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Archive for the ‘Government intervention’ Category

Five days ago, I wrote “Coronavirus and Big Government” to highlight how sloth-like bureaucracy and stifling red tape deserve much of the blame for America’s slow response to the crisis.

And I started that column by sharing four points from a previous column on “Government, Coronavirus, and Libertarianism.” I’ll start today’s column by repeating the final observation.

4. The federal government has hindered an effective response to the coronavirus.

Here’s a video from John Stossel documenting the federal government’s clumsy incompetence.

And here are a bunch of stories and tweets that provide additional elaboration.

Feel free to click on the underlying stories if you want to get even angrier about the deadly impact of big government.

The silver lining to all the bad news is that politicians and bureaucrats have been relaxing regulatory barriers.

But will they learn the right lesson and permanently repeal government-created barriers that hinder the provision of health care?

Is it true, as Robert Tracinski wrote for the Bulwark, that “We’re All Libertarians now”?

This talking point has since been taken up by others in a more technically accurate form: there are no libertarians in a pandemic. The idea is that when a crisis hits, everyone suddenly realizes how much they need Big Government. This is a bizarre argument to make about a virus that got a foothold partly because of the corrupt and tyrannical policies of a communist government in China. The outbreak is currently at its worst in Italy, where socialized medicine has not turned out to be a panacea. And it was allowed to get out of control in America because the feds imposed an incompetent government monopoly on COVID-19 testing, blocking the use of better and faster tests developed by private companies. …There has been a surge of emergency deregulation to lift artificial barriers that prevent people from solving problems. …the loosening of federal controls on the private development of diagnostic testing, after the disastrous attempt to centralize it all at the CDC. We’re also seeing the suspension of restrictive licensing requirements on doctors and nurses to allow them to work across state lines, so they can go where the shortages are worst. There has also been a whole series of waivers on restrictions on the transportation and serving of food and beverages in order to help restaurants stay in business and feed their customers by offering curb-side service.

Needless to say, I hope Tracinski is right.

But I worry that the net result of this crisis is that we’ll have more red tape and the CDC and FDA will have bigger budgets.

If you think I’m being too pessimistic, just remember that the Department of Veterans Affairs was rewarded with more money after letting veterans die on secret waiting lists, the IRS was rewarded with more money after persecuting Tea Party groups to help Obama’s political prospects, and the education monopoly endlessly gets rewarded with more money even though student outcomes stagnate or deteriorate.

All as predicted by the First Theorem of Government.

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Back in 2013, I joked that “you get bipartisanship when the Stupid Party and the Evil Party both agree on something.”

That generally means bad outcomes, with the TARP bailout being a prime illustration.

We now have another example since many Republicans and Democrats want to restrict – or even ban – companies from buying shares from owners (i.e., company shareholders).

Known as stock buybacks, these share purchases should be viewed as an innocuous way of distributing profits.

But you’ll see below that many politicians think they be able to dictate how private businesses operate.

First, let’s look at some excerpts from the Tax Foundation’s very useful primer on the issue.

It’s important to understand why stock buybacks occur and the economic role they play. The new tax law lowered the corporate income tax rate… A lower rate also means that corporations will receive larger profits than anticipated on investments they made in the past—it should be expected that companies would share at least some of this unexpected increase in cash with their shareholders. …Stock buybacks are complements to investment, not substitutes for it. Research shows that stock buybacks do not deprive firms of capital that they would otherwise invest, and further, that stock buybacks can facilitate long-term investment by redirecting funds from lower growth firms to higher growth firms. …Limiting the ability of a corporation to return value to shareholders—value which was created by productive investments made in the past—will not improve economic conditions.

Many experts from the worlds of finance, business, and public policy have tried to explain why stock buybacks should not be viewed as controversial.

In a column for the Wall Street Journal, for instance, Donald Luskin and Chris Hynes explain why it’s a bad idea to curtail buybacks.

Sen. Elizabeth Warren would require, among other things, that to receive aid…companies receiving aid be permanently barred from executing share buybacks, even after the aid is repaid. This is an opportunistic mutation of the left’s longstanding claim that buybacks are a uniquely evil form of predatory capitalism. In reality, buybacks create benefits for shareholders large and small… Shareholders must receive a dividend when it’s declared and pay taxes on it. In a share buyback, investors who want cash can sell some shares and pay taxes. If they don’t want cash, they can choose to hold on to their shares. …Some opponents of buybacks…argue that they waste company cash that ought to be reinvested in plant and equipment. But not every company is in growth mode, and even those that are might have more cash than growth ideas. …Paying money out to shareholders frees them to reinvest in new companies with big growth ideas. This is the best way to promote growth for the economy as a whole.

