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Indoor ban on e-cigs imminent

June 11, 2015, 8:49 AM

From Delaware Public Media:

Other detractors, like Joel Nitzkin, a doctor and lobbyist for the libertarian R Street Institute found those short-term studies questionable.

Nitzkin also says the ban could have unintended consequences.

“What it will do is discourage smokers who would otherwise switch to these much lower-risk products from switching,” he said.

Democrats seek GOP support for carbon tax bill, face questions about jailing skeptics

June 11, 2015, 7:59 AM

From ClimateWire:

Andrew Moylan, executive director of the R Street Institute, a conservative think tank that supports revenue-neutral tax policies for carbon, asked how the senators could gain the trust of Republicans after they offered amendments meant to showcase GOP climate denial during last winter’s debate on the Keystone XL pipeline.

“They’ve been bitten a bunch of times,” Moylan said of Republican lawmakers.

CBO confirms private insurers could take on way more terrorism risk

June 10, 2015, 11:44 PM

I hate to say I told you so. Actually, scratch that. I love to say I told you so. I just wish it weren’t necessary in this case.

Back in January, when Congress passed a six-year extension of the federal backstop for terrorism insurance risks, I warned that the measly “reforms” it proposed did not go nearly far enough. Though it raised the trigger at which the program kicks in from $100 million to $200 million and will gradually raise the risk retained by the insurance industry from $27.5 billion to $37.5 billion over five years, I contended there was “ample evidence that private insurers, reinsurers, brokers and underwriting syndicates are ready and able to do more.”

In the five months since, the market evidence for that stance has only continued to grow. And now, even Congress’ own budget watchdog is backing me up.

In a new update on the status and potential future for the Terrorism Risk Insurance Program, the Congressional Budget Office notes that “relatively few policyholders would drop their coverage” even if the program’s various triggers were significantly higher than those Congress was considering for the 2015 extension, as “the demand for terrorism insurance is relatively insensitive to price.”

Among the possible tweaks under which that demand would still hold, CBO said, was if the program’s trigger was raised to $500 million and insurers’ deductibles and copayments were raised from the current 20 percent to 30 percent. The suggested proposal would keep the industry’s retention at $50 billion, the amount it is expected to reach in 2020, the final year of the extension, when current law requires the U.S. Treasury Department begin calculating the retention as the average aggregate of insurers’ terrorism deductibles over the prior three years.

CBO also offered estimates of the additional taxpayer protections that such changes would enable. Should the United States suffer a hypothetical $40 billion terrorist attack, compared with the program as it will stand in 2020, the proposed structure would see the insurance industry’s outlays increase from $20.8 billion to $28.8 billion, while taxpayers’ responsibility would drop from $19.2 billion to $11.2 billion. What’s more, the surcharges Treasury would have to assess on all commercial insurance policies – including even those that don’t cover terrorism – would be $11 billion less.

As to that $28.8 billion for which the industry would ultimately be responsible, CBO notes that private reinsurers could pretty well cover that whole nut already:

By some estimates, reinsurers could cover most of the current aggregate retention amount under TRIA ($27.5 billion) under current market conditions either by raising new capital or by reallocating their existing capital…There is probably a limit to the capital that investors would be willing to supply for terrorism reinsurance in the short run, but the amount is unknown

Of course, to anyone who’s been paying attention, this is hardly shocking news. The trade press is full of stories about how commercial insurance buyers are seeing double-digit declines in the price of terrorism coverage, with major corporations like Verizon even moving back into the stand-alone market and away from relying on TRIA to back-up their own captive insurers. The stand-alone market is now offering between $3.5 billion and $4 billion of per-occurrence capacity, making the $200 million trigger that was renewed by Congress totally laughable.

The graph below demonstrates just how far prices have fallen in the past decade. For large accounts, in particular, pricing has come way down, falling by more than 50 percent for businesses with total insured values of between $500 million and $1 billion. Prices came down — and take-up remained flat, at around 60 percent — even as Congress scaled back the TRIA backstop pretty significantly in 2006 and 2007.

This is all a result of the massive build-up in capital held by the private insurance and reinsurance industries. Overall, property/casualty insurers’ capital grew from $290 billion in 2002 to more than $670 billion in mid-2014. From 2007 to 2013, the capital reinsurers devote to property/casualty risks grew by 50 percent, from $200 billion to $300 billion. And while insurers would like to keep their exposure to terrorism risks below 20 percent to avoid adverse rating agency actions, right now, most insurers see exposures of only about 8 to 12 percent, underlining that they could take on significantly more risk.

One option for the next renewal would be to move toward a system where insurers pay an upfront premium for the reinsurance they get under the TRIA program, rather than the free coverage now extended by the taxpayers. That would at least offer the possibility for private reinsurers to compete with the government. If the premiums were assessed on a risk-adjusted basis, it would have the additional benefits of offering incentives for insurers to price their own coverage in accordance with risk and for policyholders to invest in appropriate mitigation strategies. CBO notes in its report that, under current law:

TRIA’s administrators would need to charge average premiums of nearly $600 million per year (for six years) to offset the government’s projected losses on a cash basis. However, any premiums paid to the government…would be subject to the same reduction in gross revenue that applies to the surcharges under TRIA—over 25 percent each year—to reflect offsetting effects on income and payroll taxes. Consequently, collections would need to average roughly $800 million a year for the net revenues to offset expected federal outlays over the life of the program.

Another option would be to move toward a system like the United Kingdom’s Pool Re, a tax-free mutual insurance pool into which participating insurers pay 50 percent of the premiums they collect for terrorism coverage. The biggest advantage of such a system is that, not only does it take the government out of the business of deciding what premiums should be, but the pool would adjust automatically to the industry’s shifting hard and soft rate environments without the need for new legislation.

