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R Street encouraged by legal challenge to FDA deeming rules

May 12, 2016, 3:54 PM

WASHINGTON (May 12, 2016) – The R Street Institute is encouraged by news that Nicopure Labs LLC, a Tampa-based manufacturer of nicotine e-liquids and vaping devices, has filed federal suit challenging the Food and Drug Administration’s deeming rules for e-cigarettes.

The suit, filed in U.S. District Court for the District of Columbia, charges the FDA with violating the Administrative Procedure Act by promulgating rules in an arbitrary and capricious fashion and without a rational basis to protect public health; that the agency applied faulty benefit-cost analysis; and that the rules interpret the term “tobacco products” in ways that are plainly inconsistent with the Tobacco Control Act of 2009. The company also charges that the deeming rule violates its First Amendment rights.

The following statement can be attributed to Dr. Joel L. Nitzkin, R Street’s senior fellow in tobacco policy and former co-chair of the Tobacco Control Task Force of the American Association of Public Health Physicians:

As a physician who has dedicated his career to the protection of public health, I applaud Nicopure for challenging the recently announced deeming regulations for e-cigarettes and other tobacco-related products. As I see it, Nicopure is correct in each of their allegations.

Those within the public health community who have enthusiastically supported both the text of the FDA Tobacco Law and the deeming regulations – a group that includes leadership of the FDA and the Centers for Disease Control and Prevention; the Cancer, Heart and Lung Associations; Tobacco Free Kids; and so-called academic ‘experts’ – should take a close look at the allegations. The public health community must develop a set of amendments to the FDA Tobacco Law that bring both the law and regulations in line with policies that help, rather than damage, both the public health and the credibility of these major public health stakeholders.

A bitter fight and predictable loss in court could do considerable damage to our collective ability to provide health-related guidance to the public and to secure public participation in steps needed to protect us from Zika virus, contaminated water supplies and other public health emergencies.

Does America need more political dynamism?

May 12, 2016, 10:06 AM

We have all heard the railings of the presidential aspirants about the federal government: that it’s corrupt; that it’s rigged by the malevolent establishment against the common man; that the economy is faltering because elites and their cronies are hoarding the wealth.

To solve these problems, office-seekers peddle beguiling simplistic solutions like getting big money out of politics, evicting special interests from the temple and returning government to the people. Inspiring as these notions may be, Lee Drutman counsels that we should move beyond such “impractical utopianism” to solutions that accept the “fundamental realities of politics.”

Saying such a thing aloud make Drutman, a senior fellow at New America, a bit of a skunk at the liberal reform party. To be clear, Drutman is very concerned about the corruption of politics by money—he’s the author of a serious book on lobbying. But he wants solutions that embrace the messy realities of politics and governance:

Too often, reform visions treat politicians and organized groups (aka, ‘special interests’) as irredeemably venal and corrupt while simultaneously viewing governance as something perfectible and politics as something solvable — if only it could be taken away from the politicians and the special interests. The vision usually amounts to constraining political behavior through tight rules, or by circumventing politicians and organized groups entirely through some pure form of direct democracy and common sense wisdom.

In other words, it’s normal for people to be motivated by parochial and self-serving desires and reasonable people who share the same goal can disagree completely on how to achieve it.

So what’s the solution? More “political dynamism,” says Drutman in a white paper of that same name. Political dysfunction is driving public dissatisfaction. People are annoyed that government can’t get stuff done. Drutman proposes a slate of reforms that aim to make politics, and Congress in particular, more “fluid and competitive” and for a system that:

[L]everages diversity and creates opportunity for experimentation and change; [one that] expands the combinatorial possibilities of political innovation and deal-making…[and] helps citizens aggregate and realize their interests in the most efficacious ways, rather than simultaneously expecting them to super-engaged and expert while giving them few meaningful choices.

Toward these ends, Drutman advocates policies to:

  1. Diversify the pool of candidates for office by empowering smaller campaign donors and switching America to multimember districts;
  2. Strengthen public interest pressure on Congress by fostering general-interest lobbying groups;
  3. Make Congress less dependent on K Street by increasing the number of legislative branch staff; and
  4. Decentralize power in Congress by re-empowering committees as the source for new policy and reforms.

Much of Drutman’s white paper lays out the arguments for these various proposals. And I should add, he and I are collaborating on a project to strengthen the legislative branch. I will leave it to others to ponder Drutman’s various reforms, and instead will debate my friend on the nature of the problem. Does American national politics need more dynamism?

