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Updated: 2 hours 23 min ago

R Street argues for keeping Coastal Barrier Resources System intact

April 08, 2014, 1:00 PM

WASHINGTON (April 8, 2014) – Removing units from the Coastal Barrier Resources System (CRBS) will have the adverse effect of raising taxes and forcing more customers into Florida’s state-run insurer, R Street co-founder and Florida director Christian Cámara told the House Natural Resources Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs today.

Under a reform enacted last year based on an R Street proposal, Citizens Property Insurance Corp., Florida’s insurer of last resort, can not provide insurance coverage to any new development on land contained in the CRBS. This reform is meant to slow the growth of Citizens, whose policy count recently fell below 1 million for the first time since 2007.

Cámara, asked to discuss proposed legislation that would remove certain units of land from the CRBS in order to pave the way for new development, said that many of the units display the characteristics that the CBRS was designed for.

Of one unit, located in Cape San Blas, Fla, Cámara noted that, “Given its high-risk location, extreme erosion rate and the fact that residents could still obtain private flood insurance coverage at proper, risk-based rates, this land epitomizes the justification behind the CBRS, and should remain in the system.”

Removing this land from the system and allowing Citizens to underwrite new development there would put all Florida taxpayers at risk, as Florida law authorizes the company to impose a form of taxation on essentially every insurance policy in the state to cover any shortfall in its surplus in the event of a major hurricane. These assessments can increase Floridians’ overall cost of each insurance product by up to 45 percent for multiple years. Additionally, this move would undermine Florida’s own public policy goal of slowing the growth of Citizens by reopening some of the state’s riskiest areas to the state-run insurer.

Cámara stressed that the lands included in the CBRS are there because of their unique characteristics, which make them vulnerable to the storms and floods in Florida.

“The Coastal Barrier Resources Act does more than protect environmentally sensitive coastal areas and wildlife habitats. It also protects consumers and taxpayers from subsidizing the risky behavior of a few and having to cover their repeat losses,” he said.

Testimony to U.S. House Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs

April 08, 2014, 1:00 PM

Chairman Fleming, Ranking Member Sablan, and distinguished subcommittee members,

My name is Christian Camara and I am the Florida director and a co-founder of the R Street Institute.  We are a pragmatic, free-market public policy research organization—or “think tank”—that can best be characterized as center-right in orientation. We are based in Washington, D.C. with offices in multiple states.

Our mission is to engage in policy research and outreach to promote free markets and limited, effective government.  In Florida, our focus largely has been in the area of property insurance reform. As you can imagine, a flat, tropical peninsula jutting out 500 miles into the world’s warmest, most hurricane-active waters cares quite a bit about how it manages its enormous hurricane risk.

In fact, Florida has more hurricane risk than every other “hurricane alley” state combined, due not only to its geographic location, but also the amount of wealth and expensive development concentrated along the coast.

Years ago, Florida established a state-run property insurance company called Citizens Property Insurance Corp. Its mission was to provide coverage only to those legitimately unable to obtain it from the private, primary insurance markets. Its rates were legally required to be actuarially sound and above the rates charged by the top 20 private insurers in a given region.  This pricing structure was to encourage consumers—and their hurricane risk—to remain in the private market, as well as to preserve a competitive market among carriers.

Nevertheless, this guaranteed availability of primary insurance through state-run Citizens, in our opinion, has encouraged development in high-risk areas. Changes pushed through by former Gov. Charlie Crist in 2007 further exacerbated this problem. Having campaigned on a platform to lower insurance rates following the unprecedented back-to-back hurricanes in 2004 and 2005, the then-popular, newly elected governor persuaded the Legislature to send a bill to his desk that arbitrarily lowered Citizens’ rates, froze them and allowed the state-run company to provide coverage to anyone who received even one quote from a private carrier that was more than 15 percent higher than those artificially suppressed rates.

This de facto price control drove many private insurers out of the state, eventually leading to the concentration of roughly $515 billion of risk (at the peak) on the backs of taxpayers. In short, Citizens went from a residual insurer of last resort to a primary insurer of first resort.

Citizens is able to underprice the coverage it issues because Florida law authorizes it to unilaterally impose a form of taxation on essentially every insurance policy in the state to cover any shortfall in its surplus should, say, a major hurricane cause hundreds of thousands of claims that consume all of the company’s cash reserves. Depending on the severity of the shortfall, these assessments can increase Floridians’ overall cost of each insurance product they purchase by up to 45 percent for multiple years.

Thankfully, a hurricane has not struck the state in eight years—the longest such “drought” in recorded history. But had Florida’s luck been different, taxpayers would have had to bail out Citizens through enormous assessments on their insurance policies.

The Legislature eventually saw how such a scenario could have a cataclysmic effect on Florida’s economy and quite literally bankrupt the state, so it has since taken steps to reverse Citizens’ growth, by:

  • Unfreezing its artificially-suppressed rates through a “glidepath”
  • Closing eligibility to million-dollar homes
  • Encouraging private company “take-outs” and
  • Setting up a “clearinghouse” to enforce eligibility rules.

Another important Citizens reform enacted last year was a product of a policy recommendation in a report that I authored titled “Coastal Preservation Through Citizens Reform,” a copy of which has been submitted to the subcommittee.

This reform prohibits Citizens from covering certain new beachfront construction and new development inside a CBRS unit. It does, however, grandfather those structures built before enactment of the reform. This concept was supported by free-market groups, consumer advocates and environmentalists, who don’t regularly work together on such issues, much less see eye-to-eye on most others.

Our reasoning was simple: If people want to build in these, the riskiest of places, they can and should be allowed to—on their own dime. In other words, taxpayers should not subsidize people’s risky behavior. If they still want to build there, they have several options:

  1. They can build resiliently enough to reduce the risks;
  2. They can self-insure; or
  3. They can find private coverage whose cost will reflect the actual risk, which would organically encourage proper building and location standards.

