Mercatus Site Feed http://mercatus.org/feeds/home/publication/publication/balanced-budget-amendment-constitution en Eli Dourado Discusses the Effects of Technological Innovation on Future Job Prospects on Al Jazeera http://mercatus.org/video/eli-dourado-discusses-effects-technological-innovation-future-job-prospects-al-jazeera <h5> Video </h5> <iframe width="640" height="360" src="//www.youtube.com/embed/loNzHZqYRIo" frameborder="0" allowfullscreen></iframe> <p>Eli Dourado Discusses the Effects of Technological Innovation on Future Job Prospects on Al Jazeera</p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe width=&quot;640&quot; height=&quot;360&quot; src=&quot;//www.youtube.com/embed/loNzHZqYRIo&quot; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/eli-dourado-discusses-effects-technological-innovation-future-job-prospects-al-jazeera Wed, 30 Jul 2014 12:00:26 -0400 Dodd-Frank's Birthday Marred By Its Many Inadequacies http://mercatus.org/expert_commentary/dodd-franks-birthday-marred-its-many-inadequacies <h5> Expert Commentary </h5> <p class="p1">Financial reform debates rarely dwell long on the purposes financial markets serve. Instead policy debaters move quickly from cursory diagnoses to regulatory remedies. As a consequence, the reforms that these discussions produce often inadvertently impede the proper functioning of the markets. An impaired financial industry can have deep and devastating effects on people far away from Wall Street and Washington.</p> <p class="p1">The financial industry exists to serve consumers and companies that need to manage their risks and finance homes, educations, retirements, production, and innovation. The regulatory framework within which the financial industry operates can affect the industry's ability to effectively meet those needs. Many people simply assume that, on balance, more regulation will make financial markets function better. For example, 60 percent of the respondents in a Better Markets <a href="https://www.bettermarkets.com/sites/default/files/National%20Poll%20on%20the%204th%20Anniv%20of%20Dodd-Frank_1.pdf"><b>poll</b></a> from earlier this month want "stricter regulation on the way banks and other financial institutions conduct their business."</p> <p class="p1">The poll results might have been different if the respondents had also seen a June 2014 Goldman Sachs <a href="http://www.goldmansachs.com/our-thinking/public-policy/regulatory-reform/who-pays-for-bank-regulation-pdf.pdf"><b>study</b></a> that asks the important question-"Who Pays for Bank Regulation?" The research found that post-crisis financial regulatory efforts are particularly costly for low-income consumers and small businesses. A subset of consumers who were once able to get credit cards and home mortgages now rely on payday lenders, government agencies, and other nonbanks for credit.</p> <p class="p1">Other consumers and small businesses still have access to bank credit, but they pay more than they did before. The Goldman Sachs study estimates that a household earning $50,000-the median annual income-pays an extra $200 a year in interest. With respect to business borrowers, the study estimates that small and mid-sized companies are paying, respectively, 41 and 55 basis points more on bank loans than they did pre-crisis. Larger companies, by contrast, are actually paying less than they did before the crisis to fund themselves.</p> <p class="p1">The study attributes the disparate effects in part to the degree to which nonbank alternative sources of funding are available to different groups of consumers and businesses. As the study authors explain, "consumers and businesses that have ready access to alternative sources of finance are less likely to pay the incremental tax that regulation imposes." Low-income consumers and small businesses don't have many funding options, so they cannot avoid the regulatory tax.</p> <p class="p1">There are a number of steps that regulators can take to preserve and expand funding options for consumers and small businesses. First, the capital markets, which the Securities and Exchange Commission regulates, can be a valuable alternative to bank financing for small businesses. The SEC, using its discretionary authority and the authority granted to it under the JOBS Act, can undertake serious efforts to open up viable funding sources for new and growing businesses. These efforts will fall flat, however, if new capital-raising avenues such as crowdfunding and Regulation A offerings are loaded down with costly obligations that put them out of the reach of small companies.</p> <p class="p1">Second, bank regulators can look for creative ways to limit regulatory obligations on small banks. Dodd-Frank's burdens take a tremendous toll on these banks, which are key to small business lending. A well-capitalized community bank should not have to worry about being second-guessed by a bank examiner for making a loan to a local small business or a consumer with whom the bank has had a long-standing relationship.</p> <p class="p1">Third, the Bureau of Consumer Financial Protection should not lose sight of its statutory objective to ensure that "markets for consumer products and services operate transparently and efficiently to facilitate access and innovation." The Bureau <a href="http://www.consumerfinance.gov/blog/three-years-of-standing-up-for-consumers/"><b>points</b></a> to its rules, enforcement actions, and consumer complaint database as evidence of its solidarity with consumers, but it has not given sufficient thought to the potential effects of its actions on consumer prices and the willingness of companies to serve consumers. As Robert Clarke and Todd Zywicki wrote in a <a href="http://mercatus.org/publication/payday-lending-bank-overdraft-protection-and-fair-competition-consumer-financial-1"><b>recent article</b></a>, "Competition and consumer choice can be powerful vehicles for improving consumer welfare and consumer protection." The Bureau should embrace-rather than tolerate or ignore-its legal obligations to consider the effects its rules will have on small banks and other small businesses.</p> <p class="p1">Fourth, regulators should look back at old regulations to identify those that are particularly harmful to small businesses and consumers. Bank regulators are currently conducting the 10-year <a href="http://www.gpo.gov/fdsys/pkg/FR-2014-06-04/pdf/2014-12741.pdf"><b>review </b></a>of regulations "to identify outdated, unnecessary, or unduly burdensome requirements" required under the Economic Growth and Regulatory Paperwork Reduction Act of 1996. This process provides regulators a key opportunity to consider whether particular rules or sets of rules are increasing the costs of consumers and small businesses to financing and decreasing their access.</p> <p class="p1">Dodd-Frank's fourth birthday party was marred by talk of its long list of inadequacies. It is unfortunate to have to add the statute's regressive effects to that list. But regulators can do a lot before the law's next birthday to remove uneconomic regulatory impediments to the financial industry's ability to serve the full range of consumers and businesses.