Regulation

The STOCK Act’s Muzzle and How to Fix it in Conference (Update)

by John Berlau on February 10, 2012 · 0 comments

in Features, Regulation, Sanctimony, Transparency

Post image for The STOCK Act’s Muzzle and How to Fix it in Conference (Update)

My colleagues David Bier and Ryan Radia contributed to this post.

Per the scenario in a previous post, it’s April 2012. You are a conscientious congressional staffer who still takes seriously the need to be a steward of taxpayers’ money. (Yes, I know for a fact, there are more than a few of these folks around on Capitol Hill.) You are watching closely events surrounding an “omnibus” or “minibus” spending bill deemed even by conservative Republican members as “must-pass” because it funds the military as well as other parts of government.

Suddenly, you hear about an outrageous earmark about to be slipped into the bill that would enrich a Fortune 500 company. You decide to alert a network of fiscal watchdogs you’ve met with over the years to wage an instant campaign against this piece of corporate welfare.

You have all the information in the e-mail and are about to hit “send.” But then you remember something from a briefing you attended a couple days ago. The subject was the STOCK (Stop Trading on Congressional Knowledge) Act – aimed at stopping “insider trading” by members and employees of Congress – that your boss and nearly every other member of Congress voted into law in February.

At the time, you didn’t think the law would affect you since the only trading you do is indirect, through your mutual funds and pension. You were surprised to learn, however, that you now have a broad “duty of confidentiality” that encompasses not just trading on “material, nonpublic information,” but disclosing information to those who might.

You sit back and think, “It is indeed possible that someone I send this to could buy stock in the company, or could short the company based on the coming outrage.” You stare at the computer screen wondering how virtually no one noticed how this law could have potentially criminalized an act of whistleblowing as abetting “insider trading.”

Such a scenario is almost certain if House and Senate versions of the STOCK Act are not modified before a final bill is sent to President Obama. The House passed the bill yesterday with a 417-2 vote after a similarly overwhelming 96-3 Senate vote last week.  Both bills must go to “conference” to produce a final identical bill to be voted on by both houses, giving members an opportunity for a fix to help make sure that whistleblowing and routine communication with outside groups from being caught in the law’s web.

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Good News/Bad News On Human Spaceflight Regulation

by Rand Simberg on February 9, 2012 · 2 comments

in Features, Regulation, Space

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In a bill passed last week authorizing the Federal Aviation Administration for another year, the moratorium on regulation of the safety of spaceflight participants, in place since 2004, was extended for another three years, but not as long as proponents in industry had hoped:

Section 827 of the bill (on page 318), tucked away in the “Miscellaneous” section of the bill between sections on air passenger screening privacy and air transportation of lithium batteries, extends the current restriction on safety regulations, but only to October 1, 2015. The joint statement of managers of the conference report provides a few more details, on page 152 of the PDF document: “Nothing in this provision is intended to prohibit the FAA and industry stakeholders from entering into discussions intended to prepare the FAA for its role in appropriately regulating the commercial space flight industry when this provision expires.”

The current moratorium, which was due to expire at the end of this calendar year, was put in place by the 2004 Commercial Space Launch Amendments Act, which prohibited the FAA from regulating passenger safety for a period of eight years (its ability to license launches for the protection of uninvolved third parties was not affected). The idea was that the technology was insufficiently well understood by anyone, including the putative regulators, to put in place regulations that wouldn’t stifle industry development and innovation, given all the different approaches (vertical takeoff and landing, horizontal takeoff and landing, air launch, hybrid rockets, liquid rockets, etc.). The model proposed instead was on the basis of informed consent, in which participants would be given all information available on the design and operations of the vehicle, and make their own assessment of the risk, and whether or not it was worth it.

