January 2012

There are more  developments on the charity front-not exactly related to the budget issue I posted on previously–but interesting nonetheless.  Apparently, the National Committee for Responsive Philanthropy (do not miss this link!)-NCRP, wants to work with legislators to push this agenda.  At first glance, its goals laid out here seem harmless enough:

It attempts to answer the questions: What differentiates an exemplary foundation from the rest of its peers? What can foundations do to improve its relevance to nonprofits, the economically and socially underserved Americans and society as a whole?

Of course, all things are not always what they seem.  Here is a critique of the report in by Heather Higgins of Philanthropy Roundtable:

The full text of the report came out March 3, but NCRP has been circulating a 15-page summary that already makes clear that this paper is not only replete with flawed logic, poor economic understanding and selective data, but is most disingenuously an Orwellian world of deliberate redefinition, where benign and admirable words are used but have meanings very different from common understanding.

Why? Because this report is a tool to a larger end. The document says it’s to be used to “criticize those who do not measure up.” Moreover, “Policymakers may find the criteria valuable when considering regulations or legislation … and the media will find the resource helpful for reporting.”

Back up a minute. NCRP has been around for 30 years. Its Web site homepage features “Happy Birthday, Saul Alinsky,” for the radical-left union and community organizer. Though self-styled as an independent “watchdog” of foundations, the reality is that NCRP doesn’t care about charity broadly–indeed it’s quite contemptuous of large swaths of it. It only cares about encouraging ever-greater flows of funds to the groups it deems worthy and truly serving of the public good, chief among which would be “social justice” activists like ACORN, an NCRP member.

In another article by an affiliate group critical of the report:

However, despite its name, The Alliance for Charitable Reform believes these benchmarks have nothing to do with measuring effectiveness. In fact, the natural consequence of these benchmarks will be to reduce the scope and diversity of the foundation sector to one that serves a more narrow set of highly politicized interests…

…”On average, foundation assets have dropped 20-40% and The New York Times reports an unusual number of charities filing for bankruptcy. It is incomprehensible that the NCRP is proposing criteria that could further ravage the charitable sector,”…

Again, I leave with more questions: Is there an effort out there to ‘de-fund’ or seriously reduce the funding of certain private non-profit charities, and ensure only select ones remain well-funded?   If so, why? I have no idea, it may be just a misunderstanding of intentions, but it sure seems fishy.

I was initially going to post this as a comment to Greg Conko’s recent post arguing against the Court’s recent decision in Wyeth v. Levine, but the comment system didn’t work correctly for me.

I appreciate the force of Greg’s argument (and I certainly agree that this particular case should have been decided much earlier on different grounds), but I think there is room for reasonable disagreement within the libertarian community about whether FDA preempting state tort law is good or bad. This is one of these questions about what to do in the real world, where first-best solutions just aren’t politically possible.

Most libertarians would likely agree that there should be only one system to deal with injuries caused by products, including drugs: the tort system. The tort system only operates once there has been an actual injury, not just some scared politician’s prediction of a harm. And it doesn’t ban anything; it just forces manufacturers to internalize the external costs of the injuries their products cause. If the benefits of the product outweigh the total (social) costs, the product will keep being made. This is the optimal outcome. And, further, the injured consumers will not simply be ignored; they get compensated for their harms, restored to a position as good as they’d be in had they not been harmed.

Unfortunately, however, we don’t just have the tort system. We also have the FDA and other prospective regulatory agencies that pass judgment on products before they hit the market, banning some and restricting how others can be marketed and sold. If the FDA isn’t going away, what should we do?

Greg’s answer is essentially the one I gave in the context of internet regulations: “multiple levels of regulation [are] always worse than… only one.” There is a difference between multiple levels of regulation and a tort system plus a regulatory system, though. If the FDA gets lots of stuff wrong, but the tort system functions ideally (a big, and admittedly untrue, assumption), then the FDA should not be able to preempt the tort system. If the FDA allows a drug that nonetheless causes injuries, the tort system has not failed or “overregulated” if it correctly assesses and assigns damages. It has internalized costs that would otherwise be external.

If the Court had found preemption, however, then there would be calls for the FDA to regulate even more heavily, banning every drug that might cause any problem. The tort system currently functions as a safety net. Remove it and politicans and voters will demand more stringent protection from the system left – the regulatory one.

