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Archive for the ‘Regulation’ Category

I’m constantly surprised by what happens in the world of politics. I didn’t think Donald Trump had any chance of winning in 2016, yet I was obviously wrong.

I also thought Elizabeth Warren’s political career would be crippled after people found out she fraudulently claimed Indian ancestry to gain special preferences in hiring at law schools. Yet she’s now a serious candidate to be the Democratic nominee in 2020.

So, instead of political prognosticating, I’ll stick with policy analysis, which is what I do in this clip from an interview about Sen. Warren’s plan to give Washington more power over capital markets.

If you want specifics on her plan, this Politico story has lots of detail, and this CNN report also has plenty of information.

I’ve previously written about some of the provisions, such as Glass-Steagall and carried interest, so today I want to focus on the broader point from the interview.

Every single economic theory agrees that saving and investment play a key role in long-run growth and higher living standards. But who controls and directs how capital is allocated?

I prefer competitive markets, which reward decisions that make us more prosperous.

The socialists, by contrast, think government can directly control how capital is allocated. At the risk of understatement, that approach doesn’t have a good track record.

Elizabeth Warren prefers an indirect approach, which involves lots of regulation, taxation, red tape, and intervention. This cronyist approach also is misguided. Her corporatist agenda unavoidably will hinder the efficient (i.e., growth maximizing) allocation of capital and also reduce the overall level of saving and investment.

And that translates into less income for workers.

By the way, my disagreement with Sen. Warren’s policy agenda does not mean I have a pro-Wall Street perspective.

In the past, I opposed the TARP bailout and the Dodd-Frank regulatory expansion, both of which were supported by the big players on Wall Street.

And I currently oppose the Fed’s easy-money policy and also want to remove the tax code’s preference for debt, which again puts me on the other side from the big players on Wall Street.

The bottom line: I support economic liberty, not big business.

P.S. Here’s some political humor that will be very appropriate if there’s a Trump-Warren race next year.

P.P.S. Here’s some satire regarding Warren’s class warfare.

P.P.P.S. On a serious note, I strongly recommend Kevin Williamson’s analysis of Warren’s fake populism.

P.P.P.P.S. And I recommend my own work on Warren’s mistaken viewpoints on corporate taxation and corporate governance.

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When I assess President Trump’s economic policy, I generally give the highest grade to his tax policy.

But as I pointed out in this interview from last year, there’s also been some progress on regulatory policy, even if only in that the avalanche of red tape we were getting under Bush and Obama has abated.

But perhaps I need to be even more positive about the Trump Administration.

For instance, I shared a graph last year that showed a dramatic improvement (i.e., a reduction) in the pace of regulations under Trump.

For all intents and purposes, this means the private sector has had more “breathing room” to prosper. Which means more opportunity for jobs, growth, investment, and entrepreneurship.

To what extent can we quantify the benefits?

Writing for the Washington Post, Trump’s former regulatory czar said the administration has lowered the cost of red tape, which is a big change from what happened during the Obama years.

Over the past two years, federal agencies have reduced regulatory costs by $23 billion and eliminated hundreds of burdensome regulations, creating opportunities for economic growth and development. This represents a fundamental change in the direction of the administrative state, which, with few exceptions, has remained unchecked for decades. The Obama administration imposed more than $245 billion in regulatory costs on American businesses and families during its first two years. The benefits of deregulation are felt far and wide, from lower consumer prices to more jobs and, in the long run, improvements to quality of life from access to innovative products and services. …When reviewing regulations, we start with a simple question: What is the problem this regulation is trying to fix? Unless otherwise required by law, we move forward only when we can identify a serious problem or market failure that would be best addressed by federal regulation. These bipartisan principles were articulated by President Ronald Reagan and reaffirmed by President Bill Clinton, who recognized that “the private sector and private markets are the best engine for economic growth.”

But how does this translate into benefits for the American people?

Let’s look at some new research from the Council of Economic Advisers, which estimates the added growth and the impact of that growth on household income.

