Reason Foundation

Maryland Passes Unprecedented (and Unnecessary?) Digital Labor Law

Posted on April 11, 2012, 6:33pm | Harris Kenny

Maryland legislators just passed an unprecedented digital labor law in Senate Bill 433. The bill would prevent employers from asking for passwords to websites such as Facebook and Twitter. While other states like California and Illinois are exploring similar legislation, Maryland appears likely to be the first to move. However despite its popularity, this legislation may not be necessary after all.

The bill has strong support from the legislature, passing unanimously in the Senate (44-0) and overwhelmingly in the House (128-10). If signed by Gov. Martin O’Malley, SB 433 would specifically prohibit Maryland employers from:

• Requesting or requiring that an employee or applicant disclose any user name, password, or other means for accessing a personal account or service through specified electronic communications devices.;
• Taking, or threatening to take, specified disciplinary actions for an employee’s refusal to disclose specified password and related information; and 
• Downloading specified information or data.

Civil liberties advocates have praised SB 433 for it’s expansive scope and hope future provisions will include college students and athletes. Further, the bill will likely save the state a significant amount of money in legal fees and settlement costs. But was this legislation necessary?

On Friday March 23 Facebook’s Chief Privacy Officer Erin Egan issued a warning that Facebook may take action against employers who demand passwords, either through engaging or taking legal action. Egan explains that these demands violate Section 4, Part 8 of Facebook's Statement of Rights and Responsibilities, which reads: 

You will not share your password, (or in the case of developers, your secret key), let anyone else access your account, or do anything else that might jeopardize the security of your account.

By requesting a job applicant’s Facebook password, an employer is demanding the applicant violate Facebook’s terms of service, for which he or she could be civilly liable (and at minimum risk having his or her account terminated.) Beyond Facebook, any website concerned about this issue can incorporate similar language in their terms of service.

Having this type of language in the terms of service makes sense for websites. At first glance, one might assume this story only impacts a handful of job applicants in Maryland. In reality, Facebook has a vested interest in protecting its reputation and the goodwill of its hundreds of millions of users around the world. Social media is built on a foundation of trust whereby users voluntarily submit personal information—in a trusted environment—in exchange for similar information from other users. If one user’s account is compromised through coercion, then the foundation of trust will crumble.

Ironically, Kevin Rector of The Baltimore Sun reports SB 433 was inspired by the Maryland state Department of Public Safety and Correctional Services, who asked a job applicant to turn over his Facebook password during the application process. The department said the policy had been a factor in the denial of employment of seven out of 2,689 applicants over the course of a year. The department specifically sought use or presence of verified gang signs in applicant accounts, which would prove detrimental in a correctional environment. 

After the American Civil Liberties Union (ACLU) filed a complaint, the department made participation voluntary, however this did not meet the ACLU’s concerns. This led the legislature to take action. Rather than the legislature, Gov. O’Malley might have instead addressed this issue since the state is the employer that was responsible for violating Facebook’s terms of service. 

Federal policymakers are also seeking to get involved. U.S. Senators Richard Blumenthal and Charles Schumer recently called on the U.S. Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Justice (DOJ) to launch a federal investigation into this issue. Their press release cites several federal laws and Supreme Court rulings, such as the Stored Communication Act, Computer Fraud and Abuse Act, Pietrylo v. Hillstone Restaurant Group, and Konop v. Hawaiin Airlines, Inc.

There are two market forces already at work solving this problem. First, applicants who view this requirement as onerous won’t apply to work at the businesses that impose it, and those businesses will suffer in the marketplace due to their lower competitiveness in attracting labor. Second and more importantly, Facebook and other websites ultimately have a strong incentive to take legal action to protect their users. Users will patronize websites that meet their needs, including privacy protection, and they will avoid websites that don’t.

California is Barking Up the Wrong Tree with Pet Groomer Licensing Bill

Posted on February 27, 2012, 2:10pm | Adam Summers

Earlier this month, I wrote about a proposed bill in California to require state licensing for pet groomers.  The legislation, SB 969, would impose fees on would-be groomers, require applicants to pass written and practical examinations administered by the Veterinary Medical Board, mandate detailed and burdensome record-keeping requirements for groomers, dictate certain other business practices, and spawn an army of bureaucrats to go around inspecting every dog grooming business in the state at least once a year.

None of this will do anything to improve the quality of pet grooming services—the supposed rationale behind the bill—but it will increase the cost of grooming services, reduce competition and consumer choice, and, because of the high costs of fees and compliance with state regulations, deny gainful employment to many who would otherwise be competent groomers and entrepreneurs. This is California big government thinking in a nutshell: there must be a government solution to everything, and taxes and regulations can surely cure every real or imagined ill in the world. Of course, in reality, this only serves to deny Californians economic liberties and opportunities, which they oftentimes seek elsewhere (as evidenced by their migration to more business-friendly states like Texas, Nevada, and Utah).  No wonder the state is saddled with such a poor business climate and mired in unsustainable spending and chronic and significant budget deficits.

