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Panel: Conservative Thought and Sustainability

November 13, 2014, 9:30 AM
R Street's Lori Sanders will be speaking at the ASBC Annual Business Summit on November 13, 2014.

Should we have to declare our emails at customs? The ITC says yes

October 30, 2014, 8:00 AM

“Threats to the open Internet come from all sides….Today’s threat comes from a patent and international trade agency.” - Charles Duan, Public Knowledge

The post-Snowden era of digital communication has been characterized by a series of efforts around the world to exert local control over the Internet. From democracies to dictatorships, a raft of proposals have been put forward by governing bodies who see benefits in controlling data. One technique is to require data be physically stored on servers in the country where the data originated. Thanks to a recent ruling by the International Trade Commission, yet another mechanism for enforcing data localization is now in sight.

It’s difficult for national governments to enforce data localization in a freewheeling digital ecosystem. In the past, such efforts could be easily bypassed with proxy servers, mesh networks and other workarounds. But last April, the ITC added one more layer to the mess of tools that governments can use to splinter and restrict access to the global Internet, when it ruled that transfer of digital data between countries can be regulated in the same way as physical goods. The decision found that, under Section 337(a)(1)(B) of the Tariff Act of 1930, data may be subject to customs laws just like any other import.

As succinctly summarized by Charles Duan, director of the Patent Reform Project at Public Knowledge, the ITC’s decision “just raises more questions.” The ITC’s stated justification is that the digital data sets in the case were “directly representative” of physical models and “are processed or treated through a series of interpolations in a manner analogous to physical manipulation.”

But what classifies a digital dataset as a “direct representation” of physical reality? Will all digital photographs be subject to trade laws? Such an interpretation could wreak havoc on trade treaties currently under negotiation, such as the TTIP and TTP, whose negotiators already face great difficulty finding common grounds on contentious data transfer issues like privacy, antitrust and intellectual property.

Globally, the move toward data localization has been motivated by divergent concerns, in some states to censor Internet activity, while in others, due to fears of foreign surveillance. Russia recently moved to enforce a law passed in July that requires all personal data of Russian citizens to be stored on servers in Russia. Google, Facebook and Twitter have been notified that compliance must include storing all metadata about Russians’ communications on local servers. This is especially problematic, given that Russian data servers are required to use encryption algorithms certified by the Russian Federal Security Service, effectively giving the FSB access to all the data and metadata. It’s a blatant move to restrict Internet access, consolidate the Russian government’s control over the media and give the Russian government increased access to private data.

Authoritarian governments like Russia, China and Iran have used data localization laws to more closely monitor citizen activities, but they are not the only countries passing such laws. The European Parliament is strengthening and expanding privacy laws under the General Data Protection Regulation and some EU members openly advocate creating a “Schengen cloud” to store and process European data.

Andrus Ansip, one of the new vice presidents of the European Commission, has gone on record that the EU-U.S. Safe Harbor data transfer agreement “is not secure.” Unless the U.S. Federal Trade Commission agrees to abide by stringent European privacy standards, Ansip said, “we must consider suspending the agreement.” This would prohibit data about European citizens passing through servers on U.S. soil without explicit consent. It could even compel European countries to remove data from U.S. cloud services. To quote Dirk Engling,a spokesperson for the European hacker association called the Chaos Computer Club:

“By ‘ensuring’ citizens that they are only safe if they restrict their Internet usage to within Europe, what is the Internet there for?”

In India, a country with a growing economy and strong incentive to solidify its place as an emerging tech power, data localization is seen as a tool to increase the country’s influence in the global market. The Indian National Security Council has proposed a plan to store all data regarding communication between two Indian citizens on servers located in India, effectively restricting access to Google, Facebook, and Microsoft Outlook. The plan is meant to safeguard the security and privacy of Indians’ data in light of the NSA surveillance revelations, somewhat hypocritically given the Indian government’s launch of Netra, an Internet spying system.

Aside from curbing freedom of expression, data localization laws would also drive up inefficiencies, increase Internet costs for users, and ultimately degrade data security by making it easier for the NSA to obtain data by direct intrusion and for governments to monitor domestic data. According to Facebook General Counsel Colin Stretch, by adding to the cost of running a network, with local data centers around the world, data localization leaves consumers with a slower Internet experience, limits connectivity and prevents the Internet from reaching its full potential

Given these increased costs and the uncertain economic environment for Internet Service Providers who carry international data, the effects of the ITC ruling could slow the spread of Internet connectivity in developing countries, while erecting barriers to transactions and communications across national borders. It also spells major losses for the U.S. economy: an ITIF study puts potential losses to the U.S. cloud computing industry between $21.5 and $35 million over the next three years as a result of the loss of trust in U.S. data storage providers.

Unless we want to be left with a neutered Internet, hacked into regional slices, we must remain vigilant and ensure that decisions such as the ITC case are reversed. The fact that the word “global” is cropping up as a qualifying descriptor for the Internet, used to describe an integrated network that may be disappearing, is a clear indicator of the challenging work that lies ahead.

The motivations and methods vary, but the principle remains the same. The power of the Internet resides in its effective and efficient structure for transferring of massive amounts of information and computing data. Such technology is powerful. It is also disruptive. We need to devise new legal frameworks for the digital world we live in, rather than retrofitting Tariff Acts from 1930.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

How the EPA should modify its proposed 111(d) regulations to allow states to comply by taxing pollution

October 29, 2014, 11:25 AM

The attached piece was co-authored with Michael Wara and Marta R. Darby of Stanford University.

I. Introduction

The U.S. Environmental Protection Agency (EPA) is exercising its authority under section 111(d) of the Clean Air Act to limit U.S. greenhouse gas (GHG) emissions from existing stationary sources, beginning with carbon dioxide (CO2) emissions from fossil-fuel fired electric generating units (EGUs, power plants or covered sources) [1]. This comment examines the extent to which EPA’s proposed rule for existing power plants (the EPA proposal) and its existing regulations would allow states to comply with their obligations under 111(d) by adopting and enforcing carbon excise taxes. We find that, although states can adopt carbon taxes to comply with 111(d) rules, EPA has inadvertently restricted how states can design their policies, precluding some of the most straightforward approaches. Accordingly, we recommend amendments that would give full flexibility to states to design policies as they see fit, provided those policies are enforceable and will achieve the applicable emissions guidelines.

We are pleased to submit these comments in response to the proposed rule entitled: “Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units” (EPA-HQ-OAR-2013-0602), notice of which EPA provided in the June 18, 2014 Federal Register (79 Fed. Reg. 34830). We also respectfully submit these comments on behalf of the organizations and individuals listed below:

Carbon Tax Center
Friends of the Earth
R Street Institute
Alan Viard

We are scholars in the field of climate and energy policy with expertise in law and economics. Michael Wara is associate professor and Justin M. Roach Jr. Faculty Scholar at Stanford Law School. His research focuses on the intersection of energy law, environmental law, and climate policy. Adele Morris is an economist. She is a fellow and the policy director for the Climate and Energy Economics Project at the Brookings Institution. Her research includes analysis of the potential economic and environmental outcomes of carbon pricing policies. Marta Darby recently received a law degree from Stanford University.

The first section of this paper reviews the legal context of the EPA proposal and the relative roles of EPA and the states under section 111(d). In Section 2, we discuss the potential advantages to states of a tax-based compliance approach. In Section 3, we explore how, with some important constraints, the current regulations implementing section 111(d) and the EPA proposal allow states to comply by imposing an excise tax on the carbon content of fuels combusted in regulated sources. In Section 4, we recommend amendments to existing rules and the EPA proposal that would remove those constraints and give states full flexibility in how they can design their pollution tax policies. Section 5 concludes.

