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  • No Sprinkles in Obama's America: Trans Fat, Hyperbole, and the Threat Nobody Is Talking about

    February 5, 2015 7:59 AM

    “Say goodbye to your favorite sprinkled doughnuts,” warned Clayton Morris, guest host on Fox & Friends. “The [FDA] is now regulating Americans intake of trans fat…the amount needed to make something as small as a sprinkle on your doughnut may be banned.” Morris is referring to the decision announced by the Food and Drug Administration in 2013 to reclassify partially hydrogenated oils—revoking its status as “generally recognized as safe” and creating a de facto ban on the artificial trans fat found in the oils. Fox’s overwrought presentation of the issue led many observers to ridicule the segment as well as opposition to the FDA action. The ribbing is warranted; discussion on both sides of the debate has overwhelmingly relied on emotional arguments and hyperbole. As a result, most people aren’t talking about the real threat this FDA action poses.

    “Only Vladimir Putin would deny American children—and adults that need to rethink their dietary life choices—their God-given right to ingest sugar in whatever form they deem fit,” Elliot Hannon at Slate joked. “Your doughnuts are safe from Obama’s grasp” wrote Steve Benen at MSNBC. And Cenk Uygur dedicated almost seven minutes of his show, The Young Turks, to myth-busting/ridiculing the Fox segment. Uygur’s response included all of the primary arguments made by those who support an FDA trans fat ban and demonstrated how useless the Fox & Friends-style argument is.

    Uygur takes all of the points made by Morris and shows why it is actually an argument for why trans fat ought to be banned. So what that Americans have almost completely eliminated trans fat from their diets already? “It was the FDA effort to eliminate trans fat in the first place that almost solved the problem and now they’re trying to solve it completely,” he asserts. Almost completely isn’t good enough; according to Uygur and the FDA, trans fat consumption is still responsible for a certain number of deaths so it is completely appropriate for the FDA to act to stop these preventable deaths. “Heart attacks, that’s what the right wing calls freedom,” he jokes. He is similarly unmoved by the argument that most food companies have voluntarily removed trans fat from their products. In fact, he points to this as a refutation of the idea that sprinkles or any other food will be taken off the market if trans fat is reclassified. “Nobody is banning any of these foods. It’s a total lie,” he says.

    Uygur is right. Well, at least partially. FDA action in 2003 requiring manufacturers to list trans fat on nutritional labels did contribute to a reduction in consumption. Of course, it was also pressure from public health advocates and consumers’ demand for healthier products that resulted in the drop: from 4.6 grams a day in 2003 to around 1 gram a day in 2012. It’s worth noting, however, that the public health advocates crying out against trans fat now were the same ones who promoted the use of trans fat by vilifying saturated fat in the 1980s. Uygur is also right that the FDA isn’t banning any particular food: not doughnuts, sprinkles, pie crust; they’ll all survive a “trans fat ban.” They may need to be reformulated, may taste different, and be more susceptible to spoilage, but most products, if not all, will remain on shelves in some form or another.

    Uygur also right when he argues that almost eliminating trans fat from our diet isn’t an argument against a complete ban. For instance, claiming that Americans consume next to zero arsenic isn’t going convince many people that we should let food companies put arsenic in our food. But this is the part of the discussion missing from both sides: trans fat isn’t arsenic and it’s not a poison: it’s a food. As with any other food or beverage, if you consume it in great enough quantities, there will be negative consequences. But trans fat isn’t “harmful”; it is unhealthful, potentially. So, the question is: when is it okay for the FDA to make decisions about what foods or ingredients can or can’t be part of a healthful diet. And is that something we want the FDA deciding at all?

  • Congress Should Reject Obama Budget Increase for Education Department Office for Civil Rights

    February 4, 2015 4:14 PM

    The Obama administration perversely rewards agencies that overstep their authority by giving them budget increases to handle the increased workload that results. 

    A classic example is the Education Department’s Office for Civil Rights (OCR), where I used to work. President Obama wants a 31% budget increase for OCR for Fiscal Year 2016. That is a very bad idea.

    OCR’s budget should be cut, not increased. Cutting its budget would make it harder for it to punish school districts and colleges for perfectly lawful and reasonable policies. People who write about educational issues, such as Reason magazine’s Robby Soave, and the National Review’s George Leef, rightly oppose the proposed budget increase for OCR.

