January 2012

Once Again, the Terrorists Win

by Ryan Young on December 15, 2010 · 1 comment

in Politics as Usual, Precaution & Risk

The Arlington, Virginia, Metro stop that services the Pentagon was shut down this morning because of a suspicious object. Passengers in the station were forced to go out into the cold and find some other way to get to work. The incident caused delays up and down the Metro’s Blue Line.

The troubles began at about 7:15 am when someone spotted a blinking item inside a trash can and reported it to authorities. After a very tense hour and a half, the suspicious blinking object was determined to be a Christmas ornament.

The terrorists win again. All it takes to turn the tables is a bit of common sense. Unfortunately, that may be asking too much.

Interchange Price Controls: Gift to Big Merchants, Lump of Coal for Consumers and Community Financial Institutions

by John Berlau on December 15, 2010 · 3 comments

in Deregulate to Stimulate, Economy, Property Rights, Regulation, Tech & Telecom

On Thursday, the Federal Reserve — at the direction of Congress in the Durbin Amendment to the Dodd-Frank financial “reform” bill — will give a giant gift to some of the nation’s biggest retailers. This present is in the form of of direct and indirect price controls on the interchange fees they pay to financial institutions to process debit cards payments

Yet unless Congress acts to delay or repeal the Durbin Amendment, consumers, community banks, and credit unions will be getting a large lump of coal in their stockings by next December as the expenses of running an efficient payment card system are shifted almost entirely onto their shoulders. Consumers have already seen the costs of this rule through the loss of free checking as a result of banks’ anticipation of an estimated 60 to 80 percent loss of revenue from merchant fees. Moreover, the price controls and other provisions of the Durbin Amendment will like reduce investment and innovation to counter emerging hacking and security threats to the payment system.

The Durbin Amendment regulates the debit card issuers as public utilities — something they are not, as the amendment itself makes reference to a “the number of payment card networks” — but it sets price controls more severe than even rate regulation for local phone companies and utilities by not even explicitly allowing for profit.

Thus, as argued by a lawsuit challenging the Amendment from Minneapolis’ TCF National Bank, the fee controls likely violate both the Due Process and Takings Clauses of the 5th Amendment because they deprive banks and credit unions that issue cards of their property rights to a return on capital invested. The Supreme Cou,rt in its 1989 case Duquense Light Co v. Barasch, affirmed that  a government-set “rate is too low if it is so unjust as to destroy the value of the property for all the purposes for which it was acquired.”

The Durbin Amendment likely crosses this constitutional line by requiring the Federal Reserve to set interchange fees at a rate “proportional to the cost.” And the measure expressly discourages some costs from being considered by the Fed. Expenses such as paying employees to service the complex payment system and long-term fixed costs in setting up the sophisticated infrastructure may be excluded.

In fact, amazingly, the Merchants Payments Coalition, which represent Wal-Mart, Walgreens (who Sen. Durbin admitted — on the Senate floor — lobbied him for price controls), and some of the nation’s biggest stores, says that the cost for retailers should be “at par” or zero. Even Ebeneezer Scrooge or the Grinch couldn’t come up with a more self-serving call for corporate welfare.

And consumers have already started paying for the merchants’ “free lunch.” At banks of all sizes, free checking accounts are disappearing, particularly for lower-income consumer who don’t have linked accounts or can’t maintain higher minimum balance thresholds.

And given the experience of other countries with interchange price controls, consumers will likely lose even more without reaping any significant savings from retailers. The Government Accountability Office of the U.S. Congress found last year that after Australia enacted fee controls on credit cards, Aussie consumers faced “reduced rewards and raised annual fees,” and that there was no “conclusive evidence” that any of the retailers’ $1.1 billion in savings had been passed on to consumers.

The Durbin Amendment will also hurt community banks and credit unions. Durbin and his supporters make much of the fact that the bill officially exempts financial institutions with less than $10 billion in assets from the price controls. But both the Credit Union National Association and the Independent Community Bankers of America remain in opposition to the bill, recognizing that government controls of the market rates of credit and debit card networks will adversely affect all financial institutions that issue these cards. And smaller financial institutions are not exempt for the the other, indirect price controls in the bill, such as the routing rules that also compromise consumer privacy and data security.