The Washington Post is not exactly a hotbed of libertarian thinking, so it’s noteworthy that its editorial warned that politicians shouldn’t be dictating private business choices.

the practice by which public corporations use spare cash to buy back their own stock has turned into a policy flash point for both Democrats and Republicans. The basic allegation is that profits devoted to stock buybacks…are profits not plowed back into new plants, equipment or higher wages. …Contrary to the concerns about diverting investment funds, U.S. nonresidential investment and job creation have been rising for most of the past decade. When shareholders get cash for their stocks, the money doesn’t disappear; it flows through the economy, often as productive investment elsewhere. …Perhaps a tax change would accomplish something — though companies would still have an incentive to give spare cash back to shareholders as long as there is no clearly superior investment alternative. Critics of stock buybacks are saying, in effect, that elected officials or regulators may know better than companies themselves what should be done with extra cash.

Writing for the Foundation for Economic Education, Ethan Lamb points out why Senator Cory Booker doesn’t understand the economics of buybacks.

Senator Cory Booker…reintroduced the “Workers Dividend Act,” which would mandate corporations match every dollar spent on buybacks with compensation toward employees. …this bill presupposes that stock buybacks are inherently bad for society. …Booker doesn’t understand the function of stock buybacks. …Buybacks are just another mechanism, like dividends, to return money to shareholders. …Booker and company will also argue that stock buybacks come at the expense of investment, whether it be in the form of wages or capital expenditures. …none of that is true. …stock buybacks are a brilliant example of the free-market system offering a win-win to both parties. In other words, when the corporation purchases its own stock, the money from that exchange has to go somewhere. Presumably, the investor that just received the money would re-invest in another company that would be more inclined to use that money on investments in labor, R&D, or capital.

The editors of the Wall Street Journal warned about the risks of government intervention.

Stock buybacks are the latest bipartisan piñata, whacked by politicians on the left and right who misunderstand capital markets. …Repurchasing shares is simply one way a company can return cash to owners if it lacks better ideas for investment. …Senators complain that “when corporations direct resources to buy back shares on this scale, they restrain their capacity to reinvest.” But the money doesn’t fall into a black hole. An investor who sells stock into a buyback will save or reinvest the proceeds. …Banning buybacks won’t create better investment options inside companies. Instead CEOs may spend more on corporate jets or pet projects with marginal economic returns. …A recent report from Mr. Rubio floats the idea of raising tax rates on buybacks. …For example: “An increased tax rate on repurchases might raise revenue to finance other incentives for capital investment.” In other words, Mr. Rubio wants politicians to have more leverage to direct how businesses deploy their capital. This would produce less investment, not more, with corresponding damage to workers and federal revenue.

Jon Hartley, in an article for National Review, debunks the notion that there’s some sort of special tax favoritism for buybacks.

Marco Rubio’s plan to tax stock buybacks in the hopes of spurring investment…is heavily flawed for multiple reasons. …the senator seems to be operating under the incorrect belief that buybacks are tax-advantaged, when in fact buybacks are already taxed in the form of capital-gains taxes. Since 2003, when the dividend-tax rate was lowered to remove the tax advantage then afforded buybacks, the tax rates on qualified dividends and long-term capital gains have been the same. …let’s take a hypothetical example: Say an investor bought a stock at $100 and over the period of a year, the stock price appreciated by 10 percent to $110 after the company increased its profits and paid corporate taxes (at today’s 21 percent rate) on its earnings. If the company pays a $2 dividend at the end of the year and the investor sells the stock at $108 (ex-dividend), the investor pays the 23.8 percent dividend tax on the $2 dividend received and 23.8 percent on the $8 capital gain. If the company buys back some of its stock at $110 instead of paying a dividend and the investor sells his shares at $110, the investor pays the long-term capital-gains tax of 23.8 percent on the $10 he made. …Now, let’s imagine that Senator Rubio’s legislation is passed and a tax on buybacks goes into effect. …A transaction that was previously subject to two layers of taxation (corporate and capital-gains taxes) is suddenly subject to three layers of taxation (corporate taxes, capital-gains taxes, and buyback taxes), yielding a higher overall tax bill.