    OCR has twisted virtually every statute it is charged with enforcing, such as Title VITitle IXthe Rehabilitation Act, and the Americans with Disabilities Act. Citing Title VI, which bans racial discrimination, OCR has demanded that school districts adopt what are effectively illegal racial quotas in school discipline, even though that violates the Constitution, the Seventh Circuit’s decision in People Who Care v. Rockford Board of Education (1997), and the plain language of the Title VI statute.

    Moreover, OCR has micromanaged college investigations in sexual harassment and assault cases in ways that make them more costly, unfair, and likely to cause the expulsion of innocent people. It also has undermined efforts to criminally prosecute rapists and prevent future rapes by failing to ensure that such crimes are properly reported to prosecutors.

  • Transportation Roundup: Obama Budget, DOT 2045, and Sad Transcontinental Railroad Nostalgia

    February 4, 2015 1:32 PM

    The President’s FY 2016 Budget

    On Monday, the White House released its DOA FY 2016 budget. Like President Obama’s previous budgets, this one has no chance of going anywhere, with the latest iteration primarily lending itself to lame congressional Republican “Groundhog Day” jokes. The White House is expected to release its updated DOA highway bill, a “GROW AMERICA Act 2.0,” sometime in the coming weeks. Until then, we won’t know in detail the policies the White House hopes to see on surface transportation. 

    However, we know it will take the form of a six-year, $478 billion reauthorization that will rely on a $238 billion bailout of the Highway Trust Fund to be funded by a tax on foreign corporate earnings. The White House plan would also make the TIGER grant program permanent, “dramatically” (their word) increase transit spending, and attempt to turn the Highway Trust Fund into a general transportation slush fund in order to boost politically correct spending on high-cost/low-value passenger rail projects. 

    But there appears to be some good in there too. To the president’s credit, he is a strong supporter of private infrastructure investment and plans to expand the role of Private Activity Bonds (PABs). As he mentioned in his State of the Union address, President Obama wants to create a Qualified Public Infrastructure Bond (QPIB) program to support more public-private partnerships in airports, transit, solid waste disposal, sewer and water, and other types of surface transportation that aren’t currently permitted under the existing PAB framework. 

    While not mentioned, we hope President Obama’s GROW AMERICA Act 2.0 also includes a provision that would end the current federal prohibition on states tolling their Interstate segments for reconstruction purposes. Last year’s GROW AMERICA Act included such a provision. This is something Congress should seriously consider as they scramble to come up with new irresponsible strategies for bailing out the ailing Highway Trust Fund. Instead of a federal highway handout, they should give the states a hand up by empowering them to fund and finance more of their own infrastructure.

  • Greek Government's Stance Suggests a Confrontation with the EU

    February 4, 2015 9:05 AM

    The latest statements of the newly elected Greek government show that negotiations between Athens and the so-called “Troika” will not be easy. SYRIZA sent a strong signal to EU leaders, asserting that Greece will no longer tolerate externally-imposed austerity measures and demanding a write-down of what the party calls unsustainable debt. While the Greek government repeats that it wishes to reach an agreement beneficial for both sides, and EU continues to claim that it wants Greece to remain in the Eurozone, neither side has so far shown any sign of mutually-acceptable compromise.

    Alexis Tsipras, the Greek Prime Minister and the leader of SYRIZA, has been quick to reassure his supporters that SYRIZA intends to keep its campaign promises. During the first cabinet meeting the ruling coalition stopped two big privatizations and is now moving towards reinstating fired public sector workers, and raising pensions and minimum wages. Mr. Tsipras plans to present the complete program to the parliament within a few days.

    The Greek government has not wasted any time trying to fulfill its other major promise—the write-down of the Greece’s debt. Last Friday, following the meeting with the Eurogroup’s chief Jeroen Dijsselbloem, newly assigned Finance Minister Yanis Varoufakis announced that Greece will not take out any new loans to meet its future debt obligations. The anti-austerity minister claims that Greece is insolvent and refused to cooperate with the appointed inspectors overseeing the bailout program, stating that Greece wants to negotiate directly with the Troika.

    Unsurprisingly, international lenders were not pleased with the position taken by the Greek government. In an interview to the Berliner Morgenpost, German Chancellor Angela Merkel said that she does not see further debt haircuts for Greece, as it has already been forgiven billions of euros by private creditors and banks. Likewise, Erkki Liikanen, a member of the ECB policymaking Governing Council, warned that if Greece fails to reach an agreement with its lenders, the ECB will be obliged to pull the plug on Greek banks. Without the liquidity assistance Greece would be forced to leave the Eurozone, especially since four major Greek banks have already lost a third of their stock value, and continue to face massive deposit withdrawals.

