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Clinton and Enamorado on ‘The Fox News Effect’

October 15, 2014, 2:05 PM

Too often, political science journals publish articles focused on questions too distantly connected to real-world political phenomena. It is a modern sort of scholasticism, as my friend Professor Lawrence Mead terms it, that heavily utilizes mathematical models to ponder the existent literature on a topic.

So it was with great pleasure to find this article in the October 2014 copy of the Journal of Politics. Mssrs. Joshua Clinton and Ted Enamorado, of Vanderbilt University and Princeton University, respectively, employ statistical analysis that is not comprehensible by the average reader. But they do so to investigate an interesting empirical question: “whether position-taking behavior in Congress and the likelihood of reelection is affected by the national news media.”

The authors find that incumbent House members became “slightly less likely to support President Clinton” in districts where Fox News began broadcasting than similar representatives in similar districts where Fox News was not broadcast. For a member of Congress, the shift took a couple of years subsequent to the arrival of Fox News in his or her district, and it might well have been nothing more than rhetorical posturing in the run-up to reelection. The authors also found that Fox News did not affect whether an incumbent was reelected.

Thus, the take-away affirms that members of Congress, not surprisingly, will tack to the wind. (And in practice, I must add, politicians tend to use media as a proxy for the electorate.)

Read more at http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=9342585&fileId=S0022381614000425 (subscription required). An earlier version of the paper may be found at https://my.vanderbilt.edu/joshclinton/files/2013/06/ClintonEnamorado_JOP.pdf.

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Labor force participation rates paint a bleak economic picture

October 15, 2014, 11:56 AM

Most politicians know how to articulate their political goals. Whether it is low-cost energy, explosive job creation, less bureaucratic red tape, more personal freedom or high quality education, end results are fairly easy to identify.

Unfortunately, it is hard to get where you want to go if you do not first acknowledge where you are.

Recently, the Liberty Foundation highlighted the fact that the national Labor Force Participation Rate hit a 37-year low, with less than 63 percent of working-age Americans actively working or looking for work. The last time America had such a low labor force participation rate, “Saturday Night Fever,” starring John Travolta, was premiering for the first time in New York.

Alabama’s labor force participation is particularly discouraging. According to Liberty Foundation research aggregating Bureau of Labor Statistics (BLS) data, Alabama’s total labor force participation rate through 2013 was 58 percent. That number is down 1.3 percentage points since 2009 and 4.4 points since 2003.

African-Americans in Alabama have seen some of the sharpest declines in labor force participation. Slightly more than half of the black population is working or actively looking for work. That figure has dropped from 58.2 percent in 2009 to 52 percent in 2013.

Labor force trends are important because they can tell us more than the BLS’ official unemployment figures. The official unemployment calculation (U-3) essentially divides the total number of unemployed by the civilian labor force to arrive at an unemployment percentage. If unemployed Americans leave the workforce because they stop looking for employment, the official unemployment rate may actually improve, but the economic prospects for the individual and the economy do not.

Alabama and the United States as a whole are not even close to the economic engines they need to be to effectively employ their citizens. Americans need to wake up and realize the perilous nature of the situation. National government policies are not helping Americans find jobs, and state policies are either making it worse or not able to overcome those negative impacts.

We already face demographic hurdles with the Baby Boomers nearing retirement age and leaving the workforce. Adding massive numbers of discouraged workers to the mix will only increase the incentive for politicians to squeeze the American workforce to shoulder likely increases in government programs, benefits and social safety nets.

Unless a return to the economics of the Carter administration is the goal, the United States and Alabama should do everything in their power to make creating jobs and starting a business as easy as possible.

With upcoming elections in mind, look for politicians who actually understand labor force and unemployment dynamics. Many of them will talk about going in a positive direction, but, without an appreciation of current labor realities, it will be impossible for them to know how to get there.

‘War on Public Education’ focuses more on preserving public system than education

October 14, 2014, 2:09 PM

In case you missed it, the beleaguered Alabama Education Association does not like public school choice. The AEA has referred to the Alabama Accountability Act, which created a tax credit scholarship program in the state, as part of a “war on public education by the privatizers and those who wish to destroy public education and public educators.”

Most of the American public-education establishment tends to despise charter schools, vouchers, education tax credits and a wide variety of education programs that create more education alternatives with public dollars. They are so upset that they have declared war.

American Federation of Teachers President Randi Weingarten thinks the emergence of education as a top political issue is largely on account of public reaction to recent “market-based reforms, the top-down reforms, the testing and sanctioning.”

Weingarten has one perspective, but I am willing to bet that more than a few Americans are taking a closer look at education because our nation is falling behind. That is not due to recent reforms, but rather, a result of a historical lack of them.

The problem with the “war on public education” is that the emphasis is more on “public” than it is on “education.” The opposition to education reform is focused on preserving an established public system rather than opening up access to different ways of educating children.

Notice the use of the word “different.” I am a huge fan of school-choice programs, because they give parents options, not because they are, by their nature, superior.

We know that Alabama has some fantastic public schools and some that are failing the children who attend. Private schools run the gamut as well. The main difference is that a private school with a 70 percent graduation rate probably will not be around too long.

We are going to spend tax dollars, and a lot of them, on public education. The bigger question is whether those funds are dedicated to empowering parents to effectively educate their children or funding a baseline public education system.

The answer is between the proverbial trenches. Traditional public education has tremendous merit because it provides a system of education for everyone. It creates an important barrier to an uneducated society and a true safety net for children whose parents refuse to engage in their education. In Alabama, we need to learn and repeat the successes of our best public schools, particularly our high-poverty, high-performing Torchbearer Schools.

At the same time, parents should have public options for their children. If parents believe a charter or private school is a better choice for their child, why should they be prevented from using public resources to pursue that option? Prior to school-choice programs, pursuing such options was limited to those wealthy enough pay for them on top of their tax bill. If the state’s interest in having educated citizens is met, where that education is received should be irrelevant. Why not create more options for the average Alabamian?

In politics, declaring an ideological “war” is particularly fashionable, but it is also destructive if it means that people feel so pinned down in their respective trenches that they never take the time to stick their heads up and realize no one is shooting at them.

Alabama needs a strong traditional public education system, but it also needs publicly-supported education alternatives. We can either be mired in a “war on public education,” or we can be open to all options that could better educate children in Alabama.

Cornyn smokes patent trolls out from their bridge

October 14, 2014, 9:00 AM

Most children who’ve heard the tale of the Three Billy Goats Gruff know that if an ugly, parasitic troll comes out to get you, the best thing to do is to bide your time until your bigger, stronger sibling can knock him off the bridge with a well-placed set of horns.