Obviously, the Fed should interpret the mandates as flexibly as it can and not be bound by the vague language of some of the measures. But Congress can’t absolve itself of responsibility for this burdensome and regressive measure. This includes normally conservative Republicans, such as the duo from the state of Georgia, who speak out correctly against price controls in health care but voted for the controls in the Durbin Amendment after lobbying from Atlanta-based Home Depot

It should enact a bipartisan repeal — or at the very least delay — the Durbin Amendment at its first opportunity. It should gift-wrap this legislation by titling the bill, as I have suggested before in The Wall Street Journal, the “Free Checking Restoration Act.”

Photo credit: tidewater eyesores’ flickr photostream.

An Update on State Alcohol Regulations

by Michelle Minton on December 15, 2010

in Nanny State, Personal Liberty, Regulation

Here is another installment in the roundup of news regarding the weird and wacky state of alcohol regulation in the U.S.:

California: The “sangria ban” in California that exists as a result of state legal code that bans bars and restaurants from mixing alcohol with fruit might be overturned. San Francisco Democrat Mark Leno will introduce a bill in the state’s Senate that will allow for the mixing of liquors with fruits, vegetables, and spices.

Connecticut: Democratic State Rep.-Elect Elaine O’Brien, who enters office in January, said that she continues to support the Sunday ban on alcohol sales in Connecticut. Liquor stores claim that the Sunday ban simply means their patrons buy more on Saturday night, but with Massachusetts recently repealing their 6.25%  percent sales tax on alcoholic beverages and New Hampshire liquor costing less on average than alcohol in Connecticut, some wonder if a ban on Sunday sales won’t simply encourage residents to purchase their liquor across state lines.

District of Columbia: D.C.’s Alcohol Control Board considers extending Georgetown’s moratorium on liquor licenses for five years. The ban on issuing liquor licenses has existed in Georgetown for over two decades.

Indiana: Lawmakers in the Hoosier State are making an attempt to legalize Sunday sales and to allow large retailers to have cold beer in their stores. Currently, Indiana law prevents grocery stores and gas stations from selling cold beer.

In other Indiana news, a lawmaker is attempting to roll back the “grandmother ID requirement” which was passed in the last legislative session and compels liquor and grocery store clerks to card everyone, even if they are clearly over the age of 21. State Sen. Jean Leising, who is in her 60s and a grandmother of seven, was prompted to change the law after being carded by a store clerk while shopping for her family’s Thanksgiving dinner.

Maryland: An investigation by the state comptroller finds that the Liquor Control Board for Worcester County broke the law on a number of occasions, including price discrimination, illegal sales and purchases, and violating state trade practices. The organization’s staff will go through the due process and could face hefty fines and/or suspension. But the fine, up to $50,000, would just come from the taxpayers. The revelation has prompted calls to abolish the Liquor Control Board altogether.

New York: Forget about shipping a wine and cheese basket to anyone in New York. As my colleague Angela Logomasini pointed out in her article, the state bans the sale of alcohol in supermarkets and states that retailers can’t sell food and alcohol at the same time — which apparently applies to online retailers as well. Some online retailers get around the law by shipping the food basket in one container and the alcohol in another: “some assembly required.” Angela notes that New York isn’t alone in banning shipments of alcohol (with or without food). Alabama, Arkansas, Delaware, Kentucky, Maryland, Massachusetts, Mississippi, Montana, New Jersey, Oklahoma, Pennsylvania, South Dakota, and Utah also prohibit direct shipping.

North Carolina: Gov. Bev Perdue is considering privatizing the state-controlled liquor stores. Currently, liquor in the state can only be purchased in state-stores, which are open Monday through Saturday.

South Carolina: Lawmakers in South Carolina are working swiftly to correct their accidental ban on alcohol licenses for festivals and special events in the state. In an attempt to allow non-profit organizations to apply for the short-term licenses, they limited the licenses to just non-profits. Republican state Senator Chip Campsen has already introduced legislation to fix the mistake and a companion bill was introduced in the state House by Republican Rep. Chip Limehouse (guess you really can’t have just one). Both will first need to be vetted by their respective Judiciary Committees. In the meantime the South Carolina House Judiciary Committee Chairman Jim Harrison plans to introduce a joint resolution instructing the Revenue Department to ignore the ban. With Christmas just around the corner many businesses are waiting anxiously for legislators to fix their flub.

