January 2012

But, alas, not as a litigator – the role that made him rich and famous – but as a defendant. According to Legal Newsline, Richard “Dickie” Scruggs is headed back to federal court to plead guilty to another count of trying to bribe a judge. He’s already serving a five-year sentence for a previous bribery attempt.

OpenMarket readers will remember Scruggs as one of the fattest of fat cat trial lawyers to emerge from the multi-state tobacco settlement reached between tobacco companies and state attorneys general in 1998. Our own Hans Bader revisited the scandalous fees charged by lawyers like Scruggs last June and August. Attorneys, many of whom did nothing but re-file copycat lawsuits in their own states, reaped a windfall of $15,000,000,000 (that’s fifteen billion dollars) in legal fees.

But at least the money that didn’t end up in the pockets of men like Scruggs went to help sick smokers, right? That was, after all, the rationale for extorting $240 billion from tobacco companies. Not so much, it seems. Just in the last week the Virginia General Assembly has been a contentious place, as state lawmakers argue about whether the state should have spent large amounts of its tobacco settlement money on things like “high-speed Internet access in rural areas, upgrades to sewer lines, a scenic trail to honor Virginia’s musical heritage and a railroad museum.” I don’t remember anyone campaigning for the MSA by telling us they were fighting for more railroad museums and musical hiking trails. It must have slipped their mind.

I just read an intriguing post by Mike Masnick over at Techdirt.  Masnick points out that ISPs keep changing the definition of appropriate monthly usage.  When an ISP adjusts the amount of usage it deems appropriate, demonstrating network congestion becomes a whole lot easier. It also pushes consumers toward purchasing higher tier services–with higher usage limits.  Users, therefore, often end up paying more for something they once received as standard service.

As an avid gamer, it seems to me that this model is similar to the overwhelming surge of Downloadable Content (DLC) seen in the gaming sector in recent years.  DLC encompasses everything from new maps or weapons in first-person shooters to new clothing for a playable character to new cars in driving games. It even includes roster updates or new stadiums in sports games.

For years, downloadable content was just a bonus to gamers and a free service provided by the game developer.  But thanks to the ascent of Xbox Live (and, to a lesser extent, Electronic Arts’ push for fee based content) these same post-release additions in gaming are increasingly becoming small transaction purchases.  The most famous DLC to date may be Oblivion’s Horse Armor.  It was just some armor for your horse—that’s it.  But someone reading this post paid for it, I assure you.

dlcpost

The opposition to this newfound model of DLC was that it blurred the lines between what was truly extra content outside the core game and what was being stripped out—or held back—from the core game so that the developer could later sell it back to consumers.

I think this same model applies to Masnick’s post.  The real question here is, “what should we be getting in the first place?”

Having lived in Australia, I’d point out to Masnick that countries in Oceania are probably outliers in how we should look at Internet provision.  Countries in Oceania have ridiculously subpar broadband by North American standards, and because of that tiny broadband caps are actually commonplace for consumers in those countries.  I recall my roommate and I cracking our monthly 1 gig usage cap quite frequently simply by downloading iTunes music and podcasts and playing Battlefield 2 and Final Fantasy 11 a few nights a week.  So it is not a surprise that Mr. Lessig had a run in with a cap in New Zealand.  But the assertion of his provider that he was doing something unethical is practically absurd.

The best way to dissuade companies from implementing low bandwidth caps is consumer revolt.  There’s also an argument to be made that we end users have been subject to some kind of usage cap, whether we knew it or not. There is evidence that ISPs such as Comcast  have long enforced a ‘soft’ usage cap and terminated violating customers. Now, Comcast has a 250 GB monthly cap, which is widely considered to be pretty reasonable.  I seriously doubt the majority of broadband users are even approaching a quarter terabyte of data transfer each month.  And those that do so, and do so for good reason, will most likely pony up for a higher tier of service.  I believe, however, that if this type of behavior continues, and service providers drop caps to the levels of those ISPs in places like Australia, consumers will not stand for it and demand change.

While ‘normal Internet use’ (whatever that means) may have at one point in time been a few hundred megabytes a month, Internet innovations have certainly increased the amount of bandwidth that the average consumer uses each month simply by downloading music, watching streaming video, and being involved in rich social networking experiences.  Someone that downloads a Hi-Def copy of a weekly tv series (such as Mr. Lessig) has already committed roughly 4 gigs of their usage at the beginning of every month.  Certainly, caps need to be consistent with the evolution of what average or normal use is in a given month.  If caps exist, as long as they are being adjusted reasonably, there shouldn’t be an issue.  If normal usage rises, and caps decrease, then Masnick is onto something that can probably only be solved by consumer revolt.