Unfortunately, there’s one kind of troll that can’t be speared on the horns of more powerful competition, and that’s the patent troll. That sort of troll has a lobbyist, you see, who’ll make sure that bridges come equipped with goat-proof safety railings.

Fortunately, Senate Minority Whip John Cornyn, R-Texas, seems to be putting in an audition to act not only as the third Billy Goat Gruff, but to rip up the metaphorical bridge under which patent trolls hide. Cornyn recently vowed to resurrect anti-patent troll legislation (which failed to clear the Senate this year, despite bipartisan support) in the next Congress, in the increasingly likely-looking event that Republicans gain control of the Senate this November:

“I don’t think we’re ever going to end [the business of patent litigation], but what we can do is close some of the gaps…loopholes that allow for frivolous patent suits,” Cornyn told VentureBeat in an interview after a patent reform panel at Austin Startup Week. He added that this doesn’t apply to all patent holders, saying: “I firmly believe people have a right to litigate, and should, on patents that add value [when infringement occurs.]“

In an amusing twist, despite Cornyn’s legislation relying on Republican control, it arguably unites conservatives with some of the more liberal members of the Democratic Party. When the bill was still under consideration in the current Senate, Cornyn worked with none other than liberal firebrand Sen. Charles Schumer, D-N.Y., to draft compromise legislation.

So why didn’t this left-right alliance shatter its opposition? Why, the only reason most sensible legislation in Washington fails – because interest groups happen to have the phone number of powerful people, in this case Senate Majority Leader Harry Reid, D-Nev. As Politico reported, the compromise effort “frayed as universities and other major patent holders argued the measure would have negative consequences for the patent system,” adding that:

Reid…played a decisive, behind-the-scenes role in the legislation’s fate, according to sources on and off the Hill. Reid told [Senate Judiciary Committee Patrick] Leahy he could not put the bill on the floor given the opposition from trial lawyers, pharmaceutical companies and biotechnology giants, the sources said. Reid’s office did not comment for this story.

Those looking for a self-parodying instance of tone deafness in the establishment Democratic Party need look no further than this story. Apparently, the mere mention of tort reform is enough to sink a bill in the minds of politicians like Reid. Let’s not even mention the irony that Reid allowed Big Pharma to kill the bill, despite belonging to a party that allegedly wants to end abuses in the health care system.

And let’s be clear: There is no issue of principle over intellectual property at the heart of this fight. Patent trolling is the sort of practice that gives intellectual property a bad name, and savvy defenders of IP realize this. Both Microsoft (a generally hawkish actor in the IP space) and Google (a generally dovish one) agreed on the need to reform the patent system so that the sort of abuse trolls specialize in would become more difficult, if not impossible. In fact, both companies were signatories on a letter to precisely this effect. For an example of how patent trolling works through abuse of the tort system, this example from the same panel where Cornyn made his remarks illustrates the problem very well:

“We have a free app in the app store and [someone] sued us for millions of dollars because they said their patent covered ‘rotating a cellphone app,’” said Rackspace VP of intellectual property Van Lindberg, who participated in the panel with Sen. Cornyn. “Well, we called them up and said this is completely bogus and we’re going to fight it. And before we could even get the words out of our mouths, they followed up to say ‘… and we’ll go away for $70,000.’”

In other words, patent trolling is more akin to the iconic image of a Mafia hit man who ends his sentence with “pity if anything were to happen to you” than to any sort of earnest defense of IP. And despite its moral turpitude, it’s a lucrative business. Since 2010, patent trolls have made three times as much money in court as real companies (i.e., companies that actually use the patents they own), earning median damages of $8.5 million through the court system, compared with $2.5 million for their real competitors.

Killing this kind of practice should be common sense. Unfortunately, because trial lawyers have a lucrative cash cow in patent trolling, the ruthless logic of donor relations means that it can probably only be stopped by Republicans, despite bipartisan opposition to the practice.

Either way, here’s hoping that John Cornyn gets to run these particular trolls out from under their bridge, before any other innovators try to go “trip, trap, trip, trap” over it and get tripped and trapped by these unrepentant abusers of the patent system.

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A welcome message from R Street’s Governance Project

October 14, 2014, 8:00 AM

The R Street Institute this month launched the Governance Project, an effort to assess and improve the state of America’s system of national self-governance, with particular attention to Congress.

The need for such inquiry should be obvious: our federal republic is showing signs of dyspepsia, if not outright dysfunction. National public policy issues, such as immigration reform, remain in a perpetual state of deadlock. Various government agencies, such as the Department of Veterans’ Affairs, the Internal Revenue Service, and the Department of Defense have been exposed with scandals and management failures. The national economy also continues to sputter while the nation’s debts and deficits remain extraordinarily high.

Why focus on Congress? To be certain, there are a variety of non-congressional factors that might be investigated for their relationship to America’s current governance problems. Single-member voting districts, “too much money in politics,” political polarization and politicians’ bad intentions are just a few of the causes commonly fingered.

We contend that focusing on Congress makes the most sense. The U.S. Constitution assigns Congress the most fundamental powers of governance, such as establishing currency and fixing its value, regulating economic activity among the states and with other nations, declaring war, taxing the public and spending those funds. The Governance Project will take an institutional approach to the problem, focusing on how Congress does what it does.

The signs that Congress is struggling to fulfill its duties are plentiful. Once again, a president is poised to engage America in a war without congressional authorization. Key posts in the executive and judicial branch go unfilled because nominees languish in the Senate. Precious congressional time is squandered on political posturing rather than lawmaking. And Congress itself only appears for work at the Capitol a few days per week, and went out of session in mid-September to run for office.

Unsurprisingly, the public holds Congress in historically abysmal regard: only 14 percent of the public currently approve of Congress’s performance.

The good news is that Congress can repair itself. Per the Constitution, the House and Senate each may “determine the rules of its proceedings.” Congress may enact a statute to structure its operations as a whole, which is something it has done in the past.

Accordingly, the Governance Project will examine some of the ways current congressional practices and rules affect its ability to govern. Topics that might be taken up include: are current Senate rules regarding, say, non-germane amendments, in need of change? Do the 1970 Legislative Reorganization Act or 1974 Congressional Budget Act need to be revised? How can current congressional actions to oversee and upgrade the operations of the federal government be improved? Can parties and organizations within Congress improve its governance? And, more fundamentally, what are the roles of Congress and individual legislators in 21st-century America?

To paraphrase Benjamin Franklin, we have a republic…if we can keep it. Congress, the first branch of government, is the center of that system. The nation’s well-being requires a well-functioning national legislature, and the Governance Project aims to help Congress to help itself.