As such, removing units from the CBRS will not only force your taxpaying constituents in faraway states to repeatedly cover multi-million dollar beach renourishment projects, subsidize flood insurance and build infrastructure to these high-risk, flood-prone, environmentally sensitive areas; it also would undermine Florida’s own public policy goal of slowing the growth of Citizens by reopening some of the state’s riskiest areas to the state-run insurer.

Some of the Florida units proposed for withdrawal or “correction” are in particularly high-risk areas.  According to a 2012 Florida Department of Environmental Protection (DEP) report on critically eroded beaches in Florida, the Indian Peninsula shoreline within Unit FL-92, whose boundaries H.R. 4222 seeks to change, is eroded. In the case of this unit, the report finds there is no development or any “interests” currently threatened by such erosion.  However, that likely would change if it were opened up to subsidies, such as beach renourishment projects, cheap flood insurance and eligibility for Florida’s Citizens Insurance.

Even more eroded than the Indian Peninsula is nearby Unit P-30, which H.R. 4222 also seeks to change. According to the DEP report, the St. Joseph Peninsula shoreline within this unit is designated as an area of “critical” beach erosion. In fact, the report singles out Cape San Blas, which also lies within Unit P-30, as having the highest beach erosion rate in the entire state of Florida.

Despite this vulnerability, Cape San Blas is one of the two CBRS units in the entire nation that have experienced the most growth and development since being added to the system.  According to a 2007 GAO report, Cape San Blas “has continued to experience increased development with at least 900 new structures—primarily single family vacation homes—being built since the unit’s inclusion in the CBRS.”

Despite its extreme erosion rate, the GAO report also found that residents could still obtain coverage in the private insurance market, albeit at significantly higher rates than the subsidized National Flood Insurance Program. Given its high-risk location, extreme erosion rate and the fact that residents could still obtain private flood insurance coverage at proper, risk-based rates, my opinion is that Unit P-30 epitomizes the justification behind the CBRS, and should remain in the system.

H.R. 2057 proposes the removal of the entire Unit P-31P, which largely is made up of St. Andrews State Park and Shell Island to the east.  Roughly half of the beachfront in this unit is classified as “noncritically eroded,” but only because it has no threatened development or interests; otherwise, it would have been classified as “critically eroded.” Because Unit P-31P is an “otherwise protected area” of the CBRS due to it largely covering the state park, the only prohibition on federal expenditures under CBRA is flood insurance

There appears to be a neighborhood in the northwest, non-beachfront portion of the unit called Finisterre that may have been incorrectly included in the system. This may warrant a “comprehensive review” by the U.S. Fish & Wildlife Service to amend the boundaries of the unit to exclude this particular area, but a wholesale removal of the unit from the system is unjustified, in my view.

In conclusion, the Coastal Barrier Resources Act, enacted by President Reagan and a Democratic Congress, does more than protect environmentally sensitive coastal areas and wildlife habitats: It also protects consumers and taxpayers from subsidizing the risky behavior of a few and having to cover their repeat losses. It organically encourages proper building standards, protects inland communities by preserving natural barriers to wind and surge and sends the right price signals to those who would otherwise place life and property in harm’s way.

The CBRS has worked. It is a market-based environmental protection program that does not infringe on property rights, impose onerous regulations or cost taxpayer money.  In fact, it has saved taxpayers billions of dollars while simultaneously helping preserve low-lying areas that serve as wildlife habitats and vital natural barriers to wind and storm surge.

Thank you and I’d be happy to answer any of your questions.

Attachments:

 

Why I am still a neocon

April 08, 2014, 12:57 PM

We neocons have fallen out of favor, not just on the left, where “neocon” is routinely used as a term of abuse, but also on the right, where libertarian-minded conservatives who favor a smaller (and cheaper) military have seized the initiative. Rand Paul, the junior senator from Kentucky, is just one of many tea party conservatives who has defined his foreign policy views in opposition to the neocons. And it’s easy to see why.

Eleven years ago this week, Baghdad fell to U.S. forces. Donald Rumsfeld, who at the time was serving as George W. Bush’s defense secretary, famously dismissed the lawlessness that followed the collapse of Saddam Hussein’s dictatorship by oh-so-helpfully observing that “stuff happens.” The Bush administration, from the president on down, seemed serenely confident that for all the madness of those first weeks, Iraqis would soon take advantage of their liberation and partner with U.S.-led coalition forces to build a new democracy.

As we all know, that’s not quite how it played out. From 2003 to the end of 2011, when U.S. forces declared a formal end to their operations in Iraq, 4,803 American, British and other allied troops died in the conflict. These are the deaths that badly damaged the reputations of Bush, Tony Blair and other leaders who sought regime change in Iraq. The overall human cost of the war in Iraq was much larger still. One oft-cited survey found that as many as half a million Iraqis died during the U.S.-led occupation, a number that includes those who died directly from violence as well as those who died indirectly from maladies caused or exacerbated by the bloody civil war and the displacement it caused.

Though we can’t know what the world would have looked like had the Bush administration not chosen to wage war in Iraq, and though it is at least possible that the region and the world might have looked even worse with Saddam Hussein still in power, I find it hard to imagine that the benefits outweighed the enormous costs. Most Americans would surely agree. At a bare minimum, those of us who favored the war might have hoped for a democratic Iraq in which the rights of ethnic and religious minorities were respected and that was more closely aligned with the United States than Iran. The new Iraq fails on both of these counts.

