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Updated: 54 min 18 sec ago

Funding ideology, not research, at university labor institutes

7 hours 46 min ago

One of the ongoing stains on the integrity of the University of California system is its publicly funded labor institutes. They are union-controlled “think tanks” that are about engaging in left-wing political activism rather than balanced thinking. They churn out one-sided studies that provide fodder for union political objectives. Their most recent efforts gave cover to California’s decision to boost the minimum wage to $15 an hour by 2022.

It’s not enough such institutes exist at UCLA and Berkeley. Now, a similar institute may be headed to UC Irvine. “Recently, labor leaders, the UC Irvine’s law school Dean Erwin Chemerinsky and community advocates, such as former state Sen. Joe Dunn, came together and began working to establish the UCI Community and Labor Project,” wrote the Orange County Employees Association general manager Jennifer Muir, in a Register column last month.

Universities are rightly home to varying ideologies and research. But it’s wrong to publicly fund a think tank that engages in bald-faced advocacy for one particular group. Union leader Muir found it “disturbing” that Assemblyman Matt Harper, R-Huntington Beach, introduced Assembly Bill 2302 that merely urged the UC regents to “refrain” from forming such a center at Irvine.

“Don’t we want our young people to be exposed through the educational system to various ideas about how to address these issues?” Muir asked. I’m guessing the university’s world-class economics and political-science departments can handle the task of evaluating various labor-related policies. But it’s really disturbing to suggest these think tanks provide “various ideas” about anything. They provide ideas with the union stamp of approval.

“Far from what should be expected from academia, the institute doesn’t even hint at a non-partisan agenda and regularly not only trains union organizers (presumably for political purposes) but also authors biased studies,” wrote the Howard Jarvis Taxpayers Association’s legislative director David Wolfe, in a letter supporting the Harper bill.

Note the people behind this effort: labor leaders, community activists, a labor-allied former legislator, state labor lobbyists. Check out the advisory board at the UC Berkeley Labor Center. Virtually every member has a union affiliation. As Harper rightly notes, they are “partisan operations.”

Let’s say a powerful business organization convinced a legislature in a conservative state to fund studies and research that advanced their political aims. What would we say about that? Everyone has a right to do advocacy work. But should taxpayers fund it? Should it carry the imprimatur of a prestigious state university system?

It’s no surprise the Democratic-controlled committee rejected Harper’s effort. Strangely enough, the legislative analysis and the UC lobbyist said they weren’t aware of plans to expand the institute to Irvine. But a California Federation of Teachers official echoed what Muir said – the gears are in motion to start such a think tank in Irvine.

State funding has been controversial, but the institute still receives direct public funding. It’s also dismaying seeing UC’s reputation sullied by such priorities. But the real problem is the nature of the research – and the effect it has on political debates across California.

“A new study found that a quarter of the region’s workforce would see a 20 percent pay bump if Santa Clara County upped the minimum hourly wage to $15 by 2019,” according to a report last week in a San Jose business publication. The county paid $100,000 to – you guessed it – a labor institute to provide such a rosy prediction. The study gave like-minded elected officials political cover.

I first came across the institutes in 2010 when the Berkeley institute produced a study suggesting that public-sector workers receive lower overall compensation than private-sector workers, despite their exceedingly generous pensions. I consulted experts and was astounded by its shortcomings. Take a look at the titles of institute studies. They drip with union bias.

California unions have myriad financial privileges. The state automatically deducts dues payments from public members. Workers must join the union to keep their jobs. Unions are the most powerful lobbies in Sacramento. If they want to produce research that backs their point of view, good for them. But why should taxpayers fund it? Why should the UC system lend credibility to a union group that promotes policies that force it to raise tuition and cut back on education services? Why should Orange County be forced to host one?

Floridians cannot afford to see their flood insurance wash away

12 hours 46 min ago

Nearly 2 million Floridians depend on the National Flood Insurance Program for their flood insurance coverage, accounting for nearly 40 percent of all policies issued by the federal program nationwide.

However, a dire situation has been building for years and may soon reach a tipping point. Due to decades of underpricing its policies and a deluge of flood insurance claims in more recent years, the NFIP finds itself more than $23 billion in debt to the U.S. Treasury with no practical means to repay that sum.

In 2014 alone, Florida submitted nearly 2,700 flood damage claims and received more than $118 million in NFIP claims payments, more than double that of any other state.

Congress tried to fix this problem in 2012 by passing the Biggert-Waters Flood Insurance Reform Act, which would phase in rate increases for a fraction of those subsidized by the government. While a delay seems appealing, the truth is delaying the rate hikes would only make the NFIP’s problems worse.

With the NFIP up for renewal in 2017, Congress has an opportunity to enact meaningful reforms that will strengthen the program financially, protect taxpayers and help consumers.

Encouraging more private insurers to start selling flood insurance products is a good place to start. The NFIP has a near-monopoly on flood insurance, and consumers would benefit from more choices. Market competition gives consumers access to more competitive rates and better coverage options.

At the state level, Florida is one of the few states that has bolstered its private flood insurance offerings. In 2014 and 2015, Gov. Rick Scott and state lawmakers passed a series of laws that simplified the process for private insurers to offer coverage, which has resulted in a small but growing market of private carriers, to the benefit of consumers.

At the federal level, Congress recently accomplished a rare feat of bipartisanship on flood insurance reform when the House unanimously approved the Flood Insurance Market Parity and Modernization Act.

The measure — sponsored by two U.S. House members from Florida, Dennis Ross, a Republican, and Patrick Murphy, a Democrat — is designed to lift many regulatory hurdles that discourage private insurers from entering the market.

Another way to enhance a healthy private flood insurance market would be to release historical loss data and other information currently held by the Federal Emergency Management Agency, which administers the NFIP. Florida state officials have requested that FEMA release this data to private companies in Florida interested in writing flood policies so that they may properly set premiums.

Our nation’s flood maps also must be updated using modern technology. For far too long, homeowners and the NFIP relied on outdated maps that did not accurately reflect the risks the properties currently face.