    SYRIZA does not have much time, as the current bailout program is due to expire on February 28. While Greece might have funds to meet its obligations the next few months, in summer it will face around 10 billion euros worth of debt repayments. The sharp increase in borrowing costs ruled out funding opportunities from the financial markets, as Greek 3-year and 10-year bond yields reached 16.6 and 9.8 percent respectively.

  • Premature Capitulation?

    February 3, 2015 4:13 PM

    Over the decades I’ve spent in this Heart of Darkness (a.k.a., the bowels of American politics), I’ve learned two lessons that have encouraged the steady politicization of the American economy:

    • When the right time comes, I’ll take a principled stand (sadly, too often, once you’re no longer in office); and
    • Of course, we know the “right” answer is often to liberalize current rules, but that would be politically naïve, so our goal should be to avert even worse rules (but, of course, sacrificing principle rarely assuages those favoring more government control).

    And both lessons seem to have been forgotten in the Republican rush to avert the threatened action by FCC Chairman Tom Wheeler to transform the Internet into a federally regulated utility. Senator Thune, Representative Upton, and Representative Walden have proposed a “compromise” bill that would strip the FCC of its purported authority to reinterpret the Communications Act to consider the Internet as a “public” utility.

    Unfortunately, their language concedes perhaps the most dangerous part of such a reclassification: removing the freedom of network owners to price their services. Well, actually not quite: the Republicans would remove providers’ ability to price in ways that some view as “discriminatory.” They explicitly mention pricing policies that might result in “throttling” (like congestion-managed toll lanes?), unreasonable “network management” (as decided by whom?), and “paid prioritization” (like that used for just-in-time transportation services by most transport companies?).

    But proponents argue if FCC is left alone, its rules might even be worse. And, indeed, they probably will be—but FCC action would be administrative, reversible by a future administration or via inevitable legal challenge. If Congress—led by erstwhile opponents of net neutrality—accedes to forcing the Internet into quasi-utility status, the losses could be permanent.

    Those contemplating this action should reflect on the consequences of similar regulation on an earlier network—the railroads. This was America’s first national network, knitting together then small town and rural America into the national economy. Railroads dramatically lowered transportation costs—changing the economy and resulting in growth in some regions, contraction in others.

  • Obama Administration Learned Nothing from 2008 Financial Crisis, Mortgage Expert Says

    February 3, 2015 2:26 PM

    Ed Pinto had a depressing and revealing op-ed in The Wall Street Journal Friday about how the Obama administration is artificially creating markets for risky mortgages, using the Federal Housing Finance Agency and the government-controlled mortgage giants, Fannie Mae and Freddie Mac. Not only will this put taxpayers at risk, but it will burden prudent homebuyers through “cross-subsidies” for risky borrowers “subsidized by less-risky loans.”

    Long ago, Pinto worked as an executive and credit manager at Fannie Mae before it began buying up massive amounts of risky mortgages to pursue short-run profits and meet federal affordable-housing mandates.

    As Pinto notes in “Building Toward Another Mortgage Meltdown,” Federal Housing Finance Agency Director Mel Watt has pushed for a resurgence in risky mortgage loans, and hinted at more mischief to come in his January 27 testimony to the House Financial Services Committee, in which he “told the committee” that he expects to release by “March new guidance on the ‘guarantee fee’ charged by Fannie Mae and Freddie Mac to cover the credit risk” on the loans they acquire. 

    As Pinto points out,

    In the Obama administration, new guidance on housing policy invariably means lowering standards to get mortgages into the hands of people who may not be able to afford them. Earlier this month, President Obama announced that the Federal Housing Administration (FHA) will begin lowering annual mortgage-insurance premiums ‘to make mortgages more affordable and accessible.’

    Government programs to make mortgages more widely available to low- and moderate-income families have consistently offered overleveraged, high-risk loans that set up too many homeowners to fail. In the long run-up to the 2008 financial crisis, for example, federal mortgage agencies and their regulators cajoled and wheedled private lenders to loosen credit standards. They have been doing so again. When the next housing crash arrives . . . homeowners and taxpayers will once again pay dearly.

    Even progressive media like the Village Voice have reported on how the Department of Housing & Urban Development—especially Clinton’s HUD Secretary Andrew Cuomo—spawned the mortgage crisis by pressuring lenders and the mortgage giants to promote affordable housing, helping “plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments.” A 2011 book by The New York Times’ Gretchen Morgenson also chronicles how “it was Fannie Mae and the government housing policies it supported, pursued, and exploited that brought the financial system to a halt in 2008.”

