January 2012

Pennsylvania’s perpetual prohibition

by Michelle Minton on April 20, 2010 · 1 comment

in Legal, Nanny State, Odds & Ends, Personal Liberty, Precaution & Risk

Philadelphians love our beer. Especially our little niche-serving craft-beers. The city of brewerly love has produced some of the countries best-loved brands and the by-our-Belgian-bootstraps attitude has inspired many brewers throughout the country. But from the recent behavior of those in charge of oversight for booze in PA you’d think we were a state of teetotalers. beer-week-philly-2

The problem is, when it comes to the regulation of booze there is zero competition. Since most of the people handling the regulations are appointees, citizens barely have a say in the matter. The result? A regime that regulates in a heavy-handed manner, that is inefficient, and performs a function nobody wants them to do.

In the free market a service provider that is inefficient or unable to perform the duties for which it was hired is replaced. However, when it comes to government oversight, there is little or no competition among regulators. Thus, even when a regulatory entity repeatedly demonstrates its inability to perform, businesses and individuals have no choice but to continue complying with these agencies’ deficiencies.

For example, take alcohol regulation in Pennsylvania and the recent bar raids in the city of Philadelphia. One bar owner, Leigh Maida, had three of her establishments raided raided by the Bureau of Liquor Control Enforcement last month based on a complaint from an anonymous source claiming that they were selling “un-registered beers.” The state of PA requires distributors of beers to register each brand they intend to sell in PA (for a fee of course). “something really crappy happened to us,” said Maida about the Bureau’s seizure of over 300 bottles of beer and 3 quarter-kegs.  As it turns out many of the beers confiscated were registered.

Maida claims that more than half of the beer taken was actually properly registered but the cops couldn’t find it on their lists because of “clerical errors” and “blatant ineptitude” between the police and Liquor Control Board (with whom he officers were deliberating with via phone.)

Case in point; Monk’s Café Sour Flemish Red Ale. The beer has been sold across PA at dozens of restaurants and distributors for more than seven years. The brand appears on the state’s online list as “Monk’s Café Ale” and because the names did”t match up, troopers seized 20 bottles and three kegs of the “illegal” ale from the three bars.

Police also took Duvel Belgian Golden Ale because it only appears on the list as “Duvel Beer”.

“After checking their inventory against the state’s official list of registered beers (which contains more than 2,800 brands) the officers seized four kegs and 317 bottles. Police calculations indicate that they now possess about 60.9 gallons of beer with an estimated value of $7,200.”

According to the Philadelphia Daily News State Police Sgt. William N. La Torre said that the beer would be kept in a secured location, as evidence, until the case is resolved, probably in six to eight months.

The burden of regulatory inefficiencies should not be shouldered by businesses. The Maida’s establishments has lost the ability to offer these beer for 6-8 months, if not permanently. By the time the bars re-acquire the brews they’ll potentially be past the date of best use, consumers who had wanted to purchase the brands would have been disappointed and the image of the bar has been severely damaged.

Regulations like this make it difficult for businesses to remain open in Pennsylvania. It’s to their credit that bars, brewers, and distributors can deal with the logistical and financial burdens of these regulations and continue to operate in spite of them. What is more harmful to Pennsylvanians: being served an unregistered beer or losing a businesses that serve customers, pay taxes, pay employees, and contribute to the state’s attractiveness for residents and visitors?
It’s time to axe the hangover regulations from prohibition and allow brewers, bar owners, and consumers to make their own decisions when raising their glasses.

Picture via Philly.com

The Private Provision of Surface Transportation Infrastructure in the United States

by Marc Scribner on April 20, 2010 · 1 comment

in Economy, Mobility, Regulation

Private sector involvement in surface transportation infrastructure is not new. Public and private turnpikes—roads that require the payment of a toll for passage—have existed for hundreds, if not thousands, of years.  In the United States, turnpikes enjoyed limited success in the 18th century into the 19th century, before being virtually eliminated at the beginning of the 20th century.  Renewed interest in tolls occurred just prior to the Second World War and continued until the passage of the National Interstate and Defense Highways Act in 1956.  Only in the last couple decades have toll roads again become politically palatable, with many taxpayers now preferring tolls to increases in fuel taxes as means to fund road construction and upkeep.  This is important not only in terms of getting road financing right, but also because tolls are the most efficient cost recovery mechanism for private firms.

