Feeds:
Posts
Comments

Posts Tagged ‘Regulation’

Too much government can be hazardous to your health.

Instead, this is a column about the wonky issue of cost-benefit analysis. Specifically, we’re going to look at whether some regulations can be sufficiently onerous that the resulting economic damage actually produces needless death. This insight can even apply to regulations that are designed to save lives!

It’s quite common, when I first suggest this hypothesis, for people to think I’m nuts. But they begin to see the light when I share this example from an article I wrote 25 years ago for the Journal of Regulation and Social Cost.

People in wealthier nations, on average, live longer and better lives than residents of poorer nations. …government policy makers should consider the adverse effects on health and mortality of economic policies that impose costs on the productive sector of the economy. …it is quite possible that regulations designed to reduced mortality and morbidity, if they impose sufficiently high costs on the economy, actually can result in premature deaths and a less healthy population. Banning the use of motor vehicles, for instance, would save…lives lost annually in traffic accidents as well as preventing whatever number of premature deaths can be attributed to auto emissions. …It would be absurd, however, to…support the elimination of motor vehicles… The higher living standards made possible by fast and efficient transportation clearly must result in reduced mortality…rates over time for the general population.

I don’t know if they accept that society would be so much poorer that – on net – more people would die. But they definitely grasp that there’s a tradeoff.

And that’s a big victory. After all, people are much more likely to accept cost-benefit analysis when they understand that a decision can have both good and bad consequences.

I wrote about this topic back in 2012 because supporters of President Obama basically accused Mitt Romney of contributing to the death of a woman who lost her health insurance. So I looked at the academic data on the relationship between economic prosperity and lifespans to measure Obama’s body count.

Looking over much of this research, it appears that $14 million is a reasonable middle-ground estimate of how much foregone income is associated with a needless death. Now let’s do some simple math to get an estimate of the total number of preventable deaths caused by the economy’s sub-par performance during Obama’s reign. …divide $836.6 billion (our earlier estimate of foregone growth) by $14 million and we get an estimate that Obama’s policies have caused 59,757 deaths.

In that column, I warned that my back-of-the-envelope calculations were not very unreliable, and I also pointed out that it would be wrong to hold Obama personally accountable for any premature deaths.

I simply wanted people to understand that a weak economy has serious consequences (I also thought that Obama’s supporters were making a very dodgy attack on Romney, particularly since there were so many other reasons to criticize the GOP candidate).

But I’m beginning to digress. The purpose of today’s column is to further explain why we should be concerned about the economic damage of excessive government. But not just because of lost income and reduced prosperity. We also need to recognize that a weaker economy translates into needless deaths.

So let’s look at some additional research.

A study prepared for the Environmental Protection Agency provides a dispassionate analysis of this form of cost-benefit analysis. The report starts with a couple of specific examples.

The essence of risk-risk analysis, as it will be referred to here, is the assertion that regulations seeking risk-reduction benefits may also unintentionally increase risks, and by enough in some cases to outweigh the intended benefits. …One such situation currently of concern is the possibility that parents with young children might elect the more risky option of driving a long distance instead of the less risky alternative of flying if the latter alternative is rendered much more expensive by a requirement to purchase a seat on the aircraft for the child instead of sharing a seat with the parent. Similarly, if regulations governing small drinking system quality are sufficiently costly, individuals might elect to use private wells, which could pose even more risks to their health than the public water supply in the absence of the costly rules.

It then puts forth the sensible hypothesis about the economy-wide implications of onerous red tape.

A slightly different version of risk-risk analysis is predicated on the observation that people’s wealth and health status, as measured by mortality, morbidity, and other metrics, are positively correlated. Hence, those who bear a regulation’s compliance costs may also suffer a decline in their health status, and if the costs are large enough, these increased risks might be greater than the direct risk-reduction benefits of the regulation. Advocates of risk-risk analysis emphasize its use as an important commonsense screen… It does seem eminently reasonable not to promulgate costly rules that actually increase risks rather than decrease them.

The study looks at some of the past academic literature.

Lutter and Morrall (1994) attribute to Aaron Wildavsky, see for example Wildavsky (1980), the general proposition that government programs tend to reduce economic growth, thereby interfering with the primary mechanism by which human health has improved over time. According to Lutter and Morrall, the first to apply this principle quantitatively was Keeney (1990), who calculated that an additional death occurs for roughly each $3.14 million to $7.25 million of income lost (1980 dollars). OMB on several occasions has brought health-health analysis to bear both in its review of OSHA regulations related to worker safety, and in examining regulations of other agencies, such as EPA and FDA. For example, using a finding that $7.5 million of costs induces one additional statistical death, OMB argued that although OSHA’s proposed permissible exposure limits for a large number of workplace air contaminants would offer the benefit of preventing 8 to 13 deaths per year, the regulatory costs of $163 million per year would indirectly cause some 22 deaths annually. On that basis, OMB suspended its review of the proposed regulation and OSHA agreed to study the issue further….researchers continue to further refine this estimated relationship between income and mortality risk. For example, Viscusi (1994) reports various estimates of the lost income that induces an additional statistical death ranging from $1.9 million to $33.2 million, and indicates that his own research (in press at the time) places this number at about $30 million to $70 million.

Keep in mind that the Environmental Protection Agency is not a hotbed of free market radicals. So it’s noteworthy that at least some people at that bureaucracy realize that there should be some cost-benefit constraints on regulation.

The Institute of Energy Research also explored the issue.