Given all of this, why am I still a neocon? Why do I still believe that the U.S. should maintain an overwhelming military edge over all potential rivals, and that we as a country ought to be willing to use our military power in defense of our ideals as well as our interests narrowly defined? There are two reasons: The first is that American strength is the linchpin of a peaceful, economically integrating world; and the second is that we know what it looks like when America embraces amoral realpolitik, and it’s not pretty.

Like it or not, America’s failure in Iraq does not change the fact that global stability depends on American global leadership, and American global leadership costs money. The United States is at the heart of a dense web of alliances. We extend formal security guarantees to more than 50 countries. Some see these alliances and guarantees as little more than a burden the U.S. can no longer afford. Yet what they actually do is dampen security competition. They reassure partner countries that they needn’t build up their militaries to defend themselves against their neighbors, which then reassures their neighbors that they needn’t build up their militaries. This virtuous cycle is one of the central reasons Western Europe and Japan recovered so quickly after the devastation of World War II, and why globalization has helped ease poverty around the world. For this virtuous cycle to be maintained, however, U.S. security guarantees must be considered credible. It must be clear that when the U.S. makes a security commitment to another country, that commitment will be met. This in turn means that the U.S. military must have the power and the reach to defend countries far from our borders.

You may have seen one of those charts illustrating how much the U.S. military spends on defense vs. other countries. Slate recently ran just such a chart to show that America’s 2012 defense spending surpasses that of China, Russia, the U.K., Japan, France, Saudi Arabia, India, Germany, Italy, and Brazil combined. The implicit message of these charts is “Wait a minute, you guys—doesn’t this seem like overkill?” There is no question that there is waste in the U.S. defense budget, and that our military could deploy resources more effectively.

But these charts are misleading insofar as they gloss over a pretty important fact, which is that personnel costs are much higher in rich countries than in poor ones. Stack up the U.S. against the same list of countries on health or education spending and you’ll find that we spend an impressive amount in those domains too. The health and education sectors, like the military, are sectors that depend on hiring and retaining trained personnel. Keeping smart, hardworking people in these sectors means paying wages high enough to keep them from taking jobs elsewhere, including in sectors where productivity growth is much higher. That is expensive. Personnel costs absorb half of the U.S. military budget, as opposed to a third of China’s. There are things we can do to contain high and rising personnel costs. Tim Kane, an economist at the Hoover Institution and an Air Force veteran, has written an excellent book on how the military can manage its human resources. And of course we could rely more heavily on drones and other labor-saving technologies. But as long as the military intends to employ talented Americans, it’s going to be expensive. Liberals who want to raid the defense budget to finance social programs and libertarians who want to slash it to finance tax cuts need to wake up. A weaker U.S. military will mean a more dangerous world, and that will jeopardize everything that matters.

Of course, all of these arguments could be true and one could nevertheless believe that the U.S. should avoid doing anything more than narrowly fulfill its security commitments. Why insist on moralistic crusades, as neocons are wont to do? I suppose I have a personal reason for doing so.

It turns out that this week isn’t just the anniversary of the fall of Baghdad. It is also the 43rd anniversary of a telegram in which an American consul general, Archer Blood, took the unusual step of condemning his own government. As Gary Bass recounts in his chilling book The Blood Telegram, Richard Nixon and his chief foreign policy consigliere, Henry Kissinger, enthusiastically backed Pakistan’s military junta in its efforts to not only overturn the results of its country’s first free and fair election, but to massacre hundreds of thousands of Bengalis in an effort to teach what was then a rebellious province a lesson. One of the men who died, as it happens, was my uncle.

Knowing fully well that he was endangering his career, Blood decried the American failure to defend democracy or to denounce Pakistani atrocities. He also knew that had President Nixon decided to lift a finger, he could have forced Pakistan to stay its hand. Yet it seems that humanitarian considerations never entered the picture for Nixon and Kissinger. They were apparently too taken with treating the world as a chessboard to bother reckoning with the monstrous crimes they were aiding and abetting. Though Pakistan was unable to prevent the emergence of an independent Bangladesh, thanks in large part to India’s decision to intervene, the country remains scarred by the bloodletting. Imagine if a different president hadn’t cheered on Pakistan’s military rulers but rather threatened to use U.S. power in defense of Bengali civilians.

The neocon impulse proved badly misguided in Iraq, where it contributed to a moral calamity. But there are other cases, in South Asia in 1971 and in Bosnia in the early 1990s, to name two examples among many, where it might very well have prevented one.

Free-market groups support Senate patent reform efforts

April 07, 2014, 5:56 PM

The Honorable Patrick Leahy
The Honorable Charles Grassley
United States Senate Judiciary Committee
Washington, D.C. 20510

Dear Committee Members,

On behalf of the undersigned free-market organizations, we write to express our support for your committee’s patent reform efforts. As advocates for a robust innovation economy with a strong and effective patent system, we urge you to support the important litigation reforms proposed by Sens. Leahy and Lee (S. 1720), and related proposals from Sen. Cornyn (S. 1013), Sen. Hatch (S. 1612), and others.

The Constitution established an intellectual property regime that balances promotion of innovation and economic growth with the need for open and competitive markets. A well-functioning patent system is increasingly important in a global economy where technological innovation, rather than tangible assets or market share, are what make or break a company. In aggregate, these innovative companies build the wealth of nations.

Unfortunately, it has become clear that the current litigation environment surrounding our patent system stifles innovation. Each year, abusive litigation from certain patent assertion entities drains tens of billions of dollars from the economy, creating tremendous deadweight losses. While some patent assertion entities can have a valued role to play, the current civil litigation system must be updated to curtail its abuse. The targets of these “patent trolls” are not just big technology companies. Rather, most troll lawsuits are brought against non-tech companies. These victims are often main street businesses such as restaurants, coffee shops, hotels, banks and others that don’t invent or manufacture anything, but are seen as easy targets by patent trolls.

