CEI - Liberate To Stimulate

Osorio/Crews
Liberate to Stimulate
A Bipartisan Agenda to Restore Limited
Government and Revive America’s Economy
Liberate
to
Stimulate
competitive enterprise institute
Competitive Enterprise Institute

A Bipartisan Agenda to Restore Limited

Government and Revive America’s Economy
Edited by Ivan Osorio and Wayne Crews

1899 L Street NW, 12th Floor
Washington, D.C. 20036
Ph: (202) 331-1010
Fax: (202) 331-0640
http://cei.org
Copyright © 2010 by Competitive Enterprise Institute

Table of Contents
Introduction
Reining in America’s Regulatory Leviathan: America Gets a Second Chance v
Secure the Economy

Deregulate to Stimulate 3
Rein in the $1.75 Trillion Regulatory State 5
Reform Federal Agriculture Programs 6
End Bailouts and Government Ownership in Fannie/Freddie, GM, AIG, and Other Entities 7
Free Smaller Companies to Go Public by Rolling Back Burdensome
Sarbanes-Oxley Accounting Rules 9
Suspend Mark-to-Market Rules and Make Accounting Regulators Accountable 11
Recognize the Value of Hedge Funds and Private Equity for Entrepreneurs and Shareholders 13
Encourage Credit Access Innovation 15
Avoid Energy and Global Warming Policies that Pose Greater Risks than Global Warming 17
Increase Access to Energy 19
End Federal Support for Renewable Energy 21
Oppose Efforts to Impose Pro-Organized Labor Rules through Regulation 22
Eliminate Wage Ceilings for Unionized Workers 24
Oppose Taxpayer Bailouts of Underfunded Union Pension Funds 25
Resist Forced Unionization of Public Safety Personnel 26
Resist Anti-Consumer Antitrust Regulation 27
Regulate Government Data Collection while Avoiding Prescriptive Privacy Regulation 28
Forge a Bipartisan Approach to End Corporate Welfare 30
Develop Smart Policies to Help Homeowners Deal with Natural Catastrophes 31
Liberalize Homeowners’, Automobile, Life, and Commercial Insurance Regulation 32
Phase Out the National Flood Insurance Program 33
Let Market Forces Regulate Internet Gambling 34
Allow Immigrants Full Access to the American Economy 35
Protect Federalism 37
Avoid Hindering the Internet’s Evolution through Net Neutrality Regulation 38
Protect Free Speech by Rejecting Content Regulation 40
Advance a Global Pro-Trade Agenda 41
Counteract Politicization of Federal Science Policy 43
Resist New Burdens on the Transportation Sector 44
Put Mobility First in Surface Transportation 46
Reform the Transportation Security Administration 48
Protect the Environment

Restore the Constitutional Right to Property 53
Embrace Private Conservation of Land and Natural Resources 54
Protect Endangered Species 55
Clarify the Role of Invasive Species 56
Develop New Approaches to Preserve Ocean Resources 57
Trash Counterproductive Waste Disposal Policies 58
Recognize the Elitist Nature of Anti-Sprawl Measures 60
Affirm the Role of Property Rights in Water Rights Policies 61
Reform Wetlands Policies 62
Improve Health and Safety

Reject the Precautionary Principle, a Threat to Technological Progress 65
Reduce Burdensome Regulation of Medicines and Medical Devices 67
Purify Federal Water Policies 69
Ensure Consumers’ Access to Bottled Water 70
Enhance Auto Safety 71
Improve Food Safety and Quality through Greater Information, Consumer
Choice, and Legal Accountability 72
Protect Incentives for Pharmaceutical Innovation 74
Contributors 76
iv 202-331-1010 • www.cei.org • Competitive Enterprise Institute

Introduction
Reining in America’s Regulatory

Leviathan: America Gets a Second Chance
By Fred Smith
My grandmother used to tell me, “It doesn’t encouraged irresponsible and erratic actions.
matter whether your socks are red or blue, you The continuation of the recession owes much
should change them frequently.” Americans did to the fact that few entrepreneurs find it pru-
just that recently. To change metaphors, voters dent to invest in a world where rules change
have chosen many new horses to run on the po- unpredictably and constantly at the whim of
litical race track. So far, this new team seems regulators.
promising. They have killed the House climate- Opportunities abound for true reform in the
change subcommittee and refused to increase new Congress, and CEI is proposing a strategy
taxes. Yet the Washington race track still veers to pursue them. We are confronting all forms of
left. Our challenge is to pull the reins of these state intervention head on—including govern-
new entries toward limited government. ment mandates, regulations, subsidies, private
We at the Competitive Enterprise Institute sector rent-seeking, and the moral hazards cre-
(CEI) have spent 26 years raising the saliency of ated by the socialization of risk. To that end,
regulations on our economy. Taxes and spend- this Agenda for Congress outlines actions to ad-
ing receive plenty of public scrutiny, which vance a world of freedom and responsibility—a
makes regulation an increasingly attractive op- restoration of the Founders’ vision of limited
tion for those who favor greater political inter- government.
vention in the economy. Our goal is to ensure Unlike their European counterparts, who
that regulations are subject to the same degree sought outright government ownership of in-
of oversight as taxes, spending, and legislation dustry, 20th-century American Progressives
in general. The Tea Party movement’s success left the illusion of free markets in place, while
in the recent elections suggests that awareness imposing an array of mandates on businesses
of these burdens is growing. Thus, we are more via taxes, regulations, and subsidies. Under the
hopeful that economic liberty and regulatory European model of direct government owner-
reform will make some significant headway ship, the costs of statist policies are more ap-
in 2011. To further that goal, CEI is unveiling parent and easily attributable to politics. In
a Liberate to Stimulate deregulatory agenda, contrast, the American regulatory welfare state
which is summarized in this document. hides costs from government balance sheets,
The mixed economy has weakened market and those costs are borne by businesses and
disciplines, while overreaching regulations have consumers. Political failures are blamed on the
202-331-1010 • www.cei.org • Competitive Enterprise Institute v

private sector, making it all the more difficult to Botched, partial deregulations have ham-
rein in the regulatory state. We seek to find cre- pered many sectors of the economy—including
ative ways of disciplining the excesses of gov- such crucial network industries as electricity,
ernment, a task needed now more than ever. telecommunications, and airlines. The solution
In 2011, we will have a new team in is not increased state control or infrastructure
Washington. Freshman legislators, backed by subsidies, but true liberalization. The imme-
their constituents, have promised to reduce the diate challenge is to fight against the typical
size of government. But that effort will not be Washington “do something” mantra—that is,
easy. After all, the weakening of the limits on to “do something” to expand the government’s
government power took over a century, begin- role—and, instead, ask legislators to remove
ning with the Progressive era in the early 20th and reduce the barriers to economic growth.
century. There are no magic bullets to dismantle CEI believes that “doing something” can mean
Leviathan. Decades of overspending, overregu- doing less: Congress doesn’t need to tell the
lating, and overintervening must be rolled back grass to grow; rather it need only move the
incrementally, as they were imposed. Recall that rocks off of it!
in 1994, small-government Republicans roared With major opportunities, come major
into Washington with an ambitious reform risks. As a Louisianan, I am well aware of
agenda—and soon became mired in the bogs populism’s allure in the name of “helping the
of the Beltway. If today’s Republicans replicate little guy,” even when that help hurts everyone
their predecessors’ mistakes, their tenure will else and creates long-lasting economic damage.
be even briefer. The Bush-Obama interventions in areas like
Real change is needed. The economic health, education, finance, and the environ-
“emergency” measures advanced by the Bush ment threaten the dynamism of America’s mar-
and Obama administrations have done little to ket economy. We will work, as we always have,
alleviate the financial crisis—and likely made with lawmakers of both parties to oppose bad
it worse. Top-down solutions have failed. ideas, and to advance good ones.
Attempts to continue this approach are un- In recent Congresses, both Republicans
likely to result in political gains. The disasters and Democrats massively expanded the federal
unfolding in Greece and Ireland, and threaten- government—and voters punished them for it.
ing all of Europe, drive that lesson home. Back Now the voters have granted the Republicans
home, California, Illinois, and other states a tentative trust to set the ship of state aright.
teetering on bankruptcy from overspending They can deliver on this charge in today’s glo-
and unfunded state retirement pensions create balized world and retain their power only if
pressures for further bailouts that must be re- they succeed in crafting, marketing, and imple-
sisted. menting a truly pro-growth agenda.
CEI will work with the new Congress on Economic liberalization must lie at the
advancing solutions to these issues. We look heart of that agenda. This volume offers policy
forward to sharing our ideas on how to jump- proposals to the reformers of all parties to help
start the nation’s economic engine, to reengage boost economic and personal liberties. It will
America’s entrepreneurial spirit. We have a lot be an interesting few years. We plan to see this
of work to do. race to the finish.
vi Competitive Enterprise Institute • www.cei.org • 202-331-1010

Secure the Economy
Deregulate to Stimulate
By Wayne Crews
When it comes to our economy, how did tified under the notion that government must
we get into this mess and how do we get back help society manage risks. Yet the state does not
to sustained growth? The need to deregulate provide the answer to every societal risk.
the nation’s productive sector shouts at us, but Instead, we must turn to the marketplace’s
Congress doesn’t seem to hear it. disciplining role in consumer protection, which
Government spending is out of control, but boosts safety as a competitive feature. We must
when we fail to confront regulation, we are improve competitive markets’ ability to im-
missing most of the story behind the expanding pose discipline in the form of reputation and
state. Even before the financial crisis and the disclosure.
subsequent huge bailouts and stimulus bills to Consider further that some of our most eco-
supposedly address that crisis, government was nomically distressed industries have long been
already expanding to gargantuan levels. overwhelmingly directed by Washington regu-
Today, America’s government is the larg- lators, not market forces. I do not know of a
est that has ever existed. President George W. time over the past 100 years when the govern-
Bush’s $3.1 trillion budget was the first ever to ment did not regulate money, credit, and inter-
reach that level. His administration also pro- est rates in America—yet markets always take
duced the first-ever $2 trillion budget. President the brunt of the blame for financial crises, as
Obama has shown little inclination to reverse the new Dodd-Frank financial reform bill in-
this trend. dicates. Markets can deal with firms too big to
Regulations on the private sector continue fail—what we cannot afford is a government
to mount alongside this spending spree. CEI’s too big to succeed!
annual Ten Thousand Commandments report Until now, most regulatory reform efforts
cites regulatory costs of well over $1 trillion—a have amounted to going after Moby Dick with
hidden tax one-third the size of the federal bud- a rowboat and tartar sauce. What we need
get! now is sweeping liberalization, to remove the
Yet regulatory costs draw much less pub- impediments that hobble wealth creation and
lic rebuke than taxes, because they are often enterprise on unprecedented scales. We need
concealed in the prices of goods. Thus, when rational alternatives to interventionism and to
politicians find it difficult to raise taxes to pay the regulatory nanny state. In short, we need to
for their policy goals, they regulate. This is jus- liberate to stimulate.
202-331-1010 • www.cei.org • Competitive Enterprise Institute 3

The issue is not whether industry has to be Finally, Congress should create a Regulatory
regulated, or “planned.” Rather, it is over who Report Card—possibly modeled on Ten
will do that planning, as the legenday Nobel Thousand Commandments—to accompany the
Prize-winning economist F.A. Hayek put it so federal budget, in order to shed light on the cur-
well. Consciously maintaining a sensible wall rently hidden tax of regulation.
of separation between state and economy must Our economic downturns are not attribut-
guide the agenda to restore America’s competi- able to market failure but to the the failure
tiveness and economic health. to have markets. The bold political action
The United States—now only 235 years and genuine leadership needed in today’s cri-
old—became richer than the rest of the world sis is different from what has been seen in
in a historical blink of an eye. We need to keep Washington to date. Indeed, the political price
in mind how that remarkable achievement oc- can be too high for election-bound lawmakers
curred, and how it can be sustained as other na- or career bureaucrats. Yet we must make every
tions embrace institutions of liberty and create effort.
increasingly competitive markets. As Hayek pointed out, the politicians
We need to hold the federal regulatory blamed during an inevitably bumpy transition
state’s 60 agencies, thousands of annual rules, to something closer to healthy free enterprise
and Federal Register pages to at least the same will be the ones who stop the flow of govern-
standards of disclosure and accountability that ment benefits to the politically connected, bring
apply to the fiscal budget. down inflation, and unwind market-distorting
Congress should implement a moratorium regulations—not the ones who started those
on non-essential new rulemaking. costly interventions decades earlier.
It should implement a bipartisan regulatory Real stimulus—involving comprehensive
reduction commission and task it to review the liberalization of a fettered economy—requires
regulatory state as a whole and enact a compre- politically difficult changes in what people ex-
hensive package of cuts. pect from government. Leadership requires tak-
In addition, Congress should strengthen per- ing on that challenge.
manent and automatic rule sunsetting reviews. Capitalism is one of the greatest democra-
All rules should have an expiration date like a tizing innovations in human history, a way for
carton of milk. individuals unknown to one another to work
Congress must end regulation without repre- together to create unprecedented wealth. We
sentation by requiring fast-track Congressional need to defend it as the precious value it is. In
approval for controversial major business regu- that spirit, the Competitive Enterprise Institute is
lations. proud to lead this fight for capitalism’s future.
4 Competitive Enterprise Institute • www.cei.org • 202-331-1010

Rein in the $1.75 Trillion Regulatory State
Regulations are frequently anti-competitive Regulatory cost transparency, through such

and anti-consumer. They cost consumers hun- tools as improved annual cost and trend report-
dreds of billions of dollars every year. Policy ing, would help voters to better hold Congress
makers still largely do not know the full ben- responsible for the regulatory state. Reining in
efits and costs of their regulatory enterprise. excessive delegation of power to federal agency
Meanwhile, regulatory agencies grow in power bureaucrats would help close the breach between
and budget like feudal baronies. This situation lawmaking and accountability, while forcing
must not go unchallenged. Congress to internalize the need to demonstrate
From transportation to trade, from com- regulatory benefits. Congress should:
munications to banking and technology policy, • Establish a bipartisan Regulatory Reduction
policy makers of both parties have at times Commission to survey and purge existing
challenged the moral legitimacy, intellectual rules.
underpinnings, and economic rationality of • Develop a review and sunsetting schedule
federal regulatory intervention. Democrats for new regulations and agencies.
helped spearhead transportation deregulation. • Explicitly approve major agency regulations
Lawmakers from both parties rolled back un- with an up-or-down vote.
funded mandates in the 1990s. The time is now • Publish an annual Regulatory Report Card
ripe for a new round of reform. to accompany the federal budget.
There are many avenues for reform. Cost- • Require that agencies report costs (Congress
benefit analysis, while informative, does not ac- itself must assess relative benefits and com-
tually bring the largely unaccountable regula- pare agency effectiveness).
tory state under congressional control. Greater • Have agencies and the Office of Management
congressional accountability and cost disclosure and Budget rank rules’ effectiveness, and
matter most for regulatory reform. recommend rules for elimination.
Congress should vote on every major or
controversial agency rule before it takes effect. Wayne Crews and Ryan Young