Background

Under section 111(d) and the EPA proposal, EPA and states share responsibility for regulating GHG emissions from covered entities. [2] ;EPA has proposed emissions guidelines that set state-specific rate-based goals for CO2 emissions from existing power plants. The standards reflect the degree of emission limitation that EPA has determined that states can achieve through the application of the “best system of emission reduction” (BSER) that, “taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements, the [EPA] Administrator determines has been adequately demonstrated.” [3]

The EPA proposal has two main elements: 1) state-specific emission goals, expressed as a limit on the number of pounds of CO2 emitted per kilowatt hour (kwh) generated (with some adjustments), and 2) guidelines for developing and designing state implementation plans that will achieve the goals. The EPA constructed four “building blocks” of potential actions to determine the state-specific emissions goals, including: improving heat-rates at high-carbon EGUs; substituting generation at high-carbon EGUs with generation from less carbon-intensive EGUs; expanding low- or zero-carbon generation; and reducing emissions by lowering demand for electricity. Compliance occurs in two phases; covered sources in each state must meet an interim target on average over the 2020-2029 period and then a final target in 2030 and thereafter.

Each state can develop an implementation and enforcement plan that it forecasts will achieve the emissions goal EPA has set for it, or states can collaborate to submit a joint compliance plan. EPA can approve, reject or conditionally approve the plans. Each plan must detail the policies and programs that the states will use to meet their emissions goals. States must submit the plans to EPA, and EPA must approve a plan if it meets EPA’s requirements. Much as states and the federal government cooperate to achieve national ambient air quality standards under section 110 of the Clean Air Act, under 111(d) EPA sets the GHG goals and states decide how to achieve them. [4] Indeed, the EPA proposal itself states that EPA believes that this “well-established principle” from the section 110 process also “applies in the context of state plans under section 111(d).”[5]

In its proposal for existing power plants, EPA emphasizes the wide flexibility states have in how they achieve their emissions rate targets. Flexibility is important because states have very different existing emissions rates, mixes of generation technologies, costs of abatement, utility regulatory structures and electricity demands. EPA says the agency intends to give all states “the opportunity to shape their plans as they believe appropriate for meeting the proposed CO2 goals” [6] and to allow states to use strategies that are not explicitly mentioned in any of the four building blocks in their compliance plans, including market-based trading programs. [7]

The EPA proposal specifies several acceptable flexibilities. For example, it allows states to demonstrate compliance on a multi-state basis (allowing any state’s emissions to exceed its assigned goal if it coordinates with others to make up for the difference). This accommodates the Regional Greenhouse Gas Initiative active in nine northeastern states and potentially other future multi-state cap-and-trade systems. Further, states can average emissions over the 2020-2029 period, rather than complying on a year-by-year basis. In addition, states can choose to meet either an emissions rate-based target or an equivalent mass-based target. The former requires that covered sources achieve a certain emissions rate per megawatt hour of energy produced while the latter requires that they achieve a certain level of total emissions. EPA also allows states to choose how much of the responsibility for emissions reductions falls on emitting EGUs, and how much is placed on other entities, including the state itself. [8] In the EPA proposal and accompanying communications, EPA has emphasized that it wants to give states maximum flexibility in their approaches to meeting the targets the agency has set.

Footnotes

[1] Environmental Protection Agency, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 34830 (June 18, 2014), at http://www.gpo.gov/fdsys/pkg/FR-2014-06-18/pdf/2014-13726.pdf

[2] See 42 U.S.C. § 7411(d)(1), (2). Section 111(d) applies only to emissions not otherwise regulated under Sections 110 or 112 of the Clean Air Act. Emissions for which EPA has promulgated a national ambient air quality standard (NAAQS) under section 109 are regulated under section 110. 42 U.S.C. § 7411(d)(1)(A)(i). EPA regulates hazardous pollutants under section 112. EPA has not promulgated a NAAQS for CO2 nor has it designated CO2 emissions a hazardous pollutant.

[3] 42 U.S.C. § 7411 (a)(1) and (d).

[4] See 42 U.S.C. § 7411(d)(1) (directing EPA to promulgate regulations that are “similar to” section 110 of the Clean Air Act); Train v. NRDC, 421 U.S. 60, 79 (1975) (holding that states have the authority under section 110 to propose source-specific emissions limitations); Michigan v. EPA, 213 F.3d 663, 688 (D.C. Cir. 2000) (finding that EPA’s NOx Budget Program, promulgated under section 110, did not impermissibly limit state discretion because “states remain[ed] free to implement other ‘cost-effective’ or ‘reasonably cost-effective’ measures” other than those identified by EPA); Virginia v. EPA, 108 F.3d 1397, 1410 (D.C. Cir.), modified on other grounds, 116 F.3d 499 (D.C. Cir. 1997) (EPA cannot condition approval of state plans on the adoption of specific control measures).

[5] EPA, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg., 34879.

[6] EPA, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg., 34834.

[7] EPA, Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg., 34837.

[8] Op cit p. 34833.

ITC: The new digital cop?

October 28, 2014, 12:11 PM

Do you know where your e-mail account is located? No, “the Internet” is not a valid answer. More specifically, do you know on which of Google’s many servers your Gmail account is physically located?

If you’re a U.S. user whose account is hosted in, for example, Singapore, then congratulations: Every time you download an e-mail, you’re “importing” digital goods that are subject to the authority of the International Trade Commission. That’s the precedent set by a recent ITC decision, currently under appeal before the U.S. Court of Appeals for the Federal Circuit as Clearcorrect v. ITC.

The case stems from an obscure patent lawsuit over teeth-straightening technology. But hidden in its inaccessible tangle of legal minutiae is a broad assertion of authority by the ITC — namely, that the 1930 Tariff Act, which gives it the authority to regulate “articles of importation,” covers digital goods and not just physical ones. If upheld, the “electronic transmission of digital data” would fall under the same rules as crates full of knock-off jeans.

It isn’t that the ITC has never enforced intellectual-property rules. If a Chinese company were found trying to export to the United States bootleg DVDs of U.S.-made films, the ITC very clearly could and would intervene. But what if, instead of trying to sell copies of Gone Girl, the company instead wired (via telegram or telegraph) across international borders the text of the movie’s script?

According to a more-than-century-old precedent, regulations pertaining to physical goods are “entirely inapplicable” to electronic messages. As the Supreme Court put it in the 1887 commerce-clause case Western Union Telegraph Co. v. Pendleton:

Although intercourse by telegraphic messages between the states is thus held to be interstate commerce, it differs in material particulars from that portion of commerce with foreign countries and between the states which consists in the carriage of persons and the transportation and exchange of commodities, upon which we have been so often called to pass. It differs not only in the subjects which it transmits, but in the means of transmission. Other commerce deals only with persons or with visible and tangible things.

But the telegraph transports nothing visible and tangible; it carries only ideas, wishes, orders and intelligence. Other commerce requires the constant attention and supervision of the carrier for the safety of the persons and property carried. The message of the telegraph passes at once beyond the control of the sender, and reaches the office to which it is sent instantaneously. It is plain from these essentially different characteristics that the regulations suitable for one of these kinds of commerce would be entirely inapplicable to the other.

So why is the commission suddenly meddling in an area that’s traditionally been off-limits? The ITC argued in its original decision that, because the Tariff Act of 1930 was written “at a time when Internet downloads were not in existence,” its authors could not have foreseen the idea of data as commerce — and the interpretation of the term “articles of importation” must change with the times.

Charles Duan at Public Knowledge eviscerated this argument in an amicus brief:

First: although internet downloads did not exist in 1930, plenty of other transmissions of telecommunications data, including cross-border transmissions, did exist and were certainly known to Congress at that time. Trans-Atlantic telegraph cables were laid and sending messages as early as 1858. Guglielmo Marconi sent the first radio transmission from the United States to the United Kingdom in 1903. A telephone call between Arlington, Virginia and Paris, France was completed in 1915. . . .