The problem was that everyone had envisioned more rapid progress, but in the seven years since, not a single commercial passenger flight has occurred, due to development problems with Scaled Composites’ SpaceShipTwo propulsion, and the financial crisis starving some of the other fledgling companies of funds needed for development. Accordingly, the industry had been pushing for Congress to extend the moratorium for another eight years to gather more needed experience to intelligently inform regulations, except this time the clock wouldn’t start when the bill passed, but rather when the first commercial passenger spaceflight occurred, to prevent the problem that arose from the first bill.

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Even Liberal Reporters Sour on Stimulus-Funded California Rail Boondoggle

by Hans Bader on February 8, 2012 · 1 comment

in Economy, Mobility, Politics as Usual, Stimulus to Nowhere, Zeitgeist

Even reporters at the famously-liberal Los Angeles Times have soured on California’s $100 billion-plus rail boondoggle, whose cost will far outstrip whatever the state will get from the $800 billion stimulus package to build it.  But the paper’s editorial board, which supported the stimulus package, continues to back the project, which has ballooned in cost from $33 billion to over $100 billion.  (Managing to see the bright side of even the most pernicious government waste, the paper’s board cited other boondoggles with approval, like Boston’s disastrous Big Dig project, which resulted in motorist fatalities. It praised that infamous project for replacing “what used to be an expressway” with “a downtown park”, despite the fact that it caused “severe delays” for motorists and had a skyrocketing price tag of more than $15 billion.)

But as its own reporter, Steve Lopez, recently noted, there is no telling how much the project will ultimately cost, or when it will actually be completed:

The projected completion date has gone from 2020 to 2033. The anticipated cost has ballooned to as high as $117 billion, and no one seems to have a clue where the bulk of the money would come from. The state auditor and the state Legislative Analyst’s Office have raised serious concerns, and the rail authority’s own peer review group said the project represents “an immense financial risk” to the state. And two weeks ago, the railroad authority’s top executive resigned.To top it off, a poll last fall said nearly two-thirds of registered voters would run this train off the rails if they had a chance to vote again.

The rail project won’t even be useful or economically viable once it’s finished, since travelers will be able to travel more cheaply by road or air than by taking the train.  As syndicated columnist Amy Alkon notes, “this is a totally unnecessary train (and I say that as a train lover). It’s $59 from LA to SF on Southwest if you book in advance,” less than a train ticket will likely cost.  And although the project is misleadingly called a “high-speed” rail project, it turns out that “the train couldn’t really run high speed” after all.

As Tim Cavanaugh noted in Reason, the Los Angeles Times reporter, Steve Lopez, had

the good fortune to answer to the newsroom rather the opinion section, where bullet-train belief still reigns as supremely as it does in Gov. Jerry Brown’s rumpus room. The important thing is that one more prominent Golden State blowhard is sealing the case against the vacant and bankrupt high-speed rail project. . . . In a piece I missed earlier this month entitled “Keeping faith with California’s bullet train,” the ed board praised the High-Speed Rail project because it is similar to Boston’s notorious Big Dig and the building of the pyramids by slaves.

The Obama Administration still supports this boondoggle even though it has been criticized by other liberal newspapers like the Washington Post.  That paper, which has not endorsed a Republican for President since 1952, criticized the project in an editorial entitled “California’s High-Speed Rail System Is Going Nowhere Fast.”

As we noted earlier, the small fraction of the stimulus package that was earmarked for transportation was devoted disproportionately to laying the groundwork for wasteful “high-speed” rail boondoggles that are not actually “high” in speed. These multibillion dollar rail boondoogles would provide work at inflated wages for politically-powerful unions. But these projects are expensive white elephants that would be used by very few travelers at an enormous cost per mile, and not enable trains to go anywhere near as fast as they do in Europe, Japan, or China. (Other union-backed provisions in the stimulus package wiped out jobs in America’s export sector.)