In 2012 and 2014, Congress approved a series of measures to improve mapping, which will allow the NFIP and private insurers to price their risks more accurately and offer more appropriate, and in many cases, lower rates.

Finally, better funding of mitigation efforts would reduce the damage that natural disasters are able to cause. Proactive measures taken now, such as strengthening infrastructure and protecting natural buffers such as wetlands, would save money and lives later.

Financial assistance should be offered for low-income property owners to harden their homes, and incentives such as reduced insurance rates should be made available to all policyholders.

Floridians are counting on Congress to reform the NFIP. But the clock is ticking, and millions of policyholders cannot afford for this program to take on so much water that it becomes a sinking ship.

Uber’s surge pricing is like watching a bald eagle eat a cat

13 hours 10 min ago

When I see the lightning bolt on my Uber app, I almost instantly feel a hateful resentment toward the corporate overlords standing between my next destination and me. The feeling is worse when I confirm that my fare is multiples higher than it otherwise would be.

Surge pricing produces a wide range of emotions for me. First, there’s anger, then indecision and finally, resignation. I want to be angry at Uber, but I shouldn’t be. Before you disagree, ask yourself a critical question: “Am I angry when a majestic bald eagle kills a cat and feeds it to its eaglets?”

Sure, I’m uncomfortable when I see a cat’s lifeless body being devoured by ravenous raptors, but it’s what they do. I can’t be angry at the bird for acting according to a natural order. In case you missed it, markets are decidedly friendlier to consumers than nature is to prey.

Most traditional cab companies charge the same rate all of the time and aren’t particularly responsive to customer demand. Uber’s dynamic pricing model is a beautiful market evolution. Supply and demand shift all the time. Why not use those forces in real time to allocate services in the most economically beneficial way possible?

If demand spikes, surge pricing prioritizes customers willing to pay a higher fee. Unlike the cat in the eagle talons, consumers choose whether or not to accept the higher rate. Uber’s convenience is indeed more expensive during a surge, but it’s frequently worth the extra cost. If it’s not, people won’t use the app. Surge pricing simultaneously creates a supply-side incentive for drivers looking to make more money by hitting the road. As the supply and demand level out, the surge pricing ends.

In that respect, I love surge pricing.

It’s market dynamics operating in real time to give me better options. As a fan of free markets, it’s incredible to watch. Uber makes more money because they’re more responsive to what people actually want and also able to be much more competitive in their base pricing.

It’s a win all the way around, but one that I absolutely hate every time I’m accepting a higher fare. If you’re not morally indignant about an eagle eating a housecat, quit whining about surge pricing. The market gives you choices the cat never had.

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

Risk doesn’t stand still

May 03, 2016, 1:59 PM

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe explores the movement and transformation of risks in adapting, self-referencing systems, of which financial systems are a notable example. In this provocative new book, the Wall Street Journal’s chief economics commentator Greg Ip contemplates how actions to reduce and control risk are often discovered to have increased it in some other way, and thus, “how safety can be dangerous.”

This is an eclectic exploration of the theme, ranging over financial markets, forest fires, airline and automobile safety, bacterial adaptation to antibiotics, flood control, monetary policy and financial regulation. In every area, Ip shows the limits of human minds trying to anticipate the long-term consequences of decisions whose effects are entangled in complex systems.

In the early 2000s, the central bankers of the world congratulated themselves on their insight and talent for having achieved, as they thought, the Great Moderation. It turned out they didn’t know what they had really been doing, which was to preside over the Great Leveraging. Consequently, and much to their surprise, they found themselves in the Great Collapse of 2007 to 2009, and then, with no respite, in the European debt crisis of 2010 to 2012.

Ip begins his book two decades before that, in 1989, at a high-level conference on the topic of financial crises. (Personally I have been going to conferences on financial crises for 30 years.) He cites Hyman Minsky, who “for decades had flogged an iconoclastic theory of business cycles that fellow scholars had largely ignored.” Minsky’s theory is often summarized as “Stability creates instability”—that is, periods of safety induce the complacency and the mistakes that lead to the crisis. He was right, of course. Minsky (who was a good friend of mine) added something else essential: the rise of financial instability is endogenous, arising from within the financial system, not from some outside “shock.”

At the same conference, the famous former Federal Reserve Chairman Paul Volcker raised “the disturbing question” of whether governments and central banks “end up reinforcing the behavior patterns that aggravate the risk.” Foolproof shows that the answer is yes, they do.

Besides financial implosions, Ip reflects on a number of natural and engineering disasters, including flooding rivers, hurricane damage, nuclear reactor meltdowns, and forest fires, and concludes that in all of these situations, as well, measures were taken that made people feel safe, “and the feeling of safety allowed danger to re-emerge, often hidden from view.”

The natural and the man-made, the “forests, bacteria and economies” are all “irrepressibly adaptable,” he writes. “Every step we take to suppress the risks . . . will provoke some other, offsetting step.” So “neither the economy nor the natural world turned out to be as amenable to human management” as was believed.

As Velleius Paterculus observed in the history of Rome that he wrote circa 30 AD, “The most common beginning of disaster was a sense of security.”

Why are we like this? Ip demonstrates, for one thing, how quickly memories fade as new and unscarred generations arrive to create their own disasters. Nor is he himself immune to this trait, writing: “The years from 1982 to 2007 were uncommonly tranquil.”

Well, no.

In fact, the years between 1982 and 1992 brought one financial disaster after another. In that time more than 2,800 U.S. financial institutions failed, or on average more than 250 a year. It was a decade that saw a sovereign debt crisis; an oil bubble implosion; a farm credit crisis; the collapse of the savings and loan industry; the insolvency of the government deposit insurer of the savings and loans; and, to top it off, a huge commercial real estate bust. Not exactly “tranquil.” (As I wrote last year, “Don’t Forget the 1980s.”)

“Make the most of memory,” Ip advises. After the Exxon Valdez oil spill disaster, he says, the oil company “used the disaster to institute a culture of safety . . . designed to maintain the culture of safety and risk management even as memories of Valdez fade.”