Second: These developments in technology were certainly recognized as within the scope of commerce when section 337 was enacted. Numerous cases in the Supreme Court recognized telegraphy as a form of commerce. Between 1910 and 1933, telephone, telegraph, and cable companies were within the jurisdiction of the Interstate Commerce Commission — a commission with the very word “commerce” in its name. . . .

Third: concern for intellectual property rights in the face of electronic transmissions is no new problem, contrary to the Commission’s view. Radio broadcasts posed the same problems to intellectual property owners in the early 1900s as music files do today.

Duan has also noted that treating digital data as “articles of importation” would open the door to the ITC fielding complaints — and opening investigations — relating to all phone calls, audio streams, television broadcasts, and other telecommunications that could cross borders, with the potential for Internet-service providers, phone companies, or even individual Internet users’ being called before the commission as importers or exporters. Considered in this light, it’s no surprise that actors such as the Motion Picture Association of America love the ITC’s decision.

The courts should cut this kind of abuse off at the knees. What’s good for phone calls, radio, and telegrams is good for downloads, e-mail clients, and every other form of data transmission. Otherwise we might all soon be asking, “Where’s my e-mail account?”

The answer just might be, “the ITC has it.”

What’s the key difference between Bush in 2006 and Obama in 2014?

October 28, 2014, 10:43 AM

From the midterm elections in 2006 until well into President Barrack Obama’s first term, the Democratic political message turned on one simple theme: “[T]he failed policies of the Bush administration.” It was devastatingly effective.

The nation had grown weary of America’s presence in Iraq several years after President Bush proclaimed that “major combat operations in Iraq [had] ended.” Many Americans were also less than impressed over the federal government’s response to Hurricane Katrina.

The result was massive victories for Democrats in the Senate, House of Representatives and governors’ races around the nation. The election resulted in Nancy Pelosi becoming speaker of the House and Harry Reid heading the Senate as majority leader.

Reid and Pelosi hammered the simple mantra of Bush administration failures again and again. Even the stimulus and various bailouts during President Obama’s first term were hung on the Bush administration.

With a little more than a week to go until the 2014 midterm elections, the similarities to 2006 are worth considering.

According to Gallup’s Presidential Job Approval Center, President Obama’s approval rating is 41 percent to President Bush’s 37 percent at the same point into their second terms. While Bush faced an unpopular war, Obama has the fallout from Benghazi on his resume, as well as the emergence of the Islamic State and issues with Syria. Bush was criticized for the Katrina response; the Obama administration has struggled mightily responding to the Ebola outbreak.

The script should be familiar to Democrats but potentially more concerning because of one significant difference between Bush and Obama: Their willingness to keep a low profile.

Democrats are aware that the president’s unpopularity forces them to fight uphill electoral battles in many states. The president is not doing them any favors.

Republicans readily pounced on President Obama’s statement that his “policies are on the ballot” in November. Rather than adjusting his stance to help Democrats in tough races, President Obama doubled down on his remarks by noting that “these are all folks who vote with me; they have supported my agenda in Congress.”

The last thing any Democrat in a close election wants right now is a referendum vote on the Obama administration’s policies. At the same time, many Democratic candidates are trying to distance themselves from the president, he is making comments reminding voters that a vote for the Democratic candidate is a vote for the agenda and policies of the last six years.

The president might not be concerned because Bush’s relatively low profile did little to prevent Democratic victories in 2006. He might like the sound of a national referendum on his priorities or enjoy seeing them play well in states like Washington or Vermont. Regardless, his comments demonstrate a tone-deaf hubris that could prove costly to Democrats in contested states all the way down the ballot to local races.

If history is a marker, Republican success at the polls in 2014 could significantly shape the 2016 presidential election. Given the ability to push legislation, moderate confirmations, and generally put an already-unpopular president on the defensive, the GOP could literally take a page out of the Reid-Pelosi playbook on shaping elections and policy.

Public sentiment towards President Obama that tracks the feelings towards Bush in 2006 is enough to put Democrats in a tough spot, but a president unwilling to take a back seat may be enough to cost them a significant election.

This tax proposal could be the largest obstacle to growing small businesses online

October 27, 2014, 4:58 PM

From American Legislator:

Because of these numerous problems with the Marketplace Fairness Act it is no surprise that most Americans do not like the idea. A multi-state poll conducted by the National Taxpayers Union and the R Street Institute found that voters oppose allowing tax enforcement agents from one state to collect taxes from online retailers based in a different state by a margin as high as 26 points.

To save Louisiana’s coast, protect our Restore Act funds

October 27, 2014, 12:55 PM

Louisianans received good news this month, in the form of an announcement from the U.S. Department of Treasury that BP Deepwater Horizon oil spill fines will begin flowing to the Gulf Coast states impacted by the environmental catastrophe.

The money will be distributed pursuant to the Resources and Ecosystems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act, better known as the Restore Act, which sets aside 80 percent of the civil and administrative fines paid in connection with the 2010 Deepwater Horizon oil spill.

The primary purpose of the Restore Act is to channel these fines to mitigation of the impact of the oil spill and increased resilience across the Gulf Coast to future disasters. This is of special significance to Louisiana, which was not only hit hardest by the oil spill but also faces unique environmental challenges that must be addressed.

Fortunately, Louisiana has an opportunity to make good use of these resources by implementing the Coastal Protection and Restoration Authority’s 2012 master plan. The plan was developed using extensive scientific analysis to identify high-performing projects that will protect Louisiana’s communities and ecosystem.

By dedicating Restore Act resources to projects included in the master plan, we can make the best use of the money and minimize fraud and waste. As it happens, Louisiana is the only Gulf state with such a plan in place, giving us the opportunity to lead the way for other states.

One concern with the Restore Act is that its language is broad enough to allow spending on dubious projects in the name of “economic development.” Fortunately, another piece of good news in the Treasury Department announcement was that funds from Pot 2 of the three pots of money would only be used for remediating ecological harm, which is consistent with the act’s intent. This reduces the likelihood of money going to economic boondoggles.

Notwithstanding this good news, there are continuing concerns that Louisiana policymakers will need to address. For one, the incremental nature of the funding makes it difficult to commit to large-scale projects that will be done in phases. The uncertainties of the litigation — how much will be available and when the funds will arrive — all make it difficult to map out a plan of attack.

While the master plan is a valuable document, Restore Act funds will not pay for all of the projects in the plan. Decisions will need to be made about which projects get funded. This could prove challenging, especially considering the possibility that politics will come into play.

Planners and policymakers also will need to ensure money is not wasted on economic projects of questionable value. Protecting our state for the long haul is critical, and so-called “economic development” projects are often less valuable than meets the eye. Any such endeavors should be closely connected to the goal of coastal restoration.

For all of these reasons, the decision-making, budgeting and spending processes should be as transparent as possible. These funds are to be used for the public’s benefit, and transparency is the best way to make sure money is not squandered.

Finally, Louisiana policymakers must make every effort to ensure our state receives its fair share of Restore Act funds.

Louisiana was hardest hit by the Deepwater Horizon spill, but some of the formulas used to distribute funds among the Gulf Coast states could result in other states receiving disproportionately large shares of the money. While each Gulf state suffered damages, policymakers should work to ensure that Louisiana’s recovery is proportionate to its degree of injury.

If our congressional delegation continues to advocate forcefully on our behalf and state and local policymakers act responsibly to make the best use of these resources, we may find our silver lining in this cloud of oil in the form of a more resilient Louisiana.

Steer clear of pricing for private business

October 27, 2014, 10:46 AM

The Orlando City Council’s proposal to force Uber, Lyft and other ride-sharing companies to charge more than their competitors as a condition to conduct business in Orlando is unfair and inherently un-American.

Last year, more than $71.8 billion was infused into Florida’s economy by its 91.5 million visitors, and more than 1 million Floridians held jobs in the tourism industry. This year, it is estimated Florida will attract a record 100 million visitors. As the tourist capital of the world, Orlando should be fostering competition among the industries that facilitate tourism, not undermining them.