Before 2017, the regulatory norm was the perennial addition of new regulations.Between 2001 and 2016, the Federal government added an average of 53 economically significant regulations each year. During the Trump Administration, the average has been only 4… Even if no old regulations were removed, freezing costly regulation would allow real incomes to grow more than they did in the past, when regulations were perennially added… The amount of extra income from a regulatory freeze depends on (1) the length of time that the freeze lasts and (2) the average annual cost of the new regulations that would have been added along the previous growth path. …In other words, by the fifth year of a regulatory freeze, real incomes would be 0.8 percent (about $1,200 per household in the fifth year) above the previous growth path. …As shown by the red line in figure 3, removing costly regulations allows for even more growth than freezing them. As explained above, the effect, relative to a regulatory freeze, of removing 20 costly Federal regulations has been to increase real incomes by 1.3 percent. In total, this is 2.1 percent more income—about $3,100 per household per year—relative to the previous growth path.

Here’s the chart showing the benefits of both less regulation and deregulation.

The chart makes the change in growth seem dramatic, but the underlying assumptions aren’t overly aggressive.

What you’re seeing echoes my oft-made point that even modest improvements in growth lead to meaningful income gains over time.

P.S. My role isn’t to be pro-Trump or anti-Trump. Instead, I praise what’s good and criticize what’s bad. While Trump gets a good grade on taxes and an upgraded positive grade on regulation, don’t forget that he gets a bad grade on trade, a poor grade on spending, and a falling grade on monetary policy.

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I’m not a big fan of so-called anti-money laundering (AML) requirements.

And things are getting worse because these laws and rules increasingly are part of a Byzantine web of extraterritorial mandates – meaning nations trying to impose their laws on things that happen outside their borders.

Bruce Zagaris, a lawyer with special expertise in international legal issues, just wrote a study on this issue for the Center for Freedom and Prosperity Foundation.

Here’s how he frames the issue.

From the introduction of anti-money laundering laws in 1986, the United States government has led international efforts to prevent and prosecute money laundering…the U.S.’s unilateralism in the financial enforcement arena has alienated smaller jurisdictions and led to a substantial increase of costs for cross-border transactions. This article examines the trade-offs of the U.S.’s unilateral approach and argues for a rebalancing of the expanding financial enforcement regime. …under the “territorial” theory of extraterritorial jurisdiction, the U.S. has proactively asserted that it has the right to regulate criminal acts occurring outside the U.S. as long as they produce effects within the United States. …A criminal statute which Congress intends to have extraterritorial application may reach a defendant who has never even entered the U.S. if s/he participated in a conspiracy in which a co-conspirator’s activities occurred within the U.S.

In part, this is a problem of the United States trying to dictate policy in other nations.

But what goes around, comes around. As Bruce explains,the European Commission is trying to coerce American territories into changing their policies.

On February 13, 2019, the European Commission blacklisted 23 jurisdictions for their weak regulation of AML/CTF policy, increasing the level of oversight that European banks would have to overcome in conducting business with said jurisdictions. The list included four U.S. territories – Puerto Rico, Guam, American Samoa, and the Virgin Islands… The U.S. Treasury Department immediately and swiftly condemned the blacklist, noting that it had “significant concerns about the substance of the list and the flawed process by which it was developed.” The Treasury further stated that it did not expect U.S. financial firms to pay any heed to the blacklist.

All this cross-border bullying would be bad news even if the underlying laws were reasonable.

But Bruce concludes by explaining that this is not the case.

The result of over-aggressive application of extraterritorial jurisdiction by the U.S. and the EU for anti-money laundering and prosecution of financial institutions and officials, together with the use of informal organizations, such as FATF, to establish new AML/CFT standards, has led to increasing exclusion of countries (called de-risking) and other depositors, especially in small jurisdictions. It has also led to substantial increase of costs for cross-border transactions, as financial institutions must increase AML due diligence, including Know Your Customer, Customer Due Diligence, and the requirement to report suspicious transactions, as well as be subject to prosecution and regulatory enforcement actions. National laws and international standards should have a cost-effect requirement, especially as they continually impose new requirements on the private sector and impede normal commerce and privacy.

All this extraterritoriality has economic implications.

Richard Rahn, in a column for the Washington Times, opines about the CF&P report.

…rarely do government leaders fully think through the effects of their actions — extraterritorial application of law being a prime example. …Noted legal scholar Bruce Zagaris, who specializes in international financial crime, has written a new paper for the Center for Freedom and Prosperity Foundation… the United States has proactively asserted it “has the right to regulate criminal acts by non-U.S. citizens occurring outside the U.S., as long as they produce effects in the U.S.” As can easily be seen, such a definition is a never-ending slippery-slope, which is causing great conflicts among governments. As a result of the increasingly expansive view of U.S. courts to take cases and enforce judgments extraterritorially, courts and legislatures in other countries are also asserting extraterritorial enforcement authority.