…in practice we all make decisions that increase the risk of death, and in that sense, we trade off our own longevity for other goals. In this context, economists can estimate the implied value of a human life, judged by the choices of the individuals themselves. One surprising implication of this approach is that costly government regulations not only reduce Americans’ standard of living, but they also indirectly lead to more deaths. In a modern economy, wealth is health, and so an inefficient regulation doesn’t merely reduce GDP—it also reduces average lifespans. …By analyzing consumer behavior, economists can come up with rough estimates of the implied “value of a statistical life” (VSL) that this behavior exhibits.

Here’s an example.

…suppose a very stringent rule on the emission of soot from smokestacks theoretically would reduce deaths by 2,000 lives, but at an aggregate cost to the economy of $80 billion in forfeited GDP. With these numbers, even on its own terms, such a regulation would save lives at a price of $40 million per life. This is much more than typical Americans spend with their own money to reduce risks and prolong their lifespans, and thus it indicates that the proposed regulation is inefficient because it implicitly forces Americans to “spend” much more on reducing a particular risk, rather than on other goods and services that they value more.

And here’s the key takeaway.

…there is a well-established causal connection between wealth and health. Costly federal regulations make Americans poorer and thus indirectly lead to more deaths, because poorer people are less able to take advantage of private methods of prolonging their lives. If regulations are particularly inefficient, this indirect effect might overwhelm the direct benefit of the regulation, meaning that it not only makes Americans poorer, but actually kills them on net.

Here are some excerpts from a study published by the AEI-Brookings Joint Center for Regulatory Studies.

Many forms of regulation have grown dramatically in recent decades—especially in the areas of environment, health, and safety. Moreover, expenditures in those areas are likely to continue to grow faster than the rate of government spending. Yet, the economic impact of regulation receives much less scrutiny than direct, budgeted government spending. We believe that policymakers need to rectify that imbalance. …We should judge regulations by their individual benefits and costs… One study found that a reallocation of mandated expenditures toward those regulations with the highest payoff to society could save as many as 60,000 more lives per year at no additional cost. …the costs of compliance with regulations pose risks. Compliance typically reduces the amount of private resources that people have to spend on a wide range of activities, including health care, children’s education, and automobile safety. When people have fewer resources, they spend less to reduce risks. The resulting increase in risk offsets the direct reduction in risk attributable to a government action. Moreover, if that direct risk reduction is small and the regulation is very ineffective relative to its cost, then total risk could rise instead of fall.

The AEI-Brookings report also looks at some of the existing research.

Dozens of articles in economics and public health journals substantiate the claim that richer people live longer.10 Simple correlations of annual death rates and income suggest that a community whose income rises by about $10 million can expect about one fewer death. …Sunstein argued that courts should find that regulations that raise risks rather than lower them are arbitrary and capricious. … Lutter, Morrall, and Viscusi…estimated that an increase in income of about $15 million in a large U.S. population reduces mortality risk by one statistical death.

The authors look at regulations from the 1980s and 1990s and calculate which ones saved lives and which ones cost lives.

By the way, allow me to interject by pointing out some specific examples of regulations that are on the books and are causing needless deaths.

Now let’s close with a look at a very recent analysis from the Mercatus enter.

…many regulations result in unintended consequences that increase mortality risk in various ways. These adverse repercussions are often the result of regulatory impacts that compete with the intended goal of the regulation, or they are direct behavioral responses to regulation. As examples, fuel efficiency regulations can encourage automobile manufacturers to produce smaller cars that are more dangerous in an accident (Crandall and Graham 1989). Increased airport security measures after 9/11 made air travel more inconvenient, which has led to increases in estimated car accident deaths as individuals substituted driving for flying (Blalock, Kadiyali, and Simon 2007). …Finally, regulatory efforts reduce individual expenditures on health, both because risk reduction achieved through regulation is a substitute for private risk reduction and because the costs incurred by regulations reduce private health-related expenditures. It is this last item that has been the focus of health-health analysis (HHA).

The authors look at potential ways of conducting this type of cost-benefit analysis.

Despite a robust academic literature that spans decades, HHA has not become widely used by policymakers… HHA relies on an estimate of what is known as the cost-per-life-saved cutoff (the “cutoff”), which is a threshold cost-effectiveness level beyond which life-saving regulations will be counterproductive in that they can be expected to induce more fatalities than they prevent. …There are two competing ways of identifying the cutoff, a direct approach based on empirical observation and an indirect approach grounded in economic theory. …The indirect approach, which is our preferred method, relies on a theoretical model of the income-mortality relationship that is calibrated using data on the value of a statistical life (VSL) and the marginal propensity to spend on health (MPSH). …Employing the indirect approach has led to a cost-per-life-saved cutoff value closer to $85 million for the United States. We employ the indirect approach here as well, estimating a cutoff range from $75.4 million to $123.2 million (2015 dollars). A reasonable rule of thumb might be to assume that regulations costing more than $100 million per life saved will be counterproductive in that they can be expected to increase mortality risk on net.

Like the other studies, there’s a look at previous research.

Ralph Keeney developed the first formal model for estimating fatalities induced by income losses, finding that for every $7.25 million (1980 dollars) in costs, one statistical fatality will be induced (Keeney 1990). Chapman and Hariharan’s (1994) study, published in a special issue of the Journal of Risk and Uncertainty devoted to HHA, develops a similar empirical model but controls for initial health status as a means to account for reverse causality (i.e., poor health causing lower income). The study’s authors estimate the cutoff at $12.2 million (1990 dollars). Keeney provided an update of his model in 1997, estimating the cutoff at between $5 million and $14 million (1991 dollars), depending on the distribution of costs.

Including some foreign studies.

