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How to reform Amtrak?

May 21, 2015, 11:16 AM

In an ideal world, Amtrak wouldn’t exist. Transportation is one of those services best left to the free market. But the fact is that virtually all of America’s systems of mass transportation are subsidized. Even the Highway Trust Fund, which is supposed to be paid for out of gas taxes, is running out of money.

How we move people across the country is in dire need of reform. Our highways are crumbling, Amtrak has never turned a profit and our airports are increasingly obsolete.

Amtrak funding has come up with the recent derailment in Philadelphia that tragically killed eight people. Proponents of increased Amtrak funding have tried to tie the tragic accident to a lack of funding by Congress. This claim runs into the inconvenient fact that, several years ago, the Obama administration testified in front of Congress that they believed Positive Train Control, the system that could’ve prevented the Philadelphia derailment by slowing the train down, was not worth the cost.

As Rep. John Mica, R-Fla., has accurately put it, Amtrak is a Soviet-style operation in need of reform.

The biggest problem Amtrak faces is that it is an agency using 19th century technology to transport people over large distances. Except for nostalgia, it makes little sense to use Amtrak to travel across the country and through sparsely populated areas in the age of air travel. Airplanes can get to long-distance destinations much cheaper and in much less time than traveling by train.

While moving people over long-distances is a failing business model for Amtrak, train travel can play a major role in ground transport on a regional level. Amtrak should concentrate on developing the 11 high-speed rail corridors already identified by the Federal Railroad Administration. Since the Obama administration has come to power, at least $11 billion has been spent on high-speed rail, but there is little to show for it. The most promising high-speed rail projects are those by private companies in Florida and Texas and a state-backed project in California.

What Amtrak needs is to be at least partially privatized so it could get out of the way of these upcoming regional and state rail programs. One option would be to spin off Amtrak into a corporation whose structure resembles the Federal Reserve Board, with a mix of private and public ownership.

For example, the federal government could own 50 percent of the new Amtrak’s preferred stock and the remaining 50 percent of the corporation would be floated on the open market. In exchange for the infusion of private money, there would be no further direct subsidies from Congress toward Amtrak operations. Eventually, the federal government’s ownership stake would diminish as the company would move towards full privatization.

The chairman and perhaps the vice chairman would be appointed by the president and confirmed by the Senate for a significant term, say 15 years. But other board members would be chosen by private shareholders of the new Amtrak. The board leadership could be removed by a unanimous vote of the other governors. In exchange for autonomy, the board would submit annual reports to the Department of Transportation and the congressional committees of jurisdiction.

A reformed Amtrak would have the ability to set its own rates for passenger tickets. It also should have the ability to determine its own routes, without congressional influence. Most of Amtrak’s money-losing routes are the long-distance cross-country trips that serve sparsely populated regions of the country. These routes are so unprofitable that Amtrak even loses money selling food and drinks, which is a hard thing to do.

The board also should have the authority to set priorities in infrastructure projects. To raise money for capital improvements, Amtrak would need the authority to float bonds, which obviously would have at least an implicit guaranty from the federal government. While not a perfect solution (we’ve seen from Fannie Mae and Freddie Mac how such guaranties can be abused), this theoretically would eliminate the need for more subsidies from Congress.

Finally, the new Amtrak would have the authority to set its own labor contracts and move toward privatization of more services. It would need to survive solely on self-generated revenues and would have to compete with airlines and bus services for paying passengers.

With these reforms, Amtrak could shift from an obsolete model of government-run mass transit to one that is more responsive to the needs of its customers.

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

Green power lines hogtie poorest Texans

May 21, 2015, 10:50 AM

From Watchdog.org:

Josiah Neeley, Texas director of the market-oriented R Street Institute, acknowledges that even if SB 931 reins in the government-designated Competitive Renewable Energy Zones, Texans will be paying a premium for wind power for years to come.

Neeley says Fraser’s measure is important ‘because it sends a clear signal that markets, not politics, should decide what kinds of energy Texans use.’

Shelby’s financial reforms could face problems on the floor

May 21, 2015, 9:50 AM

The Hill is reporting that the Senate Banking Committee’s more moderate Democrats intend to vote against the financial services reform package put together by Chairman Richard Shelby, R-Ala., at this morning’s mark-up session.

The news won’t have immediate impact, as Shelby’s Financial Regulatory Improvement Act of 2015 still would be expected to pass the committee. But a strictly party-line vote would bode poorly for its chances to survive procedural challenges on the Senate floor.

According to the newspaper, Sens. Mark Warner, D-Va., Heidi Heitkamp, D-N.D., Bob Menendez, D-N.J., and Jon Tester, D-Mont. – all of whom have in the past been open to some tweaks and clarifications to 2010’s landmark Dodd-Frank Act – will vote against the proposal, according to unnamed sources.

The committee has bickered along partisan lines throughout the negotiation process, with Republicans expressing frustration that [Ranking Member Sherrod] Brown did not engage in negotiations despite their repeated efforts.

Democrats say Shelby didn’t attempt to work with all of the Democrats on the panel. Shelby aides have argued that they were following committee structure in which the chairman negotiates with the ranking member.

Though primarily concerned with rules governing credit extended by smaller banks and credit unions, and the powers delegated by Dodd-Frank to the Consumer Financial Protection Bureau, the measure also includes provisions that would more forcefully defend the U.S. system of state-based insurance regulation in what is coming to be a bitter turf war between international regulators.

Shelby himself presided over a recent hearing on the subject in which he called members of the Financial Stability Oversight Council to task for what he viewed as their incorporating decisions of the Financial Stability Board — an advisory panel of the G-20 — into FSOC’s treatment of non-bank financial institutions deemed to be “systemically important.” FSOC has designated the insurers American International Group, Prudential Financial and MetLife Inc. as systemically important institutions, though MetLife is contesting the designation.

The FSB is not a U.S. regulator, and it is not accountable to Congress or the American people. Therefore, the FSOC should not merely be a rubber stamp for the decisions made by an unaccountable international body like the FSB.

The Treasury Secretary, who also chairs the FSOC, has told this Committee that the FSB’s decisions do not bind the FSOC. The FSOC’s recent actions, however, leave us to wonder if some of the FSOC members agree with Secretary Lew on this point.

Shelby echoed concerns from many in the domestic insurance industry that similar considerations could influence the Federal Reserve’s planned quantitative impact study on the appropriate capital framework to apply to insurance holding companies that include thrifts. That cohort of about a dozen major insurance groups – including names like State Farm, USAA and TIAA-CREF – was placed under Fed supervision by Dodd-Frank. Shelby said it would be “unfortunate…if the Fed uses the QIS process solely to buy time for international insurance capital standards to be developed and subsequently adopted here.”

The Shelby draft has earned plaudits from the National Association of Insurance Commissioners and from domestic trade groups like the National Association of Mutual Insurance Companies, the Property Casualty Insurance Association of America and the Independent Insurance Agents and Brokers of America. Of particular interest has been its proposal to establish an Insurance Policy Advisory Committee on International Capital Standards. That U.S.-based panel would theoretically serve as a competing sphere of influence, dominated by state regulators and probably more reflective of the wishes of the U.S. industry, to the one represented by the International Association of Insurance Supervisors.

