation” does not require institutions “to overcome racial imbalance,” and the Supreme Court, which stated in Fisher v. University of Texas (2013) that “racial balancing” is “patently unconstitutional.”

    The federal government should focus on breaking down arbitrary regulatory barriers to cheap housing—such as onerous zoning regulations—that disproportionately harm minorities (since the Fair Housing Act has now been interpreted, rightly or wrongly, to cover “disparate impact”). But it should not expect communities to meet arbitrary notions of racial “balance,” or spend taxpayer money to do so.

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