Private roads serving residential areas have also enjoyed limited historical and contemporary success in the U.S. These are typically financed and managed by local property developers and owners’ associations, many of which allow public traffic. The advantage of these private roads is that investment and use decisions are made in close consult with the affected stakeholders (i.e., adjacent property owners).  Roads controlled by private developers and owners’ associations can accommodate owners’ preferences which may be at odds with one-size-fits-all government regulation, such as preferences for narrower roads and smaller building setbacks.

During the 19th century, private streets were famously constructed in St. Louis. The so-called “private-place model” was successful for several decades, until new city ordinances granted the city the exclusive right to install and maintain “sewers, sewer inlets, water mains, gas mains, underground conduits for electric wires, fire plugs, lamp posts and other conveniences.”  Essentially, owners of private streets lost the ability to control their properties, and many gave up and lobbied the city to take over ownership and management. But with the recent rise of common interest housing developments (often referred to as “gated communities” or “private communities”), private streets have been making a slow comeback as an important component of the overall transportation system.

Private involvement in surface transportation was not limited to roads. Prior to the middle of the 20th century, passenger rail infrastructure in the United States—including track used for intercity service, commuter service, and urban mass transit—had been privately built, owned, and operated. New York City’s subway and commuter rail systems, Chicago’s El, and the nation’s cross-country intercity rail network were all owned and managed by private firms.

The poor state of private mass rail transit following World War II was in part a consequence of the massive economic distortions and dislocations caused by the federal government’s annexation of industry to support its war economy.  However, rail transit had been losing its market share for years following the first auto-driven suburban expansion after World War I. The street car industry, for example, was in a financial death spiral long before the outbreak of World War II.  Unfortunately, these inefficient and unpopular (at least in terms of ridership) transit networks were put on government-funded life support for decades—or worse, continue to limp along to this day.

Around the world and in the United States, private sector involvement in transit infrastructure has increased dramatically in recent years. While not all public-private partnerships are created equal—and those which promote private ownership of infrastructure in the long-run should certainly be preferred over those which merely lease public infrastructure to private managers—they should be seen as a step in the right direction.

The Spin Zone

by Ryan Lynch on April 20, 2010 · 2 comments

in Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=o4BBKEyEiZc 285 234]

SEIU Recruits College Students as Muscle

by Ivan Osorio on April 19, 2010 · 2 comments

in Labor, Politics as Usual

At Biggovernment.com, the writer known as Liberty Chick offers a good, concise summary of the corporate campaign being waged by the Service Employees International Union (SEIU) against the catering company Sodexo, which it has targeted for unionization. As with any corporate campaign, the union is engaged not only in a frontal assault; it is also pursuing other lines of attack through allies, in order to obscure its self-interested economic motive in signing up more dues-paying members.

If you haven’t been following SEIU’s all-out war against Sodexo for the last 18 months, let me give you the crash course.  Sodexo is a food service and facilities management company that provides cafeteria and cleaning services at many of the nation’s companies, schools, event facilities and athletic stadiums.  The company’s 110,000 employees in the US (plus even more in international locations) have long been a been a prime target for SEIU’s organizing attempts.  In the “old days”, colleges and universities hired food and cleaning service workers as direct employees.  But as that need has declined over the years with all the food establishment choices available today, more and more  schools now outsource their food and cleaning services in an effort to leverage those cost savings to avoid making cuts to students’ educational programs. Organized labor has of course pushed back.  SEIU’s been pummeling Sodexo with their corporate campaign tactics through the usual outlets – the smear website, the manufactured “studies” from affiliates and allies,  the strategically times press releases, the coordinated protests, sit-ins and international delegations, and all the drummed-up issues…

Along with UNITE-HERE (which recently split, with one part it joining SEIU), SEIU has helped pioneer the use of the corporate campaign as a prime organizing tactic. Adapted from a strategy first articulated by the 1960s New Left, corporate campaigns target a specific employer or group of employers through the threat of destroying a company’s reputation. Tactics include feeding allegations of company wrongdoing to the news media, contacting stockholders to deride management and the company’s financial health, filing complaints with regulatory agencies, and plain vanilla picketing.

