Category: Government

FTC Retaliated Against, and Destroyed, Innocent Firm that Stood Up for Rule of Law

(p. A17) Sometimes winning is still losing. That is certainly true for companies that find themselves caught in the cross hairs of the federal government. Since 2013, my organization has defended one such company, the cancer-screening LabMD, against meritless allegations from the Federal Trade Commission. Last Friday, [November 13, 2015] the FTC’s chief administrative-law judge dismissed the agency’s complaint. But it was too late. The reputational damage and expense of a six-year federal investigation forced LabMD to close last year.
. . .
Unlike many other companies in similar situations, . . . , LabMD refused to cave and in 2012 went public with the ordeal. In what appeared to be retaliation, the FTC sued LabMD in 2013, alleging that the company engaged in “unreasonable” data-security practices that amounted to an “unfair” trade practice by not taking reasonable steps to protect patient information. FTC officials publicly attacked LabMD and imposed arduous demands on the doctors who used the company’s diagnostic services. In just one example, the FTC subpoenaed a Florida oncology lab to produce documents and appear for depositions before government lawyers–all at the doctors’ expense.
Yet after years of investigation and enforcement action, the FTC never produced a single patient or doctor who suffered or who alleged identity theft or harm because of LabMD’s data-security practices. The FTC never claimed that LabMD violated HIPAA regulations, and until 2014–four years after its investigation began–never offered any data-security standards with which LabMD failed to comply.
. . .
. . . , the FTC is likely to simply disregard the 92-page decision–which weighed witness credibility and the law–and side with commission staff. That’s the still greater injustice: The FTC is not bound by administrative-law judge rulings. In fact, the agency has disregarded every adverse ruling over the past two decades, according to a February analysis by former FTC Commissioner Joshua Wright. Defendants’ only recourse is appealing in federal court, a fresh burden in legal fees.
That’s what happens when a federal agency serves as its own detective, prosecutor, judge, jury and executioner. As Mr. Wright observed, the FTC’s record is “a strong sign of an unhealthy and biased institutional process.” And he puts it perhaps most powerfully: “Even bank robbery prosecutions have less predictable outcomes than administrative adjudication at the FTC.” Winning against the federal government should never require losing so much.

For the full commentary, see:
DAN EPSTEIN. “Hounded Out of Business by Regulators; The company LabMD finally won its six-year battle with the FTC, but vindication came too late.” The Wall Street Journal (Fri., Nov. 20, 2015): A17.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the commentary was updated on Nov. 19, 2015.)

Audits Worth Less When the Audited Directly Pay for Them

(p. B1) Environmental regulators in Gujarat, one of India’s fastest-growing industrial states, found themselves in an implausible situation a few years ago: Every single city breached national air quality standards. And yet environmental audits kept finding that factories met pollution limits.
So the Gujaratis hired some researchers from Harvard and the Massachusetts Institute of Technology to carry out an experiment, changing the way the audits were made. Instead of hiring their own auditors, companies had auditors assigned to them randomly. Instead of being paid by the companies they audited, auditors drew a fixed fee from a pool that all companies paid into.
Measured compliance rates abruptly plummeted. But once the new system was in place, the real emissions from polluting factories finally started to decline. The Gujaratis kept the new approach.
“When fact-checking is not done in an independent way, there is a long history of things turning out the way the entity being fact checked wants them to turn out,” said Michael Greenstone of the University of Chicago, a former chief economist for President Obama’s Council of Economic Advisers who was one of the researchers involved in the study. “Until you change the incentives, this will not change.”
The problem may seem remote, but it turns out that the same incentives apply in the United States, even in programs that, at first glance, appear to provide an unmitigated benefit.
Last month, the Energy Department released an extensive report assessing the impact of the federal weatherization program, which was begun in 1976 to shield the homes of low-income Americans from the elements, save them money on heating bills and improve energy efficiency.
It concluded that weatheriza-(p. B10)tion — insulating homes, changing boilers, plugging leaky windows and the like — was a stellar investment. Not only were the energy savings substantially larger than the cost of weatherizing homes, the report found, but the gains soared even more once the broader impacts on health were taken into account.
“The results demonstrate that weatherization provides cost-effective energy savings and health and safety benefits to American families,” the Energy Department announced.
But do they? When Professor Greenstone and two other independent economists looked under the hood — not a trivial challenge, given the report’s 4,500 pages — they found a collection of idiosyncratic choices and unorthodox assumptions that severely undermined the credibility of the enterprise.
In the end, they concluded, the government research effort, which was led by the Energy Department’s own Oak Ridge National Laboratory, cannot tell us whether weatherization is a fabulous program or a waste of taxpayer dollars.