In a San Diego Union-Tribune op-ed column, I make the case against the pet groomer licensing bill and occupational licensing in general. Below is an excerpt of the article.

While we love our pets dearly and want to protect them from harm, mandatory state licensing is not the answer. As numerous economics studies of a wide variety of professions have demonstrated, licensing rarely leads to improved service quality, and oftentimes results in worse quality. While this might sound counterintuitive, there are several reasons for this.

The one-size-fits-all regulations imposed by the state may be arbitrary (not necessarily an accurate measure of groomer competence) and give consumers a false sense of security about the competency of licensed groomers, causing them to be less cautious about whom they do business with than they otherwise might be. In addition, licensing fees and regulations restrict competition by making it more difficult for people – even those who would be skilled groomers – from entering the business.

Less competition means less pressure to offer the best services and the lowest prices. The higher prices that would result from licensing would cause many people to resort to do-it-yourself grooming, which may result in more pain to pets since the owners are not trained to do this. For the same reason, there are more electrocutions where there are stricter licensing regulations for electricians and poorer dental health where dental licensing requirements are overly stringent.

[. . .]

Some may still cry, “There ought to be a law!” but groomers who harm pets can already be prosecuted under laws against negligence and fraud, as with any other case of poor service or breach of contract. This does not mean that there are, or should be, no standards for groomer competence. Voluntary (private) certification allows practitioners who meet the criteria of a certification organization to advertise their certification to signify to customers that they offer high-quality services, while leaving consumers and noncertified practitioners free to do business if they so choose. Pet grooming organizations such as the National Dog Groomers Association of America, National Cat Groomers Institute of America, International Professional Groomers and International Society of Canine Cosmetologists have their own testing and other certification requirements and offer workshops, seminars and other events to provide groomers and consumers more information about their members’ qualifications. The use of referrals from veterinarians or friends and resources such as Yelp, Angie’s List, and the Better Business Bureau may also help to avoid many poor groomers in the first place.

See the full article here.

Related Research and Commentary:

» "California Bill Proposes Licensing for Pet Groomers"

» Occupational Licensing: Ranking the States and Exploring Alternatives

» "California Licenses Most Jobs in Nation" (Los Angeles Business Journal)

» "Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services"

» "Occupational Licensing and the Beard Trimming Turf War in Texas"

» "State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities"

California Bill Proposes Licensing for Pet Groomers

Posted on February 3, 2012, 5:14pm | Adam Summers

It appears that California truly has gone to the dogs. The state is facing a $9.2 billion budget deficit, a $10 billion unemployment insurance fund deficit, and unfunded pension obligations in the range of $400 billion to $500 billion, yet the busybodies in the state legislature are seeking to add another occupation to the long list of those burdened by unnecessary state regulation: pet grooming. As I noted in a 2007 study, Occupational Licensing: Ranking the States and Exploring Alternatives, California already "leads" the nation by requiring licenses for some 177 occupations, almost double the national average. The new bill, SB 969, proposed by state Sen. Juan Vargas (D-San Diego), would establish licensing standards for dog groomers and dog grooming schools under the Veterinary Medical Board. Violations of the regulations could result in fines of $500 to $2000 and/or imprisonment of 30 days to a year in jail.

The bill would establish minimum age and education requirements for potential licensees (18 years old and at least a 10th grade education), impose licensing fees, and charge the licensing board with developing standardized written and practical demonstration tests for applicants. In addition, it would require an inspection of every licensed pet groomer in the state each year and mandate that licensees maintain detailed records for two years ("including a list of any chemicals used while performing the services and any medical conditions discovered during the performance of services"). Moreover, as a San Diego Union-Tribune article about the bill notes, the legislation has drawn criticism from groomers because it would also force them to individually cage animals that would be calmer if they were not confined.

The Orange County Register today ran an editorial that effectively illustrates the fallacies of licensing pet grooming. As I told the Register,

"Licensing pet groomers is not the answer to poor-quality grooming services. Imposing a top-down state bureaucracy will likely not improve pet safety or grooming quality, but it will result in less competition, less choice for consumers, and higher prices. Higher prices will arise from the reduced competition and the need for practitioners to offset the cost of compliance with unnecessary regulations. When there is less competition, there is less pressure on practitioners to offer the best prices and service quality."

