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Archive for the ‘Regulation’ Category

As a fiscal policy wonk, I’ve come across depressing examples of counterproductive tax provisions (health benefits exclusion, ethanol credits) and spending programs (the entire HUD budget, OECD subsidies).

But the folks who work on regulatory policy may get exposed to the most inane government policies (Fannie-Freddie mandate, EEOC rulings).

For example, consider how the government is undermining public health by going after e-cigarettes.

Sally Satel of the American Enterprise Institute offers a good introduction to the issue.

Strikingly, it is members of the public health establishment that have fanned the pessimism surrounding the battery-powered devices that deliver nicotine without the carcinogenic tar. One leading culprit is the Centers for Disease Control which refuses to acknowledge the steep risk reduction for smokers who switch to non-combustible tobacco, overlooks evidence of immediate gains in respiratory health when e-cigarettes are used as an alternative to smoking, and dramatizes as yet unrealized harm to children. …at the heart of this skepticism in the US is the FDA, who has devised an onerous rule that “deems” e-cigarettes to be tobacco products and thus subject to the same regulatory regime as combustible cigarettes. The rule…places undue regulatory burden and cost on vaping manufacturers. …the agency’s mandate for manufacturers to submit data prior to product approval is deeply misguided. Although patterns of youth uptake, flavor preferences, and nicotine level preferences are important data, they do not trump the benefit to adult smokers’ health. …The regulatory politics of non-combustible nicotine products stand as one of the great paradoxes in public health. While our health agencies now strongly champion harm reduction for opiate misuse, they are making it more and more difficult to improve and save the lives of smokers.

The Orange County Register is not a big fan of what’s been happening.

There’s a strange anti-vaping hysteria hitting governments. …The itch to treat vaping like smoking afflicting so many public health activists and government officials may be well-intentioned, but it is also misguided and harmful to the very goal of reducing smoking which these campaigners claim to champion. …Vapor products offer a way to consume nicotine without inhaling the lethal smoke that causes cancer and kills smokers. It has long been known that it is the smoke from burning tobacco, not the nicotine, that kills smokers. …Flavors are a critical ingredient to the success of tobacco harm reduction. According to a 2013 study published in the International Journal of Environmental Research and Public Health, of 4,618 vapers surveyed, more than 91 percent classified themselves as “former” smokers, with the majority saying flavor variety was “very important” to their efforts to quit smoking. The study also found the number of flavors a vaper used was independently associated with quitting smoking. Supporters of flavor bans argue these products appeal to children and will induce them to start smoking cigarettes. But the data fails to bear this out. A 2015 study from the Journal of Nicotine & Tobacco Research found nonsmoking teens’ interest in e-cigarettes was “very low” and didn’t change with the availability of flavors.

Looking at this debate motivated me to write an article on the story behind the story.

In an ideal world, the discussion and debate about how (or if) to tax e-cigarettes, heat-not-burn, and other tobacco harm-reduction products would be guided by science. …In the real world, however, politicians are guided by other factors. There are two things to understand… First, this is a battle over tax revenue. Politicians are concerned that they will lose tax revenue if a substantial number of smokers switch to options such as vaping. …Second, this is a quasi-ideological fight. Not about capitalism versus socialism, or big government versus small government. It’s basically a fight over paternalism, or a battle over goals. For all intents and purposes, the question is whether lawmakers should seek to simultaneously discourage both tobacco use and vaping because both carry some risk (and perhaps because both are considered vices for the lower classes)? Or should they welcome vaping since it leads to harm reduction as smokers shift to a dramatically safer way of consuming nicotine?

I used an analogy from the world of statistics.

…researchers presumably always recognize the dangers of certain types of mistakes, known as Type I errors (also known as a “false positive”) and Type II errors (also known as a “false negative”). …The advocates of high taxes on e-cigarettes and other non-combustible products are fixated on the possibility that vaping will entice some people into the market. Maybe vaping will even act as a gateway to smoking. So, they want high taxes on vaping, akin to high taxes on tobacco, even though the net result is that this leads many smokers to stick with cigarettes instead of making a switch to less harmful products. …At some point in the future, observers may joke that one side is willing to accept more smoking if one teenager forgoes vaping while the other side is willing to have lots of vapers if it means one less smoker.

On the issue of taxes, here’s a 2017 map from the Tax Foundation that shows state excise taxes on vaping.

There has been some pushback against the regulators.

The electronic cigarette industry and its free-market allies are seeing fresh opportunities to ease federal rules on e-cigarettes… More than a dozen conservative groups wrote to congressional leaders…, calling on them to add a pro-vaping provision to a spending measure… A rule issued…by the Obama administration “deems” e-cigarettes to be tobacco products and allows the FDA to retroactively examine all tobacco products on the market in February 2007. …industry advocates say the costly FDA approval process would force most e-cigarette companies to shut down. …The notion of “harm reduction” is the main argument pro-vaping forces use in their push to remove the requirement that tobacco companies retroactively prove their e-cigarettes are safe.

For what it’s worth, the FDA has kicked the can down the road, basically postponing its harsh new regulatory regime until 2022.

In the world of business, that’s just around the corner. Especially since investors and entrepreneurs have relatively long time horizons.

So let’s look at some evidence that hopefully will lead the bureaucrats at the FDA to make rational decisions.

The main argument, as noted in this column in the Wall Street Journal, is that vaping is the most effective way of reducing smoking.

Two major government surveys show that regular e-cigarette use by people who have never smoked is under 1%. Some 4.2% of high-school seniors report smoking conventional cigarettes daily, according to Monitoring the Future, and 9.7% reported smoking at least once in the previous month. These are “the high-risk youth” we need to worry about… Overheated worries about youth vaping are threatening to obscure the massive potential benefits to the nation’s 38 million cigarette smokers. Two million have already quit thanks to e-cigarettes. Vaping products are already the most widely used quit-smoking tool.