We often do try to ensure that “this can never happen again.” After the 1980s, many intelligent and well-intentioned government officials went to work to enact regulatory safeguards. They didn’t work. As Arnold Kling pointed out in an insightful paper, “Not What They Had in Mind: A History of Policies that Produced the Financial Crisis of 2008,” some of the biggest reforms from the earlier time became central causes of the next crisis—a notable example of Ip’s conclusions.

We are forced to realize that the U.S. housing finance sector collapsed twice in three decades. We may ask ourselves, are we that incompetent?

Consider a financial system. The “system” is not just all the private financial actors—bankers, brokers, investors, borrowers, savers, traders, speculators, hucksters, rating agencies, entrepreneurs, principals and agents—but equally all the government actors—multiple legislatures and central banks, the treasuries and finance ministries who must constantly borrow, politicians with competing ambitions, all varieties of regulatory agencies and bureaucrats, government credit and subsidy programs, multilateral bodies. All are intertwined and all interacting with each other, all forming expectations of the others’ likely actions, all strategizing.

No one is outside the system; all are inside the system. Its complexity leaves the many and varied participants inescapably uncertain of the outcomes of their interactions.

Within the interacting system, a fundamental strategy, as Ip says, is “to do something risky, then transfer some of the risk to someone else.” This seems perfectly sensible—say, getting subsidized flood insurance for your house built too near the river, or selling your risky loans to somebody else. But “the belief that they are now safer encourages them to take more risk, and so the aggregate level of risk in the system goes up.”

“Or,” he continues, “it might cause the risky activity to migrate elsewhere.” Where will the risk migrate to? According to Stanton’s Law, which seems right to me, “Risk migrates to the hands least competent to manage it.” Risk “finds the vulnerabilities we missed,” Ip writes. This means we are always confronted with uncertainty about what unforeseen vulnerabilities the risk will find.

Finally, the author puts all of this in a wider perspective. “My story, however, is not about human failure,” he writes, “it is about human success.” There can be no economic growth without risk and uncertainty. The cycles and crises will continue, so what we should look for is not utter stability but “the right trade-off between risk and stability.” The cycles and crises are “the price we pay for an economic system that encourages and rewards risk.” This seems to me profoundly correct.

Pollock talks Puerto Rico on CCTV

May 03, 2016, 11:37 AM

R Street Distinguished Senior Fellow Alex Pollock was interviewed in a recent segment by CCTV America on the Puerto Rican debt crisis and steps Congress should take to solve it. You can view the full clip embedded below.

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

Broad coalition supports bill to curtail forum shopping in patent litigation

May 03, 2016, 6:00 AM

Dear Chairman Grassley, Ranking Member Leahy and members of the Senate Judiciary Committee,

On behalf of the undersigned civil-society and public-interest organizations, we write to express strong support for S.2733, the Venue Equity and Non-Uniformity Elimination (VENUE) Act of 2016, sponsored by Sens. Jeff Flake, R-Ariz., Cory Gardner, R-Colo., and Mike Lee, R-Utah. Preventing gamesmanship in litigation through choice of court, while not a comprehensive fix to problems within the patent system, would go a long way toward stopping a longstanding abusive practice that harms legitimate innovators, the economy, and the public.

The patent system currently suffers from a pervasive venue-shopping problem that unfairly distorts legal outcomes by allowing plaintiffs to select friendly judges in advance. According to the Mercatus Center and George Mason University, nearly half of all patent cases are filed in the U.S. District Court for the Eastern District of Texas. That’s more than 70 times the average number of patent cases heard in other federal judicial districts. According to a January 2016 report, filings in that district have “accelerated,” especially among repeat patent asserters who threaten business after business with patent lawsuits.

The incredible popularity of one district as venue for one type of lawsuit raises legitimate questions of fairness to the parties who are hauled into court there. Respected academics have identified evidence that procedures in the Eastern District of Texas unnecessarily favor plaintiffs and impose significant, unnecessary costs on companies and individuals accused of infringement, however questionable the patents and demands may be. Indeed, Kimberly A. Moore—a judge on the Federal Circuit court responsible for all patent appeals—once wrote that pervasive venue shopping in patent cases represents a failure of “the promise of equal, consistent and uniform application of justice,” besides creating “economic inefficiency in the legal system.”

These inequities cost innovative companies time, money and other resources fighting legal battles—resources that could otherwise go into creating better, more innovative, more competitive products and services. They further represent a failure to give patent litigants a fair trial, denying them access to justice and trapping them in a forum intentionally selected for its favorableness to the other side.

Although patent reform has been a hotly debated and complex topic, there is near universal agreement that patent-venue abuse must be addressed. Writing in The Washington Post, law professors Colleen V. Chien and Michael Risch acknowledged that patent reform “has divided those who write and think about the patent system.” However, they noted “there is one issue upon which we—and most stakeholders—agree: The staggering concentration of patent cases in just a few federal district courts is bad for the patent system.”

An opportunity to correct egregious patent-venue shopping now is in the hands of Congress. Although venue reform will not solve all problems with the patent system, it is an important first step directed to an important problem. There is no question that abuse of venue stands in the way of both market competition and the right to fairly-applied due process of law. Addressing this should be common sense to individuals across the ideological spectrum, regardless where they stand on other approaches to reform our patent system.

We thus strongly urge you to support the VENUE Act to fix this abuse of our legal system.


Public Knowledge

R Street Institute

Electronic Frontier Foundation


Copia Institute


Institute for Liberty

Niskanen Center

The Latino Coalition

American Consumer Institute

Taxpayers Protection Alliance

Fight for the Future

Knowledge Ecology International

Historic tax credits: A 45% government subsidy wearing a mask

May 02, 2016, 3:50 PM

My apologies for interrupting the glowing love fest for Alabama’s historic preservation tax credit that’s set to expire next month, but there are a few things you should know.

Alabama offers plenty of tax credits that permit taxpayers to keep more of their income for certain activities. For example, an Alabama business with 50 or fewer employees may receive a one-time income tax credit equal to $1,000 per new job paying over $10 per hour. If the cost of a new hire is $25,000 per year, the state tax credit covers 4 percent in the first year and nothing in subsequent years. Nobody in his or her right mind makes a hiring decision based on such an insignificant tax reduction.

