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Posts Tagged ‘Cost-Benefit’

This story from St. Louis, which my Cato colleague Walter Olson cites in a post about OSHA, is a typical example of bureaucratic stupidity and absurd “safety” laws. My favorite part is that the bureaucrat actually thought it would be reasonable to rent a lift for $750 per day just to attach a harness for somebody working only 11 feet off the ground. I’m sure the consumer would have been happy to swallow that additional cost. Reminds me of the classic Dave Barry column I cited in this post. Good to see that the Occupational Safety and Health Administration is just as incompetent today as it was decades ago.

In April, Heffernan and his nephew were working on a house in the 6400 block of January Avenue. Heffernan had finished rebuilding the chimney and his nephew was finishing up the job when Heffernan left to bid a job in West County. While he was looking at the prospective new job, he got a call from his nephew. There was some kind of a problem with an inspector. Heffernan returned to the site on January Avenue and found that an inspector for the Occupational Safety and Health Administration had shut down the site. In other words, she had told Heffernan’s nephew to stop working. Heffernan was taken back. …He said the inspector had written several citations. The first thing she told him was his scaffold wasn’t level. He said he pulled out his level and put it on the scaffold to show that the scaffold was level. He said the inspector then wrote down the brand name of the level, as if there might be something wrong with his equipment. …He said he offered to let the inspector walk on the scaffold, but she declined and said she was afraid of heights. The inspector told him his nephew needed a helmet and a safety harness. “We have safety harnesses. If the job requires it, we wear them,” Heffernan said. “But my nephew was only about 11 feet off the ground. I told the inspector I didn’t know what I was supposed to attach the harness to. She told me I could rent a lift and run the main pole above the chimney and have the safety line from that hooked to my nephew. A lift costs about $750 a day. It made no sense.” …Heffernan received notice in the mail that he had been cited for three violations. …Heff’s Tuckpointing is a successful operation, but it cannot afford $3,600 in fines. …So Heffernan requested a meeting to contest the violations. He said he spoke with an OSHA compliance officer who offered to drop the first violation and reduce the fines of the other two by 40 percent. Heffernan refused the offer. He has now requested a formal hearing.

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Almost every regulation presumably produces some benefit. The real issue is whether the benefits are significant and – even more important – whether they exceed the costs. Unfortunately, most regulations fail this common-sense test. A German magazine provides some good evidence, reporting that major companies from Germany are choosing to “de-list” from the New York Stock Exchange because of pointless regulation and costly litigation. This may not seem like much, but it is symbolic of a market that is increasingly unfriendly to business and entrepreneurship. Something to think about the next time you hear a politician wonder why more jobs aren’t being created.

With expensive accounting rules, an increased threat of litigation and hundreds of millions of dollars in fines for some firms, the once prestigious New York Stock Exchange and other American markets have become unattractive to Germany’s biggest companies. Daimler and Deutsche Telekom have fled this year and the few remaining are likely to follow. …regulations introduced by the United States government in the wake of the accounting scandals in the early 2000s brought extra oversight and added costs for foreign companies listed on the NYSE. Of the 11 firms on Germany’s DAX index of blue chip companies that were at one time listed on the NYSE, only four still remain: Deutsche Bank, Fresenius, SAP and Siemens. …The attractiveness of the American capital market to German firms began to erode with Sarbanes-Oxley. …From the start, companies voiced their displeasure with the high costs required to comply with the reforms. In one provision, companies were obligated to hire an independent auditor to monitor and report on the company’s financial reporting. …German firms cross-listed in the United States spent between €10 and €15 million annually on SEC compliance, a survey conducted by Stadtmann and his colleagues found. Most companies would not disclose the exact amount of money they spent on SEC compliance, but a Deutsche Telekom spokesperson told SPIEGEL ONLINE costs were in the “low double-digits” of millions of euros and another at Daimler said they did not exceed €10 million. When Telekom and Daimler announced their departures from the NYSE in April and May respectively, the main reason the companies said publicly was to reduce the complexity of financial reporting and administrative costs. On average, companies must add another five to 10 people to their payroll for SEC compliance alone, and a company may need a dozen workers for required executive compensation disclosures, says Miers. …The double-digit costs of SEC compliance, however, are paltry compared the hundreds of millions of dollars in liability — either through lawsuits or investigations and prosecutions — to which a US listing can expose foreign firms. …”What the SEC fully doesn’t grasp to today is that dealing with the US regulation system is a nightmare,” he says. “It’s another reason to run to the exit door.” Sarbanes-Oxley reforms also require a company executive to approve on all financial reports. “The most important thing (about Sarbanes-Oxley) is that the CEO and CFO sign for the financial statements,” says Stadtmann. “All it takes is one person in the company to make a mistake and (an executive) can go to jail.” …Stadtmann believes Siemens will pull out at the first opportunity.