Richard explains why this is bad news for those who care about economic growth.

…It is difficult enough for businesses and individuals in any one jurisdiction to understand all the laws and regulations that apply to them, but once governments begin to extend their laws and regulations to foreign jurisdictions, the global financial and legal system begins to melt down. Laws and regulations are often in conflict, so those who are engaged in multiple legal jurisdictions are increasingly at risk — which causes them to rationally de-risk by withdrawing investment from those entities least able to defend themselves. The result is slower world growth and job creation. …Clear global rules need to be established as to when extraterritorial application of laws is justified and not justified. Issues like dual criminality in tax, anti-money laundering and terrorist finance need to be addressed to bring some rationality and fairness to the system. And finally, procedures need to be established so that any jurisdiction can challenge a rule that does not meet a reasonable cost-benefit test.

I’ll close by making two points.

First, politicians and bureaucrats claim that laws and regulations against money laundering are designed to fight crime. Don’t believe them. Money laundering is mostly a problem in “onshore” nations. The real motive is to undermine financial privacy so governments can track – and tax – capital around the world.

Second, American politicians and bureaucrats are playing with fire. The more we try to bully other nations to enforce our bad tax laws, the greater the risk that other governments no longer will use the dollar as a reserve currency. That would be costly to the U.S. economy.

P.S. Senator Rand Paul is one of the few heroes on this issue.

P.P.S. Click here for a good summary article on why laws should be limited by borders.

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I’ve written repeatedly about how anti-money laundering (AML) laws are pointless, expensive, intrusive, discriminatory, and ineffective.

And they especially hurt poor people according to the World Bank.

That’s a miserable track record, even by government standards.

Now it’s time to share two personal stories to illustrate how AML laws work in practice.

Episode 1

Last decade, I wrote an article for a U.K.-based publication that focused on the insurance industry. I didn’t even realize they paid, so I was obviously happy when a check arrived in the mail.

The only catch was that the check was in British pounds and various charges and conversion fees would have consumed almost all the money if I tried to deposit the money in my local bank.

But that wasn’t too much of a problem since I had an upcoming trip to give a speech in England.

I figured I would swing by the British bank where the magazine had an account, show them my passport, and get my cash.

Oh, such youthful naiveté.

Here’s what actually happened. I stopped by a branch and was told that I couldn’t cash the check because anti-money laundering rules required that I have an address in the U.K. (my hotel didn’t count).

Needless to say, I was a bit irritated. Though I didn’t give up. In hopes that my experience was an anomaly (i.e., a particularly silly teller with a bureaucratic mindset), I stopped at another branch of the bank.

But that didn’t work. I got the same excuse about AML requirements.

And I was similarly thwarted at a third branch. By the way, the tellers sympathized with my plight, but they said the government was being very strict.

So I figured the way to get around this regulatory barrier would be to sign the check and have a friend deposit the money in her account and then give me some cash.

But her bank said this was also against the AML rules.

Fortunately, we got lucky when we went to another branch of her bank. A teller basically acknowledged that government’s rules made it impossible for me to get my money and she decided to engage in a much-appreciated act of civil disobedience.

This episode was annoying, but the silver lining is that I was in the U.K. to speak at an international economic crime conference in Cambridge on the topic of money laundering.

So I began my speech a day or two later by pseudo-confessing that I had just violated the nation’s silly and counterproductive laws on money laundering (I said “this may have happened to me” to give me some legal wiggle room since the audience was dominated by government officials, and I didn’t want to take any risks).

Episode 2

Today, I had my second incident with anti-money laundering laws.

I have a friend from the Caribbean who now operates a small Dubai-based business and he asked me if I could use Western Union to wire some money to an employee in the Dominican Republic.

I’ve done this for him a couple of times in the past (it is far cheaper to send money from the U.S.), so I stopped by a branch this morning, filled out the paperwork and sent the money.

Or, to be more accurate, I thought I sent the money.

As I was walking out, I got a text from Western Union saying that they put a hold on the transfer and that I needed to call a 1-800 number to answer some questions.

So I made the call and was told that they blocked the transfer because they were trying to “protect me” from potential consumer fraud.

It’s possible that this was a potential reason, but I immediately suspected that Western Union was actually trying to comply with the various inane and counter-productive AML laws and regulations imposed by Washington.