Alabama’s historic tax credit is a different beast entirely. It’s not a credit designed for the average taxpayer; it’s a directed government subsidy that manipulates the marketplace.

The program sets aside $20 million in tax credits each year for rehabilitation of historical properties in Alabama. Each qualifying commercial project is eligible to receive an income tax credit for 25 percent of the project cost up to $5 million. On top of the state credit, the federal government offers a similar tax credit for 20 percent of qualifying restoration expenses.

Yes, you read that correctly.

For certain rehabilitation projects, the combined credits could offset up to 45 percent of a developer’s project costs. This isn’t just about a nostalgic love of older buildings; it’s about money…and lots of it.

What industry wouldn’t thrive if the government shouldered a huge portion of the risk? If developers won’t restore older properties without the credit, the state is radically manipulating the market. If the projects would have happened anyway, the credit doesn’t really have a purpose other than letting developers avoid income tax.

The program permits a developer to either carry the credits forward for up to 10 years or sell them at a discount to another party with income tax liability. According to the Alabama Department of Revenue, developers for six of the 10 projects that have filed to claim the credit are selling the credits anywhere from 63 to 90 cents on the dollar. That’s a nice income tax cut for someone with connections.

Alabamians are enjoying renovated offerings like the Lyric Theater in Birmingham and the Admiral Semmes Hotel in Mobile. There’s no question about that. The bigger issue is whether they’re paying attention to the fact that they’re massively subsidizing the project costs for private developers.

There’s no difference to the state between foregoing a dollar of revenue into the Education Trust Fund and using that dollar to fund a direct subsidy for the same purpose. Legislators might wish to significantly subsidize historic restoration projects, but they shouldn’t be able to hide behind the fact it’s a tax credit.

If there’s enough economic demand for properties to be renovated, a developer will do it even without government subsidies. That’s how markets work.

It basically boils down to priorities. Would Alabamians rather have that money go to public education or businesses renovating old buildings? For conservative members of the Alabama legislature, that’s the choice. For the rest, they’ll just keep trying to raise taxes on everyone to pay for both. 

US House unanimously passes flood insurance bill

May 02, 2016, 3:00 PM

From SNL Financial 

“Catastrophes such as Hurricane Katrina and Superstorm Sandy, coupled with the $20 billion-plus debt of the NFIP and its $1.1 trillion of total property exposure make it necessary for the flood insurance market to grow, noted senior fellow R.J. Lehmann of the R Street Institute in a news release.”

AGs redefine climate dissent as “fraud”

April 30, 2016, 2:59 PM

From Overlawyered

“While I think that climate change is both human-caused to a significant extent and likely to be a problem, I would warn my environmentalist friends about the dangerous precedent the attack on CEI sets.” [Eli Lehrer, Washington Examiner]

R Street statement on selection of David Altmeier as Florida insurance commissioner

April 29, 2016, 1:29 PM

The following statement may be attributed to R Street Florida Director Christian Camara:

The Cabinet had a difficult task in selecting a replacement for Kevin McCarty, Florida’s first appointed insurance commissioner. David Altmeier understands the insurance marketplace in Florida, having served as deputy commissioner of property and casualty insurance and, before that, as the FLOIR’s head of financial oversight for property and casualty companies. We’re pleased the state’s elected representatives were able to get past political differences to select a candidate to work on the pressing issues facing Floridians, including reforms to the Florida Hurricane Catastrophe Fund, continuing to shrink Florida Citizens and expanding the glidepath toward free-market rates in the Sunshine State.


House passes private Flood insurance bill

April 29, 2016, 10:27 AM

From National Underwriter

“The NFIP remains more than $20 billion in debt to U.S. taxpayers and has been on the nonpartisan Government Accountability Office’s list of high-risk federal programs since 2006. Prospects to shrink the program’s $1.1 trillion of total property exposure rely on the emergence of private-sector solutions,” said R.J. Lehmann, a senior fellow at the Washington, D.C.-based conservative and libertarian think tank, the R Street Institute.

Washington, D.C.-based SmarterSafer.org, which describes itself as a national coalition of taxpayer advocates, environmental groups, insurance interests, housing organizations and mitigation advocates, agreed.

“Our nation’s disaster policies urgently need reform, and this bill is an excellent step in the right direction. More competition in the Flood insurance marketplace will give consumers access to better coverage and lower rates. For too long, outdated regulations have forced consumers to rely on the NFIP, saddling the program with a $23 billion debt load,” the organization said.

Californians can build their way out of the housing shortage

April 29, 2016, 10:25 AM

From Reason

If there were 30 loaves of bread and 50 people who wanted them, you can guess what would happen. Prices for those loaves would rise, from, maybe, $2, to $3 or even $10, depending on how desperate people were to make sandwiches. Those prices wouldn’t fall until some buyers switched to tortillas or bakers started baking more bread.

That concept is so simple it’s almost embarrassing to point it out. Yet when policymakers talk about other products, they lose sight of these basics. The housing market jumps to mind. Prices throughout California are still going up. Affordability is down.

Read more…

Lessons from Prince’s legacy and struggle with digital music markets

April 29, 2016, 9:12 AM

Undeniably, Prince’s death last week marked the loss of a true musical genius and maverick. In his life, he was known for being a talented musical innovator with flamboyant clothes and a contrarian streak. He was adept at a range of instruments, as well as in multiple genres of music, including funk, jazz, pop, rock and R&B.

As broadly gifted an artist as he was, Prince never quite found the right approach when it came to licensing his music for distribution — in spite of the fact that he sold over 100 million records, placing him among the best-selling artists of all-time. He won an Oscar, a Golden Globe and seven Grammys, among other accolades. His massive discography includes 50 albums, 104 singles, 136 music videos, among other creative works. And yet his fans were left in the odd position, on the news of his death, of being frequently unable to provide links to Prince’s massive oeuvre.