For the full commentary, see:
Eduardo Porter. “ECONOMIC SCENE; For Government That Works, Call In the Auditors.” The New York Times (Weds., OCT. 7, 2015): B1 & B10.
(Note: the online version of the commentary has the date OCT. 6, 2015, and the title “ECONOMIC SCENE; For Government That Works, Call In the Auditors.”)

Recycling Is Costly “Religious Ritual”

John Tierney penned another eye-opening commentary, this one as a cover-story for the SundayReview Section of The New York Times. A few of the best passages are quoted below.

(p. 1) In 1996, I wrote a long article for The New York Times Magazine arguing that the recycling process as we carried it out was wasteful.

. . .
So, what’s happened since then? While it’s true that the recycling message has reached more people than ever, when it comes to the bottom line, both economically and environmentally, not much has changed at all.
Despite decades of exhortations and man-(p. 4)dates, it’s still typically more expensive for municipalities to recycle household waste than to send it to a landfill. Prices for recyclable materials have plummeted because of lower oil prices and reduced demand for them overseas. The slump has forced some recycling companies to shut plants and cancel plans for new technologies.
. . .
One of the original goals of the recycling movement was to avert a supposed crisis because there was no room left in the nation’s landfills. But that media-inspired fear was never realistic in a country with so much open space. In reporting the 1996 article I found that all the trash generated by Americans for the next 1,000 years would fit on one-tenth of 1 percent of the land available for grazing. And that tiny amount of land wouldn’t be lost forever, because landfills are typically covered with grass and converted to parkland, like the Freshkills Park being created on Staten Island.
. . .
Last week the National Institutes of Health announced that it had prematurely ended a large national study of how best to treat people with high blood pressure because of its exceptional results.
In this trial of more than 9,000 people age 50 and older with high blood pressure, an aggressive treatment strategy to keep systolic blood pressure below 120 was compared with a conventional one aimed at keeping it below 140. The subjects all had a high risk of heart attacks, stroke and heart failure. The N.I.H. concluded, six years into a planned eight-year study, that for these patients, pushing blood pressure down far below currently recommended levels was very beneficial.
. . .
As a business, recycling is on the wrong side of two long-term global economic trends. For centuries, the real cost of labor has been increasing while the real cost of raw materials has been declining. That’s why we can afford to buy so much more stuff than our ancestors could. As a labor-intensive activity, recycling is an increasingly expensive way to produce materials that are less and less valuable.
Recyclers have tried to improve the economics by automating the sorting process, but they’ve been frustrated by politicians eager to increase recycling rates by adding new materials of little value. The more types of trash that are recycled, the more difficult it becomes to sort the valuable from the worthless.
In New York City, the net cost of recycling a ton of trash is now $300 more than it would cost to bury the trash instead. That adds up to millions of extra dollars per year — about half the budget of the parks department — that New Yorkers are spending for the privilege of recycling. That money could buy far more valuable benefits, including more significant reductions in greenhouse emissions.
So what is a socially conscious, sensible person to do?
It would be much simpler and more effective to impose the equivalent of a carbon tax on garbage, as Thomas C. Kinnaman has proposed after conducting what is probably the most thorough comparison of the social costs of recycling, landfilling and incineration. Dr. Kinnaman, an economist at Bucknell University, considered everything from environmental damage to the pleasure that some people take in recycling (the “warm glow” that makes them willing to pay extra to do it).
He concludes that the social good would be optimized by subsidizing the recycling of some metals, and by imposing a $15 tax on each ton of trash that goes to the landfill. That tax would offset the environmental costs, chiefly the greenhouse impact, and allow each municipality to make a guilt-free choice based on local economics and its citizens’ wishes. The result, Dr. Kinnaman predicts, would be a lot less recycling than there is today.
Then why do so many public officials keep vowing to do more of it? Special-interest politics is one reason — pressure from green groups — but it’s also because recycling intuitively appeals to many voters: It makes people feel virtuous, especially affluent people who feel guilty about their enormous environmental footprint. It is less an ethical activity than a religious ritual, like the ones performed by Catholics to obtain indulgences for their sins.
Religious rituals don’t need any practical justification for the believers who perform them voluntarily. But many recyclers want more than just the freedom to practice their religion. They want to make these rituals mandatory for everyone else, too, with stiff fines for sinners who don’t sort properly. Seattle has become so aggressive that the city is being sued by residents who maintain that the inspectors rooting through their trash are violating their constitutional right to privacy.