Elvik (1999) is a Norwegian study that estimated the cutoff in Norway at between 25 million and 317 million NOK (1995 prices), which translates to US$3.8 million to US$47.5 million (1995 US dollars). Gerdtham and Johannesson (2002) used longitudinal data (tracking individuals for between 10 and 17 years) for a sample of randomly selected Swedes. After controlling for initial health status, they estimated the cutoff at between US$6.8 million and US$9.8 million (1996 US dollars), depending on how costs are distributed. More recently, Ashe et al. (2012) examined fire prevention regulations in Australia. These authors estimate the cutoff at between AU$20 million and AU$50 million (2010 Australian dollars), again depending on how costs are distributed across the population.

The Mercatus study then contemplates the indirect approach, which utilizes the “value of a statistical life” approach, or VSL.

…the empirical evidence from the United States and other countries, as well as the evidence from labor market estimates of the VSL and revealed preference studies, indicate a positive income elasticity of the VSL and a greater income elasticity at lower income levels. This economic mechanism is also consistent with the common conjecture that the mortality effects of regulatory expenditures will be greatest for the poorest members of society. …When a binding government regulation affects risk levels, there will be two effects. First, because health expenditures and job safety levels are substitutes, regulation will decrease the private incentive to invest in health. Second, because the individual bears regulatory costs, there will be decreased investment in health. Whether a regulation reduces risks on balance depends on the sum of three components: the direct effect of the regulation on safety, the indirect effect on risk through a substitution toward safety achieved through regulation and away from personal health expenditures, and the indirect effect on risk as personal health expenditures fall from reduced income as a result of compliance with regulations.

And the authors come up with a range.

According to our estimates, the cost-per-life-saved cutoff is in the range of $75.4 million to $123.2 million (2015 dollars). Any regulation with a cost-per-life-saved that exceeds this range can be expected to increase mortality risk on net. There is a great deal of uncertainty surrounding a number of factors that produce this estimate, however, including the fraction of income spent on risk reduction, the income elasticity of risk-reducing expenditures, and the VSL.

I don’t have the competence to judge which approach is best. The part of me that is worried about excessive red tape hopes the direct approach is more accurate since a lower “cutoff” means we can argue that a greater share of regulations fail to meet the threshold.

On the other hand, the part of me that is resigned to ever-expanding amounts of red tape hopes the indirect approach generates more accurate numbers since a higher “cutoff” means that the net cost of regulation is not as onerous.

Regardless, my only point is that there should be some form of cost-benefit analysis before bureaucrats churn out new rules, and the impact of red tape on overall economic performance should be part of the equation.

P.S. Speaking of economic impact, a study from the European Central Bank had some very sobering data.

Read Full Post »

Experts in the field of political marketing periodically tell me that you need to have sympathetic victims when trying to change policy.

That’s probably good advice. When people have real-world examples – especially ones they can relate to – that presumably helps them understand the need for a reform.

I have to admit, however, that my approach is generally more wonky. Whether I’m meeting with a policymaker, giving a speech, or writing a column, I view my role as trying to help people understand one or more basic economic concepts (the importance of lower marginal tax rates, for example).

I think there’s value in my approach (if people grasp an underlying principle, that can impact their understanding of both current and future policy fights). But there’s no reason why I shouldn’t do both.

So I’m going to begin today’s column about occupational licensing (when state governments impose restrictions and regulations that limit who can work in a particular field) with a sympathy-eliciting example that hopefully will resonate with readers.

Consider what happened in New York City recently now that bureaucrats have decided that people couldn’t be dog sitters without going through all the red tape to become a licensed kennel.

Pet lovers are barking mad over a little-known city rule that makes dog-sitting illegal in New York. Health Department rules ban anyone from taking money to care for an animal outside a licensed kennel — and the department has warned a popular pet-sitting app that its users are breaking the law. “The laws are antiquated,” said Chad Bacon, 29, a dog sitter in Greenpoint, Brooklyn, with the app Rover. “If you’re qualified and able to provide a service, I don’t think you should be penalized.” Bacon, a former zookeeper and wildlife researcher, signed up for the app to help make ends meet while he was between jobs, but did enough business that he now makes his living from it full-time.

Now that we’ve identified Mr. Bacon as our sympathetic example, let’s look at the broader issue of the government creating barriers to employment and entrepreneurship.

The health code bans boarding, feeding and grooming animals for a fee without a kennel license — and says those licenses can’t be issued for private homes. …at least two apartment residents were slapped with violations in November and December for caring for pets without a permit. Fines start at $1,000. “If you’ve got a 14-year-old getting paid to feed your cats, that’s against the law right now,” said Rover’s general counsel John Lapham. “Most places right now continue to make it easier to watch children than animals, and that doesn’t make any sense.”

By the way, that’s not an argument for regulating babysitting (the kind of nonsense you might find in California). Instead, it’s a reason why state governments shouldn’t be going overboard with licensing rules.

The Institute for Justice just released a study on licensing rules for jobs that generally employ lower-skilled individuals.

Occupational licensing is, put simply, government permission to work in a particular field. In the 1950s, about one in 20 American workers needed an occupational license before they could work in the occupation of their choice. Today, that figure stands at about one in four. Securing an occupational license may require education or experience, exams, fees, and more, and working without one can mean fines or even jail time. …Policymakers, scholars and opinion leaders left, right and center are increasingly recognizing that licensing comes with high costs—fewer job opportunities and steeper prices—and does little to improve quality or protect consumers. …Most of the 102 occupations are practiced in at least one state without state licensing and apparently without widespread harm. Only 23 of these occupations are licensed by 40 states or more.

The last section of that excerpt is critically important. Special interests argue that occupational licensing somehow protects people, yet we have real-world examples for all 102 professions of states that have zero licensing restrictions and we don’t have examples of people dying or being harmed because of unregulated florists or rogue cosmetologists.

And shouldn’t there be some evidence of societal benefit before government restricts economic freedom (the same argument I’ve used when analyzing OSHA)?