The stakes have been particularly heightened by the IAIS’ decision last October that it would close its meetings to “non-members” who previously had “observer” status. That group includes six state insurance commissioners; the NAIC’s consumer representatives; FSOC insurance representative Roy Woodall; a host of internationally active property/casualty, life and health insurers and reinsurers; the U.S. trade associations PCI, the American Council of Life Insurers, the American Insurance Association and the Reinsurance Association of America; the U.S. standards-setting organization ACORD; the rating agency A.M. Best; a number of consultants; and international groups like the International Actuarial Association, the World Federation of Insurance Intermediaries and Insurance Europe.

Retaining its status as an IAIS “member” is the Treasury Department’s Federal Insurance Office.

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Copyright lobby seeks new hammer to pound free speech in Florida

May 20, 2015, 3:16 PM

Anonymity and pseudonymity have been key threads in the fabric of American life since the Colonial era. From arts to politics, from the Revolutionary era-tracts known as Cato’s Letters to the street art of the elusive Banksy, there is a long tradition, respected in practice and protected by the First Amendment, of publishing or distributing material while concealing all or part of one’s identity.

But a bill now sitting on Gov. Rick Scott’s desk, S.B. 604, could imperil such privacy for many online. The so-called “True Origin of Digital Goods Act” would require the owners of any website that hosts music or video files to publish their true names, addresses, telephone numbers and emails.

The purpose of the measure – sponsored by Rep. Jeanette Nuñez and Sen. Anitere Flores, both R-Miami – is to provide the record labels and movie studios yet another hammer in their litigation toolbox. It would allow “aggrieved” copyright holders to file suits against website owners simply for failing to provide the adequate disclosures, without needing to separately prove the websites had actually infringed their rights.

The bill is just the latest salvo from the copyright lobby. Thanks to the Sony leaks, we now know that, having failed to get the atrocious PIPA and SOPA bills through Congress, the movie studios and record labels have been busy trying to get state lawmakers and attorneys general to do their bidding. The Florida bill is based on earlier laws passed in California and Tennessee, not coincidentally the homes of Hollywood and Nashville, respectively.

The problems with this legislation are legion. To start, it simply isn’t the proper role of the states to enforce copyright. The U.S. Constitution enumerated that specific power to Congress, and none other than James Madison himself opined in The Federalist No. 43 that, when it comes to copyright, “the states cannot separately make effectual provision.”

But this isn’t just a matter of ancient constitutional wisdom. Congress explicitly enjoined the states from legislating in this area as part of the Copyright Act of 1976. That law prohibits states from offering any additional copyright protections or remedies that aren’t already provided under federal law.

Proponents of the “true name” bills will note that they do have a precedent, in that 46 states and the District of Columbia already require manufacturers of CDs, DVDs and other forms of audio-visual media to publish their name on the item’s label. But importantly, the courts have permitted such laws only because they serve additional functions beyond simply enforcing copyrights – namely, that they protect consumers from fraud. Not only is there no similar nexus to consumer concerns in this bill, but it would apply across the board even to sites that do not engage in commerce.

Also notable is something the bills don’t contain – the words “fair use.” There is no carve-out or exemption for the fair use of material. The mere act of sharing audio-visual files is deemed sufficient to sacrifice one’s privacy. Thus, Cuban and Venezuelan dissidents now living in Florida who published videos critical of the government back home would be required to reveal their true names and addresses, even if that might endanger the lives of family left behind.

Gov. Scott should veto this terrible bill, which is a solution in search of a problem. The federal Digital Millennium Copyright Act already provides a process for copyright owners to obtain the contact information of those they believe have infringed their rights. We don’t need new state laws to further sacrifice our privacy to Hollywood, Nashville and the rest of the copyright lobby.

Tom Cotton blocks NSA reform measure

May 20, 2015, 3:11 PM

Sen. Tom Cotton, R-Ark., was instrumental in saving some of Iraq’s most precious feline assets, but that’s about the only nice thing I can say about Tom Cotton today.

Last week, a measure called the USA Freedom Act, designed to curb the National Security Agency’s massive, unchecked surveillance and data-collection capabilities, passed the U.S. House. This week, conservative Republican Sen. Mike Lee, R-Utah, was attempting to usher the same bill through the Senate ahead of the body’s vote on the PATRIOT Act, so that the PATRIOT Act would not reauthorize the unsupervised, secret collection and storage of Americans’ cellphone metadata.

Although the program has proven so unwieldy and ineffective that the NSA claims it was going to stop the program even before Edward Snowden revealed it in his massive classified-information leak, and the parameters of the program likely violate Americans’ Fourth Amendment rights, there are several senators, led by Cotton, who are blocking the USA Freedom Act, so that the NSA retains their power…just in case, I suppose, the program suddenly (and miraculously) starts to work.

Sen. Tom Cotton (R-Ark.) blocked a move from Republican colleague Sen. Mike Lee (R-Utah) on Tuesday to bring up the House-passed USA Freedom Act, which would reform the National Security Agency’s surveillance practices.

Lee took to the Senate floor to try and set aside fast-track trade legislation currently being debated and move to the NSA reform bill.

“We’ve had a week since the House passed this bill and it’s time we took it up in earnest and gave it the full attention and consideration of the Senate that it deserves,” Lee said. “Then we can return to [trade promotion authority] and finish it without facing expiration of a key national security tool without anything to put in its place.”

Lee needed unanimous consent to bring up the surveillance reform bill, but Cotton objected to the move.

Senators are facing a looming deadline, with key provisions of the Patriot Act set to expire on June 1.

Cotton prefers to pass a “clean” extension of the PATRIOT Act, without reconsideration of the executive authorities contained within. Like John McCain before him, Cotton is mostly concerned that any dial down of the NSA’s collection and surveillance powers will have a detrimental effect on America’s ability to detect terrorism, even if that detection snags more innocent citizens than actual terrorists.

Regardless how you feel about the importance of data collection – and there is no doubt the NSA’s surveillance serves a purpose in detecting and combating both domestic and foreign terror – where the question of security is concerned, and their privacy is very likely violated, the American people deserve to make the decision whether the privacy violation is worth the security gained. Right now, we don’t have that luxury.

Alabama GOP supermajority, governor should hold their noses and pass budget

May 20, 2015, 2:39 PM


That’s the word you’re looking for. If Republican supermajorities in the Alabama House and the Senate can’t pass a General Fund budget, put it on the Republican governor’s desk and expect him to sign it, then we have a serious problem.

Heck, even Congress has been able to pass a budget this year.

Let’s review a couple of the cold hard truths that the governor and many legislators seem unwilling to accept.

First, nobody likes the governor’s tax plan. He could call special sessions for the rest of his term, and that’s not going to change. The House can’t muster enough support to pass any tax hikes. Even if they could, the Senate doesn’t appear willing to play ball. That means legislators supporting taxes in the House will take the political hit and have nothing to show for it.

Second, the lottery is not a short-term budget fixer. Senate President Pro Tem Del Marsh, R-Anniston, has said as much. We can debate a lottery until the cows come home, but we still need to either cut spending or find some other revenues immediately.

Third, making a deal with the Poarch Band of Creek Indians might fill the immediate deficit, but plenty of legislators don’t want to create a gambling monopoly simply because of the state’s budget issues. More importantly, if the arrangement comes in the form of a compact, Gov. Robert Bentley would need to negotiate the deal with the U.S. Interior Department, and he’s already said he thinks gambling is the wrong solution.