I’m not so sure. I have not seen evidence that the annual crop of candidates for public office are too few or too conventional in their ideas. But I might simply have missed some research on this topic that proves otherwise.

Part of political dynamism, I would posit, is governance dynamism. That means moving ideas to action, which means contending with problems and allocating government resources to productive ends. Governance dynamism can occur in either the executive branch or the legislative branch—or even elsewhere (see the Federal Reserve’s extraordinary actions in recent years).

So how do Americans feel about the efforts of the national legislature and the executive branch? Do they think it’s a dynamic force that gets things done and does so efficiently? No. The public’s approval rate for Congress and the bureaucracy are at historic lows. The public dislikes seeing so much partisanship and bickering while basic problems (the immigration system, the federal deficit, etc.) go unresolved. People want their government to get stuff done and what they see on the news and the Internet is, as Paul Ryan once put it, chaos. They believe government and politicians waste money sort of senseless, politically driven programs, as depicted in Jonathan Rauch’s classic and still germane “Demosclerosis.”

Presidents frequently take unilateral action. Sometimes their efforts, like President Barack Obama’s executive action on immigration, get tied up in court. But that is the exception to the rule. The president’s current ho-hum approval ratings are much higher than Congress’ and a bit higher than the executive branch bureaucracy’s, both suggesting the public desires action, not paralysis.

Which brings us to the matter of Congress. Public perceptions aside, is our legislature, in fact, a stolid governance body? Well, yes and no. In short, the House is very dynamic; the Senate…not so much.

The House of Representatives is a veritable cauldron of reform ideas, whether it is regulatory budgeting, budget process reform, reforming the federal civil service or abolishing Obamacare. Some of these bills are messaging bills that the House knows will never become law; others are Post Office naming bills and other feel-good non-policy. However, much lower chamber legislation is real policy designed to address real problems. Since January 2014, 5,100 House bills have been introduced (not counting postal-naming bills and resolutions). More than 400 of these bills have passed the House. Only 80 became law. Table 1 shows is that the Senate is the great choke-point for legislation. The Senate moved only one-fifth of the House bills it received.

Table 1: U.S. House bills, Jan. 1, 2014 to May 1, 2016

Introduced 5,123 Passed by House 431 Passed by Senate 88 Signed by president 80

Source: Congress.gov. Data exclude House resolutions and post office naming bills.

Senators, meanwhile have introduced 2,883 bills during the current Congress, about 56 percent of the House total. The chamber has passed 120 of these bills, or a little more than a quarter. While making laws is not a good metric of general congressional productivity, it is a solid measure of the legislature’s ability to make new policies and abolish old and failed ones.

That the Senate is a dilatory body is not news. Its short legislative schedule and hoary chamber rules make for plodding policymaking, and empower any senator to hinder action (e.g., wanton amending and holds). This modus operandi may be traditional, but in the 21st century, it is incongruous and self-defeating, as Christopher Demuth has explained. The Senate needs to think seriously about ways to improve its workings, both to appease a very dissatisfied government and to stop the executive branch from running circles around it.

Lee Drutman may be right—more political dynamism may be what we need. But unless it is accompanied by much more governance dynamism, particularly by the First Branch of government, our discontent won’t abate.

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

Uber approves first non-union drivers group in NY compromise

May 12, 2016, 9:59 AM

From Christian Science Monitor

“This is important not only for the gig economy, but because you might have a new kind of labor organization coming out of this,” Eli Lehrer, the president of libertarian think tank the R Street Institute, told The Washington Post.


Make Austin Uber-less!

May 12, 2016, 9:58 AM

From The Advice Goddess

As R Street Institute’s Josiah Neeley has explained, Austin doesn’t prohibit taxi driver applicants who have been convicted of “a criminal homicide offense; fraud or theft; unauthorized use of a motor vehicle; prostitution or promotion of prostitution; sexual assault; sexual abuse or indecency; state or federal law regulating firearms; violence to a person; use, sale or possession of drugs; or driving while intoxicated” to work as taxi drivers provided that they have “maintained a record of good conduct and steady employment since release.”