Reform Federal Agriculture Programs
With America’s economy struggling to roar come and $750,000 per year for farm income.
back to strong growth and a deficit approach- Thus, a married couple could have farm income
ing $1 trillion, policy makers need to take a of $1.5 million per year and still collect taxpay-
hard look at reforming one of the most wasteful er-funded payments.
and egregious government programs—the 2008 The U.S. sugar program—one of the most
Farm Bill, which expanded U.S. agriculture sup- egregious farm programs—needs drastic reform.
port programs significantly, with dire effects. The 2008 Farm Bill increases sugar price sup-
This nearly $300-billion (over five years) ports, provides incentives for using sugar for eth-
boondoggle paid off every special interest. anol rather than food, further restricts imports of
Farmers got their direct payments, their coun- sugar, and may violate existing trade agreements.
ter-cyclical payments, their price support loan Thus, many agricultural producers continue
amounts, their disaster funds, and much more. to enjoy subsidies and price supports, which cost
Cities and towns got their nutrition programs taxpayers, increase food costs, and dispropor-
and their food stamps. Environmentalists got tionately impact low-income consumers who pay
their conservation programs, though not as a larger percentage of their income for food. And
many as they wanted. Energy producers got many government agricultural programs con-
some biofuel monies. tinue to restrict imports of various products, such
Some producers who were not subsidized as sugar and ethanol. This leads to higher costs
before—such as fruit, vegetable, and nut pro- for food and fuel. This situation must change.
ducers—received significant R&D money that With the current financial crisis and recession,
opens the door to future subsidies. The bill in- policy makers should immediately address ways
cludes what was lauded as the “first-ever live- to reduce large-scale government waste. Congress
stock title” for yet another group that was not will negotiate the 2012 Farm Bill in 2011. Policy
previously subsidized. And special earmarks got makers should take a hard look at existing farm
some others on board—the “trail to nowhere,” programs that waste taxpayers’ money, increase
a taxpayer-funded land swap; forests that house consumer costs, threaten U.S. credibility in pro-
fish got some money, as did salmon fisheries. moting open trade, and harm developing coun-
And for what? Many farm subsidies go to tries’ ability to compete in the world market.
rich farmers. The per-person annual limit for
subsidy eligibility is $500,000 for non-farm in- Fran Smith
6 202-331-1010 • www.cei.org • Competitive Enterprise Institute

End Bailouts and Government Ownership
in Fannie/Freddie, GM, AIG, and Other
Entities
On October 3, 2010, the federal govern- was enacted. Supporters claim that had TARP
ment’s authority under the Troubled Asset Relief not been enacted, unemployment would have
Program (TARP) officially expired. Rushed skyrocketed to 20 percent. But it is also plau-
through amid fears of financial Armageddon, sible that without TARP’s channeling of money
the thrust of the program shifted several times toward established financial institutions con-
from buying “toxic” mortgage securities no sidered “too big to fail” by the government,
one would touch to buying ownership stakes other financial institutions would have emerged
in order to provide a “capital cushion” to rela- to get the economy moving faster. As Stanford
tively healthy financial institutions—and even University economist John Taylor wrote in
to propping up automakers. his book, Getting Off Track, TARP’s passage
Supporters are now hailing the program likely “increased risks and drove the markets
as a success because they claimed it calmed a down.”
panic and cost the taxpayers “only” about $50 The remaining companies under government
billion. But this figure doesn’t include the $700 ownership continue to damage the American
billion that many prominent economists say economy, and the harm is not confined to the
the taxpayers will have to spend to rescue the spending of taxpayer money. Firms operating
government-sponsored enterprises Fannie Mae with government support create a skewed play-
and Freddie Mac, which were put into a gov- ing field that disadvantages their competitors,
ernment conservatorship a few weeks before undermining both job growth and innovation.
TARP was enacted in 2008. AIG has been accused of using its $183 billion
While it is true that many financial institutions in taxpayer funds to undercut its unsubsidized
paid the TARP money back with interest, many competitors by slashing premiums. General
never wanted to take it in the first place. They Motors—now derisively known as Government
were pressured into doing so by then-Treasury Motors—has used its $50 billion in taxpayer
Secretary Henry Paulson or bank regulators, so funds to buy subprime auto lender AmeriCredit,
that the truly troubled banks would not carry the giving it a possible competitive advantage over
stigma of a government bailout on their own. private-sector rivals, including Ford, Toyota,
And it is hard to say this program program and other major automakers with plants in the
“saved” the economy, when unemployment U.S. And Fannie and Freddie are now virtually
persists at nearly 10 percent two years after it the only firms securitizing mortgages.

As important as recovering taxpayer money enact legislation waiving this sovereign immu-
is, more important is an exit strategy to get the nity for the government so that investors have
government out of these private firms before the same protection from fraud committed by
they can do more damage to their private-sec- government-owned corporations as by those in
tor competitors and to the economy as a whole. the private sector.
Congress should: Respect property rights and private con-
Set firm time limits for the bailouts for tracts in financial and housing policies. The
Fannie Mae and Freddie Mac, General Motors, government is one of many owners in the cor-
American International Group, and other bail- porations participating in the TARP. It should
outs and require the government’s shares in com- not interfere with any firm’s fiduciary duty to
panies to be sold as of a date certain. The U.S. shareholders to deliver profits by pushing it to
government should not own banks or other firms. achieve politically determined social goals. And
Permanent nationalization has not worked too it should not favor some creditors over others,
well in places like Cuba or Venezuela in promot- as it did in the GM and Chrysler bankruptcies
ing stable and sustained economic growth. The when unions were given disproportionate eq-
fact that the government sold its first tranche of uity stakes in the reorganized firms at the ex-
shares in GM at a considerable discount demon- pense of bondholders and secured creditors.
strates that government ownership is bad for the Similarly, in trying to help families with
company and bad for taxpayers. foreclosures, the government should not re-
Make the bailout deliberations transparent quire or encourage the abrogation of contracts
and make government-owned firms abide by the to investors in mortgages. Congress should
same rules as those in the private sector. Insist halt funding for President Obama’s Home
on open meetings whenever possible, quick Affordable Modification Program, which sub-
compliance with the Freedom of Information sidizes mortgage-servicing banks to modify a
Act, and judicial review of the Federal Reserve borrower’s loan but disregards the interests of
Bank and Treasury Department’s actions. The the investors who own the mortgages. Many of
initial public offering to sell part of the gov- these investors are also middle-class families,
ernment’s stake in General Motors disturbingly holding mortgage-backed securities in their
stated that the government was shielded by sov- 401(k) accounts and mutual funds.
ereign immunity from laws against stock fraud
and securities fraud lawsuits. Congress should John Berlau

Free Smaller Companies to Go Public
by Rolling Back Burdensome Sarbanes-
Oxley Accounting Rules
In CEI’s last Agenda for Congress, we rec- Sarbox compliance came at the expense of their
ommended that “smaller public companies be scrutinizing overall business risk.
exempt from Sarbanes-Oxley’s Section 404.” Mid-size companies need access to equity
Indeed, despite the rampant fervor of the past markets. The Act’s Section 404 requirement
Congress to reregulate, enough members of for accountants to sign off on vaguely defined
both parties in Congress were concerned about “internal controls” is costing American com-
the impact of the Sarbox accounting rules on panies $35 billion a year in direct compliance
smaller firms that they permanently exempted costs, according to the American Electronics
firms with market valuation of $75 million or Association. And it adds 35,000 extra man-
below. hours for the average public firm, according to
This was a significant step, but Congress Financial Executives International. Congress
needs to go much further to lift Sarbox barri- should relieve this heavy regulatory burden by
ers to business and job growth. For new firms doing the following:
to expand and create more jobs, they need to • Expand the modest relief for smaller com-
be able to go public. And right now, Sarbox is panies in the Dodd-Frank financial reform
one of the biggest barriers to small and midsize law so that more firms are exempt from
firms going public. Sarbanes-Oxley’s Section 404 and other
Sarbox was rushed through Congress in SEC rules that are a drag on the economy.
2002 following the Enron and WorldCom scan- As seven Democratic members of the House
dals. These costly rules did virtually nothing to Small Business Committee have noted, se-
prevent the careless risks taken with mortgage nior managers at these smaller companies
securities that led to the financial crisis. “How “now have to choose between spending
can we have these levels of fictions in financials their time on vital business development
after Sarbanes-Oxley?” asked Jim Cramer, the functions or Section 404 compliance.”
colorful host of CNBC’s “Mad Money.” The • Repeal the “internal control” rules of
answer is because Sarbanes-Oxley is actually Section 404 or make them voluntary. The
counterproductive at ensuring financial trans- term “internal controls” is undefined in
parency. As the Financial Times noted, the the statute and has been broadly defined
inordinate amount of time boards of compa- by regulators. The Securities and Exchange
nies such as the former Bear Stearns spend on Commission (SEC) has found that internal

control practices are seldom a tip-off to can discipline and fine auditors, and it is
fraud. responsible for the broad interpretation
• Abolish the unaccountable Public Company of Section 404’s “internal control” provi-
Accounting Oversight Board (PCAOB) sion. And the PCAOB wields this power
and make accounting standard setters ac- without any presidential supervision and
countable to the President and Congress. minimal SEC oversight. Congress should
Although the Supreme Court put some abolish the Board—giving authority over
limits on the authority of the PCAOB—it accounting back to the presidential ap-
made the agency subject to at-will removal pointees at the SEC, where it was before
by the SEC—the PCAOB still wields tre- Sarbanes-Oxley.
mendous power without accountability.
It levies taxes on all public companies, it John Berlau

Suspend Mark-to-Market Rules and Make
Accounting Regulators Accountable
In CEI’s last Agenda for Congress, we noted to-market mandates have generated questions
that “mark-to-market accounting—which re- about their accuracy and their economic im-
quires financial instruments such as loans to be pact. They exaggerate losses by forcing finan-
valued at the price of an ill-defined “market”— cial institutions to write down performing loans
has been blamed by both Democrats and based on another institution’s fire sale even
Republicans for spreading the credit contagion if the market for such loans is highly illiquid
from bad banks to good.” We recommended, and the financial institution in question has no
“Congress should require regulatory agencies plans to sell the loans.
to suspend mark-to-market accounting man- Underlying all these problems is the fact that
dates such as Financial Accounting Standard there are relatively few checks on the account-
157 until better guidance is developed for il- ing standards body that makes these rules. FASB
liquid markets.” is a private body, yet Congress requires public
In the spring of 2009, Congress came companies to support it through a type of tax,
pretty close to doing just that. The Financial known as an accounting support fee. Moreover,
Accounting Standards Board (FASB) was hauled federal regulatory agencies like the Securities and
before Congressional hearings and members of Exchange Commission and the Federal Deposit
both parties expressed concern that FAS 157 Insurance Corporation almost always defer to
was exacerbating the crisis by causing banks FASB in setting standards for everything from
to take huge paper losses and tighten lending investor reports to solvency rules.
unnecessarily. Sensing the threat of legislation, Earlier this decade, FASB greatly limited the
FASB announced a relaxation of the rule, an ac- use of employee stock options—which are very
tion that sent the Dow Jones Industrial Average effective at creating wealth and giving more
soaring that day to above 8,000 for the first people access to it—by requiring companies
time in months. This simple change to account- to “expense”—that is, subtract the estimated
ing rules led to a stabilization of the economy value of stock options—from current earn-
that billions in bailouts had failed to achieve. ings, even though stock options never result
But now that the legislative focus on ac- in a cash outflow. This policy has had little ef-
counting rules has faded, FASB is trying to push fect on levels of executive compensation, but
through an expanded mark-to-market rule that has caused companies to greatly reduce stock
would cover virtually all bank loans. Mark- options for rank-and-file workers. It has also

resulted in misleading financial reports for in- • Reverse the options expensing standard.
vestors of companies that utilize stock options, • Hold hearings to examine FASB’s process of
as companies are required to report phantom setting accounting standards and whether
“losses” when there has been no money leaving the agency should continue to have a de
the firm’s coffers. Congress should: facto monopoly on setting those standards.
• Require regulatory agencies to suspend
FASB’s mark-to-market accounting man- John Berlau
dates until better guidance is developed for
illiquid markets.

