You pronounce the petitioners name in Leegin Creative Leather Products, Inc. v. PSKS, Inc.: lee-j?n.

That and other SCOTUS pronunciation debates resolved here (courtesy of the Green Bag and the Yale Law Library).

Filed under: antitrust, resale price maintenance

Wall Street Journal

• OPINION
• July 31, 2012

‘A Climate That Helps Us Grow’

By PAUL H. RUBIN

President Obama’s riff on small business—”If you’ve got a business, you didn’t build that, somebody else made that happen”—has become a major controversy. The Romney campaign has made this quote the subject of several speeches and ads, and there have been rallies all over the country of business people with signs saying that “I did build this business.”

Mr. Obama is now claiming that his words, delivered at a campaign stop in Roanoke, Va., on July 13, were taken out of context. “Of course Americans build their own businesses,” he said in a campaign ad last week. What he meant was simply that government sets the stage for business creation. In his speech, and again in his campaign ad, the example Mr. Obama pointed to was “roads and bridges.”

The context of the speech indicates the president really did mean that “you didn’t build that.” But let’s give him the benefit of the doubt; let’s assume he merely meant that business is impossible without government institutions that create the infrastructure for the economy to operate. As Mr. Obama’s deputy campaign chief Stephanie Cutter said, in clarifying his original remarks on July 24, “We build our businesses through hard work and initiative, with the public and private sectors working together to create a climate that helps us grow. President Obama knows that.”

But business is certainly not getting “a climate that helps us grow” from the current administration. That administration has instead created a hostile climate through its regulatory policies.

The news media report almost daily about new regulatory burdens. More generally, according to an analysis in March by the Heritage Foundation, “Red Tape Rising,” the Obama administration in its first three years adopted 106 major regulations (those with costs over $100 million), compared with 28 such regulations in the George W. Bush administration. Heritage notes that there are 144 more such major regulations in the pipeline.

Consider a major example of government investment—roads and bridges. A transportation system needs roads, but it also needs gasoline. This administration’s policies—its refusal to allow a private company to build the Keystone XL pipeline, its reduction in permits for offshore drilling and increased EPA regulation of pollutants—retard the production of gasoline. If transportation is an important input from government to creating a favorable climate for business, shouldn’t we be encouraging, not discouraging, gasoline production?

Other inputs needed by business are capital and labor. The Dodd–Frank Wall Street Reform and Consumer Protection Act, signed by Mr. Obama and enforced by his appointees, makes raising capital and investing more difficult. Since many regulations needed to implement this law have not even been written, business cannot know how to adapt to them. This increases uncertainty and so reduces incentives for investment.

The increased minimum wage, passed and signed in the early days of the administration, discourages hiring of entry-level workers. ObamaCare has increased uncertainty regarding future labor costs and so hindered business in hiring and expanding. The pro-union decisions by Obama appointees at the National Labor Relations Board do not create a climate to help the economy grow.

There are many other burdens placed on business. Example: The Americans With Disabilities Act is being interpreted by the Justice Department to require all hotel-based swimming pools to provide increased access to disabled persons. This will come at a high cost per pool. Many hotels and motels are small, family-run enterprises. This requirement will either lead to an increase in prices or to a decision not to have pools at all.

Either policy will induce patrons to shift to larger chain motels. Interestingly, the application of this rule has been delayed for existing pools until Jan. 31, 2013, after the election. Families vacationing this summer will not notice the new requirement.

If we accept the plain meaning of Mr. Obama’s speech, it indicates that he does not believe in the importance of entrepreneurs in creating businesses. But if we accept the reinterpretation of his speech in light of his administration’s deeds, it indicates a belief that a hostile regulatory climate poses no danger to economic growth. Either interpretation means that this administration is not good for business.

Mr. Rubin is professor of economics at Emory University and president-elect of the Southern Economic Association.

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Filed under: consumer protection, doj, health care, health care reform debate, regulation Tagged: regulation

Our greatly lamented colleague Lary Ribstein was a movie buff. Some time ago he wrote an encyclopedic article on business in the movies, “Wall Street and Vine: Hollywood’s View of
Business.”  At the time of his death, he and I were in discussions about publishing this article in the journal I edit, Managerial and Decison Economics.  After his tragic death, I contacted his widow, Ann, and received permission to publish the article.  It is now published in the June issue of MDE.  (If your library does not subscribe to MDE, the article is still available on SSRN.)  Anyone with any interest in the movies and their perception of business must read this article. Given the volume of Larry’s scholarship, it is amazing that he had time to see as many movies as he discusses in this article.

Filed under: art, business, film, larry ribstein rip

From the WSJ:

White House regulatory chief Cass Sunstein is leaving his post this month to return to Harvard Law School, officials said Friday.