Uber and Lyft leave Austin over fingerprint requirement

May 12, 2016, 9:56 AM

From Cato

As R Street Institute’s Josiah Neeley has explained, Austin doesn’t prohibit taxi driver applicants who have been convicted of “a criminal homicide offense; fraud or theft; unauthorized use of a motor vehicle; prostitution or promotion of prostitution; sexual assault; sexual abuse or indecency; state or federal law regulating firearms; violence to a person; use, sale or possession of drugs; or driving while intoxicated” to work as taxi drivers provided that they have “maintained a record of good conduct and steady employment since release.”


Austin may move to deregulate taxis

May 12, 2016, 8:06 AM

It’s been a busy week for vehicles-for-hire in Austin. This past weekend, the city’s voters rejected a proposal that would’ve blocked new restrictions on ridesharing passed by the City Council late last year.

In response, the two main ridesharing companies (Uber and Lyft) announced they would no longer operate in the city. Multiple state legislators have also announced plans to pre-empt local regulation of the industry during the 2017 legislative session.

But even as Austin is ratcheting up regulation on ridesharing companies, it’s also looking at decreasing regulation on traditional taxis:

Austin’s taxi industry should be deregulated to level the playing field with ride-hailing firms like Uber and Lyft, the director of the Austin Transportation Department told City Council in a memo sent Wednesday…

Under the proposal outlined in the memo, the city would still oversee the industry and continue to require background checks and licensing for drivers, regardless of the type of service. But the city would end its cab franchise agreements have taxi companies obtain an “operating authority” from the city, just as ride-hailing companies do.

The changes would likely remove limits on the number of cabs that can operate in the city, which currently sits at just over 900, and on the number of cab operators.

While the timing of this proposal is a bit curious, Austin’s taxi market is in need of some good deregulation. Existing regulations not only limit the number of cabs in the city, but effectively limit the number of cab companies that can operate. A majority of taxi medallions are held by a single company.

Drivers also don’t fare well under this system. A 2010 report found the average Austin taxi driver made $200 a week before taxes, working 12 hours a day with no benefits or job security. And while the new regulations on ridesharing are deeply problematic, there’s no reason the city shouldn’t reduce regulation on taxis as well.

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

Capping premium subsidies won’t kill crop insurance

May 12, 2016, 8:00 AM

The federal crop insurance program, administered by the U.S. Department of Agriculture’s (USDA) Risk Management Agency (RMA), serves as the largest single source of federal support for farms nationwide. Created during the Great Depression as a safety net to protect farmers from extreme loss due to market volatility and natural disasters, the program has been augmented several times via legislation, particularly the establishment of the RMA in the 1990s.

The program again expanded dramatically with passage of the Agriculture Act of 2014, as policymakers sought to replace the politically unpopular direct-payment system with what they anticipated would be a more market-friendly risk-management approach. In the past few decades, federally supported crop insurance has evolved into a massive, ever-expanding program that now covers about 130 crops and nearly 300 million acres of land. The USDA subsidizes an average of 62 percent of participating agricultural producers’ crop-insurance premiums, regardless of the size of their operations. With no reasonable controls on the program’s growth, farmers are encouraged to buy more insurance than they need, while taxpayers are forced to bear much of the risk. The majority of federal support flows to major agribusinesses, rather than small farms struggling to stay afloat.

In an attempt to rein in the ballooning federal program and eliminate its tendency toward cronyism, reformers in recent years have proposed enacting payment limits that would cap the amount any individual farmer could receive in annual premium subsidies. For example, a measure proposed by Reps. Ron Kind, D-Wis., and Tom Petri, R-Wis., during the last farm-bill negotiations would have capped payments at $50,000 and mandated means-testing for premium support, such that farms netting more than $250,000 could not receive any subsidies. This amendment failed by a narrow margin, but the reaction from the farm lobby and politicians with agricultural constituencies was typical. Any attempt to limit premium subsidies—no matter how modest—tends to be met with vigorous opposition from farm-subsidy supporters, who claim without evidence that such caps would devastate U.S. agricultural production.

To date, there has been little data-based evidence to quantify how many farms would be affected by premium-subsidy caps and how significantly their revenues would decline. R Street Institute Associate Fellow Vince Smith provided answers to these important questions in a recent policy study.2 Using a data-based simulation, Smith determined how various premium-cap proposals would affect farms across a dozen geographically diverse states and the extent to which affected farms would see a substantial reduction in their gross income from crop operations.

