Yesterday, Federal Communications Commission Chairman Ajit Pai announced his intention to reverse Obama administration “net neutrality” rules governing the internet that were put in place in 2015. Some commentators are criticizing the announcement as a give‐away to large telecom companies and an attack on consumers. But the Obama rules create some serious problems for consumers—problems that Pai says he wants to correct.
Under the Obama rules, internet service providers (ISPs) are subject to “rate‐of‐return” regulations, which the federal government previously applied to AT&T’s long‐distance telephone service back when it was a monopoly more than 50 years ago. Ostensibly, rate‐of‐return regulation gives government officials the power to review and approve or reject ISP rates. In reality it basically guarantees ISPs government‐enforced market protection and profitability, in exchange for regulators ensuring that ISPs won’t be too profitable.
As explained in this 2014 post, rate‐of‐return regulation involves more than just telecom. It is an attempt to settle fights between “producers” and “shippers”—whether those are farms, mines, and factories on one side and railroads and shipping lines on the other, or Netflix and Hulu on one side and ISPs on the other. In all those cases, the producers and shippers need each other to satisfy consumers, but they fight each other to capture the larger share of consumers’ payments. If shippers charge more, then farmers, factories, and Netflix must charge less in order to maintain the same level of sales.
The political resolution of the producer–shipper fights was the Interstate Commerce Act of 1887 and its rate‐of‐return regulations, which were initially written with railroads in mind. Similar efforts were later extended to trucking, air transportation, energy, and telecom. It took about 100 years for policymakers to accept that those efforts hurt consumers much more than it helped them, forcing on consumers too many bad providers with high prices and poor quality.
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Will Republicans Expand ObamaCare?
Back when the GOP was selecting its nominee for president last year, I warned my Republican friends that on ObamaCare, Donald Trump might be worse than Hillary Clinton:
Good ol’ partisanship would stop Hillary Clinton from expanding ObamaCare even a little. A faux opponent like Trump could co‐opt congressional Republicans to expand it a lot.
I even quipped that a President Trump might sell out ObamaCare opponents for 10 feet of border wall.
It looks like my prediction was eerily accurate. Even as the House Republican leadership and President Trump claim they are moving legislation that would repeal and replace ObamaCare (it wouldn’t), Trump is offering to expand ObamaCare in return for Democratic cooperation in funding a new border wall.
ObamaCare requires participating insurers to offer more comprehensive coverage to low‐income enrollees, with the understanding that Congress would compensate insurers for that added cost. The thing is, the Democratic Congress and president that enacted ObamaCare never appropriated funding for those so‐called cost‐sharing subsidies. President Obama initially recognized the lack of an appropriation, but then began issuing those subsidies anyway–because ObamaCare would have collapsed if he hadn’t.
By that time, Republicans had taken over the House of Representatives, and they sued the Obama administration in federal court for encroaching on Congress’ power of the purse by spending federal funds without an explicit appropriation. A federal judge sided with the House. She ruled that paying those cost‐sharing subsidies “violates the Constitution,” and ordered that they stop, pending an appeal, which the Obama administration timely filed.
That was the state of play when President Trump took office. His administration now has three choices.
- It can declare that it agrees with the court’s ruling and enforce the court order. This would mean ending the illegal payments that are the only reason ObamaCare is still on the books. If Trump ends those illegal subsidies, it is likely that even more insurers will announce they are leaving the Exchanges. As I have written elsewhere, taking this step would create even more pressure on Congress to repeal ObamaCare, particularly the law’s community‐rating price controls that are causing health insurance markets to collapse.
- It can appeal the lower court’s ruling. This is the strategy the Obama administration pursued. It would be an awkward step given that Trump’s attorney general Jeff Sessions and Secretary of Health and Human Services Tom Price have each stated they believe these payments are unconstitutional.
- It can ask Congress to appropriate the subsidies. This may be the most politically awkward option of all. It would mean the first legislative change that congressional Republicans and the Trump administration make to ObamaCare would not be to repeal it, but to expand it. Funding cost‐sharing subsidies would mean Republicans would be providing more money for ObamaCare than a Democratic Congress did at the height of its power.
According to Reuters, the Trump administration has chosen option #3:
Read the rest of this post →President Donald Trump put pressure on Democrats on Sunday as U.S. lawmakers worked to avoid a government shutdown, saying Obamacare would die without a cash infusion the White House has offered in exchange for their agreement to fund his border wall…
Spending legislation will require Democratic support to clear the Senate, and the White House says it has offered to include $7 billion in Obamacare subsidies to help low‐income Americans pay for health insurance, if Democrats accept funding for the wall.
Protections on Steel Hurt Downstream Exporters
It has been widely reported that President Trump may impose high tariffs on steel imports on national security grounds. Scott Sumner has a good summary on why this rationale is not particularly convincing. But even if President Trump is not persuaded by Sumner on national security, perhaps he will be interested to hear how protectionism will affect the other manufacturing industries he purports to want to flourish.
Last year, a paper by economist Bruce Blonigen explored the impact of industrial policies in steel on downstream industries, i.e. those where steel is an input to the production process. Unsurprisingly, less openness to foreign competition through direct protection or state support or privileges raises the price of steel within a country. This in turn raises costs for downstream industries such as fabricated metals and machinery manufacturers.
More pertinently given Trump’s obsession with trade deficits, Blonigen’s work suggests the effect of this cost increase is to significantly reduce exports from these industries. The headline result is that a one standard deviation increase in industrial policies associated with steel leads to a 1.2 percent decline in the export competitiveness of the average manufacturing sector in the years immediately after implementation. For those that use steel intensively, the decline is as large as 6 percent.