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Washington-area appointments and promotions for Oct. 13

October 13, 2014, 12:51 PM

From the Washington Post:

The R Street Institute of the District appointed Kevin Kosar senior fellow and governance project director.

Gov. Brown forces AB 2616 to walk the plank

October 13, 2014, 10:00 AM

California’s workers’ compensation system is a political flashpoint that attracts the interest of labor, management, attorneys and insurers. Last session, a skirmish about expanding the scope of workers’ compensation ended in the prudent exercise of Gov. Brown’s veto power. Unexpectedly, the skirmish provides an excellent reason to discuss pirates! Not the modern pirates who stand ever-ready to plunder the system, but classic Arrrrr-style sailing pirates.

Men that toiled under the Jolly Roger did so outside of the law. As a result, a conventional civil justice system was unavailable to them. To ensure that those injured on the job were appropriately compensated, and to maintain the esprit de corps necessary to continue their dangerous work, pirates were the first to introduce and enjoy the benefits of something like a workers’ comp system.

As the name suggests, workers’ compensation provides restitution to workers for injuries they sustain in the course of employment. The system operates on the notion that no fault is necessary for an employer to incur the expense of paying for an injury suffered by an employee while on the job.

Pirates apportioned recompense according to the severity of the sacrifice made. An arm was worth more than a finger. According to the same principle, “handedness”, the dominance of one hand over another, was factored into compensation. Losing a left arm was considered less severe than losing a right arm. (Interestingly, left legs were less valuable than right legs).

In the decades since the days of fully rigged sailing ships and that sort of piracy, the need for workers’ comp has not diminished. In the United States, all states but Texas and (as of 2013) Oklahoma require companies with three or more to carry workers’ compensation insurance. A balance between workers’ comp and civil remedies has evolved over time.

Because no-fault workers’ comp ensures that employees injured at work receive compensation, a direct nexus between work and an injury is crucial to maintaining the actuarial integrity of the workers’ comp insurance market.

The rare exceptions in which an injury or disorder experienced away from work is considered work-related are misleadingly named “rebuttable presumptions.” In spite of their name, these presumptions require that an extraordinary evidentiary standard is met to demonstrate that an injury is not work related. In practice, a rebuttable presumption often is irrefutable.

Still, in certain limited cases, the California Legislature has seen fit to provide a narrow subset of professions, often publicly employed public safety-related professions, with rebuttable presumptions that define injuries arising as a result of their job (for instance, cancer, pneumonia and Lyme’s disease). By flipping the burden of proof, presumptions add huge expense to the workers’ comp system.

Authored by Assemblymember Nancy Skinner, D-Berkeley, A.B. 2616 sought to create a rebuttable presumption that hospital employees who contract methicillin-resistant Staphylococcus aureus (MRSA) do so while on the job. This was Skinner’s fourth attempt at providing rebuttable presumptions to hospital employees, though this attempt was less broad in its scope than some of the previous efforts.

Seen most charitably, seeking a rebuttable presumption for hospital employees presumes that the workers’ comp system currently fails to adequately compensate workers that contract MRSA. Curiously, no evidence, beyond anecdote, was offered to demonstrate the existence of such a compensation gap.

A less-charitable analysis is that the bill was introduced to provide horizontal uniformity between well-organized health and safety professions. Whatever the authentic motivation, the implication of A.B. 2516 was clear. The bill expanded the universe of professions eligible for rebuttable presumptions, and the reasons for that eligibility.

The Legislature saw fit to pass the bill along more-or-less predictable partisan lines. In Gov. Brown’s veto message, he expressed fears that extending presumptions about specific industrial risks to the private sector would create a bad precedent. He does not believe that rebuttable presumptions belong in the private sector.

Brown’s reasoning deserves some attention. There are competing rationales when it comes to the expansion of presumptions. The first is predicated on the notion that professions should receive special legislative treatment because of the nature of the peril they face and the difficulty associated with demonstrating how that peril leads to injury. Under this rationale, specific hard-to-demonstrate perils militate toward special treatment. Thus, it is simple to understand why Skinner believes that health-care workers are deserving of a rebuttable presumption.

Alternatively, if the rationale for a rebuttable presumption tracks more closely with the special nature of the work itself – publicly employed safety professions – then offering rebuttable presumptions to private sector workers is inappropriate.

The reason that conflict over the applicability of rebuttable presumptions will continue in legislative sessions to come is that the original intent of rebuttable presumptions has been made malleable by time. Unmoored from history, the expansion rationales have been made to stand as arguments on their own.

The policy question has been recast and the result will determine whether the costly and smothering social safety net applies ever more broadly to private industry.

Fundamentally, which system is more desirable? One that grants, more often than not, automatic payment on the basis of risk, or one that recognizes that specific jobs are in need of special consideration? At the risk of mixing metaphors, with their noses under the tent and short of a gubernatorial veto, is there any stopping the pirates?

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FCC’s Wheeler likes the ‘idea’ of muni broadband

October 13, 2014, 9:00 AM

Speaking at the recent National Association of Telecommunications Officers and Advisors annual meeting, Federal Communications Chairman Thomas Wheeler endorsed Lafayette, La.’s municipal fiber optic system—or more specifically, he endorsed the idea of the Lafayette Utilities System’s effort to bring competition to that southern Louisiana city of some 121,000.

Here are his remarks about LUS Fiber (full text of his speech here):

I love the story of Lafayette, La. where the local incumbent fought the city’s fiber network tooth and nail, bringing multiple court challenges and triggering a local referendum on the project. Thankfully, none of the challenges managed to prevent deployment – 62 percent of voters approved of the network in the referendum, and the Louisiana Supreme Court unanimously sided with the city – but they did delay deployment almost three years. When the network was finally built, the community experienced the benefits of competition, as the local cable operator decided to upgrade its network. Local choice and competition are about as American as you can get.

Everything Wheeler said was true, but he didn’t finish the story. That might be because of the doubts it would raise

As I reported last year in a case study on the Lafayette muni broadband project:

  • LUS Fiber is some 30 percent short of its revenue projection as set out in its business plan;
  • Is more than $160 million in debt;
  • Struggles to compete with cable, telephone, wireless and satellite service providers in terms of price, performance and service options;
  • Is relying on bigger government contracts to grow revenues.

In addition, LUS Fiber did not bring competition to Lafayette. If anything, it was a late entrant. Cox and the company then-known as BellSouth (now AT&T), were established as phone-cable-Internet providers. DirecTV and Dish Network were additional players in multichannel TV. Since LUS Fiber came on line, the upgraded broadband capabilities of wireless service providers have only added competitive pressure. In this environment, LUS’ 2004 feasibility study prediction that it would achieve 50 percent share of the market seems risible.