And smoking is the real danger to health, as Veronique de Rugy notes in a Reason article.

Tobacco kills 480,000 people a year in the United States. Yet when an innovative alternative that delivers nicotine and eliminates 95 percent of the harm of smoking is available, the wary Food and Drug Administration fails to embrace this revolutionary lifesaving technology. All in the name of the children, of course. Using e-cigarettes, known as vaping, has been around long enough for respected health authorities to conclude after many studies that it is eminently safer than smoking cigarettes. Britain’s Royal College of Physicians called any attempts by public officials to discourage smokers from switching to vaping “unjust, irrational and immoral.” …no one wants teens to vape, but we certainly don’t want them to smoke cigarettes and die an agonizing death later in life. As a parent, I tell my children that they shouldn’t do either. But the truth is that I know, as do they, that if they are going to do something as stupid as committing so much of their money to that sort of activity, vaping is the way to go. The bottom line is that government alarmists should back off. The first step is for the FDA to stick to its plan to postpone regulation until 2022 and create a clear pathway for the permanent approval of these products. It would allow the vaping companies time to establish their products as a safer alternative to cigarettes.

Here’s some scholarly research on the topic.

 US tobacco control policies to reduce cigarette use have been effective, but their impact has been relatively slow. This study considers a strategy of switching cigarette smokers to e-cigarette use (‘vaping’) in the USA to accelerate tobacco control progress. …Compared with the Status Quo, replacement of cigarette by e-cigarette use over a 10-year period yields 6.6 million fewer premature deaths with 86.7 million fewer life years lost in the Optimistic Scenario. Under the Pessimistic Scenario, 1.6 million premature deaths are averted with 20.8 million fewer life years lost. The largest gains are among younger cohorts, with a 0.5 gain in average life expectancy projected for the age 15 years cohort in 2016. …Our projections show that a strategy of replacing cigarette smoking with vaping would yield substantial life year gains, even under pessimistic assumptions regarding cessation, initiation and relative harm.

And the Wall Street Journal opines on the issue.

E-cigarettes do not contain tobacco. They contain nicotine, a chemical derived from tobacco and other plants. Plain English was never a deterrent, though, to regulators on an empire-expanding mission. The Food and Drug Administration this week rolled out new regulations on e-cigarettes based on a 2009 law giving the agency power over products that “contain tobacco.” …Plain English also does not authorize inclusion of e-cigarettes under the 1998 Master Settlement Agreement, the deal struck between the cigarette industry and 46 states that settled a bunch of lawsuits by imposing a government-run cartel to jack up the price of cigarettes (in the name of curbing consumption, naturally) and distribute the excess profits to the states and a handful of now-plutocrat trial lawyers. …Lovers of freedom and enemies of regulatory overkill do not exaggerate when they say FDA rules are designed to murder numerous small manufacturers and thousands of “vape” shops that account for about half the electronic-cigarette business.

You won’t be surprised to learn that the bureaucrats at the World Health Organization, who already are pushing for harmonized tobacco taxes, also want to go after vaping.

…who gets a say in what the WHO does is a hotly contest matter. Only thirty members of the public and selected members of the media are treated to limited, stage managed press conferences. Nations like China, with state-owned tobacco monopolies, are warmly welcomed, but anyone with the slightest connection to a private tobacco industry is shown the exit. Large pharmaceutical companies generously fund conference attendees, while their anti-tobacco products like Nicorette gum compete with products that the WHO views unfavorably, like electronic cigarettes. The secretive nature of the conference didn’t go over well with India’s tobacco farmers. After a few minutes of protest outside the convention, 500 farmers were corralled by police and detained inside this local police station. …it’s hard to understand why a $4 billion organization like the WHO feels threatened by the average Indian farmer who lives on $3 a day… Expanding its authority beyond tobacco control, e-cigarettes and vape products now find themselves potentially subject to a worldwide ban. Delegates to the convention have expressed support for “a complete ban on the sale, manufacture, import and export of Electronic Nicotine Delivery Systems”.

WHO bureaucrats are not the only ones to misbehave. Here’s a column from the Wall Street Journal exposing misbehavior in the United States.

There are many reasons to criticize the FDA’s action, but its most fundamental flaw—and the one that our legal foundation raises in three lawsuits on behalf of Ms. Manor and nine others—is that the rule was finalized by someone without authority to do so. The rule was not issued or signed by either the secretary of health and human services or the FDA commissioner, both Senate-confirmed officials. Instead, it was issued and signed by Leslie Kux, a career bureaucrat at FDA. …The attempted delegation of rule-making authority to someone not appointed as an “Officer of the United States” violates one of the most important separation-of-powers clauses in the Constitution. …Political accountability matters; that’s why the Framers included the Appointments Clause in Article II of the U.S. Constitution.

Last but not least, here’s a must-watch video on this issue from Prager University.

I’m not a big fan of the Food and Drug Administration, mostly because it delays the adoption of life-saving drugs and denies options for critically ill people.

Now that it’s going after e-cigarettes and other products that help smokers kick the habit, the FDA bureaucracy deserves ever-greater scorn.

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California is like France. Both are wonderful places to visit.

They’re also great places to live if you’re part of the elite.

But neither is the ideal option for ordinary people who want upward mobility.

Back in 2016, I shared Census Bureau data showing that income was growing much faster for people in Texas, especially if you focus on median income (and this data doesn’t even adjust for the cost of living).

So why is Texas growing faster?