    But the Obama administration learned nothing from this, and has expanded this risky, “affordable-housing” push. Pinto notes, lowering mortgage-insurance premiums for risky borrowers is the centerpiece of a “new affordable-lending effort by the Obama administration,” which led to the “the latest salvo in a price war between two government mortgage giants to meet government mandates”:

    Fannie Mae fired the first shot in December when it relaunched the 30-year, 97% loan-to-value, or LTV, mortgage (a type of loan that was suspended in 2013). Fannie revived these 3% down-payment mortgages at the behest of its federal regulator, the Federal Housing Finance Agency (FHFA)—which has run Fannie Mae and Freddie Mac since 2008, when both government-sponsored enterprises (GSEs) went belly up and were put into conservatorship. . . .

    As Pinto notes,

    Mortgage price wars between government agencies are particularly dangerous, since access to low-cost capital and minimal capital requirements gives them the ability to continue for many years—all at great risk to the taxpayers. Government agencies also charge low-risk consumers more than necessary to cover the risk of default, using the overage to lower fees on loans to high-risk consumers. Starting in 2009 the FHFA released annual studies documenting the widespread nature of these cross-subsidies. The reports showed that low down payment, 30-year loans to individuals with low FICO scores were consistently subsidized by less-risky loans.“

    But HUD consistently prodded the government-sponsored mortgage giants Fannie Mae and Freddie Mac to loosen safeguards against risky loans:

    In 1997, for example, HUD commissioned the Urban Institute to study Fannie and Freddie’s single-family underwriting standards. The Urban Institute’s 1999 report found that “the GSEs’ guidelines, designed to identify creditworthy applicants, are more likely to disqualify borrowers with low incomes, limited wealth, and poor credit histories; applicants with these characteristics are disproportionately minorities.” By 2000 Fannie and Freddie did away with down payments and raised debt-to-income ratios. HUD encouraged them to more aggressively enter the subprime market, and the GSEs decided to re-enter the “liar loan” (low doc or no doc) market, partly in a desire to meet higher HUD low- and moderate-income lending mandates.

  • Bet on the Big Game? You Probably Broke the Law

    February 2, 2015 1:44 PM

    Industry experts expected yesterday’s Super Bowl game to bring in around $100 million in legal sports wagering in Nevada. That’s a lot of moola, but it pales in comparison to how much Americans bet illegally. While it’s hard to know exact numbers, the American Gaming Association estimated that Americans would spend around $3.8 billion in illegal gambling on the Super Bowl.

    While gambling on a football has probably been around since the first game, many state and federal statutes prohibit even small, friendly wagers among friends.

    The Unlawful Internet Gambling Enforcement Act of 2006: Although UIGEA doesn’t outlaw gambling online, it does prohibit payment transactions related to “unlawful” online gambling. While the law doesn’t specify what it considers “unlawful” gambling, it does specifically exempt fantasy football, qualifying it as a “game of skill.” That said, betting on the real-world outcome of a single game wouldn’t qualify under this exemption. So, if you’re wagering on the Super Bowl online, you are very likely violating this federal law.

    The Interstate Wire Act of 1961This law prohibits cross-state betting on sports. The courts and federal entities have generally interpreted “wire” to apply to both telephone and Internet communications, so this law prohibits all on or offline betting on sports that crosses state lines. Because online data is usually shuttled between servers in various states, it is taken to mean that any online sports betting is interstate sports betting and in violation of this law. Even collecting or paying out money with online processors like PayPal or LeagueSafe could get you into trouble if it is connected to betting on sports.

    The Professional and Amateur Sports Protection Act of 1992: PASPA was passed at the behest of the sports leagues and prohibits wagering “on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.” The prohibition exempts states that already had legal sports betting within a year of the law’s passage, such as Nevada, Delaware, Montana, and Oregon. New Jersey has attempted, unsuccessfully, to overturn PASPA as unconstitutional.

  • Study: Cutting Unemployment Benefits Boosted Hiring

    February 2, 2015 7:49 AM

    President Obama’s policies reduced employment and slowed America’s economic recovery by discouraging people from working. The Congressional Budget Office says Obamacare will shrink employment by around two million workers, which is not surprising, since it punishes some people for earning more money by suddenly taking away thousands of dollars in healthcare tax credits.

    Another example is unemployment benefits, whose excessive duration under the Obama administration retarded economic growth until 2014, when benefits were finally cut back to normal levels over Obama’s objections. A recently-released National Bureau of Economic Research study finds that cutting unemployment benefits caused the lion’s share of America’s job growth in 2014.