These bad actors have found a profitable way to exploit the system by taking advantage of the enormous costs of litigation. Unfortunately, defending a patent infringement suit all the way through trial costs an average of $5 million per case, and even for small and medium-sized businesses averages nearly $2 million. Many small operations have little choice but to settle with the trolls, even when the infringement claim is completely without merit.

While American businesses are being crippled or going broke from frivolous litigation, fewer resources are left for research and development, causing uncertainty for start-ups and entrepreneurs, lost jobs, and shattered dreams.

For these reasons, we believe the patent litigation process must be reformed to strengthen the system against abuse and better protect patent holders. We strongly support your committee’s efforts to include provisions for shifting litigation fees to losers of frivolous patent suits; to adopt pleading standards that better identify alleged infringements; to reduce abuse of the discovery process; to provide reasonable protection for end users; and to impose transparency requirements for patent litigation and ownership.

Together, these reforms would shield honest businesses from spurious patent claims and make companies less likely to resolve such disputes by paying nuisance settlements. They could also aid small inventors and patent-holding start-ups by streamlining patent litigation, which will reduce costs across the board.

Abusive patent litigation extracts resources from the innovation economy, effectively taxing it, rather than promoting it as the Founders intended. We strongly urge you to support these much-needed reforms, which will serve to improve the strength of America’s patent system and better align it with its constitutional mandate.

Sincerely,

Zach Graves, R Street Institute

Brent Gardner, Americans for Prosperity

Ryan Radia, Competitive Enterprise Institute

Luke Kenworthy, Generation Opportunity

 

 

A more affordable D.C. starts with easing land rules

April 07, 2014, 12:37 PM

In her April 4 Metro column, “A plan to fix D.C.’s housing crisis can’t wait till Nov.,” Petula Dvorak rightly lamented the district’s high housing costs, but her policy prescriptions won’t fix the problem. “We need to be ruthless in demanding that developers acknowledge the housing crisis and dedicate more of their units to lower-income residents,” she wrote.

The few people lucky enough to live in set-aside units would certainly benefit from lower rent, but a handful of units in new buildings will do little to address overall affordability. District rents are high because the stock of housing isn’t expanding quickly enough to accommodate everyone who wants to live here. To fend off further price increases we need to examine the ways our current policies artificially limit the supply of housing. Land-use regulations such as restrictive zoning, parking minimums and minimum lot sizes make dense development illegal in many parts of the district. The lengthy entitlement process allows NIMBYs to limit the size of new buildings and keep newcomers out of their neighborhoods.

We won’t need to be “ruthless in demanding that developers acknowledge the housing crisis” if we change our restrictive policies. Liberalizing land-use rules would allow developers to make money by increasing the supply of housing , and it would make for a more affordable district.

HOT & bothered

April 07, 2014, 11:38 AM

From the Weekly Standard:

And it’s not as if we don’t need more highways. As Reihan Salam noted in a 2013 paper for the libertarian think tank R Street, the cost of maintaining and upgrading roadways to handle their current load in the United States runs to the hundreds of billions of dollars—which most state governments are at present unable or unwilling to pay themselves. Salam argues that road pricing (including both HOT lanes and other schemes) holds some promise. Yet Salam is careful to note that road pricing is no panacea.

Columnist: Childless Americans should pay higher taxes

April 07, 2014, 10:16 AM

From Fox News:

A Slate.com columnist says that childless Americans should pay higher taxes.

“Who should pay more? Nonparents who earn more than the median household income, just a shade above $51,000. By shifting the tax burden from parents to nonparents, we will help give America’s children a better start in life, and we will help correct a simple injustice,” Reihan Salam said in an article on Slate.com.

Virginia takes lead in patent reform

April 07, 2014, 8:30 AM

As awareness builds about the cost in dollars and innovation that patent trolling extracts from the economy, Virginia has been among the states that have responded with legislation designed to counter frivolous patent suits while protecting legitimate patent holders.

Both chambers of the Virginia General Assembly unanimously passed bills designed to protect state businesses from patent infringement allegations that are frivolous or made in bad faith.

Patent trolls, or patent assertion entities, are companies or consortiums that acquire patents solely to coerce license fees or royalties from innovators who develop something similar. Relying often on vague, nonspecific claims of infringement, the entities threaten litigation, which can be prohibitively expensive for a start-up, to induce an out-of-court settlement. The most visible difference between a patent troll and a legitimate inventor is that trolls don’t make or market a product related to the patent in question.

Nationally, 7,000 businesses were sued by patent trolls in 2011 and 2012, four times as many as were sued in 2006, according to Michael Beckerman, president and CEO of the Internet Association, a trade group representing U.S. Internet companies. Counting direct payments to trolls, legal fees and other associated costs, troll litigation costs U.S. businesses $80 billion a year.

Many trolls are deep-pocketed, aggressive organizations with international reach. Some are state-sponsored, using patent assertion as a latter-day protectionist strategy either to extract payments from promising U.S. start-ups or impede their entry into their home markets. Taiwan’s Industrial Technology Research Institute holds more than 18,500 patents and has been asserting them in U.S. courts.

Italy’s Sisvel, with offices spread across seven countries, controls patents in 12 different technology standards pools. In the past, Sisvel’s attempts at theatric intimidation have involved bringing in armed guards to shut down 51 exhibitors at a major German trade show, alleging they were infringers.

Virginia’s legislation follows similar action in other states over the past several weeks in Kentucky, Oregon and Maine.

As patent assertion entities tend to target high-tech start-ups, many legislators are worried that trolling will adversely affect the technology business climate in their respective states. Virginia also reflects the general bipartisan concern. Attorney General Mark Herring, a Democrat, had significant input in the bills, which were shepherded through the Legislature by Sen. Richard Stuart and Del. Israel O’Quinn, both Republicans.