Unsurprisingly, I think part of the answer is that the burden of government is significantly greater in California.

Take a look at this table from the most recent edition of Freedom in the 50 States.

Texas is not the freest state, but its #10 ranking is much better than California’s lowly #48 position.

If you’re wondering why Illinois isn’t at or near the bottom, keep in mind that this is a measure of overall economic freedom, not just fiscal policy.

In other words, California doesn’t just have onerous taxes and an excessive burden of government, it also has lots of red tape and intervention.

These numbers presumably help explain why Babylon Bee came up with this clever satire.

The Texas legislature has approved construction of a border wall surrounding the state in order to keep out unwanted refugees fleeing the rapidly crumbling dystopia of California. …The wall will run around the entirety of Texas, with extra security measures on the west side of the state to ensure undesirable Californian immigrants can’t make it across. …the west side will feature a 10-foot-thick concrete wall with laser turrets, barbed wire, and a moat filled with sharks to stop residents of the coastal state from slipping in undocumented and undetected. …“Far too many immigrants from California come here, take advantage of our pro-business, pro-liberty laws, and refuse to adjust to our way of life,” one Texas state rep said in an address to the assembly. “It is time for us to build a wall and make Governor Jerry Brown pay for it.”

This is the flip side of Walter Williams’ joke about California building a wall to keep taxpayers imprisoned.

But let’s return to serious analysis.

Writing for Forbes, Chuck DeVore highlights some differences between his home state and his new state.

Over the past decade, the top states by GDP growth are: North Dakota, Texas, Nebraska, Washington, and Oregon. …When using Supplemental Poverty Measure, the states with the highest poverty as averaged from 2014 to 2016, are: California (20.4%); Florida (18.8%); Louisiana (18.4%), Arizona (17.8%) and Mississippi (16.9%). The national average Supplemental Poverty rate over the last three years reported was 14.7%. Texas’ poverty rate was at the national average. …Combining two key factors, economic growth from 2007 to 2017 and the Supplemental Poverty Measure from 2014 to 2016, provides a better look at a state’s economic wellbeing.

Here’s a table from his column, which looks at growth and poverty in the nation’s five-largest states.

Texas wins for prosperity and California “wins” for poverty.

If you want more data comparing Texas and California, click here, here, and here.

P.S. Texas gets a bad score and California gets a middle-of-the-road score when looking at personal freedom, so the Lone Star State is not a libertarian paradise. If you do the same thing for international comparisons, Denmark is the world’s most libertarian nation.

P.P.S. Here’s my favorite California vs Texas joke.

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I don’t like the tribal nature of American politics, in part because I get criticized for not playing the game.

I tell both groups that I care about public policy rather than personal or partisan loyalty. Not that this explanation makes either group happy.

Today, I’m going to give a “thumbs up” to the President for what he’s doing about car mileage regulations. Which means the first group will be happy and the second group will be irritated.

To be more specific, the Trump Administration is proposing to ease up on the CAFE (corporate average fuel economy) rules. The Obama Administration, working with California environmentalists, proposed to make these regulations far more costly. Trump’s people basically want to freeze the car mileage mandate at the current 37-miles-per-gallon level.

Here’s a look at the history of the CAFE standards.

Sam Kazman of the Competitive Enterprise Institute explained earlier this year why these regulation impose high costs. And deadly costs.

The federal government’s auto fuel economy standards have for decades posed a simple problem: They kill people. Worse, the National Highway Traffic Safety Administration has covered this up. …To call it a coverup isn’t hyperbole. CAFE kills people by causing cars to be made smaller and lighter. While these downsized cars are more fuel-efficient, they are also less crashworthy. …A 1989 Harvard-Brookings study estimated the death toll at between 2,200 and 3,900 a year. Similarly, a 2002 National Academy of Sciences study estimated that CAFE had contributed to up to 2,600 fatalities in 1993. …The Insurance Institute for Highway Safety, which closely monitors crashworthiness, still provides the same advice it has been giving for years: “Bigger, heavier vehicles are safer.”

The Trump Administration apparently was listening to Sam, and has decided to block future increases in the CAFE mandate.

Environmentalists are predictably upset, but the Wall Street Journal opined on this topic a couple of days ago and explained why it is good news.

The Trump Administration’s deregulation is improving consumer choice and reducing costs… Its proposed revisions Thursday to fuel economy rules continue this trend to the benefit of car buyers… Obama bureaucrats were acutely blind—perhaps willfully so—to economic and technological trends in 2012 when they set a fleetwide average benchmark of 54.5 miles a gallon by 2025. …Americans prefer bigger cars, which makes it harder for automakers to meet the escalating Cafe targets. …As prices rise to meet the new standards, consumers would also wait longer to replace their cars. The average age of a car is approaching 12 years, up from about 8.5 in 1995. Newer cars are more efficient and safer, so longer vehicle turnover could result in more traffic fatalities… Thursday’s Trump Administration proposal to freeze—not roll back—fuel economy standards at the current 2020 target of 37 miles a gallon. …Automakers also want to duck a prolonged legal tussle with California, which received a waiver from the Obama Administration under the Clean Air Act in 2013 to establish its own emissions standards and electric-car mandate. The proposed Trump standards would apply nationally.

Holman Jenkins of the WSJ also weighed in on the issue, pointing out that undoing Obama’s expansion of CAFE mandates will have no impact on the earth’s climate.