Alabama’s legislators don’t want to support tax increases, and the path for some sort of gambling-related solution looks rocky.

That leaves one option: pass a budget that matches expected revenues.

Here’s the problem. With the exception of an agency like the Department of Corrections which has been turned inside and out to show serious funding, capacity and personnel issues, most legislators have no idea whether agency funding levels are appropriate or not.

They rely on the governor to make recommendations and agency heads to testify about their needs.

Well, the governor has decided he’s more interested in scaring Alabamians with targeted cuts than making an attempt at more reasonable suggestions.

And those agencies?

Virtually all of them utilize the time-honored government tradition of “use it or lose it.” If they come in significantly under budget, their allocation the next year will be cut. With a legislature looking to squeeze every dime, you can bet they’re going to spend what they’re given.

Simply put, legislators are having a tough time right now separating budget fact from fiction.

Maybe blanket percentage cuts are the best they can do at the moment. Give the House of Representatives credit for finally getting the ball rolling by passing a pared-down budget. With only a few days left in the session, we’re entering the time where the Senate needs to hold their noses and do the same.

If the political winds magically change, Gov. Bentley can call a special session to add the tax hikes and spending he so desperately wants. For now, he needs to come to terms with reality and sign the budget that the House and Senate hopefully put on his desk.

Nevada should embrace disruption in energy markets

May 20, 2015, 2:13 PM

Things are changing rapidly in America’s energy markets. The shale revolution of the past decade already has brought about enormous changes both in the price of energy and in the mix of power sources used to provide it. Now, an explosion in the availability of affordable rooftop solar is having similarly broad effects, with breakthroughs in on-site energy storage holding out the potential for even more fundamental shifts just over the horizon.

Given just how fast the ground beneath them is shifting, legislators and regulators should be forgiven if they don’t quite yet know up from down and left from right. No one can say with certainty how everything will shake out in the end, but an ideal system – one in which a reasonable price is placed on the cost of pollution, but where the market is otherwise left to itself to find the best energy mix for consumers, devoid of any distortionary subsidies, regulations or tax rules – just might be a reality in our time.

But in the meantime, it is crucial that, to the extent possible, the government stay out of the way and not subject any particular energy option to regulatory extinction before consumers have an opportunity to have their say. Lamentably, that’s the current state of residential solar power in Nevada.

With the legislative session coming to a close in mere weeks, policymakers face the distinct prospect that the solar market will be frozen as it hits a regulatory cap that dictates no more than 3 percent of the state’s net energy mix can come from residential solar. Once that cap is hit, rules that allow solar consumers to sell their excess power back to the grid will be suspended, rendering any new installations uneconomical. The maddening irony is that it is the very success of solar that could lead to the interruption – by some estimates, as soon as the first quarter of 2016.

A recent poll, by the admittedly self-interested Alliance for Solar Choice, suggests that both Democratic and Republican voters are less likely to support candidates who do not support solar power. That finding should come as no surprise, as Nevada earlier this year became the state with the most solar jobs per capita in the country.

Despite the evident political peril associated with opposing solar power, a contingent of the Republicans who control the state Legislature in Carson City have been skeptical about raising the cap on residential solar installations. They believe the current arrangement unfairly favors solar generation over other energy sources.

To the extent that the costs and burdens of energy generation should not be unfairly shifted, it’s a reasonable objection. But the facts do not support that conclusion in this particular case. According to the Nevada Public Utilities Commission’s study on net energy metering, solar customers do not shift energy costs onto non-solar ratepayers. In fact, in terms of financial costs and benefits, solar energy is a virtual wash, because there is not yet enough of it on Nevada’s grid.

If the cap is not raised, Nevada will stunt the development of long-absent competition in the energy sector. Competition is the mechanism best able to create wealth and develop civil society. For the sake of consumers, and the exciting energy future that awaits us all, the Legislature must act sooner rather than later.

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

Insurance bills could have a big impact on Texas

May 20, 2015, 1:36 PM

Most people find insurance regulation boring, and maybe that’s understandable. But in a state with some of the highest home insurance rates in the nation, Texans have good reason to pay attention.

Right now, both good and bad insurance reform bills are making their way through the statehouse. These pieces of legislation could have significant implications for insurance rates throughout the state in the years to come.

Let’s get the bad news out of the way first. For decades, the state-run Texas Windstorm Insurance Association has provided windstorm insurance to certain designated counties along the Texas coast. TWIA is supposed to serve as an “insurer of last resort,” providing coverage only where individuals are not be able to get windstorm insurance from private companies at a competitive price.

Most Gulf Coast states have similar programs to make sure coastal residents are able to get windstorm insurance. The best of these programs include rules to make sure policyholders pay premiums set at or above market rates. TWIA’s rates, by contrast, are often significantly below the market level.

According to TWIA’s own calculations, its rates are currently about 22 below what is needed to be “actuarially sound,” i.e., what’s needed to meet its expected future losses. Not surprisingly, the number of TWIA policies has ballooned over the past decade, leaving the agency even more exposed.

TWIA’s financial position has improved considerably in the past couple of years, thanks to new management and a lack of storms. And while the agency does need to be fundamentally reformed, it has been making progress toward rate adequacy and fiscal sustainability.

Unfortunately, legislation currently before the state Legislature would undermine TWIA’s efforts to right itself, while shifting those risks onto all Texans. S.B. 900 would reconfigure TWIA’s board by increasing the relative power of those who have traditionally opposed moves toward rate adequacy. Instead, the legislation would force TWIA to rely more on assessments of insurance companies, assessments that inevitably would be passed on to policyholders throughout the state. Folks in Lubbock or San Antonio could end up paying to subsidize insurance for beach-front property, without receiving any benefit from the TWIA program.

But the news out of the Legislature isn’t all bad. Lawmakers also are taking steps to rein in litigation abuse involving hail damage in other parts of the state. Hail claims have increased 84 percent since 2010, and litigation over hail damage has exploded in certain regions. According to attorneys G. Brian Odom and Tyler McGuire, 35 percent of recent hail damage claims in Hidalgo County have resulted in a lawsuit, far in excess of the historical 2 percent litigation rate. Litigation also has been encouraged by provisions in Texas law that allow attorneys to collect large fees and penalties in hail insurance cases.

As with TWIA, the costs of the litigation borne by insurance companies is ultimately passed along to homeowners in the form of higher premiums. To stop this, S.B. 1628 clarifies the procedural requirements surrounding hail litigation in order to help preclude fraud.

Whether it’s trial lawyers filing hail claims or the inner workings of TWIA, the principle is the same: when you try to squeeze money out of insurance companies, it’s consumers that end up feeling the pinch. Insurance regulation may not be the most interesting topic, but it’s important to make sure that government regulation benefits the whole state, rather than pitting some Texans against others.

Jersey Strong…but not strong enough to pump gas

May 20, 2015, 12:15 AM

As a New Jersey native who has spent most of his adult life living elsewhere, I often find myself standing up to defend my much-maligned homeland against the taunts of anti-Jersey partisans.

No, the whole state doesn’t smell like that and no, exceedingly few people are actually in the Mafia. The Jersey Shore kids not only don’t reflect the sublime beauty of our 100 miles of coastline, but with I believe only one exception, they’re not even from Jersey. Yes, Bruce Springsteen is a musical genius and Taylor-brand pork roll is a delicious foodstuff and jug-handles just make good sense as a highway traffic pattern.