As George Washington University Professor Jarol Manheim noted in a 2002 Labor Watch article, “For unions, corporate campaigns are a powerful organizing tool because they focus not on prospective union members, but on their employers. The typical campaign does not depend on striking a massive blow against an employer. Rather, the idea is to generate a rising crescendo of psychological pressure to which management is eventually forced to respond.” One way to apply that kind of pressure is to enlist allies, such as environmental and other left-leaning activist groups. In the case of Sodexo, SEIU’s allies include student groups.

Manheim quotes Stern’s predecessor, John Sweeney, who recently stepped down as president of the AFL-CIO. In his 1995 AFL-CIO inaugural address, Sweeney said, “We will use old-fashioned mass demonstrations, as well as sophisticated corporate campaigns, to make workers’ rights the civil rights issue of the 1990s.”

Manheim’s Labor Watch article provides a very good overview of the evolution of the corporate campaign as a union organizing tactic. (Full disclosure: I was editor of Labor Watch when it was published.) And for a more in-depth history and analysis of corporate campaigns, I recommend Manheim’s book, The Death of a Thousand Cuts: Corporate Campaigns and the Attack on the Corporation. The title of the book is illustrative. Manheim also quotes current AFL-CIO President Richard Trumka, who, when he was secretary-treasurer of the federation, candidly stated: “Corporate campaigns swarm the target employer from every angle, great and small, with an eye toward inflicting upon the employer the death of a thousand cuts rather than a single blow.”

For more on SEIU, see here, here, and here.

Chris Horner on His Book “Power Grab” & Obama’s Green Agenda

by Richard Morrison on April 19, 2010

in Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=PCmI6Wl0dcE 285 234]

LibertyWeek 89: Tax the Sin, Love the Sinner

by Richard Morrison on April 19, 2010 · 1 comment

in CEI Projects, Features, Podcast, Zeitgeist

Richard Morrison, Jeremy Lott, Marc Scribner and Lee Doren bring you Episode 89 of the LibertyWeek podcast. We chew over sin taxes, enviro attacks on Al Gore, free booze, Eric Massa’s $40,000 payoff and the recent Tax Day Tea Party protests in D.C.

Insurers need a fallback plan

by Michelle Minton on April 19, 2010 · 1 comment

in Insurance, Odds & Ends

It seems that insurance companies can do no right. This is especially true when it comes to setting rates. Customers demand high quality insurance coverage, but don’t want companies to be able to factor in certain personal details about policy holders that would allow them to charge higher rates to higher-risk policy holders while giving a discount to customers that represent less of a risk–all of which simply means that everyone gets charged more.

One of the most controversial factors insurers use in rate-setting is credit history. Most policy holders can’t understand what their credit score has to do with their ability to drive a car and many states, such as Maryland and Michigan, are on the verge of passing laws or courts rulings that would ban or limit an insurance company’s ability to use credit-based rates. Perhaps it is so controversial because even the insurance companies themselves do not understand why there is a correlation between low credit and higher rates of losses, but there is.