CEI Podcast — December 15, 2010: Alcohol Regulations Across the Country

by Ryan Young on December 15, 2010

in Nanny State, Personal Liberty, Podcast, Regulation

Have a listen here.

Michelle Minton, CEI’s Director of Insurance Studies, takes a whirlwind tour of alcohol regulations across the country. From Pennsylvania to Texas to Colorado, there are regulations at every turn. They do everything from raise revenue to tell people what products they can buy at what times, to shelter politically favored companies from pesky competition. In this way, alcohol is like most other sectors of the economy.

Useless College Degrees Proliferate; Millions Waste Lives in Academic Bubble

by Hans Bader on December 15, 2010 · 2 comments

in Economy, Employment, Politics as Usual

“Do we need more college grads?,” asks John Leo in Minding the Campus.  The answer is surely no: a study highlighted in the Chronicle of Higher Education shows

“60 percent of the increase in the number of college graduates from 1992 to 2008 worked in jobs that the (Bureau of Labor Statistics) considers relatively low skilled — occupations where many participants have only high school diplomas and often even less.” This means that the great push to increase the number of college grads has apparently come to very little — only a minority of the additional grads are in occupations regarded as requiring a bachelor’s degree.  Of the nearly 50 million U.S. colleges graduates, 17.4 million are holding jobs for which college training is regarded as unnecessary. The number of waiters and waitresses with college degrees more than doubled from in the years 1992-2008, from 119,000 to 338,000, and cashiers with college degrees rose from 132,000 to 365,000.

In “The Great College Degree Scam,” expert Richard Vedder points out that “[s]ome in higher education KNOW about all of this and are keeping quiet about it because of their own self-interest. We are deceiving our young population to mindlessly pursue college degrees” they don’t need.

In “Four Years of College to Become a Bellhop“, Stephen Kanfer laments:

“Like the dollars that pay for them, degrees from U.S. colleges and universities are rapidly declining in value. . . a B.A. is hardly a guarantee of salary or success. . . Examples: Nearly 30% of flight attendants had BA’s. Some 24% of retail salespersons had similar degrees. So did more than 17% of baggage porters and bellhops. Taxi drivers: 15%; hotel, motel and resort desk clerks, 16%; manicurists and pedicurists, 11.5%. The list goes on to include locksmiths, shampooers and telecommunications installers. . . the principal reason for the lack of high-grade employment lies with the colleges themselves. Anyone who inspects their catalogues will find a glut of courses designed to separate the student from his cash, without imparting anything that might be defined as wisdom. Core curricula . . . have been elbowed offstage by banal courses in feminism, black studies and queer theory. . .The result: students who can spout a line of political correctness designed to dazzle their peers and professors. With that and $1.50 they can get a bus ride downtown to the unemployment offices. And when and if they do land a job, chances are that their abilities will be sorely tested because they come to work with an ignorance of history, economics and society. The future is not hard to predict. If current conditions prevail, the deflation of a bachelor’s degree will soon be accompanied by a corresponding inflation in the value of advanced degrees. A B.A. will be considered the equivalent of a high school diploma, and candidates for fast-track jobs in business or the professions will have to enter the work force with at least a master’s degree. Colleges will grow richer and students poorer. And if matters go far enough, one day municipal workers will have Ph. D’s to qualify for a position in the sanitation department.”

We earlier discussed the college tuition bubble, and the uselessness of many elite law schools, in “The College Debt Bubble: Is It Ready to Explode?”

Image credit: Honeywell-Nobel Initiative’s flickr photostream.

Afternoon Links: December 15, 2010

by Nicole Ciandella on December 15, 2010

in Zeitgeist

1. Two Brooklyn guys have rigged their house so that if they “check in” to home on Foursquare, their front door unlocks.

2. A Philadelphia man is offering a marijuana reward for the return of his stolen laptop.

3. Kashmir Hill: “Your email now warrants greater privacy, thanks to sex pill peddling dude.”

4. After a D.C. thief robbed the home of a Washington Post columnist, he posted gloating photos on the Facebook page of the columnist’s 15-year-old son.