However, finding no preemption emphasizes the point that the FDA is not infalible and that the tort system does a better job, at least sometimes. Unfortunately, it only does this in one direction, and does nothing to expose the much more common and deadly – but largely invisible – type I error. Still, I think though the tort system may get some stuff wrong and incorrectly over-compensate, this risk is more acceptable than the risk of further entrenched and onerous FDA regulation.

Your hosts Richard Morrison and Cord Blomquist bring you Episode 32 of the LibertyWeek podcast with special guest Sam Kazman and surprise guest co-host Jeremy Lott. We start by looking into the possible future of the Federal Communications Commission with nominee Julius Genachowski about to ascend to the chairmanship, and then take another stroll through the New Great Depression with high-level financial talks between unpopular British Prime Minister Gordon Brown and über-popular President Barack Obama. Oregonian brewers fight a proposed fifteen cents a pint tax in Beer News, and the Lady Madoff tries to stash away tens of millions from the feds in this edition of Scandal Watch. We hit our stride with an interview with CEI General Counsel Sam Kazman and his tales of the icy global warming rally staged earlier this week here in Washington, D.C. Finally, a little belt-tightening Olympic News from the USOC.

Listen here!

Well-to-do people will receive an unnecessary mortgage bailout, under a new federal program that will cut their payments to just 31 percent of their income — a ridiculously low level lower than many thrifty homeowners have made for years. Taxpayers and the economy will suffer in the long-run. And people with modest incomes will end up subsidizing the more fortunate.

Yesterday, the Obama Administration announced a “mortgage bailout to aid 1 in 9 U.S. Homeowners,” according to today’s Wall Street Journal. The cost is estimated by the Administration at $75 billion, and by independent experts at much more than that.

Homeowners with loans as large as $729,750 could see their interest rates temporarily cut to as low as 2 percent under the program,” and perhaps have their mortgage balances reduced, according to today’s Washington Post. Thus, American taxpayers — including low-income renters — will pay to subsidize people with high incomes who bought big homes with values approaching a million dollars.

As the Washington Post notes, “Under the program, lenders are encouraged to lower homeowners’ payments to 31 percent of their income. That could come from lowering the interest rate to as little as 2 percent . . .Lenders could also lower the principal owed by the borrower.”

This is simply insane. Paying more than 31 percent of your income on a mortgage is not a hardship. I paid more than that when I first purchased my home. In wealthy, high-living cost areas like San Francisco, people have long paid more than that, well before the current financial crisis. And in densely-populated nations like Japan, people have often paid more than that. Many beneficiaries of this bailout would never have defaulted, and the program’s requirement that they submit an “affidavit of hardship” is virtually meaningless, given the program’s low threshold for “hardship.” Even if they did face foreclosure, they could still find a place to rent, as most people who have been foreclosed on do.

Why on Earth should someone with a huge $700,000 home be able to reduce their payments on that home to 31 percent of their income, at taxpayer expense, when they could, with a little “hardship” — say, giving up an automobile not needed for work, or no longer eating out at restaurants — afford their mortgage payments on the big house they live in?

Yesterday, I went to the Washington Post web site, and used its interactive function which tells you whether you qualify for a bailout. I entered my mortgage as a percent of my income at the time I purchased my home, and it told me that I “probably” qualified for a bailout. (Today, my income is too high, but not at the time I purchased the home). But I have never needed a bailout. By being thrifty over the years — like avoiding expensive cars and travel, eating cheap foods, and not eating out — I have always been able to afford to pay more than 31 percent of my income on housing.

Before I and my wife bought our small home, we were outbid for a bigger, better home by another couple who made virtually no downpayment and ended up with big mortgage payments. Unless their income has increased substantially since then, they will likely be eligible for a bailout by claiming “hardship” — even though their income is much higher than the average American household.

Only someone indifferent to what housing actually costs — like a policymaker with political rather than economic goals in mind (like buying votes in states with high housing costs) — could have designed this plan. (I have some clue about what housing costs, since I used to produce cost and wage data for the federal government, and since I have a degree in economics as well as in law.).

Bailouts and stimulus plans don’t increase the size of the economy in the long run. They actually shrink the economy in the long run, while exploding government debt, as Japan found to its chagrin in the 1990s. But politicians like them because they do slightly increase the economy’s size in the short run — like by the next election. Bailouts provide short-term gain but long-term pain.