The artificially higher prices caused by licensing would have some other unintended consequences, such as encouraging people to save money by clipping their pets' nails or cutting their hair themselves. Since the average person is not as trained as a pet groomer (licensed or not), this will result in more pain—not less—for pets.

If dog groomers want to get together and form their own voluntary certification organization, that is great. They could set their own standards and have the organization certify those that meet those standards. This would signify to customers that the certified practitioners offer a higher standard of service while still maximizing the freedom and choice of both consumers and groomers that elect not to be certified.

There will always be some bad pet groomers, with or without licensing. In cases where pets are injured or the groomer otherwise does not meet reasonable standards of service, there are already laws on the books against negligence, fraud, breach of contract, and causing harm to people or property. Licensing would simply create an illusion of competence (and an army of bureaucrats) while increasing prices and reducing competition and consumer choice.

Related Research and Commentary:

» Occupational Licensing: Ranking the States and Exploring Alternatives

» "California Licenses Most Jobs in Nation" (Los Angeles Business Journal)

» "Lawyer Licensing Laws Lead to Higher Prices, Less Consumer Choice and Access to Legal Services"

» "Occupational Licensing and the Beard Trimming Turf War in Texas"

» "State Licensing Mandates for Movers in Illinois Increase Prices, Reduce Job Opportunities"

Freedom of Speech on the Internet is the 'Paramount Concern'

Posted on January 31, 2012, 12:19pm | Steven Titch

More thoughts on the unintentional consequences of the SOPA and PIPA, and the significance of their defeat, from former Sen. Ted Kaufman. Full version at the The Cagle Post.

Initially, concern about Internet counterfeiting and piracy looked like just another battle about money, with Hollywood studios, the recording industry, and book publishers on one side and Google, Facebook, and most of Silicon Valley on the other. This kind of thing happens all the time, not just in Washington but in state capitols and local councils. The moneyed interests line up on both sides, and employ well-paid advocates to argue their cases. Buckets of money go to the winners, but seldom do average people who will be affected by the results get a chance to exert much influence....

What became evident was that this was not just a battle over money. It was most profoundly about freedom of speech.

It has always amazed me how we Americans take freedom of speech for granted. I spent thirteen years on the Broadcasting Board of Governors, appointed by Presidents Clinton and Bush, The Board oversees all non-military U.S. government broadcasting abroad, including the Voice of America.

I saw time and again how governments around the world frustrate freedom of speech and freedom of the press. There are still countries that throw dissidents in jail and close media outlets. But more often, governments use more nuanced methods.

They enact laws to define who can be a journalist and what constitutes libel, and control what is permitted on the Internet.

The existing SOPA and PIPA bills would have made it easy for businesses to limit speech with no prior notice or judicial hearing. They could have shut down websites by filing a notice alleging the site was "dedicated to the theft of U.S. property." Perhaps some web pages should be closed, but this is a very slippery slope. Maintaining real freedom of speech on the Internet must be our paramount concern.

Is the Cost of Internet Piracy Overhyped?

Posted on January 24, 2012, 2:55pm | Steven Titch

"Any other musicians notice that ever since they shut down MegaUpload, the money has just been POURING in?"

So tweeted independent songwriter and recording artist Jonathan Coulton yesterday, in what might be the most succinct challenge to the federal government's claim that Megaupload.com, the file sharing service facing federal charges of intentionally pirating content, has cost singers, actors, writers and producers $500 million in lost revenues and royalties.

Coulton's comment, which was followed by a more in-depth blog, both spotlighted at TechDirt, contributed to the ongoing debate over the accuracy of the half-billion-dollar number. In addition to the due process concerns raised by the government's abrupt shutdown of the Megaupload site, more and more commentators are challenging industry assertions about the amount of losses piracy creates. Actor Wil Wheaton, for example, said Hollywood loses more money through "creative accounting" than it does through piracy.

Coulton himself, who does not have a label but sells recordings via the Web, believes the cost of piracy is overstated:

Is it really as dire as all that? It's an emergency is it? Tim (O'Reilly) points out that he and a lot of other content creators have been happily coexisting with piracy all this time, and I'm certainly one of them. Make good stuff, then make it easy for people to buy it. There's your anti-piracy plan [emphasis Coulton's]. The big content companies are TERRIBLE at doing both of these things, so it's no wonder they're not doing so well in the current environment. And right now everyone's fighting to control distribution channels, which is why I can't watch Star Wars on Netflix or iTunes. It's fine if you want to have that fight, but don't yell and scream about how you're losing business to piracy when your stuff isn't even available in the box I have on top of my TV. A lot of us have figured out how to do this.