Where I am at a loss is when I’m called on to defend New Jersey’s now decades-long ignominy as one of just two states (Oregon is the other) to employ one of the dumbest laws in the country: a complete ban on self-service at gas stations. Indeed, not only does this ludicrous regulation persist, but it remains, by all measures, wildly popular.

This is the lesson the state’s lawmakers repeatedly learn when, about once a decade, one or two of them sticks their neck out to question why New Jerseyans could not be trusted to complete the kind of simple transaction that 300 million other Americans manage to perform every single day without incident.

The most recent brave souls are state Sens. Gerald Cardinale, R-Cresskill, and Paul Sarlo, D-Wood-Ridge, who introduced a bill that, after a three-year trial period during which stations would be required to continue offering a full-service option, would allow stations who chose to do so to offer self-serve. After briefly appearing like it just might have some momentum, the Cardinale-Sarlo measure now finds itself in the same legislative buzz saw that has doomed so many efforts before.

‘As long as I am Senate president, the ban on self-serve will stay in place,’ [state Sen. Steve] Sweeney said in a statement. ‘The people in New Jersey like the convenience of people pumping their gas,’ he added later in a phone interview. ‘I’ve gotten plenty of people saying, ‘Please don’t do this.’

As the leader of the Senate, Sweeney has the ability to block the bill. ‘We just don’t post it for a vote,’ he said.

A gander at any comments section attached to news articles covering the issue offers evidence that Sweeney probably isn’t wrong. The people of New Jersey, by and large, just flat-out hate the idea of self-service gas. The big question is why.

Indeed, the public choice mode of analysis – in which one generally asks of any given policy, particularly a seemingly unusual one, cui bono? – offers few obvious answers. There simply is no organized group actively lobbying to preserve the law.

Though proposals to strike the ban often are met by warnings of catastrophic job losses (in New Jersey, there are currently about 5,000 gas station attendants, most of them part-time), not even in an organized labor capital like the Garden State are attendants generally members of any formal union. In any case, there is no labor union engaged on the bill, pro or con.

Similarly, while such proposals often are greeted by claims that shifting to self-service will disadvantage the disabled, the American Association for People with Disabilities takes no position on the New Jersey law. It would like to see better enforcement of service station-related provisions in the federal Americans with Disabilities Act, but such provisions would apply to self-service in New Jersey, just as they already do in the other 48 states that permit it.

The origins of New Jersey’s ban on self-service gasoline began, as these things often do, in a price-fixing scheme. In a 2008 column, Star-Ledger columnist Paul Mulshine recounted the tale that led the New Jersey Legislature to pass the Retail Gasoline Dispensing Safety Act in 1949.

It was Irving Reingold who created the crisis that led to the law banning self-serve gasoline. Reingold, a workaholic who took time out only to fly his collection of World War II fighter planes, started the crisis by doing something gas station owners hated: He lowered prices. Fifty-one years ago, gas was selling at 21.9 cents a gallon.

Reingold decided to offer the consumer a choice by opening up a 24-pump gas station on Route 17 in Hackensack. He offered gas at 18.9 cents a gallon. The only requirement was that drivers pump it themselves. They didn’t mind. They lined up for blocks.

The other gas station operators didn’t like the competition. Someone tried shooting up Reingold’s station. But he installed bulletproof glass, so the retailers looked for a softer target – the Statehouse. The Gasoline Retailers Association prevailed upon its pals in the Legislature to push through a bill banning self-serve gas. The pretext was safety, but the Hackensack fire chief had already told all who would listen that Reingold’s operation was perfectly safe.

The bill sailed through in record time, despite the objections of everyone who cared about the public interest. Journalists howled. ‘Chalk up another victory for the organized pressure groups,’ said WOR radio commentator Lyle Van.

New Jersey may have been early to the game of bowing to the station owners’ cartel, but it was not alone. By 1968, 23 states had passed laws banning self-service gas stations. Though often promoted with the public façade that such measures were about “protecting public safety,” the overwhelming political motivation was pressure from independent service stations, who sought to hold off growing competition from stations owned by the major gasoline refiners.

Of course, fast forward to 1992, and New Jersey and Oregon were the only remaining states that still banned self-service gas. Obviously, much changed in the intervening years. Credit cards became ubiquitous. The oil crisis of 1973 led to laws requiring stations to post their prices (during the crisis, it was not uncommon for the price to double or even triple while a customer was waiting in block-long lines.) And major oil companies’ interest in owning filling stations began to wane. Self-service went from 1 percent of the market in 1968 to 80 percent of the market in 1992. Today, it’s nearly 90 percent.

But perhaps the most significant change is that independent station owners, the kind who fought to create the law in the first place, now would like to see its demise.

In a May 19 statement, Sal Risalvato, executive director of the New Jersey Gasoline, Convenience Store and Automotive Association, owned up to his group’s history of standing as a roadblock to overturning the law, before going on to explain how changing market dynamics have turned the industry around on the issue. Among the issues Risalvato says striking down the ban would help to address is broadening fuel availability at night, when many stations close because employing an attendant isn’t financially viable. Moreover, just over the horizon, his members see changes in the credit card industry making the current ban largely a moot point.

By October 2017, every gas pump will have to be outfitted with new credit card processors capable of accepting EMV, the new chip-based security standard. According to the credit card companies, customers will be asked to input their PIN when they use their credit card at the pump. Since I don’t foresee many motorists providing their PIN to a gas station attendant, motorists wishing to use credit are likely going to be getting out of their cars anyway. At that point, most would just as well go to the self-serve island, save a few cents a gallon, and pump the gas themselves.

While there hasn’t been much research into the effects of the New Jersey and Oregon bans, a pair of noteworthy reports from the turn of the 21st century help illuminate the broader dilemma facing New Jersey station owners.

A November 2000 paper in The Review of Economics and Statistics by Ronald N. Johnson of Montana State University and Charles J. Romeo of the U.S. Justice Department found that New Jersey and Oregon’s bans on self-service raised average gas prices by 3 to 5 cents per gallon, but the even bigger effect was seen inslowing the penetration of convenience store tie-ins.”

A follow-up paper appearing in the March 2001 edition of the Journal of Consumer Policy, authored by Donald Vandegrift of the College of New Jersey and Joseph A. Bisti of the Philadelphia Electric Co., supported that conclusion, positing that, because capital-labor ratios are lower for New Jersey stations, the law makes it more cost-effective to invest in labor-intensive services like auto repair than in capital-intensive services like convenience stores.

Those findings may actually be even more relevant today than they were 15 years ago. According to the National Association of Convenience Stores, convenience stores now account for 80 percent of all the fuel sold in the United States, with 82 percent of the nation’s convenience stores engaged in the retail fuel business. By contrast, just 48 percent of New Jersey’s convenience stores sell gas, the lowest rate in the nation. At 65 percent, Oregon ranks fifth-lowest.

This is noteworthy, because while fuel sales account for about two-thirds of the convenience store industry’s revenues, they contribute only about a quarter of its profits. After swipe fees, taxes and other expenses are subtracted, average station profit margins on the sale of gas are just 3 to 5 cents per gallon — roughly the same amount it costs to employ the gas jockeys.