My suspicions were warranted. Even though I explained that I wasn’t a victim of fraud and answered 10 minutes of pointless questions (how long did I know my friend in Dubai? when did I last see him? what would the employee use the money for?), Western Union ultimately decided to reject the transfer.

Why? I assume because AML laws and regulations require companies to flag “unusual transactions,” and financial institutions would rather turn away business rather than risk getting some bureaucrat upset.

So my unblemished track record of being a successful “money launderer” came to an end.

But here’s the real bottom line.

Other than wasting about 30 minutes, I didn’t lose anything. But a small business owner will now have to pay $150 more for a transaction, and an employee from a poor country will have to wait longer to get money.

In some sense, even Western Union is a victim. The company lost the $20 fee for my transaction. But that’s probably trivial compared to the money that they pay for staffers who have the job of investigating whether various transfers satisfy Uncle Sam’s onerous rules.

Even my “successful” example of money laundering in Episode 1 was costly. I lost about two hours of my day.

And if I wasn’t for the nice teller who decided to break the law, I probably would have lost out on about $100. Perhaps not worst outcome in the world, but now think about how poor people suffer when they suffer similar losses thanks to these policies.

Remember, by the way, all these costs aren’t offset by any benefits. There is zero evidence that AML laws reduce underlying crime rates (which was the rationale for these laws being imposed in the first place!).

P.S. You may not think AML policy lends itself to humor, but here’s an amusing anecdote involving our former President.

P.P.S. Some folks on the left use AML arguments to justify their “war on cash,” and they’re pushing to restrict cash as an interim measure.

P.P.P.S. Leftist politicians frequently accuse so-called tax havens of being sanctuaries for dirty money, but those low-tax jurisdictions have much better track records than onshore nations.

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One of my annual traditions is to share the “best and worst news” for each year. I started in 2013, and continued in 2014, 2015, 2016, and 2017.

Looking back, 2016 clearly was the best year, though entirely because of things that happened overseas (the Brits vote for Brexit, Brazil adopting spending caps, abolition of the income tax in Antigua, and Switzerland’s rejection of a basic income).

What about this year?

Sadly, there’s not much to cheer about. Here’s the meager list.

Amendment 73 rejected in Colorado – As part of a plan to expand the burden of government (for the children!), the left wanted to gut the state’s flat tax and replace it with a so-called progressive tax. Fortunately, voters realized that giving politicians the power to tax the rich at higher rates would also mean giving them the power to tax everyone at higher rates. The proposal was defeated by 11 percentage points.

Deregulation – The Administration’s record is certainly far from perfect on regulatory issues. But big-picture measures of the regulatory burden indicate that the overall trend is positive. Easing dangerous Obama-era car mileage rules may be the best step that’s been taken.

Positive trends – I’m having to scrape the bottom of the barrel, but I suppose a drop in support for bad ideas has to count as good news, right? On that basis, I’m encouraged that the notion of universal government handouts became less popular in 2018. Likewise, I’m glad that there’s so much opposition to the carbon tax that some supporters of that new levy are willing to throw in the towel.

Now let’s look at the bad news.

Here are the worst developments of 2018.

Aggressive protectionism – It’s no secret that Trump is a protectionist, but he was mostly noise and bluster in 2017. Sadly, bad rhetoric became bad policy in 2018. And, just as many predicted, Trump’s trade taxes on American consumers are leading other nations to impose taxes on American exporters.

The Zimbabwe-ization of South Africa – My trip to South Africa was organized to help educate people about the danger of Zimbabwe-style land confiscation. Sadly, lawmakers in that country ignore me just as much as politicians in the United States ignore me. The government is moving forward with uncompensated land seizures, a policy that will lead to very grim results for all South Africans.

More government spending – Ever since the brief period of fiscal discipline that occurred when the Tea Party had some influence, the budget news has been bad. Trump is totally unserious about controlling the burden of government spending and even routinely rolls over for new increases on top of all the previously legislated increases.

The good news is that this bad news is not as bad as it was in 2015 when we got a bunch of bad policies, including resuscitation of the corrupt Export-Import Bank, another Supreme Court Obamacare farce, expanded IMF bailout authority, and busted spending caps.

I’ll close by sharing my most-read (or, to be technically accurate, most-clicked on) columns of 2018.

  1. In first place is my piece explaining why restricting the state and local tax deduction was an important victory.
  2. Second place is my column (and accompanying poll) asking which state will be the first to suffer a fiscal collapse.
  3. And the third place article is my analysis of how rich nations can become poor nations with bad policy.
For what it’s worth, my fourth-most read column in 2018 was a piece from 2015 about political and philosophical quizzes. And the fifth-most read article was some 2012 satire about using two cows to describe systems of government.