Even the Congressional Budget Office, controlled by the very body that enacted the $800 billion stimulus package, admits that the $800 billion stimulus package signed by President Obama will slightly reduce the economy’s size in the long-run. How will it shrink the economy? By increasing the national debt, which drives up interest payments on the debt, which in turn crowds out private investment. This mortgage bailout plan will similarly reduce the size of the economy over the long-run, since it will be financed by government borrowing that increases the size of the national debt.

Washington spends and regulates, and it’s hard to make it stop doing either. Government agencies and programs attract constituencies that want to keep them around, however wasteful.

Such big problems require big solutions that spread the risk of political fallout, by assembling a bi-partisan package of cuts and requiring an up-or-down vote.

So, against the backdrop of a $3.5 trillion federal budget, trillions in deficit spending, and over $1 trillion in annual regulatory costs besides, comes H.R. 1023, the “Federal Agency Program Realignment and Closure Act,” introduced February 12 by Rep. John Sullivan (R-OK).

In a political environment ballooning with unrestrained new government programs, his bill would “establish a commission to recommend the elimination or realignment of Federal agencies that are duplicative or perform functions that would be more efficient on a non-Federal level.”

The proper response to the economic crisis is to “liberate to stimulate,” not just spend more taxpayer dollars. H.R. 1023 is one of the few attempts to implement economic liberalization and force government belt-tightening.

Of course, it will still take years to implement the commission’s actual reductions. Another difficulty is that the specific regulatory programs under each agency also have cheereleaders. So in the meantime, freezes, purges and the like should be actively pursued; those can be based on gleaning better information about just what it is that the dozens of agencies are up to. A “Regulatory Report Card” like the below is one way to do it.

Regulatory Report Card …with 5-year historical tables…

• Total major ($100 million-plus) rules and minor rules by regulatory agency
• Numbers/percentages of rules impacting small business
• Numbers/percentages featuring numerical cost estimates
• Tallies of cost estimates, with subtotals by agencies and grand total
• Numbers and percentages failing to provide cost estimates
• Federal Register analysis: Pages, proposed and final rules by agency
• Most active rule-making agencies
• Rules that are deregulatory rather than regulatory
• Rules that affect internal agency procedures alone
• Numbers/percentages required by statute vs. rules agency discretionary rules
• Rules for which weighing costs and benefits is statutorily prohibited
• Detail on rules reviewed by the OMB, and action taken

A month ago, I coined the term “envoy of disappointment” to described Todd Stern, who had been chosen to become the State Department’s roving ambassador on climate change, a new position created by the Obama administration. The label reflected the reality that the U.S. will remain unwilling to put its economy at a competitive disadvantage by signing an international treaty to fight the supposed threat of climate change*, no matter what kind of “hope” and “change” Obama brings to Washington.

Recent evidence suggests I was right.

Obama is a scant 5 weeks into his Presidency, and already the backtracking on climate change has begun. According to Russel Gold at the Wall Street Journal’s Environmental Capital,

Mr. Stern said the road map of greenhouse-gas emission reductions laid out at a 2007 summit in Bali was simply too ambitious. “We need to be very mindful of what the dictates of science are, and of the art of the possible,” he said. The Bali targets – a 25% to 40% cut by industrialized nations by 2020 – were simply too ambitious. “It’s not possible to get that kind of number. It’s not going to happen,” he said.

*It hasn’t warmed in 7 years. Al Gore, hypocrite alarmist, says that “there is one relationship that is more powerful than all the others and it is this: When there is more carbon dioxide, the temperature gets warmer.” Well, emissions keep going up, yet temperatures stay the same. Where’s the warming, Al?

Distorted press coverage of a Supreme Court decision gave a big boost to the Obama campaign, which made the decision a major campaign issue by bashing and distorting it. The New York Times has since refused to correct its erroneous coverage of that decision, refusing to even read relevant portions of the very decision on which it reported, and court documents in the case, which plainly contradict its coverage. The Obama Administration and Obama campaign also made easily verifiable false claims about the decision, about which the press seems to have no interest. As legal commentator Stuart Taylor has noted, press coverage of the decision stank.

In Ledbetter v. Goodyear (2007), the Supreme Court held that a woman who had waited more than five years after learning of pay disparities to file an EEOC complaint, and more than a decade after her pay was allegedly set lower than her male peers, could not later sue for discrimination under a civil-rights law known as Title VII, since that law has a 180-deadline. In its ruling, the Court held that plaintiffs generally must sue within 180 days after a discriminatory pay level is set, and that it is not enough that the plaintiff sued within 180 days after a subsequent paycheck or pension benefit affected by the discrimination, which could be many, many years later.