Recognize the Value of Hedge Funds
and Private Equity for Entrepreneurs
and Shareholders
Hedge funds and private equity are ve- istration process for ordinary investment ve-
hicles for wealthy investors to take risks and hicles. These entities are already subject to
potentially reap high returns. But the benefits securities fraud statutes, as well as numerous
of these types of funds—and of funds that regulations from agencies, such as the
combine features of both—extend beyond Commodity Futures Trading Commission.
their investors to all entrepreneurs and share- Congress should modernize this regulatory
holders. Private equity funds build wealth structure to get rid of overlapping jurisdic-
in distressed and startup companies. Hedge tions for more effective oversight. Since the
funds have forced incentivized companies to Dodd-Frank financial reform law gave the
create more wealth for shareholders through Securities and Exchange Commission open-
streamlining—cutting costs and, when neces- ended authority to require registration of
sary, selling off divisions. some hedge funds, Congress should make
In addition, both types of funds provide li- sure such rules don’t burden capital forma-
quidity and have reduced risks of disruptions tion and distract the SEC from more press-
to capital markets. Private equity firms have ing systemic threats.
helped to ease the credit crunch by helping to • Stop the SEC from raising the minimum in
recapitalize commercial banks and stepping in come requirements for hedge fund and pri
to fill the void of investment banks in financing vate equity investors. On several occasions,
new business growth. Hedge funds were ahead the SEC has proposed raising the minimum
of the curve in short-selling subprime securi- net worth needed to invest in hedge funds
ties—thereby sending out valuable market in- from $1 million to $2.5 million. Obviously,
formation about the risks of those instruments. the SEC does not need to protect “poor”
Cumbersome restrictions would impede their millionaires. This increase will further drain
ability to perform in these vital roles. Rather the pool of capital for innovative new busi-
than curtail these vehicles, Congress should nesses. An attempt to codify this foolish in-
consider how to make their benefits available crease was stripped from Dodd-Frank after
to more investors, by doing the following: concerns expressed by the “angel” investor
• Reject attempts to subject hedge funds and community attracted bipartisan opposi-
private equity to the Security and Exchange tion. But the SEC still has the authority im-
Commission’s (SEC) one-size-fits-all reg pose this draconian increase, and Congress

should reject any proposed rule taking such tors with minimal risk. This allows useful
an action information to get out to the market earlier.
• Revise the Investment Company Act of 1940. For instance, had mutual funds had more
This would allow mutual and exchange- freedom to engage in short selling during the
traded funds more freedom to pursue some subprime boom, the mortgage bubble likely
of the strategies of hedge funds and private would never have grown as large as it did.
equity, such as short-selling, and give some
of the hedge fund benefits to ordinary inves John Berlau

Encourage Credit Access Innovation
The abuses of the subprime crisis have made Financial Protection Bureau (CFPB) will likely
it all too easy to overlook the myriad benefits have the similar effect of punishing the prudent
of consumer credit. Innovations in mortgages, with more costly credit as a result of paternalis-
credit cards, and unsecured loans such as pay- tically protecting the imprudent.
day advances have made it possible for more Government certainly has a role in prevent-
people to borrow money they need for a va- ing fraudulent lending practices, but it should
riety of purposes—from starting a business to leave payment terms and interest rates up to the
advancing one’s education. In the mid-1990s, interested parties to negotiate. It should also re-
a college student named Sergey Brin used per- duce the paperwork burden of traditional lend-
sonal credit cards to start the search engine ing institutions that raises costs that are passed
business that would become Google. on to borrowers. It should lift the cap on busi-
In 2007, Austan Goolsbee, now a top eco- ness lending by credit unions and lift the mora-
nomic adviser to President Barack Obama, torium on retailer-affiliated industrial lending
warned in The New York Times that, “regula- companies to spur competition among credit
tors should be mindful of the potential down- providers. Congress should:
side in tightening too much.” Such restrictions, • Reject attempts to put interest rate or price
he wrote, would hurt “someone with a low in- controls on credit vehicles. Repeal most of
come now but who stands to earn much more the CARD Act and prevent the CFPB from
in the future” with the help of access to credit. imposing nanny-state prohibitions on inno-
The Obama administration and Congress vative credit products.
have seemingly ignored this advice. The Credit • Repeal or scale back a variety of regulations
Card Accountability, Responsibility and that impose myriad paperwork require-
Disclosure (CARD) Act of 2009 limits card ments on financial institutions. Such regula-
issuers’ ability to raise rates and impose pen- tions—from Sarbanes-Oxley provisions to
alty fees on high-risk borrowers. It has limited the Internet gambling ban—indirectly make
overall credit—working against other policies services more expensive to borrowers and
aimed at getting credit flowing—and caused depositors at all income levels by adding
overall rates to rise sharply for responsible card to their overall costs. These rules hit small
holders who pay on time or who pay their en- community banks and credit unions espe-
tire balance. Rules issued by the new Consumer cially hard.

• Reduce “know your customer” requirements • Lift the moratorium on nonfinancial busi-
on banks and other financial institutions to nesses forming limited-purpose banks,
investigate their customers’ backgrounds. known as Industrial Lending Companies
These rules often overwhelm law enforce- (ILCs). This moratorium, first imposed by
ment with useless reports and have adverse the Federal Deposit Insurance Corporation
impacts on the low-income “unbanked” and then codified for two years by the Dodd-
population by making it more difficult to Frank Act, has led some of the nation’s most
open a bank account. well managed firms—including Wal-Mart,
• Lift the cap on lending that credit unions Home Depot, and Berkshire Hathaway—to
can make to member businesses. The cap shelve plans to form ILCs to offer finan-
currently stands at just 12.25 percent of a cial services to their customers. Consumers
credit union’s assets, keeping these institu- suffer from this lack of competition in the
tions from competing to serve the small busi- banking sector. It is laughable to argue that
ness lending market. The cap has only been somehow these banks pose an inherent risk,
in place since 1998, and no such cap exist given the risks that practices of traditional
for other types of loans, such as mortgages banks posed during the financial crisis.
and car loans. From a safety and soundness
perspective, there is nothing about business John Berlau
lending that is inherently more dangerous
than other loans.

Avoid Energy and Global Warming
Policies that Pose Greater Risks than
Global Warming
Global warming has been described as The European Union (EU) ratified the
the greatest threat facing mankind, but the Kyoto Protocol and has implemented manda-
policies designed to address global warming tory greenhouse gas reduction programs, but
actually pose a much greater threat. The in- emissions in the EU-15 (the 15 member coun-
ternational and domestic policies to ration tries before the recent EU expansions) have
carbon-based energy would do—and are do- risen considerably since Kyoto was negotiated
ing—little to slow carbon dioxide (CO2) emis- in 1997. The EU’s Emissions Trading Scheme
sions, but would have enormous costs. These has raised energy prices for consumers and pro-
costs would fall most heavily on poor people, ducers, but has not lowered emissions. Gasoline
not only in the United States, but also in the taxes have been raised to $3 to $4 per gallon in
world’s poorest nations. The correct approach most EU countries, yet emissions from trans-
is not energy rationing, but rather long-term portation continue to increase.
technological transformation and building re- The most thorough economic studies by lead-
siliency in developing societies by increasing ing academic economists (who are not global
their wealth. warming skeptics) have found that mandatory
Since the Kyoto Protocol was negotiated in emissions reductions add to the total potential
1997, atmospheric CO2 concentrations have costs of global warming. For example, Yale
increased by over 5 percent. The global mean economics professor Dr. William Nordhaus,
temperature peaked in 1998 and has since re- one of the world’s leading resource economists,
mained flat. Precipitate and colossally expen- concluded that attaining the emissions reduc-
sive measures to reduce greenhouse gas emis- tions advocated by former Vice President Al
sions are not warranted at this time—and likely Gore would avert $12 trillion of the projected
never will be warranted. costs of global warming impacts, but at a cost
Per capita carbon dioxide emissions in the of $34 trillion.
United States have remained flat since 1980, A cap-and-trade program would be the big-
according to the federal Energy Information gest government intrusion in the economy since
Administration. Meanwhile, the U.S. popula- the rationing system adopted during the Second
tion has increased by slightly more than 1 per- World War. It would also be the biggest gov-
cent per year. Population growth means that ernment limitation of, and interference with,
the U.S. needs more energy, not less. people’s personal freedoms since that war.

Rapid economic growth in major develop- • Do not close more federal areas for energy
ing countries has been accompanied by rapid production.
emissions increases. Total Chinese emissions • Do not place regulatory obstacles in the way
have surpassed U.S. emissions, according to of building energy infrastructure, including
several international agencies. The Chinese gov- transmission lines, pipelines, coal-fired power
ernment has made it clear that it will not under- plants, nuclear plants, and windmills.
take mandatory emissions reductions because • Revoke the federal government’s authority
it would limit the country’s economic growth. to regulate greenhouse gases.
Instead, China hopes to be paid by developed • Reject any new international agreement to
nations, and corporations in developed nations, succeed the Kyoto Protocol that would re-
to reduce its emissions. quire mandatory emissions reductions by
The economic rise of China and India is the United States.
lifting hundreds of millions of people out of • Repeal existing mandates, subsidies, and in-
poverty. Hundreds of millions of more people centives for all types of energy production,
in poor countries hope to follow down a simi- efficiency, and conservation.
lar path. That requires much more affordable • Require the Department of Interior to open
energy than can be provided by non-carbon federal Outer Continental Shelf areas and
sources, like windmills, solar panels, and nu- the coastal plain of the Arctic National
clear plants. Any successor agreement to the Wildlife Refuge to oil and gas exploration
Kyoto Protocol requiring emissions reductions and production.
in developing countries would consign billions • Replace the current depreciation schedules
of people to prolonged poverty. for investments in new capital stock and
Recommendations: equipment with immediate expensing.
• Do not enact cap-and-trade legislation or a
carbon tax in order to reduce greenhouse Myron Ebell
gas emissions.
• Do not enact further mandates, subsidies, or
incentives for alternative energy technolo-
gies or for “green jobs” programs.

Increase Access to Energy
Economic prosperity and our standard of and mandates for uncompetitive forms of en-
living depend on affordable energy. However, ergy pose grave threats to our future electric-
since the 1970s, successive Congresses have ity needs. Wind and solar power can at most
largely pursued anti-energy policies to constrict provide only a fraction of additional electricity
energy supplies and raise energy prices. The demand over the next decade.
112th Congress should strike out in a new di- Open the nation’s infrastructure to private
rection. investment. Congress should remove regulatory
Mandates and subsidies for renewable, al- obstacles that are preventing private invest-
ternative, and conventional energy technologies ments in new energy infrastructure. A “smart
have done far more harm than good. Tens of grid” will never be built until Congress changes
billions of taxpayer dollars have been wasted regulations so that investors have an opportu-
on subsidies, and subsidies and mandates to- nity—but not a guarantee—to profit from the
gether have provided a disincentive for alterna- hundreds of billions of dollars of investments
tive technologies to become competitive. It is required.
unlikely that wind and solar power will ever Allow access to America’s domestic energy
become viable means of energy production as resources. Having vowed to “never let a crisis
long as they can count on continuing subsidies go to waste,” the Obama administration has
and mandates. Congress should: used the BP Gulf disaster to inhibit all domes-
Repeal all energy mandates and subsidies. tic oil and gas production. Bureaucratic pro-
The 2005 and 2007 ethanol mandates, coupled crastination has slowed permitting to a trickle
with the 45-cents-per-gallon refundable tax in deep water, shallow water, along the Rocky
credit, have had particularly unfortunate indi- Mountains, and in Alaska. Congress should
rect consequences. The exact contribution of the vigorously investigate this de facto morato-
ethanol mandate to world hunger due to higher rium on all domestic oil and gas production. In
grain prices is uncertain, but still real, and quite addition, Congress should push the adminis-
evident in food riots around the world in recent tration to put offshore federal water with high
years. The ethanol mandates should be repealed oil and gas potential up for leasing through
immediately. All other mandates, subsidies, and competitive bidding. Congress also should
incentives—including those for conventional open the coastal plain of the Arctic National
energy—also should be repealed. Subsidies Wildlife Refuge to oil and gas exploration and

production, and repeal many of the administra- ogy. One of the reasons that greenhouse gas
tive withdrawals of federal lands from energy emissions have been rising more slowly (in per-
production in the Rocky Mountains. Together, centage terms) in the United States than in most
these actions will increase domestic oil and European countries is more rapid technological
gas production, create hundreds of thousands turnover because of higher economic growth.
of high-paying jobs, lower the trade deficit by Congress can accelerate this trend by changing
tens of billions of dollars annually, and con- the tax code to allow immediate expensing of
tribute billions of dollars in royalty payments investment in new technology instead of ac-
to the federal Treasury. cording to a depreciation schedule over a num-
Enable technological innovation. The most ber of years.
effective way to increase energy efficiency is to
replace existing technology with new technol- Myron Ebell

End Federal Support for
Renewable Energy
Eliminate mandates and subsidies for biofuels. ergy sources sufficient to carry the entire load. In
Congressional legislation has given much unnec- nations like Denmark and Spain that have man-
essary support for biofuels. The 2007 energy bill dated renewable electricity, as well as states that
greatly expanded the Renewable Fuel Standard in have done so, the mandates have raised the cost
the United States, requiring almost 13 billion gal- of producing electricity and have destroyed more
lons of ethanol and other renewable fuels to be jobs than they have created. Congress should not
blended into the gasoline supply by 2010—ramp- follow their lead and enact a federal Renewable
ing up to 36 billion gallons by 2022. The mandate Electricity Standard (RES, nor should it extend
has increased the cost of driving. Meanwhile, the existing subsidies for renewables.
diversion of nearly a third of the corn supply from The supposed greenhouse gas emissions re-
food to fuel use has raised food prices. The man- ductions and other environmental benefits from
date comes on top of favorable tax treatment for a RES are also questionable. The backup sources
ethanol and other biofuels, including a 45 cents- of power, like coal and natural gas, have to be
per-gallon tax credit, as well as protectionist tar- operated in an inefficient—and thus higher
iffs that shield domestic corn ethanol from global emitting—manner in order to accommodate
competition. Few experts think that ethanol pro- the fickle nature of wind. Thus, the difficulties
duced from corn in the United States is a scalable of integrating wind into the larger electricity
replacement for foreign petroleum imports. Its system make it both an economic and environ-
environmental benefits are minimal at best and mental disappointment—two good reasons for
come at a huge cost. Ironically, ethanol remains Washington to let the marketplace decide how
highly reliant on petroleum and natural gas for its to generate electricity. Congress should:
production and delivery. • Cap the Renewable Fuels Standard at 2010
Do not enact a Renewable Electricity Standard levels or remove it completely.
and repeal renewable subsidies. As with biofuels, • End biofuel subsidies.
the very fact that wind power and other renew- • Refrain from enacting a federal Renewable
able sources of electricity need mandates and sub- Electricity Standard.
sidies in order to compete indicates that they have • Repeal subsidies for wind, solar, and other
serious limitations. In addition to being costly to renewable sources of electricity.
produce and transmit, wind power is intermittent
and thus must be backed up by conventional en- Ben Lieberman

Oppose Efforts to Impose Pro-Organized
Labor Rules through Regulation
One of the American economy’s greatest dues. Abolishing unions’ monopoly bargaining
strengths is individuals’ and businesses’ abil- privilege, which is codified in the NLRA would
ity to adapt to changing conditions. However, end this anachronistic system.
in the case of labor markets, many workers Meanwhile, Congress should resist mea-
and employers remain subject to an array of sures that would make the situation worse,
obsolete New Deal-era labor regulations that such as the misleadingly named Employee Free
discourage innovation and hamper flexibility. Choice Act (EFCA), which would allow unions
The old adversarial model of labor relations to circumvent secret ballot elections through
has little to offer to the 21st century workforce, “card check organizing, enjoin a federally ap-
which is characterized by horizontal company pointed arbitrator to impose a contract on a
structures and greater job mobility—flexibility newly unionized companies if the union and
which employers and workers need to better management do not reach an agreement after
ride out economic downturns. 120 days, and increase employer penalties for
The collective bargaining model that has “unfair labor practices,” which would give
predominated in the U.S. since the New Deal, unions another blunt instrument with which to
when 1935 the National Labor Relations Act pressure employers.
(NLRA) was enacted, has been one based on Having failed to enact EFCA into law, or-
compulsory monopoly representation. Under ganized labor and the Obama administration
this system, when employees at a given work- have indicated a willingness to make an end run
place vote on whether they want to be repre- around Congress by imposing some of EFCA’s
sented by a union, that union becomes the provisions through the regulatory process,
exclusive bargaining agents for all the workers mainly through the National Labor Relations
there—including workers who did not vote to Board (NLRB).
be represented by the union. The NLRB is now considering allowing re-
This violates workers’ First Amendment mote electronic voting (E-Voting), which would
rights to freedom of association and freedom allow unions to conduct organizing elections
of speech—by forcing them to join unions as via phone or the Internet. The NLRB says it
a precondition of employment and to support wants to keep the voting secret but it would not
political activity with which they may not agree be hard for a union organizer using a laptop
through the compulsory payment of union computer or some other mobile device to pres-

sure an individual worker to vote for the union. In addition, the NLRB has decided to revisit
Allegations of mail fraud and voter intimida- its 2007 Dana Corp. decision, which affirmed
tion were rampant in a 2009 mail election fight employees’ right to call for a secret-ballot de-
in California. E-Voting could lead to similar certification election in instances where a union
intimidation and fraud. has been certified through card check.
The NLRB is also considering expedited elec- Congress should resist any efforts to impose
tions, which essentially would function as am- parts of EFCA, or other rules that tilt the play-
bush elections. Employers would have very little ing field in favor of unions against employers.
time to respond to union organizing campaigns,
thus giving the union a significant advantage. Ivan Osorio and F. Vincent Vernuccio