The Cato Institute continues to gather support against the stimulus from economists, including 3 Nobel Laureates.

Despite this growing resistance, President Obama still insists that economists “across the spectrum” support his stimulus plan.

According to statements from the National Association of Retail & Thrift Shops and the National Association of Manufacturers, a law designed to protect kids from lead in toys may soon force thrift stores to close their doors.

It seems the law, passed after the uproar over lead in toys imported from China, places an incredible burden on resellers of toys.  The Consumer Product Safety Improvement Act (CPSIA) controls for lead in toys down to incredible minute amounts, as low as 600 parts per million, the testing for which is incredibly costly.  According to the National Association of Manufacturers:

Thousands of businesses and organizations, including thrift stores, charities, book publishers, public libraries, home crafters, and apparel makers learned recently that their products (ranging from books, clothes, strollers, toys, dirt bikes and bunk beds) – including existing inventory – are subject to the retroactive lead standard provisions of CPSIA.

All businesses want to comply with the new law. However, the Consumer Product Safety Commission (CPSC) is not done clarifying which products and materials fall under the new rules thanks to the law’s unrealistic compliance deadline.

The LA Times has reported on what Congress is doing to prevent thrift stores across the country from shuttering their doors:

On Thursday, Sen. Jim DeMint (R-S.C.) and five other Republican senators introduced an amendment to the economic stimulus bill that would make changes to the consumer product safety act. It would delay the regulations by six months, clarify rules about component testing, exempt resellers from the act, prevent retroactive enforcement of the act and require the commission to provide small businesses with a compliance guide.

Even charities like Goodwill could be affected.  MSNBC spoke with Doug Hiob, a spokesperson for Goodwill Industries, who said:

Because our children’s clothing averages $1.25 per sale per garment, I think a lot of people in this economy are going to be affected by it.

Another Goodwill spokesperson, Audrey Young, had this to say:

At this point we’re not sure what the commission is going to determine those items to be. We’re not sure the impact that that could have on our sales and our revenue.

This kind of reactionary, poorly-thought-out regulation couldn’t come at a worse time.  When so many families are struggling to make ends meet, closing down thrift stores cuts off one of the ways that families can afford clothing and other necessities.

This is yet another, tragic example of how Congress gives with one hand while it takes away with the other.

Each year, the Competitive Enterprise Institute offers a journalism fellowship to a promising young writer in hopes that it will help them start a career fighting unchecked government power and working towards a freer society.

We’re happy to see our Warren T. Brookes fellow from 2001-2002, Eileen Norcross, gracing the pages of today’s Washington Post.  Lawmakers in Washington are trying to answer an important question regarding the stimulus bill: Is it better to spend never-before-seen amounts of money quickly to jump-start the economy, or should Congress be more deliberate in its consideration of the stimulus bill?

Ms. Norcross’s advice:

“You can’t have both,” said Eileen Norcross, a senior research fellow at George Mason University’s Mercatus Center who studied crisis spending in the aftermath of Hurricane Katrina. “There is no way to get around having to make a choice.”

Norcross has recently teamed with Jerry Brito, also of Mason’s Mercatus Center, to produce StimulusWatch.org, a site that allows anyone to write about and vote on the merits of potential stimulus projects.

For more on Warren T. Brookes Fellowship, visit cei.org/warrenbrookes.

I still regard myself as a loyal subject of Her Britannic Majesty, Queen Elizabeth II, but it’s hard not to come over all Cromwellian when her son and heir says something like this. He has praised the Mumbai shanty town featured in the film that everyone’s talking about (it seems), Slumdog Millionaire, as an architectural model for the world.

His Royal Highness said:

I strongly believe that the west has much to learn from societies and places which, while sometimes poorer in material terms are infinitely richer in the ways in which they live and organise themselves as communities…

It may be the case that in a few years’ time such communities will be perceived as best equipped to face the challenges that confront us because they have a built-in resilience and genuinely durable ways of living.

One wonders why, if these communities are more “resilient” and “genuinely durable,” they always seem to be the first to be wiped out whenever there is any kind of natural disaster. One also wonders why HRH hasn’t moved out of Highgrove and into some British equivalent of Dharavi. Perhaps that’s because, thank God, there isn’t one (although some areas of certain cities come close).