Even from a social good perspective, LUS Fiber has failed to deliver. Its biggest promise—the one that justified its $160 million bond issue—was that it would deliver 100 Mb/s fiber connections to all residents, including low-income households that the Lafayette government said incumbents were ignoring. That universal 100 Mb/s offer never appeared. In its first years of operation, LUS Fiber offered a $19.95 Internet-only plan, but found that it could not afford the cost of running fiber to a residence that was going to generate revenue that low. It then offered a 3 Mb/s connection at $19.95 per month for an introductory period, but that required purchase of a more expensive triple-play package. LUS ultimately ended the introductory offer in August 2012.

As of last year, the cheapest Internet-only rate LUS Fiber offered was $34.95 for 15 Mb/s. For whatever reason—most likely, the commercial realities discussed above—LUS Fiber has decided not to offer low-cost high-speed Internet service to poor households.

This is no surprise to those who have followed municipal broadband over the years. Of the hundreds of communities that have spent millions of dollars on such projects, LUS Fiber is one of the four that actually got viable FTTH service up and running (Chattanooga, Tenn.; Bristol, Va. and Provo, Utah being the other three). That’s still no guarantee of success. Bristol needed a $22 million grant from the Obama stimulus. Provo’s muni system was operational for seven years and never came close to payback. The city was more than happy to have Google Fiber take it off its hands for $1.

Wheeler’s shout-out to Lafayette comes as he’s pushing for federal pre-emption of state laws that prohibit municipal broadband projects where commercial service providers are already competing.

Certainly government can provide “competition.” But at the end of the day, it almost inevitably amounts to being a redundant broadband supplier, inferior to private-sector alternatives and entirely dependent on taxpayer resources to cover economic shortfalls. Muni broadband has been a long-term drain on city resources that could be applied more productively elsewhere.

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How the Wind Production Tax Credit undermines wind power

October 13, 2014, 8:00 AM

U.S. renewable-energy policy is largely defined by mandates and subsidies that maintain an artificial market for investment and generation. Heavy dependence on government creates significant vulnerability for the sector and risks an eventual collapse of the industry, as we have seen in parts of Europe.

Given the collapse of investment in wind when the credit expired last year, it’s obvious that, at this point, a real and significant market for wind power simply does not exist. As Warren Buffet, who has significant electricity generation holdings, explained so well: “on wind energy, we get a tax credit…That’s the only reason to build them. They don’t make sense without the tax credit.”

If the private sector won’t build wind turbines without the credit, it’s time for America to rethink its approach to wind power and renewable energy in general. To start, Congress should abandon the idea of reviving the federal Wind Production Tax Credit, because it actually undermines efforts to make wind competitive.

That statement may seem odd to many. We have heard renewable advocates and their political allies argue countless times that America should simply continue mandates and subsidies, including the PTC, until renewables become truly competitive. But this does nothing to address the fundamental reason why investors like Mr. Buffet don’t actually want to invest their own money in wind power. Renewable-energy systems today cannot provide reliable electricity to homes 24 hours a day, or even to factories for eight hours a day.

Grid operators simply cannot count on the wind blowing or the sun shining when electricity demand is high. Because of their intermittency, renewables require other generation – coal, natural gas or nuclear – to back them up. If a utility has to maintain backup generation that can produce power when the wind isn’t blowing, why would that utility need wind turbines that only work part time at all? Perhaps the better question is, why should taxpayers pay for both when only the backup is needed? Would the average consumer buy a car or a washing machine that only worked part of the time?

That is not to argue that wind does not have a future in America’s electricity mix. There are strong public policy reasons why government should work to put wind power on track to become a generation source that the private sector chooses, without the mandates and subsidies. This transition depends largely on a breakthrough in energy storage technology that could provide baseload attributes to renewables, including wind (i.e., producing electricity 24/7). Such a program would cost billions of dollars in research and development, a cost that is too great for government alone. Private-sector investment is also needed, including the billions of dollars at Mr. Buffet’s disposal.

Current policies like the wind PTC actually deter private-sector investment, thereby undermining the goals that these good-intentioned policies seek to achieve. The PTC rewards wind farm operators a $23 credit per MWh for producing electricity regardless of market demand. This incentive is especially problematic, because the wind blows mostly at night when people are asleep and factories are idle – when demand for power is at its lowest.

Without the PTC, the majority of wind farm operators would turn off their turbines at night to avoid paying congestion charges to the grid. Losing that revenue would create an incentive for operators to invest in storage technology that could store the electricity and allow it to be sold during the day. As long as the congestion charge is less than any tax credit benefit, wind farms will continue to dump their power on the grid, pay the charge and pocket the government-created profit.

The success of the wind PTC in promoting investment has enabled the build-out of more than 60 GW capacity of wind power, plus another 12 GW in the pipeline. With more than 70 GWs of wind capacity, the United States should now have a critical mass of private-sector investment that can be leveraged to support research and development in storage technology. But if the wind PTC is renewed, we can count on wind farm operators to act rationally: why should they invest in a technology that would enable their power to be sold when the market wants it, when they already receive a tax credit that allows them to sell at a loss and still make money?

Advocates for wind should be pushing for an increase in government research and development funds to accelerate the development and commercialization of energy storage technology – a breakthrough that would reduce the vulnerability of renewables to shifts in government policy. They should also seek rational policies that maximize the flow of private sector dollars into storage. However, wind promoters, in particular, don’t want to acknowledge publicly that they need storage technology, because doing so would be an admission that wind technology is not competitive or reliable on its own.

That’s unfortunate. The United States would benefit substantially from competitive wind power and energy storage. Giving more money to the Warren Buffets of the world to build wind turbines that only work part of the time does little to advance U.S. energy security or air-quality goals. It only creates countless future graveyards of towering, rusting wind turbines scattered across the United States that will eventually cost billions of dollars to dismantle and throw in a waste dump.

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Airbnb regulated into legality

October 10, 2014, 10:26 AM

One of the many oddities of San Francisco is that the city is full of libertarians who love regulation. You can do your own thing, unless you’re a tech bro, a landlord or a big corporation, and then you must be legislated into submission. The city’s housing market is distorted by a series of regulations that seemed like good ideas at the time, such as rent control and tight zoning. Instead of making the city more charming and affordable, they drew tension between those who can afford housing (the very rich, the long-tenured tenant) and those who don’t. The result is a nasty edge to daily life in an otherwise gorgeous city.