As you might imagine, some states are worse than others. Here’s a map showing the degree to which state politicians conspire with special interests to create cartels in various fields. Louisiana and Washington are the worst (based on number of licensed professions) and Wyoming and Vermont (yes, that Vermont) are the least onerous.

Having written about a horrible example of occupational licensing in DC, I’m surprised that the District of Columbia isn’t at the bottom of the rankings. Or Alabama.

Though I’m not surprised to see that Oregon is green.

Here’s the report’s accompany video.

If you liked that video, you can click here for another video on occupational licensing.

A column by Conor Friedersdorf in the Atlantic highlights some of the findings in the IJ study.

…in Connecticut, a home-entertainment installer is required to obtain a license from the state before serving customers. It costs applicants $185. To qualify, they must have a 12th-grade education, complete a test, and accumulate one year of apprenticeship experience in the field. A typical aspirant can expect the licensing process to delay them 575 days. …Occupational-licensing obstacles are much more common than they once were. “In the 1950s, about one in 20 American workers needed an occupational license before they could work in the occupation of their choice,” the report states. “Today, that figure stands at about one in four.”

And he points out that consumers and workers (those outside the cartel) are the victims.

These requirements…are at their most pernicious when they are both needless and most burdensome to the middle class, the working class, and recent immigrants to a society. The IJ report focuses its attention on these cases, surveying 102 lower-income occupations across all 50 states and the District of Columbia. It concludes that “most of the 102 occupations are practiced in at least one state without state licensing and apparently without widespread harm.” In other words, dropping many of those requirements likely wouldn’t do any harm. …Too often, occupational-licensing laws are less about protecting workers or consumers as a class than they are about protecting the interests of incumbents. Want to compete with me? Good luck, now that I’ve lobbied for a law that requires you to shell out cash and work toward a certificate before you can begin.

The Wall Street Journal also opined about IJ’s new report.

More than ever, the government requires Americans to get permission to earn a living. In the 1950s one in 20 workers needed a license to work; now about one in four do. The rules hurt the working poor in particular, but everyone suffers in states with the most licensing requirements… Hawaii’s prerequisites are the most grueling while Louisiana and Washington regulate the most professions, with both states requiring a license for 77 lower-income fields. …California has the most dysfunctional regime. Across professions, it has established “a nearly impenetrable thicket of bureaucracy” where “no one could” provide a “list of all the licensed occupations,” as one state oversight agency admitted last year. …The cost and time to obtain a license is no accident, as professional guild members sit on state licensing boards and reinforce the racket. They want to limit competition to keep prices high. …Stiff licensing requirements are often prohibitive for America’s working poor, keeping them trapped in low-wage, low-skill jobs. …Nationwide, licensing drives up prices by as much as $203 billion annually. The requirements also hurt consumers by restricting access to goods and services.

The WSJ editorial points out that both political parties are guilty of supporting these insidious cartels.

Here’s an example, from Reason, of Democrats behaving badly.

California Democrats prattle endlessly about helping the working poor, but their latest vote against a bill that would tangibly help financially struggling people shows that Democratic leaders are more interested in serving their real constituencies: state bureaucracies, unions and other interest groups that want to keep out the competition. …California has the nation’s highest poverty rates, according to a new U.S. Census Bureau standard that includes cost-of-living factors. A good starting place to address that problem is to chip away at unnecessary barriers to work. Trade groups, however, recognize that the best way to inflate their members’ pay is to raise the cost of entry for others—and the more fields regulated this way, the more it keeps poor people in the welfare lines. …Such concerns prompted even the Democratic Obama administration to call for far-reaching licensing reforms, yet California’s Democrats don’t even seem to understand the point of such efforts. Or maybe they just won’t let themselves understand the argument, given their political alliances.

And Reason also identifies a Republican behaving badly.

Otter is bending to the wishes of other special interests. In vetoing the licensing reform bill—a bill that would have done little more than reduce the number of hours of training before someone could be licensed to cut hair or apply makeup from 800 to 600—Otter said objections voiced by the state Board of Cosmetology and the State Board of Barber Examiners should overrule the majority of the state legislature. …”For years, Butch Otter has given great speeches about the need for a free economy and limited, constitutionally-based government,” said Wayne Hoffman, president of the Idaho Freedom Foundation, a free market think tank, in a statement about the two vetoes. “Yet once again, Gov. Otter has rejected sensible, conservative, bipartisan liberty-based legislation that would have put Idaho entrepreneurs back to work and would have protected constitutional rights of Idahoans.”

Let’s close with an image that is both amusing and sad. Amusing because it mocks government and sad because it’s true. It’s basically the cartoon version of something I shared last year.

P.S. Returning to the issue of political marketing, I actually do use real-world examples for some purposes. My Bureaucrat Hall of Fame is nothing but horror stories about specific government employees pillaging taxpayers. and my collection of honest leftists also is based on specific stories of statists inadvertently revealing something important.

P.P.S. Business permits at the local level also are akin to occupational licenses. Governments are making people pay to become entrepreneurs. Which oftentimes translates into painful lessons for young people about government greed.

Read Full Post »

Back in 2013, I did an assessment of economic policy changes that occurred during the Clinton Administration.

The bottom line was that the overall burden of government declined by a semi-significant amount. Which presumably helps to explain why the economy enjoyed good growth and job creation in the 1990s, especially in the last half of the decade when most of the pro-growth reforms were enacted.

The chart I prepared has been very helpful when speaking to audiences about what actually happened during the Clinton years, so I decided to do the same thing for other presidents.

A week ago, I put together my summary of economic policy changes during the Nixon years. At the risk of understatement, it was a very grim era for free markets.