Insurance companies work like forecasters. They predict the number of accidents and how many people will make claims on their policies and how much of it they will use. In order to predict the likely amount of loss each insured represents they use a wide range of factors that together add up to the most accurate assessment of risk. The more accurately an insurer can predict the less they need to charge-the less of a financial cushion they need for unforeseen accidents. The less clearly the prediction, the more they need to charge to make sure they can pay claims. Despite what many consumers believe, insurance companies aren’t looking to make a profit by charging exorbitant rates for safe drivers who never get in an accident-on the contrary.  Insurance companies simply want to get as close to breaking even as they can; this allows them to charge less than the competition, keep customers, and invest their funds in interest bearing assets. The more customers they have, the more money they have to invest and the more profit they can take in…so long as they don’t lose money by miscalculating how many accidents a policy holder gets into.

Some consumer advocates and insurance commissioners argue that use of credit history or scoring unfairly discriminates against minorities and low-income policy holders-though the insurance companies insist that they are “blind” to income and ethnicity because they do not ask about those factors when writing a policy. Some argue for a ban on rates based on credit not because it is inaccurate or flawed, but simple because insurers can’t identify why poor credit history correlates with a higher insurance losses. In fact in Florida insurance companies were told that they would need to prove that the use of credit scoring did not disproportionately affect consumers of a specific race, religion, marital status, age, gender, income, national origin, or place of residence-regardless of whether or not there was a correlation between any of these factors and poor credit history.

If consumer advocates want to convince insurance companies to stop using credit history and they want them to offer lower rates the only way to do this is by showing them a way to more accurately predict the risk of each customer. Simply forcing companies to ignore evidence that allows them to get closer to accurate predictions will simply raise the premiums and rates for everyone-good credit or bad.

For Profit, Not-for-Profit and Government – The Metric Problem

by Fred Smith on April 19, 2010

in Deregulate to Stimulate, Economy, Regulation

Americans tend to forget the value of institutional specialization. A private for-profit firm has a straightforward metric – maximizing shareholder profit-a complex goal, requiring managers to balance short and long term objectives, weigh the tradeoff between making a risky investment vs. losing out to more innovative competitors. They must also decide how to share gains with other economic partners – dividends vs. equity growth for shareholders, salaries, benefits and other incentives for employees, quality vs. price for consumers, offering price and terms for suppliers, even measures to ensure cordial relationships with neighboring facilities. But, though complex, there is a pole star guiding management decisions.

Non-profits have a mission statement – help the poor, preserve the environment, improve education – but a more difficult assessment challenge. Determining to what extent (if at all) a given activity achieves its desired goal (are smaller classrooms effective at improving education, are biofuels better for the environment) and then creating a ready metric to compare the results (in education, for example, should we focus on percent of students who graduate or the median or range of academic test scores). The subjective element is much higher in non-profit management.

Government faces the greatest metric challenge. Government as a whole has no clear mission, but rather the vague task of “doing good” or “advancing human happiness.” Is that best achieved by reducing the burden of government in some area or expanding its role in that area? How can one decide between an additional expenditure in education or the environment? Resources are finite and government cannot do everything. How can it decide? In practice, government seeks to address the concerns of the more powerful organized interests but that often leads to opposition. Too often, the non-specialized nature of government results in a series of initiatives that are rarely funded adequately. Merely proposing an initiative is often enough to appease the interest group, allowing government to turn to other concerns.

Specialization, like blinders on a horse, has problems but is a very effective way of mobilizing the genius and energy of individuals. Before rushing into the non-profit and political arenas, we should evaluate carefully whether the framework of profit-directed firms has been overlooked. All sectors whether education, health care or the environment have unrealized potential- yet we continue to rush down the less measurable path to the future and get ourselves hopelessly lost.

Hate mail from an M.D. regarding my AOL News piece, “Did WHO Knowingly Hype Swine Flu?”

by Michael Fumento on April 19, 2010 · 3 comments

in Health and Illness

Dear Mr. Fumento:

Well, if you wish to destroy the credibility of the WHO, publishing a few more articles like the most recent one Did WHO Knowingly Hype Swine Flu?”] should be quite a help.

As an individual who happens to know quite a bit about medicine, influenza, public health and pandemic influenza planning and response, my opinion (which sadly won’t be published and broadcast to the world) is that you don’t know what you are talking about. Understandable since you have, apparently, absolutely no background in medicine or public health.