So if you can stand me sounding a little crazy, listen: where is the proof that piracy causes economic harm to anyone? Looking at the music business, yes profits have gone down ever since Napster, but has anyone effectively demonstrated the causal link between that and piracy? There are many alternate theories (people buying songs and not whole albums, music sucking more, niches and indie acts becoming more viable, etc.). The Swiss government did a study and determined that unauthorized downloading (which 1/3 of their citizens do) does not create any loss in revenue for the entertainment industry.

Elsewhere, the Cato Institute's Julian Sanchez also questions whether the true economic cost of piracy warrants such an overbearing legislative response.

...I remain a bit amazed that it’s become an indisputable premise in Washington that there’s an enormous piracy problem, that it’s having a devastating  impact on U.S. content industries, and that some kind of aggressive new legislation is needed tout suite to stanch the bleeding. Despite the fact that the Government Accountability Office recently concluded that it is “difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole,” our legislative class has somehow determined that—among all the dire challenges now facing the United States—this is an urgent priority. Obviously, there’s quite a lot of copyrighted material circulating on the Internet without authorization, and other things equal, one would like to see less of it. But does the best available evidence show that this is inflicting such catastrophic economic harm—that it is depressing so much output, and destroying so many jobs—that Congress has no option but to Do Something immediately? Bearing the GAO’s warning in mind, the data we do have doesn’t remotely seem to justify the DEFCON One rhetoric that now appears to be obligatory on the Hill.

No one is saying copyright and intellectual property shouldn't be protected. However, a time out may be in order. The two bills designed to combat Internet piracy, Protect Intellectual Property Online Act (PIPA) and the Stop Online Piracy Act (SOPA) are sweeping and may constitute the use of a bazooka to kill if not a fly, maybe a very large cockroach. 

South Carolina: The State that Booed the Golden Rule

Posted on January 23, 2012, 6:44pm | Adam Summers

As the post-mortem analysis of the South Carolina Republican presidential primary is written and we look ahead to the first Republican debate in Florida tonight, the thing that sticks with me most vividly from the South Carolina campaign was the reaction of the crowd in the Fox News debate, particularly when many in the audience booed Rep. Ron Paul for offering the notion of applying the Golden Rule to our nation's foreign policy.

Just to recap, the candidates had been discussing foreign policy and Iran. Newt Gingrich had just offered some false bravado and empty rhetoric about killing terrorists. Paul then tried to inject a little sanity about not carelessly beating the war drums. Following the crowd's boos, Mitt Romney, Rick Santorum, and Rick Perry then engaged in a pissing contest to demonstrate who among them was the most macho warmonger.

To the crowd's credit, they did cheer Paul 30 seconds after the initial boos when he finished his reply by imploring the country to bring the troops home and not delve into yet another needless war, saying, "This country doesn't need another war [with Iran]. We need to quit the ones we're in. We need to save the money and bring our troops home."

This exchange brought two thoughts immediately to mind. First, it reminded me of a similar exchange from a presidential exchange four years earlier, also in South Carolina, in which Paul and Rudy Giuliani got into a heated exchange over U.S. foreign policy and the war in Iraq. Giuliani acted incredulous that Paul had the temerity to suggest that our foreign policies, specifically, over 50 years of meddling in the Middle East, have had unintended—and, oftentimes, negative—consequences. Giuliani's response was greeted with wild cheers from the audience. Paul then schooled Giuliani and the others in attendance and those viewing the debate on our history of interventionism in the Middle East (namely, the U.S.-orchestrated coup d-état of the democratically-elected government of Iran in 1953 which installed Mohammad Reza Shah Pahlavi and ultimately led to over a quarter-century of the Shah's brutal rule over the Iranian people) and the concept of "blowback," which is described on Wikipedia as "the espionage term for unintended consequences of a covert operation that are suffered by the civil population of the aggressor government."

I have since read many accounts of people, even former hardened neoconservatives, who, as a result of that exchange and further study, have since adopted noninterventionist foreign policy views based on Paul's simple wisdom that we, as a nation, should not treat others in a manner in which we would not like to be treated. One does not have to be religious to acknowledge that the Golden Rule offers a simple and sound moral code of conduct. It applies as well to international relations as it does to personal relations.

Some of the Republican presidential candidates have noticed that the phrase "American exceptionalism" plays well with Republican audiences, and they tend to use it every opportunity they get. They generally misinterpret the term to mean that not only is American society (by which they really mean American government) the best in the world, but that this somehow gives us the moral right to act in ways that other societies and nations cannot. America is an exceptional nation, but it has come to be that way because of the ideals of freedom and opportunity that it has embodied, and its willingness to lead by example, not by throwing its weight around and imposing its notions of the way people should live their lives on other societies and nations. Regrettably, it has strayed from that path and must rededicate itself to embodying the principles of individual liberty, prosperity, and, yes, peace, if it is to once again be considered that "shining city upon a hill."