But even Pool Re is seeing the ground begin to shift these days, as the length and depths of the current global soft reinsurance market has it facing increased competition from non-members who want to write U.K. terrorism coverage for their own accounts. As Julian Kirkby, senior account executive with London-based United Insurance Brokers, recently told Insurance Day:

People talk of the market needing to harden and we do see some territories apparently at rock-bottom rating, with many reinsurers walking away from risks due to the pricing on offer, but with a growing amount of participants offering extra capacity and low loss ratios this is difficult to foresee.

In a world in which there is so much private terrorism insurance capacity that rates have fallen utterly through the floor, it sure would be nice if Congress would consider tossing some of this risk back to the market and off the backs of the taxpayers.

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A buzzword glossary for tomorrow’s Innovation Act markup

June 10, 2015, 4:53 PM

The Innovation Act, a bill in the U.S. House that aims to reform patent litigation in the United States, has gotten a lot of bipartisan support, but has faced some fired-up opposition recently in public-policy circles. We at R Street still hope to see a strong version of the bill pass. To help you follow along, here are some legislative buzzwords for tomorrow’s “markup” of the legislation.

The MARKUP (a kind of committee hearing)  will center on House Judiciary Chairman Bob Goodlatte’s “MANAGER’S AMENDMENT,” more formally known as an “AMENDMENT IN THE NATURE OF A SUBSTITUTE.” You can find the text of Chairman Goodlatte’s latest version of the Innovation Act here.

Among the other buzzwords you may hear:

CUSTOMER STAY Whether a downstream customer who uses a patent-infringing product should be held liable for infringement. That’s been limited quite a bit in the manager’s amendment.

FEE SHIFTING Whether attorney fees can be awarded to the party that wins the patent-infringement case. In the United States, fee shifting is the exception rather than the rule. Most people have to pay out of pocket for their own lawyers.

MARKMAN HEARING — A process in which the presiding judge focuses on and decides how to understand the patent claim or claims. Based on the 1996 Supreme Court decision in Markman v. Westview Instruments Inc.

MOTION TO DISMISS A legal motion in which the defendant argues that, based on Markman hearing conclusions or other reasons, the plaintiff has no winnable legal claim under the law. [See MARKMAN HEARING, above]

PATENT TROLLS Entities that hold patent rights primarily to use them advantageously in litigation.

STAY OF DISCOVERY Sometimes known as “Stay of Discovery Pending Decision in Certain Initial Motions,” a stay of discovery means a stage in the case at which point opposing parties can’t impose expensive requirements on each other to produce evidence. In the Senate’s counterpart legislation, the PATENT Act, such stays may be granted in connection with motions about venue, motions to dismiss the case entirely and motions to sever (remove) accused infringers from the case. The version of the Innovation Act set for markup tomorrow provides for stays of discovery for venue issues, but this is offered as a replacement for stays of discovery under current patent-law options, such as Markman hearings and motions to dismiss. [See MARKMAN HEARING, MOTION TO DISMISS, above]

VENUE The place where a patent-infringement case is conducted. There’s a widespread perception that a few jurisdictions, notably the Eastern District of Texas, are too plaintiff-friendly, which means too friendly to patent trolls. [See PATENT TROLLS, above.]

We’re watching this markup closely at R Street. We hope the final version of the Innovation Act achieves meaningful reform of venue provisions and preserves stays of discovery on more substantive matters that would decide the infringement case on the merits. Such turning points in a case could be the result of Markman hearings or motions to dismiss. The fact that the discovery process can be hugely expensive for all parties, but particularly for less economically well-off inventors and businesses, means that stays of discovery can be hugely useful in containing the costs of patent litigation.

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USTR doesn’t need an IP czar

June 10, 2015, 4:05 PM

In a Congress that is likely this year to pass Trade Promotion Authority legislation, aimed at making trade agreements easier, you may ask why pro-free-trade legislators also proposing laws that would make trade agreements harder.

Yet that’s what Sen. Orrin Hatch, R-Utah, has set out to do with his proposal to add a “chief innovation and intellectual property negotiator” to the Office of U.S. Trade Representative.

The proposed change is deep in the text of S. 1269, aka the “Trade Facilitation and Trade Enforcement Act of 2015,” but you can find it here. Hatch’s big changes are Sections 611 and 612 of this bill, which center on establishment of this new office. (Somewhat joltingly, Section 611 amends Section 605 of the act, which precedes it by a few pages in the same bill.) Here’s the key language:

(7) The principal functions of the Chief Innovation and Intellectual Property Negotiator shall be to conduct trade negotiations and to enforce trade agreements relating to United States intellectual property and to take appropriate actions to address acts, policies, and practices of foreign governments that have a significant adverse impact on the value of United States innovation. The Chief Innovation and Intellectual Property Negotiator shall be a vigorous advocate on behalf of United States innovation and intellectual property interests. The Chief Innovation and Intellectual Property Negotiator shall perform such other functions as the United States Trade Representative may direct.

No one can dispute that the U.S. trade representative’s job is already hard. Advocating American interests in the global trade environment and negotiating bilateral and multilateral trade agreements is always going to be hard. In fact, that’s why so many lawmakers, including Hatch, have gone on record in support of Trade Promotion Authority, which simplifies the trade-agreement process. There’s a reason it’s commonly referred to as “fast track.”

In January, Hatch even argued that the legislation “actually enhances Congress’ role in trade negotiations by giving specific direction to the administration as to what they need to deliver to get an agreement through Congress.”