The court specifically left open, however, the possibility that a plaintiff could sue more than 180 days after the discriminatory pay decision if the plaintiff did not discover that the decision was discriminatory until much later. In footnote 10 of its decision, it wrote, “We have previously declined to address whether Title VII suits are amenable to a discovery rule. . .Because Ledbetter does not argue that such a rule would change the outcome in her case, we have no occasion to address this issue.”

Despite that fact, however, New York Times reporter Linda Greenhouse falsely reported that the 180-day deadline “applies, according to the decision, even if the effects of the initial discriminatory act were not immediately apparent to the worker.” See Linda Greenhouse, “Justices Ruling Limits Suits on Pay Disparities,” New York Times, May 30, 2007.

Although the plaintiff, Lilly Ledbetter, had admitted in her deposition that she had been informed by 1992 of the pay disparity she later sued over, and had cited it herself to her boss by 1995, Greenhouse also falsely claimed that the Supreme Court rejected Ledbetter’s claim because “she learned of her fate” at the end of her career, “too late, according to the Supreme Court’s majority.”

Despite the fact that the Supreme Court had explicitly left open the possibility that Ledbetter could have sued if she hadn’t known about the discrimination against her, other New York Times reporters, relying on Greenhouse, stated just the contrary. For example, Adam Liptak stated that “Ms. Ledbetter lost her case because she had discovered the disparity between her pay and that of her male colleagues too late.” See Liptak, “Justices Hear Bias Case on Maternity, Pensions, and Timing,” New York Times, Dec. 11, 2008, at pg. B7. And Sheryl Gay Stolberg similarly stated that Ledbetter discovered only “when she was nearing retirement that her male colleagues were earning much more than she was.” See Stolberg, “Obama Signs Equal-Pay Legislation,” New York Times, January 29, 2009.

Other papers, such as the Los Angeles Times, made more extreme, and obviously false, claims about the decision. The Los Angeles Times falsely claimed that under the Ledbetter ruling, “any employer that could hide discrimination for six months could get away with it.” And the Pittsburgh Post-Gazette erroneously stated that Lilly Ledbetter was not allowed to sue more than 180 days after her first unequal paycheck even though “she did not know she was being discriminated against until near the end of her career when she sued.” And the Washington Post incorrectly claimed that the decision “limited Ledbetter’s ability to sue after she discovered that Goodyear had been paying higher salaries to her male counterparts for nearly 20 years.” See Editorial, “The Lilly Ledbetter Fair Pay Act Is Back,” Los Angeles Times, Jan. 10, 2009; Editorial, “Lilly’s Cause: Obama Can Correct An Injustice of the Bush Years,” Pittsburgh Post-Gazette, Jan. 12, 2009; Richard Leiby, “A Signature with the First Lady’s Hand on It,” Washington Post, Jan. 30, 2009, at C1.

But as even the liberal employment lawyer David Copus, who brought landmark pay discrimination lawsuits for the EEOC, has noted, Ledbetter suspected for years that she was discriminated against, and the Supreme Court left intact employees’ ability to sue when employer deception leaves employees unaware of discrimination against them. See Davis A. Copus, “Pay Discrimination Claims After Ledbetter,” Defense Counsel Journal, Volume 75, page 300 (Oct. 1, 2008).

As Copus notes, “Ledbetter admitted at her deposition that ‘different people that [she] worked for along the way had always told [her] that [her] pay was extremely low.’ She recalled that her manager told her in 1992 that her pay was lower than that of other Area Managers, and that by 1994 or 1995, she had learned the amount of the difference. In 1995, Ledbetter told her supervisor that she ‘needed to earn an increase in pay’ because she ‘wanted to get in line with where [her] peers were, because . . . at that time [she] knew definitely that they were all making a thousand [dollars] at least more per month.’” Yet she waited to sue until shortly before she retired, and after the supervisor she accused of discrimination died!

As legal commentator Stuart Taylor observed in the National Journal, “Ledbetter waited more than five years after learning that she was paid substantially less than most male co-workers to file her Title VII claim.” See Stuart Taylor, “Does the Ledbetter Law Benefit Workers, or Lawyers? Democrats and the Media Have Distorted the Facts Underlying the New Equal Pay Law,” National Journal, Jan. 31, 2009.