Returning to the recent South Carolina debate, and the crowd's reactions, my second thought was of the sheer bloodlust displayed by members of the audience. It was like a feeding frenzy of war propaganda. It recalled to me Mark Twain's poignant short story, "The War Prayer." (Apparently, the same thought occurred to Laurence Vance, who wrote an excellent article for LewRockwell.com on the same topic.) It is the story of a church congregation implored by its minister to pray for their nation's troops during a time of war. After the preacher's passionate sermon, an elderly stranger makes his way up the main aisle to the front of the church and announces to the congregation that what has just been uttered is only half of the prayer that has truly been made. He then proceeds to lay bare the horrors of war and the unspoken payer that they have also necessarily intended.

"You have heard your servant's prayer—the uttered part of it. I am commissioned by God to put into words the other part of it—that part which the pastor, and also you in your hearts, fervently prayed silently. And ignorantly and unthinkingly? God grant that it was so! You heard these words: 'Grant us the victory, O Lord our God!' That is sufficient. The whole of the uttered prayer is compact into those pregnant words. Elaborations were not necessary. When you have prayed for victory you have prayed for many unmentioned results which follow victory-must follow it, cannot help but follow it. Upon the listening spirit of God the Father fell also the unspoken part of the prayer. He commandeth me to put it into words. Listen!

"O Lord our Father, our young patriots, idols of our hearts, go forth to battle—be Thou near them! With them, in spirit, we also go forth from the sweet peace of our beloved firesides to smite the foe. O Lord our God, help us to tear their soldiers to bloody shreds with our shells; help us to cover their smiling fields with the pale forms of their patriot dead; help us to drown the thunder of the guns with the shrieks of their wounded, writhing in pain; help us to lay waste their humble homes with a hurricane of fire; help us to wring the hearts of their unoffending widows with unavailing grief; help us to turn them out roofless with their little children to wander unfriended the wastes of their desolated land in rags and hunger and thirst, sports of the sun flames of summer and the icy winds of winter, broken in spirit, worn with travail, imploring Thee for the refuge of the grave and denied it—for our sakes who adore Thee, Lord, blast their hopes, blight their lives, protract their bitter pilgrimage, make heavy their steps, water their way with their tears, stain the white snow with the blood of their wounded feet! We ask it, in the spirit of love, of Him Who is the Source of Love, and Who is ever-faithful refuge and friend of all that are sore beset and seek His aid with humble and contrite hearts. Amen."

(After a pause)

"Ye have prayed it; if ye still desire it, speak! The messenger of the Most High waits."

It was believed afterward that the man was a lunatic, because there was no sense in what he said.

Let us hope that tonight's debate—and the remainder of the presidential campaign—will be characterized by greater reflection and civility, and that the candidate's views will be better informed by a respect for life (may they be as staunchly "pro-life" in international matters as they claim to be in domestic matters) and liberty.

Supreme Court Rules Police Need a Warrant to Track Your Car

Posted on January 23, 2012, 3:07pm | Steven Titch

In a major step toward defending constitutional rights and due process in an age of high-tech surveillance, the U.S. Supreme Court unanimously found that police require a search warrant to place a tracking device on a suspect's vehicle.

In doing so, the high court overturned the conviction of Washington, D.C nightclub owner Antoine Jones on charges of conspiracy to sell drugs. To convict Jones, prosecutors used as evidence information from a GPS tracker that had been attached to Jones' SUV. Although the Washington, D.C. police had obtained a search warrant for the device, officers did not execute the warrant until the day after it had expired. They also placed the device on the vehicle when it was in Maryland, outside the D.C. jurisdiction of the warrant. Jones' attorneys appealed his conviction to the D.C. Circuit Court of Appeals on Fourth Amendment grounds against illegal search and seizure. Prosecutors, supported by the Obama administration, argued that the search warrant, however improperly executed, was unnecessary to begin with because GPS tracking was not a search as defined by the Bill of Rights. The Appeals Court disagreed and the Supreme Court today upheld the ruling.

The decision will stand as a watershed moment in the application of Fourth Amendment guarantees in an era where police--from local precincts up to the FBI--have a bevy of intrusive electronic tools at their disposal. Although the decision pertained to electronic surveillance, the Opinion of the Court, written by Justice Antonin Scalia, notably rested on brick-and-mortar aspects, primarily that police trespassed on private property to execute the warrant.

Still, by the court's own admission, the ruling doesn't cover the use of technologies that do not require law enforcement to set foot or otherwise tamper with a suspect's property. These can range from location tracking via automatic highway toll payment systems to the use of thermal and infrared cameras, which can "see" in the dark, and sophisticated radio imaging devices, which, although still in prototype, have the potential to see through walls.  