…the effect on climate change would be zero. The Obama White House at the time exaggerated by a factor of two the Environmental Protection Agency’s estimate of the effect on total emissions over the lifetime of the cars involved. It doesn’t matter. Two times nothing is still nothing. …Let’s remember the truth of Mr. Obama’s fuel-economy rules. He did not wander the balconies of the White House gazing far into the future when he drafted the 2021-25 fuel economy target of 54.5 miles a gallon. His flunkies, as documented in a House investigation, simply were looking for a impressive-sounding number to serve the administration’s political interests at the time. …in undoing Mr. Obama’s policies, Mr. Trump is doing nothing to hurt the climate.

Myron Ebell of the Competitive Enterprise Institute also wrote on the topic and noted that Trump’s policy will save about 1,000 lives each year.

…the administration has struck a blow for consumer choice that will be good news for drivers planning or hoping to buy a new car in the next decade. That’s because the mileage mandate is one of the main causes of rapidly rising vehicle prices. …Meeting ever more stringent fuel economy standards is driving up new vehicle prices. Sticker shock is thereby causing a lot of people to hang on to their current cars. The average age of all cars on the road is now at an all-time high of over 11-1/2 years. …Freezing CAFE standards will make new cars more affordable for millions of Americans and also allow many of them to buy bigger and hence even safer new models. How much safer will be hotly debated. The Transportation Department concludes that the proposed changes will prevent about 1,000 traffic fatalities a year. …For many people, fuel economy will still be the most important factor in choosing a new car. The good news for them is that the Trump administration’s action will in no way prevent them from buying a model that gets great gas mileage. The good news for everyone else is that the choice of models will be much wider than if the CAFE standard remained 54.5 mpg.

By the way, this isn’t simply a matter of saving lives.

After all, we theoretically could save thousands of lives by simply banning automobiles. In the world of sensible public policy, we make trade-offs, deciding if achieving a certain goal is worthwhile when looking at all the costs and all the benefits.

So it’s theoretically possible that a policy that leads to more premature deaths might be acceptable.

But CAFE fails even on that basis. As Marlo Lewis explained a few years ago, the policy both kills people and imposes net financial costs.

The bottom line is that Donald Trump just improved his grade on regulation.

Back in April, I gave him a B+ on regulation. But then he did something foolish in June that (if I recalculated) would have dropped him to a B. Now he’s probably back at a B+ because of the change to the CAFE rules.

Given what he’s doing on trade, he needs to boost his other grades as much as possible!

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During the Obama years, I criticized the President for various green-energy scams that squandered money and produced scandals such as Solyndra.

And I also noted that many Republicans were happy to support corrupt subsidies to inefficient sources of energy so long as their voters got a slice of the loot.

Sadly, the same thing is happening with Trump in the White House. All that’s changed is that there are different groups sucking at the federal teat.

Catherine Rampell’s column points out how Trump wants the government to pick winners and losers in energy markets.

The GOP…definition of free markets turns out to be pretty confusing… It apparently includes allowing the president to personally dictate what companies must buy, from whom, and at what price; what products they should sell; which employees they should hire and fire; where they should locate… The Trump administration has taken action or raised questions in all these areas… And President Trump’s supposedly laissez-faire co-partisans in Congress have barely said boo. …If that doesn’t count as “picking winners and losers,” it’s hard to say what would. Efforts to prop up inefficient coal-fired plants are…a terrible idea from an economic perspective. The reason these plants are struggling, after all, is that they can’t compete with cheaper natural gas and renewables. Trump is wielding the power of the state to keep uncompetitive companies in business, and costing taxpayers and consumers lots of money in the process.

And remember that this intervention will destroy more jobs than it saves, just as was the case with Obama’s interventions.

This sordid story also is a perfect example of why politicians should never be granted open-ended power.

Trump is now defiantly claiming that “national security” requires bailing out his political allies in the coal industry. It’s the same absurd rationale he has lately invoked for other unfree-market interventions — including, ironically, our military-alliance-straining steel and aluminum tariffs and, perhaps soon, automobile tariffs. …Leave it to Trump to try to strong-arm the invisible hand.

The Wall Street Journal has a hard-hitting editorial castigating the Trump Administration for considering back-door bailouts and special subsidies.

…all of a sudden the Administration wants to do a Barack Obama imitation and play energy favorites. …The supposed problem is that the U.S. is producing an abundance of cheap natural gas thanks to the shale fracking revolution. As a result, national electric wholesale prices for natural gas have plunged by half since 2008… Meanwhile, government subsidies such as the 30% federal investment tax credit have boosted solar and wind production while driving down the wholesale cost. Many nuclear and coal plants unable to compete with renewables and natural gas may have to shut down over the next few years. …Thus, the rescue plan—er, regulatory bailout. According to the Trump memo, Section 202 of the 1920 Federal Power Act lets the Energy Secretary mandate the delivery or generation of electricity during an emergency. It also suggests that the President could use his authority under the 1950 Defense Production Act to “construct or maintain energy facilities” to protect national defense. …Mandating that grid operators buy more expensive coal and nuclear power would raise consumer prices and could reduce natural gas production that has been a boon to many states. And note to Mr. Trump: Energy is one of the biggest costs for steel and aluminum manufacturers. The government rescue for coal and nuclear is as politically abusive as Mr. Obama’s lawless policy to punish fossil fuels. A better way to make coal and nuclear more competitive is to keep chipping away at renewable subsidies and cutting regulation.

The editorial concludes with a very appropriate observation.

As Governor of Texas, Mr. Perry often visited our offices to explain why the U.S. government shouldn’t pick energy winners and losers. He’s still right even if he has moved to Washington.

Amen. Intervention in energy markets is bad when “green” groups get the handouts, and intervention also is bad when coal gets the goodies. That’s true in America and it’s true in other nations.

The Washington Post also correctly opined against this heavy-handed government intervention.

President Trump is preparing what could be the most astonishing and counterproductive instance of central planning the nation has seen in decades.