A few days ago, I followed up with a look at overall economic policy during the Reagan years. That was a much better era, at least for those of us who favor economic liberty over statism.

Now it’s time to look at the record of George W. Bush. It’s not a pretty picture.

I think the TARP bailout was the low point of the Bush years, though he also deserves criticism for big spending hikes (especially the rapid rise of domestic spending), additional red tape, special-interest trade taxes, and more centralization of education.

On the plus side, there was a good tax cut in 2003 (the 2001 version was mostly Keynesian and thus didn’t help growth), as well as some targeted trade liberalization. Unfortunately, those good reforms were swamped by bad policy.

As has been the case for other presidents, my calculations are based solely on policy changes. Presidents don’t get credit or blame for policies they endorsed or opposed. So when fans of President Bush tell me he was better on policy than his record indicates, I shrug my shoulders (just like I don’t particularly care when Republicans on Capitol Hill tell me that Clinton’s good record was because of the post-1994 GOP Congress).

I simply want to show where policy improved and where it deteriorated when various presidents were in office. Other people can argue about the degree to which those presidents deserve credit or blame.

In the case of Bush, for what it’s worth, I think he does deserve blame. None of the bad laws I listed were enacted over his veto.

Incidentally, I was torn by how to handle monetary policy. The artificially low interest rates of the mid-2000s contributed to the housing bubble and subsequent financial meltdown. Should I have blamed Bush for that because of his Federal Reserve appointments?

On a related note, the affordable lending mandates of Fannie Mae and Freddie Mac were made more onerous during the Bush years, thus exacerbating perverse incentives in the financial sector to make unwise loans. Was that Bush’s fault, or were those regulations unavoidable because of legislation that was enacted before Bush became President?

Ultimately, I decided to omit any reference to the Fed, as well as Fannie and Freddie. But I double-weighted TARP, both because it was awful economic policy and because that was a way of partially dinging Bush for his acquiescence to bad monetary and housing policy.

If there’s a lesson to learn from this analysis of Bush policy, it is that party labels don’t necessarily have any meaning. The economy suffers just as much if a Republican expands the burden of government as it does when the same thing happens under a Democrat.

P.S. I haven’t decided whether to replicate this exercise for pre-World War II presidents. If I do, Calvin Coolidge and Grover Cleveland presumably would look very good.

Read Full Post »

When writing about the Obamacare and its birth-control mandate, I’ve made a handful of observations.

President Trump recently announced that his Administration would relax the mandate. I think that is good news for the above reasons.

Critics are very upset. But rather than argue about the desirability of insurance coverage and the wisdom of Washington mandates, they’re actually claiming that the White House has launched some sort of war on birth control. I’m not joking.

Jeff Jacoby of the Boston Globe analyzes the issue. He starts by observing that nobody is proposing to ban birth control

…the Supreme Court ruled, in Griswold v. Connecticut, that government may not ban anyone from using contraceptives. …That freedom is a matter of settled law, and hasn’t been challenged in the slightest by President Trump or his administration.

He then points out that some folks on the left have gone ballistic.

Hillary Clinton accused Trump of showing “blatant disregard for medicine, science, & every woman’s right to make her own health decisions.” Elizabeth Warren, denouncing “this attack on basic health care,” claimed that the GOP’s top priority is to deprive women of birth control.

Their arguments, however, are utter nonsense. If Person A no longer has to subsidize Person B, that doesn’t mean Person B can’t buy things. It simply means there won’t be third-party payer.

Jacoby agrees.

News flash to Warren, et al.: There is no attack on health care, and no in America is being deprived of birth control. You are losing nothing but the power to force nuns to pay for your oral contraceptives. …As a matter of economics and public policy, the Affordable Care Act mandate that birth control be supplied for free is absurd. …Especially since birth control will remain as available and affordable as ever.

Indeed, the Trump Administration was actually far too timid. There should be no birth-control mandate for any insurance plan. It should be something negotiated by employers and employees.

…the new White House rule leaves the birth-control mandate in place. Trump’s “tweak won’t affect 99.9 percent of women,” observes the Wall Street Journal, “and that number could probably have a few more 9s at the end.” Washington will continue to compel virtually every employer and insurer in America to supply birth control to any woman who wants one at no out-of-pocket cost.

Jacoby closes his column with some very sensible observations and recommendations.

…there is no legitimate rationale for such a mandate. Americans don’t expect to get aspirin, bandages, or cold medicine — or condoms — for free; by what logic should birth control pills or diaphragms be handed over at no cost? …By and large, birth control is inexpensive; as little as $20 a month without insurance. …access to birth control, as the Centers for Disease Control reported in 2010, was virtually universal before Obamacare. The White House is right to end the burden on religious objectors. But it is the birth-control mandate itself that should be scrapped. Contraception is legal, cheap, and available everywhere. Why are the feds meddling where they aren’t needed?

The last sentence is key. The federal government (heck, no level of government) should be involved with birth control. They shouldn’t ban it. And they shouldn’t mandate it, either.

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

For what it’s worth, I think this cartoon is the best summary of the issue.

P.P.S. Predictably, the United Nations supports a “right” to taxpayer-financed birth control.

Read Full Post »

I’m lucky. When I think of how government regulation impacts my life, my list contains minor nuisances such as inferior light bulbs, substandard toiletssecond-rate dishwashers, weak-flow showerheads, and inadequate washing machines.

For my friend Matt Kibbe, by contrast, red tape could have been deadly. Literally.

Watch this powerful video and listen to him explain how he survived cancer. That’s the good part. The bad part is that he likely would have died if he got cancer during the 12 years it took before the Food and Drug Administration finally approved a life-saving drug.