Creating a new, specialized intellectual-property czar in the USTR office (remember, the White House already has an “IP czar,” freshly approved by the Senate) likely will undercut the efficiencies Trade Promotion Authority supporters hope to advance. In effect, it would create one more layer of bureaucratic process to get a trade agreement finalized and sent to Congress.

Protecting U.S. intellectual-property interests, as well as other American interests, is something the USTR already does. In light of the pro-free-trade consensus in Congress, it’s hard to argue persuasively that what the office really needs is an additional Department of Redundancy Department.

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Senate extension of Internet Tax Freedom Act ‘virtually certain’

June 10, 2015, 1:40 PM

From Washington Internet Daily:

It’s “virtually certain” that the Senate will pass some sort of ITFA extension, but “whether that’s [S-431] … is another story,” said R Street Institute Executive Director Andrew Moylan. “The Senate has typically been a slightly more difficult challenge in terms of passing that sort of legislation. It remains to be seen whether the Senate is going to go along with [HR-235], but I think we’re certain to see a good push for a relatively long-term extension — something measured in months rather than years.”

…It’s likely that supporters of the Marketplace Fairness Act (S-698), including Sens. Mike Enzi, R-Wyo., and Dick Durbin, D-Ill., will “try and make every effort to combine” that bill with S-431, which some IFA extension supporters would be ready to accept, said the pro-ITFA lobbyist. “There is no poison pill at this point” for those supporters, the lobbyist said. Moylan said he also believes it’s likely that S-698 sponsors will attempt to attach S-431 to their bill given that they did the same thing last year, but that remains “a very misguided effort. I think [S-698] is a terrible piece of legislation and it’s directly at odds with the concept of ITFA. But because they both have the words Internet and tax in their titles, there’s an attempt to lump them together.” A permanent ITFA extension “is at its core Congress using its Commerce Clause authority to tell states that they cannot do certain things with tax policy that are damaging to interstate commerce,” Moylan said: MFA “is the direct opposite of that.”

Lehrer talks climate change and insurance on the Weather Channel

June 10, 2015, 11:53 AM

On the Weather Channel recently, R Street President Eli Lehrer explained the most straightforward reason why those who believe in a free market ought to accept the reality and some of the potential danger of climate change: that’s what those market actors who have money on the line — namely, the global property insurance and reinsurance industries — have come to conclude. Since the insurance doesn’t have any particular incentive to fall for ideologically driven hyper-alarmism, that should be considered “the free market’s validation that climate change is real and a problem.”

Watch the full clip below:

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Free trade doesn’t have to be a trade secret

June 10, 2015, 10:41 AM

Secrecy around the conduct of international trade agreements has been tightening, in what amounts to a disturbing and counterproductive trend. This lack of transparency gives additional fodder to groups motivated to fight globalization and puts off groups who, in other circumstances, would be vocal supporters of the cause of free trade.

Texts of the ongoing Trans Pacific Partnership negotiations between the United States and 11 other Asia-Pacific countries have been secreted behind closed doors in a way that, according to experienced trade adviser Michael Wessel’s harshly critical Politico article, is unprecedented in past trade deals, such as NAFTA or KORUS. It’s created an ongoing game of information cat-and-mouse that makes WikiLeaks, by default, the most reliable source of trade news. It’s even spawned a politically charged gag website that went viral on social media.

ICYMI, @fightfortheftr published all of the @WhiteHouse‘s “not secret” #TPP text here: http://t.co/HahfBeQNYN pic.twitter.com/k40TAAAJiQ

— Melinda St. Louis (@MelindaGTW) June 4, 2015

It’s the Streisand effect. Intense efforts to keep the trade deal secret are only drawing more, mostly negative, attention. Even parties who might be supportive of its contents have become vocal critics of the opaque negotiation process. It’s difficult to support something you don’t know anything about.

According to the leaked documents, there are legitimate reasons for concern. The Electronic Frontier Foundation has closely tracked and explained the ways TPP would strengthen copyright protections, against the interests of users. It appears there are provisions to criminalize circumvention of digital rights management, to hold digital intermediaries liable for copyright infringements and to restrict fair use.

Why should our trade deals privilege one group of legitimate American stakeholders over others? Using a federal Freedom of Information Act request, Intellectual Property Watch obtained confidential emails from the Office of the U.S. Trade Representative that show corporate players have played a significant “advisory” role in the trade negotiations. (The emails are posted and searchable on EFF’s website.) Some argue that tougher intellectual property laws wouldn’t necessarily be a bad thing. It nonetheless must be considered a red flag to see IP-industry representatives play such a prominent role in what ostensibly are secret negotiations.

It’s certainly possible that, for certain phases of negotiation, a closed door might be necessary. One can credibly argue that removing sensitive talks from public view is desirable on grounds of both efficiency and logistical practicality. But it’s important also to bear in mind some important countervailing concerns with both of these arguments.


On the one hand: Trade deals can be difficult to advance over time because the interests of the negotiating parties shift as new governments and parties come into power. A trade deal can be derailed by the election of a new president in the United States, for example.

On the other:  Democratic governing processes often make things slower or more difficult. Democracy, citizen participation, transparency and openness remain principles that make governments more responsive to the people and are therefore necessary, even when they are inconvenient. To give the extreme example – dictators can be very efficient governors.

While trade deals happen at a transnational level above that of democratic governments, the process should remain as transparent as possible. It’s particularly critical that members of Congress, who represent the voting public, are able to make informed decisions and take their constituencies’ views into account to the greatest extent possible.

Logistical practicality

On the one hand: Trade deals occur between parties whose interests sometimes conflict. Therefore, members on opposite sides of the negotiating table won’t want to reveal all of their cards in the course of negotiation.