Mr. Trump last Friday ordered Energy Secretary Rick Perry to recommend ways to prop up struggling coal and nuclear power plants. …One option would require the purchase of electricity from coal and nuclear plants under a law meant to keep power flowing during emergencies, such as hurricanes. Another scheme would hijack the 1950 Defense Production Act, which allows presidential intervention to secure critical goods when national security is at stake. …Americans could pay hundreds of millions, and perhaps billions, more every year for energy. Wholesale electricity markets could collapse as efficient power plants failed to compete with subsidized dinosaurs.

The editorial wisely notes that Trump’s intervention will create a bad precedent that will be abused by a future Democrat president (actually, he’s building on Obama’s bad precedent, but it doesn’t help that Trump is making intervention a pattern).

If Mr. Trump proceeds and the courts somehow allow such a perversion of the law, it would be hard to stop the next Democratic president from, say, using emergency powers to force the purchase of renewables at the expense of coal, oil and natural gas. The president’s latest turn toward economic statism should be no surprise; it has been an animating principle of his presidency. …Mr. Trump is in the midst of picking unnecessary and increasingly costly trade fights with once-close allies, while assuring U.S. farmers that he will use state power — and, presumably, everyone else’s tax dollars — to preserve their margins. Now he is on the verge of asserting dictatorial control over energy markets, using powers meant to be reserved for real emergencies.

Call me crazy, but I want consumers to have the power. And that means allowing competitive markets to allocate resources and determine profitability.

Trump, by contrast, doesn’t seem to have any guiding principles. Yes, he sometimes supports good policy, but he’s also just as likely to favor intervention.

By the way, the Washington Post picked the wrong word in the title of its editorial. At least in theory, socialism means government ownership of the “means of production.” Trump doesn’t want the government to own energy companies. Instead, he wants to control them.

As Thomas Sowell observed when writing about Obama-era intervention, that’s technically fascism.

But since that term is now associated with other nasty attributes, let’s call Trump’s policy statism, corporatism, or cronyism. Or, if you like oxymorons, call it state-led capitalism.

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As a policy wonk, I mostly care about the overall impact of government on prosperity. So when I think about the effect of red tape, I’m drawn to big-pictures assessments of the regulatory burden.

Here are a few relevant numbers that get my juices flowing.

  • Americans spend 8.8 billion hours every year filling out government forms.
  • The economy-wide cost of regulation reached $1.75 trillion in 2010.
  • For every bureaucrat at a regulatory agency, 100 jobs are lost in the economy’s productive sector.
  • A World Bank study determined that moving from heavy regulation to light regulation “can increase a country’s average annual GDP per capita growth by 2.3 percentage points.”
  • Regulatory increases since 1980 have reduced economic output by $4 trillion.
  • The European Central Bank estimated that product market and employment regulation has led to costly “misallocation of labour and capital in eight macro-sectors,” and also found that reform could boost national income by more than six percent.

But one thing I’ve learned over the years is that I’m not normal.

Most people don’t get excited about these macro-type calculations.

Instead they’re far more likely to get agitated by regulations that make their daily lives a hassle. Such as:

I certainly can sympathize. It’s galling that the clowns in Washington have made our existence less pleasant.

Most people also are quite responsive to anecdotes about red tape. Simply stated, big-picture numbers are like a skeleton, while real-world examples put meat on the bones.

Today, let’s look at some absurd examples of the regulatory state in action.

We’ll start with bone-headed pizza regulation, as explained by the Wall Street Journal.

FDA released guidance for posting calorie disclosures at restaurants with more than 20 locations, and the ostensible point is to help folks choose healthier foods. The regulations…are an outgrowth of the 2010 Affordable Care Act… The reason some restaurants have spent years fighting these rules is not because executives lay awake at night plotting how to make Americans obese. It’s because the rules are loco. …Take pizza companies, which have to display per slice ranges or the number for the entire pie. Calories vary based on what you order—the barbarians who put pineapple on pizza are consuming fewer calories than someone who chooses pepperoni and extra cheese. But the number of pepperonis on a pizza depends on the pie’s size and whether someone also adds onions and sausage. ..The rules are so vague that companies could face a crush of lawsuits, which will be abetted by this “nonbinding” FDA guidance.

By the way, you won’t be surprised to learn that academic researchers have found these types of rules have no effect on consumer choices.

A systematic review and meta-analysis determined the effect of restaurant menu labeling on calories and nutrients…were collected in 2015, analyzed in 2016, and used to evaluate the effect of nutrition labeling on calories and nutrients ordered or consumed. Before and after menu labeling outcomes were used to determine weighted mean differences in calories, saturated fat, total fat, carbohydrate, and sodium ordered/consumed… Menu labeling resulted in no significant change in reported calories ordered/consumed… Menu labeling away-from-home did not result in change in quantity or quality, specifically for carbohydrates, total fat, saturated fat, or sodium, of calories consumed among U.S. adults.

Shocking, just shocking. Next thing you know, somehow will tell us that Obamacare didn’t lower premiums for health insurance!

For our second example, we have a surreal story out of California.

A farmer faces trial in federal court this summer and a $2.8 million fine for failing to get a permit to plow his field and plant wheat in Tehama County. A lawyer for Duarte Nursery said the case is important because it could set a precedent requiring other farmers to obtain costly, time-consuming permits just to plow their fields. “The case is the first time that we’re aware of that says you need to get a (U.S. Army Corps of Engineers) permit to plow to grow crops,” said Anthony Francois, an attorney for the Pacific Legal Foundation. “We’re not going to produce much food under those kinds of regulations,” he said. …The Army did not claim Duarte violated the Endangered Species Act by destroying fairy shrimp or their habitat, Francois said. …Farmers plowing their fields are specifically exempt from the Clean Water Act rules forbidding discharging material into U.S. waters, Francois said.

