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  • Coming Up: King Plaintiffs’ Day in Court

    February 13, 2015 5:20 PM

    Oral arguments before the U.S. Supreme Court in King v. Burwell will be held on March 4, 2015. The Competitive Enterprise Institute is coordinating this case, which challenges an IRS regulation that illegally distributes subsidies in states that refused to establish state-based health insurance exchanges. The IRS regulation is illegal because it is contrary to the plain language of the law passed by Congress.

    The four plaintiffs involved are individuals who are harmed by this regulation because it makes them subject to Obamacare’s individual mandate, which requires people to enroll in comprehensive healthcare coverage or pay a tax penalty. Both lower courts unanimously agreed that the individual plaintiffs have standing and the Justice Department expressly abandoned any challenge to their standing before the Supreme Court.  

  • Ridesharing and Regulation

    February 12, 2015 2:06 PM

    Earlier this week, I appeared on a Cato Institute panel organized by Cato’s Matthew Feeney, author of a new report on for-hire vehicle safety issues. Video of the event, which also included Center for Economic and Policy Research’s Dean Baker, can be found here.

    The panel was titled, “How Should Ridesharing Be Regulated?” Naturally, being a general skeptic of regulation, I titled my presentation, “Why Should Ridesharing Be Regulated?” I noted that modern municipal taxicab regulations were crafted by the then-powerful streetcar lobby in response to new competition from jitneys and buses that occurred around 1915. By 1922, the streetcar industry’s main trade association, the American Electric Railway Association, was already crowing about its rent-seeking successes:

    In many instances, municipal action has solved the question, but the situation demands general power in regulatory bodies to prevent competition of jitneys and busses with essential street car service. In the meantime, regulatory bodies and the public realize that transportation by electric railways will always be necessary…

    Yes, those “always necessary” streetcars soon disappeared from the streets of U.S. cities, but the streetcar lobby’s efforts resulted in an entrenched taxicab cartel that supported the same types of anti-competitive regulations. Most major U.S. cities adopted regulations that established operating caps and minimum fare requirements through the Great Depression. Until the late 1960s, these rules went unchallenged. The 1970s saw a wave of several dozen cities deregulate their taxicab markets. Unfortunately, a number of the experiments were flawed and resulted in a number of cities reversing course and reregulating their taxicab markets. (For more on the regulatory history of the taxicab industry and the related economic research, see Reason Foundation Vice President Dr. Adrian Moore’s excellent literature review here.)

    Then Uber came. Cities are now facing great pressure to deregulate or at least accommodate Uber, Lyft, Sidecar, and similar services that directly compete with taxicabs. However, I worry that some of these efforts, particularly the accommodationist strategy favored by Uber, risks locking in business models and restricting future innovation—particularly with the looming rise of autonomous vehicles.

    One thing that really gets my libertarian blood boiling is that “ridesharing” only becomes regulated when the driver turns a profit. Hitchhiking is legal and essentially unregulated in most U.S. states. Anonymous commuter carpools like D.C.’s slug-lines are entirely unregulated, although there are social etiquette “rules” that “slugs” are expected to respect. In fact, not only is charging your carpooling passengers for gas and even mileage depreciation legal and unregulated up until profitability, many government agencies actively encourage it. The bias against commerce runs deep in the U.S., despite our reputation as a highly individualist, pro-market nation—this just shows how horrible the anti-commerce biases are in other countries!

    I discuss this and more on the panel. Watch the whole thing here.

  • New U.S. Dietary Recommendations to Correct Misunderstanding about Cholesterol, Not Fat

    February 12, 2015 1:34 PM

    Thomas Jefferson once said, “If people let the government decide what foods they eat and what medicines they take, their bodies will soon be in as sorry a state as are the souls of those who live under tyranny.” On this issue, TJ seems to have hit the nail on the head.

    Since Uncle Sam started telling us what to eat, Americans have steadily grown less healthy in many ways. In the 1970s, we were told to eat less meat and more grains. We listened, but it did little to curtail the oncoming obesity “epidemic” (some claim government recommendations may have actually caused this epidemic). And for decades, we have been told to restrict our consumption of cholesterol in order to reduce our risk of cardiovascular disease. That is, until now. The new dietary guidelines will no longer recommend restrictions on cholesterol consumption. This is a great first step, but the best advice is to stop listening to government nutritional advice.