On the other: According to Robert Zoellick, a former U.S. trade negotiator, in the negotiations to which he has been a party, there typically were literally hundreds of government officials, advisers and lobbyists who were privy to the talks. In a very real sense, these negotiations aren’t secret at all. They are just kept out of view of the general public, and particularly out of the view of skeptics. Policymaking transparency may indeed invite criticism, but it’s hard to see how more open communication during negotiations (and not just after negotiations) is a bad thing. This is particularly true when the diplomacy in question concerns trade, rather than military agreements or peace treaties.

The Trade Promotion Authority bill coming up for a vote shortly in Congress likely will include some positive new transparency measures, such as requirements to publish summaries of the U.S. position in trade negotiations. If passed before the TPP is done, which seems highly likely, these measures would give members of Congress and some staff members access to the full text of the negotiations. TPA also would make the entire text publicly available for at least 60 days before signing.

But given the scope of the Trans Pacific Partnership— a huge multilateral trade agreement with policy implications that extend to include intellectual-property, labor and dispute-resolution issues—Congress and the general public need more than just TPA transparency. But the Obama administration has chosen the opposite path, maintaining and expanding secrecy rather than seeking ways to reduce it. The secrecy around the TPP flies in the face of the Obama administration’s purported commitment, vaguely fleshed out in a fact sheet, to transparency in trade.

The TPP process is effectively adding uncertainty to the international business climate while undercutting citizens’ faith in government accountability. When it comes to transparency and accountability, both this administration and future administrations can and should do better.

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Ex-Im Bank backs Boeing, but plane nowhere to be found

June 10, 2015, 9:29 AM

Suffice it to say, when it comes to crony capitalism, the Export-Import Bank’s customers are some of the worst offenders. We may talk about how the state siphons off millions to pay for things we don’t need, but through the Ex-Im Bank, some ostensibly American companies have received millions – even billions – of dollars in corporate welfare, all paid in full by taxpayers, without much benefit flowing back to the Americans who pay the bills.

Boeing, the aircraft company, is one of the largest recipients of Ex-Im Bank funds, getting nearly $7.4 billion in taxpayer-funded guarantees in 2014 alone. And the U.S. taxpayer gets nothing for the $7.4 billion in risk we assume. So you’d think that when we employ Boeing to build, say, the KC-46 – a military refueling jet designed to replace the KC-135, an aircraft first introduced in 1956 – that they’d jump at the chance to do as good a job as possible.

You’d think wrong.

What the United States has actually gotten in return is something like a rendition of “Yakety Sax” performed by Boeing’s executives. Just last year, the company discovered a “wiring problem” that added massive delays and costs to the project. KC-46 test flights initially were scheduled for 2014, but as a result of these delays, Boeing will not be able to test the KC-46 until this month at the earliest. According to a Government Accountability Office report, the KC-46 project now will have “significantly less testing” over three test months, compared with a plan of 13 test months at the start.

But critically, the U.S. Air Force will have “less knowledge about the reliability of the aircraft,” potentially resulting in higher-than-expected costs and a “reduction in mission readiness,” the GAO said. At a time when the globe is more uncertain – with Russia invading neighbors and ISIS terrorizing the Middle East – men and women in uniform need to rely on their equipment. Real lives are at stake.

Maybe it’s time that we start getting a bit of return on our taxpayer investment.

Passage of fast-track trade authority for president is critical for our nation and Texas

June 10, 2015, 9:09 AM

From the Waco Tribune:

The U.S. House has indicated that it’s likely to reauthorize Trade Promotion Authority in the coming weeks. Also known as “fast-track” trade authority, TPA makes it easier for the president to negotiate trade deals with other countries by ensuring Congress gives them up-or-down votes rather than adding amendments that would necessitate endless rounds of renegotiation. Given the importance of this vote, it’s worth taking a moment to consider just how beneficial TPA has been for Texas and for the nation…


Busting the myth that patent reform is a left-wing idea

June 09, 2015, 1:11 PM

In a relatively short period of time, the debate over patent reform has transformed an arcane, low-salience issue into one that sparks fierce controversy and national headlines. Listening to the recent flurry of Beltway-targeted ads, op-eds and press releases, it would be easy to get the impression that it’s also a partisan issue promoted by the left.

For example, our friends at the American Conservative Union recently called the reform effort “Obama’s initiative to weaken intellectual property rights” and promote the “liberal dream of a patent-free society.” Elsewhere, Republican presidential candidate Carly Fiorina likened it to Obamacare for intellectual property. Taking a closer look, this hyperbolic narrative doesn’t hold up very well to scrutiny.

Patent reform enjoys a long tradition of intellectual support from a wide range of right-leaning think tanks and advocacy groups. Conservative and libertarian groups that have advocated for patent reform in one form or another include Americans for Tax Reform, the Heartland Institute, the Cato Institute, the Heritage Foundation, the Competitive Enterprise Institute, the Mercatus Center, Americans for Prosperity, Frontiers of Freedom, the Independent Institute, the Manhattan Institute, the Mises Institute, Institute for Liberty, Hispanic Leadership Fund, the Institute for Policy Innovation, the Latino Coalition, Independent Women’s Forum, Lincoln Labs, the American Enterprise Institute, the Center for Individual Freedom, American Commitment, Taxpayers Protection Alliance, the Discovery Institute, Generation Opportunity, Citizen Outreach and others.

Obviously, not all of these groups are united in how to define the problem or which solutions are best. But it’s not exactly a bunch of lefties pushing for reform.

That’s not to say everyone on the ideological right agrees. Groups like the Ayn Rand Institute and the Eagle Forum tend to take a more maximalist view of intellectual property (Objectivist law professor Adam Mossoff is among the most prominent and stalwart opponents of reform), as do a few others like the aforementioned American Conservative Union.