Obama relied on exaggerated claims to push through the stimulus package, claiming it was needed to prevent an “irreversible decline” in the economy,  even though the Congressional Budget Office admitted that the stimulus package would shrink the economy “in the long run.” Even an old-fashioned Keynesian stimulus might have been something that America could not afford at a time of record deficits. The Congressional Budget Office, ignoring various flaws in the stimulus package, argued that it would boost the economy in “the short run.” But even the CBO conceded that the stimulus would shrink economic output in “the long run” by increasing the national debt and thus crowding out private investment.

Yes, Pensions Did Help Push American Airlines into Bankruptcy

by Ivan Osorio on February 6, 2012 · 0 comments

in Economy, Employment, Labor

I generally hold John Tamny’s analysis of economic matters in high regard, so I was surprised to find his take on the American Airlines bankruptcy to be oddly lacking.

In his latest Forbes column, Tamny argues that it wasn’t its pension obligations, but monetary policy, specifically the weak dollar, that pushed American Airlines into bankruptcy.

The immediate reason he cites is high fuel prices, which are caused by the fact that oil is priced in dollars in the global market. High fuel prices have hit nearly all airlines hard, not just American. As Tamny himself notes, “Southwest Airlines was one of the few carriers that properly hedged its exposure to fuel prices that were set to go through the roof.”

What does set American Airlines apart is its pension and labor costs.

American’s pension liabilities are so enormous, at $10 billion, that to deny they were a major factor in the airline’s bankruptcy is contrarian to the point of absurdity. Tamny argues that those liabilities didn’t drive American to bankruptcy based on the notion that they would have been reflected in the airline’s stock price. However, that argument fails in the face of the dodgy accounting which many unionized companies with defined benefit pensions apply to those pensions. Information cannot get out into the market when it is suppressed or obscured.

Then there are labor costs, on which American spends $800 million more a year than its main competitors.

Finally, there’s the problem of management decisions that simply go awry. In that regard, last weekend’s interview of Alaska Airlines CEO Bill Ayer in The Wall Street Journal is worth reading. All too often, airlines place too much focus on gaining greater market share—usually through debt-fueled growth—and not enough on common sense strategies such as working to reduce per-mile costs.

U.S. v. Jones and the Future of Privacy

by Nicole Ciandella on February 3, 2012 · 0 comments

in Legal, Tech & Telecom

Post image for <em>U.S.</em> v. <em>Jones</em> and the Future of Privacy

Last week, the Supreme Court handed down a decision in United States v. Jones. The Court held unanimously that because D.C. police entered a suspect’s car without a valid warrant or reasonable suspicion, they violated the suspect’s Fourth Amendment rights. But in the course of the decision, the Court raised — and ultimately failed to answer — a pivotal question about the future of privacy in America: Does the Fourth Amendment provide protection against warrantless electronic data collection and surveillance?

A great deal rests on the answer to this question. In order to fully enjoy the conveniences of the modern world, people today have voluntarily opted into GPS tracking on their mobile devices and in their vehicles. They’ve opted for E-Z Pass electronic tolling; for debit cards instead of cash; and for cloud web services instead of local storage. Most of us leave digital footprints, and we accept that it’s possible for someone to learn a lot about us from our footprints. But we’re also loathe to think that this information could be accessed by the government without probable cause.

The Supreme Court’s decision in U.S. v. Jones did not establish protections for electronically accessed information. The justices did, however, address today’s driving Fourth Amendment concerns, and they speculated on how recent jurisprudence will shape tomorrow’s digital age protections.

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CEI Podcast for February 2, 2012: The FDA’s Latest Power Grab

by Ryan Young on February 2, 2012 · 0 comments

in Health and Illness, Healthcare, Podcast, Regulation

Have a listen here.

Fellow in Consumer Policy Studies Michelle Minton breaks down the FDA’s behind-the-scenes push to regulate dietary supplements nearly as strictly as prescription drugs.

Regulation of the Day 208: Re-Booking Flights

by Ryan Young on February 2, 2012 · 0 comments

in Mobility, Regulation, Regulation of the Day

Four of air travelers’ five biggest complaints are about the TSA. Right up there on the list with everyone’s favorite sexy-searchers has to be airlines’ habit of nickel-and-diming customers for checked baggage, blankets and pillows, and most anything else that isn’t bolted to the cabin floor.