Fortunately for reform-minded congressmen, the answer is clear: a modest cap on crop-insurance-premium supports would not translate to devastating income loss for farms, nor would it destroy U.S. crop production. It would, however, place a meaningful check on the program’s growth, reduce taxpayer liabilities and ensure that federal funds aren’t used to boost the incomes of wealthy agribusinesses

Study shows people still love inappropriately referencing Nazis online

May 11, 2016, 1:41 PM

From NPR

Mike Godwin first noticed the phenomenon in the 1980s: People on a message forum called Usenet really, really liked referencing Hitler. In 1994, in an essay for Wiredmagazine, he coined Godwin’s Law: “As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches one.”

A new study shows that the so-called law is, in fact, backed up by evidence. A data analyst who blogs under the name CuriousGnu has analyzed 4.6 million reddit comments to find that 78 percent of conversations that reach 1,000 or more comments mention Nazis or Hitler.

“I liked [CuriousGnu’s] statistical approach,” Godwin, director of innovation policy and general counsel for the R Street Institute, tells NPR. “I wish I’d thought of that.”


Uber recognizes first drivers association in New York City

May 11, 2016, 1:39 PM

From Washington Post

Eli Lehrer, president of the R Street Institute, a libertarian think tank based in Washington that is an enthusiastic supporter of the sharing economy, also welcomed the announcement.

“This is important not only for the gig economy, but because you might have a new kind of labor organization coming out of this,” Lehrer said. He said elements of the new drivers guild, such as offering drivers limited representation without compelling them to join the organization or pay dues, might become more widespread as more companies turn to contractors and ventures such as Uber expand their hold on the economy. “This to me is pretty exciting.”


Pennsylvania’s bad beer regulation system lives on

May 11, 2016, 11:35 AM

Eight years down the road, supermarket beer sales are changing the entire alcohol beverage sales category in Pennsylvania, and not for the better. Given our state’s comically byzantine alcohol laws, Pennsylvanians remain pathetically happy that some of us are now allowed to buy beer in supermarkets. If it seems remarkable that this has only happened some 70-odd years after Prohibition was repealed, a brief explanation of how beer is sold in Pennsylvania will only deepen your amazement. Here goes.

Since repeal, container beer sales have been allowed only at licensed beer stores and taverns. You may only purchase by the case or keg at the stores, and the cases must be as packed by the brewery; no mix-and-match allowed. You may only buy up to a 12-pack at taverns (bars, licensed delis and restaurants) and then, literally, if you step out the door and step back in, you may buy another. To add to the confusion, the Pennsylvania Liquor Control Board (PLCB) arbitrarily decided last year that a “case” is now defined as a 12-pack, despite clearly contrary language in the actual law.

There are further restrictions. The stores may only sell beer, soft drinks, a range of snacks limited by law, glassware, tobacco and lottery tickets. Taverns must also sell beer by the drink and food, and offer at least 30 seats for customers. There are even more details, like draft to-go sales; no licensees allowed to sell auto fuels; and the numerous other varieties of license, but we’ll put those aside.

About 10 years ago, some supermarkets realized that, if they bought a tavern license, they should be able to sell beer to-go. After the PLCB did some fiddling with the requirements – beer sales at separate registers in an area set off from the store, and a café with seating for 30 people (a court ruling later confirmed that the supermarkets must also sell beer by the glass if they sell it to go, a frankly amazing insistence given that taverns are not required to sell beer to go) – they said it was within the regulations. This was immediately challenged by the Malt Beverage Distributors Association, who rightly saw this as a threat to their hold on beer sales, but the Pennsylvania Supreme Court affirmed the ruling.

That sounds like progress – halting, twisted progress, but progress nonetheless. Except that such sales were already taking place in dozens of delicatessens; the rules pretty much excluded smaller grocery stores because of the café requirement; and the new cafés mostly sit as empty, wasted retail space. Not every supermarket has decided to make the substantial investment a license requires: sometimes as much as $200,000 just for the paper, plus whatever the café and separate register area cost in build-out and labor. Others have been stymied by local zoning or municipal board opposition. Eight years on, not one of the 10 grocery stores within 3 miles of my home offers beer; very few stores in the major population centers of Philadelphia or Pittsburgh sell beer, except on the suburban fringe.

What’s even worse is how this ruling affects general sales of alcohol in the state. Tavern licenses are limited by a population-based quota system; one license per 3,000 people in a county. The licenses are transferable within a county, for sale by the current owner at whatever the market will bear.