For the full commentary, see:
JOHN TIERNEY. “The Reign of Recycling.” The New York Times, SundayReview Section (Sun., OCT. 4, 2015): 1 & 4.
(Note: ellipses added.)
(Note: the online version of the commentary has the date OCT. 3, 2015.)

The Kinnaman paper mentioned above, is:
Kinnaman, Thomas C., Takayoshi Shinkuma, and Masashi Yamamoto. “The Socially Optimal Recycling Rate: Evidence from Japan.” Journal of Environmental Economics & Management 68, no. 1 (July 2014): 54-70.

Federal Agency Director Collects $750,000 for Lobbying

(p. A1) WASHINGTON — In this city with a grand tradition of government officials who pass through the revolving door into a world of big paychecks, Jeffrey Farrow stands apart.
While earning more than $100,000 a year as executive director of a tiny federal agency called the Commission for the Preservation of America’s Heritage Abroad, which has only one full-time federal employee, Mr. Farrow has simultaneously helped collect as much as $750,000 a year in lobbying fees. His clients have included the governments of Puerto Rico and the Republic of Palau, a tiny island nation in the western Pacific.
Mr. Farrow was at once a federal government bureaucrat and lobbyist. The revolving door did not even have to spin.
He managed this feat while running one of dozens of agencies that can get lost in the vast United States government — this one responsible for identifying and helping preserve cemeteries and historic buildings in Eastern and Central Europe that are important to American Jews and others, including Orthodox Christians from Kosovo.
. . .
(p. A16) “A bizarre tale,” said Senator Ron Johnson, Republican of Wisconsin and chairman of the Senate Homeland Security and Governmental Affairs Committee, in a letter he sent last month to Lesley Weiss, the chairwoman of the 30-year-old commission, asking her to explain Mr. Farrow’s dual roles. “This lobbyist used federal personnel and resources to run a profitable personal business advancing the interest of foreign agents.”.
. . .
Mr. Johnson, the Wisconsin senator, in a statement released by his office Friday, said the commission, despite its worthwhile mission, was an example of what is wrong with government.
“This relatively tiny agency is a classic example of the dysfunction and waste that typify far too much of the federal government,” he said. “Established with the best of intentions to memorialize the horrors of 20th-century genocides, the Commission for the Preservation of America’s Heritage Abroad did little to accomplish that goal but was instead used to enrich a lobbyist.”

For the full story, see:
ERIC LIPTON. “The Lobbyist With a Six-Figure Government Job.”The New York Times (Fri., SEPT. 15, 2015): A1 & A16.
(Note: ellipses added.)
(Note: the online version of the story has the date SEPT. 14, 2015.)

Lax College Accreditors May Be “Doing More Harm than Good”

(p. A19) Most colleges can’t keep their doors open without an accreditor’s seal of approval, which is needed to get students access to federal loans and grants. But accreditors hardly ever kick out the worst-performing colleges and lack uniform standards for assessing graduation rates and loan defaults.
Those problems are blamed by critics for deepening the student-debt crisis as college costs soared during the past decade. Last year alone, the U.S. government sent $16 billion in aid to students at four-year colleges that graduated less than one-third of their students within six years, according to an analysis by The Wall Street Journal of the latest available federal data.
. . .
(p. A12) Accreditors say their job is to help colleges get better rather than to weed out laggards. Colleges pay for the inspections, which can cost more than $1 million at large institutions.
“You’re not there to remove an institution,” says Judith Eaton, president of the Council for Higher Education Accreditation, a trade group. “You’re there to enhance the operation.”
The government has relied on accreditors as watchdogs since the 1950s. Colleges are evaluated by teams of volunteers from similar institutions, who follow standards set by the accreditation group. For example, colleges sometimes are required to collect student-retention data but given the freedom to set their own goals for those numbers.
. . .
Stephen Roderick, former provost at Fort Lewis College in Colorado, says he now has misgivings about his 2013 review of Glenville State College in West Virginia for the Higher Learning Commission. The review team wrote that the college had a “responsible program” to minimize default rates and “demonstrates a commitment” to evaluating graduation data.
Glenville’s graduation rate is 30%, while about 22% of students defaulted on loans from 2011 to 2013. Both percentages rank near the bottom 10% of accredited four-year colleges. David Millard, assistant to Glenville’s president, says the figures reflect the opportunity offered by the college to students in one of the poorest parts of the U.S.
Mr. Roderick says accreditors are inclined to see the best in colleges like Glenville, but that might not be the best for students. “Sometimes I feel that we’re doing more harm than good,” he says.