If President Trump really wants an export‐led manufacturing jobs boom then, his steel policies are utterly self‐defeating.
Four Decades of Carter’s ‘Moral Equivalent of War’
Forty years ago tonight, President Jimmy Carter delivered his Address to the Nation on National Energy Policy, better known as the “Moral Equivalent of War” speech. Seated behind his ornate desk in the Oval Office and wearing a sober pinstriped suit, he offered a litany of dark predictions:
- “The oil and natural gas we rely on for 75 percent of our energy are running out.”
- “Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil than it can produce.”
- “World oil production can probably keep going up for another six or eight years. But some time in the 1980s it can’t go up much more. Demand will overtake production. We have no choice about that.”
- “We can’t substantially increase our domestic production…”
- “Within ten years we would not be able to import enough oil—from any country, at any acceptable price.”
- “If we fail to act soon, we will face an economic, social and political crisis that will threaten our free institutions.”
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Adult Rights for Adult Businesses
An ordinance of the City of Sandy Springs, Georgia, prohibits the sale of sex toys. Businesses and individuals have challenged this statute as unconstitutional under the Fourteenth Amendment’s Due Process Clause in controlling their consensual, sexual behavior in the privacy of their homes. The district court and a panel of the U.S. Court of Appeals for the Eleventh Circuit upheld the ordinance given the Eleventh Circuit precedent of Williams v. Attorney General (2004), which upheld an Alabama sex‐toy‐sales ban.
Cato has now joined the DKT Liberty Project on a brief to the entire (en banc) Eleventh Circuit asking it to overturn Williams, which is inconsistent with more recent Supreme Court precedent in United States v. Windsor (2013) and Obergefell v. Hodges (2015) (the DOMA and same‐sex marriage cases, respectively). Williams had relied on Washington v. Glucksberg (1997), where the Supreme Court declared that for a right to be protected under the Fourteenth Amendment, its specific articulation must be “deeply rooted in our history and traditions” or “fundamental to our concept of constitutionally ordered liberty.”
Williams upheld the law after finding no history or traditions concerning sex toys, though the Fifth Circuit disagreed in 2008 in striking down a similar Texas restriction. Windsor and Obergefell then raised the protection of rights concerning private sexual intimacy and Obergefell described this right as “fundamental.” Obergefell also explicitly rejected the Glucksberg test, at least as applied to sexual intimacy, as “inconsistent with the approach this Court has used in discussing other fundamental rights.”
Williams also misinterpreted Lawrence v. Texas (2003), which in striking down a ban on homosexual sodomy made clear that it wasn’t merely the right to perform “a particular sexual act” that was in question in these intimacy cases, but the infringement of rights regulating “the most private human conduct, sexual behavior, in the most private of places, the home.” Lawrence also made clear that state assertion of a “morality” interest isn’t a sufficient justification for limiting the right to adult sexual intimacy. Lawrence held that, as to “whether the majority may use the power of the State to enforce these [moral] views on the whole society,” the answer is no.
Legislative Takings Are Still Takings
The Fifth Amendment’s Takings Clause states that the government may take no property for public use without just compensation. Unfortunately, local governments often see the Takings Clause not as a fundamental safeguard of liberty so much as an inconvenient obstacle getting in the way of preferred policy outcomes.
One way cities have devised to avoid their obligations to provide just compensation is to condition issuance of land‐use permits on landowners’ surrendering property rights the government would otherwise have had to pay for (what’s a little extortion between friends). That’s exactly what the City of West Hollywood is attempting to do with a zoning ordinance that requires developers who build multi‐unit housing to either (1) sell or rent a percentage of that housing at below‐market prices or (2) pay an “in lieu” fee that the city calculates using a formula created by statute.
Shelah and Jonathan Lehrer‐Graiwer sought a permit to build an 11‐unit development and elected to pay the in‐lieu fee under protest, later challenging it as an unconstitutional taking. The trial court, following binding state‐court precedent, found in favor of the city, and the California Court of Appeals affirmed. Now the property owners seek U.S. Supreme Court review.
Cato, joined by Reason Foundation and the National Association of Home Builders, and with the assistance of Antonin Scalia Law School’s Supreme Court clinic, has filed a brief supporting that request.
Under the Supreme Court’s decisions in Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994), the government may not require a property owner to surrender a constitutional right (here, to just compensation for a taking of private property) in exchange for permit approval unless there’s an “essential nexus” between the conditions and an alleged harm that would be caused by the development. The conditions must also be roughly proportional to the expected impact.
DC Child Care Policy: Restrict Supply, Then Subsidize It
Last week, I highlighted how the DC authorities will be “among [the] first in [the] nation to require child‐care workers to get college degrees.” Basic economics tells us this will restrict the supply of potential careers, raise prices, and, I fear, over time lead to a demand for more subsidies to “make child care more affordable.”
There was another possibility I did not explore. Today’s Washington Post suggests that subsidizing supply is on the agenda instead:
Mayor Muriel E. Bowser (D) has offered a $15 million proposal to address the acute shortage of licensed child‐care options for the city’s infants and toddlers, an issue that has gained urgency amid a baby boom. Her 2018 budget includes competitive grants to help high‐quality providers expand or open centers and would also make space available for child‐care facilities in three city‐owned or leased buildings.
A basic principle that policymakers should follow is “first do no harm.” DC has a general affordability and availability problem, which is screaming “restricted supply.” But now the DC authorities are having to subsidize supply in part to overcome the reductions in supply caused by their own policies. Watch for calls for more demand‐side support next.
The result? More and more government control over this crucial economic, social, and familial aspect of life.