I guess those two pieces are oldies but goodies.

Now for the columns that didn’t generate many clicks.

  1. My worst-performing column was about how DC insiders manipulate so-called tax extenders to line their own pockets.
  2. Next on the least-popular list was a piece that looked at proposals to make taxpayers subsidize wages.
  3. And the next-to-next-to-last article explained how expanding the IMF would increase the risk of bailouts and bad policy.

I’m chagrined to admit that none of these columns reached 1,000 views.  Though I try to salve my ego by assuming that many (some? most?) of the 4,000-plus subscribers eagerly devoured those pieces.

The other noteworthy thing about 2018 is that I posted my 5,000th column back in July.

And I also shared data indicating that I’m relatively popular (or, to be more accurate, I get a lot of clicks) in places like the Cayman Islands, the Vatican, Monaco, Bermuda, Jersey, and Anguilla.

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I wrote back in 2011 about a bizarre plan in California to regulate babysitting.

You may be thinking that’s no big deal because California is…wellCalifornia.

But other governments also want to control private child care decisions. The latest example is from the District of Columbia, which is going after children’s play groups.

Lenore Skenazy explains the craziness in a column for Reason.

For 45 years, parents have brought their two-year-olds to the Lutheran Church of the Reformation as part of a cooperative play school endeavor. It’s a chance to socialize with other haggard moms and (presumably some) dads dealing with the terrible twos, and it’s volunteer run. …The problem—which isn’t actually a problem, unless you define it as such—is that because the play group has some rules and requirements, including the fact that parents must submit emergency contact forms, as well as tell the group when their kid is sick, the play group is not a play group but a “child development facility.” And child development facilities are subject to regulation and licensing by the government. As Lips points out, this actually creates an incentive for parent-run play groups to be less safe, because if they don’t have rules about emergency contact info, and how to evacuate and such, they are considered officially “informal” and can go on their merry, possibly slipshod, way… Take a step back and you see a group of people—toddlers and parents—enjoying themselves. They’re meeting, playing, and perfectly content. But another group is trying to butt in and end the fun—and the convenience.

And what is that “annoying group”? It’s the bureaucrats who issued the play group a “statement of deficiencies.”

The Wall Street Journal also opined on the issue.

The District of Columbia is literally targeting preschool play dates, claiming that parents need city approval before they can baby-sit their friends’ toddlers. Since the 1970s, parents have organized play dates at the Lutheran Church of the Reformation on East Capitol Street. They formed a nonprofit to pay for the rent, insurance, snacks and Play-Doh, and each family chips in about $200 a year to cover expenses. …The fun and games ended Sept. 7 when gumshoes from the D.C. Office of the State Superintendent of Education showed up. They claimed the Capitol Hill Cooperative Play School counts as a day care center and is operating unlawfully. If the bureaucrats get their way, the co-op would have to hire a director with a background in childhood education or development, apply and pay for a license, obtain permits and abide by all other day-care regulations.

And you won’t be surprised to learn that day-care regulations in DC are ridiculously expensive and misguided.

Anyhow, the WSJ also observes that the play school could evade red tape by being less-well organized. Heckuva set of incentives!

…the day-care police claim the Capitol Hill Cooperative Play School is “formal” because it has a website, draws participants from a hat to limit play-date sizes, and hosts scheduled get-togethers. In other words, the parents aren’t organized enough for the government’s satisfaction but are too organized to escape its harassment. …State Superintendent of Education Hanseul Kang is pushing for more government control over the play dates. She wants mandatory emergency drills, sign-out sheets, CPR and first-aid certification for parent volunteers, limits on the frequency and number of hours co-ops can meet, among other requirements. Nannying the nannies will make life tougher on parents—who have a greater interest than the D.C. government does in ensuring their kids are in good hands.

The final sentence of that excerpt is key.

Parents aren’t perfect, but they have a far greater stake in making right decisions than a bunch of busy-body bureaucrats looking to expand their power.

P.S. This is one of the reasons I support school choice (and also object to throwing more money into government schools). Parents are far more likely to do right for their kids than faraway self-interested bureaucrats.

P.P.S. The bureaucratic version of the keystone cops would include the play-group police in addition to the milk police and the bagpipe police.

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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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