    For many people, this will seem like an abrupt about-face after 50 years of lectures about cholesterol. But for those in the medical research field, the shift is long overdue. During the last decade, it has become increasingly clear that there is no real evidence linking dietary cholesterol and blood serum cholesterol (which is used as a stand-in for CVD risk). While many physicians are still wedded to the idea that their patients at risk for cardiovascular disease should limit their egg consumption, it sounds like the Dietary Guidelines Advisory Committee—a joint effort of HHS and USDA—has finally come to grips with the evidence. Unfortunately, the real lesson remains unlearned: the U.S. government shouldn’t be the authority on what is or isn’t a healthy diet.

    The DGAC, which consists of “nationally recognized experts,” meets every five years to review medical literature and hash out recommendations for what a healthy diet should look like. Their report to the secretaries ultimately becomes the official Dietary Guidelines for Americans, which is used by policy makers as a guideline in federally administered nutritional programs and assistance. Unfortunately, it sounds like they will still cling to their increasingly suspect beliefs about saturated fat.

  • The $7 Billion Slowdown

    February 12, 2015 11:12 AM

    The ongoing logjam at ports on the West Coast could cost American retailers around $7 billion this year, according to the consultancy Kurt Salmon. That’s a lot of money, and huge disruption to the nation’s economy. Of course, it’s impossible to prevent disruptions, including large ones, from ever happening. The problem is that this one was not only easily foreseen, but preventable.

    The recent shutdown, and continuing backlog, has followed a similar pattern as past West Coast port shutdowns. That’s because labor at the ports functions as a cartel that can disrupt commercial shipping easily.

    Shippers must negotiate with the union as a group, through a trade group called the Pacific Maritime Association (PMA). The union, International Longshore and Warehouse Union (ILWU), represents dockworkers at ports all down the West Coast. (Unionized port workers on the East and Gulf coasts are represented by the International Longshoremen’s Association.)

    Like railroads and airlines, maritime shipping is a network industry vital to commerce. However, while labor relations at railroads and airlines are covered under the Railway Labor Act (RLA), which was designed to avoid major disruptions to commerce, ports are covered by the National Labor Relations Act (NLRA), which enables disruptions that the RLA doesn’t allow.

    “Railroad crews cannot decide to stop working on the tracks, and airline crews cannot withhold fuel from planes,” explains Diana Furchtgott-Roth of the Manhattan Institute. “But [port] workers can simply not show up for shifts in Los Angeles and Oakland in order to hold out for higher wages.”

    A clear solution would be for Congress to shift jurisdiction of ports from the NLRA to the RLA, much as it extended the RLA’s jurisdiction to airlines in 1936, 10 years after the original Act’s 1926 passage.

    American Action Forum President Douglas Holtz-Eakin explains:

    A cornerstone of the RLA is that its purpose, as stated in the statute, is to “avoid any interruption of commerce” while providing for “the prompt and orderly settlement of all disputes” that arise in labor matters. Labor contracts under the RLA do not expire. Instead, they become “amendable” and remain in force until a new agreement is reached.

    If negotiations are not productive, then federal mediation is required before either unions or employers can engage in “self help” like slowdowns, strikes or lockouts. The National Mediation Board, which oversees the process, says that 99% of all of its mediation cases since 1980 have been handled without interruption.

  • NPR Wrongly Suggests Hate Speech and Blasphemy Are Unprotected by First Amendment

    February 11, 2015 12:13 PM

    NPR gets a lot of taxpayer money based on a false pretense of objectivity and accuracy. Its departing ombudsman, Edward Schumacher-Matos, says that “as a public media that receives some 11 percent of its funding indirectly from the government, it cannot be partisan or have a declared bias.”

    But it routinely gets basic facts wrong. While touting NPR’s supposed superiority over other media, such as Fox News, ombudsman Matos recently made the false claim that the French satirical magazine Charlie Hebdo, whose staff were massacred by terrorists, would not be protected in the U.S. under the First Amendment, because it made “fun” of people’s “prophets and gods,” and constituted “hate speech.”