It seems that His Royal Highness has chosen to apply the mantra I=PAT to the way people try to live, where I = impact on the planet, P = population, A = affluence and T = technological level. The lover P, A or T are, the better. As I point out in my book, The Really Inconvenient Truths, another way of looking at this is S = DPS, where D is the Death of 4–5 billion people, P is the Poverty of those that remain, and S is the Technological Stagnation that they live within. Prince Charles may not have called for the death of billions, but he certainly seems to be doing his bit to glamorize poverty and technological stagnation.

Comment from a friend watching Obama’s Indiana town hall promoting the stimulus:

“Some chump just told Obama to mail a check to the people who lost their jobs, so they don’t have to stand in line begging for money from the government.”

President Obama is tired of the old ideas, the Washington that existed for the last eight years when we suffered under policies that didn’t work.  He insists that we need a new, bold kind of politics—his stimulus package is the first expression of this kind of approach.  But directing a large portion of GDP toward projects that were haphazardly assembled in Congress isn’t change at all.  It’s more of what Mr. Obama calls “The failed policies of the past.”

To be sure, the past several years haven’t seen America at its best.  Just like the bubble that led to the recession in 2001, Wall Street has funneled money toward an area of the economy that wasn’t worth what everyone thought.  Main Street was at fault too.  Home flippers and even average folks who thought they’d be able to turn a profit on their homes after the prices rose even more, took loans they couldn’t afford and bet on a market that couldn’t sustain itself.

Those are just the actions of the past, not the policies.  Mr. Obama is focused on what he can change—the policies made in Washington.  Those policies are, indeed, in dire need of change.

The last eight years have seen the national debt double—you, me and every man, woman, and child in America are responsible for about $35,000 of the over $10 trillion the US owes to its creditors.  We’ve also seen Washington throwing fuel on the fire, pushing policies that were supposed to promote the “American Dream” of home ownership, which is now the cause of our national nightmare.

So what has Mr. Obama proposed as his bold, new solution to this problem?  Nothing bold or new at all.  Mr. Obama seeks to spend more, misallocate another trillion dollars and take the economy down more dead ends, and deepen our already deep recession.

The bold initiatives we need aren’t even being talked about in Washington, because they’re politically unpopular, they challenge the status-quo, and they threaten the power of those entrenched in the Washington machine.

The policies that would prevent us from channeling resources down the dead ends that lead to recessions—tax code simplification, tax cuts, and overhauling the regulatory system—would be a real change.  But bold leadership would be required for huge policy reforms like these to occur.

Watching Mr. Obama now extolling the virtues of his “debt to end all debts” in Elkhart, Indiana, I don’t see the kind of leadership we need.  Instead, I see politics as usual.

The papers have been filled the past few weeks with stories about the recent peanut contamination problem. And, as this article from today’s New York Times, and this from Saturday’s Washington Post, indicate, the conventional wisdom is that America’s “food safety net” is badly frayed due to Bush Administration cut-backs in FDA spending. As is typical, the problem isn’t so simple.

Unfortunately, as long as the world’s food production system continues to be highly decentralized and fragmented, there will continue to be foodborne illness outbreaks like the most recent salmonella contamination problem and the E. coli contamination outbreaks seen in the past few years. The trouble, of course, is that food is, by and large, grown outside in dirt, and microbial contamination is a fact of life. Measures can and should be taken by food producers, processors, and packagers to identify contamination where it occurs and remove it from the food chain. But, with over a billion meals consumed in the United States every day, there is not enough money in the world to meaningfully increase inspections of the hundreds of thousands of facilities that produce, process, and sell food in the United States.

Currently, there is no requirement for FDA to inspect any one food production facility on a regular basis, and many facilities go years between inspections. FDA sets its own priorities based on the types of food products and production activities involved, by trying to determine where the likeliest risks lie. That, say the critics, is the root of the problem. FDA needs the financial and personnel resources to inspect every food production facility in the country (as well as foreign facilities that export to the U.S.) on a regular basis.

But will this really do anything productive? In short, the answer is “no.” The proposed Food and Drug Administration Globalization Act of 2009 would expand FDA’s authority substantially, requiring additional money for agency personnel and more frequent inspections. How frequent? Not less than once every 4 years. So, even after this massive influx of taxpayer cash, the best we can expect is that most food production facilities will now be inspected once every four years instead of once every decade. Does anyone really think that’s going to help? Of course not — no thinking person could. Instead, this is designed to make us all feel that the government is “doing something,” while taking more money out of the productive economy and funnelling it to Washington.