Reflecting on those numbers, it becomes clear why the claim that the self-service ban “saves jobs” is so spectacularly wrong-headed. While true in the trivial sense that the “job” of filling people’s gas tanks would be rendered unnecessary if consumers prefer to save a few cents and do it themselves, maintaining a regulation that effectively forces gas stations to lose money on selling gas cannot be in anyone’s best interests, including (perhaps especially) gas station employees.

Of course, another reason not to lament the loss of gas station attendant jobs, any more than elevator operators or buggy whip manufacturers before them, is that these are uniquely terrible jobs. Not just in the sense that they are grueling and low-paid, but in the much more important sense that they are likely to kill you.

A study of Italian gas station attendants from 1981 through 1992, published in the October 1994 edition of the Scandinavian Journal of Work, Environment & Health found that “filling station attendants are exposed to gasoline vapors and seem at risk of cancer of various sites,” with particular susceptibility to esophageal cancer, brain cancer and Non-Hodgkin lymphoma.

Those results were later echoed in a 1997 case study by researchers with the Centers for Disease Control and Prevention’s National Institute for Occupational Safety & Health, who found that service station attendants were exposed to abnormally high levels of gas fumes containing methyl tert-butyl, a possible carcinogen. The cohort NIOSH studied were gas station attendants in Newark, N.J.

Alas, when New Jerseyans look at their favorite quirky local law, they see neither the ways that it leaves them with crappy convenience store options, nor how the jobs they insist they want to save might be killing the people who perform them. What they do see turns out to be the only thing that matters: New Jersey has cheap gas.

Were it not the case that New Jerseyans pay less for gas than their neighbors, efforts to change the law might by now have grown into a groundswell. But as it is, the price at the pump is cheaper in New Jersey than most other places, for the simple reason that the state has unusually low gas taxes.

In fact, New Jersey’s total gasoline-related taxes and fees of 14.5 cents per gallon are the second-lowest in the nation, behind only oil-rich Alaska’s 11.3 cents per gallon. In comparison, New Jersey’s neighbors New York and Pennsylvania assess taxes and fees of 44.46 and 51.6 cents per gallon, respectively. According to the American Petroleum Institute, New Jersey is the only state in the entire Northeast with gas taxes of less than 40 cents per gallon. The national average is 48.85 cents per gallon.

What makes such low gas taxes possible is that New Jersey long has been far more reliant on highway tolls than other states. New Jersey has 30 toll roads, second only to Florida’s 35. (Of course, those 35 Florida toll roads are in a state with 2.2 times the population and 7.5 times the landmass of New Jersey.) In 2012, the New Jersey Turnpike alone collected almost $1 billion in tolls, making it the most profitable toll road in the nation.

Thus, when it comes down to it, one can hardly blame New Jerseyans for failing to see the downsides of this remarkably terrible law. With cheaper gas than their neighbors and the cost of highway maintenance largely divorced from the price they pay at the pump, they see no advantage to changing the status quo. They see only a chore they’ve never before had to perform and they don’t intend to start now.

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It turns out people don’t like when the government spies on them

May 19, 2015, 3:06 PM

The past two years have seen a series of revelations about the National Security Agency’s systematic mass-surveillance programs, prompting a national debate about the relevance of the Fourth Amendment in a post-Sept. 11 America.

Key provisions of the Patriot Act are set to expire in 12 days, including Section 215, which authorizes domestic surveillance by the NSA. Between now and the end of May, lawmakers must find the right path forward to preserve Americans’ right to privacy while maintaining the necessary tools to keep our nation secure from real threats. Debate in Congress has hinged primarily on whether to curtail these surveillance programs or to continue the status quo.

As if on cue, a new poll from the American Civil Liberties Union released yesterday has found broad opposition to government surveillance. By a nearly two-to-one margin (60 percent modify, 34 percent preserve) Americans believe the Patriot Act should not be reauthorized in its current form.

In other findings, the poll found that by more than four-to-one (82 percent concerned, 18 percent not concerned), voters find it concerning that the U.S. government is collecting and storing the personal information of Americans, including 31 percent who are extremely concerned and 25 percent who are very concerned.

The poll also found that the Patriot Act is unpopular across the partisan spectrum. A 58 percent majority of Republicans favor modification of mass surveillance, with only 36 percent favoring the status quo. Similarly 59 percent of Democrats support reforming the Patriot Act, with only 35 percent support preserving the current provisions. Independent voters are even less enthusiastic about mass domestic surveillance: 71 percent want the Patriot Act modified, versus 22 percent who favor keeping it as it is.

These findings are congruent with the House of Representatives, which last week overwhelmingly passed the USA FREEDOM Act by a vote of 338-88. This balanced reform would extend the PATRIOT Act with a number of measures to rein in the National Security Agency. The measure would end indiscriminate bulk surveillance, while also increasing transparency and accountability for the FISA courts, the special branch of the court system that approves and monitors surveillance.

In the Senate, things are much more unclear. Senate Republican Leadership is trying to push for a clean reauthorization, while Sens. Mike Lee, R-Utah, and Patrick Leahy, D-Vt., have led the charge to take up the House-passed bill. With only a few days before these provisions expire and the Senate prepared to deliberate over the Memorial Day holiday, it is unclear what approach the Senate will take to resolve the future of the PATRIOT Act.

One hopes the findings of this recent poll will give clarity to the issues at stake and push the Senate to adopt a position of reform that is in line with the American people.

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Laffer: Keep protectionist reinsurance tax out of tax reform

May 19, 2015, 11:28 AM

A proposal to bar insurers from claiming a tax deduction for premiums ceded to offshore affiliates would cost the U.S. economy $1.35 billion in gross domestic product, with private sector losses estimated to run roughly four times as great as the tax revenues raised, according to a new report from the Pacific Research Institute’s Laffer Center.

The report by economists Art Laffer and Peter Ferrara comes in response to the most recent iteration of the proposal, expressed in in President Barack Obama’s Fiscal Year 2016 budget. As tax-writing committees in both houses of Congress consider tax reform proposals – particularly around issues dealing with the corporate tax and treatment of “offshore” income – Laffer warns that protectionist taxes on offshore reinsurance should not be considered as part of the mix of policy prescriptions.

The economic effect of the proposal would be to raise the cost of capital and force insurers into less efficient and more vulnerable capital structures, with less risk spreading and global risk diversification. The result of that would be to raise the cost of insurance for consumers and business, particularly property and casualty insurance against such risks as hurricanes, earthquakes, and terrorism, as insurers seek to pass on the cost of the tax. The proximate result would be less essential insurance coverage against such risks. This consequence particularly harms small businesses, which cannot grow or even enter a market, without essential, affordable, insurance coverage; in addition, inadequate insurance coverage could impair a small business’ ability to stay in business following a catastrophic event.

Long-sought by a handful of domestic companies – with Connecticut-based W.R. Berkley Corp. being perhaps the most vocal and prominent advocate – the proposal seeks to counter what proponents say is a pattern of “income stripping” by U.S. affiliates of insurers and reinsurers domiciled in no-tax jurisdictions like Bermuda or low-tax jurisdictions like Ireland and Switzerland. The foreign-based companies, advocates of the proposal contend, use offshore affiliates to reinsure business written in the United States to avoid paying U.S. corporate taxes, which are among the highest in the developed world.