    According to that January 2015 working paper, cuts in unemployment insurance caused “nearly all” of 2014’s employment growth, as illustrated by “the abrupt reversal in the relative employment growth trend of high benefit states and border counties in December 2013, right at the time when the benefit durations were cut.”

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

    February 2, 2015 6:49 AM

    Regulators stepped up their pace last week, with nearly 80 regulations covering everything from defibrillators to Korean oranges.

    On to the data:

    • Last week, 77 new final regulations were published in the Federal Register, after 40 new regulations the previous week.
    • That’s the equivalent of a new regulation every two hours and 11 minutes.
    • So far in 2015, 195 final regulations have been published in the Federal Register. At that pace, there will be a total of 2,438 new regulations this year, which would be far less than the usual total.
    • Last week, 1,583 new pages were added to the Federal Register, after 1,271 pages the previous week.
    • Currently at 5,440 pages, the 2015 Federal Register is on pace for 64,284 pages, which would be the lowest page count since 1992.
    • Rules are called “economically significant” if they have costs of $100 million or more in a given year. Two such rules has been published so far this year, one in the past week.
    • The total estimated compliance cost of 2015’s economically significant regulations is $630 million for the current year.
    • Nineteen final rules meeting the broader definition of “significant” have been published so far this year.
    • So far in 2015, 41 new rules affect small businesses; five of them are classified as significant. 
  • Main Street Fights Dodd-Frank's Chipping Away at the Constitution

    January 30, 2015 3:31 PM

    “Wall Street Chips Away at Dodd-Frank,” blared a recent front-page headline in The New York Times about bipartisan measures that have passed the U.S. House of Representatives and/or been signed into law that ever-so-slightly lighten the burden of the so-called financial reform rammed through Congress in 2010. “GOP Pushes More Perks For Wall Street...” reads the home page of The Huffington Post under the picture of establishment pillar, Jamie Dimon, CEO of JP Morgan Chase.

    Yet, what these articles don’t say is that the firms putting their resources on the line to challenge Dodd-Frank in court are the furthest thing from Wall Street high rollers. They are decades-old firms selling stable, time-tested financial products to everyday consumers.

    At first glance, the national insurance firm MetLife and the Texas community bank State National Bank of Big Spring might seem to have little in common. But they both are solid financial firms that never took a bailout and never had their hand in the toxic mortgages—spurred on by the government-sponsored enterprises Fannie Mae and Freddie Mac and mandates of the Community Reinvestment Act—that caused the financial crisis.

    And now, the firms are both doing their customers and all Americans a favor by bringing suit against Dodd-Frank’s Financial Stability Oversight Council (FSOC), one of the many opaque entities in Dodd-Frank that lack accountability to Congress and the public.

    In its lawsuit brought this month, MetLife raised many of the same constitutional issues as did State National Bank in its pending legal challenge brought in 2012 in collaboration with the Competitive Enterprise Institute, at which I work. CEI and the conservative seniors group 60 Plus Association are co-plaintiffs with the bank, and CEI attorneys are working with the esteemed C. Boyden Gray—the former White House Counsel—in providing representation to the parties.

    In an open letter to its customers that ran in full-page ads in The New York TimesWashington Post, and Wall Street Journal, MetLife CEO Steven Kandarian explained his objections to the firm being designated as a “systemically important financial institution,” or SIFI, by FSOC. “We do not believe MetLife poses systemic risk, and we are concerned that our designation will harm competition among life insurers and lead to higher prices and less choice for consumers.” In that sense, a court victory for MetLife would greatly benefit the public as well.

    To its credit, MetLife is rejecting  not only the burdens of being designated a SIFI but also the benefits—benefits that seem to eagerly embraced by both MetLife’s competitors (such as the infamous AIG) as well as the biggest banks. Being designated a SIFI means the federal government considers MetLife to be “too big to fail,” making it subject to the same Dodd-Frank bailout regime set up for big Wall Street banks like Goldman Sachs and JPMorgan Chase.

    As CEI, 60 Plus Association, and the State National Bank argue in our legal challenge to the Dodd-Frank Act, the SIFI designation confers on a firm a strong competitive advantage, as investors and creditors know the government won’t let it fail.

    We argue that the tiny State National Bank “is injured by the FSOC’s official designation of systemically important  nonbank financial companies, because each additional designation will require the Bank to compete with yet another financial company—i.e., a newly designated nonbank financial company—that is able to attract scarce, fungible investment capital at artificially low cost.”

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