This business practice, called unbundling, does help keep ticket prices low, as I’ve previously explained. But it’s still annoying; people are transaction-averse.

The Department of Transportation, knowing a good PR opportunity when it sees one, recently passed a rule forbidding one type of extra charge. Airlines may no longer charge re-booking fees if passengers re-book their flights within 24 hours of first purchasing them. Many passengers will no doubt welcome the change. The trouble, which the DOT does not acknowledge, is that it isn’t free. CNN’s Aaron Cooper explains:

The airline says the regulation forces them to hold the seat for someone who may or may not want to fly. As a consequence, someone who really does want to fly wouldn’t be able to buy that seat because the airline is holding it for someone who might or might not end up taking it.

In other words, there will be more empty seats, which costs the airline potential revenue. Passengers will also have a harder time finding a seat on nearly-full flights. That’s why Spirit Airlines, a low-fare airline that practices an extreme form of unbundling, is adding a $2 “Department of Transportation Unintended Consequences Fee.” Re-bookers’ gains come at everyone else’s loss.

It isn’t often that businesses stand up to regulators. More and more, they can be seen holding hands and gazing into each others’ eyes while dreams of increased budgets and decreased competition dance through their heads.

That’s why Spirit’s pointed sense of humor here is refreshing. The DOT isn’t taking too kindly to Spirit’s Economics 101 lesson, but then again, they’re the ones who forgot about tradeoffs. They’re everywhere.

Nine Years Of Space Policy Disaster

by Rand Simberg on February 1, 2012 · 0 comments

in Space

On the ninth anniversary of the loss of the Columbia space shuttle, I have some thoughts on what’s happened since, over at PJMedia:

The problem was that after the ISS was complete, without the Shuttle, the U.S. would have no capability to reach it, and there would be a “gap” in capability until some sort of replacement was developed. At the time of the announcement, the “Crew Exploration Vehicle” (CEV) was the proposed means, but it wasn’t expected to be ready until 2014, resulting in a “gap” of at least three years, and probably longer. When Mike Griffin replaced Sean O’Keefe in 2005, he rolled out a concept called Constellation, which included the CEV, renamed at that time Orion. It also included a new rocket for it, that had not been anticipated in the original Bush plan, called Ares I, despite the fact that existing rockets, such as the Atlas V or Delta IV, could have done the job. Griffin even originally claimed that his plan would reduce the gap, being ready by 2011.

Unfortunately, the design chosen was flawed, and ran into technical difficulties immediately, increasing its costs and stretching its schedule. Because there had not originally been plans for a new launcher, there wasn’t sufficient budget to support it, and other budgets, in science and technology, and the hardware actually needed to get back to the moon, were raided to feed the rocket disaster. The schedule was slipping more than a year per year, and by 2009, when the Augustine Committee was convened to evaluate the situation, it moved rightward to 2017, with only a low probability of hitting that operational date.

Meanwhile, we are totally dependent on the Russians for both transportation to and from the ISS, and for emergency lifeboat services, for which (unsurprisingly) they have been increasing the cost since the Shuttle was belatedly retired last summer, and shipping taxpayer funds overseas to them. Worse, each time we give them a new contract, we have to waive the Iran North-Korea Syria Non-Proliferation Act which prohibits trade with countries who aid those nations in the development of missiles and nukes, because Russia continues to help Iran with both.

Worse yet, while they have been flying for decades, their space systems have proven unreliable just at the point at which we have attained such total dependence. Last summer and fall, they had multiple launch failures, and then a failed Mars probe in November, which recently entered the atmosphere with a load of toxic propellants, but fortunately seems to have fallen into the ocean. And now, they’ve delayed their next ISS flight because they have leaks in the pressurized Soyuz crew module.