Rental-car companies in Orlando, whose rates are unregulated, charge the lowest prices in the country because of demand and competition, and given that most large resorts in the area already provide free transportation to, from and within their resorts, the demand for taxicabs is already smaller than most other tourist-destination cities.

Indeed, local governments can and should ensure the public’s safety by requiring a reasonable permit process involving background checks, vehicle inspections and adequate insurance coverage. But politicians arbitrarily forcing certain companies to charge more than their competitors for simply having a different business model is a protectionist measure that crushes innovation and benefits one business over the other.

As such, local officials should avoid meddling in what a private business charges a willing customer and instead should remain focused on their proper role: ensuring public safety, which might include encouraging additional means of transportation-on-demand to help reduce drunken driving.

Bipartisan coalition sends letter to armed services with final NDAA recommendations

October 27, 2014, 10:22 AM

The Hon. Carl M. Levin
Chairman
Senate Committee on Armed Services
Russell Senate Office Building, Room 228
Washington, D.C. 20510

The Hon. James M. Inhofe
Ranking Member
Senate Committee on Armed Services
Russell Senate Office Building, Room 228
Washington, D.C. 20510

The Hon. Howard “Buck” McKeon
Chairman
House Committee on Armed Services
2120 Rayburn House Office Building
Washington, D.C. 20515

The Hon. Adam Smith
Ranking Member
House Committee on Armed Services
2120 Rayburn House Office Building
Washington, D.C. 20515

Dear Chairmen and Ranking Members,

As you prepare for final, bicameral consideration of the National Defense Authorization Act (NDAA) for Fiscal Year 2015, the undersigned groups appreciate your consideration of the following recommendations. Doing so will help the Department of Defense save valuable resources in an era of budgetary constraint.

Overseas Contingency Operations

As you know, the Pentagon delayed its Fiscal Year 2015 Overseas Contingency Operations (OCO) budget request by several months. As a result, both the House and Senate versions of the NDAA included OCO “placeholders” that do not reflect the Pentagon’s eventual budget request for Fiscal Year 2015. In recent years, the Department of Defense has used the OCO account to avoid the budget caps mandated by the Budget Control Act (P.L. 112–25) and subsequent deficit reduction legislation by transferring base budget programs and funding to OCO accounts. For example, the OCO budget request for Fiscal Year 2015 is roughly $35 billion above the amount required to sustain operations in Afghanistan.

For the remainder of Fiscal Year 2015, the OCO account should be authorized no more than the President’s robust budget request. Congress should stop overfunding the OCO account, which abets fiscally irresponsible expenditures.

F-35 Joint Strike Fighter

We urge you to reject any increases above the House and Senate NDAA authorized levels for procurement of 34 F-35 Joint Strike Fighters. This program is drastically over budget, years behind schedule, and suffers from high levels of concurrency. The undersigned groups have deep concerns with this program and strongly urge that no more than the President’s budget request should be authorized in Fiscal Year 2015.

Littoral Combat Ship

We recommend that you follow the House NDAA’s (lower) recommendation to authorize two Littoral Combat Ships (LCS) in Fiscal Year 2015. The Senate Armed Services Committee authorized an additional third LCS. The future of this program is very much in doubt as the Pentagon analyzes a series of alternatives. It makes little sense to authorize additional vessels until a new course has been set.

M1 Abrams Upgrades

The Pentagon requested $237 million in procurement for M1 Abrams modifications.  The Senate NDAA recommends an increase of $24 million in unrequested funding while the House NDAA would authorize an additional $120 million in unrequested funding. We urge you to authorize the M1 Abrams at no higher than the Senate level.

We support the following policy provisions included in the House version

SEC. 125. Limitation on Availability of Funds for Mission Modules for Littoral Combat Ship: This amendment limits funds for mission modules until the Navy submits milestone goals for cost, schedule, and performance.

SEC. 332. Report on Enduring Requirements and Activities Currently Funded Through Amounts Authorized to be Appropriated for Overseas Contingency Operations: Requires a report listing the enduring mission requirements that are funded by overseas contingency appropriations and a three year plan to fund these requirements and activities without overseas contingency funding.

SEC. 508. Compliance with Efficiencies Directive: Requires DOD to fulfill former Secretary of Defense Robert Gates’ Efficiency Initiative relating to the number of general and flag officers by reducing approximately 33 positions through attrition by the end of 2015.

SEC. 602. No Fiscal Year 2015 Increase in Basic Pay for General and Flag Officers: Freezes pay for general and flag officers.

SEC. 1005. Report on Auditable Financial Statements: Requires the Pentagon to provide a progress update ranking all military departments and agencies in order of how close they are to achieving audit-readiness.

SEC. 1220B. Review Process for Use of United States Funds for Construction Projects in Afghanistan That Cannot Be Physically Accessed by United States Government Civilian Personnel: Requires a review of any reconstruction project over $500,000 in Afghanistan that cannot be physically inspected by the United States. SEC. 1523. Limitation on Use Of Funds For The Afghanistan Infrastructure Fund: Prohibits additional funding of the Afghanistan Infrastructure Fund until previously unobligated funds have been spent.

SEC. 1523. Limitation on Use Of Funds For The Afghanistan Infrastructure Fund: Prohibits additional funding of the Afghanistan Infrastructure Fund until previously unobligated funds have been spent.

SEC. 1524. Codification of Office of Management and Budget Criteria: Codifies criteria developed by OMB in 2010 to clarify when military spending should be designated as contingency operations and properly be part of the Overseas Contingency Operation budget.

SEC. 1640. Annual Congressional Budget Office Review of Cost Estimates for Nuclear Weapons: Requires CBO to provide nuclear weapons budget cost estimates annually.

SEC. 1642. Sense of Congress on Procurement and Deployment of Capability Enhancement II Exoatmospheric Kill Vehicle: Encourages the Secretary of Defense to conduct successful operationally realistic tests before purchasing additional GMD interceptors.

We support the following policy provisions included in the Senate version

SEC. 1226. Prohibition On Use Of Funds For Certain Programs And Projects Of The Department Of Defense In Afghanistan That Cannot Be Safely Accessed By United States Government Personnel: Prohibits funds for infrastructure projects in Afghanistan if military or civilian personnel with authority to conduct oversight of such program or project cannot safely access such program or project.

SEC. 1521. Plan For Transition Of Funding Of United States Special Operations Command From Supplemental Funding For Overseas Contingency Operations To Recurring Funding For Future-Years Defense Programs: Requires a plan to transition funding for U.S. Special Operations Command from the OCO account to the Pentagon’s base budget.

As you prepare the final version of the National Defense Authorization Act for Fiscal Year 2015, we hope you will consider the aforementioned recommendations that will help enhance fiscal responsibility, improve defense acquisition, and strengthen accountability in the Pentagon’s budget.

Sincerely,

Americans for Tax Reform Campaign for Liberty Center for Foreign and Defense Policy Center for International Policy Coalition to Reduce Spending Cost of Government Center Council for a Livable World Downsize DC Friends Committee on National Legislation London Center for Policy Research National Priorities Project National Security Network National Taxpayers Union NETWORK, A National Catholic Social Justice Lobby Peace Action Peace Action West Project On Government Oversight Republican Liberty Caucus R Street Institute Taxpayers for Common Sense Taxpayers Protection Alliance USAction Win Without War Women’s Action for New Directions

cc: Members of the House and Senate Armed Services Committees

New York City’s hotel war heats up

October 24, 2014, 4:34 PM

As any visitor to New York City discovers, the Big Apple isn’t the best place to get a hotel room. Rates top $300 per night, the highest in the country, and supply is quite limited.