Ted Frank, writing for the Washington Examiner, adds further analysis.

Sen. Josh Hawley, a Missouri Republican, proposed banning buybacks as one of a series of conditions of government relief. Anyone making blanket condemnations of stock buybacks is either confused or otherwise fundamentally unserious — and proposing counterproductive policies that will slow the recovery. …It’s economically indistinguishable from a special dividend, where a corporation pays out money to every shareholder, except it permits shareholders to elect their own tax consequences, unlike a dividend that creates a tax event immediately. …Proposals to ban buybacks are effectively proposals to demand corporations hold such huge stockpiles of cash, depriving shareholders of investment choices. Such proposals will backfire by slowing down the economic recovery when money that could be invested is instead held in corporate bank accounts, doing nothing.

I want to close by sharing two additional columns that argue against restrictions on stock buybacks, but also suggest that there may be some desirable reforms that might – as a side effect – lead to fewer buybacks.

Clifford Asness recently opined for the Wall Street Journal about buybacks and investment, echoing many of the points included in the above excerpts.

Share buybacks are when a company purchases its own common shares on the open market. After a buyback, a company is left with less cash and fewer shares outstanding. Buybacks, along with ordinary dividends, are one of the main ways companies return cash to investors—the ultimate objective of any investment. So why have buybacks become the subject of vitriolic criticism? …The lead accusation against buybacks is that they “starve investment.” …Related to the claims of starving investment, some argue that today’s buybacks are a form of “self-liquidation” in which companies are systematically shrinking away. This ignores that…the net cash outflow from share buybacks has been more than replaced by cash inflow due to new borrowing (think of this as a debt-for-equity swap). Despite buybacks, on net companies have been raising money, not liquidating. …Buybacks…facilitate a movement of capital from companies that don’t need it to those that do. That’s how markets are supposed to work.

But he then notes that the tax code’s bias for debt could be a problem.

…there are some possible problems with buybacks. If taken to excess far beyond today’s levels and financed with debt, they could lead to too much leverage.

Noah Smith explains for Bloomberg that banning stock buybacks is the wrong response to the wrong question.

Stock buybacks are a fraught and confusing issue. …A number of politicians have decried this practice, and sought restrictions or a ban. …Many observers are mystified by this animosity. …share repurchases are like dividends — a way to return money to shareholders. When companies don’t have any way to invest their money profitably, they might as well give the money back to investors.

But he then suggests other government policy mistakes that could be artificially boosting the level of buybacks.

…many of the concerns people have with buybacks probably could be better addressed by reforming other parts of the corporate system. If executive short-termism is the problem, stock- and option-based compensation should be discouraged. If debt is the problem, tax corporate borrowing more heavily. …instead of attacking buybacks, reformers should focus on fixing other parts of corporate America.

Since I just wrote about the tax code being biased in favor of debt, I obviously am very sympathetic to tax reforms that would put debt and equity on a level-playing field.

Noah Smith raised the issue of whether stock- and option-based compensation arrangements for company executives are artificially encouraging buybacks.

Well, my modest contribution to this discussion is to explain that such compensation packages became more prevalent after Bill Clinton’s failed 1993 tax hike imposed a significant indirect tax increase on corporate salaries of more than $1 million. That tax hike, however, did not apply to performance-based compensation, such as measures tied to a stock’s performance.

So what we’re really looking at are a couple of example’s of Mitchell’s Law in action.

Politicians adopt bad policies (favoritism for debt in the tax code and higher taxes on regular salaries), which lead to unintended consequences (more stock buybacks), which then gives politicians an excuse to further expand the size and scope of the federal government (restrictions and bans on buybacks).

Lather, rinse, repeat.

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I wrote last week about the libertarian response to the coronavirus crisis and made four simple points.

  1. Governments should focus on protecting life, liberty, and property. That includes fighting pandemics.
  2. A big sprawling federal government will be less capable and competent when responding to a real crisis.
  3. International evidence suggests greater government control is not a good recipe for success.
  4. Domestic evidence indicates that bureaucracies such as the FDA and CDC are exacerbating the problem.

That column led to an invitation, from the folks at Pairagraph, to participate in a debate with Jason Furman, a Harvard professor who served as Chairman of President Obama’s Council of Economic Advisers.

