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Mercatus scholars apply economic analysis to the issues of the day

Health Care Innovation Through Less Regulation

by Richard Williams on January 26, 2015

The next big wave of innovation, if it is allowed, is in health. The only question is whether we will embrace the new pioneers of health innovation or smother them in wet woolen blankets of regulation. The choices are fairly stark: We can settle for the status quo of turning everything into a “policy” or embrace policy-less innovation.

There are four big areas where we can improve health in order to prevent or ameliorate disease and injury: 1) nutrition; 2) medicine; 3) medical devices; and 4) exercise. Given the surplus of information freely available to inventors online, new ideas in each of these areas are springing up like wildflowers.

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Making the Case for Free Trade

by Veronique de Rugy on January 25, 2015

The president’s lukewarm embrace of truly unfettered international trade leaves a lot to be desired.

In his State of the Union address, the president told us he wants to craft a trade policy agenda fit for the 21st Century. If only!

A true free trade agenda should be the cornerstone of any “middle class economics” platform. Open international markets lower domestic prices for consumers, increase export opportunities for small and big business alike, and induce formerly-protected manufacturers to improve and compete on a global stage. But we shouldn’t expect Obama to embrace the benefits of free trade just yet.

So far, Obama has only been “pro-trade” when it serves interests defined by business lobbies and other pro-export mercantilists. But when it comes to the pro-trade policies...

Score One for Science

by Sherzod Abdukadirov on January 23, 2015

Bisphenol A is safe for all consumers, declared the European Food Safety Authority (EFSA) this week. Thus, the EU agency re-affirmed its 2006 decision declaring the chemical safe. In its statement, the agency justified its decision to revisit Bisphenol A (BPA) by pointing to a great deal of new research on the chemical’s health impacts. What it failed to mention in the official announcement was that its decision to re-examine BPA was also driven by the recent politically motivated French ban on BPA in food containers, which took effect on January 1 this year.

BPA is a chemical compound that is commonly used to produce plastic. At high levels, BPA could potentially be harmful. The main cause for concern stems from the ubiquitous use of plastic in food and...

Ohio's Energy Efficiency Fiasco

by Robert J. Michaels on January 21, 2015

Winter is here, and Americans are coping with more than just the cold -- many are dealing with a yearly spike in their energy bills. As rational consumers, they can be trusted to make efficient choices, and they benefit from doing so. Unfortunately, misguided policies often get in the way. Take, for example, Ohio's recent attempt to reduce energy use.

According to my research, a 2008 law drove utility bills in the state higher -- even as the law's energy-efficiency goals were in doubt. As of late last year, most energy-industry reports indicated that SB 221 was on track, but the evidence said otherwise. Accordingly, at the beginning of 2015, SB 221 was suspended for two years pending evaluation of its effects by an independent panel.

If it desires, the state will restore the law's efficiency requirements when the evaluation is...

Laws Protecting Auto Franchises Are Bad for Consumers and Innovation

by Jerry Ellig, Jesse Martinez on January 19, 2015

U.S. automobile sales at the end of 2014 hit their highest level since the first quarter of 2006, according to data compiled from industry analysis source Wards Auto. While auto sales have climbed back to pre-recession levels, another aspect of the industry has continued to expand as well: The number of laws that protect auto dealers from competition.

Almost every state regulates three aspects of auto dealer franchising. These regulations: prohibit manufacturers from terminating franchises with existing dealers unless they prove they have a “good cause” to do so, require auto manufacturers to sell new cars through franchised dealers, and protect dealers from competition by awarding exclusive territories. In 1979, fewer than half of the states regulated all three of these aspects of auto dealer franchising. Today, every state regulates all three of these aspects with the exception of...

It's Not the Economy, It's the Politicians

by Dean Stansel on January 16, 2015

Like last year at this time, many states are opening their legislative sessions with revenues pouring in faster than expected. In Florida, a $1 billion annual surplus is projected. A similar size surplus is projected in Minnesota for their two-year budget. There's even talk of a surplus in California, and New York has a $5 billion windfall from bank settlements. Those unexpected windfalls will provide great temptation for governors and state legislators.

During recessions, politicians typically blame a poor economy, unemployment, or reductions in federal aid for budget shortfalls. But when the money is flowing in, they often choose to go on a spending spree rather than to heed the lessons of the past and exercise fiscal discipline.

According to our new research on state fiscal crises published through the Mercatus Center at George Mason University, mistakes made by politicians during good years are often the cause of big headaches down...

MetLife Goes to Court

by Hester Peirce on January 16, 2015

The following scene (colored by some creative license) took place at MetLife headquarters last month, when the Financial Stability Oversight Council (FSOC) declared MetLife to be a systemically important non-bank financial company. As a consequence, MetLife will be regulated by the Federal Reserve using Dodd-Frank's prescriptive, bank-like regulatory framework.

"Knock, knock."

"Who's there?"

"Your future."

"Our future who?"

"Your future favorite financial regulator."

The door is pushed open by a motley group wearing "FSOC"-emblazoned jackets. With the path thus cleared, the Fed marches in: "We're here to regulate you, MetLife."

"But we already have regulators — lots of them."

"Yes, but we're the Fed, and you're systemic, so now we get to regulate you, too."

"Why are we systemic?"

"Because FSOC...

Warning: Disability Insurance Is Hitting the Wall

by Charles Blahous on January 15, 2015

For years Social Security’s trustees (of which I am one) have warned that lawmakers must act to address the troubled finances of the program’s disability insurance (DI) trust fund. Congress has nearly run out of time to do so.  Legislation will be required during this Congress or, at the very latest, in a rush at the beginning of the next one, to prevent large sudden benefit cuts.  The House of Representatives recently passed a procedural rule to prepare for the coming legislative debate.  In this column I explain the issues in play.

The Problem

The problem in a nutshell is that Social Security’s disability trust fund is running out of money.  The latest trustees’ report projects a reserve depletion date in late 2016.  By law Social Security can only pay benefits if...

Why We Should Demand Regulatory Reform

by Patrick McLaughlin on January 14, 2015

The idea of eliminating or modifying unnecessary or overly burdensome regulations is often associated with corporate profits and jobs. While this association may not be wrong — because regulations are, of course, costly to businesses — it unfortunately causes many people to dismiss the idea of regulatory reform entirely because it seems like another example of businesses seeking profit at the expense of everyone else. However, if you dig a little deeper, it becomes clear that regulatory reform actually creates opportunities to help low-income households and improve the health, safety and environmental outcomes that our society highly values.

Regulations can have regressive effects — that is, they can disproportionately harm low-income households compared to middle- and high-income households. Regulations entail costs, and in the case of many health, safety and...

Dodd-Frank Most Likely To Be At the Root Of a Future Crisis

by Hester Peirce on January 14, 2015

In an op-ed last week, Treasury Secretary Lew defended Dodd-Frank against efforts by the new Congress to reform the financial law. In his view, changing-or even suggesting changes to-Dodd-Frank seems to be tantamount to inviting another financial crisis. Far from being the cornerstone of a new era of financial stability, however, Dodd-Frank is more likely to be at the root of a future crisis.

Secretary Lew argues that Dodd-Frank has "made our financial system safer and more resilient, and consumers, investors and taxpayers are now protected from the types of abuses that helped cause the crisis." Before we kick back and enjoy this new Dodd-Frank era of financial stability, let's take a closer look at whether the new financial regime will work.


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