At year-end 2013, New York, with a population 8.3 million had fewer hotel rooms than either Chicago, with a population of just 2.7 million, or than much smaller tourist hot-spots like Las Vegas, Orlando, and Washington. Booming and gentrifying Brooklyn, with roughly the same population as Chicago, has a grand total of two full-service, major-brand hotels.

The limited supply and high demand benefits incumbent hotel owners, who get to enjoy high prices. But the room shortage clearly harms the local economy as a whole, by limiting the number of tourists and business travelers who can visit. To their credit, city officials recently eased hotel permitting processes and more than 12,000 new rooms are now under constructions. But unsurprisingly, the city also has seen a boom in Internet-based room-sharing services.

Bureaucrats at the state level aren’t crazy about the idea of new consumer choice. Dusting off old laws intended to deal with brothels and slumlords, busybody state Attorney General Eric Schneiderman is now wielding them against individuals who rent rooms out through websites like Airbnb and Roomarama. His office recently issued a report that estimates more than two-thirds of Airbnb accommodations are illegal. Even if there are antiquated laws that technically prohibit these types of rentals, many of them are simply nonsensical. For example, one state law targeted toward slumlords could be interpreted to ban nearly all bed and breakfast accommodations.

Indeed, by-the-night room rentals seem like one of the last areas where the government has much business interfering with people’s housing choices. Unlike home purchases or even apartment rentals, by-the-night accommodations are temporary: if any harm is done, it is easy to evict the malefactors. So long as there’s no obvious danger (say, cramming 20 people into a one-bedroom apartment) it’s better and easier to remedy any problems after the fact. Even when they have laws similar to those in New York—and such laws are legion—officials in other state governments have mostly left well enough alone, letting the room-sharing market develop on its own.

Schneiderman appears to have other ideas, vowing a continued crackdown. It’s probably worth noting that, as the Ralph Nader-founded New York Public Interest Research Group points out, Schneiderman’s contributions from the hotel industry have soared recently. More than a third of the contributions he’s ever received from hospitality businesses have come in the just last two months. Coincidence?

Earthquakes and home mortgage risk

October 24, 2014, 4:20 PM

The United States faces severe earthquake risk in many areas of the country, yet consumers routinely choose not to purchase insurance products to cover this risk. Low earthquake insurance take-up rates create a scenario in which a major event could result in significant mortgage defaults. The problem is real and serious, although understanding its precise magnitude will require more research. However, there is ample reason to believe the insurance and reinsurance markets are sufficiently well-capitalized to address the issue. Confronting the risk of mortgage default will require changes to product offerings, mitigation efforts and mortgage-loan underwriting standards.

With Texas windstorm insurance, what you don’t pay for, you won’t get

October 23, 2014, 1:06 PM

There’s an old saying in business: you get what you pay for. Yet all too often, government policy seems based on the hope that you can make costs go away by shifting them to someone else.

Take Texas windstorm insurance. The state-run Texas Windstorm Insurance Association provides cut-rate insurance against wind damage from hurricanes and other storms. While originally justified as a provider of last resort for families and businesses who couldn’t get insurance in the private market, TWIA now covers approximately 60 percent of residents in a 14-county Texas coastal region.

But TWIA’s artificially low insurance rates come at a cost. Without actuarially sound rates, TWIA risks being unable to pay out claims when Texas is next hit by a major storm. Such concerns aren’t hypothetical. In 2013, TWIA briefly considered going into receivership in order to stem the tide of claims made after 2008′s Hurricane Ike. Since then, TWIA has considered a number of alternatives to help put the insurer on a firmer financial footing. And even though TWIA’s financial position has improved somewhat, it still has $77 billion in liability.

Inevitably, when an organization like TWIA doesn’t charge enough to meet its liabilities, it has to find the money from somewhere else. Recently, the Texas Department of Insurance issued rules providing for a surcharge on property and auto insurance policies in the coastal region if other sources of funding for TWIA are exhausted.

The new rules have drawn criticism from coastal residents, on grounds that the surcharge would apply only in the 14-county coastal region, rather than in the whole state. Yet it’s hard to see why residents of Lubbock should be required to subsidize windstorm insurance for folks with beachfront property along the Gulf Coast. The real problem with the surcharge is not that it applies to too few people, but that it applies to too many. Under the rules, coastal residents who maintain private windstorm insurance would end up paying to bail out TWIA along with everyone else.

The Business and Commerce Committee of the Texas Senate is currently looking at ways to reform TWIA. Instead of using indirect and complicated mechanisms to shift costs around, TWIA’s funding problem should be solved by resetting premium rates on an actuarially sound basis. That will help to restore not only TWIA’s long-run viability, but also its status as a true provider of last resort. Artificially low insurance rates may seem appealing, but ultimately, the only way for Texans to ensure that windstorm insurance will be there for them when they need it is for them to pay for it.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Bureaucracy’s latest challenge: listening to the public

October 23, 2014, 10:47 AM

The American public often rails about bureaucracy. It is not difficult to fathom why. Who among us has not fumed while standing in a long line at an understaffed post office? And how many of us have thrown up our hands in frustration at the complexity of income tax instructions and outsourced the work to an accountant?

The public tends to explain bureaucratic behaviors by attributing ill motives to the bureaucrats. Civil servants, they allege, are arrogant and lazy. Scholars, such as the late James Q. Wilson, have provided us with social scientific evidence of what many individuals suspect: bureaucracies, especially government ones, tend to be slow to perform tasks, resist change and frequently creep beyond their missions.

But the blame should not be attributed to bad bureaucrats. Rather, research indicates that most of the problems spring from the very nature of government bureaucracy.

Agencies cannot run like businesses because they cannot do what private sector entities do: choose their lines of business and organize themselves accordingly. Instead, bureaucracies’ work is assigned through legislation, usually enacted over decades. The result is a progressive layering of policy duties, which often conflict with one another. And elected officials also tend to impose operational constraints on bureaucracies. For example, instead of allowing agencies to hire whomever they think is best for the job and pay them accordingly, elected officials force bureaucracies to follow byzantine hiring practices and dictate the permissible compensation packages. Thus it is that bureaucracies, as Wilson observed, tend “to be driven by the constraints” on them rather than “the tasks of the organization.”

And thanks to Adam Eckerd, a professor at Virginia Tech University, we know there is an additional reason that bureaucracies get the stink-eye from public: some of them are not good listeners. Eckerd looked at three federal agencies that recently embarked on significant public works. As required by the National Environmental Policy Act of 1969, the agencies prepared environmental impact statements in consultation with the public. Eckerd analyzed the comments submitted by the public and the agencies’ responses.

The results of the study, published in the latest copy of Public Administration Review, are dispiriting. He found little evidence of “meaningful dialogue” between agencies and the public. The two sides talked past one another, especially on the subject of proposed projects’ risk to the environment. “[P]ublic managers tend to take a more aggregate and technical view that risk is something to manage, while citizens focus on risks specific to themselves, consider the fairness of the distribution of risk, and come from a viewpoint that risk is best avoided.”

Eckerd further observed that “the administrators involved in the three cases were usually technical or project management specialists who were well versed in the details of the particular projects but likely had no training in public relations or political engagement.” Hence, agencies’ responses many times were tin-earred and merely acknowledged the receipt of the comments.

An Environmental Protection Agency administrator, who reviewed Eckerd’s study, wrote a response that was published in the same issue of the journal. “My experience,” he wrote, “bears out Eckerd’s conclusion that citizen involvement often has little impact in government decision making.” The administrator further validated the study’s findings by unabashedly proclaiming, “Regulatory agencies are charged with the informed, expert implementation of their organic statutes and resultant regulations…. The contrary attitude [amongst the public] stems from a lack of sophistication about the underlying technical issues, or… a predisposition to object to any proposal on the grounds that it risks changes to the status quo.”