Like David Bowie, who died only a few months earlier this year, Prince was constantly reinventing himself throughout his career. But one key reason for his reinvention — at different times, he was known by “Prince,” “Jamie Starr,” an unpronounceable glyph and, perhaps most notoriously, as “The Artist Formerly Known as Prince” — was his unhappiness with his record labels, and later with digital/Internet distribution.

And even now, if you’re looking to listen to your favorite Prince tracks on popular digital music services like Spotify or Apple Music, you’re out of luck. While you can find some live performances on YouTube, and a couple exceptions like his single “Stare” on Spotify, the streaming rights to his music are licensed exclusively through Tidal — a niche subscription-only service owned by Jay Z.

A genius, innovator, creator, family member, Prince will be truly missed. https://t.co/3jsNzohq60pic.twitter.com/Kwaftexc9q

— TIDAL (@TIDALHiFi) April 21, 2016

You can see why Prince may have been attracted to Tidal as a service. Since its launch in late 2014, a number of major artists have embraced it, offering exclusive releases and touting the service’s better deal for artists. Indeed, Tidal purports to “pay the highest percentage of royalties to artists, songwriters and producers of any music streaming service.”

But it’s hard to see how it would make business sense to exclusively license with them, as Prince did. For one thing, it’s not entirely clear that Tidal’s rates are that much better than Spotify. Respectively, they each claim to pay out 75 percent and 70 percent of their revenues to rights holders. Yet, Tidal has also claimed that they pay out four times Spotify’s royalty rate.

Vania Schlogel, then executive at Tidal, clarified their rates in an interview for the Hollywood Reporter:

There was some confusion on the Internet about whether “royalty rate” was a percentage of Tidal’s total revenue. According to Schlogel, it is. The industry standard royalty rate, she says, is 70% (roughly 60% to record labels, roughly 10% to artists via publishers). Tidal pays 62.5% and 12.5% (which equals the 75% Jay Z is referring to).

This makes their base royalty rate going to artists 25 percent higher than Spotify. But Tidal also has about 45 percent of their subscribers on a $19.99 per month premium tier. This would make the share of revenue going to artists around 80 percent higher.

That’s a lot more! Artists should all be switching to exclusive deals with them, right? Well…not so fast. Spotify alone has 30 million paying subscribers — 100 million if you include ad-supported free tier listeners. Apple Music has another 11 million paid subscribers. Compare that with Tidal’s relatively paltry 3 million. Not to mention commercial distribution to YouTube’s 1 billion active users, or the dozen other streaming services out there.

Assuming those subscribers have comparable activity profiles, it wouldn’t make business sense even if they paid 10 times the royalty rate — at which point it would be more than total revenue. Although, artists can do whatever they want. It’s a free market (sort of).

Did you join Tidal in the past 24 hours to listen to Prince music?

— WIRED (@WIRED) April 22, 2016

But for Prince, his embrace of Tidal may not have been just about royalty rates. Rather, it may have been a reflection of his proclivity to assert tight control of his brand. As Vox’s Constance Grade writes:

It’s classic Prince: Tidal is the best program not only because it pays better, but because it gives him the most control over his music and his persona. And Prince never let someone else control his persona if he could help it.

This was fully consistent with the character of a man who preferred to play small, intimate venues even when he could have been selling out stadiums.

But making music less accessible poses serious challenges for artists and consumers alike. For one thing, as English singer/songwriter Lily Allen explains, it will reinvigorate incentives for piracy (notably, she has also had an interesting relationship with Techdirt):

I love Jay Z so much, but Tidal is (so) expensive compared to other perfectly good streaming services, he’s taken the biggest artists … Made them exclusive to Tidal (am I right in thinking this?), people are going to swarm back to pirate sites in droves … Sending traffic to torrent sites.

Perhaps unsurprisingly, when Kanye West decided to release his album The Life of Pablo exclusively on Tidal, it was pirated over 500,000 times in its first day alone — drawing fire for reinvigorating online music piracy.

My album will never never never be on Apple. And it will never be for sale… You can only get it on Tidal.

— KANYE WEST (@kanyewest) February 15, 2016

A recent study by Columbia University (among other research, including the Copia Institute’s “The Carrot Or The Stick?”) confirms that providing access to good legal alternatives is effective at reducing online piracy — particularly among young people. To take another example, the rise of Spotify in Sweden was followed by a major decline in music sharing on the Pirate Bay. According to Copia’s study, “a similar move was not seen in the file sharing of TV shows and movies…until Netflix opened its doors in Sweden.”

During his career, Prince also flirted with various album release strategies, and explored ways to cut out the middleman by going fully independent.

Prince’s strategy was visionary, but ahead of its time. A solution that’s just now coming of age is blockchain-driven smart contracts for digital music consumption. If they catch on, they could cut out the middleman and transparently distribute revenues directly to artists behind a given work, according to pre-arranged terms. Prototype service Ujo is already doing it with artist Imogen Heap’s single “Tiny Human.” So, in actuality, perhaps Jay Z should be more worried about blockchain than Spotify.

Indeed, as streaming becomes the dominant revenue source in the music market, and consumers continue to shift away from physical media and digital downloads, the pressure from artists will only increase as they seek more transparency, and a stronger ability to renegotiate their share of revenues from all sides (but particularly from labels).

On Twitter, Allen echoed this sentiment, writing that, rather than demonizing streaming services, artists should look toward the hefty cut of revenue taken by labels:


— lily (@lilyallen) March 31, 2015

For Prince, online streaming services were just the latest challenge in his complex relationship engaging with evolving digital markets. Like Bowie, Prince was a digital pioneer — among the first to embrace the internet’s potential to create a direct relationship with his fans. In 2001, he opened one of the first music-subscription services, NPG Music Club, which was open for five years. In 2009, this was succeeded by lotusflow3r.com. As the Wall Street Journal describes it:

LotusFlow3r.com, resembled a galactic aquarium, featuring doodads like a rotating orb that played videos. The promise: fans who ponied up $77 for a year-long membership would receive the three new albums, plus an ensuing flow of exclusive content, like unreleased tracks and archival videos.

It was also met with a mixed reception, and a year after its launch, it went dark.