5. A male postal worker told a female customer he would deliver her mail naked because he wanted to “cheer her up.” He then left and returned completely naked—and was promptly arrested.


Photo Credit: Ben Babcock’s Flickr Photostream

Morning Media Summary

by Lee Doren on December 15, 2010

in Economy, Energy, Environment, Legal, Personal Liberty, Regulation, Trade

Tech:

Air Force Blocks Media Sites:
“The U.S. Air Force is blocking its personnel from using work computers to view the websites of the New York Times and other major publications that have posted classified diplomatic cables, people familiar with the matter said.”

Breaking News on EFF Victory: Appeals Court Holds that Email Privacy Protected by Fourth Amendment:
“In a landmark decision issued today in the criminal appeal of U.S. v. Warshak, the Sixth Circuit Court of Appeals has ruled that the government must have a search warrant before it can secretly seize and search emails stored by email service providers. Closely tracking arguments made by EFF in its amicus brief, the court found that email users have the same reasonable expectation of privacy in their stored email as they do in their phone calls and postal mail.”

Why attackers can’t take down Amazon.com:
“The website-attacking group “Anonymous” tried and failed to take down Amazon.com on Thursday. The group’s vengeance horde quickly found out something techies have known for years: Amazon, which has built one of the world’s most invincible websites, is almost impossible to crash.”

FCC’s “Open Internet” proposal heading for defeat?:
“Conservatives have kept a close eye on Julius Genachowski, chair of the FCC, especially after his first attempt to regulate the Internet by regulatory decree got slapped down by Congress. Now it looks like the chastened Genachowski has lost the Left, too. His scaled-down “Open Internet” proposal had no chance of winning support from the conservatives on the FCC board, and his Net Neutrality allies are urging the Democrats on the panel to oppose it as well:”

‘Stuxnet virus set back Iran’s nuclear program by 2 years’:
“The Stuxnet virus, which has attacked Iran’s nuclear facilities and which Israel is suspected of creating, has set back the Islamic Republic’s nuclear program by two years, a top German computer consultant who was one of the first experts to analyze the program’s code told The Jerusalem Post on Tuesday.”

Mark Zuckerberg is Person of the Year:
“For connecting more than half a billion people and mapping the social relations among them; for creating a new system of exchanging information; and for changing how we all live our lives, Mark Elliot Zuckerberg is TIME’s 2010 Person of the Year.”

Global Warming / Environment / Energy:

The U.S. Should Halt All Funding For U.N.’s ‘Global Warming’ Scam:
“The global warming prophets and propagandists, who enjoy living in style on other people’s money, gathered last month in the plush resort of Cancun, Mexico, where January temperatures usually hover around 80 degrees. God must have a sense of humor because Cancun was hit by its coldest temperature in a hundred years.”

Insurance / Gambling:

Budget bill might be final option in fading effort to legalize online poker:
“The fate of a proposed legalization of online poker is a quiet ongoing debate on Capitol Hill, but since it’s sparking full-throated passions around Nevada, we thought it would be a good idea to parse through exactly what’s going on.”

Health / Safety:

Doctors Claim HIV-Positive Man Cured by Stem Cell Transplant:
“There’s an estimated 33 million people worldwide living with HIV/AIDS, and now doctors believe one of them may have been cured of the virus after receiving a stem cell transplant in 2007, the medical journal Blood reported.”

Economics:

Sidestepping the U.S. Dollar, a Russian Exchange Will Swap Rubles and Renminbi:
“Russia and China are poised to take a small but symbolic step in their expanding economic relationship, a move that in the long term could make the dollar less relevant to business between the two nations.”

Congress’ Job Approval Rating Worst in Gallup History:
“Americans’ assessment of Congress has hit a new low, with 13% saying they approve of the way Congress is handling its job. The 83% disapproval rating is also the worst Gallup has measured in more than 30 years of tracking congressional job performance.”

Democrats’ budget bill: $1.1 trillion; 1,900 pages:
“Defying the political odds, Senate Democrats rolled out a year-end, governmentwide spending bill Tuesday that cuts more than $26 billion from President Barack Obama’s 2011 requests even as it holds firm to thousands of the appropriations earmarks so adamantly opposed by critics of Congress.”