    This was simply ignorant, because the Supreme Court declared blasphemy laws unconstitutional in Joseph Burstyn, Inc v. Wilson, 343 U.S. 495 (1952), stating that “it is not the business of government in our nation to suppress real or imagined attacks upon a particular religious doctrine, whether they appear in publications, speeches or motion picture.”

  • Zenefits: A Disruptive Company Fights Back

    February 10, 2015 10:39 AM

    Sometimes cronyism in the business world takes the form of a company receiving special government favors and subsidies—the now-infamous Solyndra, for example—but sometimes it takes the form of being singled out for punitive action instead. The software company Zenefits seems to have ended up in just such a scenario in Utah, where, along among the 50 states, it has been forbidden from operating.

    Zenefits offers free human resources software to small businesses and nonprofits, while offering optional insurance brokerage services. If a company decides to buy insurance through them, they make a commission. If not, their clients are free to continue using Zenefits’ services free of charge. According to the company, about 80 percent of their clients are currently in the free-of-charge category.

    This model is, not surprisingly, a potential competitive threat to other firms in the HR and insurance businesses, and insurance regulators have decided that offering free services in addition to being an insurance broker violates the Beehive State’s “anti-rebating” statute (see this explanation by Sarah Buhr of Tech Crunch). So despite being a legit operation everywhere else in the country, they are not welcome in Utah.

    I was happy to see Zenefits CEO Parker Conrad stand up to this ruling in an op-ed in the Salt Lake Tribune recently, titled “My company is disruptive, but it shouldn’t be banned in Utah.” He emphasizes that recent innovation in the insurance industry has made regulations like Utah’s increasingly obsolete and anti-consumer, while also comparing the hostility to his company to the backlash that has greeted the arrival of UberAirbnb, and Tesla Motors dealerships across the country.

    Fortunately, things seem to be looking up for the company. Fellow entrepreneurs and investors in Utah were quick to ridicule the decision, greeting it with comments like "Regulators, get out of (the) way. Ridiculous. Embarrassing," and "Last week we kicked Uber and Lyft out of Utah. This week Zenefits. The good (old) boy network is alive and well in the Beehive State." Better yet, the Utah legislature is now considering a bill that would clarify the language of Utah’s insurance regulation to allow businesses like Zenefits to operate in the state. Utah’s governor and lieutenant governor have also signaled support for the reform. It could be only a matter of days before Utah’s small businesses get a chance to check out Zenefits’ offerings for themselves.

  • Congress Takes First Shot at NLRB Ambush Election Rule

    February 10, 2015 9:56 AM

    Congress established the National Labor Relations Board as a body made up of neutral arbiters to represent the public in labor disputes. Under the Obama administration, the Board has strayed from its required impartiality to issue rules and decisions that outright favor labor unions over workers and employers.

    An example of the Board unfairly administering national labor policy to advance the interests of labor unions is the implementation of its “ambush election” rule. 

    Specifically, the amendments to union election procedures significantly favor unions by limiting debate and time workers have to learn about the pros and cons of union representation. It does so by shortening the time frame between the filing of a petition and the date on which the election is conducted to as little as 11 days from a median of 38 days.

    Another component of the rule, which inappropriately benefits special interests and jeopardizes worker privacy, compels employers to hand over employees’ private information—cell phone, email address, and work schedule—to union organizers. 

    As I note in the Competitive Enterprise Institute’s agenda for Congress, “Government should not have the power to force employers to disclose workers’ contact information to a special-interest group for any cause. That [ambush election] rule would almost certainly expose workers—who would not have the choice of opting out of union organizers’ obtaining their information—to harassment, intimidation, and much higher risk of identity theft.”

  • Harvard Study Confirms Dodd-Frank's Harm to Main Street

    February 10, 2015 7:31 AM

    Literally since the day the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama, my Competitive Enterprise Institute colleagues and I have predicted its harshest effects would fall on community banks. “While the bill claims to crack down on excesses on Wall Street, its harshest impact will likely be on Main Street businesses that had nothing to do with the crisis,” I wrote on FoxNews.com on July 15, 2010, the day President Obama signed the bill.

    Since then, numerous studies, as well as testimonials from community bank officials, have proven this prediction correct. Yet much of the media and politicians still peddle the myth that Dodd-Frank only hurts Wall Street, and thus, repealing or easing sections of Dodd-Frank would benefit “big banks” at the expense of Main Street.