The twin pressures of rent control and a booming economy have created occupations that can scarcely be imagined elsewhere, such as the master tenant: this is a person who has a large rent-controlled apartment and who makes a living by subletting rooms at market rate. Sure, the subtenants can complain, but they aren’t likely to in a city where the shortage of housing is a serious issue.

Then there’s Airbnb. The zoning and construction limits that affect the housing market also affect the hotel market. In 2007, Airbnb was formed in this world of semi-anarchy: a service that allowed people to rent out rooms to visitors. The host received more money per night than he or she would from taking on a roommate. The money offset the very high cost of living in SF, and the visitor saved money on hotel bills.

Win-win? Not quite. With no regulation, participating in Airbnb raised questions: could renters rent out space in their apartments without violating their leases? What if the renter moved in with her boyfriend but kept the rent-controlled lease to make a living as a full-time hotelier? Could landlords kick out tenants in order to rent out apartments to short-term guests? Would the hosts have recourse against crazy, violent or thieving guests – or squatters? Likewise, would the guests be protected against difficult hosts? And was the city due taxes for the lodging services? If so, should it go after the hosts, the guests or Airbnb itself to collect?

Excessive regulation led to the creation of Airbnb, and less-excessive regulation may just save it. On Oct. 7, the San Francisco Board of Supervisors passed legislation allowing residents to rent out rooms if they register with the city and hold $500,000 in liability insurance. Also, Airbnb must remit lodging taxes to the city. Airbnb is now legal, and guests and hosts alike, at the very least, know where they stood relative to the law.

Regulation is such a complicated beast. It would be nice to say that there should be no regulation whatsoever, but let’s face it: some people will behave badly unless they are given limits. On the other hand, too much regulation creates its own issues. Rent control is a bad idea; it is an economic transfer from the landlord to the long-term tenant with no social advantages, as the tenants receive the benefit without regard to need. As with any transfer payment, once it’s in place, the beneficiaries form a tight constituency to keep it. No politician has the will to take on an issue like rent control, and there’s no time machine to undo it.

On the other hand, there’s the very interesting phenomenon of creativity acting in response to constraints. Because regulation creates problems, it creates demand for work-arounds to solve them. Airbnb is one example. Another, also from SF, is Uber: restrictions on the number of taxis meant that people who lived in San Francisco’s neighborhoods could not get cabs. The taxi drivers would rather serve tourists than troll for passengers in the Fog Belt. The market for medallions may be limited, but other forms of on-demand transportation solved the problem.

Maybe that’s the secret to economic growth in Northern California. We like to think that a high-tax, high-regulation jurisdiction would be a terrible place to do business, but people are flocking to San Francisco and surrounding cities in the hope of hitting it big. The tight regulations force creative thinking to work around them – and maybe lead to their destruction.

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Let’s help the strivers

October 10, 2014, 10:13 AM

In 2009, Bryce Harper—then a sophomore at Las Vegas High School and already the best high school baseball player in the nation—made the unusual and controversial decision to forgo his final two years of high school, on the grounds that there was simply no effective competition for him at that level. He passed the GED test and enrolled in the two-year College of Southern Nevada.

Harper’s choice turned out to be the right one. In his only season at CSN, he more than doubled the school’s single-season home run record, was awarded the Golden Spikes award as the best player in college baseball and was the first player taken in the 2010 Major League Baseball draft. Starring for the Washington Nationals, Harper was the National League’s rookie of the year in 2012.

The choice Harper made is not one limited just to once-in-a-generation athletes. Based on results from some limited experiments, proposals to allow students to finish high school a year early in favor of two-year community college scholarships have a lot to recommend them.

Texas and Utah currently offer small grants for students who forgo a fourth year of high school to enroll in college, while Arizona provides forgivable loans for the same purpose. Connecticut’s Yankee Institute for Public Policy has promoted the idea in conservative circles. But the idea has hardly caught fire, even though it could appeal across party lines, saving taxpayer money while also expanding opportunities for some of those poorly served by the educational system.

Liberals have obvious reasons to like such scholarships. They would provide 14 years of free schooling to students, rather than the current 13 years. They would relieve financial pressures for those who would struggle to pay the $2,700 a year that full-time community college costs, on average. They also would mark a significant public sector investment in professional training, greatly increasing the potential earning power of those who otherwise might receive only a high school degree.

Fiscal conservatives should be attracted by the fact that high school is far more expensive than community college, and even trading two years of the latter for one of the former will usually be a net savings. In Boston, for example, high school costs an average of about $17,000 per year, per student, while the most expensive community college option is only $4,500. In some areas, free community college could avoid pricey duplication of resources. A rural high school might not need to build an advanced placement physics lab if students could get essentially the same instruction at a community college.

Community college scholarships also would bend the cost curve for many who eventually go on to a four-year college, but would need to finance only two years there. This could prove especially helpful to those ambitious strivers who might not be ready or able to complete a four-year degree, but could “ease in” through community college. Those that didn’t complete the degree quickly would still leave with at least some college credit and new skills.

The feasibility of such plans will vary by jurisdiction. In most states, a high school diploma requires four years of class credits. However, in some localities, students may finish school early by compressing their schedules. And local boards of education in some places have broad powers to decide when to award diplomas. In others, students may be able to complete high school and an associate degree simultaneously, by applying community colleges courses for high school credit. (This is already pretty common.) In still others, the GED test may be the most efficient way to accelerate the process.

There are potential drawbacks that policymakers must consider. Students who take a chance on free community college would be left with no credential if they dropped out, and community college drop-out rates are very high. One reason community colleges cost less than high schools is that they do less: Class sizes are larger, total class time is more limited, and there are often fewer extracurricular opportunities like sports and theater. Students also are financially responsible for books and other materials that high schools typically provide for free.

But these issues can all be addressed, and the idea of getting high school students to complete college classwork already has broad appeal. In recent years, both the Democratic and Republican national platforms have called for more opportunities to earn college credits in high school. Most high schools have offered at least some advanced placement courses for decades. A full third of the class of 2013 took at least one AP exam, and the overwhelming majority scored well enough for most colleges to award them credit.

Most larger school districts also allow dual enrollment in some college courses already. The Gates Foundation’s Early College High School initiative has helped students in 28 states take college and high school classes simultaneously, sometimes earning an associate degree in the process. (The programs generally take place at special high schools rather than traditional community college campuses.) At least one very well respected freestanding program, Bard College at Simon’s Rock, exists exclusively for students who want to start college after 10th grade. Furthermore, many four-year college admissions offices will consider applications from sufficiently prepared high school juniors already.