Therefore, every license bought by a supermarket makes licenses for actual taverns more scarce, and thus, more expensive. There are unintended consequences. Small corner bars, often family-owned, find the price irresistible and sell out. Chain restaurants tend to buy up the licenses, given their deeper pockets, leaving fewer opportunities for independent local businesses. Independent operators that do buy are often tempted to oversell and overserve, to create risky promotions and become public nuisances; or they head in the other direction and become more exclusive, high-end operations. The familiar American institution, the egalitarian watering hole where all are welcome, is disappearing in Pennsylvania.

Small grocery stores, or large ones that either can’t get or can’t afford a tavern license, are effectively shut out of the beer market, making them less attractive to shoppers looking for a one-stop experience. And of course, the traditional beer stores and taverns, many of which have made tremendous efforts to work within the system and build the fantastic craft beer scene Pennsylvania enjoys, are losing business rapidly from the increasingly intense competition from the supermarkets.

An equitable solution is needed, not more arbitrary tinkering by the PLCB, a three-person commission of political appointees who rarely, if ever, have any experience in beverage alcohol sales. The Pennsylvania Legislature has repeatedly declined to consider effective changes in state liquor law – ranging from a new supermarket license to a desperately needed modernization of the entire liquor code – most likely because of the strong political clout of the taverns and the beer industry, who are aided by partisans of the state-owned wine and spirits monopoly. All of these interest groups have an interest in keeping things static as much as possible.

The infuriating thing about all of this is that in no case, not one, has the PLCB, the courts or the Legislature considered the desires of citizens. What we want is simple: what the residents of other states can do – go to a store and come home with groceries, including whatever amount of beverage alcohol we want to purchase, from a bottle for that night’s dinner to a full carload for a family graduation party. No one in Harrisburg is offering any plan to achieve that. Instead, we get one convoluted compromise after another, and we continue to wait on the full fruits of Repeal, over 80 years later.

Guest blogger Lew Bryson is the author of “Tasting Whiskey,” published in 2014, and four books on the breweries of Pennsylvania, New York, Virginia, Maryland and Delaware. 

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

Free-market groups to Energy and Commerce Committee: Move quickly to pass HR 2058

May 11, 2016, 9:47 AM

Dear Chairman Upton, Ranking Member Pallone and Members of the Energy and Commerce Committee,

On behalf of the undersigned, we urge you to move quickly to pass legislation (H.R. 2058) that would move the “grandfather” date for Food and Drug Administration regulation of nicotine-delivery products from Feb. 15, 2007, to the date when the new rules take effect. If Congress fails to change the date, many products – including e-cigarettes and other vapor devices already being sold and used by consumers – will be required to pass a tremendously onerous and expensive authorization process in order to stay on the market. Now that the FDA has released its deeming regulations, which will be made final Aug. 8, 2016, time is of the essence to act to ensure that smokers can continue to have access to potentially lifesaving tobacco alternatives.

The FDA claims its regulations will reduce tobacco’s public-health burden by decreasing rates of tobacco-related deaths and illnesses. In fact, the opposite is true. Medical experts have estimated that e-cigarettes are at least 95 percent less harmful than traditional tobacco cigarettes. E-cigarettes and similar products are helping millions of smokers make the switch to products that, while not perfectly safe, present only a tiny fraction of the risk of death and disease posed by tobacco cigarettes. A report by the United Kingdom’s Royal College of Physicians concluded that encouraging smokers to switch to e-cigarettes would be likely to generate significant health gains and prevent almost all the societal harms from smoking. The FDA’s regulatory approach privileges the deadliest forms of tobacco and erects costly barriers that may wipe out consumer access to less harmful alternatives. Without the change, the FDA’s proposed rules won’t reduce smoking; they will increase it. We’ll also likely see a “vapor underground” for these products that will further deteriorate consumer safety.

To be clear, vapor products and e-cigarettes will be subject to the current regulations even if the deeming date is moved. The only change would be the approval process each product undergoes in order to stay on the regulated market. The FDA’s final rule contains measures aimed at restricting youth access and attempting to increase consumer safety, including age restrictions, photo-identification requirements, labeling mandates and ingredient disclosures. The FDA can still put these regulations into place without forcing e-cigarettes to comply with the arbitrary February 2007 deeming date.

Even though moving the date is not a long-term solution, it will preserve the current marketplace while the FDA develops a better regulatory scheme. The truth is that any cutoff date will favor existing product developers over future innovators.