Wow, sort of reminds me of the guy who was hassled by the feds for building a pond on his own property. Or the family persecuted for building a house on their own property.

Last but not least, our third example contains some jaw-dropping tidbits about red tape in a New York Times story.

Indian Ladder Farms, a fifth-generation family operation near Albany, …sells homemade apple pies, fresh cider and warm doughnuts. …This fall, amid the rush of commerce — the apple harvest season accounts for about half of Indian Ladder’s annual revenue — federal investigators showed up. They wanted to check the farm’s compliance… Suddenly, the small office staff turned its focus away from making money to placating a government regulator. …The investigators hand delivered a notice and said they would be back the following week, when they asked to have 22 types of records available. The request included vehicle registrations, insurance documents and time sheets — reams of paper in all. …the Ten Eyck family, which owns the farm, along with the staff devoted about 40 hours to serving the investigators, who visited three times before closing the books. …This is life on the farm — and at businesses of all sorts. With thick rule books laying out food safety procedures, compliance costs in the tens of thousands of dollars and ever-changing standards from the government…, local produce growers are a textbook example of what many business owners describe as regulatory fatigue. …The New York Times identified at least 17 federal regulations with about 5,000 restrictions and rules that were relevant to orchards. …Mr. Ten Eyck…fluently speaks the language of government compliance, rattling off acronyms that consume his time and resources, including E.P.A. (Environmental Protection Agency), OSHA (Occupational Safety and Health Administration), U.S.D.A. (United States Department of Agriculture) and state and local offices, too, like A.C.D.O.H. (Albany County Department of Health).

And here’s an info-graphic that accompanied the article.

Wow. No wonder a depressingly large share of the population prefers to simply get a job as a bureaucrat.

Needless to say, this is not a system that encourages and enables entrepreneurship.

Which is why deregulation is a good idea (and Trump deserves credit for making a bit of progress in this area). We need some sensible cost-benefit analysis so that bureaucracies are focused on public health rather than mindless rules.

And it also would be a good idea in many cases to rely more on mutually reinforcing forms of private regulation.

Since I’m a self-confessed wonk, I’ll close by sharing this measure of the ever-growing burden of red tape. I realize it’s not as attention-grabbing as anecdotes and horror stories, but it is very relevant if we care about long-run growth and competitiveness.

P.S. On the topic of regulation, I admit that this example of left-wing humor about laissez-faire dystopia is very clever and amusing.

P.P.S. I’ve used an apple orchard as an example when explaining why a tax bias against saving and investment makes no sense. I’ll now have to mention that the beleaguered orchard owner also has to deal with 5,000 regulatory restrictions.

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Beginning in the 1980s, money-laundering laws were enacted in hopes of discouraging criminal activity by making it harder for crooks to use the banking system. Unfortunately, this approach has been an expensive failure.

Amazingly, some politicians actually want to make these laws even worse. I wrote last year about some intrusive, expensive, and pointless legislation proposed by Senators Grassley, Feinstein, Cornyn, and Whitehouse.

Now there’s another equally misguided set of proposals from Senators Rubio and Wyden, along with Representatives Pearce, Luetkemeyer, and Maloney. They want to require complicated and needless ownership data from millions of small businesses and organizations.

David Burton of the Heritage Foundation has a comprehensive report on the legislation. Here’s some of what he wrote.

Congress is seriously considering imposing a beneficial ownership reporting regime on American businesses and other entities, including charities and churches. …the House and Senate bills…share three salient characteristics. First, they would impose a large compliance burden on the private sector, primarily on small businesses, charities, and religious organizations. Second, they create hundreds of thousands—potentially more than one million—inadvertent felons out of otherwise law-abiding citizens. Third, they do virtually nothing to achieve their stated aim of protecting society from terrorism or other forms of illicit finance. …Furthermore, the creation of this expensive and socially damaging reporting edifice is unnecessary. The vast majority of the information that the proposed beneficial ownership reporting regime would obtain is already provided to the Internal Revenue Service.

Richard Rahn criticizes this new proposal in his weekly column.

…what would you think of a member of Congress who proposes to put a new regulation on the smallest of businesses that does not meet a cost-benefit test, denies basic privacy protections and, because of its vagueness and ambiguity, is likely to cause very high numbers of otherwise law-abiding Americans to be felons? …Some bureaucrats and elected officials argue that the government needs to know who the “beneficial owners” are of even the tiniest of businesses in order to combat “money-laundering,” tax evasion or terrorism. …Should the church ladies who run the local non-profit food bank be put in jail for their failure to submit the form to the Feds that would give them the exemption from the beneficial ownership requirement? …Given how few people are actually convicted of money-laundering, the overwhelming evidence is that 99 percent of the people being forced to submit to these costly and time-consuming proposed regulations will not be guilty of money-laundering, terrorism or whatever, and thus should not be harassed by government.

Writing for the Hill, J.W. Verret, an expert in business law from George Mason University Law School, highlights some of the serious problems with this new regulatory scheme.

Legislation under consideration in Congress, the Counter Terrorism and Illicit Finance Act, risks tying entrepreneurs’ hands with even more red tape. In fact, it could destroy any benefit some small businesses stand to gain from the tax reform legislation passed last year. It would require corporations and limited liability companies with fewer than 20 employees to file a form with the Treasury Department at the time of formation, and update it annually, listing the names of all beneficial owners and individuals exercising control. …Given the substantial penalties, this will impose a massive regulatory tax on small businesses as they spend money on lawyers that should go toward workers’ pay. …It is unlikely someone on a terrorist watch list would provide their real name on the required form, and Treasury will probably never have sufficient resources to audit names in real time.