Matt’s takeaway is that terminally ill patients should have the “right to try” drugs that aren’t approved by the FDA.

I wrote about this issue last year and shared two other videos on the topic. Today, I want to approach the issue from another direction by pointing out that “right to try” laws shouldn’t be controversial because tens of millions of patients already take drugs for purposes that aren’t approved by the FDA.

The only catch is that they can do this only with drugs that have been approved for some other purpose.

This is not a recent revelation. Daniel Klein wrote about this issue 17 years ago for the Foundation for Economic Education.

Once a drug is approved for any use, it may be used in any way doctors and users see fit. Approved drugs are often found to have other benefits, and doctors learn to prescribe those drugs for such “off-label” uses. Although off-label uses have absolutely no standing with or approval by the FDA, they are perfectly legal. Do patients and doctors shrink in fear from uses not certified by the FDA? Absolutely not! Off-label prescribing is pervasive and vital to the health of millions of Americans. As economist Alexander Tabarrok says, “most hospital patients are given drugs which are not FDA-approved for the prescribed use.” Off-label prescriptions are especially common for AIDS, cancer, and pediatric patients, but are standard practice throughout medicine. Doctors learn of off-label uses from extensive medical research, testing, newsletters, conferences, seminars, Internet sources, and trusted colleagues. Scientists and doctors, working through professional associations and organizations, make official determinations of “best practice” and certify off-label uses in standard reference compendia such as AMA Drug Evaluations, American Hospital Formulary Service Drug Information, and US Pharmacopoeia Drug Information—all without FDA meddling or restriction.

Think about what this means. Countless Americans are taking medications and benefiting from those drugs, yet the FDA bureaucracy has never given its stamp of approval.

Which raises an interesting issue.

No one would be foolish enough to suggest that the FDA prohibit off-label prescribing. But…there is a logical inconsistency in allowing off-label prescribing and requiring proof of efficacy for the drug’s initial use. Logical consistency would require that one either oppose off-label uses and favor initial proof of efficacy, or favor off-label prescribing and oppose initial proof-of-efficacy.

By the way, just in case you think an old FEE article somehow isn’t enough proof, check out some of the research that is cited on the Wikipedia page for off-label use as of this morning.

Off-label use is very common. …Up to one-fifth of all drugs are prescribed off-label and amongst psychiatric drugs, off-label use rises to 31%. …A 2009 study found that 62% of U.S. pediatric office visits from 2001-2004 included off-label prescribing, with younger children having a higher chance of receiving off-label prescriptions. Specialist physicians also prescribed off-label more frequently than general pediatricians. …Some drugs are used more frequently off-label than for their original, approved indications. A 1991 study by the U.S. General Accounting Office found that one-third of all drug administrations to cancer patients were off-label, and more than half of cancer patients received at least one drug for an off-label indication. A 1997 survey of 200 cancer physicians by the American Enterprise Institute and the American Cancer Society found that 60% of them prescribed drugs off-label.

The bottom line is that we have rampant and pervasive drug use that is outside the FDA’s control. Yet that isn’t leading to horrible consequences. Or even bad consequences.

Instead, it’s teaching us that risk-averse bureaucrats are putting millions of lives at risk by delaying the approval of new drugs. Not just at risk. Don’t forget the research I cited last year estimating that deadly impact of FDA regulation.

I’ll close by noting that the FDA also does other bone-headed things. I’ve previously written about the bureaucracy’s war against unpasteurized milk (including military-style raids on dairies!). I suppose I also should mention that FDA red tape is responsible for the fact that Americans have a much more limited selection of condoms than Europeans.

P.S. While the regulatory burden in the United States is stifling and there are some really inane examples of silly rules such as the ones cited above, as well as the FDA’s war on vaping, I think Greece and Japan win the record if you want to identify the most absurd specific examples of red tape.

P.P.S. Here’s what would happen if Noah tried to comply with today’s level of red tape when building an ark. And here’s some clever anti-libertarian humor about deregulated breakfast cereal.

Read Full Post »

I like France, in part because it’s a nice place to visit, but also because I’ve been able to use the country as an example of bad public policy.

It’s hard to pick which policy does the most damage. As a fiscal policy wonk, I’m tempted to blame France’s woes on high taxes and wasteful spending.

However, there’s a strong case that labor law is the worst feature of economic policy. France has all sorts of rules that “protect” employees, but the net effect is that workers suffer because these laws discourage entrepreneurs from creating jobs.

And even though I get a lot of mileage out of making France a bad example, I actually hope that the nation’s new government will move policy in the right direction. Indeed, this is why I wanted France’s current President, Emmanuel Macron, to get elected.

Yes, he used to be part of the previous socialist government that sought to make things worse rather than better. But I figured he was most likely to enact some pro-market reforms. And it appears my hopes may be realized, at least with regard to labor policy.

The BBC reports on why Macron wants reform, what he wants to do, and what likely will happen.

President Emmanuel Macron’s government has begun its drive to overhaul France’s rigid labour laws, vowing to “free up the energy of the workforce”. …France has an unemployment rate of 9.5%, double that of the other big European economies and Mr Macron has vowed to cut it to 7% by 2022.

Here’s what he is proposing.

The reforms aim to make it easier for bosses to hire and fire. …France’s labour code is some 3,000 pages long and is seen by many as a straitjacket for business. Among the biggest reforms, individual firms are to be offered more flexibility in negotiating wages and conditions. …If a business reached a deal with the majority of its workforce on working hours and pay that agreement would trump any agreement in the wider industry. …The government wants to facilitate deals at local level by encouraging companies with fewer than 50 employees to set up workers’ committees that can bypass unions. One of the thorniest problems for the government is how to make it easier for companies to dismiss staff. There is to be a cap on damages that can be awarded to workers for unfair dismissal. However, after months of consultations, ministers have agreed to increase the cap from their original proposal. The cap would be limited to three months’ pay for two years of work and 20 months’ pay for 30 years. Until now the minimum pay-out for two years’ employment was six months of salary.