But how do conservatives come down on the actual legislation on the table? While it’s true that the White House is on board, Congress’ bipartisan patent reform effort isn’t led by hardcore liberals teaming up with centrist Republicans. Rather, it is an idea advanced by well-known and staunch conservatives.

The American Conservative Union’s own scorecard ranks members sponsoring patent reform legislation among the most conservative in the nation. This includes members such as Sens. Mike Lee (R-Utah – 100 percent), Chuck Grassley (R-Iowa – 84 percent), John Cornyn (R-Texas – 93 percent) and Orrin Hatch (R-Utah – 89 percent); and Reps. Bob Goodlatte (R-Va. – 94 percent), Darrell Issa (R-Calif. – 89 percent), Jason Chaffetz (R-Utah – 92 percent), and Blake Farenthold (R-Texas – 80 percent), among others.

With the House moving Thursday to mark up its bill (the Innovation Act — H.R. 9), it’s worth looking back on what happened in the last Congress when an identical version was up for a vote. At the time, it passed the House with an overwhelming margin of 325 to 91. Republicans voted in favor of it by a margin of over seven to one. Democrats voted in favor it by a leaner margin of two to one. This makes pretty clear that support for patent reform leans strongly to the right.

Hope for reform in the last Congress ultimately died in the Senate, where it was blocked by then-Majority Leader Harry Reid, D-Nev., because of election-year politics. This time, however, legislation has already cleared markup in the Senate Judiciary Committee and has a clear path to a floor vote in a Republican-controlled Senate. Once again, the facts on the ground don’t line up with the narrative that it’s a liberal agenda item.

Here at R Street, we’ve long supported a balanced approach to intellectual property that upholds its constitutional mandate to both promote innovation and protect the rights of inventors. While this legislation isn’t perfect (we still have concerns about the treatment of IPRs, and the finer points of its litigation reforms), we believe Congress is on the right track to making a meaningful step forward.

Patent reform has loud detractors of all stripes, but it also enjoys overwhelming support on both the left and right. And if we’re going to be honest, its support has always been stronger on the right.

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Trade authority is good for Texas

June 09, 2015, 12:07 PM

The U.S. House has indicated that it’s likely to reauthorize Trade Promotion Authority, and that’s good for Texas.

Also known as “fast-track” trade authority, TPA makes it easier for the president to negotiate trade deals with other countries by ensuring Congress gives them up-or-down votes, rather than adding amendments that would necessitate endless rounds of renegotiation.

First enacted 41 years ago, TPA has helped presidents from across the political spectrum remove barriers to trade between the United States and other countries. TPA has been used to negotiate trade agreements with countries ranging from Israel and Canada to South Korea and Chile.

This has paid off in the form of more jobs and greater access to goods and services for American consumers. The U.S. Chamber of Commerce reports that one out of every five jobs in America today is supported by trade.

Texas, in particular, has benefited from increased trade. Texas exported $289 billion worth of merchandise in 2014, with $115 billion from the Houston metro area alone. Whether it’s gasoline or electronics, Texas has a vibrant manufacturing base that benefits and will continue to benefit from increased trade.

Recent expansions of the Panama Canal will only heighten the importance of trade to the Texas economy.

The White House enjoyed fast-track authority from 1974 to 1994 and again for five years starting in 2002. Although a Democratic Congress allowed the authority to fast-track new deals to expire in 2007, the president continued to enjoy TPA for deals already in the works until 2011.

Unless TPA is reauthorized, Texas stands to lose out on many of these opportunities. Senators like Elizabeth Warren, D-Mass., have shown an increased willingness to try to kill or delay trade agreements by any means necessary.

This won’t end trade between nations, but it could well redirect it away from the United States and toward countries that are more willing to welcome international commerce. In an increasingly competitive global market, the United States can’t afford to simply take its mat and go home.

Some have sought to derail support for TPA in red states like Texas by linking it to President Barack Obama. But free trade is a bipartisan affair that, if anything, traditionally enjoyed more support from conservatives than from liberals. Given less than two years remaining in Obama’s term, the main use of TPA going forward will likely be by future (quite possibly Republican) presidents. Killing TPA now could mean a lost decade in terms of future trade agreements.

In a world of increased political polarization, trade remains one issue that hasn’t yet become simply a matter of partisanship.

California’s conservatives should draw from the Tory playbook

June 09, 2015, 8:00 AM

California is a deep blue state, but there is reason for California conservatives to be optimistic. And it’s not just that the structural apogee of liberal influence in the state likely has passed.

There is a successful model for a conservative comeback, should California’s right wing endeavor to import it, offered by their contemporaries in Great Britain: the blue-ribbon sporting Conservative Party.

In the aftermath of the recent and stunning victory by the British Conservative Party, it’s easy to overlook the fact that the United Kingdom’s political right was in the wilderness from 1997 to 2010. In fact, there had not been a non-coalition Tory government for nearly a quarter-century.

A similar state of affairs, minus the electoral resurrection, is very much like the one currently facing the California GOP.

Democrats control every constitutional office and have enjoyed uninterrupted control of both chambers of the Legislature for 25 years. With the exception of a few brief periods of control over the executive branch, Republicans, and conservatives in particular, have been a marginal political force in the state.

In Britain, during the period of well-established leftist control, a government that touted itself as “New Labour” held power in Westminster. They built a large and enduring parliamentary majority by embracing a nominally free-market-friendly approach to policy, not unlike the latest crop of Democrats in Sacramento.

Political moderates and the business interests situated in Britain’s financial heart, the “City”, embraced New Labour because the movement eschewed public ownership in favor of markets. They did so with the understanding that the fruits of those markets would be redistributed. But the free-market political center could tolerate such activity so long as onerous regulation and hefty tax rates were kept in check.