The bills authorize the attorney general to investigate cases of patent trolling and sue to recover civil penalties.

Recognizing that patent cases can often be complicated, the Virginia bills establish a set of standards that will aid in separating legitimate patent claims from trolling.

These standards target questionable elements commonly found in complaints from trolls, such as no identification of the actual patent holder, failure to specify how the defendant is infringing and a demand for unreasonably high license or royalty fees.

In Congress, the House of Representatives has already passed the Innovation Act, sponsored by Virginia Rep. Bob Goodlatte. Like the state bill, Goodlatte’s bill would require patent assertion entities to be specific about infringement claims.

The bill, which has been garnering bipartisan support on Capitol Hill, also would force plaintiffs to pay the defendant’s legal fees if the court finds claims to be frivolous. Multiple reform bills await action in the U.S. Senate, and President Barack Obama has come out in favor of patent reform.

There are encouraging signs that legislation and programs are working.

During the first two months of 2014, a total of 778 patent cases were filed, a 25 percent drop from the 1,038 cases filed during the first two months of last year, according to data from Lex Machina, a legal firm that specializes in helping companies fight trolls.

January’s monthly total of just 322 new cases was the lowest since October 2011, the firm reported.

By exploiting patent law, trolls sap U.S. businesses of energy and capital.

Virginia deserves praise for its leadership in stopping abuse and maintaining a fair and favorable business climate in the commonwealth.

How to get Americans back to work

April 07, 2014, 8:00 AM

Friday’s Labor Department data shows an uptick in jobs, but an unemployment rate that remained steady from February to March. While the size of the labor force is increasing, the economy is not strong enough to get all would-be workers off the sidelines and into jobs.

Part of the story is that the fates of the short-term unemployed and the long-term unemployed have sharply diverged. The short-term unemployment rate, as Annie Lowrey of the New York Times has observed, is lower than its pre-recession level, while the long-term unemployment rate remains very high.

We need to find better ways to help the 3.7 million American workers who’ve been out of a job for six months, and the twice-as-large number of workers who are working part-time although they’d prefer full-time employment. But we would also do a great deal of good by ensuring that the short-term unemployed don’t remain on the sidelines for long.

That is why America needs wage insurance – a form of insurance that would subsidize a worker’s income if she were forced to take a job with a lower salary. The goal of wage insurance is to encourage workers to broaden their job search and to subsidize on-the-job training as they move from one kind of employment to another. A woman who worked in construction for most of her adult life might have a hard time transitioning to the hospitality industry, for example, and starting from scratch in an entry-level job would mean accepting a low wage. Wage insurance would cushion her and her family against this drop in income, and it would give her an opportunity to raise her skill level so that she could eventually command a higher wage from her employer.

Wage insurance was first introduced in 2005, by policy scholars Lael Brainard, Robert Litan and Nicholas Warren. The goal of the program was not to shield workers from all risk, but rather to provide them with a strong incentive for rapid re-employment. Workers who lose their jobs and then find jobs that pay less would receive an insurance payout that would cover up to 50 percent of the earnings gap, up to $10,000 a year for no more than two years.

The authors estimated that the program would cost roughly $3.5 billion a year (in 2005 dollars), and saw it as a way to protect the interests of workers permanently displaced by off-shoring and technological change.

Yet because the authors had no way of imagining the Great Recession and its impact, they ultimately understated the case for their proposal. Had we implemented a well-designed wage insurance program in the mid-2000s, we may have avoided much of the pain associated with the recent downturn.

To be sure, a wage insurance program would have cost more in recent years than Brainard, Litan and Warren had anticipated in 2005, particularly when the labor market was at its worst. But if the program had prevented millions of workers from entering the ranks of the long-term unemployed, it would have more than justified its expense.

One of the most attractive aspects of the proposal from Brainard, Litan and Warren is that it starts the clock on its two-year eligibility window after just a few weeks of unemployment. The sooner a person takes another job, the bigger the insurance payout she would ultimately receive. This provision would reduce the cost of traditional unemployment insurance while also limiting some of the damaging effects of being out of work.

Critics of the program worry more about “undermatching,” in which workers rush to take jobs for which they are overqualified, thus reducing their long-term earning potential. But the threat of undermatching must be balanced against the heavy economic and social costs of long-term unemployment. Wage insurance would reduce the costs associated with undermatching, and it wouldn’t prevent workers from returning to their old industries if or when they recover.

Granted, a new wage insurance program can’t do much to help the millions of workers who have already entered the ranks of the long-term unemployed. But it can spare future workers from the same fate.

Patent reform efforts shouldn’t overlook patent quality

April 07, 2014, 7:30 AM

With the Senate Judiciary Committee set to take up legislation in the next several days that looks to combat so-called “patent trolls,” it’s imperative that lawmakers address the real underlying problem of low-quality patents, which give the trolls a platform to sue anyone and everyone.

There’s much to like about the Patent Transparency and Improvements Act, the primary bill under consideration in the Senate. Introduced by committee Chairman Patrick Leahy, D-Vt., and cosponsored by Sen. Mike Lee, R-Utah, the bill follows the path of the Innovation Act, which passed the U.S. House in December by an overwhelming 325-91 margin. Like the House bill, which has the support of the White House, it tackles a set of important litigation reforms, as well as addressing demand letters and transparency requirements for patent litigation and ownership.

But neither effort is comprehensive, especially when it comes to confronting bad patents. Notably, the worst offenders are software and business method patents. One study from George Mason University estimates 39 to 56 percent of software and business method patents would be found invalid if challenged. And when these kinds of infringement claims do go all the way to court, they almost always get shot down.  According to another study from the non-partisan Government Accountability Office, software-related patents are responsible for most of the increase in patent litigation in recent years (notably, the patentability of software currently is being considered by the Supreme Court).