Here are some excerpts from Jason’s opening statement.

Dan, you wrote a thoughtful piece the other day on a “Libertarian Perspective on the Coronavirus Response.” …But, I would also hope you would support me…in supporting a temporary increase in the share of Medicaid costs paid by the federal government. …health treatment is essential, and extra money…will help hospitals expand capacity as needed. After the pandemic is over we can take more time to debate the cost-benefit of this public funding for a low-income entitlement.

He then lists these four fiscal proposals.

Here’s some of what I wrote in my opening response.

Regarding potential steps to boost the economy, …conventional remedies may not be effective in the current environment. I don’t think my preferred policies (lower tax rates, for instance) will have much impact when people and businesses are focused on curtailing the spread of the virus. And I also don’t think Keynesian policies will be effective… That being said, we are facing a black-swan environment. …there is enormous pressure for Washington to do something.

What about Jason’s four proposals?

I agree on his first suggestion, but not on the mechanism.

…more health infrastructure would be very helpful. Which is why I want the private sector to take the lead. We’ll get faster results at lower cost.

As you might guess from what I wrote two days ago about paid sick leave, I’m very skeptical about program expansions.

I don’t want politicians to exploit a crisis to impose their long-standing policy preferences – especially when taxpayers, consumers, and workers will be burdened with long-run costs.

However, I’m open to his other two proposals.

I don’t think universal payments and/or business loans will prevent short-term economic harm. But if the federal government is going to do something, then payments and loans at least address a real problem (temporary loss of income) with a plausible action (temporary provision of cash).

Though I do warn that these ideas will have adverse unintended consequences.

In an ideal world, firms would guard against black-swan events by having business interruption insurance and households would similarly protect themselves by setting aside funds in savings accounts. Those prudent steps will be less likely in a world where people expect government intervention.

Our submissions are limited to 500 words, so neither of us had much opportunity to share details (there will be a second round, so the debate isn’t over yet).

Even with that limit, I made sure to mention Crisis and Leviathan, Robert Higgs’ must-read book about the unfortunate history of politicians using crises as an excuse to seize more power and control over the private economy.

That’s because my biggest fear is that this temporary crisis will lead to permanent expansions in the size and scope of government.

Libertarians don’t fear the “slippery slope” because we’re paranoid. We fear it because we understand the perverse incentive structure of politicians.

I don’t know whether we’ll become Greece or Venezuela if we tumble down that slope. But I know it will lead to a bad outcome.

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I’m not a big fan of paternalism because of my libertarian belief that people should be free to govern their own lives.

That’s true even if they make choices that I think are foolish.

Needless to say, many politicians don’t share this laissez-faire perspective.

But not all governments are equally intrusive. Epicenter has released a new version of the Nanny State Index, allowing us to see which EU nations have the most onerous rules governing private behavior.

The Index has been charting the slide towards coercive paternalism since 2016 and there is little good news to report this year. Once again, Finland tops the league table but although it maintains a strong lead, other countries are closing the gap. …Whether it is food, drink, vaping or smoking, the lifestyle regulators have the wind in their sails… In general, the story is one of a constantly expanding nanny state raising prices and trampling freedom. The blame lies overwhelmingly with domestic governments, not with the European Union. Although the EU has made the situation worse with its counter-productive policies on tobacco and e-cigarettes, it cannot be held responsible for regressive taxation, draconian smoking bans and excessive regulation of alcohol and food. The gulf between the more liberal countries at the bottom of the Index and the more heavy-handed countries at the top shows how much latitude member states have. Treating your citizens like children is, by and large, a domestic policy choice.

As you can see from this table, Finland is the worst, followed by two of the (otherwise sensible) Baltic nations.

Meanwhile, Germany gets the best score, followed by Czech Republic and Slovakia.

The report’s author, Christopher Snowdon of London’s Institute of Economic Affairs, observes that nanny-state policies don’t even achieve their putative goal of longer lifespans.

Insofar as ‘public health’ campaigners acknowledge the damage done by their policies, they argue that it is more than offset by the benefit to health – the ends justify the means. But there is little evidence that countries with more paternalistic policies enjoy greater health or longevity. As Figure 1 shows below, there is no correlation whatsoever between Nanny State Index scores and life expectancy.

Here’s the chart showing the lack of a relationship between paternalism and longevity.