Legal:

Breaking News on EFF Victory: Appeals Court Holds that Email Privacy Protected by Fourth Amendment:
“In a landmark decision issued today in the criminal appeal of U.S. v. Warshak, the Sixth Circuit Court of Appeals has ruled that the government must have a search warrant before it can secretly seize and search emails stored by email service providers. Closely tracking arguments made by EFF in its amicus brief, the court found that email users have the same reasonable expectation of privacy in their stored email as they do in their phone calls and postal mail.”

Chicago’s ban on gun ranges challenged in court:
“When the Supreme Court ruled in McDonald v. Chicago over the summer that the right to bear arms does apply to the states, the victory’s sweetness for conservatives was short-lived. Almost immediately, gun-rights advocates braced themselves for more battles against the city’s many regulatory hurdles and licensing schemes.”

Much of Obama’s agenda in hands of courts:
“From air quality to immigration, much of President Obama’s domestic agenda is tangled up in the courts, where judges rather than Congress will decide the fate of his policies. ”

First-Ever Settlement Against Smokeless Tobacco Maker for Wrongful Death:
“The country’s largest maker of smokeless tobacco has reached a $5 million settlement after being sued by the family of a 42-year-old man who died of mouth cancer, The Wall Street Journal reported Dec. 8.”

Labor:

AFL-CIO, SEIU, Sierra Club and others call for filibuster reform:
“One thing you’re seeing today that you weren’t see a few years ago is that Senate reform is now a priority of what we might call “the institutional left.” Consider this letter (pdf), which is signed by the Communication Workers of America, the United Steelworkers, the Sierra Club, SEIU, Common Cause, DailyKos, the AFL-CIO and eight other left-leaning heavy-hitters and asks “Senators to move forward with reforms consistent with these eight principles”:”

Transportation/ Land Use:

Columbia Eminent Domain Case Will Not Be Heard:
“So the Supreme Court will not hear the eminent domain case involving Columbia University, which finagled the state into seizing local land and transferring it to the school. That means that the landowners who don’t want to sell have no recourse. Worse, it reinforces the precedent of Kelo–that the government can take land and transfer it to private actors even when there’s only a trivial and dubious public gain involved.”

Group recommends $2M for Rochester high-speed rail:
“A proposed high-speed rail line linking Rochester and the Twin Cities has gotten a boost.”

Is Obamacare’s Government Healthcare Takeover a “Civil Right”?

by Hans Bader on December 14, 2010

in Healthcare, Legal, Nanny State, Personal Liberty, Regulation

Doug Powers takes aim at the silly argument by the Obama administration that opposing Obamacare is analogous to opposing basic civil rights. As he and Michelle Malkin note, if Obamacare is such a civil right, why are employers — and even labor unions that backed the law — seeking waivers from its onerous requirements?

Yesterday, a federal judge in Richmond struck down Obamacare’s requirement that individuals buy health insurance in this ruling in Virginia v. Sebelius.  CEI joined that brief.  The judge’s ruling found that the requirement exceeded Congress’s power under the Interstate Commerce Clause, as I earlier explained.  As we previously noted, Obamacare harms medical advances, private employers, insurance-policyholders and health-insurance markets.

Ed Morrissey takes issue with another argument made by Attorney General Holder and HHS Secretary Sebelius.

In Offense of Ben Bernanke, Part III: Bernanke, Blinder, and Underpants Gnomes

by Alex Schibuola on December 14, 2010

in Economy

Part I: The Fed is Competent?
Part II: The Natural Rate of Unemployment
Part III: Bernanke, Blinder, and Underpants Gnomes

Professor Blinder writes:

Here’s the first Economics 101 question: When central banks seek to stimulate their economies, how do they normally do it? If you answered, ‘by lowering short-term interest rates,’ you get half credit. For full credit, you must explain how: They create new bank reserves to purchase short-term government securities (in the U.S., that’s mostly Treasury bills). Yes, they print money. [Italics added]

But short-term rates are practically zero in the U.S. now, so the Fed wants to push down medium- and long-term interest rates instead. How? You guessed it: by creating new bank reserves to purchase medium- and long-term government securities.