Eliminate Wage Ceilings
for Unionized Workers
Workers need incentives to perform to their The Rewarding Achievement and

utmost capability. Working hard and perform- Incentivizing Successful Employees (RAISE)
ing your job well is usually rewarded with Act, sponsored in the 111th Congress by Rep.
greater compensation. Unfortunately, this is Tom McClintock (R-Calif.) and Sen. David
not the case at many unionized workplaces, Vitter (R-La.), would amend the NLRA to al-
where collective bargaining agreements impose low employers to pay especially productive
a wage ceiling, in addition to a wage floor. The workers more than the base amount set in the
vast majority of these agreements grant pay in- union’s collective bargaining agreement. If the
creases based on seniority rather than merit. RAISE Act becomes law, union workers’ earn-
The National Labor Relations Board and ings could rise by between $2,600 and $4,300
the courts have held that employers with collec- per year, according to an estimate by Heritage
tive bargaining agreements can only deal with Foundation labor expert James Sherk. This is a
a union and not with an individual employee. common sense idea that is long overdue.
This means in most cases an employer cannot
reward a union employee for being more pro- Ivan Osorio and F. Vincent Vernuccio
ductive without violating the National Labor
Relations Act (NLRA).

Oppose Taxpayer Bailouts of
Underfunded Union Pension Funds
In trying to attract new members, labor The PBGC is funded through premiums
unions often tout the promise of a secure re- paid by private employers to insure retirees if
tirement to their members in the form of de- a plan sponsor were to become insolvent. The
fined benefit pensions. However, many union Pomeroy-Casey legislation would direct tax-
pension plans today are severely underfunded. payer dollars to shore up some underfunded
Some have been in trouble for years, and the union pension plans. It would create a new
latest economic downturn has only exasper- fund to the PBGC, known as the “fifth” fund,
ated the problem. In 2008, the Department of whose obligations would be “obligations of the
Labor listed the status of 230 union plans as United States”—that is, taxpayers. The use of
either endangered—less than 80 percent fund- public funds to insure private pension plans is
ed—or critical—less than 65 percent funded. a first for PBGC and stark departure from the
In 2009, Moody’s Investors Service estimated way it has operated since its creation in 1974.
all union pensions to be underfunded by $165 Earl Pomeroy lost his reelection bid, but just
billion. because unions lost one champion of this legis-
As a result, one of organized labor’s top pol- lation does not mean they cannot find another
icy priorities is to get taxpayers to bail out these in the incoming Congress. Pomeroy was an odd
severely underfunded union pension plans. In the sponsor of such legislation anyway—unions
111th Congress, this effort took the form of the are not exactly political powerhouses in North
Create Jobs and Save Benefits Act, introduced in Dakota. Still, given enough support from the
the House by Rep. Earl Pomeroy (D-N.D.) and national Big Labor establishment, another un-
in the Senate by Rep. Robert Casey (D-Penn.). likely lawmaker could take this up. Members
The Pomeroy-Casey bailout bill would create a of Congress who are serious about reining in
new fund within the Pension Benefit Guaranty spending and protecting taxpayers should op-
Corporation (PBGC), an agency chartered by pose any revival of this legislation.
Congress that insures private sector pensions.
Ivan Osorio and F. Vincent Vernuccio

Resist Forced Unionization of
Public Safety Personnel
Today, for the first time in American history, and EMT—personnel. For states and cities
a majority of union of union members work for struggling to balance their overstretched bud-
governments. In January 2009, the Bureau of gets, higher labor costs are the last thing they
Labor Statistics reported that the number of need.
union members working for government enti- Moreover, such legislation would violate
ties surpassed the number of those working for workers’ First Amendment rights to freedom of
private businesses. This change in the composi- association and freedom of speech by forcing
tion of organized labor’s membership is signifi- them to join unions and to support, through the
cant for the nation’s politics. compulsory payment of union dues, political
As unions have become increasingly gov- activity with which they may not agree.
ernment employee-based, public sector unions The Kildee-Reid legislation instructs the
have become an organized, motivated, and Federal Labor Relations Authority, which over-
well-funded permanent lobby for bigger gov- sees collective bargaining for non-postal federal
ernment. With the federal and state and local employees, to promulgate union representation
governments facing tightened finances, law- and collective bargaining regulations for state
makers must confront this lobby. The first thing and local public safety employees in states which
they must do is to not feed it. have not enacted laws giving unions those privi-
The so-called Public Safety Employer- leges. Such legislation, by increasing state and lo-
Employee Cooperation Act, sponsored in the cal governments’ labor costs, would amount to
111th Congress by Rep. Dale Kildee (D-Mich.) unfunded mandates upon states, counties, and
and Sen. Harry Reid (D-Nev.), would indeed cities. It is terrible policy. Congress should reject
feed this behemoth. The bill would have im- any attempt to revive it.
posed union collective bargaining on state
and local public safety—police, firefighter, Ivan Osorio and F. Vincent Vernuccio)

Resist Anti-Consumer
Antitrust Regulation
Before the recent financial collapse and the tend to benefit, rather than hinder, competition
massive increase in economic regulation, policy and innovation. Even when big companies mis-
makers were often willing to question the pre- behave, they do not act in a vacuum. Providing
sumption that governmental economic regula- the necessary competitive responses to success-
tion benefits consumers. Over several decades, ful firms is exactly what markets are for.
that pro-competitive mindset helped drive the Antitrust enforcement and the resulting
liberalization of transportation, telecommuni- uncertainties scuttle innovative new product
cations, banking, electricity, and several other offerings, preclude efficient market arrange-
sectors. In market after market, consumers ments, and thwart the natural evolution of the
reaped the enormous benefits of deregulation marketplace and competition itself. The avail-
as prices fell and competition flourished. ability of antitrust as a competitive weapon
Antitrust regulation, however, continues to frequently attracts firms seeking entry or price
enjoy broad support among the business com- regulation as a means of hobbling more nimble
munity, in the popular press, and among policy rivals. Persuading antitrust enforcers to penal-
makers. Despite its popularity, antitrust consti- ize successful competitors undermines compe-
tutes a serious hazard for successful, wealth- tition, ultimately harming consumers by driv-
creating businesses, and it threatens to disrupt ing prices higher and output lower. Antitrust
innovation and economic growth. Recent tar- regulation destabilizes the very industries it
gets of misguided antitrust interventions—or, in purports to foster by depriving consumers of
some cases, mere threats of intervention—have competitive marketplace responses to aggres-
included Microsoft, Intel, IBM, Google, and the sive firms.
Sirius/XM Satellite Radio merger. These innova- Resisting such interventions—whether
tive firms have been stopped in their tracks by against “collusion,” “predatory pricing,” or
government regulators for allegedly threatening “vertical integration”—should be a top prior-
competition. But as a growing body of economic ity for policy makers in today’s competitive,
evidence has demonstrated, mergers, acquisi- dynamic, global marketplace.
tions, and single-firm behavior—no matter the
size or market power of the firm in question— Wayne Crews and Ryan Radia

Regulate Government Data Collection
While Avoiding Prescriptive Privacy
Regulation
There are two notable ironies in proposals tions. In the name of homeland security, some
by politicians and self-styled consumer advo- lawmakers hope to require citizens to disclose
cates to protect consumer privacy by regulating even more information that would be stored
businesses that handle sensitive personal data. in federal databases. Some policy makers have
First, the most egregious privacy violations are proposed mandatory biometric national identi-
typically perpetrated not by firms, but by gov- fication cards. Yet the real key to safeguarding
ernments against their own citizens. Second, our privacy is to grant government less access to
those violations of privacy that do result from ever more personal information, not more.
business and consumer transactions are often Federal efforts to regulate private sector pri-
facilitated by government. vacy standards are fundamentally misguided.
The laws safeguarding individuals and busi- One-size-fits-all regulations that purport to in-
nesses from unwarranted law enforcement crease privacy and security invariably have seri-
access to sensitive information stored in the ous downsides. In many cases, privacy regula-
“cloud” (remote Internet-based servers oper- tion actually renders sensitive information even
ated by third parties) are woefully outdated. more vulnerable. Evolving digital devices and
Today, government can compel service provid- telecommunications technologies are constantly
ers to disclose the contents of many kinds of creating new privacy and security concerns that
private correspondence without first obtaining cannot be properly addressed by static laws en-
a search warrant or any other court order au- forced by distant bureaucrats. The appropriate
thorized by a judge. Lawmakers should revise level of privacy and data security varies dra-
U.S. electronic privacy statutes to better reflect matically depending on the type of information
the realities of the information age by applying in question and on the needs of every specific
robust protections to the contents of all private individual. No two consumers share the same
communications stored electronically. set of privacy preferences. Flexible, voluntary
Government routinely collects and stores in- private arrangements, bolstered by the compet-
dividuals’ personal information, including Social itive process, are the best means of effectively
Security numbers, names, and birth dates—the balancing privacy concerns against other vital
holy trinity for identity thieves. In some cases, interests as the information age evolves.
government has even promoted the use of these Technologies that enable users to safeguard
identifiers by financial and medical institu- their privacy on an individualized basis are

constantly improving. The perennial gale of of privacy risks, market institutions evolve to
competitive discipline continuously encourages create more robust and diverse privacy stan-
businesses to devise better solutions to tough dards. These institutions—including insurance
privacy problems. Federal regulation cannot companies, reputational forces, and third-party
anticipate or properly address the ever-chang- watchdog groups—are all equipped to punish
ing threats to digital information. Legislative or wrongdoers and incentivize smart privacy prac-
regulatory mandates on data security are more tices. And when private agreements are broken,
likely to stifle innovation and ossify technology government has an important role to play in
standard than to truly protect our privacy. allowing injured parties to obtain recourse
Consumers today demand both security and through the judicial system.
functionality in online commerce and commu-
nication. As the public grows more cognizant Wayne Crews and Ryan Radia

Forge a Bipartisan Approach
to End Corporate Welfare
One of government’s primary current un- Corporate welfare, whether in the form of
dertakings is transferring wealth. Many such subsidies or competitor-hampering regulations,
transfers are from taxpayers to corporations. creates distortions and inefficiencies, injures
Before the financial crisis and recession, these consumers, and undermines the evolving, com-
transfers were called corporate welfare. Now petitive market process. Congress should keep a
they are called stimulus, bailouts, or infrastruc- watchful eye on the businesses that set up lobby-
ture investments. But a rose by any other name ing shops in Washington, D.C. Are they seeking
has thorns just as sharp. The money for these to reduce burdens on entrepreneurship and em-
wealth transfers must come from somewhere. If ployment, or do they seek to add burdens that
current taxpayers do not pay the costs for such benefit them at the expense of competitors?
boondoggles, future taxpayers will. Entry barriers hit smaller companies espe-
Direct payments are not the only transfer cially hard. Additional costs that a large company
mechanism. Price, entry, and antitrust regula- can absorb can cripple its smaller competitors.
tions benefit politically favored firms at the Congress should be skeptical toward any appeals
expense of consumers and competitors that for political favors, which all too often come un-
happen to be less politically connected. Even in- der the guise of consumer welfare.
nocuous-sounding health and safety regulations
can benefit some firms at competitors’ expense. Wayne Crews and Ryan Young

Develop Smart Policies to Help
Homeowners Deal with Natural
Catastrophes
Natural catastrophes such as hurricanes, federal policy should encourage states to let
forest fires, earthquakes, and severe blizzards insurers charge risk-based rates that take
threaten nearly every state in the Union. Each all relevant risk factors into account. Many
year, such catastrophes impose billions of dol- state insurance bureaucracies suppress rates
lars’ worth of costs on taxpayers, insurers, and in order to cater to homeowners who live in
governments; claim scores of lives; and destroy unsafe areas—often simultaneously raising
thousands of homes. Congress should: rates for those who live in safer areas. The
• Avoid policies that encourage unwise build- federal government should offer tax credits
ing. Lawmakers in both the House and over a phase-out period to homeowners in
Senate continue to introduce measures in states that act properly and allow rates to
an attempt to add wind coverage to the rise. This would temporarily offset higher
National Flood Insurance Program and insurance premiums and allow homeown-
establish an implicitly government-backed ers to secure their homes against natural
entity to reduce reinsurance prices. Neither disasters. The tax credits should expire with
measure has much promise for providing the program.
coverage that would actually cost less than • Allow private insurers to reserve against
that in the private market. Instead, both catastrophes without paying taxes up front.
would encourage development where it Current U.S. tax law makes it difficult for
should not occur while sticking taxpayers insurers and reinsurers to build up reserves
with the bill. Thus far, none of the measures against catastrophes. Larger reserves could
have made it far in the legislative process, make reinsurance more affordable. The
but efforts are likely to reappear in future United States should implement laws simi-
sessions. Congress should reject any mea- lar to those in Switzerland, Bermuda, and
sure that could involve the federal govern- elsewhere that make it possible for insurers
ment in the insurance or reinsurance busi- to build up “catastrophic” reserves. Money
ness in disaster-prone regions. in these reserves could be held tax-free until
• Help states decontrol homeowners’ insur- spent to pay claims stemming from a major
ance rates. States—not the federal govern- catastrophe.
ment—perform nearly all oversight of hom-
eowners’ insurance rates. In the long term, Michelle Minton