More than 5,000 miles away, on Sacramento’s K Street, where California’s largest and most influential business interests sit, observe and engage in the political process, a quiet approval of the California Democratic Party’s “New Labour” moment has, in part, facilitated the endurance of substantial Democratic majorities.

In exchange for subduing their predilections to tax, spend and control private enterprise, California Democrats have been quietly supported by market-friendly interests as they pursue other aims. Policies that embrace undocumented immigrants, that strengthen public sector unions and that seek to redistribute what revenue is collected all have become law with a minimum of growling from K Street.

K Street’s acquiescence is alarming to California Republicans, and rightly so. But in an age of single-party hegemony, political and regulatory arbitrage makes sense. Accordingly, complaining to the market moderates about how bad they have got it under Democratic governments has not been, and will not be, enough to move them away from their vital support of California’s left.

The road back to conservative power in Sacramento will need to follow a similar path to the one charted by British Conservatives on their trek back to power in Westminster. That means upsetting cozy relationship between the left and market moderates. To do so, just as New Labour embraced the center-right, the minority Conservative Party embraced the center-left.

That realignment was far from a surrender of the party’s core; instead it was an effort to express a clear intensity of preference for free markets – above all. The Conservatives honed their message by eliminating distracting ancillary issues from the party platform. They embraced gay marriage, offered a believable policy agenda to assist the poor and promoted worker protections where possible.

Taking those steps addressed the threshold electability issues that kept the City in New Labour’s camp for fear of quiet regulatory reprisal. It also allowed the Conservative Party to speak with unapologetic force about the need to reform entitlements, to shrink the public sector and to spur private enterprise.

The New Labour movement, however moderate, was unable to tread that transparently conservative path. As the governing party, New Labour had the burden of actualizing the policy that it claimed to embrace, and in the face of the financial crisis of 2008, it was unable to do so. The fall of New Labour occurred when the Conservative minority forced the party to show its true far left-leaning predilections. New Labour simply could not sustain the austerity measures that were needed to right Great Britain’s economy.

While no global economic crisis is immediately apparent on the horizon, the volatility of California’s revenue through the state’s reliance on the largesse of a tiny minority of wealthy taxpayers; the terrific funding obligations that the state has incurred; the slow-coming tidal wave of toxic pension obligations; and the profoundly inadequate nature of the state’s infrastructure are all problems that have eluded viable orthodox left-wing solutions. They all present occasions for California conservatives to make a case that an authentically free-market party is worthy of the support of market moderates or K Street.

Free-market conservatives are winning across the Anglosphere. Britain, Canada, Australian and New Zealand all have center-right governments, because they presented compelling economic messages that left-wing parties, even moderate ones, could not brook. There is no reason that a similar phenomenon cannot occur, even in California.

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Give federal employees bonuses for finding spending cuts

June 09, 2015, 7:00 AM

Congress seems to have a problem finding places to cut in order to get government spending under control. Budget deficits are a way of life in Washington, adding to the national debt and putting the nation’s financial health at risk.

In 2011, Congress passed and President Barack Obama signed the Budget Control Act into law, in what was touted as a bipartisan effort to get spending under control. However, the caps and sequestration agreed to in the legislation have been under political pressure, as there has been even stronger bipartisan consensus to undo them.

What if there was a way to take politics out of spending cuts?

Sens. Rand Paul, R-Ky., and Mark Warner, D-Va., have introduced an amendment to this year’s National Defense Authorization Act that looks to make the civil service an ally in cutting spending. The provision offers to pay bonuses to any government employee who finds ways to save money in their agency. From the press release Sen. Paul sent out:

WASHINGTON, D.C. – U.S. Senators Rand Paul (R-KY) and Mark Warner (D-VA) today introduced Amendment 1543 to the National Defense Authorization Act (NDAA), known as Bonuses for Cost-Cutters. Building on the current federal law, the amendment would allow a U.S. government agency’s inspector general to pay a bonus of up to $10,000 when a federal employee identifies surplus or unneeded funds.

“Federal employees, under the current law, have a perverse incentive to spend all of their agency’s annual budget before the end of the year. Through bonus incentives, my amendment will reduce the federal deficit and reverse the trend toward agency bloat, by combating inefficiency and mismanagement of funds in the government,” Sen. Paul said.

The senators also have introduced stand-alone legislation that would implement this policy across all departments. If enacted, it would transform a constituency that normally opposes spending cuts into one with an incentive to find savings in their own budgets. It also would reduce government waste and create an incentive to streamline operations. Finally, it would end the culture many agencies operate under of spending every dollar allocated.

Although these bonuses would provide an incentive to save money, they provide an even better approach to the issue of cutting government spending. They remove politics from the equation. Every government agency and program has a constituency in Congress. That, along with baseline budgeting, provides a perverse incentive to increase spending every year.

These bonuses are an interesting concept that Congress should test as a way to get spending, or at least government waste and fraud, under control.

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No, the America Invents Act did not cost ‘the economy’ $1 trillion

June 09, 2015, 12:16 AM

Congress will once again take up significant patent reform this week, with the PATENT Act – a version of which passed the Senate Judiciary Committee last Thursday – set for debate on the floor of the House of Representatives.

But some are still litigating the merits of the last significant patent reform Congress passed, 2011’s America Invents Act. Of particular interest, in some quarters of the intellectual property world, are its provisions expanding the inter partes review procedure, which has allowed many more entities to challenge the validity of patents issued by the U.S. Patent and Trademark Office.