Nonetheless, the idea of trading some high school for guaranteed community college scholarships has not attracted much support, and implementation of current programs leaves something to be desired. Arizona provides loan forgiveness only if students complete associate degrees or the equivalent. Students in most of the programs aren’t able to apply the grants to tuition at a four-year school, which limits their appeal. Since the programs don’t usually attract the very best students, who are bound for four-year colleges anyway, they haven’t found as many takers as they might. Not only should the grants be more broadly applicable (including as a way to pay part of the tuition for a four-year college), but the window in which to take them should be expanded to accommodate those who might need to work after high school or simply aren’t ready for college right away.

For most students, a standard four-year high school experience is still probably best. Few students want to miss out on prom, homecoming games, or many of the other senior-year rites of passage. Community colleges, while great resources, aren’t necessarily intended for the very brightest and most ambitious students. As with any choice, some who make this decision might find that they are worse off. But it is an option that could benefit many, and for that reason alone, it’s an idea that deserves a closer look.

Is all-or-nothing better than nothing at all?

October 10, 2014, 9:11 AM

The loudest criticism of the ongoing Transatlantic Trade and Investment Partnerships negotiations between the United States and the European Union is that they are conducted behind closed doors. On both sides of the Atlantic, there are concerns that the negotiation process’ lack of transparency is inherently undemocratic, ignoring the will of the people and violating national sovereignty. Particularly in Europe, many question the choice to present the European Parliament with an “all-or-nothing” proposition, in which the final version must be voted on without modification.

This is an argument we’ve seen before, in an earlier century over the ratification of a different document: the U.S. Constitution.

Many of the strongest opponents to the Constitution were opposed to the procedure for ratification, rather than the content of the document, as revealed by the late historian Pauline Maier in her award-winning book, Ratification. Following the Constitutional Convention, state conventions were required to vote “yea or nay” on the final document without any modifications. Opposition leaders, like George Mason of Virginia and Robert Whitehill and William Findlay of Pennsylvania, blamed the demand to “take this or nothing” for converting “men who had had hoped to ‘perfect’ the Constitution into its opponents.”

There is no denying that the foundational text for United States was created through a relatively undemocratic process. As historian Ray Raphael explained in an analysis of Maier’s book:

Without any means for amending the document prior to ratification, the people, in whose name the Constitution was supposedly written, were being asked merely to add their assent to a document not of their own making.

It is an issue that gets at the core of federalist politics, particularly when it comes to trade. Are there instances when supranational agreements should be negotiated above the level of democratically elected national governments, especially in the interest of speed and efficiency? What takes precedence, national or supranational law? Which body adjudicates disputes?

In theory, TTIP is not an unpopular or polarizing concept. According to a Pew Research survey conducted in April 2014, 75 percent of Germans and 72 percent of Americans believed increased trade between the United States and the EU would be a good thing. But the undemocratic negotiating process has soured public opinion on a number of leaked TTIP developments. The controversial investor-state dispute settlement has been targeted as a mechanism for promoting corporate sovereignty. Edward Snowden’s surveillance leaks have provided an excuse for greater data protectionism and the increased regulation of large content and service providers such as Apple, Google and Amazon.

Digital trade should be an area where TTIP could make progress and do good. It lies at the heart of the global Internet economy and is naturally suited for seamless transnational transactions. As the European Commission implements an ambitious plan to realize a “digital single market” in the next six months, TTIP will play a major role in harmonizing digital trade both between the United States and Europe and within the EU by addressing key regulatory discrepancies in intellectual property and data flows. But even provisions that would effectively encourage and facilitate the transnational flow of content online — by removing intermediary liabilities, such as a version of Section 230 of the Communications Decency Act — have been tainted by the secretive nature of the negotiations.

Whether negotiation outcomes would be different with public input is impossible to know, but the perception that the voices of the people are being ignored is almost equally damaging. One of the major strategic goals of TTIP is to promote transatlantic unity. A deal in which nations feel unable to defend their interests will do quite the opposite.

Possibly in recognition of such concerns, the EU just yesterday chose to publish the TTIP negotiating mandates. It is a welcome move, though whether it will assuage transparency concerns sufficiently to complete negotiations before the 2016 U.S. presidential election campaign remains to be seen.

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American Sustainable Business Council

October 09, 2014, 11:24 AM

K&L Gates LLP

October 09, 2014, 11:24 AM

More third-hand nicotine nonsense: From vapor?

October 09, 2014, 10:36 AM

Nicotine can be detected in a chamber after releasing vapor directly from an e-cigarette, according to a report in Nicotine and Tobacco Research by Roswell Park Cancer Institute investigators. A Carl Phillips parody of the abstract convinced me to review the journal article. Clive Bates also published a scathing critique.

Dr. Maciej Goniewicz and collaborator Lily Lee released e-cig vapor from 100 four- to five-second puffs into a 12x10x9-foot room. Meticulous collection of samples revealed that about 205 micrograms of nicotine were spread out over 81 square feet of tile floor. This is unsurprising, as most of the nicotine in vapor is expected to eventually fall to earth. Far less nicotine was recovered from vertical surfaces like walls and windows.

As Phillips noted, a huge amount of vapor was involved in this test, and it was injected directly into the room without passing through a user. Even so, Phillips notes in his parody, “this means someone would have to lick clean the entire surface of a sliding glass door in order to get a dose of nicotine similar to smoking half a low-nicotine cigarette.” Or, Phillips might have said, one would have to lick about two-thirds of the 120-square-foot floor. (Recovery from a vertical surface is about one-fourth that of the floor.)

Four years ago, I reported that third-hand smoke is an almost imaginary vector by which smokers expose everything and everyone to dangerous toxins. Today, smokeless tobacco users are also the scare campaign’s targets. According to a 2013 study in Nicotine and Tobacco Research, “children living with smokeless tobacco users may be exposed to nicotine and other constituents of tobacco via contact with contaminated dust and household surfaces.” In this scenario, a child could consume 20 micrograms of nicotine, about one-tenth the amount of the vapor floor-licker, by eating about one ounce of dust.

For Goniewicz and Lee, the exposure to nicotine from e-cigarettes is important because of “potential risks of third-hand exposure to carcinogens formed from nicotine released from e-cigarettes.” This is reminiscent of reports that U.S. paper currency is contaminated with cocaine  or heroin, morphine, methamphetamine and PCP. That issue was put into perspective by Adam Negrusz of the University of Illinois at Chicago: “I never think about this as a source of danger. We have more things which can be potentially harmful.”

Third-hand nicotine harmful? Don’t even think about it.