Ultimately, as the internet came of age, Prince met it with increasing resistance. Likely, he saw his ability to assert control slipping away. He wasn’t a fan of people repurposing his work in the analog era, so why should we expect him to embrace a digital one — where it’s far easier to remix, edit, dub and repurpose? As Mike Masnick explains, Prince became a militant enforcer of his intellectual property, who played fast and loose with the law in his litigiousness:

He’s also gone legal a bunch of times, suing a bunch of websites, threatening fan sites for posting photos and album covers on their sites, suing musicians for creating a tribute album for his birthday, issuing DMCA takedowns for videos that have his barely audible music playing in the background and 6-second Vine clipsthat are clearly fair use.

At one point, he even declared that the internet is a fad, rebelling against a model that wouldn’t work on his terms:

The internet’s completely over. I don’t see why I should give my new music to iTunes or anyone else. They won’t pay me an advance for it and then they get angry when they can’t get it.

(At this point he could have styled himself “The Prince of Denial.” He even deleted his Facebook and Twitter accounts.)

Famously, Prince, via Universal Music, was responsible for the infamous “dancing baby” DMCA takedown over a video featuring Prince’s “Let’s Go Crazy” playing faintly in the background of a short clip as a toddler danced*. Ultimately our friends at EFF, who were representing Stephanie Lenz, prevailed on their fair use claim. In 2013, EFF awarded him their “Raspberry Beret Lifetime Aggrievement Award” for “extraordinary abuses of the takedown process in the name of silencing speech.”

Despite all the digital-copyright agitation Prince managed to generate in the steps he took to express his unhappiness with Internet distribution channels — and despite his insistence, it doesn’t seem as if the Internet is “over” quite yet — he will of course be remembered primarily for his genius as a songwriter, performer, and producer. And, also, as a visionary. Although he passed away just before the rise of virtual reality and mixed reality technologies, one can only imagine him as someone who would have embraced it. Even if imperfectly.

Ironically, given his virtuosity and lasting impact on pop music, limiting his digital distribution, and the ability of his fans to find new creative uses for his work, makes it orders of magnitude more difficult for fans to bring his music to new generations of listeners, who may never know what all the fuss about Prince was about. And that’s a shame.

* Post updated to reflect that while Prince/Universal sent the initial DMCA takedown, it was Lenz and EFF who brought the lawsuit for that takedown.

Despite the threat of bankruptcy, Stanton Is spending millions to build one park

April 28, 2016, 4:17 PM

From OC Weekly

Steven Greenhut laughed when told about the city’s decision to build Central Park in the midst of financial crises. “What’s that old saying about the first thing you do when you find yourself in a hole? Stop digging?” says Greenhut, a formerRegister editorial writer who’s now western region director for the free-market R Street Institute. “Cities that cry ‘poverty’ and ‘public safety’ to convince their residents to pay higher taxes have no business spending big bucks on new parks.”


Cloture filed on energy-water spending bill

April 28, 2016, 4:15 PM

From Congressional Quarterly

While such “buy American” mandates generally stir little controversy, spending hawks urged senators “who care about fiscal discipline” to vote against her amendment, according to a Monday letter signed by groups including Taxpayers for Common Sense, R Street Institute and the Coalition to Reduce Spending.

Let’s free the antique alcohol market

April 28, 2016, 4:14 PM

From American Spectator

It seems like every month, I get an email or two from strangers asking me the same question. They read something like this: “Hi. My elderly father died, and when I was cleaning out his house to get it ready for sale, I found some very old looking bottles. Some of them are not open. Are they worth anything?”

Unfortunately, my response never is especially encouraging. There is, I inform them, no licit secondhand market for alcoholic beverages, for the most part. So, I cannot tell you what a bottle of Old Fitzgerald Bourbon from 1970 or a six-pack of Thomas Hardy Ale from 1995 would sell for. Sure, if you had a large and opulent collection of antique beverages, you might be able to get it assessed and sold by an auction house. But even for those lucky souls, it is a painstaking and time-consuming process.

Read more…

R Street Institute Commends Passage of H.R. 2901

April 28, 2016, 2:49 PM

WASHINGTON (April 28, 2016) – The R Street Institute today commended the U.S. House of Representatives for its passage of H.R. 2901, the Flood Insurance Market Parity and Modernization Act of 2015, which passed by a margin of 419-0.

Introduced by Reps. Dennis Ross, R-Fla., and Patrick Murphy, D-Fla., the bill is a necessary follow-up to the Biggert-Waters Flood Insurance Reform Act of 2012, clarifying Congress’ intent to encourage development of a private market in flood-insurance products to compete with the taxpayer-subsidized policies offered through the National Flood Insurance Program.

R Street Senior Fellow R.J. Lehmann noted that the expansion of the flood-insurance market has only become more necessary following a series of major catastrophes, including Hurricane Katrina and Superstorm Sandy. According to Lehmann, “The NFIP remains more than $20 billion in debt to U.S. taxpayers and has been on the nonpartisan Government Accountability Office’s list of high-risk federal programs since 2006. Prospects to shrink the program’s $1.1 trillion of total property exposure rely on the emergence of private-sector solutions.”

H.R. 2901 defers to the states’ expertise in insurance regulation to develop appropriate guidelines for qualifying policies, including those written through the excess and surplus lines markets. Additionally, it ensures that any period in which a property is covered either by an NFIP policy or a private policy is to be considered “continuous coverage.”

Passage of these commonsense adjustments and clarifications are important steps toward meaningful flood insurance reform and should be considered a victory for advocates of consumer choice and fiscal responsibility.

Royal College of Physicians: E-cig switch benefits smokers

April 28, 2016, 1:27 PM

The United Kingdom’s Royal College of Physicians issued a groundbreaking report this morning on electronic cigarettes which concludes that encouraging smokers to switch to e-cigarettes is likely to be beneficial to U.K. public health. Smokers can therefore be reassured and encouraged to use them, and the public can be reassured that e-cigarettes are much safer than smoking.