    But maybe a new confirmation of Dodd-Frank’s harm to community banks will get attention because of its unlikely source: the John F. Kennedy School of Government at Harvard University. Two researchers at the Kennedy School’s Mossavar-Rahmani Center for Business and Government have just produced a study concluding that Dodd-Frank accelerated the decline of America’s community banks.

    While acknowledging that community banks’ share of financial assets has been falling since 1994, authors Marshall Lux and Robert Greene find that “since the second quarter of 2010—around the time of the passage of the Dodd-Frank Act—their share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010.”

  • The Empire Strikes Back!

    February 9, 2015 1:34 PM

    Right-of-center groups have for some time become a bit complacent. Sure the left had the universities, the media, and pop culture—but we had the think tanks. In the world of principled and ideologically motivated policy, we were dominant—libertarian and conservative groups were growing in size and influence. We were—for a while—unchallenged.

    No longer. The left and its financial supporters have realized that gap in their force array and have poured resources into addressing that deficiency. The Center for American Progress—the left’s Heritage Foundation—and the New America Foundation (CAP’s more intellectual counterpart) have become influential counters.

    The most recent example of that is CAP’s new product, Report of the Commission on Inclusive Prosperity“Inclusive” is one of the many adjectives used to modify “capitalism,” joining terms like “crony,” “conscious,” and “creative” to suggest that—with a bit of tweaking—capitalism can be saved. The report resonates with the old themes of the left: “technological progress benefits primarily highly skilled workers” (the shift from skilled long bowmen to muskets? The shift from skilled bookkeepers to offshored data processors?); an obsession with shifts in the distribution of monetary income (very little discussion of offsetting changes in the quality or prices of goods); worries about worker mobility; a view of the market as one of power struggles rather than evolving voluntary arrangements. 

    It’s an interesting glimpse into the way the left is seeking to repackage its messages. Not much new: an appeal to envy, the plea for achieving “creative destruction” in a static economy, an unchanged belief that growth depends on government-led industrial policy, and clichés about technology and education. The left is desperate to retain control of the egalitarian moral high ground. This salvo is unlikely to succeed, but the broader approach should concern us.

  • Educating Tomorrow’s Business Leaders on Markets and Politics

    February 9, 2015 10:44 AM

    This weekend I attended a fascinating event at the University of Maryland’s Robert H. Smith School of Business on the subject of economic inequality. Prof. Rajshree Agarwal put together a program that included a series of short debates by her Executive MBA students, followed by a one-on-one debate on the same questions between University of Minnesota Prof. Paul Vaaler and Ayn Rand Institute Executive Director Yaron Brook.

    Participants argued for and against propositions such as “Taxes (existing and new) should be used to reduce inequality of outcomes” and “CEO pays should be capped at some percentage of the lowest paid employee in the firm.” The MBA students were assigned positions and debated based on recent readings, while Vaaler and Brook argued their own personal convictions on the meaning of economic inequality and the role of both business and government in responding to it.

    Prof. Vaaler emphasized the role of participatory democracy in setting societal norms for questions like the just distribution of wealth, while Brook dismissed concerns about inequality per se, arguing that economic rewards should flow to whomever has earned them, regardless of the resulting distribution. The MBA students followed up with a highly engaged series of questions for both speakers.

    Finally, the students were polled on a series of four questions having to do with inequality and had their responses contrasted with the answers they gave before the debate began. On 3 out of 4 questions, the students moved closer to Brooks’ position—that either inequality is not an issue of paramount concern in the first place, or that public policy measures like capping CEO pay were not well advised.

    While the specific result was encouraging from a free market point of view, the fact that business school students were being challenged on these issues at all is especially important. Business schools do an excellent job training future business leaders in areas like program management and creative problem solving, but don’t necessarily focus on questions of politics and morality that are, nevertheless, also vital to operating a business in a heavily-regulated, mixed economy. Prof. Agarwal, who leads the newly launched Snider Center for Enterprise and Markets at the University of Maryland, is doing an excellent job of challenging her students on these issues. I have no doubt that tomorrow’s shareholders will thank her when her students become CEOs themselves.

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