Patent trolls have become a major economic drain, causing billions each year in economic damage. The targets are not just technology companies, but also many businesses you wouldn’t expect. For instance, one troll went after coffee shops, restaurants and hotels just for offering wireless Internet service. Another troll went after businesses for using scanners connected to an office network.

The list of dubious patents goes on and on. Complicating matters, non-disclosure requirements and lack of transparency for patent settlements make it difficult to assess the true scope of the problem.

Since litigation can cost millions per case, there’s often no practical way to challenge bogus infringement claims. This gives trolls a profitable racket extorting nuisance settlements from small businesses that can’t afford to fight back against bad patents. While litigation reforms like fee-shifting, customer-stay, and increased transparency will help mediate the trolls’ advantages in court, these changes won’t address the fundamental problem: that we need a better way to invalidate stupid patents.

During the markup process, we expect the Judiciary Committee to incorporate language from other proposals in the Senate, particularly a very strong bill put forward by Sen. John Cornyn, R-Texas. Of the half-dozen bills in the Senate, we recommend a close look at one sponsored by Sen. Chuck Schumer, D-N.Y., which is the only one that deals seriously with the underlying issue of patent quality.

Schumer’s idea goes back to the debate Congress had three years ago when it passed the America Invents Act, an earlier effort to reform the patent system. Coming only a decade after the federal circuit made “business methods” patentable, the law reflected the concern shared by many senators that we needed to curtail or eliminate these patents, as they allowed trolls set their sights on America’s financial institutions.

The final legislation included a provision from Schumer creating the covered business method (CBM) review program. This program offered a much cheaper alternative to litigation, making it practical to fight back against bad patents. But while the original debate was grander in scope, the final provision only covered a specific class of financial services patents, and had an expiration date in 2020.

Schumer’s current bill would expand the CBM program to other industries, and eliminate the sunset provision. While the original version of the House’s patent reform bill also had a provision expanding the CBM review program, large incumbent firms lobbied aggressively to remove it. Its opponents argued that it would unfairly subject them to an onslaught of challenges and delay their ability to shut down infringing competitors.

While they have real concerns, the systemic benefits of improving patent quality vastly outweigh them. Unfortunately, this may go down as a classic public choice failure, where those with concentrated benefits triumph over a multitude bearing dispersed costs.

In the end, our intellectual property system was created for the sole purpose of promoting innovation; for what the founders called “the Progress of Science and useful Arts.” The limited monopoly granted through the patent system is the means, not the end. And we should be very careful not to get those wires crossed if we want America to continue being the world’s technological leader.

Abusive patent litigation is a tax on innovation, not an incentive for it. In the final push for reform in Washington, lawmakers should address the root of the problem — not just treat the symptoms.

R Street’s Salam with FBI vet Michael German

April 07, 2014, 7:00 AM

Over at the Vice Podcast, R Street’s Reihan Salam discusses how the FBI has changed since the Sept. 11, 2001 terrorist attacks, with Michael German, a 16-year FBI veteran. Check out the video below:

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To make Congress more accountable, make it more open

April 04, 2014, 4:10 PM

This piece was co-authored by Daniel Schuman is policy director at Citizens for Responsibility and Ethics in Washington.

Nearly two decades ago, Congress began publishing some of its activities online, revolutionizing access to essential public information. The system was called THOMAS, after our third president. Managed by the Library of Congress, it aimed to serve as a central hub to find bills and resolutions, the Congressional Record, committee reports, treaties and so on. There’s no doubt that, for 1995, this was a huge leap forward.

While technology has changed a lot since the mid 1990s, the quality of data coming from Congress has not kept up. Complicating matters, the THOMAS website is set to be retired and replaced with Congress.gov by the end of 2014. Once this happens, applications that have been developed with this data, and that are used extensively by congressional members and their staff, interest groups and citizens, will stop working.

Congress.gov could support truly transformative applications, but for that to happen, Congress must provide its underlying data to the public in machine-readable formats. In its absence, many outside developers are put off by the inaccessibility of the information, while others scramble to find makeshift solutions.

Creating a more open and comprehensive system of public data — not only from Congress.gov, but throughout government — would make a variety of powerful new applications possible. They could show instantly how an amendment would change a bill, alert users to relevant hearings, or even tie constituent communications to particular legislation. Not only would these changes drastically reduce the overwhelming workload put on legislative staff in Congress, they also would help make the federal government leaner and more effective.

What’s more, the utility of open data isn’t limited to those inside the Beltway. According to a recent Pew poll, 87 percent of American adults now go online. That number jumps to 97 percent among adults under 30. The Internet has become the central clearinghouse for how we access news and information, including information about our government and its laws.

As legal scholar John McGinnis observed, “[a]s a successor to the printing press, the Internet advances liberty by continuing to reduce the cost of acquiring information.” Bringing the lawmaking process out into the light of day serves to level the playing field with entrenched special interests, who otherwise benefit from privileged access and a more opaque process.

recent poll by The Economist and YouGov showed only 9 percent of Americans approve of the job done by Congress. But if the people don’t know what their representatives are up to, they have no easy way to engage with them. Lowering barriers to access legislative information promotes a healthier democracy by encouraging a more informed citizenry to more closely scrutinize federal policy. One example of this transformation can be seen in the Washington Examiner’s “Appropriate Appropriations?” page, which brings attention to spending bills deemed wasteful and abusive using information from the Cato Institute’s Deepbills Project.

Despite flaws in the current system, civic hackers and public interest groups like the Sunlight Foundation and GovTrack have created a myriad of applications using legislative data. Many of these projects receive millions of views, with hundreds of thousands of app downloads, and tens of thousands of active users, including hundreds of members of Congress and thousands of staff.