However, the Supreme Court, as it often does, used this case as an opportunity to set up a framework for future cases that might tackle these greater issues. It chose to say that the "no reasonable expectation of privacy" test that has been used in other Fourth Amendment cases, including Katz v. United States, to allow the use information obtained from a suspect's behavior in public--as well as the use of information if it has been transferred to a third party--did not apply in this case. Even so, the opinion seemed to go out of its way to note that "expectation of privacy" claim was intended to augment, not diminish or replace, citizens' rights against search and seizure as laid down in the Fourth Amendment. It subtly reclaims "expectation of privacy" as touchstone for defendants and makes it less of an escape clause for government snooping.

This could have ramifications should a case involving a warrantless seizure of electronic data from cloud-based third-party storage services, such as Carbonite and Dropbox, come before the Supreme Court. Here again, then, the opinion chose to quote from Katz, reminding us that "the Fourth Amendment protects people, not places."

The Internet On Strike

Posted on January 18, 2012, 10:39am | Anthony Randazzo

In protest of the Congressional consideration of SOPA, the Stop Online Piracy Act, hundreds of websites (if not more) are "blacking out" today. Some of the biggest websites to go on strike include Google, Wikipedia (English), Reddit, Mozilla/Firefox, and Wordpress. The blackout will last for 24 hours on January 18 for most websites, so I've included screen shots below in case you're reading this after the fact. (See a full list of sites on strike here.)

The protest has already done quite a bit to bring awareness to the danger that is the ideas contained in SOPA. Google's website "End Piracy, Not Liberty" has a great summarization PDF of issues int he debate. In short, the House and Senate are considering legislation that would give the federal government the power to take down any website it wants without notice if it determines that site contains copyrighted material. Among other things it can fine search engines, like Google and Bing, for including links to copyright violating material. 

The ideas in the legislation are a significant threat to free speech, would result in substantial censoring of legal material, and would alter the nature of the Internet as we know it. Some have said such overtures are extreme and that SOPA critics are taking the argument too far. While history would suggest that once the federal government gets its claws in something like this the end result is always vindication of the critics, there is a more concrete reason why claims this would alter the nature of the Internet are not overblown.

The foundation of the Internet is the freedom for an individual to seek out and find information/content and also to share information/content. Search engines are tools to do the searching, doors to the Internet. Web domains are the tools to do the sharing. By threatening to fine Google for other people violating copyright, this will necessary force Google to over compensate in restricting its search functions. The necessary result is the capacity for individuals to access content is restricted. 

Were this restriction to come from Google just shutting itself down because its staff wanted to all just take their money and become professional surfers, this would be disappointing but not unjust. We have no claim over the staff at Google and, other than contracts they've signed, they don't "owe" "us" the provision of their free services, as much as we've come to depend on them. But that is substantially different than the U.S. government forcibly stepping in and dictating terms to Google for how it can operate and necessitating it restrict access. 

Google shutting down would alter the nature of the Internet. Google getting restricted would alter the nature of the Internet. It is as simple as that.

Then there is the due process issue underlying all of this for the sharing aspect of the Internet. The original version of SOPA would allow websites to be taken down on the mere accusation of copyright violation. It would also assume guilt before innocence. So if I have a blog and someone goes into the comments on my blog and writes the words to a popular song they could be in violation of copyright. If I get 1,000 comments a day on my blog (dreaming, yes) it is highly possible I could miss the violation. SOPA would theoretically allow the government to just shut down my blog, take over the domain, and force me into a complicated appeals process to get the site access back. Due process would suggest a notification given and opportunity for the content to be removed. I didn't put it there, I can take it off without shuttering the whole site. Only persistent law breakers who ignore warnings should fear their domain being taken away, and even then the content should be targeted first and foremost. 

Amended versions of SOPA promise to only go onto blogs and remove the content, instead of taking down the whole site. But this "fix" would still involve the government intruding into private property without warrant and without notice. 

We should not forget that there really is a lot of copyright violation on the Internet. The problem that SOPA is trying to tackle is not fake. So the legislation can not be dismissed out of hand for lack of cause. It is more that SOPA is an unjust solution to the problem. Just as tearing the engine out of a car for speeding would be excessive response, so too is SOPA an excessive response. But the problem of pirated music and video content remains in the wake of SOPA. A possibly more just solution could be the ideas in the OPEN Act, alternative legislation that would still give the government power to restrict websites, but it would move the power to the Federal Trade Commission and remove the power of private copyright holders to demand instant removal of content without investigation.