Thus far, the results would appear to bear out the claims of those of us concerned that a significant number of patents have been inappropriately granted. Through its first two-and-half years, about 77 percent of the IPR challenges the office has reviewed resulted in invalidating the patent.

But not everyone sees this as a step forward for patent quality. In a guest post at the blog PatentlyO, IP consultant Richard Baker of West Newbury, Mass.-based New England Intellectual Property LLC reviews the results of AIA’s IPR changes, and comes to the bizarre and puzzling conclusion that the law has actually cost the U.S. economy in excess of $1 trillion.(!)

To be sure, there are legitimate economic costs associated with the IPR process that an honest investigator may wish to tally. For instance, the funds expended registering a patent that ought never have been granted would have to count as deadweight losses. But then, so too are the funds spent challenging a patent that ought never have been granted.

But these are not the sorts of costs Baker has in mind. Instead, using data from IPOfferring’s Patent Value Quotient Annual Report of patent sales, Baker calculates that opening a path to challenge inappropriately issued patents has caused the price of U.S. patents to fall by an average of 61 percent. And the patent-holders’ losses, Baker contends, are all of our losses:

Intellectual capital (patents, copyrights, and other forms of economic ideas are worth about $9 Trillion in the United States…So a 61% markdown of patents (and their resulting goodwill when small companies are bought) corresponds to a 61% markdown of a portion of the $9.2 Trillion.  Say patents are worth about 25% of the overall value of intellectual capital…, or about $2.3 Trillion, then a 61% loss in value is $1.37 Trillion decrease in the value of the US economy based on the impact of the AIA bill.  The American Invents Act bill cost the economy about $1.37 Trillion, or an amount equal to about 7% of the US GDP.

The first and most obvious problem with this analysis is that Baker appears unaware of the distinction between stocks and flows. The current valuation of intellectual property held by U.S. firms is a stock. The nation’s gross domestic product is a flow. The value of the nation’s patents would be included in the total value of all U.S. assets, a figure that is exceedingly hard to estimate, but is certainly many times larger than annual GDP. But it’s the latter we generally refer to when we talk about hits to “the economy.”

There are methods for deriving the former from the latter – that is, for determining a stock’s value by adding up the current and discounted future cash flows it is expected to produce – but there’s certainly no one-to-one correspondence between the two. As an illustration, remember that Americans lost $16.4 trillion of household wealth during the financial crisis of 2007 to 2009. That’s a genuine tragedy. A bigger tragedy still would have been if we’d lost $16.4 trillion of GDP. Mostly, because that would mean the economy would have lost an impossible 113 percent of its value. Instead, peak to trough, GDP declined about 4.3 percent.

A secondary problem is one any Econ 101 student could diagnose. He’s expressing price changes as “losses,” when obviously the net effect of a price change – that is, the effect on “the economy” – is going to be zero. Every dollar lost by someone who holds a stock and wishes to sell it is a dollar gained by someone who covets a stock and intends to buy it. That the valuation of a company or its assets changes does not, in and of itself, tell you much of anything useful about the economy. What would matter to the economy is if the price change was the result of the firm or its sector losing productive capacity, or possibly of some sort of demand shock that would force it to operate at less than productive capacity.

And this is where the whole business of valuing “intellectual capital” as the equivalent of other forms of capital begins to founder. From an accounting perspective, intellectual property would fall under the category of “intangibles,” which also includes things like the skills of the human workforce a firm employs and the relationships it has developed. More specifically, patents are a form of “structural capital,” generally defined as those processes and systems that don’t, strictly speaking, reside in employees’ heads and that remain with the firm even when they leave.

Structural capital is important. Certainly, a securities analyst couldn’t value a firm and a bank officer couldn’t decide whether to lend to it without a good understanding of what its structural capital is and what it’s worth. But if we’re talking about “the economy” here, there are real limits to considering firms’ structural capital in the same terms as other forms of capital.

For example, the structural capital bucket also includes a firm’s reputation. If we were to discover tomorrow that all the pharmaceutical companies have been secretly poisoning our water supply, their structural capital would take a real hit, as would their stock valuations. That doesn’t mean the economically efficient solution would be to suppress the information. There’s still the little matter of the costs those firms are already imposing on the public.

When a refinery explodes, when a tractor breaks down, when a factory gets hit by lightning – those are all genuine capital losses that impede a firm’s ability to continue providing the goods and services consumers want. No similar limitation accompanies the loss of a patent. The firm can keep producing what it always has, albeit in competition with other firms who look to do the same.

Of course, over a longer term, changes in patent law could prove economically troublesome. If the changes were so significant that firms no longer had incentive to invest in research and development, that clearly would be the sort of effect that would show up in GDP. Indeed, this danger counsels a modest and deliberate approach to patent reform.

But Baker makes no effort to quantify or even identify such an effect. To the contrary, what his analysis lacks most is any accounting of the very real benefits that accompany invalidating patents that never should have been granted in the first place. Clearly, the biggest is that the firm holding the patent no longer can extract monopoly rents from consumers. Competition would bring down prices, and those lower prices would mean greater consumer surplus. And creating consumer surplus is actually the purpose of this thing we call “the economy.”

In short, almost everything Baker calls a cost is actually a benefit. Yes, loss of inappropriately granted monopolies would mean write-downs for the firms that hold them, but all of those losses flow back as consumers’ gains. After all, ending slavery also meant mass write-downs of a highly valued form of “property.” It was still the right thing to do.

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Time to raise the oil spill liability cap

June 08, 2015, 1:16 PM

From the Muscatine Journal:

Santa Barbara County is the latest seaside community to watch its coastline dirtied by an all-too-recognizable black sludge. Early estimates project that more than 100,000 gallons of oil have spilled onto Refugio State Beach via a pipe that burst the morning of May 19. To address the spill, Gov. Jerry Brown has declared a state of emergency so that special state funds can be dedicated to the cleanup effort…

How EPA’s ethanol cut could hurt taxpayers

June 08, 2015, 12:40 PM

Last Friday, the Environmental Protection Agency proposed cutting the Renewable Fuel Standard’s corn-ethanol mandate by 3.75 billion gallons from 2014 to 2016. This naturally prompted pushback from the corn lobby. National Corn Growers Association president Chip Bowling said that the “only beneficiary of the EPA’s decision is Big Oil, which has continuously sought to undermine the development of clean, renewable fuels.”

Of course, there is mounting evidence that corn ethanol is, in fact, more environmentally destructive than beneficial. Moreover, a recent study from Jayson L. Lusk of the Mercatus Center projected that reducing the corn mandate by 20 percent — roughly the EPA’s proposed cut — would benefit American consumers to the tune of $855 million per year. In particular, the price of meat would fall, as corn is a major feed product for American livestock.

But while consumers would benefit from cheaper food, reduced corn demand would cost taxpayers dearly. For that perverse outcome, you can thank the Federal Crop Insurance Program.

Under current law, the Department of Agriculture pays about 66 percent of the cost of crop-insurance premiums for producers of corn and other major commodity crops. As of 2012, 86 percent of producers use that subsidy to insure their revenue, rather than their yield. So lower prices ultimately will result in further taxpayer-subsidized crop-insurance payouts.

Removing crop-insurance subsidies would benefit taxpayers by $8 billion a year, though Lusk finds that it also would raise prices for domestic food consumers by about $2.4 billion. Agriculture producers would lose about $2.6 billion.

Beyond crop insurance, the 2014 farm bill also created a trio of federal supports that can kick in if a farmer’s revenues fall even 10 percent below baselines that, in many cases, were set in a time of record-high prices. Even more egregiously, both basic crop insurance and these supplemental coverage options flow to only a handful of crops, one of which is corn. According to the Environmental Working Group, 62 percent of farms do not collect subsidy payments, and 75 percent of such subsidies accrue to just 10 percent of farms.

Our nation’s agricultural market is a giant boondoggle, with countless federal incentives and subsidies distorting prices in a multitude of directions while making farmers dependent on the dole. The clamor over the RFS serves as a perfect example, as corn is already one of the most subsidized industries in America.

This is the problem with getting into bed with government. Whatever Uncle Sam gives, he can take away. All one can do is to fly to Washington to beg for mercy.

Republican pledges $175 million to push party on climate

June 08, 2015, 10:21 AM

From Politico:

“What’s important to remember is that [climate change] doesn’t really register as an issue with many Republican primary voters,” said Eli Lehrer, who helped form the free-market think tank R Street Institute after bolting from the Heartland Institute over its public skepticism of climate science.

“It isn’t that they are denying anything. They just don’t care that much. I don’t care that much. It’s unlikely that I will vote primarily where someone stands on climate change,” he said.

Can ‘The Rock’ rescue the CEA?

June 08, 2015, 10:08 AM

The California Earthquake Authority long has had trouble getting Golden Staters to buy protection for the most devastating natural disaster most of them face. Indeed, if anything, California’s earthquake insurance market is more a story of regress than progress. While about 20 percent of the state’s homeowners had earthquake coverage at the time of the devastating 1994 Northridge quake, the figure is less than half that today.

But a surprising turnaround has been seen in the past few weeks, attributed almost entirely to the success of the disaster blockbuster San Andreas. Starring Dwayne “The Rock” Johnson, Carla Gugino and Alexandra Daddario, the film has taken in $99.1 million in the U.S. market ($287.1 million worldwide) through its first two weekends: solid numbers although not, to pardon the pun, ground-shaking ones. But Britain’s Guardian newspaper reports that the film’s more lasting effect could be seen in the marked uptick in Californians purchasing disaster kids and, yes, insurance:

The California Earthquake Authority, an insurance clearinghouse, has seen traffic to its website approximately double in the past week, said the CEO, Glenn Pomeroy. “The movie is getting people talking. And just to get them talking about earthquakes is a good thing.”

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No need to renew the Export-Import Bank

June 08, 2015, 7:00 AM

Statutory authorization for the $140 billion Export-Import Bank is set to expire at the end of the month. Created more than 80 years ago, the bank has far outlived its purpose. At this point, there is no reason to vote for any measure that would extend its life.

The institution’s advocates like to tout how the institution helps “small businesses” compete in the international market. But as highlighted by last week’s Senate Banking Committee hearing on the topic, the bank frequently has missed its statutory target that at least 20 percent of its loans must be made to small businesses.

Obviously, many small businesses succeed without government help, even in the international market. Instead of holding out for the Export-Import Bank to give them a leg up, entrepreneurs advocate for a system that creates a level playing field.

Indeed, the single-largest beneficiary of Ex-Im largesse – Boeing, which by some measures accounts for 30 percent of Ex-Im’s subsidies by itself – already is planning for life without the bank, and is fully capable of providing financing to its customers out of its own balance sheet.

The Export-Import Bank is the definition of crony capitalism. Taxpayer dollars are used to subsidize loans for politically connected corporations. Not only is this a bad deal for taxpayers but Ex-Im also has contributed to a culture of corruption that should not continue.

Most alarming is that Ex-Im’s defenders are attempting to attach its reauthorization to other legislative business, like the National Defense Authorization Act or the Highway Trust Fund. These issues are completely unrelated and should be considered separately.

By running out the clock on the Export-Import Bank, legislators have an excellent opportunity to demonstrate their commitment to ending corporate welfare and expanding real economic opportunity.


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