Growing recognition of our data problem, particularly by leaders from both parties in the U.S. House, has led to significant improvements. For example, the Clerk of the House’s new docs.house.gov website transformed public access to floor actions and committee activities. But there still remains a trove of crucial information not yet published in formats that computers can easily use, such as updates on what stage of the legislative process a given bill has reached.

We believe people have a fundamental right to know what their government is doing. There’s still a long way to go, but we’ve assembled a nonpartisan coalition of public interest groups, individuals and companies who want to raise awareness and promote better access for all. Our group, the Congressional Data Coalition, will host its first event April 4. If government transparency matters to you, we hope you’ll join us.

Coalition urges Congress to pass meaningful NSA reform

April 04, 2014, 10:05 AM

From United Liberty:

A coalition compromised of nearly 40 groups expressed support for ending the federal government’s bulk data collection program in a letter to President Barack Obama, Attorney General Eric Holder, and congressional leaders from both parties…

…Signers to the letter come from across the ideological spectrum, including Americans Civil Liberties Union, Competitive Enterprise Institute, Electronic Frontier Foundation, FreedomWorks, Generation Opportunity, R Street Institute, Reddit, and TechFreedom. The full list of signers is available here.

CDC report highlights poisoning risk from liquid nicotine in e-cigs

April 04, 2014, 10:03 AM

From the Winston-Salem Journal:

Brad Rodu, a professor of medicine at the University of Louisville and a smokeless-tobacco advocate, said he views the CDC report as “another example of a relentless, orchestrated campaign to demonize e-cigarettes.”

He said the CDC report does not put the poison risk into proper context.

In 2012, U.S. poison control centers reported there were 172 calls about exposure to ecigs among children under 6 years old, compared with 7,480 calls about all tobacco products, 106,582 calls about household cleaners and 156,623 calls about cosmetics and personal care products.

“Many consumer products pose potential danger, especially to young children; if put into the perspective of exposure to other common household items,” Rodu said. “Selective reporting of poison control information about e-cigarettes is trivial.”

Can a vampire serve in Congress?

April 03, 2014, 4:40 PM

While this might be the sort of question one usually only expects to hear on an episode of True Blood, it became a genuine concern this week. It was revealed that Jake Rush, a primary challenger to U.S. Rep. Ted Yoho, R-Fla., makes a habit of role-playing as fictional vampires with names like Archbishop Kettering, The Kriesler and most infamously, Chazz Darling, the last of whom has been linked to a controversial blog post expressing the (in-character) desire to sexually assault a fellow character.

At first blush, this might sound terribly odd and potentially sinister. Actually, it is only Americans’ pervasive ignorance of the otherwise harmless role-playing lifestyle that makes it see it that way.

To give some context, Rush, alias Darling, is a member of a group called the Mind’s Eye Society. The conceit is that they are a sub-sect of the fictional vampire clan known as the “Camarilla,” featured in White Wolf’s “Vampire: The Masquerade” role-playing system.

Like all role-playing systems, “Vampire” relies on its players to create characters and act as those characters, unless specified otherwise. This can be done around a table with randomized dice rolls being used to determine sequences of events (such as combat).  Or it can be done by actually dressing up and going out to act together as those characters, using improvised fake weapons and/or rock/paper/scissors to substitute for the dice.

Role-playing is, in short, nothing but improvisational theater without an audience. Players should not be taken to be acting in a way that is consistent with their actual personality, any more than Ronald Reagan should be attacked for the actions of his mob boss character Jack Browning in 1964′s “The Killers.” These are role-playing games because the players are literally playing roles, i.e. characters who are not them.

Adding to the confusion is Rush’s specific role within his group’s game. According to SaintPetersBlog, Rush is a storyteller – a “regional storyteller” – a job which, in game terms, makes him the theatrical equivalent of a director, scriptwriter and stage manager all rolled into one. Rush would have been responsible for creating not just his own characters, but also potential antagonists for any sessions he oversaw (role-playing sessions tend to behave like episodic television shows in that they have plots), and probably performed several of those roles himself.  This puts him at an even greater remove from the actions of his characters.

So why is there such a rush to judge Rush for the storylines in which he participated or helped create? Probably because, unlike acting for an audience, role-playing is still perceived as a niche interest of odd and/or undesirable people.

Unfortunately, this is especially true in some Republican circles, where the memory of social conservative moral panics surrounding games like Dungeons & Dragons has not entirely faded. The 2012 election cycle, for instance, saw distasteful mailers sent out accusing Democratic Maine state senate candidate Colleen Lachowicz of being unfit for the office, merely for the crime of playing World of Warcraft, and openly enjoying the experience.

Never mind that conservative luminaries like Hillsdale College’s John J. Miller, or British politician Michael Gove or even bestselling author Michelle Malkin, are all open and avowed role players, to say nothing of the countless other famous writers and actors who have come from the role-playing scene. For some conservatives, the idea of people engaging in what is essentially harmless improvsional theater appears to be too much to stomach. Lachowicz won, but Rush appears to be feeling the same sting.

Of course, opportunism is natural in American politics, but there are points where making certain attacks do more harm than good for a political party. For instance, cases where they create an image that makes the party appear ignorant, bullying, or reflexively judgmental for no good reason. The reaction against Jake Rush by some on the right seems to parallel the complaints of Fox News panelist Greg Gutfeld, who made the following point in an interview with the New York Post:

 OK, so why aren’t conservatives cool? Gutfeld makes a valid point: “From my experience being around conservatives, it’s extremely frustrating how dismissive they are of ‘weird’ things, and that hurts them.”