These findings are distressing. Most agencies have public comment policies. These policies are intended to improve bureaucracies’ decision-making by providing them with additional information. The adversarial process also forces agencies to think twice about about what they propose doing. But public input serves an additional critical purpose: fostering a sense of democratic legitimacy. Bureaucrats are unelected and often tenured for life. As such, they are inherently suspect to Americans. So getting public comment right is a critical to having their exercise of authority accepted as legitimate by the public.

For the citizen feeling unheard, Congress is the place to turn. It created bureaucracies and funds them. Congress, accordingly, should make it a regular part of oversight to direct agencies to review their public input processes. And agencies should ask themselves, “Were I John Q. Public, would I feel my voice has been heard and taken seriously?”

 

Free-market think tank ramps up Texas efforts

October 23, 2014, 10:02 AM

From Breitbart:

The R Street Institute, a non-profit, free market think tank with offices in Washington, D.C., Florida, California, Ohio, and Texas, is ramping up its efforts in the Lone Star State, hiring a new Texas state director and setting its sights on an ambitious agenda for the 2015 legislative session that will include insurance reform, environmental and energy issues, the interaction between regulation and newly emerging technologies, among other issues.

Breitbart Texas conducted exclusive interviews with R Street President Eli Lehrer, Florida State Director Christian Cámara, and the newly hired Texas State Director, Josiah Neeley, who joins R Street from the Texas Public Policy Foundation’s Center for Energy and the Environment, where he was a policy analyst. “I’m thrilled to be joining R Street,” Neeley told Breitbart Texas. “I’ve followed the organization since its founding a few years ago, and appreciate its fresh conservative approach to policy.”

According to Lehrer, R Street has had a history in Texas, both as R Street and with their predecessor organization, the Heartland Institute, working mostly in the area of insurance reform, which he described as their “bread and butter” issue. Cámara discussed the similarities between Texas and his state of Florida, politically, being “generally business-friendly,” and facing similar challenges from risks like hurricanes and tornadoes, as well as noting that there was room for improvement in the regulatory systems in both states. Florida’s term limited legislature also causes some frustration related to policy work in a complicated field like insurance, with Florida’s legislators limited to eight years, consecutive, in either the House or Senate. Although a number of legislators do run for a Senate seat after serving their full House term, or return after taking a one-term break (which starts the term limit clock over), the end result, according to Cámara, is that the Texas legislature is “much more knowledgeable” and “not as clueless” on insurance issues.

Another key difference is although both states face risk of hurricane damage along the coasts, the insurance issue is more regional in Texas, partly due to the different political dynamics. Whereas in Florida, the Republicans currently have a lock on the Legislature and the statewide offices are up for grabs (polls show a neck-and-neck race between current Republican Governor Rick Scott and former Republican/former Independent/current Democrat and former Governor Charlie Crist), in Texas, the statewide races are looking like cakewalks for the Republican candidates and the legislative races are more variable. 

A significant part of R Street’s efforts in the upcoming legislative session will be expanding their environmental work. Lehrer characterized their goal as to show that the conservative side “can be greener,” quoting Barry Goldwater that “there’s nothing more conservative than conservatism.”

Neeley will start at R Street in early November, and his background in environmental policy work made him a good fit for R Street’s strategy. “Texas is blessed with an abundance of energy resources, and R street has shown that you can protect the environment in a conservative way,” said Neeley, “The markets are the best means of environmental protection. You can protect the environment in a way that doesn’t threaten the energy lifeblood of the Texas economy.”

Another area where R Street will focus its energies is on the “sharing economy,” newly developing technologies like Uber, Lyft, Bitcoin, HomeAway, Airbnb, and so on. There is a “huge opportunity made possible by the internet to remove intermediaries from commerce and unlock otherwise dormant capital,” said Lehrer, and these technologies demonstrate the power of the “disintermediation of commerce” and “capital unlocking.” Lehrer noted how the rapid growth of ride sharing companies like Uber and Lyft show that there’s “no need for a taxi company between a driver and the customer,” and also pointed to HomeAway, the country’s second largest space sharing company, based here in Austin. 

What makes R Street interested in these businesses is determining the appropriate role of regulation. “There’s no reason that renting out a room [through Airbnb or HomeAway] should be a tax-free transaction,” said Lehrer. “The question is, should these activities be allowed and under what circumstances?” Local and state governments have struggled with how to approach this question, and oftentimes end up pursuing reactionary regulation that many customers of these businesses view as overly restrictive. The California legislature has debated bills that would significantly increase the costs for Uber and Lyft, district attorneys in Los Angeles and San Francisco labeled them as “a continuing threat to consumers and the public,” and the Houston City Council voting to allow them to operate, but with restrictions. As Breitbart Texas previously reported, Dallas will take up the issue later this fall.

Lehrer told Breitbart Texas that getting involved in these issues presents a “golden opportunity for the political right to attract people who otherwise are culturally not connected to the right…this whole sharing economy is an enormous opportunity for conservatives.” Neeley echoed this sentiment, characterizing the situation as one “where 21st century technologies [are] butting up against 20th century regulatory systems.” Lehrer also observed that what these companies — and their customers — want as far as a regulatory environment goes is “very much aligned with the right,” but it may take some adjustment on the part of conservative elected officials, who “need a modern culturally relevant approach to conservatism.” The key, said Lehrer, is to find a way where they are “not giving up any core principles of conservatism, but rather applying them,” looking past the pink-mustachioed Lyft cars and their fist-bumping drivers, and seeing the opportunities for economic development and innovation.

Snus users’ hearts keep on ticking, not fluttering

October 23, 2014, 8:58 AM

Swedish researchers from several institutions document that snus use is not associated with atrial fibrillation (commonly known as AFib), the most common heart arrhythmia (irregular timing of the heart beat) and a risk factor for stroke. The same group previously reported that snus use conferred no significant risk for heart attack and stroke.

Led by Maria-Pia Hergens, researchers analyzed data on Swedish men who were subjects in several studies. While snus users had no risks for Afib, smokers had a small but significantly elevated risk (hazard ratio = 1.16, 95% confidence interval = 1.01-1.33).

Although smokeless tobacco cannot be proven to be absolutely safe, this study adds important evidence that any cardiovascular effect is very minor.

Given the number of institutions represented by its authors, the report is an important development for tobacco harm reduction. In contrast are the biased 1990s and 2000s studies from the Karolinska Institute. There, a small group of KI researchers had access to the construction workers’ cohort and refused to share the data. Instead, they manipulated the information to fabricate some health risks and amplify others in snus users, a fact which I documented in numerous blog posts (examples here, here, and here) and in letters to journal editors.

Deconstructing the liberal myth of government management as a better solution

October 23, 2014, 8:47 AM

Too many Americans suffer from inadequate access to health care. The political left offers to construct government programs or expand the ones we already have.

America’s education system is falling behind its global counterparts. Liberals suggest that we send more tax dollars to the same government systems to finally get it right.

We need to protect our environment and steward our natural resources. The left’s first inclination is cede state authority to federal regulators hundreds or thousands of miles away.

Government management is the liberal answer to the right’s free marketplace. The left rails against the corporate tycoon as out of touch with the common man and the uncertainties of the market as too unreliable to meet the needs of the poor and uneducated.

At first blush, it actually seems to make sense. If capitalism produces an every-man-for-himself society subject to the uncaring and ever-changing laws of supply and demand, government control feels like a natural safeguard. The left holds government out as the remedy to the wrongs our free society creates and a source of stability in a tumultuous economy.

First, dispense with the notion that the political left is somehow run by the “common man.” The same elitism the left vilifies in the corporate boardroom is a virtual requirement in the upper echelons of government. In spite of the fact that the left is run by their own elite, they profess that their system of control produces better outcomes for society’s poor and vulnerable. In other words, they are elitists that care.