By contrast, there is a correlation between economic prosperity and life expectancy.

…there is a strong, statistically significant relationship between health and wealth. Figure 4 shows the relationship between life expectancy and economic prosperity as measured by per capita GDP. This suggests that pursuing economic growth would bring much greater benefits to health than coercive efforts to control personal behaviour with bans and taxes.

Here’s the chart from the study showing the relationship between the two variables.

The obvious takeaway is that European governments should focus on policies that expand economic liberty if they truly care about the well-being of their citizens.

P.S. What about the United States? I’m not sure where we would rank in the Nanny State Index. Though we do have some indication of which states have a more laissez-faire attitude. When I wrote about Freedom in the 50 States back in 2013, I noted that Massachusetts ranked #1 in the “bachelor party” category (based on issues such as booze, hookers, fireworks, and drugs). That category doesn’t exist int he most-recent edition, but Nebraska ranks #1 in the “victimless crimes” category.

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The most obvious threat to free enterprise is Bernie Sanders, though other prominent leftists are giving “Crazy Bernie” plenty of competition.

But I sometimes wonder whether the more tangible threat to capitalism comes from self-described conservatives who say they support markets but embrace trendy ideas that would expand the size and scope of the federal government.

The people who gravitate to these ideas inevitably argue that a Reagan-style agenda of free markets and limited government is somehow inadequate.

They even make the laughable claim that the Republican Party in recent decades has been dominated by libertarian economic thinking. I’m not joking.

And they come up with creative justifications for bad ideas.

For instance, Oren Cass has concocted a “cost of thriving index” that purports to show ever-increasing economic pressure on families.

Cost-of-Thriving Index (COTI): the number of weeks of the median male wage required to pay for rent on a three-bedroom house at the 40th percentile of a local market’s prices, a family health insurance premium, a semester of public college, and the operation of a vehicle. …The COTI shows a declining capacity of a worker to meet the major costs of a typical middle-class household. As the COTI basket has become unaffordable, families have found workarounds, like having more household members work more hours, making do without, borrowing, and relying on government support. Each of these comes with its own costs, undermines the stability of families and the rationale for their formation, and creates high levels of stress and uncertainty. …The U.S. economy of recent decades has eroded, rather than reinforced, the American model of thriving, self-sufficient fami­lies.

Here’s his COTI graph, which supposedly shows that a breadwinner would have to work 53 weeks per year to buy what was easily affordable back in 1985.

A number of experts have identified serious methodological problems with his work (see Scott Winship, Mark Perry, Robert Verbruggen, Stan Veuger, Matt Yglesias, Don Boudreaux, and Andrew Biggs).

I want to make a different point. So I’m going to ignore all the problems that exist with the methodology and data, and I’m going to assume – for the sake of argument – that Cass’ chart is accurate.

And the reason I’m willing to make that heroic assumption is that Cass inadvertently shows why bigger government and more intervention is a bad idea.

Here are the numbers he used to create his chart.

If you examine what’s happened with the different categories, you’ll quickly notice that almost all the increase in his index is the result of ever-high costs for health care and college.

Yet those are precisely the areas where there the role of government has increased.

More specifically, we have a massive third-party-payer problem with health care caused by Medicare, Medicaid, and the tax code’s healthcare exclusion.

And we have a massive third-party-payer problem in higher education thanks to a big expansion of loans, grants, and other subsidies.

In both cases, providers have responded to government intervention with higher prices and massive inefficiency.

The bottom line is that the chart should be modified to show the harmful impact of government.

The challenge for Cass is to somehow explain why more government is a good idea when his own numbers show that we’re getting bad results in the sectors where we already have lots of government.

Maybe, just maybe, there’s a lesson to be learned. Or a principle that should be applied.

P.S. Or we could just listen to Ronald Reagan (see 2nd and 8th videos).

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The main problem with America’s health care system is government intervention (Medicare, Medicaid, the tax code’s healthcare exclusion, etc).

The main symptom of all that intervention is pervasive “third-party payer,” which is the term for a system where people buy goods and services with other people’s money.

And pervasive is no exaggeration. According to government data, nearly 90 percent of health care expenditures are paid for by someone other than the consumer.

And that means buyers are not sensitive to price. Which means sellers have little incentive to be efficient and keep prices under control.