</p> http://mercatus.org/expert_commentary/dodd-franks-birthday-marred-its-many-inadequacies Wed, 30 Jul 2014 11:52:13 -0400 Ex-Im Funds Flow to Few States, but All Bear the Risks http://mercatus.org/publication/ex-im-funds-flow-few-states-all-bear-risks <h5> Publication </h5> <p class="p1">This week’s maps use data from the <a href="http://www.exim.gov/customcf/congressionalmap/us_map.cfm">Export-Import Bank</a> and the <a href="https://www.census.gov/foreign-trade/statistics/state/data/index.html">US Census Bureau</a> to display the effect of Ex-Im Bank financing on each state. The maps show that Washington state, home of Boeing, garners the bulk of the benefits in terms of both Ex-Im Bank disbursements and as a percentage of total state export value, even though taxpayers across the nation are equally exposed to liability.</p> <p class="p1"><a href="http://mercatus.org/sites/default/files/ExIm-Map-1-Poster-LARGE.jpg"><img src="http://mercatus.org/sites/default/files/ExIm-Map-1-Poster-small.jpg" width="585" height="364" /></a></p> <p class="p1">The first map displays data from the <a href="http://www.exim.gov/customcf/congressionalmap/us_map.cfm">Export-Import Bank’s congressional map tool</a>. The web interface contains more specific details than are presented in the bank’s annual reports; it breaks down all transactions by state (plus the District of Columbia and Puerto Rico) and by small business activity. We extracted data from FY 2007 to FY 2014 for all Ex-Im Bank disbursements for each state along with the proportion of small business transactions reported by the bank. We then summed the total for all states and determined each state’s share of total Ex-Im disbursements. The map displays this proportion for each state on a map of America. Each state is shaded according to the proportion of Ex-Im disbursements that it received.</p> <p class="p1">The first map shows that Washington state is the clear winner in terms of total Ex-Im disbursements, receiving a massive 43.6 percent of all Ex-Im Bank disbursements from 2007 to 2014. Washington is the home of Boeing, one of Ex-Im Bank’s biggest beneficiaries, but the sheer size is nonetheless startling. Larger states like Texas and California only respectively pulled in 10.5 percent and 8.8 percent of total Ex-Im Bank disbursements during the same time. An astounding 42 states received less than two percent of Ex-Im Bank disbursements, with 35 of these receiving less than one percent. While businesses in most states barely benefit from the Ex-Im Bank at all, their taxpayers are just as exposed to Ex-Im Bank liabilities as taxpayers in states that receive the most Ex-Im Bank backing.</p><p class="p1"><a href="http://mercatus.org/sites/default/files/ExIm-Map-2-Poster-large.jpg"><img src="http://mercatus.org/sites/default/files/ExIm-Map-2-Poster-small.jpg" /></a></p> <p class="p1">The second map uses data from the same Export-Import Bank congressional map tool and the <a href="https://www.census.gov/foreign-trade/statistics/state/data/index.html">US Census Bureau’s datasets on state exports</a> from 2007 to 2014. In this case, we wanted to see what the impact of Ex-Im Bank financing had on each state as a percentage of that state’s total exports over the same period of time. We extracted Census data on total state exports and calculated the percentage of export value that Ex-Im Bank records claim were backed for each state. The results are displayed on a map of America, and each state is shaded according to the proportion of state exports that are backed by the Ex-Im Bank. States whose exports were more significantly backed by the Ex-Im Bank are darker, while states whose exports received less backing are lighter.</p> <p class="p1">The second map displays a similar pattern to the first. Washington state is again the big winner in terms of state export value supported, with an incredible 22.67 percent of state exports backed by the Ex-Im Bank since 2007. The state percentages drop off quickly from there. While almost four percent of Wisconsin’s exports and about 3.5 percent of Massachusetts’s exports were backed by the Ex-Im Bank, the Ex-Im Bank supported less than two percent of the exports of 41 states for the same time period.&nbsp;</p> <p class="p1">The Ex-Im Bank yields negligible benefits for the vast majority of state exports. But the concentrated benefits it yields to a few beneficiaries makes the reform necessary to prevent widespread losses that much harder.&nbsp;</p> http://mercatus.org/publication/ex-im-funds-flow-few-states-all-bear-risks Wed, 30 Jul 2014 11:14:48 -0400 Blahous, Fichtner on Medicare and Social Security Trustees Report http://mercatus.org/expert_commentary/blahous-fichtner-medicare-and-social-security-trustees-report <h5> Expert Commentary </h5> <table cellpadding="0" cellspacing="0"><tbody><tr><td class="td1" valign="top"><p class="p1">The Medicare and Social Security annual report, released today, shows that the insolvency date for the Social Security Old Age and Survivors Insurance (OASI) trust fund is now 2034, one year earlier than estimated in last year’s report, while the insolvency dates for the Social Security Disability Insurance (DI) trust fund (2016) and the combined trust funds (2033) remain unchanged.</p> <p class="p1">Mercatus Center senior research fellow&nbsp;<a href="http://mercatus.org/charles-blahous">Charles Blahous</a>, a public trustee for Medicare and Social Security, said the following in a letter with fellow public trustee, Robert Reischauer:</p> <p class="p2"><i>“[T]he adverse consequences of delaying necessary corrections in both [Medicare and Social Security] are beginning to be realized. The most immediate financing threat facing either program is the impending depletion of Social Security Disability Insurance Trust Fund reserves in late 2016.</i></p> <p class="p2"><i>“…Medicare’s financing shortfall, like Social Security’s, remains a reality warranting legislative corrections.”</i></p> <p class="p1">Please click <a href="http://www.ssa.gov/OACT/TRSUM/index.html">here</a> to view the full “Message from the Public Trustees,” as well as the full summary of the 2014 Annual Reports of the Social Security and Medicare Boards of Trustees.</p> <p class="p1">Mercatus Center senior research fellow <a href="http://mercatus.org/jason-j-fichtner">Jason Fichtner</a>, former deputy commissioner and chief economist of the Social Security Administration, said the following in response to the report:</p> <p class="p2"><i>“The projected dates of insolvency for Social Security’s trust funds remain largely unchanged. I fear this news will give lawmakers and the public a false sense that the program doesn't require immediate reform.</i></p> <p class="p2"><i>“But make no mistake, there is a Social Security crisis. Misunderstanding&nbsp;the critical state of the program's financial health would lead to grave consequences for beneficiaries of both the disability and retirement programs.”</i></p></td></tr></tbody></table> http://mercatus.org/expert_commentary/blahous-fichtner-medicare-and-social-security-trustees-report Tue, 29 Jul 2014 14:40:07 -0400 Establishing a Minimum Wage for Contractors http://mercatus.org/publication/establishing-minimum-wage-contractors <h5> Publication </h5> <p class="p1">The Department of Labor’s (DOL) proposed rule, “Establishing a Minimum Wage for Contractors,”<sup>1</sup> is intended to implement Executive Order 13658. The stated purpose of the Executive Order is to increase efficiency and cost savings in work performed by federal contractors by raising the hourly minimum wage that contractors pay their workers.