And he’ll probably get what he wants, both because some of the bigger unions have decided to play ball and also because he’s been granted authority to unilaterally make changes.

Protests against the plan are expected next month, but two of the biggest unions say they will not take part. Jean-Claude Mailly, the leader of Force Ouvrière (FO), said that while the reforms were far from perfect, the government had carried out “real consultation” and FO would play no role in demonstrations on 12 September. The union with the biggest presence in the private sector, CFDT, said its members would not take to the streets either, although it was ultimately disappointed that its position was not reflected in the final text. …Mr Macron has already won parliamentary backing to push these reforms through by decree. An opinion poll on Wednesday showed that nine out of 10 French people agreed that their country’s labour code had to be reformed.

Dalibor Rohac of the American Enterprise Institute has some analysis of what’s been proposed.

…the National Assembly and Senate…authorized France’s government to amend the country’s byzantine labor code by executive orders… Prime Minister Édouard Philippe unveiled the details of the reform, divided into five decrees, on Thursday. So what exactly are they seeking to achieve? Perhaps most important is the introduction of caps on redundancy pay to those whose employment has been terminated without a just cause…stricter caps are introduced for small companies, for which large redundancy payments can be ruinous. It will also become easier for multinational companies to justify termination of employment on economic grounds. …it will be possible to downsize or close down French operations without having to subsidize them first from profits made overseas. …Companies with fewer than 20 employees will not have to rely on labor union representatives for their collective contracts. Subsidiaries of companies will have more freedom to offer temporary work contracts.

Dalibor is not overly impressed by this collection of changes.

…measured by the standards of what France needs, it is not much… The extent to which the reform elicits a strong reaction reflects purely the overregulated status quo, rather than the revolutionary nature of the proposed measures. …the government is doing something right, however timid.

The Wall Street Journal‘s editorial is a bit more optimistic.

French voters this spring gave themselves their best shot in a generation at reviving their moribund economy, and President Emmanuel Macron is now taking advantage of the opportunity. …the labor-market reforms he unveiled Thursday could remake the eurozone’s second-largest economy. …Mr. Macron will limit the severance payouts courts can mandate for fired workers. He will free small companies with nonunion workers from the straitjacket of national collective-bargaining agreements covering working hours, overtime pay, vacation benefits and the like. Companies will have more scope to negotiate labor deals at the firm level rather than being forced to abide by national agreements.

By reducing the potential cost of employing workers, the reforms will lead to more employment.

The severance overhaul will go a long way toward inducing businesses to hire more workers. Small- and medium-size French companies report pervasive fear of expanding their workforce lest they be stuck with problem employees or face ruinous expenses to lay off workers if economic conditions change.

And France desperately needs reform.

French unemployment is still 9.5% even at its five-year low. That’s double the rate in Germany, and French unemployment has become a social crisis, especially for young people frozen out of the job market. The jobless rate for French between age 15 and 24 is 25%—for those who haven’t moved to London or the U.S.

Though the WSJ does recognize that the reforms are merely a modest step in the right direction.

France isn’t becoming a laissez-faire paradise. Even if Mr. Macron’s labor overhaul takes effect, the French workplace will still be considerably more regulated than America’s.

Let’s close with some excerpts from a story in the New York Times.

…the government announced sweeping changes on Thursday with the potential to radically shift the balance of power from workers to employers. …an invigorated France is considered critical to the survival of a European Union that is finally showing signs of revival after a lost decade. …Economists in France and across Europe expressed optimism about the new law… France has stagnated for years under chronically elevated unemployment and slow growth. The country’s strong worker protections and expensive benefits have been blamed by some for being at least partly at the root of the problem.

Wow, it must be bad if even the NYT is acknowledging that government is causing the economy to stutter.

Amazingly, the story even admits that economic liberalization is the right way to get more job creation.

Germany crossed that Rubicon in the 1990s under Chancellor Gerhard Schröder. …Roughly 15 years ago, “France and Germany had economies that were more or less comparable, and that ceased to be the case because the Germans wisely did micro-reforms and the French did not,” said Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations. So the French ended up with “high unemployment, which fed populism, and getting out of that trap is vital

For what it’s worth, I think the reference to German reforms is key.

Under a left-leaning government, Germany liberalized labor markets. The so-called Hartz reforms were a huge success, slashing the jobless rate by more than 50 percent.

I don’t know whether Macron’s reforms are as bold as what happened in Germany, but any movement in the right direction will create more employment.

P.S. If Macron wants to save France, he better deal with the tax system as well. The problems are nicely captured by two videos, one about how young people are fleeing the nation and another showing a Hollywood celebrity reacting when told about the tax burden.

P.P.S. Whenever I give a speech in France, I ask the audience whether their government (which consumes for the half of economic output) gives them more and better services than the Swiss government (which consumes about one-third of economic output). The answer is always an overwhelmingly no.

P.P.P.S. I (sort of) agreed with Paul Krugman in 2013 that there is a plot against France.

P.P.P.P.S. Last but not least, the French people occasionally do support good policy (and they’re willing to escape to America if things don’t get better).

Read Full Post »

Trump has been President for more than 200 days and those of us who want more economic liberty don’t have many reasons to be happy.

Obamacare hasn’t been repealed, the tax code hasn’t been reformed, and wasteful spending hasn’t been cut.

The only glimmer of hope is that Trump has eased up on the regulatory burden. More should be happening, of course, but we are seeing some small steps in the right direction.