There’s a better, more commonsense way to regulate emerging smoking cessation technologies rather than using the same onerous and outdated restrictions applied to much more dangerous traditional tobacco products. We make progress in America when innovators give consumers better choices; not when government takes those options away.


R Street Institute

Americans for Tax Reform

Campaign for Liberty

Competitive Enterprise Institute

Council for Citizens Against Government Waste


Heartland Institute

Jeffersonian Project

Less Government

Log Cabin Republicans

National Taxpayers Union

Taxpayers Protection Alliance

Puerto Rico: A big default—what next?

May 11, 2016, 8:53 AM

Rexford Tugwell, sometimes known as “Rex the Red” for his admiration of the 1930s Soviet Union and his fervent belief in central planning, was made governor of Puerto Rico by President Franklin Roosevelt in 1941. Among the results of his theories was the Government Development Bank of Puerto Rico, a bank designed as “an arm of the state,” which is a central element in the complicated inner workings of the Puerto Rican government’s massive insolvency.

The bank has just defaulted on $367 million of bonds – the first, but unless there is congressional action, not the last, massive default by the Puerto Rican government and its agencies on their debt. The Government Development Bank was judged insolvent in an examination last year, but the finding was kept secret. The governor of Puerto Rico has declared a “moratorium” on the bank’s debt, which means a default. A broke New York City in 1975 also defaulted and called it a “moratorium.”

Adding together the Puerto Rican government’s explicit debt of about $71 billion and its unfunded pension liabilities of about $44 billion amounts to $115 billion. This is six times the $18 billion in bonds and pension debt of the City of Detroit, which holds the high honor of being the largest municipal bankruptcy ever.

Puerto Rico’s government-centric political economy goes back to Rex the Red, but its budget problems are also long-standing. In this century, the government has run a deficit every year, borrowed to pay current expenses, and then borrowed more to service previous debt until the lenders belatedly ceased lending and the music stopped. Its debt and its real gross domestic product definitively parted company in 2001 and have grown continuously further apart, as shown Graph 1.

As its debt skyrocketed, the credit ratings of its bonds fell and then crashed.  See Graph 2.

Where do we go from here? Addressing the deep, complicated, and contentious problems requires three steps:

  1. The creation of an emergency financial control board to assume oversight and control of the financial operations of the government of Puerto Rico, which has displayed incompetence in fiscal management (or mismanagement), is a central aspect of the solution. This control board can be modeled on those successfully employed to address the insolvencies and financial mismanagement in the District of Columbia in the 1990s, in New York City in the 1970s and in numerous other places. More recently, the City of Detroit got an emergency manager along the same lines.

Such a board would be and must be quite powerful. The sine qua non for financial reform is to establish independent, credible authority over all books and records; to determine the true extent of the insolvency of the many indebted government entities—in particular to get on top of the real condition of the Government Development Bank; and to develop fiscal, accounting, control and structural reforms which will lead to future balanced budgets and control of the level of debt.

Needed reforms cited by Puerto Rican economist Sergio Marxuach in congressional testimony include:

[I]ncrease tax revenues by improving enforcement efforts, closing down ineffective tax loopholes, and modernizing its property tax system; crackdown on government corruption; significantly improve its Byzantine and unduly opaque financial reporting; reform an unnecessarily complicated permitting and licensing system that stifles innovation; … lower energy and other costs of doing business.

That’s a good list of projects.

Does all this take power and responsibility away from the Puerto Rican government?  Of course it does – it needs to and it can be done. Under the Constitution, Congress has complete jurisdiction over territories like Puerto Rico. Just as in Washington and New York City, when the problems are straightened out, financial management will revert to the normal local government.

  1. Pollock’s Law of Finance states that “Loans which cannot be repaid, will not be repaid.” Naturally, this law applies to the $115 billion owed by the Puerto Rican government, which is on its way to some form of restructuring and reorganization of debts. It seems clear that this should be done in a controlled, orderly and equitable process, which takes into account the various levels of seniority and standing among the many different classes of creditors.

The pending House bill puts the proposed oversight board in the middle of the analysis and negotiations of competing claims. If the reorganization cannot be voluntarily agreed upon, the process can move to the federal court, where the plan of reorganization would come from the oversight board.

Three objections have been made to this approach.  One that has been advertised heavily claims that it is a “bailout.” Since no taxpayer money is planned to go to creditors, this is simply wrong and ridiculous. Bondholders taking losses is the opposite of a bailout.