No, the F-22’s success against ISIS doesn’t justify its price tag

October 09, 2014, 8:00 AM

The controversial F-22 fighter just had its combat debut in Syria, bombing ISIS-controlled targets. The plane, which costs $412 million per copy, finally saw action 23 years after it was first approved and nine years after it entered service. It was used to evade Syrian air defenses and drop bombs in the middle of a city, without causing collateral damage or injuries.

This successful airstrike prompted a Fox News article in which defense analysts sang the praises of the F-22:

“It seems to have been very successful – it was designed to have that ‘first night,’ precision strike capability,” Rebecca Grant, president of Washington D.C.-based defense research firm IRIS Independent Research, told FoxNews.com. “This proves that the F-22 is a viable combat aircraft and a good air-to-ground weapon.”

Rebecca Grant was not alone in her praise of the F-22.

“The U.S. has invested a lot in the F-22 Raptor and the U.S. Air Force has worked so much in the last few years to turn the troubled, expensive interceptor into a real multi-role platform that could be eventually used in a real operation,” Rome-based aviation expert, pilot, and former Italian Air Force officer David Cenciotti told FoxNews.com in an email. “In this case it was also the chance to appease those who criticized the costly stealth plane and the fact it was never used in combat until a couple of days ago,” he said.

Joining the defense analysts were hawks who saw an opportunity to criticize the Obama administration for cancelling the F-22 in 2009. Leading the criticism was Breitbart writer Thomas Rose, who called the F-22 “the most capable fighter aircraft ever developed.” Breitbart.TV also featured President Obama’s speech in which he called for the plane’s cancellation, deeming it “outdated and unnecessary.”

The problem with the claims that this recent bombing strike proves the F-22 is a successful fighter is that this is not the sort of mission for which the F-22 was designed. The F-22 project was authorized to ensure American air superiority for decades to come. As Michael Peck at The National Interest points out, the F-22 won’t face a serious test in the current campaign against ISIS. ISIS has no credible air force to speak of and limited air defenses. Most aircraft in the U.S. inventory, which are far cheaper, are more than capable of dropping bombs.

The Pentagon knew that simple fact even when the F-22 entered service. The Pentagon believed that the United States’ enemies were too low-tech to justify tuse of the F-22 in Afghanistan, Iraq or Libya.

Meanwhile, there remain serious questions about the F-22’s combat capabilities. A recent piece in Business Insider raised questions about the F-22’s ability to fight non-stealthy fourth-generation aircraft, such as the Eurofighter Typhoon and the French-made Dassault Rafale. The more accurate designation for planes like the Typhoon and Rafale are Generation 4.5, a category that also includes the Russian Su-35 and upgraded variants of the Su-30 and MiG-29. The Chinese Air Force also flies Generation 4.5 fighters, such as the J-10B and upgraded Su-30 variants. China and Russia are the closest peer competitors to the United States.

Until the F-22 faces air-to-air combat against fourth generation fighters and especially against Generation 4.5 fighters, we really won’t have an empirical test of the plane’s combat capabilities. At $412 million per plane, the Obama administration did the right thing acknowledging there are cheaper alternatives for dropping bombs.

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Law against porn-watching by fed workers?

October 08, 2014, 12:39 PM

Rep. Mark Meadows, R-N.C., has introduced legislation to prohibit federal employees from accessing pornographic websites on their computers. As reported by The Washington Post, this legislation was prompted after the Environmental Protection Agency’s inspector general discovered a senior employee had downloaded 7,000 smut files on his work computer, and spent many work hours eyeballing the website “Sadism Is Beautiful.”

Obviously, it is not appropriate for a government employee to shirk his official duties and spend the day watching kink online. But the question remains: will enacting a new law make a difference? Probably not.

Plainly, all federal employees know they are not permitted to watch porn on their work computers. Most, if not all, agencies already have policies on the appropriate use of computers. At the Library of Congress, every employee must take a computer security awareness course each year. It warns against phishing scams and perilous email attachments and, yes, it reminds employees not to use government computers to view porn. Additionally, each time a Library employee powers on his computer, a splash screen reminds him the computer is government property and must be used in accordance with agency rules.

This is an example of the oversight system working. An inspector general caught an employee breaking the rules. In this instance, the employee was banned from the EPA’s headquarters and is under investigation. The IG informed Congress in a May oversight hearing. It is a classic example of what scholars Mathew D. McCubbins and Thomas Schwartz called fire alarm oversight. Members of Congress cannot monitor every federal employee constantly, so they rely upon watchdogs to pull the alarm when there is mischief.

There also is the matter of implementation. How exactly is an agency supposed to prevent an employee from viewing porn on the job? That is what H.R. 5628 ultimately intends. Again, the bureaucracies already have rules forbidding smut watching; yet, it occurs. Agencies use Web filters to block some pornographic sites, but they are crude tools. The software frequently blocks non-pornographic websites, and does nothing to stop the luridly inclined from getting their thrills ogling not-for-work material via Google or Yahoo images. And let us not forget that more than half of the public carries personal smartphones. The priapic bureaucrat can use his cellphone to fritter away his day viewing “Bare So Horny,” another favorite website of the EPA creep.

H.R. 5628 would require the Office of Management and Budget (OMB) to issue rules against watching porn, which agencies then would have to spend time comparing with their current rules. This sounds sensible, but in practice, it likely will devolve into an exercise in bureaucratic busy work. The OMB will spend weeks, if not months, drafting the policy, then agencies will have to compare their own policies against the OMB’s and then alter them accordingly. The agencies will issue implementing directives, all of which will absorb agency energy and resources that could be spent doing the public’s business.

A better approach to the problem would be for Congress to ask the EPA to report back promptly on the steps its information technology folks have taken to block access to smut sites. Congress could then post this information online, and invite the public to comment. Who knows, maybe a techie out there can recommend better filtering software to the EPA.

It is commendable for Meadows and others in Congress to call foul on this bad behavior at the EPA. But putting another law on the books will not fix the problem. Rather, Congress as a whole should take this episode as further reason to devote additional time and energy to holding federal agencies and employees accountable for their performance.

Five ideas to put taxis, limos and ride-sharing companies on equal footing

October 08, 2014, 11:45 AM

Recent polling by the University of Chicago’s Initiative on Global Markets find that economists overwhelmingly agree that the rise of ride-sharing services like Uber and Lyft is good for consumers.

The initiative’s weighted poll of economics professionals found that 100 percent agreed, and 65 percent strongly agreed with the proposition that “letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare.”