Again, the narrative feels good and the left spins it well. Americans pay their taxes and government addresses poverty, education, healthcare, and the environment and protects us from a host of bad things, like Ebola and terrorism. For the liberal, more money to the government means more of the good things and less of the bad things.

The mythic aspiration for government is shockingly disconnected from reality. The main problem is that the government behaves more like a slot machine than a vending machine. Buying more of it does not guarantee better outcomes. It is far from stable and equally as unpredictable at producing the desired outcomes for those the left hopes to aid.

Sometimes good policies and practices actually take shape. The Clean Water Act is a perfect example. In many respects, the original legislation worked as intended. Constraining the ability of industry to dump toxic waste into our national waters cleaned up the environment considerably.

Other times, and particularly recently, the results are shockingly incompetent. Consider the Centers for Disease Control & Prevention’s response to the Ebola outbreak. The CDC appears to have offered guidance that could have actually helped spread Ebola by assuring a nurse, now being treated for Ebola, that she could fly after coming into contact with an infected patient.  Problems with the Affordable Care Act website, issues at the IRS and failures at the Secret Service are other troubling examples.

The danger of the political left’s myth of government provision is that it creates the feeling that we are solving society’s problems without much accountability for results. We continue to suffer the effects of poverty, declining education outcomes, and high costs of healthcare even as government has grown.

The myth operates as a soothing balm for the many liberal consciences. If we pay our taxes, we need not worry too much about society’s most vulnerable. Government will take care of them…except that it often does not.

Capitalism will not cure all of society’s ailments, but it was never designed to do so. It will only ever be as good and altruistic as the people participating in it. The left has responded with a myth that government will effectively and predictably fill in the gaps where the marketplace fails. The question we must answer is whether we would rather feel better believing the myth or face the reality that government might actually be more elitist and unpredictable than the free marketplace liberals find so inadequate.

America should learn from the German job-training model, but not copy it

October 22, 2014, 8:00 AM

The U.S. labor market may finally be picking up steam, but when it comes to our structural labor problems, big questions about stagnant wages and underemployed workers remain.

Will labor market tightening do anything to accelerate wage growth for middle- and lower-class workers? Will it ease the difficulties manufacturers and other skills-based employers face in finding an adequately trained workforce? Almost certainly not.

While today’s college-educated workers stand ready to step in to managerial and professional roles, those with only a high school degree or some college frequently frequently lack the skills to provide adequate value to employers. The result has been to accelerate the shift toward mechanization, further decreasing the opportunities for those who need them most.

Whatever answer policy-makers pursue will require big changes in how we think about providing services and training to those in need. Countless important battles are being fought at the state and local level over the future of K-12 education. Many more are being fought over higher education – the rise of student loan debt; the high drop-out rate, particularly for those in community college; the questionable value provided by many institutions and degrees.

But one crucial piece of the puzzle has been missing. As Tamar Jacoby pointed out in The Atlantic last week, the United States fails to provide worker training services for many roles in manufacturing and other traditional blue-collar services. Offering this sort of training used to be the role of unions. Their decline during the last half-century, combined with the push for college-for-all, has left the country with a skills gap.

Jacoby’s piece highlights the success of the German model, where the national government, labor and businesses have collaborated to create a series of standardized apprenticeship programs, beginning at age ten. They provide workers with a combination of traditional education; skills needed for a specific industry; and the further intangible skills learned through experience on the job.

Jacoby worries that such a model would never work here. She highlights as sticking points the Germans’ top-down, standardized approach and the coordination between business and labor. But a first question is whether the German approach would be either necessary or desirable.

America already is home to a plethora of local job-training programs – public, private and somewhere in between. For example, after moving its facilities to South Carolina, Boeing worked with local technical schools through the state’s ReadySC program to take work-ready locals and teach them skills to work in Boeing facilities. As the aerospace industry moves more jobs to the South, many of the incentive packages offered by states include provisions for worker training, including a $52 million facility in Alabama where workers are trained at state expense; $136 million in North Carolina; and $30 million from South Carolina.

Many partnerships between manufacturers and local job boards and state governments look to prepare high-school educated workers for positions in local plants. Some, such as the Wisconsin Regional Trading Partnership, go even further. The WRTP allows even those with only a 10th grade equivalency to access the program, which provides participants a 27 percent wage premium two years after graduation.

The Career Academies starts even younger, taking high school youth and putting them to work in local industry. Graduates receive an earnings premium of 11 percent over non-participants. Unfortunately, programs like these tend to be the “alternative” for at risk-students, rather than a path to be prized on its own merits.

These sorts of partnerships provide incentive for industry to see their workers as investments. Indeed, the German employers and educators Jacoby spoke with highlighted this as the most important aspect of the model. Being able to look, in their words, “beyond ROI” and see the longer-term benefits for the company is difficult in today’s corporate culture, but necessary if we want to close the skills gap.

To be sure, this piecemeal approach has flaws. Large areas are left unaddressed and the lack of national consensus allows the myth that college is the answer for all to persist. But it also allows experimentation, flexibility and local response to changing circumstances. Given the backdrop of rapid technological change, innovation in education is a key goal that tends to be stifled by top-down national programs.

The last thing the United States needs is to turn worker training into the adult version of K-12 education, where by most accounts we continue to train students in subpar ways for a world that no longer exists. Training programs need to stay nimble and businesses must have the right incentives to respond to changing circumstances.

It would be impractical and unwise to expect business to shoulder all of the burden of this kind of training, given the free-rider problems that inevitably crop up when workers take their skills to the competition. Rather than pursuing a German-style, top-down model, what we need is a bottom-up movement to take worker training seriously. We need to invest in our workforce, particularly those who have been hurt by the dramatic shifts in the need for skilled workers. Federal funds for worker training should flow to these programs, but the federal role should stop there.

Even if a national program were desirable, the political will to create one is close to nil. It is a large leap for conservatives to get on board with such an idea. However, many conservative politicians are looking for solutions for the poor and middle class, and redesigning our federal funding to support local programs such as those in Wisconsin or South Carolina would be a step in that direction.

Americans need to get past the idea that it’s college or bust. For too many twenty-somethings, the “bust” has left them at a competitive disadvantage in the international labor market, and without a clear path forward. The average annual salary for an aerospace machinist in Charleston, S.C. is $45,500, almost 200 percent of the poverty line for a family of four. As Boeing’s General Manager Jack Jones said in a 2013 interview:

It’s a prestige job. And you say you’re from Boeing or you work at Boeing, and there’s a prestige within the community.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Five potential consequences of Republicans winning the U.S. Senate in November

October 21, 2014, 8:30 AM

Here are five potential consequences of Republicans capturing the Senate majority in the upcoming elections:

  1. Democrats’ only tool to stop GOP-crafted legislation from landing on President Obama’s desk will be their refusal to end debate on legislation. Senate Majority Leader Harry Reid, D-Nev., has largely shielded President Barack Obama by declining to vote on House-passed legislation. In a GOP-controlled Senate, Democrats might try to protect the president with the cloture vote, but doing so will force more moderate Democrats to take difficult political votes.
  1. When Democrats are unable to derail legislation in the Senate, Republicans will likely force the president to repeatedly veto legislation or compromise on signature political victories for Democrats. The optics of passing legislation through the House and Senate only to have it constantly vetoed by the President could give Republicans a powerful political narrative going into 2016.
  1. Republican control over the House and Senate will also change the battle over federal spending. Currently, the split in the House and the Senate has short-circuited the normal appropriations process. Republicans could restore the “normal” appropriations measures and break the funding of the federal government up into 12 separate appropriations bills. This would enable them to use the funding process to target some of the president’s executive actions on issues like immigration and energy policy without threatening a full government shutdown.
  1. While Republican majorities might harass a veto-happy President Obama for obstructing the legislative process, Senate Republicans would be able to stand in the way of his political appointments. If Republicans are successful at the polls, President Obama will likely try to confirm his next attorney general in December before the new Congress arrives in January. Republicans could then force President Obama to moderate his subsequent appointments, including important federal judgeships.
  1. As unlikely as it seems, a Senate and House in Republican hands could be a recipe for tactical compromise. Whether it is the Keystone XL oil pipeline or corporate tax reforms, both Democrats and Republicans may be looking to show their ability to work across the aisle to a nation fed up with partisan political gridlock. Republicans have their eye on the White House in 2016, and Democrats are optimistic about their chances of retaking the Senate should it fall to Republicans in 2014.