<sup>2</sup> The proposed rule establishes standards and procedures for implementing and enforcing the minimum wage protections for federal contractors required by Executive Order 13658.</p> <p class="p1">Review of the research cited in the proposal indicates that the proposed rule is unlikely to achieve its stated goal. The cited research suggests that increased wages do accompany increased productivity. The research does not, however, indicate that the value of the increased productivity exceeds the cost of the increased wage. This comparison is pivotal to the stated purpose of the Executive Order. The proposal suggests that an increased wage causes increased productivity. But the research is either agnostic as to causal direction or indicates that the causality runs in the opposite direction. The direction of causality is pivotal to the estimates of the proposed rule’s benefits; thus, the cited research fails to support the fundamental premise of the proposed rule.</p> <p class="p1">In addition, there are two important unintended consequences of raising the federal contractor minimum wage: first, it can adversely affect the most vulnerable workers; and second, the rule as currently stated could be enforced in a manner so that its impact would extend to far more businesses than originally intended.</p><p class="p1"><span style="font-size: 12px;">DEPARTMENT OF LABOR’S CLAIMS</span></p> <p class="p2">In seeking to implement Executive Order 13658, the proposed rule states that:</p> <p class="p3">There is evidence that boosting low wages can reduce turnover and absenteeism in the workplace, while also improving moral and incentives for workers, thereby leading to higher productivity overall.<sup>3</sup>&nbsp;</p> <p class="p2">The proposal, however, misinterprets the research, inappropriately generalizes results, fails to mention important caveats, attributes gains from other factors to increases in the minimum wage, and fails to take into account tradeoffs or evidence from the marketplace. More importantly, the proposal assumes that higher wages cause greater productivity. This is not a common understanding of the relationship. Standard economic theory maintains that higher productivity causes higher wages.<sup>4</sup> Whether and under what circumstances the causality might run in the opposite direction is a matter for empirical study and is not accepted as a general economic rule.&nbsp;</p> <p class="p5">A. The proposal takes evidence of causality and assumes the reverse causality.&nbsp;</p> <p class="p2">Highly productive workers, on average, command higher wages than do less productive workers. This is because profit-seeking employers see that highly productive workers can contribute more value, and so they compete for these workers by offering higher wages. Productivity causes wages. While higher wages accompany higher productivity, it does not follow that higher wages cause higher productivity. This reverse-causal assumption underlies the arguments laid out in the proposal, yet is absent from the arguments laid out in the research the proposal cites.&nbsp;</p> <p class="p5">B. The proposal misapplies the research results.&nbsp;</p> <p class="p2">The proposed rule states that absenteeism will decline with an increased wage:&nbsp;</p> <p class="p3">Research shows that absenteeism is negatively correlated with wages, meaning that better-paid workers are absent less frequently (Dionne and Dostie 2007; Pfeifer 2010).<sup>5</sup></p> <p class="p2">Dionne and Dostie find that “the use of incentive pay . . . had ambiguous effects on (workplace) absences . . .” The researchers’ primary finding does not involve the effect of pay on productivity but the effect of work arrangements (work-at-home options, reduced work weeks, shift work) on workplace absences. They found no clear evidence that higher wages accompanied greater productivity.<sup>6</sup></p><p class="p1"><a href="http://mercatus.org/sites/default/files/Davies-minimum-wage-PIC.pdf">Continue reading</a></p> http://mercatus.org/publication/establishing-minimum-wage-contractors Mon, 28 Jul 2014 15:12:29 -0400 Does the Minimum Wage Increase Worker Productivity? http://mercatus.org/publication/does-minimum-wage-increase-worker-productivity <h5> Publication </h5> <p class="p1">The Department of Labor (DOL) recently proposed a regulation establishing a higher minimum wage for federal contractors. The stated goal of the proposed rule is to increase efficiency and lower costs in work performed by federal contractors. In its justification for the rule, the DOL cites numerous studies to support its claim that higher wages are associated with higher levels of worker productivity, but the agency gets the causality reversed, among other errors of interpretation.</p> <p class="p1">Workers who are more productive command higher wages because employers compete for these valuable workers by offering them higher wages; higher productivity causes a higher wage. Raising the minimum wage makes workers more expensive. It does not necessarily make workers more productive.</p> <p class="p1">This chart shows the relationship between the relative minimum wage (the minimum wage as a fraction of the average hourly wage) and unemployment rates for workers with different educational attainments. Historically, as the relative minimum wage has risen, unemployment among college-educated workers has not changed, unemployment among high-school-educated workers has risen slightly, unemployment among workers without high school diplomas has increased moderately, and unemployment among young workers without high school diplomas has increased dramatically.<span style="font-size: 12px;">&nbsp;</span></p> <p class="p1"><a href="http://mercatus.org/sites/default/files/C1-wage-davies-large.jpg"><img height="397" width="585" src="http://mercatus.org/sites/default/files/C1-wage-davies-small_0.jpg" /></a></p> <p class="p1">While employers make hiring decisions on the basis of more than education, it tends to be highly correlated with many of the factors employers consider, including intelligence, experience, training, and work ethic. Ultimately, all of these factors are themselves proxies for the single factor that concerns the employer: productivity.</p> <p class="p1">If it were true that a higher wage increased productivity and the value of the increased productivity exceeded the cost of the increased wage, we would observe federal contractors voluntarily raising wage rates. The absence of such an increase in wages for the lowest-paid workers suggests that raising the minimum wage is unlikely to secure the gains in efficiency or productivity presented as justification for this rule.</p> http://mercatus.org/publication/does-minimum-wage-increase-worker-productivity Mon, 28 Jul 2014 13:11:01 -0400 Misleading Minimum Wage Statistics http://mercatus.org/expert_commentary/misleading-minimum-wage-statistics <h5> Expert Commentary </h5> <p class="p1">Earlier this month, President Obama seized upon fresh data from the Labor Department to argue for a higher minimum wage. According to the president and a subsequent Associated Press report, the 13 states that raised their minimum wages in January of this year are now enjoying, on average, faster job growth than the other 37 states.