Liberalize Homeowners’, Automobile,
Life, and Commercial Insurance
Regulation
Currently, insurance in the United States is State-level liberalization. The second op-
governed by a patchwork of regulations. Some tion requires only that Congress stay out of
states have more cumbersome and confusing the way of states wishing to improve and har-
rules than others. This hampers innovation, raises monize their laws to the point that insurers
insurance rates for those who behave prudently, and consumers have the benefits of a national
and needlessly expands government bureau- market for insurance. All 50 states have en-
cracy. In the realms of homeowners’, automo- acted some form of the Uniform Commercial
bile, and life insurance—the types of insurance Code as a way of dealing with transactions of
that most Americans buy for themselves—the personal—that is, moveable—property. Thus,
United States needs a national insurance market a sufficiently liberal uniform insurance regu-
that leaves rate regulation to market forces. Two latory law could also accomplish many of the
major options exist for creating such a market. purposes that a national regulatory regime for
Interstate insurance choice. Allowing state- insurance would create without bringing the
regulated insurers to operate across state lines federal government into the business of insur-
under the laws of their home state could yield ance regulation.
many positive consequences without the need
to create a new federal agency to administer it. Michelle Minton

Phase Out the National Flood
Insurance Program
Since it emerged in its current form in 1973, Good maps would make it possible for private
the National Flood Insurance Program (NFIP) companies to write practical, affordable insur-
has done little to meet its supposed purpose ance on a large scale. Because flooding involves
of protecting the nation from flood damage. so many unknowns, it makes the most sense to
Instead, it has encouraged development in allow multiple players to develop flood maps in
flood-prone areas, endangered lives, and dam- a competitive market.
aged the environment by suppressing rates and Rate adjustment. New improved maps
failing to mitigate repeatedly damaged proper- would allow companies that want to write flood
ties in high-risk floodplain areas. Moreover, the policies to adjust rates to make them accurately
program’s existence has impeded the emergence reflect the risk involved. Some rates would go
of private flood insurance and imposed billions up based on new data while others would fall.
of dollars in costs. As of 2010, the program was In time, a large portion of the NFIP flood poli-
deeply in debt to the U.S. Treasury and asking cies could be taken over by private insurers.
for a bailout of nearly $20 billion. Partial priva- Auction of remaining NFIP policies.
tization of the program would require three Following a period under this quasi-private
steps: improved flood mapping, rate changes, system, the National Flood Insurance Program
and a free market auction of policies within the could auction off its remaining portfolio of
current program. policies. Certain high-risk areas likely would be
Improved flood mapping. Writing flood in- rendered not insurable at rates that would offer
surance coverage requires complex rate maps any real value to those purchasing insurance,
that make probabilistic determinations of the which would discourage building in the high-
risk of flooding in various areas. The current est risk areas—a desirable outcome in terms of
maps that underlie the flood program are out of both costs and safety.
date and, despite hundreds of millions of dollars
spent modernizing them, still are not very good. Michelle Minton

Let Market Forces Regulate
Internet Gambling
In June 2010, the 2006 Unlawful Internet Internet gambling will result in the best out-
Gambling Enforcement Act (UIGEA) was imple- come for gamers, Internet casino owners, and
mented after years of delays. The law regulates payment processing companies. Governments
banking and credit processes related to online should enforce existing contract and criminal
gambling. This does nothing to protect Americans laws against force and fraud. Companies based
from crime. Instead, it increases the regulatory in the United States and income earned by play-
burden on American banks and obscures the le- ers should be treated by the U.S. tax code like
gality of Internet gambling in the United States. income from any other lawful endeavor.
Other federal laws, including the Wire Act (which Because gambling is essentially an enter-
bans interstate wagering) and the Professional and tainment activity where participants enjoy the
Amateur Sports Protection Act (which bans most possibility of profit, there is no reason to as-
states from sports gambling), prevent Americans sume that private market oversight or certifi-
from operating within the law. cation programs would be insufficient. Like
People enjoy gambling and can legally do so cruise ship casinos, which voluntarily abide by
in 48 states. Regardless of its legality, Americans specific regulations and agree to audits of their
gamble for money online and will continue to operations. Internet casinos could submit to
do so. Banning the activity or making licens- review by a regulator. Inevitably, competition
ing prohibitively difficult will simply encour- among private auditors would result in greater
age gamblers to play on foreign sites and take oversight than one federal watchdog. Auditors
greater risks. In a country where gambling has could offer a certificate or rating to guide con-
become a respected, mainstream pastime, these sumers to the sites at which they are most likely
laws make no sense. to have fair play.
Online gambling of all kinds should be
legalized. Letting the free market regulate Michelle Minton

Allow Immigrants Full Access
to the American Economy
As with the free movement of goods and ser- tion would result in an increase in their wages
vices across borders, the legally unencumbered and returns on investments. This is because the
movement of people reaps net benefits for all skills immigrants possess tend to complement
parties concerned. Congress should enhance the skills of American workers. Except in the
the benefits of immigration by implementing most menial of jobs, immigrant and American
less restrictive immigration laws, with the ul- workers are rarely substitutes for each other.
timate goal of an immigration system that lets Immigrants are also entrepreneurial.
non-criminal, non-terrorist, and healthy immi- According to the Kauffman Foundation, immi-
grants from anywhere in the world move to the grants are 60 percent more likely to be self-em-
United States. ployed than native-born Americans. The ben-
Government should have no more control efits of immigrant entrepreneurship spill over
over the flow of people across borders than the into the rest of the American economy, creat-
flow of capital, goods, and services. Only an ing employment opportunities for Americans
unfettered free market in laborers and entrepre- and greater profits for many American service
neurs can operate without distorting the econ- industries, like accounting, financial services,
omy. As in all other areas of the economy, price and the legal professions. Failure to reform
signals, opportunity and transactions costs, and America’s immigration policy risks denying en-
the interplay of other economic forces will de- trance to entrepreneurs like Google co-founder
termine the number and quality of immigrants. Sergey Brin, who came to the U.S. from the
The standard argument in favor of our cur- Soviet Union as a child.
rent restrictive immigration laws—that such Congress should free immigration authori-
laws are necessary for security and to protect ties to focus on security. America’s immigration
American workers from an influx of cheap for- authorities are stretched thin raiding work-
eign competition—do not hold up to scrutiny. places, checking permits, and screening clearly
Immigration critics charge that immigrants, re- non-violent people for entrance. Congress
gardless of lawful status, depress the wages of should move the immigration system away
American workers. At the most, this is true for from work permits and back toward a system
a small subset of the American population that that only excludes criminals, terrorists, or those
competes directly with foreign labor. But for carrying serious, deadly, and highly contagious
the vast majority of Americans, freer immigra- diseases. In the meantime, Congress should:

• Lift all quotas for work visas. • Allow visas to be issued for an unlimited pe-
• Allow employees, rather than employers, to riod of time, subject to revocation if the visa
hold work visas. holder commits a serious felony.
• Allow visa holders to change jobs without
government approval. Alex Nowrasteh

Protect Federalism
The Framers of the Constitution intended Less obviously, states themselves have be-
federalism to act as a check not only on the na- gun to create a new level of national regulation
tional government, but on state governments as through state attorneys general (AGs) acting in
well. In addition to the relatively well-known concert. In areas ranging from financial regula-
limits on Congress, the Constitution imposes a tion and tobacco control to global warming and
number of limitations on the states. For exam- fuel economy mandates, state attorneys general
ple, the Compact Clause (Article I, Section 10) are entering into new alliances aimed at impos-
prohibits states from entering into agreements ing national regulatory schemes via litigation.
with other states without congressional ap- These joint litigation campaigns are often fueled
proval. This was intended to restrict the ability by lucrative deals between state AGs and private
of groups of states to gang up on other states or lawyers, and many states join simply because such
on the federal government. lawsuits have the potential to generate huge sums
But the constitutional restraints on both of money. Under the Constitution, such joint cam-
the federal government and on the states have paigns by the states require advance congressional
been severely weakened. Quite clearly, there approval. Congress should actively review them,
has been a growing federal intrusion into state rather than sit on the sidelines while state officials
and local issues, epitomized by ObamaCare’s impose new national regulations by default.
massive imposition of new obligations on
states. Sam Kazman

Avoid Hindering the Internet’s Evolution
through Net Neutrality Regulation
In 2010, Congress failed to enact legisla- providers will not be able to satisfy their us-
tion authorizing the Federal Communications ers’ diverse preferences, if network filtering
Commission (FCC) to enforce network neutral- is regulated by the federal government—
ity rules. In 2011, Congress is widely expected whether in the form of an outright ban on
to again take up net neutrality, a policy that filtering or a requirement that providers
would make it illegal for broadband provid- filter certain types of content. If broadband
ers to “unreasonably” discriminate among dif- providers engage in overbroad filtering,
ferent kinds of Internet traffic. Net neutrality they will face consumer backlash and com-
regulations would obstruct beneficial market petitive responses. In recent years, a handful
arrangements for distributing digital content. of providers—including Verizon Wireless,
Worse, they would stifle infrastructure wealth T-Mobile, and Cox—have dabbled with
creation in network industries by undermining content filtering. In each instance, popu-
property rights and turning market contests lar opposition has been swift and fierce.
over network pricing and access disputes into Like all firms competing in a marketplace,
political battles. broadband companies care about their
Advocates of neutrality regulation argue reputation. Unreasonably blocking lawful
that is necessary to prevent Internet service pro- content that users desire is a surefire way to
viders (ISPs) from either censoring or degrad- lose friends and make enemies. Firms will
ing certain kinds of traffic. However, neither make mistakes from time to time, but this
of these concerns justifies federal regulation of trial-and-error process is the only effective
Internet providers. method of ensuring that consumers’ evolv-
• Censorship. Many consumers do not believe ing preferences are satisfied in the long run.
that Internet service providers and other • Network Management. Perhaps the most
network operators, like wireless telephone contentious question in the neutrality de-
carriers, should be in the business of judging bate is how network traffic should be man-
the appropriateness of lawful network traf- aged. Proponents of neutrality regulation
fic. But not all consumers oppose filtering at believe that Internet providers should be
the network level, which can be a valuable required to obtain the federal government’s
tool for safeguarding children from inap- blessing before engaging in any network
propriate content, for example. Broadband management technique that involves the

prioritization of certain types of traffic. tiating non-neutral arrangements for delivering

This approach would chill innovation and their content to end users through techniques
make complex business judgments contin- such as “edge caching” (distributing content
gent on the whims of bureaucrats. While away from a central server to servers closer
courts should enforce the contractual ar- to the end user). Even several prominent net
rangements (terms of service) between neutrality advocates, such as Harvard Professor
broadband companies and their subscribers, Lawrence Lessig, acknowledge that, “there are
neither content providers nor federal regu- good reasons to be able to prioritize traffic.”
lators should be empowered to coercively Congress should resist calls to grant the
dictate broadband network management. FCC authority to enforce net neutrality rules.
In April 2010, a federal appeals court ruled Regulating the broadband market will make
that the FCC lacks the authority to regulate it less competitive. In addition, creating a new
Internet providers’ network management regulatory regime to address elusive harms
practices. However, the FCC remains unde- would lead to harmful consequences down the
terred and now is considering a new regu- road. Net neutrality rules would invariably
latory approach aimed at empowering the fail to keep pace with ever-changing technolo-
agency to regulate broadband networks. gies. As networks evolve and new technologies
As a result, broadband providers have little emerge, boundaries between “reasonable” and
incentive to adopt novel pro-consumer net- “unreasonable” network management will
work management techniques for fear of continuously shift. Consumers will vote with
government intervention. their wallets—if providers cross the line, sub-
The win-win scenarios made possible by scribers will simply go elsewhere. Policy mak-
emerging network structures will ultimately ers should focus first and foremost on how
render neutrality proposals obsolete. Many to expand consumer choice in broadband.
of the major companies that once supported Liberalizing the airwaves and telecommuni-
neutrality regulation—Microsoft, Yahoo!, cations will help stimulate competition in the
Amazon, and Google—have changed their broadband marketplace.
tune, and are increasingly working alongside
broadband providers, and, in some cases, nego- Wayne Crews, Ryan Radia, and CEI Staff

Protect Free Speech by Rejecting
Content Regulation
In recent years, the First Amendment’s pro- As portable devices such as iPods and cell
tections have been increasingly extended to phones become increasingly equipped for video
commercial speech, such as product advertise- and multimedia playback, regulation advocates
ments and even political messages. However, will push for laws governing what can and can-
significant gaps in these protections still exist. not be viewed in public areas, under the guise
Many states have attempted to regulate the of protecting children from harmful material.
content of video games in recent years, while Such regulations should be avoided. Parents,
federal regulations on drug and medical de- not government regulators, are best equipped to
vice advertisements inhibit individuals’ abil- determine what content is appropriate for their
ity to learn about well-documented scientific children. Moreover, all such regulatory ventures
findings. pose a threat to free speech. Regulations aimed
As new technologies provide an ever-grow- at protecting children from “inappropriate”
ing array of media, Congress will face increas- content often have a chilling effect on adult
ing pressure to impose content regulations—in- speech as well.
cluding regulations on video games, blogs, and
social networking websites such as Facebook. Ryan Radia and Wayne Crews

Advance a Global Pro-Trade Agenda
Increasing liberalization of world trade is taxes to penalize countries that have not taken
a key factor behind the dramatic increase in steps to enact Kyoto Protocol–like regimes. Yet
global prosperity since the 1950s. However, in increasing wealth—via liberalized trade—is a
recent years, free trade and globalization have key to raising both labor standards and environ-
come under assault from populist politicians. mental protection in the developing world.
This demagogy has led to some costly real- Some constituencies seek this disguised pro-
world consequences. Free trade agreements tectionism. In the United States, organized labor
(FTAs) with friendly nations negotiated years would like to restrict labor market competition
ago remain stalled by Congress. Some lawmak- for its members by thwarting international
ers decry China’s currency “manipulation” as trade liberalization as well as bilateral trade
an unfair subsidy and seek to impose retaliatory negotiations. Environmentalists likewise would
duties on Chinese imports, even though lower like to “export” U.S. environmental mandates
prices on Chinese goods benefit American con- to poor countries.
sumers. And internationally, the World Trade In addition to its economic benefits, trade
Organization’s (WTO) Doha Round remains liberalization can help improve relations
stalled due to rich countries’ reluctance to re- with neighbors, allies, and emerging nations.
duce their extensive agricultural support pro- Congress should approve pending bilateral
grams, which distort the world market and trade agreements with Colombia, Panama, and
harm developing countries’ ability to compete. South Korea. These free trade agreements were
The progress that more open trade can bring negotiated years ago, and all three countries
is increasingly threatened by efforts to insert are U.S. allies. The U.S.-Korea FTA has been
environmental and labor standards into trade endorsed by the Obama administration, but its
agreements, which function as a form of dis- implementing legislation has to be approved
guised protectionism. Imposing American- or by Congress. That agreement would not only
European-level environmental and labor stan- be an economic boon to both countries, but
dards on developing countries would deprive would strengthen political ties with one of the
poor people of jobs and harm the environment in U.S.’s staunchest allies in East Asia.If closer ties
those countries by undermining their economies’ with trading partners are not negotiated, the
varying competitive advantages. There is also a U.S. stands to lose out on increased economic
more recent push to introduce carbon border growth through trade.