For the full story, see:
ANDREA FULLER and DOUGLAS BELKIN. “Education Watchdogs Rarely Bite; Accreditors keep hundreds of schools with low graduation rates or high loan defaults alive.” The Wall Street Journal (Thurs., June 18, 2015): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the article was dated June 17, 2015, and had the title “The Watchdogs of College Education Rarely Bite; Accreditors keep hundreds of schools with low graduation rates or high loan defaults alive.”)

FCC Gains Arbitrary Power Over Internet Innovation

(p. A11) Imagine if Steve Jobs, Larry Page or Mark Zuckerberg had been obliged to ask bureaucrats in Washington if it was OK to launch the iPhone, Gmail, or Facebook’s forthcoming Oculus virtual-reality service. Ridiculous, right? Not anymore.
A few days before the Independence Day holiday weekend, the Federal Communications Commission announced what amounts to a system of permission slips for the Internet.
. . .
As the FCC begins to issue guidance and enforcement actions, it’s becoming clearer that critics who feared there would be significant legal uncertainty were right. Under its new “transparency” rule, for example, the agency on June 17 conjured out of thin air an astonishing $100 million fine against AT&T, even though the firm explained its mobile-data plans on its websites and in numerous emails and texts to customers.
The FCC’s new “Internet Conduct Standard,” meanwhile, is no standard at all. It is an undefined catchall for any future behavior the agency doesn’t like.
. . .
From the beginning, Internet pioneers operated in an environment of “permissionless innovation.” FCC Chairman Tom Wheeler now insists that “it makes sense to have somebody watching over their shoulder and ready to jump in if necessary.” But the agency is jumping in to demand that innovators get permission before they offer new services to consumers. The result will be less innovation.

For the full commentary, see:
BRET SWANSON. “Permission Slips for Internet Innovation; The FCC’s new Web rules are already as onerous as feared and favor some business models over others.” The Wall Street Journal (Sat., Aug. 15, 2015): A11.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Aug. 14, 2015.)

John Paul Stapp Thumbed His Nose at the Precautionary Principle

(p. C7) In the early 19th century, a science professor in London named Dionysus Lardner rejected the future of high-speed train travel because, he said, “passengers, unable to breathe, would die of asphyxia.” A contemporary, the famed engineer Thomas Tredgold, agreed, noting “that any general system of conveying passengers . . . [traveling] at a velocity exceeding 10 miles an hour, or thereabouts, is extremely improbable.”
The current land speed for a human being is 763 miles an hour, or thereabouts, thanks in large part to the brilliance, bravery and dedication of a U.S. Air Force lieutenant colonel named John Paul Stapp, a wonderfully iconoclastic medical doctor, innovator and renegade consumer activist who repeatedly put his own life in peril in search of the line beyond which human survival at speed really was “extremely improbable.”
. . .
Initial tests were carried out on a crash-test dummy named Oscar Eightball, then chimpanzees and pigs. There was plenty of trial and error–the term “Murphy’s Law” was coined during the Gee Whiz experiments–until Stapp couldn’t resist strapping himself into the Gee Whiz to experience firsthand what the cold data could never reveal: what it felt like. On May 5, 1948, for example, he “took a peak deceleration of an astounding twenty-four times the force of gravity,” the author writes. “This was the equivalent of a full stop from 75 miles per hour in just seven feet or, in other words, freeway speed to zero in the length of a very tall man.”
Stapp endured a total of 26 rides on the Gee Whiz over the course of 50 months, measuring an array of physiological factors as well as testing prototype helmets and safety belts. Along the way he suffered a broken wrist, torn rib cartilage, a bruised collarbone, a fractured coccyx, busted capillaries in both eyes and six cracked dental fillings. Colleagues became increasingly concerned for his health every time he staggered, gamely, off the sled, but, according to Mr. Ryan, he never lost his sense of humor, nor did these ordeals stop Dr. Stapp from voluntarily making house calls at night for families stationed on the desolate air base.
. . .
After 29 harrowing trips down the track, Stapp prepared for one grand finale, what he called the “Big Run,” hoping to achieve 600 miles per hour, the speed beyond which many scientists suspected that human survivability was–really, this time–highly improbable. On Dec. 10, 1954, Sonic Wind marked a speed of 639 miles per hour, faster than a .45 caliber bullet shot from a pistol. Film footage of the test shows the sled rocketing past an overhead jet plane that was filming the event. The Big Run temporarily blinded Stapp, and he turned blue for a few days, but the experiment landed him on the cover of Time magazine as the fastest man on earth. The record stood for the next 30 years.