</p> <p class="p1">The conclusion that Obama (and each of the many media outlets that breathlessly repeated this finding) wants us to draw is that a higher minimum wage not only does not price some workers out of jobs, it positively enhances workers’ job prospects. As the president theorized, "When … you raise the minimum wage, you give a bigger chance to folks who are climbing the ladder, working hard.”</p> <p class="p1">Not so fast.</p> <p class="p1">Basic economics teaches that forcing up the price of something makes people less willing to buy that something. This reasoning, for example, is behind the administration’s recent hike in tariffs on Korean steel. The president correctly understands that forcing up the price of Korean steel will cause Americans to buy less of it. Contrary to Obama’s suggestion, the same logic holds for labor. Forcing up labor’s price will cause employers to hire less of it (by, for example, supermarkets using self-checkout computers instead of cashiers).</p><p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2014/07/28/obamas-minimum-wage-data-leads-to-a-misleading-conclusion">Continue reading</a></p> http://mercatus.org/expert_commentary/misleading-minimum-wage-statistics Mon, 28 Jul 2014 13:15:46 -0400 Export-Import Bank Benefits Big Businesses, Not Small Ones http://mercatus.org/expert_commentary/export-import-bank-benefits-big-businesses-not-small-ones <h5> Expert Commentary </h5> <p class="p1">Stanford L. Levin’s commentary, “The Export-Import Bank is good for business” (July 18), would be more accurately titled “The Export-Import Bank is good for businesses with friends with Washington.”</p> <p class="p1">It is simply not true that “the St. Louis metropolitan area benefits greatly” from the Ex-Im Bank. In fact, Ex-Im contributed to less than 0.63 percent of St. Louis-area exports from 2007 to 2014. The bank benefited roughly 1.5 percent of all Missouri exports and 1.38 percent of all Illinois exports at the same time.</p> <p class="p1">It is also incorrect to claim that Ex-Im helps small business. The bank’s records suggest that less than 0.4 percent of small-business jobs and less than 0.03 percent of small businesses benefit from its subsidies. The business of Ex-Im is clearly big business.</p> <p class="p1">By subsidizing their competitors, Ex-Im places the over 99 percent of unsubsidized St. Louis exporters and over 98 percent of unsubsidized Missouri and Illinois exporters at a competitive disadvantage.</p> <p class="p1">These businesses should not matter less than recipients of Ex-Im privileges just because they do not have friends in Washington. It is high time to end Ex-Im corporatism.</p> http://mercatus.org/expert_commentary/export-import-bank-benefits-big-businesses-not-small-ones Mon, 28 Jul 2014 11:54:15 -0400 Dodd-Frank at War with Itself http://mercatus.org/expert_commentary/dodd-frank-war-itself <h5> Expert Commentary </h5> <p class="p1">A lot has happened in the four years since&nbsp;<a href="http://washingtonexaminer.com/section/dodd-frank">Dodd-Frank</a> became law. Many rules were proposed, approved and implemented, and many more are on their way. As rules are adopted, however, it becomes even clearer than it was when Dodd-Frank became law that it does not live up to its official name -- the <a href="http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act">Wall Street Reform and Consumer Protection Act</a>. Dodd-Frank is keeping regulators busy and causing companies to endure costly changes, but the promised reform and protection are not materializing. It is time to admit defeat and rethink our strategy.</p> <p class="p1">Reassessing our approach requires us to answer a fundamental question: What problem are we trying to solve? We certainly do not want to experience another financial crisis, the attendant costs to taxpayers, job losses and home foreclosures. But we are likely to do exactly that if we do not face the problem that got us into that dire situation.</p> <p class="p1">A constant theme running through the problems we saw in the crisis was regulatory distortion of market decision-making. Think about the government policies that drove home construction and purchases, subsidized mortgages and encouraged investors to buy highly rated mortgage-backed securities without regard to the quality of the underlying loans. Banking and securities regulators directed investors to use ratings as a proxy for quality.</p> <p class="p1">Or think more broadly about the effect of past government interventions to prevent firms (and their creditors) that made bad decisions from reaping the consequences of those decisions. As a result of bailout expectations, shareholders and creditors grow careless about monitoring companies. Along those same lines, government deposit insurance virtually eliminates the need for bank depositors — even very large ones — to pay any attention to the safety and soundness of their banks. And tax advantages given to debt encourage companies to rely on borrowed money, even though doing so could impair their ability to weather crises.</p> <p class="p1">In all of these cases, government — through poorly considered regulations, subsidies or guarantees — nudges companies and individuals to act in a way that they otherwise would not. The government pushed companies and individuals in economically unsound directions. A financial crisis resulted.</p> <p class="p1">Dodd-Frank is an understandably intense response to the crisis -- but in light of the problems' source, it is also a puzzling response. Rather than eliminating government distortions, Dodd-Frank and its regulations add new ones. Dodd-Frank doesn't touch <a href="http://washingtonexaminer.com/section/fannie-mae-and-freddie-mac">Fannie Mae and Freddie Mac</a>, and new mortgage regulations favor the loans these companies guarantee. Instead of cutting back deposit insurance, Dodd-Frank expands it. Rather than unblocking market incentives to conduct sound underwriting before making any loan, one title of Dodd-Frank directs government to subsidize certain uneconomic loans. Rather than making sure the bankruptcy code is workable for any failing firm, regulators were given the power to identify financial firms that will never be allowed to fail.</p> <p class="p1">Dodd-Frank attempts to counterbalance its bad government incentives by providing regulators with additional powers to prevent companies and individuals from using them. The <a href="http://en.wikipedia.org/wiki/Financial_Stability_Oversight_Council">Financial Stability Oversight Council</a> was created in part to identify any unhealthy risk-taking. The <a href="http://washingtonexaminer.com/section/federal-reserve">Federal Reserve</a> Bank got more authority over strategic decision-making by banks and non-bank financial institutions. The Volcker Rule enables financial regulators to draw lines between acceptable and unacceptable trading activity by banks. The new regime for over-the-counter derivatives directs regulators to impose very prescriptive clearing, trading and business conduct rules on transactions between sophisticated parties.