Alas, determining what those “genuine safety and insurance requirements” ought to be, and creating a path to ensure they are applied equitably, has proven a challenge for state and local lawmakers. In a new paper that examines some of the insurance challenges in the ride-sharing market, I outline five basic recommendations that could serve as a first step:

  1. Disclosure: As part of their terms of service, transportation network companies should be required to disclose, both to users and to drivers, what insurance coverage exists, what party is responsible for procuring it and any significant exclusions.
  2. Uniform coverage requirements: The minimum liability limits for bodily injury, physical damage and uninsured/underinsured driver coverages should be uniform across for-hire transportation services, whether they are taxicabs, limousines and livery drivers or ride-sharing services. In some cases, equalizing coverage requirements will require lowering current limits for livery drivers, which frequently are set higher than those for taxicabs.
  3. Common law standard-of-care: One important question to answer is whether a driver who is logged in to a ride-sharing app, but not currently transporting passengers, should be subject to the same heightened standard-of-care that is applied to common carriers like taxis and limos. Rather than attempting to answer this question with legislation, lawmakers would be well-served to see how courts come down on the issue of whether this behavior is inherently “commercial,” or whether it is more like a motorist’s use of a personal GPS device.
  4. Underwriting freedom: Insurers who do not judge ride-sharing to be an appropriate or profitable risk to underwrite should be free to exclude coverage for those services, or to deny or cancel coverage to applicants who are ride-sharing drivers. The alternative would be to force carriers to take on risks that are not appropriately priced, thus potentially driving up rates for all auto insurance consumers.
  5. Product flexibility: State lawmakers and regulators should be open to new insurance products that do not strictly meet the definitions of “personal” or “commercial” coverage. This should include allowing insurers to consider new rating factors for ride-sharing drivers. For instance, insurers may wish to introduce devices that track not only how many miles an insured is driving, but how many of those miles are logged while logged in to one or more ride-sharing services. Alternatively, insurers might look to base rates in part on the average scores ride-sharing drivers receive from customers.

Insurance coverage is just one of a host legal and regulatory issues that must be resolved as ride-sharing grows in popularity. Moreover, while early efforts by lawmakers to address such issues are, by necessity, going to respond to existing ride-sharing apps like Uber and Lyft, they should be prepared for the fact that services may evolve in the future with radically different business models.

An overzealous regulatory response, particularly one motivated by rent-seeking incumbents, can crush a new and innovative industry in its cradle. The answer is not to eschew any and all regulation, but to act modestly and cautiously, imposing new rules only where they genuinely address real consumer harms.

Given a commitment on the part of policymakers to the principles of limited, effective government, we believe ride-sharing and other emerging disruptive technologies should have every opportunity to thrive.

Conservatives ask: What would Milton Friedman do about warming?

October 08, 2014, 11:44 AM

From E&E News:

A handful of center-right think tanks have also joined the fray, including the R Street Institute.

In an op-ed in The Oregonian over the weekend, the group’s California office director, Ian Adams, asked conservatives in Washington and Oregon to think twice before opposing their states’ adoption of a revenue-neutral tax on emissions.

Oregon has launched a feasibility study to consider the implications of a tax, while Washington’s climate activist Gov. Jay Inslee (D) has commissioned an advisory task force to consider the relative benefits of a state cap-and-trade model or a carbon tax.

Adams, a former aide to Rep. Bruce Hanna, the Republican co-speaker of Oregon’s evenly divided House in 2011 and 2012, acknowledged that both “carbon” and “tax” would be hard sells for Northwest conservatives.

“To be clear, so long as conservatives remain unconvinced of the threat posed by rising carbon emissions, the environmental value of a carbon tax will escape them,” he wrote. “However, if conservatives can be convinced of the value of pegging government revenue to a stable, controllable and ultimately reducible phenomenon, they might just come to the table to discuss climate-change solutions.”

And the carbon tax option offers considerable side benefits, he noted, including the chance to eliminate other taxes on labor and wealth and the chance to comply with EPA’s existing power plant rule “in a much less economically destructive way.”

EPA has signaled that it will accept a state plan for the draft rule that relies on a carbon tax.

Ray Lehmann, a senior fellow at the R Street Institute’s Washington, D.C., office, said the think tank’s staff is talking to state officials in Oregon and Virginia about the option of using a revenue-neutral tax to comply with the June 2 proposal and would be open to expanding its outreach to other states.

Florida’s insurance industry a big contributor to state economy

October 08, 2014, 10:37 AM

Its status as a low-lying peninsula jutting 500 miles into the warmest, most hurricane-active waters in the world makes Florida one of the riskiest places to live. So it comes as no surprise that the cost to insure properties in Florida does not come very cheap. Which, by extension, does not make insurance the most popular of industries among Floridians.

However, a recent study published by the Florida Office of Insurance Regulation sheds light on the positive impact the insurance industry has on Florida’s economy.

Every year, Florida law requires the OIR to produce a report describing the state of Florida’s insurance market for the previous year. The office found that, in 2012, the insurance industry provided billions in compensation to thousands of employees, and by extension, to the Florida economy.  Specifically, it found that:

  • Insurance-related entities provided more than 193,000 jobs, which amounts to almost 2 percent of all jobs in Florida;
  • Florida insurance industry employees received almost $12 billion in total compensation, comprising roughly 2.8 percent of statewide compensation;
  • The insurance industry in Florida generated almost $20 billion in total economic output, or roughly 2.5 percent of the gross state product; and
  • Premium taxes paid by insurance companies totaled almost $705 billion to the state’s general revenues in Fiscal Year 2012.

The report also found the insurance market in Florida experienced steady growth and further stabilization, especially in regards to the property insurance sector.  Florida domestic companies continued their growth, including expansion into other states.

Citizens Property Insurance Corp.’s share of the market decreased to 21.1 percent as of Dec. 31, 2012, from 23.6 percent the previous year, largely due to the gradual unfreezing of Citizens’ rates (10 percent “glidepath”) as well as takeout initiatives pursued by Citizens. Next year’s report should reflect an even greater scale-down of Citizens’ market share, due to implementation of the Citizens Clearinghouse and a number of successful take-outs.

Indeed, Florida’s property insurance system has experienced a degree of much-needed stabilization thanks in part to responsible legislation that has attempted to undo some of the ill-conceived reforms enacted in 2007 that largely distorted the market, undermined competition and foisted an enormous amount of risk from the private market onto taxpayers. Coupled with a historic drop in the cost of private reinsurance and Florida’s unprecedented eight years without a hurricane strike, Florida appears to be in its best position in years to absorb the economic impact of a major storm.

Nevertheless, the Legislature can and should do more to ensure that Florida and its property insurance market is more than just a “one-hit wonder.” If the 2004 and 2005 hurricane seasons taught us anything, it is that Florida is susceptible to multiple storms in a short period of time, and it should be financially prepared for it.

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