A second is that bondholders may be disadvantaged versus pension claims, and this may affect the whole municipal bond market. Indeed, in the Detroit bankruptcy, the general obligation bonds got 74 cents on the dollar, while the general city employee pensions got 82 cents— an important haircut, but a smaller one. The political force of pension claims in insolvencies is a credit fact that all investors must take into account. If the national municipal bond market internalizes and prices the risks of unfunded pensions, thereby bringing more discipline on the borrowers, that seems like progress to me.

A third objection is that the bill’s approach would set a precedent for financially struggling states like Illinois, which they might follow. In my judgment, there is zero probability that Illinois or any other state would volunteer to have a financial control board imposed on it. Even leaving aside the fact that Puerto Rico is not a state, this argument is vacuous.

  1.  Of fundamental importance is that in the medium term, Puerto Rico must develop a sustainable economy—that is, a market economy to replace its historically government-centric one. Various ideas have been proposed relevant to this essential goal, and much more work is required. This is the most challenging of all the elements of the problem. Steps 1 and 2 must be done first, but Step 3 must be achieved for ongoing success.

One thoughtful investor in municipal bonds, reflecting on Puerto Rico, Illinois and other troubled political entities, concluded, “We don’t trust governments.” That made me think of how there have been more than 180 defaults and restructurings of sovereign debt in the last 100 years and how, further back, a number of American states defaulted on their debts and even repudiated them. So I wrote him, “I think that’s wise.”

Nonetheless, the immediate requirement to deal with the Puerto Rican debt crisis is government action.

China’s self-driving future

May 10, 2016, 4:23 PM

In Beijing, a young car culture is going through teething pains. The pressure of urban density, in combination with growing demand for personal transportation in an ever-more-affluent city, has the capital of the People’s Republic aching for relief.

It’s thus no wonder that a generation of Chinese people see driving as a pain. Unlike car culture in the United States, which came of age during a romantic period of road trips, China’s car culture has come of age in a period of congestion.

China’s next great leap in transportation cannot come soon enough, not only as a matter of commuter convenience, but as a matter of necessity. Ring roads and surface streets flush with cars at all hours have become the bustling capital’s economic choke point. A 2014 study by Peking University estimated that congestion is costing Beijing alone roughly $11.3 billion per year. More importantly, the World Health Organization estimates that 200,000 people are killed in China in road accidents every year.

The Chinese government – specifically, the Ministry of Industry and Information Technology – is keenly aware of these issues. To its credit, it believes autonomous vehicles will be an essential part of the solution. The ministry has signaled that it intends to mandate a series of technical and development benchmarks that are to be reached by certain dates.

Li Keqiang, an automotive engineering professor at Tsinghua University who is affiliated with the ministry, has received wide coverage for his claim that a draft roadmap for the introduction of self-driving cars for highway use within three to five years, and autonomous urban use by 2025, is likely to be released later this year.

A series of international conferences have been held in China this year already to discuss the country’s approach to autonomous vehicles. In April, Beijing hosted a conference of industry CEOs, an international auto show and the Global Smart Car Summit at the Global Mobile Internet Conference. The stakeholders in attendance are keenly aware that while developments will be made in the private sector, China’s regulation of autonomous vehicles is a matter of central planning.

Unlike the United States, where authority over autonomous vehicle development and standards is split between the states and the federal government, China’s industry enjoys the benefits of broad-scale coordination. In the near term, this will likely mean that China will not suffer through the same regulatory frustration that will slow the rollout of similar technology here.

What’s more, China has pent-up demand for new vehicles and the ability and will to undertake large infrastructure projects. While U.S. regulators are pursing unrealistically onerous safety standards that could actually stunt widespread adopting of the technology, China is approaching safety as a relative matter. So long as an autonomous vehicle is safer than a traditionally directed vehicle, the Chinese government appears satisfied.

But in the long term, in the event that technical coordination becomes too granular, China could face a Minitel-like disaster of hitherto unknown proportions. The way that China can avoid such an outcome will be to embrace the raft of foreign firms with expertise in the field that are increasingly frustrated by the obstacles presented to them in the United States. Doing so will mean taking the hard step of moving away from mandated domestic communications monopolies (like Chinese firm BeiDou on satellite navigation), but the technical benefits of such a development likely would be tremendous.

To be clear, centrally planning regulatory liberalization is hardly ideal. But given the political realities that prevail in China, in the case of autonomous-vehicle development, it stands to bring a world of good to the Middle Kingdom.