For the full review, see:
PATRICK COOKE. “Faster Than a Speeding Bullet–Really.” The Wall Street Journal (Sat., Aug. 22, 2015): C7.
(Note: first ellipsis, and bracketed word, in original; other ellipses added.)
(Note: the online version of the review has the date Aug. 21, 2015.)

The book under review, is:
Ryan, Craig. Sonic Wind: The Story of John Paul Stapp and How a Renegade Doctor Became the Fastest Man on Earth. New York: Liveright Publishing Corp., 2015.

Feds Constrain Startups

(p. A15) Virtually every state has suffered a drop in startups, which suggests that this is a national, and not a regional or state, problem.
. . .
If history is any indication, many of today’s economic heavyweights will ultimately decline as new businesses take their place. Research by the Kaufman Foundation shows that only about half of the 1995 Fortune 500 firms remained on the list in 2010.
Startups also have declined in high technology. John Haltiwanger of the University of Maryland reports that there are fewer startups in high technology and information-processing since 2000, as well as fewer high-growth startups–annual employment growth of more than 25%–across all sectors. Even more troubling is that the smaller number of high-growth startups is not growing as quickly as in the past.
. . .
Surveys by John Dearie and Courtney Gerduldig, authors of “Where the Jobs Are: Entrepreneurship and the Soul of the American Economy” (2013), show that entrepreneurs report being hamstrung by difficulties in finding skilled workers, by a complex tax code that penalizes small business, by regulations that raise the costs of doing business, and by difficulties in obtaining financing that have worsened since 2008.

For the full story, see:
EDWARD C. PRESCOTT and LEE E. OHANIAN. “Behind the Productivity Plunge: Fewer Startups; New businesses were created at a 30% lower rate in 2012 than the annual average rate in the 1980s.” The Wall Street Journal (Thurs., June 26, 2014): A15.
(Note: ellipses added.)
(Note: the online version of the story has the date June 25, 2014.)

Smugglers Respond to Putin’s Ban on Cheese

(p. A4) When the Russian government banned dairy products from a host of nations, including the United States and members of the European Union, last year in response to Western economic sanctions imposed over Russia’s military meddling in Ukraine, President Vladimir V. Putin said the restrictions would create a profitable opportunity for domestic industries.
Instead they appear to have created an opening for forgers and smugglers. The “cheese ring” was busted with an estimated $30 million worth of the stuff, nearly 500 tons, according to the Interior Ministry police.

For the full story, see:
NEIL MacFARQUHAR. “A Crackdown in Russia on a Creamy Contraband.” The New York Times (Weds., AUG. 19, 2015): A4.
(Note: the online version of the story has the date AUG. 18, 2015, and has the title “Russian Police Get Tough on Illicit Cheese.”)

“Words Can Obscure Rather than Illuminate”

(p. C6) In his essay “Politics and the English Language,” George Orwell shows how language is a tool of political control, how words can obscure rather than illuminate. Mr. Swaim explains how that applies to Mr. Sanford’s office. At one point, constituents start writing in to ask whether the governor plans to run for president. While Mr. Swaim is expected to answer the letters, he is also expected to deploy a whole lot of “platitudinous observations” and “superfluous phrases” to say, basically, nothing.
“The trick was to use the maximum number of words with the maximum number of legitimate interpretations,” he writes. “Words are useful, but often their meanings are not. Sometimes what you want is feeling rather than meaning, warmth rather than content. And that takes verbiage.”

For the full review, see:
SARAH LYALL. “Pumpting Up Hot Air to the Governor’s Level.” The New York Times (Thurs., JULY 30, 2015): C1 & C6.
(Note: the online version of the review has the date JULY 29, 2015, and has the title “Review: In ‘The Speechwriter,’ Barton Swaim Shares Tales of Working for Mark Sanford.”)

The book under review, is:
Swaim, Barton. The Speechwriter: A Brief Education in Politics. New York: Simon & Schuster, 2015.