More open trade greatly benefits consum- trade liberalization as a key American inter-
ers. Too often, consumers have been neglected est. The Obama administration and the new
in the mercantilist assumptions that frame Congress should resist calls for divisive and
most trade debates: “Exports good, imports misguided protectionist measures that would
bad.” harm our fragile economy and isolate the U.S.
Since the end of the Second World War, from its international interests.
American presidents and majorities in Congress
from both parties have consistently pursued Fran Smith

Counteract Politicization
of Federal Science Policy
The federal politicization of science in many recipients of large amounts of federal science
areas is harming science itself. Ethics rules and funding, even some based overseas, conspired to
advisory panel guidelines are imposing signifi- ensure their interpretation of science remained
cant restrictions on scientists’ involvement with the dominant one to the exclusion of those out-
for-profit entities, thereby freezing commercial side the system. If science is to be insulated from
interests out of the science policy debate and the risks associated with patronage, a new, in-
in effect isolating the market from the market- novative system of federal funding needs to be
place of ideas. With industry R&D investment adopted. One option is the replacement of the
now double federal funding for the same, this is current grant system with one based on prizes,
a significant problem. lotteries, and loans—a system that would reduce
Moreover, government patronage today the influence of the politician and grant officer
threatens to distort science in several areas. We and increase the freedom of the scientist.
have seen stark evidence of this in the Climategate
scandal, where a clique of scientists who were Iain Murray

Resist New Burdens on
the Transportation Sector
The transportation industries—airline, rail- railroads must be resisted. The Staggers Act has
road, shipping, and trucking—are networks in- enabled a genuine market to operate in which
volving both a flow and a grid. The flow element the railroads are finally able to make a sustain-
relates to what is being transported—such as able rate of return and invest in badly needed
airplanes and trains—and the grid is the physi- new infrastructure. Re-regulation would suf-
cal infrastructure used to manage the flow— focate new infrastructure investment and lead
such as airports and air traffic control. Some to greater highway congestion. Rail also suffers
transportation industries have been freed of ex- in that its main infrastructural competition—
tensive federal regulation over both elements, the nation’s highway system— is government-
including railroads and trucking. However, air owned. Congress should consider tax reforms to
travel had only its flow element—the airlines— make it easier to invest in rail infrastructure.
economically liberalized under the 1978 Airline Privatize passenger rail. Amtrak is an ineffi-
Deregulation Act. cient waste of taxpayer money. Congress should
The Federal Aviation Administration re- pursue privatization of Amtrak’s routes and in-
mains a command-and-control government frastructure, through such preliminary reforms
agency that poorly manages air transport in- as breaking up the network. Competition in pas-
frastructure to the detriment of consumers. Air senger rail choices can only benefit travelers.
traffic control services should be privatized, Liberalize air travel. Congress should re-
and landing slots and airport space should be ject attempts to tax airlines on environmental
allocated using market prices and new technol- grounds, which would be extremely harmful
ogy rather than through administrative fiat. to the industry. Congress should also revise, or
As air travel is a global industry, the U.S. repeal, outdated rules that forbid industry con-
must continue to open up international mar- solidation or foreign ownership. Privatization
kets, especially by implementing a genuine and modernization of the air traffic control
“open skies” agreement with the European system would allow faster flights, reduce delays
Union, and remove laws that restrict foreign at airports, save up to 400,000 barrels of oil
investment in American airline companies. per day, and reduce greenhouse gas emissions
Encourage private investment in freight accordingly. There is no need to reinvent the
rail. Attempts to roll back the successful 1980 wheel. Canada’s successful air traffic control
Staggers Act and reregulate America’s freight privatization offers a useful model.

Move to a risk-based transportation security should allow private firms to compete with
model. According to experts, the long lines at the Transportation Security Administration,
airports since the increase in general security fol- introduce a risk-based security model that al-
lowing 9/11 cost the U.S. economy $8 billion a lows low-risk passengers to move more quickly
year, and divert passengers onto the roads, with through the system, and permit a Registered
a significant increase in road traffic deaths as a Traveler scheme for those willing to subject
result. Yet most of this security effort is wasted, themselves to extra security clearance in order
aimed at people who could not possibly pose to allow business travelers expedited travel.
a security risk. To speed up lines and thereby
remove this barrier to air travel, policy-makers Iain Murray

Put Mobility First in
Surface Transportation
Surface transportation policy has become Account receives more than 15 percent of
less rational and more ideological in recent de- gasoline tax revenue (some in Congress pro-
cades. Environmentalists, urban planners, and pose increasing this to 20 percent), which
their allies have succeeded in diverting resources subsidizes mass transit capital investment
from expanding highway capacity to mass tran- and users in the form of artificially low
sit, even as road congestion has dramatically in- fares. If there is to be a Highway Trust Fund,
creased. Highway user-generated tax revenues revenue should be dedicated to projects that
are being diverted to fund mass transit, while benefit those who pay the excise taxes to
transportation planners are choking off needed fund it.
highway infrastructure upgrades by supporting • Allow “free” highways to be converted to
politically favored but economically inefficient turnpikes. Currently, 23 USC 129 prohib-
programs at the state and local levels. its the federal funding of turnpikes on the
When the Highway Trust Fund’s Highway Interstate system, both construction and
Account was depleted in 2008, William W. conversion. Striking subparagraph (a)(1)(D)
Millar of the American Public Transportation would permit Interstate “free-road” conver-
Association ironically claimed a proposal from sion to toll roads, allow for fairer and more
the Bush administration to loan the Highway efficient user-generated revenue, and permit
Account funds from the Mass Transit Account more innovative private-sector involvement
was akin to “robbing Peter to pay Paul.” He got in financing and management. Congress
this backwards. In fact, mass transit subsidies should consider a longer-term phase-in pe-
largely rely on robbing Peter the driver to pay riod of tolled Interstate highway segments
for Paul’s train ticket. Congress should seek to and the phase-out of “free” roads and the
enhance mobility by doing the following: Highway Trust Fund. In addition, Congress
• Eliminate the Highway Trust Fund’s Mass should encourage the development of high-
Transit Account. The Highway Trust Fund occupancy toll (HOT) lanes, rather than un-
was established to fund highway mainte- priced high-occupancy vehicle (HOV) lanes.
nance and expansion. It captures revenue • Promote highway concessions and divesti-
from excise taxes on products such as gaso- tures. As states across the country continue
line and diesel—in other words, from users to struggle with meeting their balanced-
of the highway system. The Mass Transit budget requirements, easing their trans-

portation expenditure burdens through ously promote the potential benefits to state
private-sector involvement should be wel- transportation authorities. Several states
comed and promoted. Congress should al- have already implemented innovative pub-
low the Federal Highway Administration to lic-private partnerships through the SEP-15
greatly expand the SEP-15 program, which process, which has saved taxpayers billions
permits the FHWA administrator to waive of dollars.
project compliance obligations under Title
23 on a case-by-case basis, as well as vigor- Marc Scribner

Reform the Transportation
Security Administration
Reform of the Transportation Security • Remove certain categories of passengers

Administration (TSA) is long overdue—as the from the intensive screening process. As in-
recent passenger backlash against both the ternational security guru Edward Luttwak
TSA’s new backscatter full body scanners and put it in a Wall Street Journal op ed, “easily
the enhanced pat-downs for those who opt out recognizable groups that not even the most
of the machines suggests. These new measures ingenious terrorists could simulate” should
merely attempt to “fight the last war” rather not be viewed as equal in risk to others
than genuinely increase security for flyers. groups or individuals. Examples include
Meanwhile long lines at airports impose a sig- “touring senior citizens traveling together
nificant economic cost on the nation and force (a category that contains a good portion
some people on to the roads, where they are of all American, European and East Asian
more likely to die in traffic accidents. Racial tourist traffic), airline flying personnel who
profiling, which some have suggested, is not the come to the security gate as a crew, families
answer, as it is far too blunt a tool to provide complete with children.” As Luttwak sug-
genuinely increased security. gests, the critical question would be whether
Instead, the TSA should be reformed to members of those groups “recognize each
allow more flexibility and to introduce risk- other as such.”
based security into passenger flights. A compre- • Introduce a robust frequent traveler system.
hensive TSA reform package would have three This would enable members who undergo
elements: extensive background checks to bypass
• End the TSA’s monopoly on airport screening. certain security checks. Background checks
A 2007 study for the TSA found that private similar to those required for airport work-
screeners consistently outperformed the TSA ers would be appropriate.
bureaucrats, so the TSA suppressed it, earn- Removing large numbers of travelers from
ing the agency censure from the Government the pool of potential suspects would enable
Accountability Office. Airports should be al- airport screeners to concentrate on those who
lowed to opt out of the federal system and might pose genuine risks. It would also reduce
hire their own screeners, who will be more the number of agents needed, in turn enabling
responsive to customers, and must comply the hiring of more highly qualified personnel,
with federal regulations in any event. who would treat people as customers rather

than cattle. These reforms would in turn make were implemented under the current security
Israeli-style screening far more achievable, regime.
something that might otherwise turn into a te-
dious box-checking exercise for the agents if it Iain Murray

Protect the Environment
Restore the Constitutional
Right to Property
The right to property is an essential part of forming laws that adversely impact land-
a free society, and widespread private property owners to demand that government at least
ownership is a chief limitation on government provide compensation when property values
power and growth. Property rights have tradi- are decreased by regulatory measures.
tionally been more secure in the United States • Lawmakers should ensure that govern-
than in any other country. However, this is be- ments—at all levels—do not have the right
ing severely eroded with respect to ownership to seize private property for the purposes
of real property, as the Supreme Court dramati- of commercial development. When the
cally underscored in its 2005 Kelo decision, Framers of the Constitution established
which deprived homeowners of their right to eminent domain, they did not intend it to
private property to allow commercial develop- be used to allow one private party to bene-
ment. Private property has also been under- fit at the expense of others. Public policies
mined by the Endangered Species Act (ESA), should ensure that use of eminent domain
wetlands regulation under the Clean Water Act, be restricted to cases of legitimate public
and other environmental laws and treaties. use.
• Lawmakers should advance the constitu-
tional principle of private property by re- Angela Logomasini

Embrace Private Conservation of Land
and Natural Resources
Private stewardship and markets play a • Existing laws impede private conservation
critical role in land and natural resource con- by making property owners lose use of their
servation. Much of America’s land and other land. These laws should be reformed. These
natural resources have suffered because gov- include measures in the Endangered Species
ernment ownership encourages mismanage- Act, wetlands regulations, and potential in-
ment and overuse, because no individual has a vasive species laws.
long-term stake in protecting resources owned • Lawmakers should look for ways to priva-
in common. In addition, public lands are man- tize resources owned in common to allow
aged based on political priorities that often private conservation. Areas in which this
produce misguided political management deci- has been done successfully but could be
sions. Examples include the devastation caused expanded include the establishment of fish-
by uncontrolled forest fires, overgrazing, and ing rights, privatization of coral reefs, and
destruction of species and habitat. privatization of species and their habitats in
• Lawmakers should consider marketplace private wildlife refuges.
incentives and private property-based ap-
proaches to encourage land and natural re- Angela Logomasini and CEI Staff
source conservation.

Protect Endangered Species
The Endangered Species Act (ESA) of 1973 require just compensation for landowners
is bad for wildlife, because it is bad for people. who are deprived of the right to use their
It has largely failed to protect endangered plants land and whose lands are devalued by gov-
and animals because the threat of regulatory ernment regulation.
“takings” creates perverse incentives, inducing • Another policy change that would help
property owners to ensure that their land never species would be elimination of the estate
becomes habitat or potential habitat for an en- tax. The costs of these taxes often force
dangered species. families to sell off estate properties to de-
• Congress should replace the ESA with a velopers to pay for the estate taxes on the
non-regulatory, incentive-based conserva- property. In many cases, individuals would
tion program to encourage private landown- rather keep the properties free from devel-
ers to protect and provide habitat. Property opment, but high inheritance taxes make
owners’ natural incentive to be good stew- that impossible.
ards of their land can work in concert with
effective species protection. Angela Logomasini and Robert J. Smith
• Absent reforms that eliminate the ESA’s pu-
nitive land use regulations, policies should

Clarify the Role of Invasive Species
In the past, policies addressing problem In addition, these polices are likely to expand
plants and animals followed a rational path: federal land use regulations, undermining the
They focused on controlling organisms that constitutional right to property.
posed serious threats to agricultural crops and Policy makers in Congress and in the admin-
other valued American plants and animals as istration should focus on developing a scientifi-
well as public health. However, the issue associ- cally sound definition of invasive species—one
ated with so-called invasive species is moving that focuses on harmful and noxious character-
in a new direction, leading to an almost re- istics rather than on country of origin.
ligious crusade to rid the nation of all “non- In addition, lawmakers should include
native” plants and animals. Despite claims to language in all legislation involving this is-
the contrary, many non-native species provide sue stating that all affected landowners will
valuable public benefits. Wholesale eradication, receive compensation for any economic costs
instead of management, promises to cause more placed on them to meet any invasive species
problems than it would solve. It would result regulations.
in wasted taxpayer dollars and reduced access
to many valuable plant and animal products. Angela Logomasini and Robert J. Smith

Develop New Approaches to Preserve
Ocean Resources
The world’s fisheries face severe decline. cial reefs have been catastrophic failures. Many
Because many of the world’s ocean resources are of these man-made structures provide critical
not “owned,” they tend to be overexploited—as habitat and ensure plentiful fish supplies.
everyone attempts to fish out of the ocean as much Such promising policies hold the key to en-
as possible before competitors can consume the suring long-term sustainability of the world’s
resources. Several governments actively subsidize fishery resources. A recent study published in
such destructive practices in attempts to protect Science magazine found that if property rights
traditional fishing industries. However, where in fisheries had been instituted globally from
genuine, tradable rights have been assigned to 1970, then the incidence of fishery collapse
ocean resources (as in New Zealand), owners of would have been reduced by two-thirds. Fish
these rights help ensure long-term conservation stocks, furthermore, would be rising rather than
and at the same time increase their profitability. falling. Failure to implement such schemes—or
Meanwhile, where those rights are bureaucrati- implementing such schemes in a distorted man-
cally controlled, as with the National Oceanic ner—for ideological reasons represents a gross
and Atmospheric Administration’s (NOAA) disregard for the future of our oceanic ecology
“catch share” program, fishermen have instead and resources. Congress should end NOAA’s
suffered needlessly. bureaucratic schemes and extend genuine prop-
Similarly, private establishment and owner- erty rights to this valuable resource.
ship of artificial reefs have helped preserve habi-
tats, while government attempts to create artifi- Iain Murray