But affiliate reinsurance is actually a tremendously common practice among U.S. insurers, both for those headquartered here and abroad. According to SNL Financial data, nearly half of U.S. companies cede at least 60 percent of their premiums to affiliates and more than a third cede more than 90 percent of their premiums to affiliates. In most cases, the practice is used to be prepared to deploy resources swiftly and effectively across a variety of geographies and lines of business.

Affiliate reinsurance business transacted across international borders is subject to a 1 percent excise tax under U.S. law. Moreover, such transactions are scrutinized by the Internal Revenue Service and state regulators to ensure they represent true risk transfers. The Global Federation of Insurance Associations notes that in an October 2013 paper that existing rules require affiliate reinsurance “to be on arm’s length terms and priced in accordance with the current OECD arm’s length pricing guidelines.”

Laffer and Ferrara also note that the tax law changes are likely to violate a host of international trade obligations and U.S. international tax treaties.

The proposal to disallow deductions for reinsurance premiums paid to foreign affiliates is stealth trade protectionism advanced by domestic U.S. insurers and reinsurers seeking protection from foreign competition. Such trade protectionism under the guise of federal tax policy would violate the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO). Indeed, the United States is not just a signatory to that agreement. The agreement is the result of U.S. international trade policy going back decades and it reflects the global leadership of the U.S. government in promoting international adoption of the agreement and the policies it embodies.

The report draws significantly from earlier studies of the issue, most notably a July 2010 report from Michael Cragg, J. David Cummins and Bin Zhou of the Brattle Group analyzing the impact of legislation introduced in the 111th Congress by Reps. Richard Neal, D-Mass., and Bill Pascrel, D-N.J., and more recently, a February 2015 study from Alan Cole of the Tax Foundation.

The Brattle Group study had found the proposal would cause the supply of insurance in the United States would fall by between $11.2 billion and $12.7 billion, while buyers would be forced to pay between $11 billion and $13 billion in additional premiums. The end result would be rising costs for many of the riskiest lines of business, including premium hikes of between 7.4 percent and 8.7 percent for earthquake coverage and rises of between 7.1 percent and 7.3 percent for products liability coverage. The impact would be particularly strong in catastrophe-prone states like California, Texas and Louisiana, with Florida homeowners and businesses expected to pay a combined $530 million more per year in property insurance premiums.

The Tax Foundation study concluded that the tax change would raise the cost of capital by 0.3 percent, lowering private business capital by $7.8 billion and household capital by $2.2 billion. Taking the dynamic effects of lower capital stock and labor productivity into account, the foundation projects the proposal would raise just $440 million in new tax revenue in its first year, significantly less than the $710 million projected by the Joint Committee on Taxation.


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D.C. appeals court rules some iPhone trademarks invalid

May 19, 2015, 8:41 AM

A $930 million verdict against South Korean phone maker Samsung that claimed its Galaxy phone infringed patents held by Apple could be knocked down by as much as $382 million, under a May 18 decision issued by the U.S. Court of Appeals for the Federal Circuit.

A three-judge panel of the D.C.-based appellate court, the federal appeals court with jurisdiction over patent-related cases, upheld Apple’s claims that Samsung infringed three design patents and two utility patents registered for the company’s iPhone and iPad products, but ruled that the company could not prevail on two claims that its “trade dress” had been diluted.

In August 2012, a jury initially awarded Apple $1.049 billion in finding that Samsung had infringed Apple’s trade dress and a variety of both design and utility patents on the iPhone. Those included registered design patents for the phone’s rounded corners, tapered edges and home button:

And for its graphical display of on-screen icons:

The U.S. District Court for Northern California later upheld $639.4 million of the damages, but ordered a retrial on the balance, finding that Samsung had not been properly notified for part of the infringing period. A damages verdict of $929.9 million was finalized by the court in March 2014.

But the appellate court took issue with Apple’s claims that Samsung diluted both its registered trademark for the design of the iPhone’s 16 home screen icons, set against a black background within a rectangular screen with rounded silver edges, as well as an unregistered trade dress assertion made under the Lanham Act. Apple contended in its trade dress claim that its products were uniquely identifiable as those that include:

a rectangular product with four evenly rounded corners;

a flat, clear surface covering the front of the product;

a display screen under the clear surface;

substantial black borders above and below the display screen and narrower black borders on either side of the screen; and

when the device is on, a row of small dots on the display screen, a matrix of colorful square icons with evenly rounded corners within the display screen, and an unchanging bottom dock of colorful square icons with evenly rounded corners set off from the display’s other icons.

The appeals court found that Samsung could not be held liable for diluting either claim, largely on grounds that Apple had failed to demonstrate that the design features in question were purely ornamental and served no utilitarian purpose. On the registered trademark, the court ruled that it was “clear that individual elements claimed…are functional” and thus not protected.

For the unregistered trade dress claim, they found that Apple failed to show how alternative design schemes would have offered exactly the same features, that its advertising stressed how the phone’s design and user interface rendered it “easy to use” and that the company offered no evidence that the design elements were not chosen on grounds that they were relatively simple and inexpensive to manufacture.

Apple fails to rebut the evidence that the elements in the unregistered trade dress serve the functional purpose of improving usability/ Rather, Apple focuses on the ‘beauty’ of its design, even though Apple pursued both ‘beauty’ and functionality in the design of the iPhone. We therefore reverse the district court’s denial of Samsung’s motion for judgment as a matter of law that the unregistered trade dress is functional and therefore not protectable.

While the decision, which remands to a jury the decision on final damages, represents only a partial victory for Samsung, it is a significant victory for innovation policy. While utility patents expire 20 years after they are filed and design patents expire 14 or 15 years after they are issued, trademarks and trade dress protections last forever. If allowed to stand, Apple would have enjoyed a perpetual monopoly on features that have become key to both the design and function of smartphones.

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Congress continues to withhold Congressional Research Service documents from the public

May 19, 2015, 8:09 AM

From Techdirt:

Like this request, which resulted in the CRS losing an analyst:

Why is the US Postal Service “stockpiling ammunition”? That sort of question helped lead CRS analyst Kevin Kosar to leave his job, he explained in an article in the Washington Monthly earlier this year (“Why I Quit the Congressional Research Service,” Jan/Feb 2015).

Nevada should take steps to foster a competitive electric market, R Street study finds

May 19, 2015, 8:02 AM

WASHINGTON (May 19, 2015) – Nevada lawmakers have a unique opportunity to set a national example for how best to regulate distributed generation, according to a new policy brief from the R Street Institute.

In “Governance in distributed generation: A Nevada case study,” R Street Energy Policy Director Catrina Rorke writes that, with Nevada approaching its current mandated limit on customer-generated power of 3 percent of peak-generation capacity, the time has come for changes.

“Recently circulated draft legislation aims to empower the state public utility commissions to oversee changes in the net-metering tariff and rate structures,” wrote Rorke. “It’s time for Nevada to choose between encouraging an innovative, competitive electric market and deferring to monopolistic interests.”

Rorke suggests guidelines for lawmakers to consider as they tackle the pending legislation. First, the arbitrary 3 percent limit should be lifted, as it serves as a de factolimit on choice for all but the earliest actors among Nevada’s electric consumers. That limit will be reached sometime in the second half of 2015, effectively closing the market to new adopters of distributed generation or solar power.

Rorke also suggests establishing a fair net energy metering model.

