Category: regulation

CAFE: Serving Up A Killing Of A Deal Since 1975

The July 2013 issue (hot off the ether-presses) of American Economic Journal: Applied Economics includes a study by Mark Jacobsen on the safety effects of corporate average fuel economy (CAFE) regulatory standards. (The paper was originally distributed as a National Bureau of Economic Research working paper in April 2012.)

CAFE standards were first introduced by the Energy Policy and Conservation Act of 1975 with the goal of reducing fuel (gasoline) consumption. The standards require auto manufacturers to meet certain fuel economy thresholds in each model year’s sales fleet, with different standards for cars and light-duty trucks and for “domestic” versus imported fleet vehicles. While innovations in engine technology and auto design contribute to fuel economy improvements, auto manufacturers have long achieved the biggest gains by producing smaller, lighter vehicles which are arguably less safe in the event of a collision. In fact, a 2002 National Academy of Sciences report concluded that downsizing related to fuel economy improvements between 1975 and 1993 resulted in roughly 2,000 additional fatalities in 1993, between 13,000 and 16,000 additional debilitating injuries, and between 97,000 and 195,000 total injuries.

Calculating the safety impact of CAFE is a little tricky because the composition of vehicles on the road plays a large role; a small car colliding with another small car has less risk of fatality than a small car colliding with a large car or truck. A significant contribution of Jacobsen’s analysis is that he takes into account both US fleet composition and unobserved driving behavior and vehicle selection (certain kinds of drivers choose certain kinds of vehicles for a reason, and different vehicles have different fatality effects). Continue reading “CAFE: Serving Up A Killing Of A Deal Since 1975”

Incentives Matter: ObamaCare Edition

Merrill Matthews has a great post on Forbes.com today about some “surprising” developments in response to the ObamaCare health insurance debacle. In short:

  1. (Not really news) The cost of most health insurance programs for young and/or healthy individuals is predicted to increase dramatically to cover the costs of coverage imposed by the law…to the point that many will have no incentive to purchase the coverage until they actually need its benefits (i.e., a perverse incentive created by prohibiting exemptions on pre-existing conditions which, ironically, also drives up the cost of the insurance to begin with).

  2. (Somewhat news) Since the IRS has no authority to proactively collect the fine/tax/penalty from people who refuse to buy insurance and can only withhold tax refund payments, smart taxpayers who opt out of health insurance will simply make sure they have no tax refunds coming by adjusting their withholdings accordingly–and pay little or no fine. If taxpayers start using this loophole in earnest, expect Democrats to attempt to pass legislation allowing the IRS to start beaming money directly out of your checkbook or seizing assets to pay for the non-tax-fine-“no, it’s a tax” penalty.

  3. (A truly entrepreneurial twist!) Some life insurance companies, which are not affected by ObamaCare, have begun offering policies that allow policyholders to receive pre-demise benefits from their life insurance for “critical illness” expenses. Kind of a “getting-close-to-possibly-dying” rider to the traditional life insurance policy. Beneficiaries can use the advanced payments to cover the medical bills (if they want) and the death benefit is reduced by the amount of the payment. Truly ingenious…exactly the kind of creative, market-driven genius that has fueled the American economy since before there was an American economy.

Matthews summarizes it quite well in a way that captures what this blog is all about:

See, that’s the amazing thing about markets.  They try to meet the needs of consumers rather than the wants and political aspirations of politicians.  And sometimes they can even undermine those political aspirations.

So Much News, So Little Time

The past couple weeks I’ve either been traveling, camping, or preparing for trips. Leave the keyboard for a couple weeks and all kinds of interesting things happen.

It’s SCOTUS season, with the Supreme Court handing down some long-awaited (and some less-awaited) decisions to close out the 2012-13 term. In one of them, Horne v. Department of Agriculture, the Court unanimously ruled that agricultural producers had the right to contest the marketing order set-asides as “takings” and sent the case back to the Ninth Circuit for further consideration. The SCOTUS ruling itself opens a potential host of legal challenges not just from agricultural producers, but any businesses that seek to challenge regulatory fines (see here). Now the Ninth Circuit will have to deal with the takings issue itself, which I discussed previously (here).

The SCOTUS also ruled on a land use property rights case that has potential implications for a wide range of businesses, including agricultural producers and agribusinesses. Koontz v. St. Johns River Water Management District expanded the scope of the Court’s rulings in Nollan v. California Coastal Commission and Dolan v. City of Tigard, which set limitations on the government’s ability to impair property interests with land use regulations. This case deserves a little more digging for those interested in land use restrictions and required environmental concessions.

And finally, the US House of Representatives showed that no political backscratching is exempt from ideological divides as it failed to pass its own version of the Farm Bill. Republicans who felt the programs contained in the bill needed to be cut further teamed with Democrats who believed the cuts were already too large to kill the bill. Most of the disagreement had less to do with farming, per se, than with food stamps and other nutritional subsidy programs. “Oh SNAP!” indeed!

Perhaps I’ll get some time to go back and look at each of these in a little more detail and write more on each–or at some of the other issues that have come up over the past couple week.

Wrinkles In The US Raisin Cartel

Cartel sounds much sexier than “marketing order”, doesn’t it? But that’s basically what it is…and some of the cartel members are not happy.

It didn’t receive the attention some other recent US Supreme Court cases did, but a couple weeks ago in Horne v. Department of Agriculture the SCOTUS heard arguments about whether mandatory marketing order set-asides amount to federal takings and should be compensated. This case has tremendous potential impact for upward of 30 agricultural products governed by marketing orders run under the auspices of the USDA. These marketing orders date back to the 1930s and were an attempt by agricultural producers to increase the prices they received for the products by disposing of “excess production”. In other words, farmers of the 1930s got the federal government to institute a national cartel for the purposes of raising the price of food…and those cartels continue to operate today.

So how does that work?

Continue reading “Wrinkles In The US Raisin Cartel”