Given Ledbetter’s tardiness and longstanding knowledge that she might have been discriminated against, her lawyer didn’t even claim that she could take advantage of the Supreme Court’s exceptions to the deadlines for workers whose employers conceal evidence of discrimination, leaving them unaware of discrimination, such as “equitable tolling” and “estoppel.” See Zipes v. Trans World Airlines, 455 U.S. 385, 393 (1982) (“filing a timely charge of discrimination with the EEOC is . . . a requirement that, like a statute of limitations, is subject to waiver, estoppel, and equitable tolling”).

When I, a lawyer with expertise in discrimination claims, sent an email to the New York Times noting its inaccurate reporting, and citing its conflict with Ledbetter’s deposition, and the writings by legal commentators like David Copus and Stuart Taylor, I received an email in response from senior editor Greg Brock, claiming that the New York Times’ reporting couldn’t possibly be wrong. Why? Because so many other newspapers had made the same claims the New York Times did, and because its reporting was consistent with the self-serving claims that the plaintiff Ledbetter later made (with no evidence whatsoever) — never mind that those claims were inconsistent with plaintiff Ledbetter’s own admissions in her deposition, and inconsistent with what the Supreme Court said in its decision! Apparently, the pervasiveness of a media error makes it unquestionable.

In his January 30 email, Mr. Brock wrote:

“I do not know where Mr. Taylor came by his information. But if you do your research, you will see that dozens of news organizations have consistently reported the following background on the Ledbetter case:

Lilly Ledbetter worked for Goodyear for 19 years before accepting an early retirement offer in 1998. Shortly before she left Goodyear, Ledbetter received an anonymous memo revealing that the other shift supervisors with the same title and the job responsibilities she had, were paid between 14-30% more than she was earning. The decision to pay Ledbetter less than her male co-worker had been made years earlier by a supervisor who did not believe women belonged at Goodyear, and certainly not working as supervisors. Until Ledbetter got this memo, she did not know she had been shortchanged all those years. Ledbetter sued, and in the course of the lawsuit, Goodyear’s records confirmed the anonymous tip — the sole woman supervisor was paid far less than the men in the same positions.

The following statement was also presented by Ms. Ledbetter in testimony before Congress, when she explained:

‘I only started to get some hard evidence of what men were making when someone anonymously left a piece of paper in my mailbox at work, showing what I got paid and what three other male managers were getting paid. I thought about just moving on, but in the end, I could not let Goodyear get away with their discrimination. So I filed another complaint with the EEOC in 1998. After I filed my EEOC complaint and then filed a lawsuit, I was finally able to get the whole picture on my pay compared to the men’s. It turned out that I ended up getting paid what I did because of the accumulated effect of pay raise decisions over the years.’

She retired in 1998. So this shows that she did indeed learn the story not long before her retirement.”

This is not the only error made by the Times. As the Wall Street Journal’s James Taranto has pointed out, the Times falsely suggested, contrary to all evidence, that the Ledbetter decision was the result of a supposedly pro-plaintiff female justice — Sandra Day O’Connor — being replaced by a supposedly pro-defendant male justice — Samuel Alito. Linda Greenhouse, the Times’ Supreme Court reporter, claimed that the 5-to-4 decision “showed the impact of Justice Alito’s presence on the court. Justice Sandra Day O’Connor, whom he succeeded, would almost certainly have voted the other way, bringing the opposite outcome.”

In reality, Justice Sandra Day O’Connor was at least as tough in enforcing deadlines for suing against discrimination plaintiffs as the male justice who replaced her, Samuel Alito. She had dissented against the Supreme Court’s earlier generous interpretation of the statutory deadline for sexual and racial harassment plaintiffs in the case of National Railroad Passenger Corporation v. Morgan, 536 U.S. 101 (2002), arguing that the deadline as interpreted by Justice Clarence Thomas’s majority opinion was too generous to plaintiffs.

By contrast, on the Third Circuit Court of Appeals, then-judge Alito, prior to his elevation to the Supreme Court, had argued for a more generous interpretation of the deadline for suing under another discrimination law, 42 USC 1981, arguing it should be expanded to four years (see Zubi v. AT&T, 219 F.3d 220 (3d Cir. 2001)) — a position that conflicted with some federal court rulings, but was ultimately upheld by the Supreme Court in Jones v. R.R. Donnelley & Sons, 541 U.S. 369 (2004).