See below for some video commentary on SOPA, particularly pointing out another metaphor to describe the nature of the problem: The Internet is a road. Google, Bing, etc. are the construction crew. Some people drive safely on the road, others speed. What the road is used for should not be blamed on search engines. You go after the speeders. Even if they are fast and hard to catch, the government can't just get lazy and force the construction crews to make the road more narrow. This makes it a challenge for legal drivers to use the road system just as much as the speeders. 

• Peter Suderman on Freedom Watch discussing the terms of SOPA (Jan. 17, 2011)
• Anthony Randazzo on Freedom Watch discussing the nature of SOPA (Jan. 12, 2012)
• Anthony Randazzo on Internet Freedom (Nov. 17, 2011)

Strike Screen Shots

Mozilla/Firefox

Google

Reddit

Wikipedia

Wordpress

Will the Web Make NC-17 Safe for Marketing?

Posted on January 5, 2012, 12:45pm | Steven Titch

One of the more critically praised films this year has been Shame, which has been in limited release around the country since December.  Although it’s an independent production, the film is being distributed by 20th Century Fox, a major studio, and stars Michael Fassbender, an actor who appears to be in the middle of his breakout moment.

The film is also rated NC-17.

Until recently, the Motion Picture Association of America’s NC-17 rating, which restricts admission to theatergoers 18 and older, was the box office kiss of death. Not only did NC-17 carry the notoriety of its predecessor, the X rating, it seriously hampered a film’s marketing. Boys Don’t Cry, The Cooler and Clerks are among the well-known examples of acclaimed films that were cut to win the more commercially acceptable R rating, in spite of protest from their filmmakers and actors that the cuts diminished the power and the point of the scenes in question.

But most newspapers and local TV stations won’t carry ads for NC-17 movies. Some theater chains, such as Cinemark, won't exhibit them. Major retailers like Wal-Mart nor video rental chains like Blockbuster won’t stock NC-17-rated DVDs.

In Hollywood, art and commerce have always been in tense balance. That balance may shifting as the Web becomes a larger factor in advertising. For example, a newspaper’s policy against advertising NC-17 movies is meaningless if a theater chain no longer uses newspaper advertising at all. AMC, the second biggest chain in the country, has been cutting back on print advertising since 2009. Last June, the company documented its shift from print to Web in a quarterly filing with the SEC. Regal Entertainment Group, another chain, reportedly is following suit.

Meanwhile, consumers are buying and renting fewer DVDs from brick-and-mortar outfits, choosing to buy or rent online or simply watch on demand. Netflix, for example, makes Lust, Caution, a 2007 NC-17 feature directed by Academy Award winner Ang Lee, available both by mail and streaming.  

Film promotion and advertising is a great example of the way the Web has become a significant marketing vehicle. Shame, albeit a grim, downbeat story of a sex addict and his troubled sister, not only opened to favorable reviews, it had one of the most impressive box office debuts for an NC-17 movie, averaging $36,118 per screen in a tight release in ten theaters in six cities the weekend of Dec. 2-4. By comparison, that weekend’s box office leader, Twilight Saga: Breaking Dawn Part 1, averaged just $4,087 per screen. The Muppets, second place in total gross, averaged $3,222.

Now in wider release, Shame has made $2 million as of Jan. 3, and currently ranks eighth among the 26 NC-17 films released since 1990.

As for Web-based marketing, Shame has its own site at FoxSearchlight.com. Shame has a fan page on Facebook. "Shame" delivers several movie-related links on the first page of a Google search, pretty impressive when you consider the title is a fairly common keyword (somewhere John Bradshaw’s eating his heart out).

You can find trailers for Shame at iTunes and Internet Movie Database (imdb.com), both mainstream sites for film previews. You don’t have to look too hard to find the “red band” trailer, which is played in theaters only in front of R-rated movies. Studios and exhibitors also can reach audiences through sites like Yahoo and Flixster, as well as through social networking, email and Twitter. These alternatives counter the limitations of advertising policies of old media.

They also decrease the clout of the MPAA Ratings Board, which has been accused of ratings bias against smaller, independent features aimed at adult audiences. Probably the best evidence of this is presented in the documentary This Film is Not Been Rated. Well aware that an NC-17 rating can kill a film at the box office, the ratings board has not been adverse to using it as a club to tone down films which its members subjectively find either morally or tastefully questionable.

While the shortcomings of the MPAA’s rating system have been discussed at length in many forums, I’ve always thought the most unfortunate aspect was that the MPAA never tried to counter the stigma of NC-17 as meaning “dirty movie.” Unlike the Electronic Software Association, which devised the MA rating for video games while successfully communicating that the market can—and should—accommodate products designed exclusively for adults, the MPAA never tried to engage the media outlets, retailers and video rental companies that openly equated NC-17 with porn.
 