Professor Verret explains some of the practical problems and tradeoffs with these proposals.

…some individual money laundering investigations would be easier with a small business registry available. But IRS tax fraud investigations would be much easier with access to taxpayers’ bank account login information — would we tolerate the associated costs and privacy violations? …How is the term “beneficial owner” defined? How is “control” defined? As a professor of corporate law, I have given multiple lectures on those very questions. What if your company is owned, in part, by another company? Or there is a chain of ownership through multiple intermediary companies? What if a creditor of the company, though not currently a shareholder or beneficial owner, obtains the contractual right to convert their debt contract into ownership equity at some point in the future? …for the average small business owner, navigating those complexities against the backdrop of a potential three year prison sentence will often require legal counsel. Companies affected by this legislation should conservatively expect to spend at least $5,000 on a corporate lawyer to help navigate the complexities of the new filing requirements.

Needless to say, squandering $5,000 or more for some useless paperwork is not a recipe for more entrepreneurship.

So how do advocates for this type of legislation respond?

Clay Fuller of the American Enterprise Institute wants us to have faith that bad people will freely divulge their real identities and that bureaucrats will make effective use of the information.

It is time to weed out illicit financing and unfair competition from criminals and bad actors. …Passing the House Financial Services Committee’s Counter Terrorism and Illicit Finance Act should be a priority for the 115th Congress. …Dictators, terrorists and criminals have been freeriding on the prosperity and liberty of the American economy for too long. Officials at FinCEN are sure that beneficial ownership legislation will exponentially increase conviction rates. We should give law enforcement what they need to do their jobs.

Gee, all that sounds persuasive. I’m also against dictators, terrorists, and criminals.

But if you read his entire column, you’ll notice that he offers zero evidence that this costly new legislation actually would catch more bad guys.

And since we already know that anti-money laundering laws impose heavy costs and catch almost no bad guys, wouldn’t it be smart to figure out better ways of allocating law enforcement resources?

I don’t know if we should be distressed or comforted, but other parts of the world also are hamstringing their financial industries with similar policies.

Here’s some analysis from Europe.

…a new reportfrom Consult Hyperion, commissioned by Mitek, reveals that the average UK bank is currently wasting £5 million each year due to manual and inefficient Know Your Customer (KYC) processes, and this annual waste is expected to rise to £10 million in three years. …Key Findings…Inefficient KYC processes cost the average bank £47 million a year…Total costs for KYC processes range from £10 to £100 per check…In the UK, 25% of applications are abandoned due to KYC friction… The cost of KYC checks is much too high, placing too much reliance on inefficient and error-prone manual processes,” said Steve Pannifer, author of the report and COO at Consult Hyperion.

And here’s an update from Asia.

Anti-money laundering and know-your-customer compliance have become leading concerns at financial institutions in Asia today. … we estimate that AML compliance budgets across the six Asian markets in this study total an estimated US$1.5 billion annually for banks alone. …A majority of respondents (55%) indicated that AML compliance has a negative impact on their firms’ business productivity. …An additional 15% felt that AML compliance actually threatens their firms’ ability to do business. …Eighty-two per cent of survey respondents saw overall AML compliance costs increasing in 2016, with one third projecting that costs will rise by 20% or more.

The bottom line is that laws and regulations dealing with money laundering are introduced with high hopes of reducing crime.

And when there’s no effect on criminal activity, proponents urge ever-increasing levels of red tape. And when that doesn’t work, they propose new levels of regulation. And still nothing changes.

Lather, rinse, repeat.

Here’s the video I narrated on this topic. It’s now a bit dated, but everything I said is even more true today.

Let’s close with a surreal column in the Washington Post from Dana Milbank. He was victimized by silly anti-money laundering policies, but seems to approve.

I did not expect that my wife and I would be flagged as possible financiers of international terrorism. …The teller told me my account had been blocked. My wife went to an ATM to take out $200. Denied. Soon I discovered that checks I had written to the au pair and my daughter’s volleyball instructor had bounced. …I began making calls to the bank and eventually got an explanation: The bank was looking into whether my wife and I were laundering money, as they are required to by the Bank Secrecy Act as amended by the Patriot Act. …the bank seemed particularly suspicious that my wife was the terrorist… The bank needed answers. Did she work for the government? How much money does she make? Is she a government contractor? …a week later they came back with a new threat to freeze the account and a more peculiar question: Is my wife politically influential?

Sounds like an awful example of a bank being forced by bad laws to harass a customer.

Heck, it is an awful example of that happening.

But in a remarkable display of left-wing masochism, Milbank approves.

The people who flagged us were right to do so. …Citibank, though perhaps clumsy, was doing what it should be doing. “Know your customer” regulations are important because they prevent organized-crime networks, terrorists and assorted bad guys from moving money. Banking regulations generally are a hassle, and expensive. But they protect us — not just from terrorists such as my wife and me but from financial institutions that would otherwise exploit their customers and jeopardize economic stability the way they did before the 2008 crash.

I guess we know which way Milbank would have responded to this poll question from 2013.

But he would be wrong because money-laundering laws don’t stop terrorism.

We’re giving up freedom and imposing high costs on our economy, yet we’re not getting any additional security in exchange.

And I can’t resist commenting on his absurd assertion that money laundering played a role in the 2008 crash. Does he think that mafia kingpins somehow controlled the Federal Reserve and insisted on easy-money policies and artificially low interest rates? Does he think ISIS operatives were somehow responsible for reckless Fannie Mae and Freddie Mac subsidies?