Quite clearly, if the WHO had underplayed the threat and lives had been lost that, in your opinion, could have been saved, you would now be savaging the WHO for underplaying the threat. Apparently, in the fantasy world you inhabit, complete accuracy in predicting the future is not only possible, but required. Next time, I will know better than to read an article with your byline.

David Buhner MD MS

Dear Dr. Buhner:

Let me try to understand this. The WHO changes the definition of “pandemic” so that it can label as such a strain that’s clearly vastly milder than seasonal flu. It then proceeds to lie repeatedly about having changed the definition, notwithstanding that both versions remain on its Web site. But in pointing this out, *I* am the bad guy; I’m the one destroying the WHO’s credibility. The WHO played no role in all this.
Ever hear the expression about shooting the messenger?

Actually, I’ve been publishing on medicine and public health for 23 years so the ad hominem doesn’t go too far. I also don’t accept another logical fallacy you’ve offered, that of “black and white.” It is not the case that the WHO must either grossly overstate the threat of a contagion in order to prevent understating it. A key paragraph in my article is this:

It’s not as if the WHO knew nothing about the mildness of H1N1 early on. I wrote about it on May 1, subsequently publishing 14 articles in major publications on what I immediately dubbed hysteria. If I knew better, there’s no reason the WHO shouldn’t have known better.

Why did a single journalist, albeit one with a very strong medicine and public health background, with no budget, know so much so early that the WHO apparently did not? You have the choice of ignorance or intent. Insofar as my piece also contained strong evidence of intent, that would be the logical choice.

Sincerely,
Michael Fumento

Trojan Horse Financial “Reform” Bill Enriches Goldman Sachs, Rips Off Taxpayers

by Hans Bader on April 19, 2010

in Bailout Watch, Economy, Legal, Politics as Usual, Precaution & Risk, Regulation

The Obama administration and Congressional leaders are pushing a trojan-horse financial “reform” bill that would enrich the wealthy and powerful investment bank Goldman Sachs, which was recently cited for massive fraud by the Securities and Exchange Commission (SEC).  That’s the discovery of John Berlau, who won the National Press Club’s Sandy Hume Memorial Award for exposing the conflicts of interest of a former IRS Commissioner.

Earlier, the administration used the AIG bailout to give billions in legally unnecessary payments to Goldman Sachs, which is so rich that it has admitted it didn’t even need the money.  Goldman Sachs, one of the Democratic Party’s biggest donors, is using its political connections to reap record profits.

Moreover, Obama’s legislation would do nothing to rein in the worst offenders behind the mortgage crisis, the government-subsidized mortgage giants Fannie Mae and Freddie Mac, even as it would give the government the permanent ability to bail out Wall Street firms.

Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” Worse, the Obama administration lifted the $400-billion limit on bailouts for Fannie and Freddie, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation.

The administration is now expanding the bailouts of these mortgage giants, which are now giving lavish pay to their CEOs and reducing the payments of deadbeat mortgage borrowers.  (At the direction of the Obama administration, Freddie Mac is now running up $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes.  Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public).

Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages and thus creating an artificial market for junk.  “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”

Why did they buy these risky loans?  They put up with Clinton-era affordable-housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As GSEs, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

Banking expert Peter J. Wallison, who prophetically warned against the risky practices of Fannie Mae and Freddie Mac for years, says that Obama’s proposals will lead to “bailouts forever” and give big, politically connected banks that are “too big to fail” the ability to drive smaller rivals out of business at the expense of consumers and taxpayers.  His colleague Alex Pollock notes that Obama has not lived up his administration’s claims that it would back reform of Fannie Mae and Freddie Mac.

Government pressure on banks to make loans in economically-depressed neighborhoods was another key reason for the mortgage meltdown and the financial crisis.  If Obama has his way, that pressure will increase.  The House earlier approved Obama’s proposal to create a Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”  It would do so without regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a key contributor to the financial crisis.

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