I’m afraid that’s only partial credit, though. What the Federal Reserve has yet to elaborate on is why this “stimulates” the economy. You should know, Professor Blinder, that investment appears to be interest-rate inelastic. You wrote this in your journal article, “Is There a Core of Macroeconomics That We Should All Believe?”

The claim that QE2 is supposed to “stimulate the economy” bothers me. For those of you who watch the TV show, South Park, it reminds me of the underpants gnomes episode. The gnomes collect underpants and give the following explanation for why:

Underpants Gnomes:

Phase 1: Collect underpants.

Phase 2: ???

Phase 3: Profit!

Bernanke and Blinder:

Phase 1: QE2.

Phase 2: ???

Phase 3: Economic recovery!

I still want a better explanation for Phase 2… from the Fed. They say they want to be clear and explain their thinking, but I have yet to hear an explanation other than that.

If you want a more sane explanation for QE2: one could point out that many of the Fed’s current assets are maturing. This means that cash will be flowing back into the Fed and they want it out. Thus, the Fed is trying to keep its balance sheet steady rather than expand it per se.

I surmise that they intend to raise the opportunity cost of holding Treasuries, thus making private sector debt and equities relatively more enticing to hold. Then banks go back to private lending, commercial paper, corporate bonds, etc., and investment expands. So it looks like the people at the Fed have discovered a free lunch. But as ECON101 teaches us, Professor Blinder, There ain’t no such thing as a free lunch!

In Offense of Ben Bernanke, Part II: The Natural Rate of Unemployment

by Alex Schibuola on December 14, 2010 · 2 comments

in Economy

Part I: The Fed is Competent?
Part II: The Natural Rate of Unemployment
Part III: Bernanke, Blinder, and Underpants Gnomes

Professor Blinder writes: “All in all, it looks like the nation and the world need an Economics 101 refresher. So let’s start with the basics.”

All in all, it looks like Professor Blinder needs an Economics 101 refresher too. So let’s start with the basics.

There are three types of unemployment: (1) frictional, (2) structural, and (3) cyclical. I am frictionally unemployed if I leave my current job and take time off before starting my new one. I am structurally unemployed if I lose my job to globalization or minimum wage increases, etc. I am cyclically unemployed if the economy is in recession.

Keynes referred to cyclical unemployment in proposing his solutions. The Fed might be gravely mistaken to assume that today’s high, persistent unemployment rate is purely cyclical. The Fed can only impact cyclical unemployment, not structural or frictional. The sum of frictional and structural unemployment is the natural rate of unemployment. The Fed cannot alter this.

There are many reasons why structural unemployment rather than cyclical unemployment might be at play:

  1. Exchange rates are more volatile: unpredictable monetary policies and debt crises are the cause. If I am in an industry that relies heavily on exports, I am in danger of unemployment.
  2. Health care reform: the costs have yet to be determined and increase employment costs. Needless to say, employers care about the total costs of hiring employees, not just the money wage/salary they pay workers. This uncertainty overwhelms the tiny tax credits offered in the stimulus package.
  3. The housing market is still sick. If people can’t move easily, labor mobility is constrained. It’s more difficult for me to find work if I can’t move.
  4. Higher, extended unemployment benefits reduce the incentive to be employed, at the margin.
  5. The Dodd-Frank Act also imposes numerous uncertainties on the financial sector. This complicates the process of linking savers with investors. Consequently, investment is curtailed and higher unemployment results.
  6. The uncertainty about the capital gains tax rate didn’t help. Increasing taxes on capital decreases capital accumulation (investment). It does not help it. If productivity-increasing equipment costs me $200,000 and I’m willing to pay $250,000 for it, that’s great! If I have to pay a $60,000 tax on it, that’s bad: The equipment now costs me $260,000 and I was only willing to pay $250,000 before. Now I won’t buy it. I am worse off. The equipment supplier is worse off. The employees of the equipment supplier are worse off because they’ll need fewer workers for production.

If 10 percent is the new natural rate of unemployment, then fiscal policy simply crowds out private investment — private sector spending declines 1 for 1 with increases in government spending in that case. Monetary policy is completely impotent.

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