And Congress continues to underfund the only solution that can provide us with multiple competitive companies, and eliminate our reliance on thee Russians — Commercial Crew — while demanding that NASA waste billions on an unneeded giant rocket with no funded mission that will probably never fly, but provides jobs in the right states and districts. Next year, it will be a decade, and the low-information level of the space-policy debate of the last few days in Florida would indicate that it’s unlikely to get better any time soon.

12 More Law Schools Sued for Defrauding Their Students; Many More Class-Action Lawsuits Expected

by Hans Bader on February 1, 2012 · 0 comments

in Economy, Employment, Labor, Legal, Regulation

The Chronicle of Higher Education reports that a team of eight law firms have just “sued a dozen more law schools across the country, accusing them of luring students with inflated job-placement and salary statistics and leaving graduates ‘burdened with debt and with limited job prospects.’ The lawyers . . . said they planned to file 20 to 25 new lawsuits every few months . . . the lawsuits had been filed on behalf of a total of 51 graduates, and each suit was seeking class-action status. The targets of the latest round of lawsuits” include  “Brooklyn Law School,” “Chicago-Kent College of Law,” “DePaul University College of Law,” “Golden Gate University School of Law,” “Hofstra Law School,” “University of San Francisco School of Law,” “Widener University School of Law,” and several others. As the Chronicle notes, “Disgruntled law-school graduates who can’t find jobs are increasingly taking their complaints to court, asserting that the schools duped them into enrolling with misleading statistics about their chances of landing well-paying jobs when they get out. Last year similar lawsuits were filed against New York Law School, Thomas M. Cooley Law School, and Thomas Jefferson School of Law.”

As I noted earlier, much of what law schools teach their students is useless drivel, and law schools routinely exaggerate their students’ job prospects. Accordingly, there is no reason to require people to attend law school before sitting for the bar exam. As law professor Paul Campos notes, legal education is often a rip-off, since the typical law professor has little real-world experience practicing law, and “knows nothing about being a lawyer.” But since most states require people to attend law school before sitting for the bar exam, law schools have been able to increase tuition by nearly 1,000 percent since 1960 in real terms. For its part, the Obama Education Department has implemented policies that encourage colleges to jack up tuition and charge students even more, even as college students are learning less and less.

Oklahoma Moves to Keep Big Labor in Check

by Jack Mann on February 1, 2012 · 1 comment

in Labor

Oklahoma taxpayers might be able to breathe a little bit easier this year thanks to two important pieces of legislation making their way through the state capitol.

A proposed amendment to the state’s constitution would enjoin any Oklahoma municipality not “to become indebted or contractually obligated, in any manner, or for any purpose” without the express approval of the municipality’s governing body, the municipal officer charged with budgetary oversight by the governing body, or a majority of the municipality’s citizens.

The amendment’s sponsor, Senator David Holt (R-Oklahoma City), has dubbed it the “Lincoln Amendment” because it “enshrines in our state’s Constitution a basic premise of American democracy — that our government is by the people and for the people, just as Lincoln said at Gettysburg.”

From Senator Holt’s office:

Recently, Oklahoma was ranked the most anti-taxpayer state in the entire southern United States by the Competitive Enterprise Institute. This was primarily because in Oklahoma, the wishes of local taxpayers and their elected representatives are routinely trumped when it comes to spending tax dollars, causing local governments to take on expenses they cannot afford, resulting in service cuts or requests for more taxes. The Lincoln Amendment is a response that shifts the power of the purse back where it belongs, to the taxpayers.

The state Senate is also considering the Oklahoma Paycheck Protection Act, which would amend the state code so that the state’s Office of Personnel Management can only direct payroll deductions to an organization if “the primary or core function of the organization is nonpolitical and nonpartisan.” The bill would also prohibit Oklahoma school districts from directing payroll deductions to teachers’ unions, and would prevent Oklahoma municipalities from writing union payroll deductions into employment contracts.

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