Gutfeld chooses the music that backs his segments on “The Five” and “my choices are never met with ‘That’s good’ or ‘That sucks.’ It’s always rewarded with anguished looks on the other panelists’ faces and the two-word review, ‘That’s weird.’ “

Automatically dismissing tradition and latching onto whatever’s new isn’t cool. But neither is being closed-minded.

When even a Fox News host is complaining about a lack of openness on the right, there’s a problem. Republicans have already nominated a candidate who professed a love for reading about vampires. Is it really such a stretch to consider one who writes and acts as one in his spare time?

After all, unlike many members of the political class, at least in Rush’s case we can be sure that feeding off the lifeblood of others is only an act.

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Multiplication nation

April 03, 2014, 11:06 AM

From Reuters:

Reihan Salam and Matthew Klein don’t want to legislate for demographics, but they do want to tax incentivize for them. Here’s Salam’s solution

Tax the childless to help parents?

April 03, 2014, 10:24 AM

From the New York Times:

“The willingness of parents to bear and nurture children saves us from becoming an economically moribund nation of hateful curmudgeons,” Reihan Salam wrote recently in Slate. “The least we can do is offer them a bigger tax break.” Childless taxpayers like himself should pay more, he said. He suggested lowering the threshold at which higher tax rates kick in, and then giving parents a new $2,500 per child credit that’s included in a Republican bill in the House.

 

Breaking wind

April 03, 2014, 10:15 AM

It’s budget season, and with budget season comes a renewed debate over one of the most depressing elements of American politics – namely, its tendency to pick winners and losers based solely on the arbitrary political whims of individual legislators. As such, it’s no surprise that the Senate is considering pushing the Wind Production Tax Credit into its tax extenders package this week.

Unfortunately, like many of the worst pieces of legislation passed in recent years, this particular bit of bad economic medicine has a spoonful of sugar that many lawmakers find particularly easy to swallow. Namely, the fact that it has bipartisan support. Specifically, both Democrats like Mark Udall of Colorado, and Republicans like Chuck Grassley of Iowa, have signed letters that support extending the credit. At the state level, 23 governors have signed a similar letter.

On the one hand, it’s easy to see why bipartisanship of this kind carries so much currency in Washington, especially at a time when the two parties are otherwise historically polarized. In this context, bipartisanship can recommend a piece of legislation based on a cunningly disguised logical fallacy which posits that if both parties can agree on something, when they agree on so little, it really must be a noncontroversial public benefit. This is a naïve, if understandable, view insofar as it ignores the fact that many exercises in bipartisanship happen simply because the politicians in question are united more by common desire for economic favoritism and corporate welfare than they are divided by party affiliation. The Stop Online Piracy Act was one good example of such a bill.

Similarly, in this case, one doesn’t have to be an investigative journalist to see how the desire for campaign cash is the uniting factor. Grassley, for instance, has been on the receiving end of $5,000 from the wind industry, while one of Udall’s top five contributors throughout his career has been the alternative energy company NextEra Energy, who have given him a total of $42,000 over five years. In the words of Frank Underwood, “when the t—’s that big, everybody gets in line.”

Campaign donations alone don’t prove a lack of due diligence, but in this case, they certainly raise the question. The wind production tax credit is built on nothing but empty air. To begin with, the wind power industry reaps an unprecedented level of subsidies from the federal government relative to other forms of energy, taking in $24/megawatt hour, in comparison with $1.65 for all other forms of industry except solar. For this reason, the last extension of this credit cost taxpayers $12 billion.

This might be acceptable, or at least defensible, if the wind plants in question were producing energy Americans were actually using. But in fact, the subsidy is structured such that no one ever checks whether that’s actually the case. Rather, the credit simply assumes that if wind power is producing electricity, someone must want it, and forks over the money to wind companies regardless of whether the power they produce is wanted or needed. This runs entirely contrary to free-market practices, and to common sense.

What’s more, wind power has failed at an international level. As the German newspaper Der Spiegel noted about their own country’s experiment with a similar subsidy:

Indications are mounting, however, that green capitalism will not be able to meet all expectations. In courts around the country, complaints are mounting from wind park investors who haven’t received a dividend disbursement in years or whose parks went belly up. Consumer protection activists are complaining that many projects are poorly structured and lack transparency. In the renewables sector, fear is spreading that the Prokon bankruptcy – combined with plans for a reduction in the guaranteed feed-in tariff recently released by new German Economy Minister Sigmar Gabriel – could scare away investors.

Defenders of wind power claim the industry is still a fledgling one and needs time to be allowed to grow. But the fact is that the industry has been subsidized since 2009, and shows no signs of slowing down in terms of the amount of money it demands from the government. The entire point of a free market is to see which fledgling industries deserve to survive on their own, rather than pretending that some deserve special treatment simply because they aim to achieve objectives that are consonant with the wishes of political leaders. The wind industry is dependent on never having to leave the nest. If it can’t survive after five years of being propped up in a way that other industries are not, it may be time to throw in the towel and wait for something more economically viable.

In other words, the wind production tax credit is not so much a case of bipartisan common sense as it is of bipartisan cronyist irrationality. It’s time the federal government finally let the wind out of the sails of this unprofitable experiment.

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Sanders talks robopocalypse on FBC’s ‘The Independents’

April 02, 2014, 4:27 PM

R Street Outreach Director Lori Sanders joined hosts Kennedy, Kmele Foster and Matt Welch (editor of Reason magazine) on Fox Business Channel’s “The Independents” to discuss whether the growth in robots and artificial intelligence spells a long-term threat to the availability of jobs. Check it out below.

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Give larger tax breaks for raising kids, childless columnist argues

April 02, 2014, 12:57 PM

From Deseret News:

Although he is in his 30s without any kids, Slate columnist Reihan Salam argues that parents deserve better tax treatment, even if that means hiking taxes on the childless.