Trash Counterproductive
Waste Disposal Policies
Solid waste. Many of the nation’s current such rhetoric, Europe has passed several “e-
solid waste policies follow an outdated, po- waste” laws, U.S. states have begun looking
liticized, and government-centered model. State into their own regulations, and members of
and local regulators focus on deciding how Congress have proposed federal legislation.
much waste should be recycled, placed in land- Unfortunately, misinformation and the mis-
fills, or burned in incinerators. This approach guided notion that government is positioned to
fails to discover the most environmentally and improve electronic waste disposal is leading to
economically sound mix of options. Policy mak- misguided policies and legislation.
ers lack the necessary information and therefore • Despite claims to the contrary, there is no
focus on misplaced perceptions about the vari- “e-waste crisis.” E-waste risks and costs are
ous disposal options. As a result, they produce manageable by allowing private recycling
recycling programs that cost more than they and disposal efforts to continue.
save and use more resources than they save. In • Manufacturers should not be forced to take
contrast, private sector competition between re- back electronic equipment, since they are in
cycling, landfilling, and incineration produces a the manufacturing, not disposal, business.
market that reduces costs and saves resources. Some firms have voluntary programs for
Federal policy makers should resist attempts recycling computers, which offer a market-
to increase federal regulation in solid waste dis- based approach for some products.
posal. Local governments should seek ways to • Congress should avoid creating new govern-
increase private markets in the waste disposal ment e-waste programs, as they promise to
industry. They should change waste policies promote inefficiencies, increase environmen-
to allow market-driven competition between tal problems, and hinder market solutions.
various disposal options—allowing recycling, • Consumers should not be taxed when they
landfilling, and incineration companies to com- purchase computers or other electronics,
plete so that the most environmentally and eco- but they should be responsible for dispos-
nomically sound mixture of disposal options ing of discarded products in a safe and legal
results. fashion. Disposal may include paying some-
Electronic waste. Increasingly, news reports body to dispose of the product via a vol-
and environmental activists claim that we are untary private party agreement or disposal
facing a new solid waste crisis. As a result of through local government trash collection.

Hazardous waste. Federal hazardous waste • Absent devolution, hazardous waste pro-
policy—as embodied in the Superfund law and grams should be reformed to provide regu-
the Resource Conservation and Recovery Act— latory relief by setting standards that con-
has long been governed by federal misman- sider the use of the land and that are not
agement, perverse incentives, unjust liability needlessly onerous.
schemes, and misuse of science. The Superfund • Liability schemes should be reformed to
regime of randomly taxing and suing parties ensure that only the parties directly respon-
not actually responsible for hazardous waste sible for polluting should be held liable.
contamination needs reform. Policies should Currently, the Superfund law holds any-
target those who have produced harm—an body remotely connected to a disposal site
approach that rewards good behavior and dis- liable even if that party did not have any
courages bad. control over the site or the contamination.
• Hazardous waste sites are exclusively a Parties unfairly held liable include genera-
state and local concern. Given the demon- tors of waste that was eventually disposed
strated success of states in managing such of at a site, parties that hauled waste to a
sites locally, there is little reason for federal site, and parties that gained ownership of
involvement. Thus, Congress should seek polluted property.
ways to further devolve the program to the
states. Angela Logomasini

Recognize the Elitist Nature
of Anti-Sprawl Measures
For the greater part of the last century, Such initiatives often end up raising hous-
many people have sought the American Dream ing prices while exacerbating the very problems
by raising their families in suburbs. But to- they claim to fix, such as traffic and pollution.
day, anti-sprawl activists blame the suburbs Their main effect is to make suburban living
for a host of environmental and social ills, affordable only for the well-to-do.
and push initiatives to limit housing growth Federal programs that subsidize suburban
to high-density patterns. In fact, the heads development should be restricted or eliminated,
of the Environmental Protection Agency but so should programs that boost urban de-
and the Departments of Housing and Urban velopment, whether via subsidies or outright
Development and of Energy have jointly is- coercion.
sued a set of “livability principles” for “sus-
tainable communities.” Sam Kazman

Affirm the Role of Property Rights
in Water Rights Policies
Battles over limited water supplies in the lems by properly pricing water resources
United States and around the world have long and giving parties a stake in ensuring water
produced conflicts and costs to affected com- quality.
munities. While limited supplies are a problem • Policy makers should rethink current ap-
in and of themselves, political management of proaches to facilitate water markets, which
water is the key problem. Government control have developed in some areas and show
of water allocation generally produces ineffi- great promise.
cient and unfair results.
• A property rights-based system could alle- Angela Logomasini
viate water shortages and pollution prob-

Reform Wetlands Policies
Wetlands regulations do a poor job of pro- dredging and filling of lands, with a non-
tecting wetlands habitat. Much federal regu- coercive, incentive-based program.
lation focuses on preventing development on • At a minimum, the federal government
lands that are dry most days of the year and should provide financial compensation to
that do not provide useful habitat for wildlife. property owners who lose the use of their
In contrast, private initiatives have successfully land due to wetlands regulations.
ensured the protection, restoration, and cre- • State efforts, non-regulatory federal pro-
ation of vital wetlands habitat around the na- grams, and private conservation would do
tion. Yet federal wetlands regulations have seri- a better job of protecting ecologically sig-
ously impeded such private wetlands protection nificant wetlands than could the existing
initiatives, and even have forced some parties federal regulatory approach. These steps
to abandon attempts to provide such habitat. would enhance the protection of wetlands
Policies that can better ensure private wetlands and private property without increasing
protection, while eliminating destructive and the costs of conservation to taxpayers or to
needless red tape, include the following. landowners.
• Congress should replace the Section 404
regulatory program, which regulates the Angela Logomasini and CEI Staff

Improve Health and Safety
Reject the Precautionary Principle,
a Threat to Technological Progress
Increasingly, governments and environ- on the environment. So, by demanding perfect

mental activists are demanding that produc- safety, a precautionary regulatory philosophy
ers of both new and old technologies prove can actually make our world less safe by de-
that their products are totally safe. Although nying society the benefits of new technolo-
this “better safe than sorry” attitude may gies. Regulation’s proper goal should be to
seem like a reasonable approach to risk regu- permit experimentation and the introduction
lation, health and environmental risk issues of new technologies, while balancing the risk
are not so simple. Nothing is totally without of moving too quickly into the future against
risk, and the reason for adopting new tech- the very real risk of lingering too long in the
nologies in the first place is that they often past.
improve our well-being by protecting us from Just as importantly, the precautionary
the risks of older, more established products principle too often is applied in a highly po-
and practices. Even very risky new technolo- liticized manner to disadvantage technologies
gies may often be better than the alternatives. that are unpopular or controversial. Although
However, from industrial chemicals to con- many established practices—such as organic
sumer products and everything in between, farming, “natural” and homeopathic rem-
advocates of precautionary regulation insist edies, alternative energy sources, and count-
that the mere possibility of one increased risk less others—pose known risks that are often
should be sufficient to take useful products far greater than those posed by the new in-
off the market or prevent them from ever be- novations that might supplant them, the pre-
ing used. cautionary principle has never been applied to
New medicines protect us from diseases, rein in those risks. The principle contains no
even though there is always a risk of side ef- procedural protections for innovators, and it
fects. Automobile innovations, from airbags gives regulators nearly unbridled discretion to
to antilock brakes, make traveling safer, ban or burden technologies and practices they
even though they pose their own risks. And disfavor.
food and agriculture technologies—such as A better approach to risk regulation would
preservatives, pesticides, and bioengineered be to more explicitly recognize the human health
crops—help make our food supply safer and and environmental benefits that new products
less expensive, and lighten farming’s impact bring with them, while recognizing that existing

practices are not risk-free. Where possible, regu- than good before they can keep those products
latory authorities should be required to demon- and practices off the market.
strate with clear and convincing evidence that
new products and practices will do more harm Gregory Conko

Reduce Burdensome Regulation
of Medicines and Medical Devices
Over the past century, American consumers agency. As a result, the FDA is under constant
have benefited from thousands of new pharma- pressure to assure the safety of new medical
ceuticals and medical devices to help them com- products, but under little pressure to speed up
bat disease, alleviate the symptoms of illness their availability.
and infirmity, and improve their well-being. Many doctors, patient groups, and public
However, the public often demands that such policy experts recognize that FDA’s lengthy
treatments meet a near-perfect level of safety process for approving new drugs and devices
at bargain basement prices. In turn, Congress often costs lives by denying patients potentially
and the federal Food and Drug Administration beneficial new treatments. Polls of medical
(FDA) have steadily raised the regulatory hur- specialists commissioned by the Competitive
dles that medical product manufacturers must Enterprise Institute over the past 15 years have
clear before they can market a new treatment. consistently found that majorities of doctors in
A strong dose of over-caution when the FDA various specialties believe that FDA is too slow
approves new drugs and devices may sound like in approving new medical products and that
a virtue, but for patients in need of new treat- these delays mean that patients are not receiv-
ments, regulatory over-caution can be deadly. ing the best possible care.
Patients can be injured if the FDA approves a When making safety evaluations, the FDA is
treatment that is later found to be unsafe, but required, by statute, to determine the appropri-
they are also harmed when needed treatments ate balance between patient safety and medi-
are delayed by regulatory hurdles. cal product effectiveness. But more thorough
FDA, however, is predominantly focused on study of drugs and devices during clinical tri-
the first of these two risks, for political reasons. als (both pre- and post-approval) has its own
Agency approval of a drug or device that turns weaknesses. First, even very large clinical trials
out to be unsafe will lead to front-page head- generally cannot include enough subjects to de-
lines and congressional hearings, while delay tect rare side effects. Second, large trials involve
or denial of a needed new treatment stirs little diverse populations with many subgroups that
public notice. Patients may suffer or die as a often are not easy to identify. Consequently, a
result of FDA delays, without them or their few individual adverse events do not necessar-
families ever knowing that a possible treat- ily mean that a product is inherently unsafe for
ment exists, let alone that it was blocked by the all patients. A given adverse event may not have

been caused by the treatment, or if it was, it for serious conditions. But today, FDA is again
may be confined to a small subpopulation. under tremendous pressure from Congress and
Each patient is different from all others, self-styled consumer advocates to slow down
both in physiology and in risk-level preference. the approval process and to reject drugs that
Not only will a given drug or device affect each appear to offer only modest benefits or benefits
patient slightly differently, but each patient will for only small patient sub-populations.
place a different value on the product’s ben- In 2007, Congress passed the FDA
efits and the attendant risks associated with it. Amendments Act, which provided the agency
Therefore, treating the entire population of the with additional authority to make pre- and
United States as identical means that FDA in- post-market safety studies and clinical trials
evitably makes regulatory decisions that will be stricter. The Act also requires FDA to announce
too cautious for some and not cautious enough publicly even very minor or hypothetical safety
for others. Significant political pressure gener- concerns, which tends to raise undue alarm
ally pushes the agency toward over-caution, among patients. It also requires the agency to
and the end result is fewer new drugs and consider using Risk Evaluation and Mitigation
devices, as well as greater loss of life to what Strategies for each new approved drug, which
should be treatable illnesses. Those who view can restrict which doctors may prescribe new
the FDA’s approval process as too quick may drugs, which patients may use them, and which
freely choose to use only products that have pharmacies may fill certain prescriptions.
been on the market for several years with a Rather than increase drug safety, these changes,
more well-established record of safety and ef- combined with the FDA’s innate risk aversion,
ficacy. Unfortunately, those who seek access to tend to harm patient health by reducing the
medical products before the FDA has fully ap- availability of new medical products.
proved them have little or no choice. Individual patients and their doctors are in
Beginning in the early 1990s, the tremen- a far better position than the FDA to balance
dous social cost of FDA overregulation had the risks and benefits of individual new treat-
become apparent, so Congress and the agency ments. The agency should focus on providing
took several steps to streamline the approval them with information rather than on restrict-
process. The Prescription Drug User Fee Act of ing their choices. In forthcoming legislation,
1992 sped up the drug approval process, sav- Congress should seek to accelerate the pace at
ing an estimated 180,000 to 310,000 years of which the FDA reviews new drug and device
life for patients who relied on newly approved applications, and it should repeal many of the
products. The 1997 FDA Modernization Act, recent policies that make FDA regulation dan-
for example, granted the agency authority to re- gerously overcautious.
duce the number of clinical trials needed for ap-
proval and to expedite the review of treatments Greg Conko and Sam Kazman

Purify Federal Water Policies
Drinking Water. Drinking water policy should Water Quality. Waterways throughout the
focus on how best to ensure that Americans United States have suffered from various pollu-
have clean and safe water to drink. Currently, tion problems because they have long been held
many communities are forced to spend limited in common, so no one was in charge of keeping
resources to meet misguided and scientifically them clean. Congress passed the Clean Water
questionable federal mandates. States and lo- Act in the 1970s, which has been a mixed bless-
calities are better able to set priorities based on ing. While many waterways have seen improve-
their particular needs. Moreover, drinking water ments, the program is very bureaucratic, and
policy would benefit from a more market-driven it has promoted too much expensive litigation
model, one that allows for more private innova- that focuses on paperwork violations rather
tion in the provision of drinking water services: than on improving water quality. The science
• Congress should return full authority to set underlying many of the regulations is weak. In
standards to the states, allowing them to addition, parts of the Act have proven ineffec-
work with localities to meet their specific tive, such as programs addressing non-point
needs. source water pollution (water runoff from
• Should the federal government remain in- lands). Policy makers should look at innova-
volved, there are ways to help empower tive, market-based systems for advancing water
localities within a federal framework. quality:
Congress should engage in greater review • Instead of focusing on paperwork viola-
of safe drinking water rules to ensure that tions, policy makers should hold polluters
the Environmental Protection Agency has liable for the actual harm they cause to
employed the “best available science” as de- other persons or to their property.
manded under the law. If large questions re- • States need flexibility. Because the science of
main over science, and standards are likely to water pollution control is evolving, and be-
impose considerable costs, Congress should cause each state and watershed has different
preempt overly stringent standards. needs and problems, Congress should give
• Congress should consider ways to grant states flexibility in water quality manage-
states discretion on how to regulate naturally ment approaches.
occurring contaminants, such as radon and
arsenic, to reflect localized levels of risk. Angela Logomasini and CEI Staff