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In his Chicago Tribune column, Steve Champman suggests that the TSA’s bureaucratic inefficiency does more harm than good, especially if we place any value of liberty.
Get rid of the no-fly list entirely. For that matter, get rid of the requirement that passengers provide government-approved identification just to go from one place to another. Americans have a constitutionally protected right, recognized by the Supreme Court, to travel freely. They also have the right not to be subject to unreasonable searches and other government intrusions. But in the blind pursuit of safety, we have swallowed restrictions on travel and infringements on privacy we would never tolerate elsewhere. The no-fly list is a punishment in search of a crime. As Richard Sobel, a director of the Cyber Privacy Project and a scholar at Northwestern University, points out, it inflicts a penalty without a trial or any other form of due process. The TSA doesn’t say what it takes to get on the list, and it doesn’t make it crystal clear how to get off. If it acts in an arbitrary or malicious way, the victim has little recourse except appealing to the agency’s better angels. But the whole idea behind the list doesn’t make much sense. Supposedly, we have hundreds or even thousands of U.S. residents who are too dangerous to be allowed on a plane — but safe enough to be trusted in all sorts of other places (subway trains, sports venues, shopping malls, skyscrapers) where someone carrying a bomb or a gun could wreak havoc. If those on the list are truly dangerous, the government should arrest and prosecute them, with their guilt decided by courts. If they are not dangerous enough to arrest, they should have the same freedom to travel as everyone else. We don’t prohibit all ex-convicts from flying. How can we justify barring people convicted of nothing? …Not so many years ago, Sobel notes, you could show up without a reservation or a ticket at Washington’s National Airport (now Reagan National Airport), walk onto the hourly shuttle to LaGuardia, take a seat and pay your fare in cash. No one knew who you were, and no one cared.

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In a column for the Washington Times, my Cato colleague Richard Rahn uses the Securities and Exchange Commission as an example of a government agency that fails to perform its core mission and then uses that failure to seek a bigger budget.

The budget for the Securities and Exchange Commission (SEC) grew tenfold (to more than $1 billion) in the past 25 years, but there is no evidence it has made us any safer from financial fraud. In fact, the opposite seems to be the case. The Madoff Ponzi scheme was the biggest financial fraud ever. Yet when knowledgeable people presented evidence of the Madoff scheme to the SEC, they were just blown off. Now the SEC wants a bigger budget as a reward for its failure, and the agency and members of Congress are demanding more power for the SEC. The United States has many laws against financial fraud, so that is not the problem. The problem may be – in addition to SEC incompetence – that the public assumes the SEC is looking out for it and consequently fails to do proper due diligence. In other words, the existence of the SEC may be increasing rather than diminishing risk.

The more profound issue, which Richard also addresses, is whether the very existence of bureaucracies such as the SEC results in more fraud and financial turmoil. Or, let’s flip the question: Is there any evidence that the SEC (or other bureaucracies) have made a positive difference? The answer isn’t necessarily no, but it sure would be nice to see any peer-reviewed evidence that the answer is yes.

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