In signing his first bill into law — a bill to override the Supreme Court’s Ledbetter decision — Obama didn’t let facts get in the way of a good story, or milking a political wedge issue. He falsely claimed that Lilly Ledbetter, whose pay discrimination claim was dismissed by the Supreme Court as untimely, worked at Goodyear “for nearly two decades before discovering that for years, she was paid less than her male colleagues for doing the very same work.” Actually, Ledbetter knew by 1992, if not earlier, that she was being paid less than the male employees she claimed should have been paid the same as her. Small wonder that the Supreme Court’s 2007 ruling in Ledbetter v. Goodyear dismissed her claim as untimely.

Similarly, the White House falsely claimed that “The Court ruled that employees subject to pay discrimination like Lilly Ledbetter must file a claim within 180 days of the employer’s original decision to pay them less . . . even if the employee did not discover the discriminatory reduction in pay until much later (check out Justice Alito’s arguments in the Court’s opinion).”

This is misleading, and perhaps knowingly so, since the White House linked to the very court decision it distorts. First, the Court never said there was a rigid deadline that bars claims by employees who “did not discover” discrimination “until much later.” Ledbetter never argued that the deadline should be suspended based on her employer concealing discrimination against her, because she in fact knew for years about the pay disparity she later sued over. If she truly had been in the dark about the alleged discrimination, she could have sought to take advantage of exceptions to the deadline that suspend it, like waiver, estoppel, and equitable tolling, under the Supreme Court’s decision in Zipes v. Trans World Airlines, 451 U.S. 385, 398 (1982). But she never made that argument, because, as she testified in her deposition, she had been told many years earlier that she was being paid less than the men she later claimed ought to have been paid the same as her.

Nor did she argue that the outcome of her case would have been changed if the Supreme Court recognized an even broader extension to the deadline for employees who are unaware of the discrimination against them, the so-called discovery rule. As the Supreme Court specifically noted in footnote 10 of its opinion, “we have previously declined to address whether Title VII suits are amenable to a discovery rule. . . .Because Ledbetter does not argue that such a rule would change the outcome in her case, we have no occasion to address this issue.” In short, since Ledbetter had long known of the facts underlying her discrimination claim, relaxing the deadline for employees who “did not discover” the discrimination until much later would have done her no good.

But in the 2008 election campaign, Obama and state democratic parties falsely claimed that the Supreme Court had created a rigid 180-day deadline for bringing discrimination claims, regardless of whether the employer conceals evidence of discrimination. The 2008 campaign featured TV ads from Obama, and mass mailings by state Democratic Parties, falsely claiming that McCain backed wage discrimination against women, simply because he did not support a bill to override the Supreme Court’s Ledbetter decision. Amazingly, the McCain campaign did almost nothing to counter those attacks.

Press coverage suggesting that the Ledbetter decision created a rigid 180-day deadline for pay discrimination claims was also faulty because it ignored the fact that the 180-day deadline only applies to plaintiffs who choose to sue only under the law with the shortest deadline, Title VII. Pay discrimination claims can also be brought under the Equal Pay Act, which has a longer three-year deadline for most claims, and more generous accrual rules as well. And race discrimination claims can be brought under 42 USC 1981, which has a long four-year deadline.

The Supreme Court specifically noted that the plaintiff could have sued instead under the Equal Pay Act, observing that plaintiff “having abandoned her claim under the Equal Pay Act, asks us to deviate from our prior decisions in order to permit her to assert her claim under Title VII.” Plaintiff Ledbetter’s lawyer admitted to the court that he had goofed by failing to press her claim under that law.

In short, it wasn’t the Supreme Court that prevented Ledbetter from suing: it was her own incompetent lawyer, and her own tardiness in suing after she learned of the pay disparities she claimed were discriminatory.

[CORRECTION, March 5: In the original version of this post, I overstated the case in the last sentence of the first paragraph. The journalism professor I quoted was paraphrasing legal commentator Stuart Taylor as saying that the coverage "stank," and although he praised Taylor's assessment as backed by "convincing facts," he did not say that he himself believed that the coverage stank. I apologize for the error].

The “Beige Book” is out, and the news is dismal. This afternoon the Federal Reserve released its summary of economic conditions in the 12 Federal Reserve Districts (see map above). Based on anecdotal information, reports, and interviews with key sources, the report is issued eight times per year.