Wow, I thought the people who blamed “tax havens” for the financial crisis deserved the prize for silliest fantasies. But Milbank gives them a run for their money.

P.S. You probably didn’t realize you could make a joke involving money laundering, but here’s one featuring former President Obama.

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I wrote three days ago about the worst-international-bureaucracy contest between the International Monetary Fund and the Organization for Economic Cooperation and Development.

A reader emailed to ask me whether I had a favorite international bureaucracy. I confess I’ve never given that matter any thought. My gut-instinct answer would be the World Trade Organization since its mission is to discourage protectionism.

But I’m also somewhat fond of the European Central Bank, both because the euro has been better than many of the currencies it replaced and because the ECB often publishes good research.

  • Two studies (here and here) on the benefits of spending caps.
  • Two studies (here and here) showing small government is more efficient.
  • Two studies (here and here) on how large public sectors retard growth.
  • And also studies on the adverse impact of regulation, bureaucracy, and welfare.

And here’s a study on regulation to add to the collection. The European Central Bank published a working paper that looks at the effect of selected pro-market reforms. Here’s their methodology.

In this paper, we investigate the relationship between a wide range of structural reforms and economic performance over a ten-year time horizon. …we identify 23 episodes of wide-reaching structural reform implementation (so-called “reform waves”). These are based on a database…which provides detailed information on both real and financial sector reforms in 156 advanced and developing countries over a 40 year period. Indicators considered specifically cover trade-, product market-, agriculture-, and capital-account liberalisation, together with financial and banking sector reform. Then, we track top-reforming countries over the 10 years following adoption and estimate the dynamic impact of reforms.

And here’s an excerpt that describes the theoretical assumptions.

…orthodox economic theory has made a strong case for structural reforms, identified as measures aimed at removing supply-side constraints in an economy. This in turn would favour efficient factor allocation and contribute to medium- to long-term growth. Such measures include, but are not limited to, product and labour market liberalisations, current and capital account openness, and financial liberalisation. For a long time, a collection of these policies has fallen under the name of Washington Consensus.

I agree with this theory, though allow me to elaborate.

The Fraser Institute’s Economic Freedom of the World is the gold standard when looking at overall economic policy. It considers five major factors – fiscal policy, trade policy, regulatory policy, monetary policy, and governance policy (indicators such as rule of law and property rights).

The “Washington Consensus” also is based on good policy, but it undervalues the importance of a small burden of government spending.

But I’m digressing. Let’s return to the ECB study, which basically looks at the impact of trade liberalization and deregulation. Here’s what the authors found.

Our main findings are as follows: on average, reforms had a negative but statistically insignificant impact in the short term. This slowdown seems to be connected to the economic cycle, and the tendency to implement reforms during a downturn, rather than an effect of reforms per se. Reforming countries however experienced a growth acceleration in the medium-term. As a result, ten years after the reform wave started, GDP per capita was roughly 6 percentage points higher than the synthetic counterfactual scenario.

Here’s a chart from the study illustrating the positive effect of reform.

And here’s another chart from the ECB report looking at the results from another perspective.

The obvious good news from this research is that we have new evidence about the benefits of pro-market reforms. Boosting economic output by an extra 6.3 percent is nothing to sneeze at. And it reinforces my oft-made point that even small improvements in growth – if sustained over time – can lead to dramatic improvements in living standards.

What might be most noteworthy in this study, however, is the finding that pro-market reforms are associated with a short-run dip in economic performance. The authors suggested that it might be a statistical quirk related to the fact that governments have a “tendency to implement reforms during a downturn”.

That’s certainly plausible, but I’m also open to the notion that good reforms sometimes may have short-run costs. Simply stated, if bad policy has produced a misallocation of labor and capital, then pro-growth reforms are going to cause some temporary disruption.

But unless you’re planning on dying very soon and also don’t care about your heirs, that’s not an argument against reform. For example, I think the housing lobby’s opposition to the flat tax is misguided since every sector will enjoy long-run benefits from faster growth, but it’s certainly possible that residential real estate will endure some short-run weakness as some resources shift to business investment.

Unfortunately, politicians tend to have very short time horizons (i.e., the next election), so they fixate on short-run costs and under-value long-run benefits.

But I’m digressing again. Let’s look at one final passage from the ECB study. For those interested in additional research, there’s a section citing some of the other literature on liberalization and growth.

Post-Soviet countries moving towards a market economy have received considerable attention in this respect. Fischer et al. (1996) looked at 26 transition economies over the period 1989-1994. They conclude that structural reforms played a vital role in reviving economic growth. This finding for transition economies was echoed by de Melo et al. (1996), and more recently by Havrylyshyn and van Rooden (2003) and Eicher and Schreiber (2010). Focussing more broadly on countries implementing wide reform packages covering domestic finance, trade, and the capital account, Christiansen et al. (2013) find a strong impact of the former two on growth in middle-income countries. Moreover, they show how well-developed property rights are a precondition in order to reap fully the benefits of structural reforms. The importance of institutions in explaining cross-country heterogeneity is further remarked by Prati et al. (2013), who illustrate how the positive relationship between structural reforms and growth depends on a country’s constraints on the authority of the executive power. Distance from the technological frontier seems also to play a role.

If you’re not familiar with technological jargon, “distance from the technological frontier” is basically a way of saying that nations with lots of bad policy – and thus lots of misallocated and/or underutilized labor and capital – probably have more ability to enjoy fast growth. Sort of a version of convergence theory.

I also like the reference to “constraints on the authority of the executive power,” which presumably a recognition of the importance of the rule of law.

The bottom line is that the ECB study reconfirms that free enterprise is the answer if the goal is reducing poverty and increasing prosperity.

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