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

Thoughtful, puritanical, or just plain “huh”? How the media reacted

May 10, 2016, 1:43 PM

From ECigIntelligence

And in the neoconservative magazine The Weekly Standard, Eli Lehrer – president of the R Street Institute think tank – seemed to see the whole issue as one more of Big Government than Big Tobacco. Lehrer opined that “members of Congress – even those who want an all out ban on e-cigarettes – should also oppose them in their current form because they’re such a blatant example of regulators asserting powers that ought to belong to Congress”.


Let’s Make Congress Great Again

May 10, 2016, 1:18 PM
05/18/2016 - 12:00 pm - 1:30 pm
2226 Rayburn House Office Building
2226 Rayburn House Office Building

2226 Rayburn House Office Building

May 10, 2016, 1:18 PM
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  • Can E-Cigarettes Survive The War Against Vaping?

    May 10, 2016, 10:48 AM

    Joel Nitzkin, former cochair of the Tobacco Control Task Force of the American Association of Public Health Physicians, who is now a fellow at a free-market think tank called R Street Institute, says of the FDA, “They think they’re on a mission from God. The horrific part is that they’re going to maintain cigarettes as the lead nicotine-delivery product in American society.” What’s more, he says, “they are refusing either to tell the public or allow manufacturers and vendors to tell the public about the difference in risks between e-cigarettes and tobacco cigarettes.” Indeed, even if a vaping company can jump through the FDA’s proposed regulatory hoops, it won’t be allowed to claim its products pose less harm than traditional cigarettes.

    FDA moves to kill e-cigarettes

    May 09, 2016, 5:40 PM

    If Congress has any self-respect or desire to preserve its own prerogatives, it needs to overturn the FDA’s new proposed regulations on e-cigarettes.

    The regulations, announced last week, would amount to a de facto prohibition on all of the currently marketed potentially lifesaving alternative to combustible, disease-causing cigarettes. They are worth opposing on public health grounds alone. But members of Congress—even those who want an all out ban on e-cigarettes—should also oppose them in their current form because they’re such a blatant example of regulators asserting powers that ought to belong to Congress. Indeed, a Congress that can’t figure out a way to reassert its own authority over these regulations will have a very hard time asserting that it’s serious about any regulatory oversight of the executive branch at all.

    The proposed e-cigarette regulations would do something that almost never happens: end a productive, profitable, currently legal industry overnight by regulatory fiat. Tens of thousands of people employed in vape shops, manufacturing, and marketing e-cigarettes would be thrown out of work almost immediately if the regulations go into force. Even if e-cigarettes were a net public danger (and they’re not), the significant immediate economic impact of the regulations suggests that they’re something Congress should weigh in on itself.

    Indeed, it’s hard to think of a more pressing case for Congress to have some say over a regulation. While it’s a common applause line for free-market politicians to promise an end to “job-killing regulations” and promise that new jobs will emerge immediately if government shackles are simply removed from the economy, the relationship between the regulatory state and employment is actually pretty nuanced. Employers, survey after survey shows, almost never lay off existing employees because of new regulations. Only 0.5 percent of all layoffs are directly related to regulations, according to the Bureau of Labor Statistics. Instead, the cumulative weight of regulations tends to make certain ways of doing business unprofitable in the long run. The largest employment impact of new regulations may well be on jobs that are never created in the first place. Furthermore, very burdensome regulations can protect existing jobs at large incumbent companies by making it harder for disruptive entrepreneurs to enter existing markets. Since the impact of regulations is often ephemeral and relatively minor, Congress properly cedes certain minor responsibilities to regulators.

    But regulations that cause large, visible and predictable changes are exactly the places where Congress ought to step in; the regulations feel like lawmaking and have direct, visible impacts that even more costly environmental regulations might not. If there’s to be a major change in the society we deal with a legal and widely used product, the very concept of representative democracy alone indicates that Congress should have hearings, hold debates and weigh the evidence. If e-cigarettes are as dangerous and problematic as their opponents say, then the current regulations—which would still allow e-cigarettes to be marketed after an long and costly review process that only big companies could afford—then members of Congress should ban them outright. If the regulations are a net negative for public health, as most existing evidence indicates they are, then Congress has an obligation to either delay their implementation or write special new laws.

    The FDA’s e-cigarette rules, in short, aren’t just a bad idea for public health. They’re also bad for representative democracy and the power of our legislative branch. Congress needs to step in.