The key adjectives used to describe recent economic conditions in those districts were “bleak,” “stagnant,” “dismal,” “sluggish,” “slow,” “dropping,” “falling” and other descriptors for a sharp decline in economic activity across almost all areas and sectors of the economy.

One exception was the manufacture of pharmaceuticals and biotechnology products, where there was continued demand. Also, basic food production was stable.

Here’s the report’s opening paragraph:

Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies “remained weak.” The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010.

Guess it’s encouraging the Fed didn’t change the name to the “Black Book.”

As I blogged about earlier many states in the US,  facing budget shortcomings of their own making are looking at beer and wine tax increases as a way to make some cash. One of my assertions, beside the fundamental stupidity of penalizing production and wealth creation, is that such tax increases will hurt employees and pubs hardest. To back that up we can take the UK as an alistairdarlingbarredexample—they are experiencing the roosting chickens of Chancellor Darling’s 2008 beer tax in the form of 20,000 lost jobs and 2000 pubs closing. That’s just in 2008.

American lawmakers should think very carefully before following the same principal as the Brits who, let’s face it, have a much stronger relationship with their pubs. As a result of taxing this industry, England is loosing its small pubs, many family-owned and many that have been part of communities for decades.

And these British barflys are not happy…well, they are even more surly than before.

Compared with the history of brewingalistairdarlingbarred2 in the UK, America is barely in its infancy and already we are beginning to make a name—our small craft brewers and brew-pub concoctions compared alongside the masters of Belgium. Regulators need to understand that bloodletting businesses is not only wrong, it won’t help them keep businesses in their state, it won’t increase their tax revenue, it won’t help them stay in office.

The Supreme Court handed down its decision this morning in the Wyeth v. Levine federal preemption case, holding, by a 6-3 majority, that “Federal law does not pre-empt [plaintiff Diana] Levine’s claim that [the Wyeth drug] Phenergan’s label did not contain an adequate warning about the IV-push method of administration.” Justice Stevens wrote the majority opinion, joined by Justices Kennedy, Souter, Ginsburg, and Breyr, and with Justice Thomas concurring in the judgment. Justice Alito wrote a compelling dissenting opinion, joined by Chief Justice Roberts and Justice Scalia. Guest blogger Bert Rein and I separately commented on the case here, here, here, and here.

According to Justice Stevens’ majority opinion, “The history of the [Food Drug and Cosmetics Act] shows that Congress did not intend to pre-empt state-law failure-to-warn actions.” Fair enough, but this isn’t a typical failure-to-warn case. As Justice Alito’s dissent notes, Ms. Levine alleged not only that the warning on Phenergan’s label wasn’t strong enough, but that Phenergan was “not reasonably safe for intravenous administration,” and that Phenergan’s label should have indicated that the drug “should not be used intravenously.” But, that’s a question regarding FDA’s approval of the product for that use, not merely the sufficiency of the warning.

Consequently, the decision reaches to the very core of FDA’s statutory competence. FDA made a regulatory decision that the benefits of IV injection outweighed the risks, and the agency permitted the product to be labeled accordingly. Furthermore, there are no allegations that Wyeth hid any information about the risks of IV injection, nor that any new information regarding the risks of IV injection have arisen that would call that decision into question since FDA made it. So, letting a Vermont jury penalize Wyeth for not ruling out IV injection on Phenergan’s label is tantamount to letting a group of laymen over-rule FDA’s expert opinion regarding safety.

It would have been one thing if new evidence of risk had arisen since FDA approved the label, or if Wyeth were accused of hiding information from the FDA or mis-representing the data it did provide. In such a case, exposing a drug manufacturer to tort liability would not be over-riding FDA’s expert judgment. But that is decidedly not the case here. Indeed, the negligent act that actually caused Ms. Levine’s unfortunate injury was not an IV push injection into a vein, but the physician’s assistant’s botched administration. The physician’s assistant injected Phenergan into Ms. Levine’s artery, in direct contravention of six label warnings against arterial injection. More or sterner warnings against arterial injection would not have prevented Ms. Levine’s injury.

Thus, the Supreme Court could have and should have held in Wyeth’s favor with a narrowly tailored opinion confined to the facts of this case. Doing so would not have insulated wrong-doers from punishment, but would have recognized that Congress gave FDA statutory authority over questions of safety and efficacy because it believed that only a federal expert body could effectively balance the benefits and risks of new medicines. So, not only is the majority’s decision bad policy, it’s also bad law.