</p> <p class="p1">The implementation process is teaching us just how tricky it can be to offset bad government incentives with more regulatory discretion. Major rule-making projects are plagued with difficulties. As the regime for clearing and trading formerly over-the-counter derivatives comes online, people worry — quite legitimately — that a big, central clearinghouse could fail with disastrous consequences. Regulating away the possibility of such a failure is no easy task in the face of the regulatory push for clearing. The Financial Stability Oversight Council's attempts to single out certain firms for special regulation fuel concerns that some firms enjoy a government guarantee of perpetual survival.</p> <p class="p1">The multi-regulator attempt to draft a reasonable Volcker Rule was protracted and difficult because regulators realized that how they drew lines would have direct effects on how particular securities trade, and therefore, on their value to investors. As the <a href="http://washingtonexaminer.com/section/sec">Securities and Exchange Commission</a> expands the regulatory framework for credit rating agencies, investors are likely to feel even more secure relying on their ratings with no questions asked. And because the Fed is regulating more kinds of financial institutions with a heavier hand, concerns are rising over whether homogenization of the financial system undermines its stability. The FDIC struggles to craft a credible resolution regime that does not simply intensify the too-big-to-fail problem.</p> <p class="p1">Rather than hope in Dodd-Frank’s hyper-regulatory solutions, we should look for ways to eliminate government distortions. We should craft simple rules that force financial institutions — under the watchful eyes of their creditors, shareholders and counterparties — to make prudent choices about their size, structure, funding sources and assets. Reforms might include rooting government guarantees and subsidies out of the housing finance system; strengthening the bankruptcy regime so that creditors know which rules will apply should the firm run into trouble; eliminating risk-weighting from our capital regime; and curbing shareholders' risk appetite with the prospect of additional losses if things go badly at their firms. These rules would be less costly from a regulatory perspective, but many financial institutions would dislike them because the price for that lower regulatory compliance bill would be an elimination of government subsidies and incentives for taking risky actions that do not make economic sense.</p> <p class="p1">The difficulty of Dodd-Frank implementation is not primarily the regulators' fault; the problem comes from Dodd-Frank’s determination to rely on government regulation as a cure for government policy distortions. Instead, let’s work on getting rid of the distortions that encourage people to behave foolishly at the peril of our financial system.</p> http://mercatus.org/expert_commentary/dodd-frank-war-itself Fri, 25 Jul 2014 16:42:06 -0400 David Primo Testifies before the House Judiciary Committee on Constitutional and Budgetary Reform http://mercatus.org/video/david-primo-testifies-house-judiciary-committee-constitutional-and-budgetary-reform <h5> Video </h5> <iframe width="640" height="360" src="//www.youtube.com/embed/18fDqyyWhTI" frameborder="0" allowfullscreen></iframe> <p>David Primo Testifies before the House Judiciary Committee on Constitutional and Budgetary Reform&nbsp;</p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe width=&quot;640&quot; height=&quot;360&quot; src=&quot;//www.youtube.com/embed/18fDqyyWhTI&quot; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/david-primo-testifies-house-judiciary-committee-constitutional-and-budgetary-reform Tue, 29 Jul 2014 16:47:51 -0400 Social Security Disability Insurance's Effect on Labor Force Participation http://mercatus.org/expert_commentary/social-security-disability-insurances-effect-labor-force-participation <h5> Expert Commentary </h5> <p class="p1">The labor force participation rate for the prime working-age population — those between 25 and 54 years old — has been declining in the U.S. since 1997. One of the big reasons is a rise in the disability rate, which hit a record 5.2 percent in 2013. Since the start of the Great Recession, the withdrawal rate due to disability has accelerated. In fact, 90 percent of the labor force decline for those who were in their prime working ages for the entire six-year span was from disability. Most of this — three quarters — was from those receiving Social Security Disability Insurance (SSDI) benefits.</p> <p class="p1">In 2007, 83 percent of the prime working-age population was in the labor force and accounted for over two-thirds of our total labor force. Today, after six years of recession and weak recovery, labor force participation by this group has plummeted. Nearly five million out of the 125 million of them dropped out of the labor force. But why? How much of this is due to retirement? What else contributed to this decline?</p> <p class="p1">For those who aged out of their prime working years — those now between 55 and 60 years old — about 2.4 million dropped out of the labor force. As you might expect, most (about 70 percent) moved into retirement. The rest exited the labor force due to disability. An underappreciated aspect of baby boomer retirements is the fact that they have not reduced their participation as much as prior generations. In fact, for those aged 55 and above, the participation rate was below 30 percent just 20 years ago — yet for the past five years, it has been higher than 40 percent.</p> <p class="p1">For those who remain in their prime working years — now between 31 and 54 years old — the story is different. As with the older workers, the decline in participation has been significant — over 2.5 million have dropped out of the labor force. But while some moved into retirement, a shocking nine out of 10 individuals of the younger group report that they exited the labor force due to a disability.</p> <p class="p1">In fact, overall the number of Americans removed from the labor force because of a reported disability is at a record 14 million — up from about 11 million just six years ago. What appears to have enabled so many of the prime working age population to exit the labor force has been a single program: SSDI. For those who were in their working prime in 2007 and remain there today, there was a 1.7 million increase in those taking SSDI. This one program alone accounts for three-quarters of the disability exits and therefore, for most of the decline in labor force participation by the prime working-age population.</p> <p class="p1">The SSDI program is the largest federal insurance program for lost income from a disability. To qualify, someone must have a minimum work history and a physical or mental condition that prevents them from engaging in any "substantial gainful activity" for at least 12 months. Use of the program has grown significantly — generally over 4 percent per year. Although it was never meant to be an unemployment insurance program, both the applications and acceptances into the program follow the unemployment rate.</p> <p class="p1">Many have expressed concerns over the sustainability of the growth in spending on SSDI, and the Social Security Administration projects the program to be insolvent in just two years. One aspect of this is concern over whether the incentives of the program are encouraging people with disabilities to substitute SSDI benefits for labor market participation. If this is happening, more may be at stake than viability of the program. It may be undermining one of the important purposes of the Americans with Disabilities Act that tries to make sure people with disabilities access the same employment opportunities and benefits as everyone else.