“The only way to ensure successful application of the DG and NEM services in the future is to require all users contribute appropriately toward the cost of maintaining the electrical grid,” she writes. “This could be accomplished by creating a new electricity rate class or by imposing a unique tariff that accounts for the infrastructure costs and public-support programs embedded in electrical rates.”

DG presents a market-based option to challenge the model of heavily regulated monopoly utilities, Rorke writes, noting that every user can become a power producer and sell that power to others.

“It is the duty of PUCs both to enable freedom of choice and to maintain a robust, reliable electric grid,” Rorke wrote.

Governance in distributed generation: A Nevada case study

May 19, 2015, 8:00 AM

Disruptive innovation has hit electricity markets. Just as disruptive technologies and services have revolutionized telecom and urban-transportation markets by expanding consumer choice, electricity customers can now take advantage of advances in electricity generation and metering technology to make their own power at home.

This is creating a massive structural change in electricity markets and presenting a significant challenge to the state regulators and utilities forced to determine how this new market can and should look. Gradually diminishing is the staid model of a single, large energy producer and a distribution network pumping electrons toward end users. Now, every user can become a power producer and, however briefly, sell that power to their neighbors.

This policy brief examines examines the case for distributed generation (DG) in Nevada and examines how that state currently deploys the resource. It also provides recommendations for how the state can leverage current legislative interest in DG to create a robust, competitive market for all users and producers.

Ninth Circuit strikes down order that YouTube take down ‘Innocence of Muslims’

May 18, 2015, 6:05 PM

The U.S. 9th Circuit Court of Appeals has overturned an order that YouTube take down the infamous video “Innocence of Muslims,” rejecting an actress’ claim that her brief and unwitting appearance in the film gave her a copyright in her performance that allowed her to prevent its distribution.

The decision overturned a February 2014 ruling from a three-judge panel of the same circuit. Judge Alex Kozinski, who had written the earlier opinion overturning a District Court’s refusal to grant an injunction, was the lone dissenter in the en banc ruling. Nine judges joined the majority opinion by Judge Margaret McKeown, while Judge Paul J. Watford offered a separate concurrence

The case involved plaintiff Cindy Lee Garcia, who appeared for just five seconds in the notorious film, but who nonetheless has been a target of intense threats ever since. As the Wall Street Journal summarized it:

Ms. Garcia answered a casting call for a minor role in a film to be titled ‘Desert Warrior,’ according to last year’s Ninth Circuit opinion. She was paid $500. Ms. Garcia said she thought the film was about the life of a typical Egyptian 2,000 years ago.

It wasn’t until the film was uploaded to YouTube that she saw the end result, according to the opinion. What she saw was a short anti-Islamic film called ‘Innocence of Muslims,’ in which she was portrayed as making anti-Muslim statements. According to the opinion, an Egyptian cleric issued a fatwa, calling for everyone involved in the film to be killed.

The court was not unsympathetic to Garcia’s plight, calling it “a heartfelt plea for personal protection”; but ultimately, they ruled, not one that could be made on grounds of copyright law.

Much of McKeown’s opinion was devoted to dissecting and ultimately rejecting Kozinski’s calculus that an individual performer could have a copyright interest in such a production, when it was the filmmaker, Mark Basseley Youssef, who actually fixed Garcia’s performance to media. Such a precedent would render the film industry itself all but unworkable, the court opined.

Take, for example, films with a large cast—the proverbial ‘cast of thousands’—such as Ben-Hur or Lord of the Rings. The silent epic Ben-Hur advertised a cast of 125,000 people. In the Lord of the Rings trilogy, 20,000 extras tramped around Middle-Earth alongside Frodo Baggins (played by Elijah Wood). Treating every acting performance as an independent work would not only be a logistical and financial nightmare, it would turn cast of thousands into a new mantra: copyright of thousands.

In fact, the decision noted, the U.S. Copyright Office rejected Garcia’s application to register her performance as a copyright. Ultimately, McKeown wrote, “the claim against Google is grounded in copyright law, not privacy, emotional distress, or tort law, and Garcia seeks to impose speech restrictions under copyright laws meant to foster rather than repress free expression.”

In light of the Copyright Act’s requirements of an ‘original work[] of authorship fixed in any tangible medium,’ 17 U.S.C. § 102(a), the mismatch between Garcia’s copyright claim and the relief sought, and the Copyright Office’s rejection of Garcia’s application for a copyright in her brief performance, we conclude that the district court did not abuse its discretion in denying Garcia’s request for the preliminary injunction. As a consequence, the panel’s mandatory injunction against Google was unjustified and is dissolved upon publication of this opinion.

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It really is hard to fire a fed

May 18, 2015, 9:21 AM

From GovManagement Daily:

A recent report from the Merit Systems Protection Board challenges the perception that it’s impossible to fire a federal employee. But in 1978 a Democratic Congress and president, lobbied by unions, erected a system that does make removing a federal worker all but impossible. To support its assertion, the MSPB noted that more than 77,000 federal employees had been fired over a decade and a half. That sounds like a big number. It is not. Adjusting to include only workers past their probationary period, we arrive at a figure of just 0.15 percent of federal employees who are shown the door each year. Statistically, that is pretty close to ‘impossible.’

Marketing maternity: Are we valuing the message over the medicine?

May 18, 2015, 8:00 AM

Imagine you’re a woman who just found out she is going to have a baby. You see a hospital advertisement for maternity care that includes words and phrases like “empowerment,” “personalized birthing plan” and “you decide.”

Sounds good, doesn’t it?

The advertisements present a menu of appealing services. Most pregnant mothers already want to have a say in the details of delivering their babies, so these advertisements play on that demand.

But what happens when the care provided doesn’t match marketing expectations?

It happened to a friend of mine, Caroline Malatesta, who is now in ongoing litigation with the hospital where she delivered her baby.

She chose the hospital based on their advertised flexibility and customization, discussed her birth plan with her doctor and arrived at the hospital assuming that the plan would be followed. During the delivery, she was told to lie on her back. When she protested that doing so was not part of the plan, the nurse simply told her that her doctor wasn’t on call.

A physical struggle ensued, forcing her to lie on her back. The child was delivered healthy, but instead of a joyful experience, Caroline now suffers permanent injuries.

While she didn’t have a specific birth plan, my wife delivered two of our sons at the same hospital and our experiences were positive.

But that’s the point.

Every interaction with health-care services is different. There are so many layers, protocols and decision-makers that the range of services offered to a single patient cannot possibly be captured in a short television or radio spot.

In the instance of maternity care, hospitals have their rules and protocols and the physicians who perform deliveries often operate as independent contractors with another list of delivery policies. Before a prospective mother ever voices her preferences, she faces a network of predetermined restrictions that may seriously and uniquely limit what has been advertised to her as a “customized” experience.

Add to the mix the fact that the on-call physician may have different rules than the patient’s regular doctor and “customized” might become “confusing” quickly.

The question we need to answer is whether marketing of maternity services should more closely resemble that of pharmaceuticals or if there is another way to make sure health-care consumers are adequately informed.

Testimony to City of Sonoma on e-cigarette flavoring

May 18, 2015, 7:30 AM

Mayor Cook, ladies and gentlemen of the council, my name is Ian Adams and I am the Western region director of the R Street Institute. Thank you for the opportunity to offer these comments on the ordinance before you today to, among other things, circumscribe the availability of flavored tobacco products.