Let’s share one positive development.

Professor Tony Lima of California State University opined back in January in the Wall Street Journal that Trump could unilaterally boost growth by ending a reprehensible policy known as “Operation Choke Point.”

…the Trump administration could shut down Operation Choke Point. This program, enforced by the Federal Deposit Insurance Corp., targets “risky” banking customers and pressures banks to deny them credit. It’s unnecessary: If these industries are really risky, banks would not want their business. The real purpose of Operation Choke Point is to target industries that are out of favor…, among them: Coin dealers, money-transfer networks and payday lenders. Sales of ammunition and firearms (Second Amendment, anyone?) and fireworks (legal in some states). …Other legal goods and services such as surveillance equipment, telemarketing, tobacco and dating services. …Denying credit hampers an industry’s growth. Eliminating Operation Choke Point would encourage growth. It costs nothing. And someday it may reduce enforcement spending.

And Professor Charles Calomiris from Columbia University echoed those views a few weeks later.

Imagine you have a thriving business and one morning you get a call from your banker explaining that he can no longer service your accounts. …That’s what happened to many business owners as the result of an Obama administration policy called Operation Choke Point. In 2011 the Federal Deposit Insurance Corp. warned banks of heightened regulatory risks from doing business with certain merchants. A total of 30 undesirable merchant categories were affected…the FDIC explained that banks with such clients were putting themselves at risk of “unsatisfactory Community Reinvestment Act ratings, compliance rating downgrades, restitution to consumers, and the pursuit of civil money penalties.” Other FDIC regulatory guidelines pointed to difficulties banks with high “reputation risk” could have receiving approval for acquisitions.

Keep in mind, by the way, that Congress didn’t pass a law mandating discrimination against and harassment of these merchants.

The Washington bureaucracy, along with ideologues in the Obama Administration, simply decided to impose an onerous new policy.

In effect, the paper pushers were telling financial institutions “nice business, shame if anything happened to it.”

But at least when mobsters engage in that kind of a shakedown, there’s no illusion about what’s happening.

Professor Calomiris explained that this regulatory initiative of the Obama Administration made no sense economically.

It is rather comical that regulators would use the excuse of regulatory risk management to punish banks. Banks are in the business of gauging risk and have every incentive to avoid customer relationships that could hurt their reputation. Regulators, on the other hand, have shown themselves unwilling or unable to acknowledge risk, the most obvious example being the subprime mortgage crisis in 2008.

And he also explained why Operation Choke Point was such a reprehensible violation of the rule of law.

The FDIC’s regulators never engaged in formal rule-making or announced penalties for banks serving undesirable clients. Such rule-making likely would have been defeated in congressional debate or under the Administrative Procedures Act. Instead, regulators chose to rely on informal decrees called “guidance.” …Financial regulators find regulatory guidance particularly expedient because it spares them the burden of soliciting comments, holding hearings, defining violations, setting forth procedures for ascertaining violations, and defining penalties for ignoring the guidance. Regulators prefer this veil of secrecy because it maximizes their discretionary power and places the unpredictable and discriminatory costs on banks and their customers.

Well, we have some good news.

The Trump Administration has just reversed this terrible Obama policy. Politico has some of the details.

The Justice Department has committed to ending a controversial Obama-era program that discourages banks from doing business with a range of companies, from payday lenders to gun retailers. The move hands a big victory to Republican lawmakers who charged that the initiative — dubbed “Operation Choke Point” — was hurting legitimate businesses. …House Judiciary Chairman Bob Goodlatte…and House Financial Services Chairman Jeb Hensarling (R-Texas), along with Reps. Tom Marino (R-Pa.), Blaine Luetkemeyer (R-Mo.) and Darrell Issa (R-Calif.) praised the department in a joint statement. “We applaud the Trump Justice Department for decisively ending Operation Choke Point,” they said. “The Obama Administration created this ill-advised program to suffocate legitimate businesses to which it was ideologically opposed by intimidating financial institutions into denying banking services to those businesses.”

And Eric Boehm of Reason is pleased by this development.

A financial dragnet that ensnared porn stars, gun dealers, payday lenders, and other politically disfavored small businesses has been shut down. Operation Choke Point launched in 2012… It quickly morphed into a questionably constitutional attack on a wide range of entrepreneurs who found their assets frozen or their bank accounts closed because they were considered “high-risk” for fraud. …Assistant Attorney General Stephen Boyd called Operation Choke Point “a misguided initiative” and confirmed that DOJ was closing those investigations… “Law abiding businesses should not be targeted simply for operating in an industry that a particular administration might disfavor,” Boyd wrote. …The repudiation of Operation Choke Point is a welcome development, says Walter Olson, a senior fellow at the libertarian Cato Institute.

I shared a video last year that explained Operation Choke Point in just one minute. But that just scratched the surface, so here’s a video from Reason that explains in greater detail why Operation Choke Point was so repulsive.

Kudos to the Trump Administration for reversing this awful policy.

But hopefully this is just the first step. Regulators are still squeezing financial institutions in an attempt to discourage them from doing business with low-tax jurisdictions. This policy of “de-risking” exists even though so-called tax havens generally have tighter laws against dirty money than the United States.

Trump should put an end to that misguided policy.

Ultimately, what’s really needed is a complete rethink of money-laundering laws and regulations.

Amazingly, some politicians actually want to make these laws even worse. Ideally, Trump will move completely in the other direction.

P.S. While it’s good that Trump has reversed Operation Choke Point, his Administration has moved in the wrong direction on civil forfeiture policy. One step forward and one step backwards is not a recipe for more growth and prosperity.

Read Full Post »

Older Posts »

%d bloggers like this: