Out of the Storm News
Scottish poets from the 18th Century are rarely credited for their insights into California politics. Yet the architects of Proposition103, California’s 25-year-old attempt to rigidly control prices in the state’s insurance market, would have done well to heed the insight of Robert Burns as they crafted their lamentable brainstorm and sought to leave no angle unaddressed.
In proving foresight may be vain:
The best laid schemes o’ mice an’ men
Gang aft a-gley, [often go awry]
Not unlike Burns’ “mice”, their foresight had its limits.
In an obscure section of the California Insurance Code inserted by Prop 103 lies a provision that inadvertently bucks Prop 103’s otherwise unifying trend, in that it doesn’t hurt California consumers. It is a provision that allows groups to negotiate collectively with insurers to achieve discounts based upon their shared characteristics. This is a good idea, because certain groups have better loss experiences than other policyholders and should pay lower premiums as a result.
The people who receive discounts under this provision are referred to as “affinity groups.” To date, the California Department of Insurance has approved rating plans that include affinity groups.
In spite of the fact that the rates charged to affinity groups enjoy the blessing of the CDI, the authors of Prop 103, Consumer Watchdog, are up in arms. Their complaint is that groups they don’t fancy are receiving lower premiums than they otherwise would on a differentiated basis. The groups who are receiving benefits, in the words of Consumer Watchdog, are:
…college graduates who can afford to maintain memberships in an alumni association, people with high paying jobs like doctors, lawyers, and business executives, and other elite members of the 1%.
That politically charged and polarizing class-driven characterization might come as a surprise to the elderly fixed-income AARP members who enjoy more accurate rates. It might also surprise the public-spirited teachers, public safety professionals and members of the military who enjoy affinity group status, since they don’t typically identify as members of the 1 percent.
But those inconvenient truths complicate a simplistic narrative that does more to obfuscate than it does to enlighten. As is often the case, an intentionally partisan and misleading surface-level discussion of who is “deserving” of what rate belies more problematic issues.
First, narrowing the regulatory definition of “group” will deny consumers an opportunity to enjoy rates that more accurately reflect their level of risk – rates that are often lower than what they currently pay.
Second, and not without some irony, attempting to promulgate a definition of the word “group” that meaningfully changes the scope of Prop 103 via the administrative rule-making process violates the very language of the initiative. Instead, to make this change, it is necessary to appeal to either the Legislature or directly to the people.
Bereft of both a sound policy rationale and the governing authority to make this change via administrative action, the ongoing controversy surrounding affinity groups only makes sense in the light of a profound historical embarrassment. The best-laid plans of Prop 103’s drafters, to gain an inimitably complete level of control over California’s insurance market, has gone awry through an action of their own.This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
The House Judiciary Subcommittee on Terrorism, Homeland Security and Investigations is scheduled hold hearings today on a federal bill aimed at stopping states from legalized online gambling.
The Restoration of America’s Wire Act comes in response to a 2011 Justice Department memo stating that, apart from sports betting, there is nothing in the federal Wire Act that prevents a state from permitting intrastate online gambling. Since that memo, Nevada, New Jersey and Delaware have set-up regulatory structures to accommodate online gambling (poker only, in Nevada). Players and advocates are watching California closely, although legislation seems stuck amid political fights between the big casino interests, smaller card rooms, tribal casinos and prohibitionists.
Prohibitionists worry that if California’s sizable population gains access to online gambling, online wagering will spread to other states and, consequently would be difficult to reverse. Hence the urgency of their efforts to win federal preemption before that can happen. At the subcommittee hearing, the R Street Institute’s executive director, Andrew Moylan, will be speaking on behalf retaining state sovereignty over gambling regulation.
Andrew’s addition to the speaker list is welcome, considering that the committee’s original line-up consisted completely of online gambling critics and opponents, many relying on inaccurate data and overly emotional appeals.
A favorite tactic has been to present online gambling as a danger to children. This is a go-to message for the Coalition to Stop Internet Gambling, the organization funded heavily by brick-and-mortar casino magnate Sheldon Adelson. It can be seen in these comments from former U.S. Sen. Blanche Lincoln last November on Mike Huckabee’s Fox News show. Adelson’s less articulate, yet more risible, rant at last year’s Global Gaming Expo can be viewed here (hat tip to World Series of Poker’s Nolan Dalla). They are encapsulated most luridly in a coalition video that shows a pre-teen hacking his father’s iPhone to gamble online.
Among the reasons the commercial fails is its focus on the boy’s poor playing decisions, such as doubling down at blackjack too often and going all-in with poor poker hands. It calls to mind dice-player Sky Masterson’s question to anti-gambling crusader Sarah Brown in Guys and Dolls: “Is it wrong to gamble, or only to lose?”
But practically speaking, it’s very hard for a child to play on a gambling site. To begin with, he needs access to funds to play real money games. This is tautological, but it’s surprising how fast it gets overlooked. Even if junior steals dad’s credit card, a feat in and of itself, he has to be able to negotiate an electronic application form and successfully make a deposit. While it’s true that a seven-year-old can intuit enough to play Angry Birds proficiently, filling out an online financial form requires a level of real-world knowledge and experience that most grade-schoolers don’t have. But even if the occasional precocious kid gets through this, he could be tripped up immediately if he deposits too much. Heck, my credit card company calls me when a series of legitimate transactions for clothing and electronics are processed too close together. Even if mom or dad isn’t alerted at the time of the transaction, when they get the first bill, the chips, so to speak, will hit the fan.
The issue of parental responsibility can’t help but come up, mainly because it’s so carefully avoided in these heated calls to “protect the children.” Like porn sites and online music stores, gambling sites can be easily blocked through at-home filtering. And just like with other harmful issues related to online use—bullying, sexting, inappropriate content—parents can talk to their kids about Internet gambling.
Yes, these games are set up to be alluring and addictive. But they can be resisted with emotional control and a sound knowledge of facts. Frankly, I think there’s a great opportunity to use games that employ cards and dice to introduce children to basic concepts such as probability, expected return, risk management and the gambler’s fallacy, especially because what is often mathematically correct is also counterintuitive. For instance, in Monopoly, most players covet the high-rent properties of Boardwalk and Park Place because they yield high payoffs. But in the long run, the mid-range properties in the orange color group (St. James Place and New York and Tennessee Avenues) are the more profitable. The reason has everything to with probability.
Kids naturally get excited about games of chance. When chance is combined with decision-making strategy that can be mathematically calculated, as it is in gambling games such as poker and blackjack, and with sound adult guidance, it offers adolescents a gateway not to vice, but to the true elegance and science of mathematic concepts, ranging from statistical analysis to equilibrium theory and game theory – the stuff Nobel Prizes are made of. The math argument was strong enough that at least one high school—George Mason in Fall Church, Va.—was allowed to start a poker club.
Opponents of online gambling play up the danger angle because it gets attention. Yet when it comes to consumer protection, in contrast to the propaganda, online casinos may do a far better job at preventing underage players, as spelled out here by Marco Valerio in the current issue of Global Gaming Business. It’s an emotional, anecdotal message that should be given little weight. Certainly it does not justify creating yet another federal prohibition.
Contrary to what many believe, there is no federal law against gambling. The Wire Act simply prohibits using telephone and telegraph facilities to place wagers across state lines. In spite of the RAWA bill’s name, there is nothing about the Wire Act to “restore.” States have been regulating gambling since the nation’s founding. There’s no reason to change that.This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
March 25, 2015
We the undersigned represent a wide range of privacy and human rights advocates, technology companies, and trade associations that hold an equally wide range of positions on the issue of surveillance reform. Many of us have differing views on exactly what reforms must be included in any bill reauthorizing USA PATRIOT Act Section 215, which currently serves as the legal basis for the National Security Agency’s bulk collection of telephone metadata and is set to expire on June 1, 2015. That said, our broad, diverse, and bipartisan coalition believes that the status quo is untenable and that it is urgent that Congress move forward with reform.
Together, we agree that the following elements are essential to any legislative or administration effort to reform our nation’s surveillance laws:
- There must be a clear, strong and effective end to bulk collection practices under the USA PATRIOT Act, including under the Section 215 records authority and the Section 214 authority regarding pen registers and trap & trace devices. Any collection that does
occur under those authorities should have appropriate safeguards in place to protect privacy and users’ rights.
- The bill must contain transparency and accountability mechanisms for both government and company reporting, as well as an appropriate declassification regime for Foreign Intelligence Surveillance Court decisions.
We believe addressing the above must be a part of any reform package, though there are other reforms that our groups and companies would welcome, and in some cases, believe are essential to any legislation. We also urge Congress to avoid adding new mandates that are controversial and could derail reform efforts.
It has been nearly two years since the first news stories revealed the scope of the United States’ surveillance and bulk collection activities. Now is the time to take on meaningful legislative reforms to the nation’s surveillance programs that maintain national security while preserving privacy, transparency, and accountability. We strongly encourage both the White House and members of Congress to support the above reforms and oppose any efforts to enact any legislation that does not address them.
Advocacy for Principled Action in Government
American-Arab Anti-Discrimination Committee
American Association of Law Libraries
American Booksellers for Free Expression
American Civil Liberties Union
American Library Association
Application Developers Alliance
Association of Research Libraries
Brennan Center for Justice
Center for Democracy & Technology
Committee to Protect Journalists
Competitive Enterprise Institute
Computer & Communications Industry Association
The Constitution Project
Defending Dissent Foundation
Electronic Frontier Foundation
Free Press Action Fund
Global Network Initiative
Government Accountability Project
Hackers & Founders
Human Rights Watch
Internet Infrastructure Coalition
National Association of Criminal Defense Lawyers
New America’s Open Technology Institute
PEN American Center
Project On Government Oversight
Reform Government Surveillance
Silent Circle, LLC
World Press Freedom Committee
On behalf of the millions of Americans represented by the organizations below, we urge you to support Sen. Mark Kirk and Sen. Steve Daines’ recently introduced “Small Business Regulatory Sunset Act,” which aims to protect small enterprises from the large and growing costs of regulatory compliance.
According to the National Association of Manufacturers, regulatory compliance for small businesses cost an average of $11,724 per employee in 2012. For small manufacturers, that cost was $34,671. More than 87,000 rules have been issued since 1993, with an average of 3,500 new rules each year, many of which affect small business. In fact, according to analysis by the Competitive Enterprise Institute, if the cost of complying with U.S. regulations were an economy unto itself, it would be the 10th largest in the world, coming in at $1.863 trillion.
This regulatory burden acts as a hidden tax on consumers, who ultimately shoulder the costs. It discourages hiring, sidelining Americans who are struggling to find work, and lowers productivity, as vital resources are wasted adhering to outdated and unnecessary rules.
Despite being authorized to review and update rules affecting small business, most agencies fail to complete this review in an acceptable manner. This ensures the ever-growing list of rules continues to multiply, disproportionately weighing down small entities with fewer available resources. That’s why the Small Business Regulatory Sunset Act is crucial to jump-start economic growth. The act would:
Require agencies to publish on their websites plans to periodically review rules affecting small business;
- Force agencies to review existing covered rules within nine years of publishing the plan, as well as new and existing rules every nine years thereafter;
- Require agency reviews to include comment from small entities and assess the cumulative economic impact of the rules, among other criteria;
- Compel agencies to issue compliance guides for small enterprises;
- Sunset each new covered rule seven years after the final rule is issued, unless the agency takes action to renew the rule.
Agencies must be held accountable for the toll their actions take on the American economy, particularly those most vulnerable to agency overreach. We applaud Sens. Kirk and Daines for crafting a pragmatic solution and encourage all senators to join him in this effort to protect small business from an overzealous executive branch.Sincerely,
R Street Institute
Competitive Enterprise Institute
Council for Citizens Against Government Waste
Log Cabin Republicans
National Taxpayers Union
Taxpayers Protection Alliance
For much of the past year, we at R Street have been active in trying to promote reasonable, effective compromise on ride-sharing regulations. The goal all along has been to arrive at a model that allows transportation network companies like Uber, Lyft and Sidecar to operate, ensures that basic coverage requirements are met and preserves the greatest possible flexibility for new insurance products to come to market that meet the needs of this emerging risk.
If the rumblings we’re hearing from a number of state houses across the country prove to be accurate, we’re about to see a major step in that direction.
Today, we learned from sources familiar with the deal that a joint legislative framework for ride-sharing insurance requirements will be supported both by Uber and by State Farm, Farmers, USAA and the American Insurance Association. (Lyft may also soon join the deal). The model already has been discussed in ongoing legislative debates in Tennessee, Maryland, Washington state and Kansas and could be expanded to debates in more states in the coming weeks.
According to 2014 SNL Financial data, State Farm, Farmers and USAA combine to write 33.7 percent of the private auto market in Kansas, 31.5 percent of the market in Tennessee, 31.3 percent of the market in Washington state and 28.2 percent of the market in Maryland. State Farm is also a major writer of commercial auto insurance in all four states, as are a number of AIA members, such as Zurich and Travelers.
Under the model, primary insurance coverage would have to be in-force during all three periods of the ride-sharing experience, including the hotly contested “Period 1,” during which a driver is logged in to the TNC application but has not yet matched with a fare. Required liability limits during that period would be $50,000 in per-person bodily injury, $100,000 in per-incident bodily injury and $25,000 in physical damage.
The model would recommend state law be agnostic about whether the coverage is procured by the TNC, the driver or a combination thereof, so long as consistent terms are applied. That’s a provision we at R Street are particularly happy to see, as the roll-out of new insurance products targeted toward TNC drivers – particularly to cover Period 1 – has been rapidly accelerating. Just this past week, Geico announced plans to introduce its end-to-end TNC product to the Maryland market, one of the states where the model could gain traction.
The coverage limits in Period 2 (when a driver is en route to pick up a passenger) and Period 3 (when a driver is actually traveling with a passenger) would match those currently required of limousines in each state. Importantly, this would mean that comprehensive and collision coverage would not be required, as recently has been proposed in some states.
Insurers also would be ensured a right to subrogation, in cases where they feel they paid out a claim that ought not have been covered. That provision, one hopes, would reduce significantly instances of upfront claims denials, instead moving such disputes to litigation between a driver’s personal insurer and the carrier offering coverage to the TNC.
We haven’t seen the final language, as yet, but this has to be considered good news, both for the health of the insurance market and for the emergence of these exciting new service platforms.This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
From The Hill:
Market research and advocacy groups including the R Street Institute, the Competitive Enterprise Institute and Citizens Against Government Waste released an open letter Tuesday that called on senators to pass the bill.
“Despite being authorized to review and update rules affecting small business, most agencies fail to complete this review in an acceptable manner,” the letter said. “This ensures the ever-growing list of rules continues to multiply, disproportionately weighing down small entities with fewer available resources.”
Quoting figures from the National Association of Manufacturers, the groups said regulatory compliance for small businesses cost an average of $11,724 per employee in 2012 and $34,67 for small manufacturers. Since 1993, more than 87,000 rules have been issued.
“If the cost of complying with U.S. regulations were an economy unto itself, it would be the 10th largest in the world, coming in at $1.863 trillion,” the letter said citing an analysis from the Competitive Enterprise Institute.
The deal is supported by State Farm, Farmers, and USAA, as well as the American Insurance Association, according to Ray Lehmann of the R Street Institute. Lehmann says Lyft is also considering supporting the framework.
Florida State Board of Administration
Chief Operating Officer
Florida Hurricane Catastrophe Fund
Dear Mr. Williams and Dr. Nicholson:
We the undersigned represent a diverse coalition that is concerned about the long-term continued health of Florida’s economy. We also appreciate the important role of the Florida Hurricane Catastrophe Fund in protecting our economic future. Although the Cat Fund is currently fiscally sound, thanks in part to wise decisions by yourselves and lawmakers, it is also largely due to Florida’s unprecedented, nine-year lucky streak of tropical calm.
This presents you and the State Board of Administration a unique opportunity. Given that global reinsurance prices are at their lowest level in years, this would be an ideal time to consider spreading some of Florida’s enormous hurricane risk held by the Cat Fund to the global private market. Doing so would have no adverse impact on consumers, but instead would reduce the likelihood or magnitude of debt the Cat Fund would have to incur to cover losses, and by extension, reduce the potential of multi-year assessments upon our businesses, churches, charities, local governments and most Floridians. These concerns were reflected in a 2010 report by Florida TaxWatch, and more recently in a study authored by R Street Institute analyst R.J. Lehmann published in January by The James Madison Institute.
Until January of this year, Floridians were paying assessments to cover losses dating all the way back to the 2005 hurricane season. Exporting some of the Cat Fund’s risk would protect Floridians from additional assessments should the wind blow. Furthermore, the flood of outside capital—rather than debt—after a hurricane would allow the state to quickly recover both physically and economically.
It is only a matter of time before our lucky streak runs out. As such, we urge you and the State Board of Administration to take advantage of this unique opportunity to insure some of the Cat Fund’s risk before the forthcoming hurricane season.
President & CEO
American Consumer Institute
President & CEO
Florida Tax Watch
National Taxpayers Union
President & CEO
Associated Industries of Florida
Florida Wildlife Federation
Christian R. Cámara
R Street Institute
Executive Vice President
Florida Chamber of Commerce
President & CEO
The James Madison Institute
Taxpayers Protection Alliance
However, the three week-delay for inclement weather did prove useful for the online poker community. Backlash to the original witness list helped get a fifth witness added in Andrew Moylan, the executive director of R Street Institute, a conservative and libertarian think tank. The hearing in the Judiciary Subcommittee on Crime, Terrorism, Homeland Security and Investigations was rescheduled for Wednesday at 4 p.m. EST.
Moylan is expected to speak out against RAWA as a violation of state rights, just what Poker Players Alliance executive director John Pappas noted was lacking at the hearing when the witness list was first leaked.
“I don’t know Andrew, but I’m familiar with R Street and they have a good reputation for focusing on federalism and 10th amendment issues on a whole lot of subject matters. I think they will be very credible and a good voice at the hearing.”
On March 6, the Congressional Data Coalition and allies submitted testimony to the House Appropriations Committee’s Legislative Branch Subcommittee regarding its 2016 appropriation that applauded recent progress in making legislative data more open while urging additional reforms. It is worth repeating the significant progress that has been made and our recommendations for the future, so please find a summary below. The full testimony is here.
Recognition of ongoing House activities
To begin, we commend the House of Representatives for its ongoing efforts to open up congressional information. We applaud the House of Representatives for publishing online and in a structured data format bill status and summary information—soon to be joined by legislative text—and are pleased the Senate will join these efforts in the 114th Congress. In addition, the website http://docs.house.gov/ continues to serve as an excellent online source for committee and House floor information, thanks in large part to work performed by the Clerk of the House. Furthermore, the Rules Committee’s website is a tremendous resource for learning about legislation to be considered on the House floor.
We also congratulate the Office of Law Revision Counsel for its ongoing improvements to publication of the U.S. Code, which serves as a showcase of the potential of the House’s efforts. We appreciate the House’s annual conferences on legislative transparency and are looking forward to the 2015 conference. And we eagerly await the public roll-out of the Amendment Impact Program and the LRC’s codification tools, as well as the quarterly public meetings hosted by the invaluable Bulk Data Task Force.
We also remain hopeful that progress will be made on the Joint Committee on Printing’s obligation to digitize volumes of the Congressional Record from 1873 to 1998.
Summary of requests
- Extend and broaden the Bulk Data Task Force
- Publish the Congressional Record in XML and eliminate electronic publication gaps
- Publish a complete and auditible archive of bill text, in a structured electronic format
- Publish a contemporaneous list of widely distributed CRS reports that contains the report name, publication/revision/withdrawal date and report ID number
- Release widely distributed CRS reports to the public
- Publish the House rules and committee rules in a machine-readable format
- Publish Bioguide in XML with a change log
- Publish the Constitution Annotated in a machine-readable format
- Publish House office and support agency reports online
- Publish House Expenditure Reports in a machine-readable format
In the newest list, an additional witness was added: Andrew Moylan, the Executive Director of R Street. It is expected that he will voice the states’ rights argument during the hearings.
Fortunately, the hearing will feature at least one poker-friendly witness. Thanks to pressure from the PPA, Andrew Moylan, the executive director and senior fellow at the R Street Institute, will now be part of proceedings.
Working for a non-profit organization in favor of free market and “limited, effective government,” Moylan’s R Street has already shown an affinity for online poker in a 2014 article entitled: Five reasons why online poker is here to stay.
Aside from citing reasons such as that poker is a popular past time and states need the money, the article also suggests that Adelson is hard to take seriously as a moral crusader. The main point the author, Steven Titch, picks up on is that Sheldon Adelson’s opposition to iGaming is somewhat ironic given that he’s made his fortune from casinos.
Political observers were this week speculating on the surprise inclusion of R-Street executive director Andrew Moylan on the official witness list for Wednesday’s hearing on the Restoration of America’s Wire Act in the House Judiciary Subcommittee on Terrorism, Homeland Security and Investigations.
Several experts opined that the inclusion of Moylan, a strong advocate for states’ rights, was a move to calm widespread criticism of the original witness list, which was heavily biased against online gambling, and in some quarters was described disparagingly as a dog and pony show.
Poker Players Alliance executive John Pappas said Monday he was pleased with the inclusion of Moylan, who has worked with the Cato Institute, the National Taxpayers Union, and now the civil liberties body R Street, where he is the executive director.
“Andrew Moylan and R Street are a strong and credible voice in holding Congress accountable on matters of federalism and the 10th Amendment,” said Pappas. “Given RAWA’s serious implications for the rights of states to authorize and regulate internet gaming, Mr. Moylan will be a welcome voice on the panel.”
The official witness list is now a more balanced affair and features John Kindt, professor at the University of Illinois’ School of Law; Les Bernal, National Director of the Stop Predatory Gambling Foundation; Mike Fagan, professor at Washington University’s School of Law; Andrew Moylan, Executive Director at R Street, and Parry Aftab, Executive Director at Wired Safety. The last two witnesses are likely to give the more objective views on online gambling.
From Card Player:
A list of witnesses was recently released. Scheduled to testify are John Kindt, professor at the University of Illinois’ School of Law, Les Bernal, National Director of the Stop Predatory Gambling Foundation, Mike Fagan, professor at Washington University’s School of Law, Andrew Moylan, Executive Director at R Street, and Parry Aftab, Executive Director at Wired Safety.
A new name now appears along with the four we originally learned of: Andrew Moylan, the Executive Director of R Street, who will ostensibly be playing the role of states’ rights advocate at the hearing.
The addition of Moylan is the second piece of positive news regarding the hearing, as we learned Friday that the Poker Players Alliance (PPA), along with GeoComply and Caesars Entertainment, will be hosting an online gaming technology demonstration the morning of the RAWA hearing.
Did pressure get Moylan added?
It’s likely Moylan was added due to the initial backlash over the subcommittee’s unofficial witness list. The witness list was so slanted towards anti-online gambling advocates that it had been labeled everything from kabuki theater to a dog and pony show, and even the mainstream media (particularly right wing news sites) were quick to blast Chaffetz and RAWA supporters.
Andrew Moylan has been involved in politics (first with the Cato Institute, followed by National Taxpayers Union, and R Street) since graduating from Michigan University in 2005. Even though he has not personally commented on online gambling, Moylan is a staunch states’ rights and civil liberties advocate who is expected to be a strong witness against RAWA.
If this column from R Street is any indication, Moylan should be an excellent witness for the anti-RAWA crowd. Moylan should round out the witness list quite nicely.
John A. Pappas, Executive Director of the Poker Players Alliance, was pleased to see Moylan added to the witness list, telling USPoker.com:
“Andrew Moylan and R Street are a strong and credible voice in holding Congress accountable on matters of federalism and the 10th Amendment. Given RAWA’s serious implications for the rights of states to authorize and regulate internet gaming, Mr. Moylan will be a welcomed voice on the panel.
While Congressman Chaffetz likes to claim his bill ‘restores’ Congressional intent with respect to Internet gaming, it actually does exactly the opposite. Every bill that Congress considered to prevent offshore and unregulated Internet gaming in the US always preserved the rights of states to authorize the activity.
We hope Mr. Moylan will reinforce this message and correct the Congressman’s mischaracterization.”
You know the campaign season has started when people start talking about ethanol. Various GOP hopefuls have affirmed or reaffirmed their support for existing ethanol mandates, and while there doesn’t seem to be much of a race on the Democratic side at the moment, any candidates who do decide to run against Hillary will probably support it as well. So it’s worth taking a moment to reflect on just how truly awful a program the ethanol mandate is.
First, a note of clarification. It used to be that the federal government subsidized the production of ethanol the old fashioned way: with cash. For every gallon of ethanol blended into gasoline, blenders received a “tax credit” ranging around half a dollar. Foreign imports of ethanol were also subject to a 54-cent tariff. Both of these programs were allowed to lapse at the end of 2011.
Still on the books, however, is the federal Renewable Fuel Standard, or RFS. Like the ethanol tax credit, the RFS came as a result of the Energy Policy Act of 2005 (the Energy Policy Act also extended daylight saving time, so it has a lot to answer for). The RFS mandates a minimum number of gallons of different types of ethanol that must be blended into U.S. gasoline each year. The minimum amount is set to rise over time, and blenders are subject to fines if they do not comply. From the point of view of ethanol producers, tax credits are nice but it’s the mandate that brings home the bacon.
The peculiar nature of the RFS has led to some absurd unintended consequences. For example, cellulosic ethanol (which is made chiefly from grass) isn’t commercially available in the necessary quantities to meet its RFS. Blenders have therefore wound up getting fined for not using a product that doesn’t exist.
Similarly, because the formula used to set the RFS greatly overestimated the number of miles Americans would drive, blenders were required to use more ethanol than could be safely blended into all the gasoline used in American cars. EPA was eventually forced to walk back its own regulations on cellulosic ethanol to better conform with reality, but successfully resisted challenges to lower the overall mandate.
The problems with the ethanol mandate, however, go beyond poor legislative drafting. It is the very idea of the RFS, not just its implementation, that is fatally flawed. The ethanol mandate was billed as an environmentally friendly alternative to gasoline, and a way to wean ourselves off dependence on foreign oil. It is neither. The ethanol mandate has led to the conversion of millions of acres of grassland and wetlands into cornfields. The environmental costs from these conversions swamp any reduced emissions from using ethanol-diluted gasoline. And while oil imports have indeed fallen in recent years, this has been the result of the boom in unconventional oil and gas production, rather than the substitution of biofuels.
Ethanol is also, of course, costly to consumers. A gallon of ethanol costs more than a gallon of gasoline, and it takes 1.5 gallons of ethanol to get the same mileage as a gallon of regular gas. Ethanol costs motorists approximately $10 billion a year in increased fuel costs.
And the cost of ethanol isn’t just felt at the pump. With 40 percent of America’s corn crop being devoted to producing the fuel, the mandate increases prices for food. And since the mandate encourages farmers to grow corn instead of other crops, the effect isn’t just limited to corn.
That’s harmful not only to Americans’ pocketbooks, but also to our national security. Research suggests that higher food prices increase the risk of instability around the world, as developing countries face riots or even revolutions over higher food prices. The Arab Spring was preceded by a spike in food prices, as were a similar series of riots in 2008.
The worst thing about the ethanol mandate, though, is what it says about our democracy. Ethanol is a rare political issue that is not polarized along ideological lines. From left to right, everyone seems to acknowledge that it is horrible policy. And yet not only does the policy continue, but people seem resigned to its continued existence.
If the United States can’t get rid of a policy that is so manifestly unjustified, how can we expect to solve more contentious issues?
Apple’s Web TV plan spotlights the opportunities and challenges ahead in what will be the most dramatic shift in the distribution of television content since the advent of cable. About 8.6 million U.S. households have broadband Internet but no pay TV subscription, according to the latest report from Experian Marketing Services. That’s 7.3 percent of households, up from 4.2 percent in 2010.
This fall, Apple plans to offer a subscription bundle of 25 channels via the Web on its smartphone and tablets, anchored by ABC, CBS and Fox. Notably, however, the line-up will not include NBC, which is owned by Comcast, the nation’s largest cable TV company, against which Apple’s TV will compete.
According to the Wall Street Journal, talks between the two companies broke down, and Apple decided to go its own way.
Apple’s bundled service is but one way studios and networks are using the Internet to deliver on-demand programming, a method also know as over-the-top (OTT). Time Warner’s HBO is already exploring ways to deliver its programming via the Internet via the HBO Go and HBO Now applications, and CBS and ESPN are also planning OTT delivery.
Naturally, the thought that consumers will have even more choices when accessing video programming has Washington in a tizzy. Federal Communications Commission Chairman Thomas Wheeler, as if his hands weren’t already full with network neutrality rulemaking and spectrum issues, suggested in an October blog post that OTT should have regulatory attention.
Lost is the irony that OTT, which emerged from the natural tumult of the unregulated market for broadband content, promises to deliver on a long-desired FCC goal: a la carte programming. Despite pressure from FCC commissioners going back to the Bush administration, cable companies resisted the call, primarily because it wasn’t conducive to their business model. Now that Netflix, Hulu, Amazon and Apple’s iTunes have validated a large on-demand market, and the spread of more robust mobile broadband platforms, OTT has become viable.
The way people watch TV is changing for the better. Consumers are getting multichannel TV in ways that are most convenient for them. The FCC should allow the market the flexibility to change with it. The proper path right now is to let OTT play out. Here are some specific points:
Don’t interfere with programming disputes. This might be the first place the FCC is tempted to step in, because these disputes draw the loudest consumer complaints and get the most media attention. However, OTT creates genuine points of friction between content producers, e.g., studios and networks; and content distributors, e.g. cable, phone and satellite companies (not always mutually exclusive, witnessed by Comcast’s ownership of NBC). When cable network AMC began distributing programming through Netflix, DirecTV threatened not to renew its own agreement to carry the network. Both sides had legitimate interests. AMC has the right to seek alternative channels to viewers. DirecTV was correct in asserting that the Netflix deal diminished the value and appeal of its own service, because it allowed viewers to go elsewhere for the same entertainment. Just like it’s counterproductive for an adult to step in when two siblings argue, the FCC should let these businesses work out their differences themselves. That’s the only way to assure a win-win, as the market adjusts to the reality of OTT. Government action, at this point, can only favor one model over the other and encourage future rent-seeking.
A few years ago, Congress wisely demurred when the NFL asked it to order cable companies to include the fledgling NFL Network in their bundled tiers, instead of asking consumers to pay extra for it. Ultimately, cable companies did so on their own because of customer demand. The FCC should heed this precedent.
No “must carry” rules. This is related to the programming issues above. The FCC should avoid demanding that, if an OTT delivers one network’s programming, it should deliver all networks’ programming. “Must carry” rules and local broadcast obligations derived from the scarcity of spectrum. There is no scarcity issue on broadband. Local TV stations can and do make news and locally produced programs available on the Web. Let OTT providers compete on the basis of differentiation and diversity and not force them all to be identical.
No regulatory fees. Apple is not a cable TV company or a broadcaster. It does not run cable to homes, nor does it use government-granted TV spectrum. Apple, Hulu, Amazon and Google store and serve content, which ranges from popular big-budget Hollywood movies to ten-minute how-to videos posted to a YouTube channel created by a passionate do-it-yourselfer. The idea that they somehow should pay local franchise fees or pay into the Federal Universal Service Fund, implied by Wheeler’s suggestion that OTT providers should be included in the definition of “multichannel video programming distributor,” is ludicrous.
No content regulation. The voluntary ratings systems used by the Motion Picture Association of America and broadcast and cable networks have carried over to on-demand. For example, Netflix places TV-MA on “House of Cards,” even though the series streams via the Web. The FCC should resist calls for mandatory content ratings or other forms of content policing of the Internet, especially in the area of “offensive” speech, restrictions that are all the rage in academic circles right now.
Separately, there should be no “fairness doctrine” for Web content, because the rule failed in broadcasting despite its best intentions. Instead of stimulating debate, broadcasters, choosing not to be liable for airtime to all-comers, backed away from any editorial discourse whatsoever. It wasn’t until the Reagan administration scrapped the Fairness Doctrine that politically oriented public affairs programming began to become common in media.
OTT has ushered in a new era in TV-viewing habits. It’s going to serve consumers better by giving them more choices and value in home entertainment. The FCC needs to step back. Interference now will only sidetrack real competition by forcing companies to make regulatory compliance the measure of their performance, not the meeting of consumer needs.This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
Over the last few years, numerous pieces of legislation have been introduced, and some have passed, intended to address utility companies’ concerns over grid reliability in the face of dwindling customer demand. A recent article in the Albuquerque Journal raises new allegations, lambasting solar companies for irresponsibly fleecing consumers, painting rooftop solar as a foolhardy investment intended to suck homeowners dry while lining the pockets of solar executives.
Frankly, the risks inherent in solar contracts are no different than risks in other long-term contracts. Any long-term financial commitment deserves careful scrutiny on the part of the consumer. Obviously, regulators should put rules in place to root out fraud. Should solar companies be held accountable for offering clear contracts? Yes. But should consumers also be expected to do due diligence when engaging in a large investment? Also yes. In the end, purchasing rooftop solar is in no way a uniquely dangerous transaction that deserves a higher level of attention.
The troubling portion of the solar industry is government favoritism, whether in the form of subsidies, tax credits or regulations mandating solar’s use. Utilities have spent years crying foul, pointing out the ways they’ve invested over time to provide reliable power in a highly regulated environment, only to be upset by a new power source made competitive by incredibly generous subsidies. But the truth is more complicated. Utilities enjoy a broad variety of state supports and have enjoyed the benefits of being a government-granted monopoly. It’s high time that competition came to the energy sector, ending subsidies and favorable treatment for everyone.
Utilities have a legitimate concern that increased rooftop solar will undermine grid reliability, increasing prices for consumers. Regulators should take this issue very seriously and work to find a solution that ensures access to power while still allowing competition. Unfortunately, rather than dealing with the actual root issue, states are pursuing a variety of paths to limit solar’s implementation, erecting barriers to entry, prohibiting certain financing mechanisms or imposing arbitrary fees.
It’s regrettable that solar is subsidized, but the answer isn’t to make further regrettable decisions out of spite. We should work to end all energy subsidies, while regulators address the true problems, like ensuring grid reliability.This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
In this era of hyper-partisanship, it’s notable that a bipartisan pair of California members of Congress, Republican Darrell Issa and Democrat Zoe Lofgren, are together proposing reforms to a problem that affects nearly every American: the high cost of auto repairs
Their Promoting Automotive Repair, Trade and Sales (PARTS) Act also has bipartisan sponsors in the Senate. Its topic is the little-understood subject of design patents, a form of intellectual property once briefly suppressed during the 19th century, enabling scores of lawsuits against farmers who used patented agrarian equipment, not unlike today’s problem of patent trolls.
The PARTS Act promises to lower the cost of repairs by creating a limited carve-out that reduces the length of time in which a design patent could be enforced against manufacturers of aftermarket cosmetic car parts designed to restore vehicles to original appearance. Similar safe harbors already exist in the United Kingdom, Australia and a number of European countries.
Under the bill, carmakers would still be protected from knockoffs by competitors for up to the 14 years allowed under current law. But the period to bring claims against makers of parts would be capped at 30 months.
This could be meaningful reform. The American Insurance Association estimates that competitive replacement crash parts are typically 34 to 83 percent less expensive than parts from original manufacturers. This saves consumers between $1.5 and $2.4 billion each year.
Design patents are intended to protect “ornamental designs.” They typically involve intricate drawings to ensure that the likeness of the patented item is clear beyond question. In theory, they are only supposed to protect the look of an item and not its function. But in a world in which function and form often are inextricably linked, design patents are used to exploit the legal ambiguity.
In the case of ornamental car parts, like hoods or fenders, car manufacturers file design patents to prevent third parties from replicating their designs. Under current U.S. law, such designs are protected for a minimum of 10 years and a maximum of 14. Given the short average life of a car, a decade-plus delay effectively insulates manufacturers from competition. That explains why carmakers control more than 70 percent of the collision repair market.
Design patents have another quirk that makes defending claims costly. Where courts do find that a patent has been infringed, the patent owner is entitled to all of the gross profits from the item’s sale, regardless of whether the design feature played any role in a consumer’s decision. No other area of intellectual property works like this.
The phenomenon of design patents killing a market for replacement parts is not limited to cars. Think of razors and ink cartridges, each notorious for otherwise inexplicably high prices. The patented “designs” prevent other parts makers from producing replacements.
Stifling interoperability is not about encouraging innovative design; it’s about keeping out competition. But even if it were about innovation, it’s worth questioning whether protections are necessary. The fashion industry gets by just fine with only limited intellectual property protections. In fact, the development of knockoffs is what inspires the next round of innovation.
While the PARTS Act seeks only to address one issue with design patents, it represents a commendable first step toward broader liberalization of the patent system. Achieving these reforms would prove this Congress can do something after all.
Dear Chairman Upton and Ranking Member Pallone:
The Renewable Fuel Standard (RFS) is increasingly recognized as a failed policy in need of attention by the Congress. With the exception of the corn and ethanol industries, which continue to benefit from the RFS mandate, nearly everyone else suffers under this unfair and destructive policy. We ask that the committee consider and mark-up legislation to address the RFS as soon as possible.
Although enacted with the best of intentions in 2005 when our nation faced very different circumstances from today’s, the RFS has created perverse incentives to overplant corn, distort food commodity markets and wreak economic and environmental havoc. We thank you for the committee’s serious and thoughtful bipartisan effort in the last Congress to review the RFS and consider possible reforms in light of the many unintended consequences that have resulted from the mandate since its inception. That process was very constructive and laid a foundation for significant changes to the policy.
Since that time the chorus of voices calling for RFS reforms has grown and the case against the policy has become even more convincing. The RFS is now in its 10th year—let us not allow this policy failure to continue to fester when its flaws are so plain to see. Only Congress can solve the problems created by the RFS. Our organizations are committed to working with you on a bipartisan legislative solution to achieve this goal.