The 200-page report reviewed recent evidence on e-cigarettes and came to the following conclusions:

  • E-cigarettes are not a gateway to smoking– In the United Kingdom, use of e-cigarettes is limited almost entirely to those who already use, or have used, tobacco.
  • E-cigarettes do not result in normalization of smoking– There is no evidence that either nicotine replacement therapy (NRT) or e-cigarette use has resulted in renormalization of smoking. None of these products has to date attracted significant use among adult never-smokers, or demonstrated evidence of significant gateway progression into smoking among young people.
  • E-cigarettes help smokers to quit– Among smokers, e-cigarette use is likely to lead to quit attempts that would not otherwise have happened, and in a proportion of these to successful cessation. In this way, e-cigarettes can act as a gateway from smoking.
  • E-cigarettes cause much less long-term harm– The possibility of some harm from long-term e-cigarette use cannot be dismissed, due to inhalation of the ingredients other than nicotine, but is likely to be very small, and substantially smaller than that arising from tobacco smoking. With appropriate product standards to minimize exposure to the other ingredients, it should be possible to reduce risks of physical health still further. Although it is not possible to estimate the long-term health risks associated with e-cigarettes precisely, the available data suggest that they are unlikely to exceed 5 percent of those associated with smoked tobacco products, and may well be substantially lower than this figure.

While the report acknowledges the need for regulation of e-cigarettes, they suggested that regulation should not be allowed to inhibit significantly the development and use of harm-reduction products by smokers. A regulatory strategy should take a balanced approach to ensure product safety, enable and encourage smokers to use these product instead of tobacco, and to detect and prevent effects that counter the overall goals of tobacco-control policy.

The early response from the U.S. Centers for Disease Control and Prevention and other public health authorities in the United States has been muted. They already have staked out a position that opposes adopting unregulated e-cigarettes as a harm-reduction strategy. From their point of view, the unintended consequences of e-cigarettes, in terms of youth adoption and unknown hazards associated with vapor, supersede any potential benefit to current adult smokers. They arrive at these positions from the same data summarized in the RCP report.

In an article that appeared earlier this month in the New England Journal of Medicine, Sharon H. Green and her co-authors explain that the framing for harm-reduction interventions is the key distinction: England has a long tradition of helping people with addictions (e.g., providing heroin and needles for heroin addicts) while the United States has been more critical of methadone maintenance, needle exchange and other similar programs.

When framed in the context of reducing the burden of tobacco-related illness, the evidence clearly favors use of e-cigarettes. When framed in the context of youth utilization, unknown harms, uncertainties regarding content and unintended consequences, use of e-cigarettes appears to generate red flags for U.S. regulators. For public-health officials steeped in a precautionary principle, the presumption becomes that no action can be taken until e-cigarettes are shown to be absolutely safe.

There can be little question that a subset of adult smokers in both the United Kingdom and the United States are able to quit smoking or reduce their smoking substantially by using e-cigarettes.

At the Oct. 20, 2015, CDC Public Health Grand Rounds on E-cigarettes, CDC Director Tom Frieden was quoted saying: “For the individual smoker, there is no question that e-cigarettes are safer.” While the debate about the RCP report is sure to continue, an increasing fraction of smokers and their doctors will be framing the question from a perspective of the benefits switching to e-cigarettes can convey.

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

Is Jerry Brown California’s savior?

April 28, 2016, 12:46 PM

It may be news to many of us living here, but California — according to a recent Newsweek issue — apparently no longer faces intractable budgetary, debt, infrastructure, business, tax, poverty, and regulatory problems. The state has been “saved” and its savior is none other than its third-term governor, Jerry Brown.

The magazine’s cover story, “How Jerry Brown Quietly Saved California,” recounts the governor’s political career against the backdrop of the current presidential race. The writer interviews an analyst who laments that the 78-year-old governor isn’t 10 years younger. Then Brown would be poised to take California’s miracle to the nation. (And you were lamenting a Donald Trump or Hillary Clinton presidency…)

“While his cloistered days are long gone, forays into Zen Buddhism and Mother Teresa’s India have reminded Brown about the impermanence of earthly things,” wrote the lengthy puff piece. “Beyond informing his interior decorating, Brown’s intellectual infinity for austerity has helped him pull the state out of a fiscal canyon about $27 billion deep.”

Furthermore, the article explains, Brown has turned California from the equivalent ofdecrepit Greece, “which was then in the midst of a protracted meltdown,” to economically booming Germany, “a smoothly functioning social democracy that couples technological avant-gardism with liberal social norms and fiscal restraint.”

Just as I had sworn off writing about Brown for a while, this piece — discussed widely and even referenced by the Los Angeles Times — cries out for a rebuttal. I’m no Brown hater. He’s a fascinating character whose recent legacy isn’t entirely bad. But the main thing the governor accomplished (with the help of a rebounding economy and a couple voter-approved initiatives) is to derail a burgeoning reform movement that offered some hope of addressing the state’s fundamental problems.

In my 18 years in California, the most public optimism I’ve sensed about the state’s future wasn’t when Arnold Schwarzenegger bounced the aptly named “Gray” Davis from the governorship in 2003. Most people were angry at the budget mess and smitten by the Terminator’s celebrity, but I never sensed great hope in long-lasting reform. It was more like relief the rolling blackouts (from the electricity crisis) might end and the massive deficits might go away.

The greatest time of optimism actually coincided with Brown’s inauguration to his third term, although it had little to do with his election. Sure, liberals were happy a quirky, lefty governor would be working with overwhelming Democratic legislative majorities. But many of us non-liberals were excited for decidedly different reasons.

The hopefulness stemmed, counterintuitively, from the dire conditions the state faced at the time. California had a massive general-fund budget deficit. Its unfunded liabilities, to pay for a decade-long spree of retroactive pension increases for public employees, had become front-page news, an amazing feat given the “eyes glazing over” nature of the topic.

Reformers weren’t joyful that California was being pronounced a “failed state.” But they naively believed the long-awaited “day of reckoning” was at hand. They figured, eventually, California’s public-sector-enriching, tax-raising, regulation-happy politics would hit the wall, and there’d be no other choice but to pass meaningful reform. Boy, did we misjudge that one.