The net effect is that the free market is not allowed to operate in most parts of the health care system. So it shouldn’t be a surprise that we have ever-rising costs and lots of bureaucracy.

Let’s look at an example.

One of my former colleagues, Michael Cannon, recently wrote about what happened when Obamacare mandated that birth control be covered by insurance (third-party payer) rather than being directly purchased by consumers.

The Affordable Care Act (ACA) dramatically expanded insurance coverage for prescription contraceptives such as “the pill.” From August 2012 through January 2014, the federal government phased in the ACA’s requirement that nearly all private health insurance plans must cover all Food and Drug Administration‐​approved prescription contraceptives with no cost‐​sharing. …As a result of these changes, the share of consumers who are sensitive to the price of contraceptives plummeted. …among women with large‐​employer coverage who use oral contraceptives, “the share experiencing out‐​of‐​pocket spending…declined from 94 percent in 2012 to 11 percent in 2017.” …The ACA’s reshaping of the market for oral contraceptives precisely coincided with a dramatic increase in prices for those items. …As the mandate began to take effect and as the ACA made oral contraceptives seem “free” to more purchasers, prices for hormones and oral contraceptives began to rise. …Once the mandate took full effect, prices began to rise rapidly. From May 2013 through May 2019, while real prices for non‐​prescription drugs and prescription drugs overall rose just 12 percent and 37 percent, respectively, prices for hormones and oral contraceptives rose 108 percent. …these data suggest that trying to make oral contraceptives “free” for insured consumers had the unintended consequence of making them far more expensive.

Here’s the chart, which is a powerful – and depressing – illustration of how government intervention leads to rising prices.

Notice how birth control costs (the orange line) begin to skyrocket as the Obamacare mandate took effect.

Another depressing thing to consider is that consumers get tricked into thinking that birth control is free.

In reality, of course, the higher costs get built in to the price of health insurance, which then means less take-home pay for the people who thought they were benefiting. But since they don’t understand that this is what’s happening, they decide their employers are too greedy or that compensation is stagnant.

Sigh.

Needless to say, the companies selling birth control lobbied to get their product automatically covered. After all, they knew they could raise prices (as shown in the chart) once customers started buying with other people’s money.

P.S. Several years ago, Sandra Fluke got her 15 minutes of fame by asserting that she had a right to third-party-financed birth control. That led to some clever jokes, including this cartoon, these images, this cartoon, and this video.

P.P.S. When markets are allowed to operate in healthcare, relative prices fall.

P.P.P.S. Government-created third-party payer is also generating higher costs and needless bureaucracy in higher education.

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Regulatory policy has been one of the bright spots of the Trump Administration (along with tax policy).

But it’s not a perfect record.

In a column for Townhall, Steve Sherman describes how the Labor Department launched a regulatory attack against Oracle in the final days of the Obama Administration.

President Obama was not a good president, but he was really good at issuing midnight regulations… Obama’s army of left-wing lawyers were also busy writing up last minute lawsuits… President Obama’s administration went after the tech companies Palantir, Google, then Oracle by alleging discrimination using statistics gathered as part of routine audits of these government contractors. In all of these suits, no actual evidence of discrimination was presented, merely statistics gathered that claimed to prove discrimination. This type of evidence would be tossed out in a real court, but with these suits, they were handled administratively and internally at the Department of Labor. …Oracle was so outraged by continued harassment that they fought back and sued the federal government for violating the Constitution’s separation of powers arguing that the lawsuits statutory authority.

So why am I criticizing the Trump Administration for regulatory harassment that was launched under Obama?

For the simple reason that some of Trump’s appointees have allowed the assault to continue, as former Congressman Bob Barr explained for the Daily Caller.

The Trump administration has performed admirably in reducing the regulatory red tape that has strangled American businesses… But for reasons not entirely clear, the Department of Labor has lagged behind other agencies in this regard. One clear example is the way the department’s Office of Federal Contract Compliance Programs (OFCCP) has continued unnecessary and counterproductive Obama-era litigation against tech companies… In a 2017 study, the U.S. Chamber of Commerce…set forth in extensive detail that the OFCCP in recent years had become enamored of faulty, statistics-based challenges to companies engaged in federal contracts… A number of lawsuits reflecting this abusive approach to regulatory enforcement were filed against large tech companies in the waning months of the Obama administration. …the Department of Labor sued…, just two days before President Trump was sworn in, Oracle. …the Labor Department instead has become…a regulatory bully searching for ways to punish companies. …Hopefully, …Donald Trump and Eugene Scalia…will step in and make sure that the small but powerful agency…gets on board the administration’s drive to actually reduce federal regulatory burdens

The Washington Post has some details on the dispute between Oracle and the federal government.