If recent stories are true -– that operators of the Peanut Corporation plant in Georgia willfully failed to remove contaminated product from its shipments and did not clean equipment after contamination was identified –- it is hard to imagine that a doubling or tripling of inspections could have prevented this tragedy. News accounts indicate that Peanut Corporation executives actually identified the presence of salmonella in various products and PUT THEM ON THE MARKET ANYWAY.

Fortunately, this kind of conscious cheating is rare in a country like the United States. But, in order to help deter it, penalties for such willful misconduct must be beefed up (so to speak). I’m not suggesting we start executing food plant operators or safety inspectors found to be willfully negligent, as China has been doing recently. Though, for acts that serious, serious penalties are warranted. The penalties for knowingly putting contaminated foodstuffs into commerce need to be more than simple slaps on the wrist.

Finally, it’s worth repeating that we can never realistically eliminate all foodborne illness. The shear size and scope of the problem –- that is, bacteria and viruses are all around us all the time -– means that we must recognize there are diminishing marginal gains to be had from increased spending on food safety. Not that we should accept defeat, but that at some point we have to recognize that diverting more and more public resources to combating an intractable problem means having fewer resources to spend on other things -– like health care, education, occupational safety, etc. -– that could increase safety by a far greater amount.

On the other hand, there are a handful of regulatory changes that could both help the private sector combat foodborne illness while also lower the cost of food safety. For example, food irradiation is a safe and effective technology for killing or denaturing bacteria and viruses in and on foods, such as meat and poultry, grains, and even some fruits and vegetables. But, a variety of regulatory restrictions on the use of irradiation (as well as mandatory labeling that seems designed to scare consumers away from irradiated foods) make it uneconomical for food processors to use irradiation in the United States on a wide-scale basis. The most innovative breakthroughs in food biotechnology are rarely ever tested because the regulation of biotech plants and animals are too costly. And the more recent panic about nanotechnology, combined with burgeoning regulation in that field, could strangle in the crib some of the most innovative efforts to improve food safety.

Thus, FDA, USDA, and EPA -– the same regulatory agencies charged with ensuring that the American food supply is safe -– are actually contributing to lower safety by creating and maintaining poorly thought out rules regarding technology regulation. It ought to serve as a cautionary note that, in trying to make changes that will improve food safety, we need to be conscious that some well-intentioned efforts can actually make us less safe.

Robert Higgs, he of the famous “ratchet effect” theory of government growth (up but never down in answer to a crisis), has an artcle in the Christian Science Monitor on the merits of doing nothing, and of politicians getting out of the way so that recovery can actually happen.

The real problem with recessions is not that we have them, but that politicians help sow the seeds and deepen them with massive political interventions in vast swaths of the free enterprise economy (money and credit, housing, science, biotechnology, nanotechnology, health care, retirement, automaking and other manufacturing, “infrastructure”–there’s a word that invites endless political manipulation), then prolong them while pretending to be part of an entity (government!) that can help. Government is a force-weilding body that properly adheres to law enforcement and protection of rights. It doesn’t produce wealth or have any relation to that phenomenon except by establishing a limited legal system on which markets can develop–not becoming an economic participant. Government does transfer wealth that others could have used to create additional growth, however.

The actual bold political action, genuine leadership, needed in a crisis today is pretty much the opposite of what’s going on. Indeed, the political price is too high for election-bound lawmakers or career politicians to entertain non-governmental recession recovery.

As Friedrich Hayek pointed out, and as we’ve noted here before, the politicians blamed during a bumpy transition to something closer to laissez-faire will be the ones who stop interest-group benefits, stop labor union benefits, or stop the inflation, stop the mal-investment created by earlier government interventions and favoritism, and so on–not the ones who started those costly processes decades earlier. Instead, your government is going to spend a bunch of money, and leave all these crisis-inducing internventions in place, and add more besides, which cements their “role” in “resolving” future recessions.

Real “stimulus,” that of comprehensive liberization of a fettered economy requires perhaps unpalatable changes in what people expect from government now that they’ve come to depend on what it redistributes. That’s an intractable problem, and I’m not sure the country can recover from it–but leadership would require making the attempt, rather than pandering to that dependency. But more importantly, real economic security requires changes in what representatives in government are constitutionally able to do in the name of “public service.” That would force the attempt rather than the pandering.

So, again, political reality prevents halting the compounded economic damage that artificial stimulation and financial “bailouts to nowhere” promise to deliver. That makes America largely ungovernable now, in the proper sense.