There was some legitimate reason for the headiness. Two Democratic-majority cities (San Jose and San Diego) soon passed serious pension-reform initiatives with nearly 70-percent “yes” votes. There also was hope various court decisions would put an end to the dreaded California Rule, which forbade public agencies from ever reducing pension benefits — even going forward. There was chatter about education reform and other matters. There were some serious Democrats on board this reform agenda, a necessity in this Democratic-dominated state.

“[T]he state that was once held up as the epitome of the boundless opportunities of America has collapsed,” reported the Guardian in 2009. The British newspaper told stories of budget cuts, 12-percent unemployment rates, a soaring deficit, a busted housing bubble. It was helpful to the reform movement that such “failed state” pronouncements came from publications across the political spectrum.

But then the crisis evaporated. Voters in 2010 gave the Legislature the ability to pass budgets with a simple majority, thus helping to end an annual budget crisis in which the Republican minority had some political clout. And Brown used his political capital to convince voters in 2012 to increase sales and income taxes significantly. Now, instead of looking at the failed state, mainstream publications are lauding our supposedly successful state.

“Long derided for its ‘fruit-and-nuts’ politics, California is leading the way in envisioning a political system that can actually get things done,” the Huffington Post breathlessly reported in January. Expect more of this as we head into a national political race. California will be proof, we’ll be told, that Democratic policies are working.

It’s nonsense, of course. The stingy Brown shtick has some truth to it. At budget press conferences, Brown always points to a chart showing that budget years with deficits far exceed those years with surpluses. He has been a bulwark against the Democratic Legislature’s endless desire to create costly new permanent programs to avoid those deficits. “Some on California’s vociferous left have called on the stingy governor to spend more on social programs that might benefit the young, the sick, the homeless and the poor,” Newsweeknotes.

But his latest budget broke spending records with its $123-billion general fund. He’s devoted to a $15-billion-plus tunnel project in the Delta and a $68-billion-plus bullet train that is turning into a ridiculous boondoggle. He wants to spend more — lots more — but wants to assure the state can afford it. That’s something, especially in this state, but it’s ultimately not very much.

Unfortunately, that approach — and the resulting budgetary good news — helped to put the end to the reform movement by forcing “crisis” stories off the front pages. Even though nothing fundamentally changed, California no longer was viewed as a failed state. With coffers flush, no one wanted to talk about pension liabilities. More public employees than ever were joining the $100,000 club and enriching themselves thanks to spiking schemes and disability games. But the media coverage of them trickled away.

Unfunded liabilities are now higher than ever. We’re still the most impoverished state in the nation, based on the Census Bureau’s cost-of-living based data. The 24/7 Wall Street blog publishes its list of U.S. cities with the most grinding poverty. Four of 11 are in California. “California’s lawsuit climate ranks among worst in country, again,” reports the Voice of OC.Chief Executive magazine put California at No. 50 for business climate. Data show a steady stream of businesses and wealthier residents leaving because of tax and regulatory issues. The state’s schools and infrastructure are atrocious.

The goal here isn’t to blame Brown for problems caused by myriad legislators and governors. But it’s certainly silly to portray him as California’s savior. The state still is desperately in need of saving, even if its leadership — and the national media — don’t know it yet.

Environmentalists’ attack on free speech

April 28, 2016, 12:35 PM

I’m a former employee of the Competitive Enterprise Institute who disagrees with the organization’s take on the subject of climate change. I’m nonetheless outraged that CEI now faces a subpoena for records related to its internal discussions about our changing climate. The attack on CEI launched by U.S. Virgin Islands Attorney General Claude Earl Walker, and supported by former Vice President Al Gore and the group Attorneys General United for Clean Power, is an attack on both free speech and public participation in the policy process.

Walter Olson of the Cato Institute puts it better than I could:

If the forces behind this show-us-your-papers subpoena succeed in punishing (or simply inflicting prolonged legal harassment on) groups conducting supposedly wrongful advocacy, there’s every reason to think they will come after other advocacy groups later. Like yours.

And while I think that climate change is both human-caused to a significant extent and likely to be a problem, I would warn my environmentalist friends about the dangerous precedent the attack on CEI sets. For example, there’s scientific consensus that genetically modified organisms are safe and likely to be a net environmental positive. Nonetheless, environmental organizations like Greenpeace have objected to commercialized genetic engineering and sought a variety of laws to label or otherwise limit the use of GMOs.

If a pro-Monsanto government official decided to go after Greenpeace or our friends at the Environmental Working Group (which R Street works with a lot on agricultural issues) in the same way AG Walker has launched this witch hunt against CEI, we all would be outraged, and fully justified in that outrage.

The basis of the attorneys general’s campaign is that energy companies like ExxonMobil have engaged in conspiracies with think tanks and other policy organizations to spread disinformation about climate change. Think of the “conspiracies” that could be alleged against environmental-advocacy groups who have fought to impose new regulations, stop environmentally harmful projects or raise public awareness about environmental hazards.

Indeed, that’s the major purpose of the environmental movement, which at its best seeks to concentrate the social costs of pollution on those who impose them on society. But there are dozens of corporations and government entities that stand to lose profits or tax revenues as a result of these “conspiracies” and who would jump at an opportunity to attack advocacy groups. In addition to forcing them to expend precious dollars fending off frivolous lawsuits, demanding that environmental groups hand over personal records and emails could discourage many grassroots activists from getting involved in the first place.

And while the sorts of things that Exxon and others said about the changing climate in the 1980s and 1990s no longer match the modern scientific consensus, environmental groups should bear in mind that at least some of the claims and predictions they now make will, in the future, almost certainly also be shown to be wrong. For example, a preponderance of the evidence suggests that hurricanes will become more frequent in a warmer world. But very few scientists who have studied the question are willing to assign anything like certainty to this prediction. If future experience shows that hurricanes haven’t become more frequent, will government officials pull the “show us your papers” attack on environmental groups for such “wrongful advocacy”? It seems plausible.

Scientific data can tell us a lot about the world but it can’t determine what policy ought to be. No matter how much they disagree with CEI’s positions on climate change, environmentalists should be scared — very scared — about campaigns by public officials to intimidate private organizations into silence.