…the Labor Department…alleges Oracle, the database management company founded by billionaire Larry Ellison, paid some women as much as 20 percent less than their male peers, or $37,000, in 2016. The lawsuit was filed by the department’s Office of Federal Contract Compliance Programs, which audits companies with government contracts worth more than $100 million a year. …The hearing in San Francisco has broad significance for the tech industry because the allegations against Oracle are similar to the department’s claims that other tech giants, including Google and Palantir, exercised systemic bias against minority and female employees in hiring, pay or promotion. …Oracle’s lawyer argued that the Labor Department’s expert witness compared employees based on broad job titles and failed to take into account that a software developer who worked on Oracle’s product PeopleSoft is valued differently in the market than developers who work on the artificial intelligence of machine learning. …The department claims Oracle’s college recruiting program hired 500 graduates between 2013 and 2016 for product development roles at its Redwood Shores, Calif., headquarters, 90 percent of whom were Asian. During the same period, Oracle only hired six black people through the recruitment program. …The agency argues that pay disparities stem from Oracle’s practice of…relying on prior salaries to set their pay at Oracle.

The key thing to understand is that the federal government is unable to find any victims of actual discrimination.

As the Wall street Journal opines, bureaucrats are relying on statistical differences.

Protecting the constitutional separation of powers is back in political fashion as more businesses challenge abuses of administrative agencies. One case worth watching is Oracle’s lawsuit arguing that the Labor Department has usurped the federal judiciary and other executive agencies. Labor’s Office of Federal Contract Compliance Programs (OFCCP) filed a discrimination complaint against Oracle in the waning days of the Obama Administration. During a routine audit, the OFCCP in 2014 conducted a statistical analysis of Oracle’s workforce. And what do you know? The agency says it discovered disparities based on race and sex that it claimed were prima facie evidence of discrimination. …In sum, the agency said Oracle discriminated against every class of worker in one way or another. It demanded that Oracle lose current and forgo future federal contracts plus pay up to $400 million in restitution to its alleged victims. Yet its case all but collapsed at an administrative trial this month. The Labor office presented no evidence of intentional discrimination or even witnesses who claimed as much. …Oracle is suing the OFCCP for violating the Administrative Procedure Act and separation of powers. …the agency investigates, prosecutes, tries and punishes businesses even though it has no legislative authority to do so.

I’ll close by citing Thomas Sowell’s column for Jewish World Review on how “disparate impact” is basically a scam.

“Disparate impact” statistics have for decades been used, in many different contexts, to claim that discrimination was the reason why different groups are not equally represented as employees or in desirable positions… The implicit assumption is that such statistics about particular outcomes would normally reflect the percentage of people in the population. But, no matter how plausible this might seem on the surface, it is seldom found in real life… Blacks are far more statistically “over-represented” among basketball stars in the NBA… Hispanics are similarly far more “over-represented” among baseball stars than in the general population. Asian Americans are likewise far more “over-represented” among students at leading engineering schools like M.I.T. and Cal Tech than in the population as a whole. None of this is peculiar to the United States. You can find innumerable examples of such group disparities in countries around the world and throughout recorded history.

Sowell isn’t just theorizing.

He wrote a thoroughly researched book on exactly this issue.

The bottom line is that groups – on average – sometimes have different interests and aptitudes.

Walter Williams observed about ten years ago that, “Not every choice based on race represents racism and if you think so, you risk misidentifying and confusing human behavior.”

And there’s no evidence that Oracle even made decisions based on race to begin with.

So the bureaucrats at the Department of Labor are using bad methodology to harass and extort a company.

Left-leaning administrations have a track record of pushing bad policies on their way out of office, so I’m not surprised the Obama Administration launched the attack on Oracle. But I am surprised that the Trump Administration has allowed the legal assault against the company to continue.

P.S. While I normally don’t think the federal government should have any power to interfere with regards to market outcomes for hiring, pay, promotion, and association, it’s legitimate for Uncle Sam to put conditions on companies that bid on federal contracts. I just wish they would fight actual examples of bias, not mere statistical differences.

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