Mr. Sunstein has long been an advocate of behavorial economics in setting policy, the notion that people will respond to incentives, and has argued for restraint in government regulations. As such, he was met with skepticism and opposition by some liberals when he was chosen at the start of the Obama administration.

As administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget, his formal title, Mr. Sunstein led an effort to look back at existing regulations with an eye toward killing those that are no longer needed or cost effective. The White House estimates that effort has already produced $10 billion in savings over five years, with more to come.

“Cass has shown that it is possible to support economic growth without sacrificing health, safety and the environment,” President Barack Obama said in a statement. He said these reforms and “his tenacious promotion of cost-benefit analysis,” will “benefit Americans for years to come.”

Even so, conservatives point to sweeping new regulations for the financial sector and health care in arguing that the administration has increased the regulatory burden on businesses.

Mr. Sunstein will depart this month for Harvard, where he will rejoin the law school faculty as the Felix Frankfurter Professor of Law and Director of the Program on Behavioral Economics and Public Policy.

It will be interesting to hear, once Professor Sunstein returns to an academic setting, his views on whether and in what instances — aside from the CFPB — behavioral economics actually had much impact on the formation of regulatory policy within the Administration.

Filed under: behavioral economics, regulation

Richard Epstein replies to Judge Posner’s Apple v. Motorola opinion and follow-up article in The Atlantic.

The anti-patent sentiment has just been fueled by a remarkable opinion by Judge Richard Posner, my long-time colleague at the University of Chicago, sitting as a trial judge in the major case, Apple v. Motorola. The high-profile case concerns five patents—four by Apple and one by Motorola—that are involved in mobile phone technology, and it has drawn more than its fair share of attention. Judge Posner took the extraordinary step of dismissing the claims of both sides with prejudice—meaning, the case cannot be filed again elsewhere—on the grounds that neither side could make good on its argument for either damages or injunctions.

Thus, when the dust settled, there was no reason at all to have a trial on whether either side had infringed the patents of the other. In a subsequent piece written for The Atlantic, grandly entitled “Why There are Too Many Patents in America,” Posner delivered a general critique of the patent system, discussing the broader issues involved in his judicial decision.

There is much of interest, as always, in Epstein’s column.  But the closing section on damages and injunctions is where the action is:

What is so striking about Posner’s relentless dissection of the imprecision in these claims was that he could apply it with equal conviction in any patent software dispute. The estimates of damages under the law are not confined to a single standard, but often involve an uncertain choice between reasonable royalties for licensing the patent and actual damages that were incurred because the patents were not licensed. The injunctive relief is (or at least should be) awarded precisely because it is so difficult to figure out what those damages really ought to be.

But Posner said that he would not allow an injunction if the best that the plaintiffs could garner was $1 in nominal damages. That surely seems over the top, because if there is infringement, the one number that is manifestly wrong is $1. A more sensible approach here, therefore, is to mix and marry the two remedies, so that the injunction does not pull the past product off the market, but awards some damages for past losses, while giving the infringer some period of time—say three to six months—to invent around the patent for future output. This then sets the stage for a negotiated license if that is cheaper.

By putting the remedial cart before the liability horse, we have the odd situation that no one can find out anything about the strength of the patent or the potential range of damages. If that is done on a common basis, then we will have knocked out the entire patent system for software, without having the slightest idea of the relative strength of the Apple and Motorola contentions.

The Posner decision looks doubly worrisome against the backdrop of his ominous Atlantic column, which shows his ill-concealed disdain for a complex industry with which he has had no direct engagement. It is an odd way to make patent policy. Right now, a similar Apple-Samsung dispute is before Judge Lucy Koh, which will involve a real trial. The Posner opinion is already on the fast track to appeal before the Federal Circuit, which will give us more information as to whether these submarine assaults on the patent system will take hold. Let us hope that Posner’s mysterious patent adventurism dies a quick and deserved death.

Do go read the whole thing.  For interested readers, here is Posner’s Atlantic column.

Filed under: business, economics, entrepreneurship, intellectual property, licensing, litigation, markets, patent, technology

On July 31 the FTC voted to withdraw its 2003 Policy Statement on Monetary Remedies in Competition Cases.  Commissioner Ohlhausen issued her first dissent since joining the Commission, and points out the folly and the danger in the Commission’s withdrawal of its Policy Statement.

Read the full piece here.