R Street is a nonprofit, free-market think tank based in Washington, though I hail from Sacramento. We have worked for years at the federal, state and local levels to encourage policies that reduce the harm that tobacco products cause.

Toward that end, we agree with many of the aspirational sentiments expressed in Section I (Findings) of the proposed ordinance. Preventing minors from gaining access to tobacco products is crucial. We are encouraged by the inclusion of a positive identification requirement in Section II (proposed Sec. 7.25.020(d)) of the draft. Requiring individuals that appear to be under the age of 27 to present identification at the time of purchase is a concrete and productive step toward curtailing the availability of age-restricted products to minors.

But other proposed amendments to Chapter 7.25 of the City of Sonoma’s municipal code are problematic. Sec. 7.25.020(h), which seeks to circumscribe the availability of flavored tobacco products, is particularly flawed.

The rationale for introducing a flavor ban is to reduce the appeal of tobacco products to minors. That rationale is predicated on the intuitively plausible assumption that minors find the idea of flavored tobacco more appealing than traditional tobacco to such an extent that they will be driven to seek access to flavored products. That assumption is flawed. No meaningful nexus has been established between tobacco flavoring and underage tobacco use. In fact, there is academic literature that speaks to that very point.

A study published in January 2015 by Oxford University Press, in the Journal of Nicotine & Tobacco Research, found that tobacco flavor descriptions do not have a bearing on the propensity of nonsmoking teens to show interest in tobacco products. What’s more, the study also found that adult smokers of traditional cigarettes show far more interest in e-cigarettes, which are less harmful than their combustible alternatives, when flavorings are available.

Thus, proposed Sec. 7.25.020(h) will, lamentably, not accomplish its goal of reducing youth exposure to tobacco products while simultaneously making it more difficult for adult smokers to reduce the harm they currently experience from smoking traditional cigarettes.

Preventing youths from accessing tobacco products is crucial. But public policy must be moored to more than a hoped-for outcome. The weight of scientific evidence simply does not support the introduction of a de facto ban on flavored tobacco products.

In summary, the City of Sonoma would do no service to its youth, and would do an active disservice to its residents who currently smoke traditional cigarettes, by adopting Sec. 7.25.020(h).

New study shows how Florida Citizens subsidizes the rich

May 18, 2015, 7:00 AM

The policy subsidies offered by Florida’s state-run Citizens Property Insurance Corp. flow disproportionately to the wealthy and, in concert with similarly regressive subsidies from the National Flood Insurance Program, serve primarily to encourage more development in risky regions along the coast.

That’s the conclusion of new research produced by scholars at the Coase-Sandor Institute for Law and Economics who analyzed policy-level data from Citizens to quantify the extent to which its subsidies benefit those in wealthier ZIP codes who buy more coverage.

In their working paper, scholars Omri Ben-Shahar of the University of Chicago Law School and Kyle Logue of the University of Michigan Law School cite U.S. Census Bureau data showing that population in Florida’s coastal regions more than quadrupled between 1960 and 2008, growing by 10 million people. Not even massive storms like 1992’s Hurricane Andrew managed to slow this trend, as the state’s coastal property had, as of 2012, an insured value of $2.8 trillion, constituting 79 percent of the state’s total property exposure.

The authors highlight as a major contributor to this trend the below-market rates charged for flood protection by the NFIP, noting that the program’s policy count spiked from 1.9 million in 1980 to more than 5 million in recent years. What’s more, they note, numerous independent data sets establish that the NFIP disproportionately benefits wealthier Americans, starting with a 2007 Congressional Budget Office analysis that found the median range for homes insured by the NFIP was $220,000 to $400,000, compared to the then-U.S. median of $160,000. For those who receive subsidized policies (the kind that were supposed to be phased out by 2012’s Biggert-Waters Act), more than 80 percent lived in the top quintile of wealthiest counties in the country.

As we’ve covered in this space in great detail, Congress later reneged on its plan to phase out all of the NFIP’s policyholder subsidies, which generally leave beneficiaries paying one-third or less of the premiums that would be prescribed by actuaries. The rationale for preserving the subsidies – that they were needed to help lower- and middle-income Americans to afford to remain in their homes – is particularly galling in light of the available data. Logue and Ben-Shahar note that roughly 40 percent of subsidized coastal properties are worth more than $500,000 and roughly 12 percent are worth more than $1 million. Indeed, it turns out that nearly a quarter of coastal properties receiving subsidized NFIP rates aren’t even the homeowner’s primary residence.

But in important new findings, the researchers then go on to demonstrate how similar patterns prevail in the properties insured by Florida Citizens. Using policy-level data obtained from Citizens through open public records requests – a far more detailed level of data than the county-level aggregates kept by the Federal Emergency Management Agency for the NFIP – Ben-Shahar and Logue map who is getting the biggest breaks on their home insurance. The pattern, in which greater subsidies are shaded in darker green, shows that wealthier coastal regions (notably Monroe County, which makes up the Florida Keys, and where rates would need to be increased 126.5 percent to fully cover the risk) get the biggest subsidies, while inland zones often are paying more than their fair share. Red dots on the map indicate ZIP codes where the median home value is at least three standard deviations more than Florida’s statewide median.

But by comparing the degree of subsidy with individual policies’ coverage limits and median household values within each ZIP code, the researchers were able to drill down even further to find the extent to which subsidies flow regressively to wealthier Floridians. The first table here summarized those findings, which were that a 1 percent increase in coverage limits correlated with a 1.052 percent increase in the amount of subsidy and a 1 percent increase in average home values corrected with a 0.484 percent increase in the amount of subsidy.

Logue and Ben-Shahar then went further still, calculating the relative value of each policy’s subsidy. As the authors explain:

To do this, we created a synthetic benchmark in which the subsidy pool (the total amount of subsidy for all policies within the dataset) is divided pro rata across the policies, under the (counterfactual) assumption that all policies receive the same indicated rate change—the same percent discount. We denoted this benchmark as a ‘unit subsidy,’ with all policies receiving exactly one unit. We then compared this unit-subsidy benchmark with the actual percent discount each policy received. This created a distribution of ‘percent subsidies,’ some receiving more than the unit benchmark, others receiving less. We measured whether this ‘percent subsidy’ distribution was correlated with household wealth.

And, surprise surprise, it was! Under this model, a 1 increase in coverage limits correlated with a 0.847 percent increase in the percent of subsidy and a 1 percent increase in average home values correlated with a 0.571 percent increase in the percent of subsidy. Both findings, the authors report, were “highly significant.”

Finally, they conclude that even these findings may, in fact, be underestimating the reality

The estimates we derived for the correlation between wealth and subsidy probably understate the true magnitude of the pro-affluent advantage. First, one of our measures of wealth—policy coverage limit—is capped by Citizens’ rules, which means that we are not measuring the true wealth of the people who buy maximal coverage, and are therefore deriving downward-biased correlations. Second, Citizens’ report of the subsidies—the indicated rate changes—understates the subsidies’ true magnitude. Citizens does not take into account some of the costs of providing insurance—costs that private insurers would incur in running an insurance scheme. Specifically, when Citizens calculates the amount of the indicated rate change, it does not build into it the cost of reinsurance—an insurance reserve necessary to protect it against the risk of pricing errors or unexpected spikes in losses.


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