</p> http://mercatus.org/expert_commentary/social-security-disability-insurances-effect-labor-force-participation Fri, 25 Jul 2014 10:09:13 -0400 In the Matter of Amendment of the Commission’s Rules Related to Retransmission Consent, Report and Order and Further Notice of Proposed Rulemaking http://mercatus.org/publication/matter-amendment-commission-s-rules-related-retransmission-consent-report-and-order-and <h5> Publication </h5> <p class="p1">The FCC proposes to repeal its syndicated exclusivity and network nonduplication rules,<sup>1</sup> which the Commission first devised in the 1960s and 1970s. The rules were intended to limit cable television growth and to protect the growth of fledgling UHF broadcast stations.<sup>2</sup> We agree with commenters<sup>3</sup> that these rules are vestigial and potentially anticompetitive interventions into television markets from a bygone era.<sup>4</sup>&nbsp;</p> <p class="p1">Television rules from the past are increasingly socially costly as technologies and business models change—particularly as content moves online—and it is time to start repealing old regulations. Experts view television regulations as “a Rube Goldberg regulatory structure,” a complex system that performs simple tasks in indirect, convoluted ways.<sup>5</sup> The Copyright Office characterizes the FCC’s network nonduplication and syndicated exclusivity rules as “highly complex” and “a paradox” because FCC rules both encourage and discourage importation of distant broadcast transmissions.<sup>6</sup> The Congressional Research Service similarly has said that “the negotiations between programmers and distributors, although private, are strongly affected by statutory and regulatory requirements and cannot be properly characterized as free-market.”</p> <p class="p1">Every television industry segment has received some regulatory favors though the decades. However, the Copyright Office notes that there is “a thicket of communications law requirements aimed at protecting and supporting the broadcast industry.”&nbsp;<sup>7</sup> This thicket arises largely because the FCC has aspirations for broadcast—namely localism, free television, competition, and diverse voices—that are often in tension with each other.<sup>8</sup>These conflicting goals also tend to disadvantage pay-TV providers, particularly smaller operators.<sup>9&nbsp;</sup></p> <p class="p1">The existing rules have prevented a freer media market for forty years and should be repealed. As the Commission has said, “If the [exclusivity] rules should ultimately prove unnecessary or need modification in light of the passage of time, congressional action or other factors, they can be modified or rescinded.”&nbsp;<sup>10</sup> Repealing the rules would not be a panacea for what ails television markets, but as one operator noted, eliminating these rules at issue “would be an important step in the right direction . . . .”&nbsp;<sup>11&nbsp;</sup></p><p class="p1"><a href="http://mercatus.org/sites/default/files/Skorup-Syndicated-Exclusivity-PIC.pdf">Continue reading</a></p> http://mercatus.org/publication/matter-amendment-commission-s-rules-related-retransmission-consent-report-and-order-and Thu, 24 Jul 2014 13:59:32 -0400 Municipal Fiscal Emergency Laws: Background and Guide to State-Based Approaches http://mercatus.org/publication/municipal-fiscal-emergency-laws-background-and-guide-state-based-approaches <h5> Publication </h5> <p class="p1">Beginning with the Great Recession in 2008, hundreds of cities across the country have suffered from fiscal emergencies, with some even declaring bankruptcy. Detroit&nbsp;filed&nbsp;last June, and Michigan's response–forcing the the city&nbsp;to cede control of some of its functions to the state government–was not surprising.</p> <p class="p1">The use of emergency state financial intervention in struggling cities has become increasingly common. In sixteen states ranging from Michigan to New Jersey, governments have developed legal approaches to take over municipalities in crisis.</p> <p class="p1">Given the increasing frequency of this measure, it is crucial for journalists and policymakers to understand the background and effectiveness of state takeovers. In a new Mercatus Center at George Mason University&nbsp;paper, “Municipal Fiscal Emergency Laws: Background and Guide to State Based Approaches,” Eric Scorsone&nbsp;provides&nbsp;an&nbsp;overview of the&nbsp;process, including:</p> <ul class="ul1"> <li class="li2">What constitutes a local fiscal emergency</li> <li class="li2">Relevant state laws implemented in recent years</li> <li class="li2">Factors explaining&nbsp;why states assume one strategy over another</li> </ul> <p class="p3">Key takeaways for policymakers include:</p> <ul class="ul1"> <li class="li4">Laws should acknowledge the importance of institutional factors within cities rather than focusing&nbsp;exclusively on&nbsp;poor management and policymaking.</li> <li class="li4">Policymakers should consider new tools to dissolve or merge municipal corporations, new revenue options, strategies to address the significant burden of pension and retiree health care costs, and reductions in state mandates.</li> </ul><p class="p1"><a href="http://mercatus.org/sites/default/files/Scorsone-Municipal-Fiscal-Emergency.pdf" style="font-size: 12px;">Continue reading</a></p> http://mercatus.org/publication/municipal-fiscal-emergency-laws-background-and-guide-state-based-approaches Thu, 24 Jul 2014 12:34:00 -0400 Export-Import Bank Subsidies Benefit Very Few Exports and Export Jobs http://mercatus.org/expert_commentary/export-import-bank-subsidies-benefit-very-few-exports-and-export-jobs <h5> Expert Commentary </h5> <p class="p1">Sabrina Eaton's July 16 article, "<a href="http://www.cleveland.com/open/index.ssf/2014/07/boon_or_boondoggle_congress_to.html"><b>Boon or boondoggle? Congress to decide fate of Export-Import Bank</b></a>," provides a fair description of the Export-Import Bank debate. However, some of the claims made by the Bank's defenders should be put into context so Ohioans know what's at stake.</p> <p class="p1">Lobbyists at the Chamber of Commerce and National Association of Manufacturers, who represent some of Ex-Im's largest corporate beneficiaries, claim Ex-Im supports more than $37 billion in U.S. exports and 200,000 jobs. In Ohio, they say the Bank supported $2 billion in exports since 2007.</p> <p class="p1">That sounds impressive — until you compare this to non-subsidized exports and jobs. Ex-Im subsidies only benefited 1.8 percent of the total $2.3 trillion in U.S. exports and 1.6 percent of the total 11.3 million export-related jobs last year. Similarly, Ex-Im subsidies only benefited 0.73 percent of the $330 billion in total exports from Ohio since 2007.</p> <p class="p1">In other words, over 98 percent of all U.S. exports and export jobs, and over 99 percent of Ohio exports, receive no subsidies from Ex-Im.</p> <p class="p1">Subsidized firms undoubtedly enjoy their government privileges — but we must remember the other 98 percent of us who do not have friends down at the Export-Import Bank.