Ensure Consumers’ Access
to Bottled Water
Bottled water offers many important bene- Environmental Protection Agency (EPA) tap
fits—including portability, emergency applica- water regulations and some of which exceed
tions, and convenience. The bottled water indus- those regulations. Accordingly, the EPA and
try had been particularly valuable during major the Centers for Disease Control and Prevention
crises, such as the September 11, 2001, terrorist recommend bottled water as a safer alternative
attacks, Hurricane Katrina, and other calamities. to tap water for individuals with compromised
Nonetheless, recent attacks against bottled water immune systems.
by environmental activists threaten to undermine Because of the hype, Congress may consider
this industry and impede consumer freedom. regulation of bottled water such as new label-
Some states have enacted regulations and ing mandates. Yet most bottles of water contain
taxes largely on the basis of unfounded claims information on water source. Consumers who
about bottled water. For example, some envi- care to do so can choose bottles with such in-
ronmental groups claim that most bottled wa- formation on the market, thus creating demand
ter is simply re-bottled tap water. Yet only 25 for specific types of labeling. Currently, FDA
percent of bottled water comes from munici- regulates the terminology to prevent fraudulent
pal sources—the rest comes from springs and claims. Regulations requiring additional infor-
underground sources—and most of the munic- mation are unlikely to change consumer pur-
ipal-source water undergoes extensive treat- chasing habits and could simply increase confu-
ment before bottling that involves additional sion and costs.
purification and other processing to improve Bottled water is popular with the public for
flavor and quality. its convenience, freshness, and healthfulness.
In addition, all bottled water must meet spe- Congress should not impose new regulations
cific standards before bottling, and unlike pipe that will impede consumer choice and raise
delivery systems for tap water, sanitary packag- costs. Consumers who do not want to drink
ing enables transport of bottled water with a bottled water can choose other alternatives
very low risk of contamination. All bottled water rather than regulate options for others.
must also meet Food and Drug Administration
(FDA) regulations—most of which mirror Angela Logomasini

Enhance Auto Safety
Automotive safety is the primary mis- cles to be downsized in order to boost miles
sion of the National Highway Traffic Safety per gallon. Downsized vehicles have less mass
Administration (NHTSA). In recent decades, to absorb collision forces and less interior
however, NHTSA’s mission has increasingly be- space in which to safeguard passengers. As
come distorted by political correctness and en- a result, CAFE causes several thousand addi-
vironmental agendas. For example, the agency tional traffic deaths per year in the name of
has focused on the alleged safety hazards of sport saving gasoline. Several years ago the agency
utility vehicles while paying little attention to reformed CAFE to reduce its downsizing in-
the safety risks of subcompact cars. Moreover, centive, but this reform is now being over-
NHTSA has moved to mandate safety features whelmed as the Obama administration seeks
that are already becoming widely adopted due ever higher—and therefore more lethal—fuel
to consumer demand, such as electronic stabil- economy standards. Unbelievably, 62 mpg is
ity control systems. Such mandates end up lim- now under study as a possible target for 2025.
iting design flexibility and constitute little more Congress should halt any increases in CAFE
than an exercise of regulatory muscle. standards. At a minimum, NHTSA should un-
One major NHTSA program actually in- dertake a comprehensive study of the deaths
creases traffic deaths by significantly reducing attributable to CAFE, both on a yearly basis
vehicle crashworthiness. The agency’s auto and over its 30-year history.
fuel economy standards, known as CAFE (for
corporate average fuel economy), force vehi- Sam Kazman

Improve Food Safety and Quality through
Greater Information, Consumer Choice,
and Legal Accountability
Few issues are as important to consumers ery day, and microbial pathogens can be intro-
as the safety and quality of their food—from duced at any stage in the food production and
microbial contaminants to pesticides, and from distribution system. Merely adding additional
organics to obesity. Recent health scares—from inspectors cannot realistically be expected to
salmonella-contaminated eggs to E. coli-con- prevent future contaminations. Instead, the le-
taminated spinach and tomatoes—show just gal system should punish producers and sellers
how fragile the food chain can be. But, while who are negligent in the handling or purchas-
these tragic events have led to calls for greater ing of the foods we eat. Food companies should
government oversight of the food supply, the be allowed the flexibility to adopt technologies
nature of these scares shows that additional and practices that can cut the incidence of food-
regulations or inspections are likely to do little borne contaminants.
to improve food safety. Poorly conceived gov- In addition, regulators control the content of
ernment regulation often does as much to com- food labels so stringently that sellers are often
promise food safety, affordability, and choice as forbidden from informing consumers of many
to promote it—especially when the regulatory beneficial product attributes. Food safety and
framework is focused on a fear-driven activist labeling regulations should be designed with
agenda rather than on basic principles of sci- maximum flexibility, to allow food producers
ence and genuine safety. to use the production methods and labeling
Too often, the government’s regulatory information that best meet their customers’
agenda favors politically expedient outcomes demands. Government studies have shown that
over those that would actually promote safety liberalizing labeling and advertising restrictions
and availability. For example, the U.S. govern- on food products actually leads producers to
ment maintains outmoded visual examination supply healthier and more nutritious products,
and “poke and sniff” food inspectors whose increasing consumer well-being.
methods are incapable of detecting microbial Lawmakers should eliminate regulatory
pathogens. At the same time, heavy regulatory barriers that make it harder to adopt beneficial
burdens make it difficult to introduce tech- new food production technologies, such as irra-
nologies, such as irradiation, that could cut the diation and crop biotechnology. Mandatory la-
incidence of those pathogens by half or more. beling of irradiated food provides no useful or
Americans consume nearly 1 billion meals ev- material information to consumers, but it does

scare consumers and retailers away from safe trace amounts of certain synthetic chemicals
irradiated foods. Existing U.S. Department of are based on a faulty understanding of science
Agriculture rules make it impossible for cattle and are therefore bad public policy.
ranchers to voluntarily test their herds for mad Government should not make lifestyle
cow disease and then advertise the attribute to choices for consumers regarding the foods
consumers. they eat. All foods, whether they contain large
Policy makers should abandon the misguided amounts of fat, calories, sugar, sodium, or other
notion that natural products are inherently safe constituents, can be a part of a healthy diet.
and synthetic products inherently dangerous. Consumers may benefit from having accurate
Synthetic compounds, as a class, are no more information about nutrition, calories, and fat
toxic or carcinogenic than compounds that content, but government should not ban or oth-
exist in nature. The dose makes the poison— erwise limit consumer access to certain foods
many substances that are dangerous at very simply because public health officials believe
high levels are totally harmless at lower levels. that some consumers overindulge in them.
This is true for both natural and manmade sub-
stances. Rules that mandate labeling of even Gregory Conko

Protect Incentives for Pharmaceutical
Innovation
In recent years, Congress has faced mount- Care Act created a new Patient Centered
ing public pressure to “do something” about the Outcomes Research Institute (PCORI) to study
rapidly rising prices of prescription drugs and to the comparative effectiveness of different treat-
rein in what are believed to be excessive indus- ment options with the expectation that drugs
try profits. Although prescription drug spending and other treatment options that do not deliver
comprises just 10 percent of overall health care what it considers sufficient “bang for the buck”
costs, it has been one of the fastest growing com- will cease being prescribed.
ponents of overall health care spending during Unfortunately, most advocates of such poli-
the past two decades—rising by an average of cies have a tunnel-vision dedication to reduce
11 percent annually during the 1990s and by 9 drug costs, with little concern for the effect that
percent in 2006, compared to just 6 percent for forced price reductions would have on indus-
spending on physician services, according to the try incentives for innovation. Pharmaceutical
Kaiser Family Foundation. prices are high because drug development is ex-
Faced with this public pressure, as well as pensive, many new drugs treat relatively small
mounting federal and state government ex- patient populations, and most pharmaceuticals
penditures on drug purchases, members of fail in laboratory tests or clinical trials before
Congress have proposed a variety of measures ever making it to market. A 2006 study by U.S.
to cut the price of prescription drugs. These in- Federal Trade Commission economists con-
clude reimportation of lower-priced drugs from cluded that the average cost to develop and test
foreign countries with price controls, direct ne- a new drug is between $839 million and $868
gotiation of reduced drug prices by the Centers million. Thus, policies such as reimportation
for Medicare and Medicaid Services, and di- and comparative-effectiveness analysis would,
rect restrictions on drug and medical device in the short run, result in lower prices for drugs
industry marketing and promotion practices. already on the market, but in the long run re-
More recently, would-be health care cost cut- duce both the number of treatment options
ters have proposed integrating cost-benefit and available and the flow of new drugs entering the
comparative-benefit analysis into government- marketplace.
run health programs and in the Food and Drug The primary argument for incorporat-
Administration’s (FDA) approval process. For ing comparative-effectiveness or cost-benefit
example, the Patient Protection and Affordable analysis into government purchasing and ap-

proval decisions is that many expensive new typically higher in other countries, the prices of
drugs offer little therapeutic advantage over the latest on-patent drugs is often much lower
older drugs, but that they cost far more than in countries that impose direct or indirect
the closest comparable older drugs. If govern- price controls. Consequently, reimportation
ment health programs paid for only the “best in advocates promise to relieve high drug costs
class” medicine for each therapeutic category, by allowing American consumers to free-ride
the higher volume of purchases would justify on other nations’ price controls. But allowing
significant price reductions. However, while on reimportation would effectively import foreign
average the therapeutic benefit of various drugs price controls, resulting in less revenue for the
in a particular class may be similar, individual industry and a reduction in the capital available
patients will often respond quite differently— to drug companies for continued research and
even to very similar drugs. While it is advisable innovation.
for public programs to trim excessive costs, Finally, drug industry profits are not “exces-
implementing cost-benefit or comparative-ef- sive” by any honest measure. Pharmaceutical
fectiveness analysis in purchasing or approval industry critics like to point out that, in 2005,
decisions would negatively affect patient care. pharmaceutical firms in the Fortune 500 placed
Although the health care reform legislation ninth out of the 50 industries ranked by return
stipulates that PCORI recommendations shall on assets, 12th in 2004, and second in 2003.
not be used as the basis for rationing care, the However, as the Congressional Budget Office
Act also created a new Independent Payment (CBO) notes, “those figures misrepresent the
Advisory Board for the purpose of reducing the industry’s actual profits.” Standard account-
growth rate in Medicare spending. That body is ing measures overstate profitability for R&D-
expected to rely, in part, on PCORI recommen- intensive industries by treating most research
dations to evaluate physician and hospital qual- spending as an expense rather than as a capi-
ity, which means that PCORI recommendations talized investment that increases the company’s
will covertly be used as the basis for restricting value. “Not accounting for that value over-
available treatment options for patients. Even states a firm’s true return on its assets,” says
more pernicious is a proposal by the Centers the CBO.
for Medicare and Medicaid Services and FDA Ultimately, high pharmaceutical retail prices
to establish a parallel review process for medi- reflect the vast expense of developing those
cal products, which many fear could result in products and getting them approved for sale.
comparative-effectiveness or cost-benefit con- Without correspondingly high prices, few in-
siderations being improperly introduced into the vestors would be willing to take the risks inher-
new drug and medical device approval process. ent in supplying capital to the pharmaceutical
The argument for reimportation is no more industry. The result would be fewer and fewer
convincing. Although the prices of off-patent lifesaving medicines.
and generic drugs—which comprise more than
half of all prescriptions filled in the U.S.—are Gregory Conko

Contributors
John Berlau, Senior Fellow, Center for Economic Ivan Osorio, Editorial Director and Labor Policy
Freedom Fellow, Center for Economic Freedom
Gregory Conko, Senior Fellow, Center for Ryan Radia, Associate Director, Center for
Technology and Innovation Technology and Innovation
Wayne Crews, Director, Center for Technology Marc Scribner, Land-use and Transportation
and Innovation Policy Analyst, Center for Economic
Myron Ebell, Director, Center for Energy and Freedom
Environment Fran Smith, Board Member and Adjunct Fellow,
Sam Kazman, Director, Center for Law and Center for Economic Freedom
Litigation Fred Smith, President and Founder
Ben Lieberman, Senior Fellow, Center for Robert J. Smith, Distinguished Fellow, Center
Energy and Environment for Energy and Environment
Angela Logomasini, Senior Fellow, Center for F. Vincent Vernuccio, Labor Policy Counsel,
Energy and Environment Center for Economic Freedom
Michelle Minton, Insurance Studies Fellow, William Yeatman, Associate Director, Center
Center for Economic Freedom for Energy and Environment
Iain Murray, Director, Center for Economic Ryan Young, Regulatory Studies Fellow, Center
Freedom for Technology and Innovation
Alex Nowrasteh, Policy Analyst, Center for
Technology and Innovation

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icated to the principles of free enterprise and limited government. We believe that
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make their own choices in a free marketplace. Since its founding in 1984, CEI has
grown into an influential Washington institution.
We are nationally recognized as a leading voice on a broad range of regulatory

issues ranging from environmental laws to antitrust policy to regulatory risk. CEI is
not a traditional “think tank.” We frequently produce groundbreaking research on
regulatory issues, but our work does not stop there. It is not enough to simply iden-
tify and articulate solutions to public policy problems; it is also necessary to defend
and promote those solutions. For that reason, we are actively engaged in many
phases of the public policy debate.
We reach out to the public and the media to ensure that our ideas are heard, work
with policymakers to ensure that they are implemented and, when necessary, take
our arguments to court to ensure the law is upheld. This “full service approach” to
public policy makes us an effective and powerful force for economic freedom.
Competitive
Enterprise
Institute
1899 L Street, NW
12th Floor
Washington, DC 20036
202-331-1010
Fax 202-331-0640
www.cei.org
Issue Analysis is a series of policy studies published by the Competitive Enterprise Institute. Nothing in Issue
Analysis should be construed as necessarily reflecting the views of CEI or as an attempt to aid or hinder the
passage of any bill before Congress. Contact CEI for reprint permission. Additional copies of Issue Analysis
may be purchased through CEI’s publications department (pubs@cei.org or 202-331-1010).

CEI - Liberate To Stimulate

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Osorio/Crews

Competitive Enterprise Institute

A Bipartisan Agenda to Restore Limited

Edited by Ivan Osorio and Wayne Crews

Competitive Enterprise Institute

Copyright © 2010 by Competitive Enterprise Institute

Secure the Economy

Protect the Environment

Improve Health and Safety

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Reining in America’s Regulatory

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Regulations are frequently anti-competitive Regulatory cost transparency, through such

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Workers need incentives to perform to their The Rewarding Achievement and

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prioritization of certain types of traffic. tiating non-neutral arrangements for delivering

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Reform of the Transportation Security • Remove certain categories of passengers

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