Food trucks must remain at least 200 feet away from restaurants under the new Chicago regulation (HT: Reason).  It also appears food trucks must carry a GPS that will allow detection of violations (parking within 200 feet of a restaurant — apparently, any restaurant) which carry a fine of up to $2,000.  Protection of restaurants is the obvious and apparently express rationale for the restraint imposed upon food trucks:

“We see no health or safety justification behind the 200-foot rule, and the city has never offered one,” says Kregor. “The only explanation for the rule is the restaurants’ demand for protectionism and the city government’s deference to those demands.”  That’s no exaggeration. Even supporters of the new regulations freely admit they’re designed to protect brick-and-mortar restaurants.  “We want food trucks to make money, but we don’t want to hurt brick-and-mortar restaurants,” says Alderman Walter Burnett.

Chicago’s Institute for Justice has more.

I continue to think, as I’ve mentioned here previously, the consumer welfare losses associated with local and city barriers to entry are greatly underestimated.

Filed under: barriers to entry, business, economics, food

In light of Barclays and other recent events, The Economist focuses on increasing corporate fines in response to price-fixing violations.

That some firms behave badly is nothing new, but the response of the authorities has changed recently. Take cartels. Internationally, fines rose by a factor of one thousand between the 1990s and 2000s. Data from America suggest this is not because there are more cartel cases, which have shown no upward trend since the late 1980s. Rather, the average level of fines has risen (see left-hand chart). Recent penalties have smashed records. The Barclays fine includes the largest ever levied by Britain’s financial regulator and America’s Commodity Futures Trading Commission, for instance. Even so, are fines high enough to work?

The article goes on to discuss the Becker optimal sanction framework.  It also makes some important mistakes in framing the debate.  For example, it describes the Chicago School approach has rejecting corporate or individual fines in lieu of the reputational costs antitrust violators will bear.  The article reaches an unsurprising conclusion consistent with the historical approach of U.S. antitrust and with conventional wisdom: what is needed is more increases in corporate fines.

To deter bad behaviour fines need to rise. The watchdogs are biting, but some need sharper teeth.

For reasons described in my article with Judge Ginsburg (D.C. Circuit Court of Appeals; NYU Law), Antitrust Sanctions, I’m skeptical ever-increasing corporate fines are the appropriate prescription for improving deterrence of hard core cartel activity.   Competition Policy International (who published the original article) interviews Judge Ginsburg and I here.  We discuss existing evidence on the effectiveness of criminal antitrust sanctions and propose adding to the mix debarment for individuals responsible for cartel activity.

Filed under: antitrust, cartels, economics

In the WSJ, Professor Macey takes measure of the CFPB’s new mortgage disclosures and finds them lacking:

The CFPB is proposing to revise the old forms into a new Loan Estimate Form and Closing Disclosure Form. The old loan form had been five pages; according to the agency website, the new one is three. The closing form remains at five pages. That’s a net savings of two pieces of paper. But the agency rules required to implement the new forms weigh in at an astonishing 1,099 pages.

In evaluating the substance of the new disclosure themselves, Macey concludes the new forms are likely to harm consumers rather than help them.

Do the new rules expand consumer choice? They would forbid many borrowers from making smaller payments every month, followed by a single, one-time balloon payment to retire the principal at the end. They also would cap late fees—which means borrowers would be unable to get a lower interest rate on a loan by agreeing to pay a penalty if they don’t make their payments on time.

The new rules restrict loan-modification fees, which means mortgagors will offer fewer options to do so. They restrict penalties on borrowers who pay off their home loans early. These prepayment fees compensate lenders for the risk of lower returns on their loans. Without this protection they will either decline to offer loans to some borrowers or charge a higher interest rate.

The government’s proposed rules require high-risk customers in high-cost loan markets to meet with financial counselors before taking out a loan. The regulators also want to expand dramatically the number of mortgages classified as high cost. But financial counselors will have to be compensated, whether their advice is good or bad. The law deprives these consumers of the right to do their own homework.

Oddly, hidden on the new disclosure forms is the Annual Percentage Rate. For decades the APR was front and center on government-mandated disclosure documents. It is the single number that shows borrowers the cost of borrowing including such factors as the interest rate, certain fees, and the maturity structure of the loan.

The CFPB claims its consumer testing showed people didn’t understand the APR. Yet if someone is trying to compare two loans—one with a lower interest rate and $15,000 in fees, the other with lower fees but a higher interest rate—it’s not possible to determine which loan is cheaper without the APR.  The new rules do not attempt to generate a single number that can be used for comparison purposes and instead focus on various components of the loan such as fees, penalties, interest rates and maturity separately. This makes it harder, not easier, for borrowers to compare mortgage options.

Ultimately, we will be able to evaluate the impact of these new disclosures empirically by watching the results of the CFPB’s “experiment.”

Filed under: consumer financial protection bureau, consumer protection, economics