</p> http://mercatus.org/expert_commentary/export-import-bank-subsidies-benefit-very-few-exports-and-export-jobs Thu, 24 Jul 2014 09:49:52 -0400 Constitutional Solutions to Our Escalating National Debt: Examining Balanced Budget Amendments http://mercatus.org/publication/constitutional-solutions-our-escalating-national-debt-examining-balanced-budget <h5> Publication </h5> <p class="p1">Chairman Goodlatte, Ranking Member Conyers, and members of the committee: Thank you for inviting me here&nbsp;<span style="font-size: 12px;">today to discuss the need for a constitutional amendment to help achieve credible and sustainable fiscal reform.</span></p> <p class="p1">I am an associate professor of political science and business administration at the University of Rochester, where&nbsp;<span style="font-size: 12px;">I hold the Ani and Mark Gabrellian professorship. I am also a senior scholar at the Mercatus Center at George&nbsp;</span><span style="font-size: 12px;">Mason University. I have written a book, Rules and Restraint&nbsp; (University of Chicago Press, 2007), and several&nbsp;</span><span style="font-size: 12px;">articles regarding budget rules and fiscal policy.<sup>1</sup>&nbsp; I testified before this committee’s Subcommittee on the Constitution&nbsp;</span><span style="font-size: 12px;">on May 13, 2011, on the same subject, and it is an honor to be asked back to address the full committee.<sup>2</sup></span><span style="font-size: 12px;">&nbsp;</span></p> <p class="p1">My three-part message today is simple.</p> <p class="p1">First, the United States’ current fiscal trajectory must change.</p> <p class="p1">Second, the short-run focus in politics, combined with Congress’s institutional prerogatives, make achieving this&nbsp;<span style="font-size: 12px;">change—in the form of durable, long-term reform—an elusive goal.</span></p> <p class="p2"><span style="font-size: 12px;">Third, a constitutional amendment, if properly designed, can create the pathway for Congress to do what’s needed&nbsp;</span><span style="font-size: 12px;">to place the United States government’s finances on firm fiscal ground.</span></p><p class="p1">THE STATUS QUO MUST CHANGE</p> <p class="p2">We have made promises to current and future generations that we have no hope of fulfi lling given current revenue&nbsp;<span style="font-size: 12px;">streams. The US Treasury estimates that the national debt will approach 250 percent of GDP by 2080 (see figure&nbsp;</span><span style="font-size: 12px;">1).<sup>3</sup> For the record, I do not believe this estimate. It’s not that I dispute the Treasury’s calculations. The problem is&nbsp;</span><span style="font-size: 12px;">that the economy or the US government’s fi nances—or both— will implode long before then. This estimate, along&nbsp;</span><span style="font-size: 12px;">with long-term projections from the Congressional Budget Offi ce (CBO) and others, sends a clear message: the&nbsp;</span><span style="font-size: 12px;">current path is not sustainable.</span></p><p class="p2"><span style="font-size: 12px;"><a href="http://mercatus.org/sites/default/files/Primo-budget-amendment-testimony-large.png"> <img src="http://mercatus.org/sites/default/files/Primo-budget-amendment-testimony-small.png" /></a><br /></span></p><p class="p2"><span style="font-size: 12px;"><a href="http://mercatus.org/sites/default/files/Primo-budget-amendment-testimony.pdf">Continue reading</a></span></p> http://mercatus.org/publication/constitutional-solutions-our-escalating-national-debt-examining-balanced-budget Fri, 25 Jul 2014 10:01:33 -0400 Big-Business Bias http://mercatus.org/expert_commentary/big-business-bias <h5> Expert Commentary </h5> <p class="p1">In your July 14 editorial "Closing the Export-Import Bank would hurt the economy" you wrongly claim that the bank extends assistance "when the private sector is unable or unwilling to do so."</p> <p class="p1">First, South Carolinians should know that less than 15 percent of the value of Ex-Im-financed exports in their state went to small businesses. The data clearly show that the business of Ex-Im is big business.</p> <p class="p1">These giant corporations that Ex-Im serves - such as the mining group Hancock Prospecting (which is owned by the richest woman in Australia) and Pemex, Mexico's government-owned oil company - would have no problem arranging financing without Ex-Im. They simply would not get a government-granted discount courtesy of U.S. taxpayers.</p> <p class="p1">The bank's top beneficiary, Boeing, already has a large and capable financing arm to support aircraft exports, as do most of the giant manufacturers that Ex-Im benefits.</p> <p class="p1">The data show that many Boeing jets are already sold without any Ex-Im assistance. In June 2012, Emirates Air bought two Boeing 777s using Ex-Im financing, which lowered the cost per plane by $20 million.</p> <p class="p1">It also bought four Airbus A380s using private financing. In other words, Ex-Im unintentionally financed the purchase of foreign Airbus products by lowering the cost of the Boeing transaction.</p> <p class="p1">This also goes to show that Emirates Air, like many other Ex-Im-backed borrowers, can certainly secure financing for worthy projects from private lenders.</p> <p class="p1">What's more, a recent S&amp;P report predicts that Boeing could find sufficient private financing for their jets without Ex-Im for the next few years.</p> <p class="p1">Your editorial failed to consider the unfairness of a system that grants cheap loans to some companies at the expense of other non-subsidized companies. This is the fundamental debate.</p> http://mercatus.org/expert_commentary/big-business-bias Tue, 22 Jul 2014 15:03:04 -0400 Ex-Im Bank Does Little for Small Businesses http://mercatus.org/expert_commentary/ex-im-bank-does-little-small-businesses <h5> Expert Commentary </h5> <p class="p1">In the July 7 guest column "Re-authorize Ex-Im Bank to Grow Economy," Export-Import Bank beneficiary Michele LaNoue claims that critics want to shut the bank without regard for small and medium-sized Texas businesses. The opposite is true.</p> <p class="p1">According to the Bank's own data, the vast majority of Ex-Im beneficiaries in Texas are large, politically connected firms like Bechtel and Nobel Drilling. From 2007 to 2014, less than 30 percent of Ex-Im's portfolio in Texas went to small businesses.</p> <p class="p1">The data also reveal that most of Texas exports take place without the bank's help. The same is true on the national level: Over 98 percent of all U.S. exports occur without any help from Ex-Im at all.</p> <p class="p1">What is good for LaNoue's company is not necessarily what's good for Texas. It certainly is not good for other firms in the state, such as Texas Valero Energy, which claims that its business and employees are hurt by Ex-Im subsidies.</p> <p class="p1">The vast majority of Texan firms are put at a competitive disadvantage by their own federal government so that favored firms can enjoy political privileges.