Republicans still have a long way to go to turn an increasing political probability into a reality, but their success could create an interesting new political dynamic in Washington.

Network neutrality and a dubious leap of faith

October 21, 2014, 8:00 AM

The latest wrinkle in the ongoing debate over network neutrality comes from Rep. Henry Waxman, D-Calif., ranking member of the House Committee on Energy and Commerce, who suggests the Federal Communications Commission adopt a “third way” in regulating the way last-mile Internet service providers like Comcast, AT&T and Verizon handle traffic from major video content providers like Netflix, Amazon and Google’s YouTube.

Waxman’s proposal was detailed in a filing in the FCC’s latest inquiry into ways it can effectively enforce network neutrality. While current FCC net neutrality guidelines allow ISPs the freedom to take “reasonable” steps to prioritize or manage traffic to improve quality or protect other applications, Waxman is among those who want the government to take a larger, more active role in managing the Internet ecosystem. Waxman states he wants a “bright-line” rule against any ISP blocking, throttling or paid prioritization.

Waxman agrees with many activists who want the FCC to change the regulatory classification of ISPs as written in the Telecommunications Act of 1996.

Regulations for ISPs are spelled out under Title I of the act. Here, with the intention of fostering a growing industry, Congress intentionally sought to keep regulation minimal and the compliance burden low. Title II of the act spells out regulations for older telephone companies, and derives heavily from the 1930s-era monopoly regulations that ended 30 years ago. Dated as it is today, the Telecom Act was a bipartisan effort, spurred by the arrival of both the Internet and wireless phone service, to transition the telecom industry from monopoly to competitive business.

Waxman is among those who want to reverse this 30-year course, and reclassify competitive wireline and wireless ISPs as Title II common carriers subject to a host of rules and regulations on rates and services.

Trouble is, even those who favor network neutrality are divided as to whether reclassification is the correct remedy. Even as he asks for public comment, FCC Chairman Thomas Wheeler has expressed some reservations about reclassification. Wheeler has stated “we don’t want to put rules in place that would dis-incentivize companies from making…continued investment.”

So did his predecessor, Julius Genachowski, whose own “third way” stopped short of this step. Both might worry that reclassification would impose egregious pricing and service conditions on ISPs that would be counterproductive in the long run. Others have pointed out that despite all the new rules reclassification would add, it would not prohibit paid prioritization. The U.S. Post Office, after all, is a regulated common carrier, yet it can offer Express Mail.

Waxman’s solution — boiled down — is to trust the government to restrain itself. Waxman points to another part of the Telecom Act, Section 706, and suggests that it be woven into the reclassification.

Section 706 is something of an elastic clause in Telecom Act. It allows the FCC to investigate whether advanced communications technologies — the definition of which includes the Internet — are being deployed in a reasonable and timely manner and to “take immediate action” to remedy any perceived problem.

What Waxman hopes is that the FCC can reclassify ISPs as Title II carriers, then use Section 706 to ban ISP prioritization, but disregard, or forbear, all of the other Title II requirements. Not only does this open all sorts of legal questions, beginning with whether the FCC can alter definitions set by congressional legislation, it also counts on the FCC to deliberately restrain itself from using the additional regulatory power Waxman’s proposal would give it.

Given the attempts the FCC has already made to expand its purview, Waxman is asking Americans to take a big leap of faith. Through the past two administrations, the FCC has continually sought to increase its regulatory scope beyond broadcasting and into cable TV and Internet. Just in the past week Wheeler has suggested the FCC regulate subscription-based Internet video services and use its indecency rules to stop sports reporters from saying the Washington Redskins team name on the air.

Waxman’s solution is weak because it tries to jam new realities — on-demand Web video, wireless Internet and changing consumer viewing habits — into regulatory silos that are three decades old. Rather than trying to redefine FCC scope through a sloppy cut-and-paste of outmoded law, Congress should revisit the Telecom Act in its entirety— modernizing it to fit the Internet ecosystem of our time.

It’s doubtful the digital economy will be served by tempting the FCC to take a power trip through this evolving landscape. There still too much of a chance for unintended consequences if the FCC is allowed unchecked discretion in overhauling the underlying economics of the Internet industry.

America’s motor state going the wrong way on direct sales

October 20, 2014, 9:30 AM

For most of my life, the Detroit area has been the epicenter of the domestic automotive world. Unless you are the sort of person who experienced a fainting spell when the National Corvette Museum in Kentucky dropped eight historically precious Corvettes into a big sinkhole last winter (including the one-millionth model ever produced) you probably still get most of your interesting domestic car news from Michigan.

I have a friend who has been saving for a while for a Chevy pickup, her dream vehicle. Her dad and other family members drove Chevys, and it’s embedded in the family culture. A lot of my neighbors without a firm brand allegiance lust instead after the new Tesla electric vehicle that changed most everybody’s idea about what an electric car could provide in the way of thrills more traditional to the driving culture than the cultures of saving money or saving the environment.

Several years ago, I was seated at a business next to the CEO of a business that made car parts. His opinion was that American companies were the slowest to innovate of all the major car companies in the world. That was largely before cars were built in pieces all over the world, which began the erosion of the “domestic content” rules that now are mostly impeding foreign sales by American solar energy industries. But that’s a topic for another day.

The Tesla is very innovative. It may even be a game changer at some point. It offers style, exciting driving and a low-impact on the environment, all in one. Oh yes, and it comes with a new direct-to-consumer marketing strategy as well! Ooops, maybe not in Michigan.

The forces aligned against disruptive ways of satisfying consumer demand have gotten, in the space of a couple days, an amendment into a bill that passed both houses and is sitting on the governor’s desk. The amendment prohibits Tesla — in the largest state in which company doesn’t yet have a sales office — from selling directly to its prospective customers. The company has said it had been discussing an approach to sales in Michigan with political leaders in the legislature and appropriate government agencies, until the amendment was adopted and voted on with great alacrity by the General Assembly.

There was never any public debate, and news reports suggest that most members of the legislature were unaware of the impact until the auto dealers started thanking them for their votes. That is, for voting to protect Michigan customers from having more choices about what to drive.

We’ve seen a lot of this lately. It’s just plain bad faith by lawmaking bodies to not at least host some discussion on a law that puts a death sentence on what appears to be a perfectly reasonable business model. If signed by Gov. Rick Snyder, sales of a shiny new consumer product will be impossible in Michigan unless the company decides to sell through traditional dealerships. It is difficult not to notice that these middlemen are third parties that are very active politically, in what was supposed to be a pretty close election for governor this time.

When I worked in the legislature years ago, it used to be considered normal that if your side had the votes on a bill, you were at least accommodating enough to let the opposition make their case before you enacted new requirements or prohibitions. The public is well served by debate. Yet we have seen less and less of it on most of the things that matter. Even the famous cut-and-paste job that has become the federal health insurance law was accompanied by extensive public debate before the final version was sewn together.

Apparently the only part of the process that Tesla was able to engage was a conversation with the governor’s office after the bill passed. The intended election year pressure is now fully upon the governor. We will see next week whether he decides to stick with his philosophy on how markets work best for his constituents, or is forced to bow to special interest politics.

I doubt if this innovative, named for one of the greatest scientists who ever lived, can be stamped out with the rearguard action by Michigan dealers. But it can surely be inhibited by the wrong decision from the state’s leadership.

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