</p> http://mercatus.org/expert_commentary/ex-im-bank-does-little-small-businesses Tue, 22 Jul 2014 14:28:41 -0400 After Dodd-Frank: The Future of Financial Markets http://mercatus.org/video/after-dodd-frank-future-financial-markets contact@mercatus.org (Mercatus.org) <h5> Video </h5> <p class="p1">Four years after the Wall Street Reform and Consumer Financial Protection Act (Dodd-Frank) was signed into law, there are many open questions about what the Act has achieved and what lies ahead for the U.S. financial system. This two-day conference, hosted jointly by the Mercatus Center at George Mason University and the Cato Institute, explores some of the most hotly debated aspects of financial regulation and policies to improve financial markets in a post-Dodd-Frank world.</p><p class="p1">Daniel Rothschild and Dino Falaschetti Deliver Welcoming Remarks&nbsp;</p><p><iframe width="560" height="315" src="//www.youtube.com/embed/gUIH4MLEeCo" frameborder="0"></iframe></p><p>&nbsp;</p><p>John H. Cochrane Delivers Opening Keynote Address</p><p><iframe width="560" height="315" src="//www.youtube.com/embed/Q3YbVSoyNBQ" frameborder="0"></iframe></p><p>&nbsp;</p><p>Economic Analysis: Improving Transparency, Accountability, and Expertise in the Regulatory Process</p><p><iframe width="560" height="315" src="//www.youtube.com/embed/OLDzx4JaK9E" frameborder="0"></iframe></p><p>&nbsp;</p><p>Featured Roundtable Discussion: The Future of Financial Markets: A Conversation with the Regulators</p><p><iframe width="560" height="315" src="//www.youtube.com/embed/F7y0e6eG8R8" frameborder="0"></iframe></p><p>&nbsp;</p><p>The Meta-Regulators: Creating a Resilient Financial System</p><p><iframe frameborder="0" src="//www.youtube.com/embed/w58CgZ2sA2M" height="315" width="560"></iframe></p><p>&nbsp;</p><p><span style="font-size: 12px;"> Keynote Address: Rep. Jeb Hensarling (R-TX), Chairman, House Financial Services Committee</span></p><p><span style="font-size: 12px;"><iframe frameborder="0" src="//www.youtube.com/embed/ZHX0SWn_TBY" height="315" width="560"></iframe></span></p> http://mercatus.org/video/after-dodd-frank-future-financial-markets Wed, 23 Jul 2014 22:07:34 -0400 Hester Peirce Discusses Dodd Frank on Al Jazeera http://mercatus.org/video/hester-peirce-discusses-dodd-frank-al-jazeera <h5> Video </h5> <iframe width="640" height="360" src="//www.youtube.com/embed/sFIUYk6LD-0" frameborder="0" allowfullscreen></iframe> <p>Hester Peirce Discusses Dodd Frank on Al Jazeera</p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe width=&quot;640&quot; height=&quot;360&quot; src=&quot;//www.youtube.com/embed/sFIUYk6LD-0&quot; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/hester-peirce-discusses-dodd-frank-al-jazeera Tue, 22 Jul 2014 10:49:01 -0400 Complaints About the CFPB's Complaint Database http://mercatus.org/expert_commentary/complaints-about-cfpbs-complaint-database <h5> Expert Commentary </h5> <p class="p1">Last week, as reported <a href="http://thehill.com/regulation/finance/212441-cfpb-looks-to-go-public-with-financial-sector-complaints#disqus_thread">10 Comments</a>, the Consumer Financial Protection Bureau (CFPB) released a <a href="http://files.consumerfinance.gov/f/201407_cfpb_proposed-policy_consumer-complaint-database.pdf">proposed policy statement</a> for comment. The CFPB plans to expand its existing consumer complaint database to include narrative information, rather than the more limited information about complaints it now publishes. Whether in its current form or in its proposed expanded form, the database should be of concern to financial companies and their customers.</p> <p class="p1">The complaint database is essentially unfiltered. The CFPB explains that "We don't verify all the facts alleged in these complaints but we take steps to confirm a commercial relationship between the consumer and company." In other words, as long as the complainant is a customer, her complaint goes into the database. The value of a database that treats all complaints as valid is limited, but has great potential to harm the reputation of consumer financial services providers. Adding the narrative to the database only exacerbates the potential harm.</p> <p class="p2">Regardless of disclaimers, a government-run complaint database such as this one invites people to assume that its contents have been vetted and found credible by impartial government employees. The CFPB, however, seems to view its database as nothing more than a community forum through which consumers "share their experience with other consumers." In the CFPB's words, adding narrative discussion to the complaints will "be impactful by making the complaint data personal (the powerful first person voice of the consumer talking about their [sic] experience), local (the ability for local stakeholders to highlight consumer experiences in their community), and empowering (by encouraging similarly situated consumers to speak up and be heard)."</p> <p class="p1">In addition to being impactful, local and empowering, the database is likely to be misleading. Some of the CFPB's complainants may be motivated by a desire to harm the reputation of a particular company. For example, the advertisements my bank runs are annoying enough to drive some customers to gin up complaints in retribution. But even the majority of complaining customers who are well-intentioned may — as most people do — describe the situation in the light most favorable to themselves. Others may simply have fuzzy memories of what transpired. A narrative written in anger immediately after a frustrating interaction with an impolite customer service representative may sound a lot worse than one written after a more productive follow-up conversation with another bank employee.</p> <p class="p1">The CFPB acknowledges that "the narratives may contain factually incorrect information," but believes its policy of publishing company responses along with the complaints will mitigate this problem. Companies will not be able to include personal information in their published responses and will be reluctant to aggressively counter inaccuracies. So they will hesitate to publicly push back against unfounded complaints or fill in details of incomplete customer narratives.</p> <p class="p1">The CFPB sees its proposed policy as "establishing itself as a leader in the realm of open government and open data" and cites the Office of Management and Budget's <a href="http://www.whitehouse.gov/open/documents/open-government-directive">Open Government Directive</a> in support of its proposal. That directive notes that agencies should not disclose information if doing so would damage compelling interests, such as confidentiality. The CFPB plans to take steps to protect the confidentiality of the people who submit complaints, but the business interests of wrongly accused companies are also compelling. Publishing untested complaints also may run counter to the directive's emphasis on information quality.</p> <p class="p1">The CFPB expects that the database will influence consumer behavior, yet knows the database will include some information that is factually inaccurate. Encouraging consumers to act on such information is inconsistent with the CFPB's objectives of protecting consumers from deceptive acts and practices and making sure that they have access to "understandable information to make responsible decisions about financial transactions." Let's hope the financial companies it regulates do not follow its lead.</p> http://mercatus.org/expert_commentary/complaints-about-cfpbs-complaint-database Tue, 22 Jul 2014 10:17:57 -0400