That Web-based marketing can chip away at this perception will prove much better for audiences and filmmakers. Most NC-17 movies are not aimed at mainstream moviegoers anyway. If Shame continues to find its audience—and draws more attention in the form of several Academy Award nominations, which many critics believe it will—studios may be less inclined to make compromising cuts on the MPAA’s whim out of fear of losing box office revenues. And this means a little more weight on the “art” side of art-commerce balance.

States Coalescing Around Petitioning DEA to Reschedule Marijuana

Posted on December 8, 2011, 5:10pm | Harris Kenny

The Colorado Independent reports today that Colorado is joining Rhode Island and Washington State in “(petitioning) the federal government to change the schedule of marijuana under the Controlled Substances Act, a move they claim will move the conflict between federal drug laws and state laws that allow the establishment of medical marijuana dispensaries. Colorado will file its own request before the end of the year.”

Marijuana (also known as cannabis) is currently a schedule I controlled substance in the Drug Enforcement Administration (DEA) regulations, 21 C.F.R. Section 1308.11. According to the DEA, this scheduling designation means:

(Schedule 1 substances) have a high potential for abuse, have no currently accepted medical use in treatment in the United States, and there is a lack of accepted safety for use of the drug or other substance under medical supervision.

Drugs listed in schedule I have no currently accepted medical use in treatment in the United States and, therefore, may not be prescribed, administered, or dispensed for medical use. In contrast, drugs listed in schedules II-V have some accepted medical use and may be prescribed, administered, or dispensed for medical use.

Rhode Island and Washington State submitted their petitions several weeks ago, with support from their respective governors (Lincoln Chaffee and Christine Gregoire). Each state has a strong history of leading in this policy area.

• Rhode Island legalized medical marijuana in 2006 through the passage of The Edward O. Hawkins and Thomas C. Slater Medical Marijuana Act, which was later amended by Senate Bill (SB) 07-791 and SB 09-185.
• Washington State legalized medical marijuana in 1998 through voter approval of Initiative 692, which was later amended by SB 07-6032, SB 10-5798, and SB 11-5073.

Meanwhile, Colorado legalized medical marijuana in 2000 through voter approval of Amendment 20, which was later amended by SB 10-109, House Bill (HB) 10-1284 and HB 11-1043. Colorado was essentially dragged into joining the other states by complying with a two-year old state law (HB 10-1284) that requires:

In recognition of the potential medical value of medical marijuana, (the Department of Revenue) make a request by January 1, 2012 to the federal Drug Enforcement Administration to consider rescheduling, for pharmaceutical purposes, medical marijuana from a schedule I controlled substance to a schedule II controlled substance.

Unlike in Rhode Island or Washington State, Colorado Governor John Hickenlooper will not sign the petition. Hickenlooper is instead opting to have the Department of Revenue submit the petition.

While three states have coalesced around this issue so far, more states are expected to join since 16 states (including the District of Columbia) have now passed medical marijuana laws. In recent weeks Vermont Governor Peter Shumlin and New Jersey Governor Chris Christie have made public statements essentially supporting a re-evaluation of the federal government's so-called "War on Drugs."

Changes in state law could have a dramatic impact on law enforcement and correctional policy across the country. States are not required to enforce federal law, so they can get around DEA scheduling, however the specter of federal enforcement haunts medical marijuana patients, producers, and providers. According to the latest U.S. Sentencing Commission data, drug offenses are the second largest category of federal convictions with 26% of those offenders being convicted for marijuana-related offenses. With marijuana legalization ballot measures anticipated in (at least) California and Colorado in the upcoming election, this will likely be a high-profile issue in 2012.

How Players Police Online Gambling

Posted on November 15, 2011, 1:26pm | Steven Titch

The big news in online gambling circles these past two weeks has been the busting of BLR Technologies, a software supplier for a number of online gambling sites, after a leading gaming mathematician determined the variance against winning at its craps game was statistically off the charts.

While most online gambling sites host honest games, there's bound to be some bad apples. What's often overlooked is that there is a market-enforced structure that militates against suspect play or outright cheating. That was clearly at work here.

The finding already has led at least one online casino, 5Dimes, to remove the BLR software from its site. That the news circulated the online gambling community as quickly as it did, and led to immediate action from a major online casino group, testifies to the knowledge and power of online gamblers. Of course, the image of informed players backed by mathematical and statistical experts contrasts with the views of government policymakers, who tend to treat online gamblers as gullible knuckleheads who need to be protected from unscrupulous gambling predators, predominantly through bans. This misconception is worth keeping in mind as a Congressional panel convenes this week to revisit federal laws against online gambling.

In the BLR case, Michael Shackleford, whose Wizard of Odds website takes an in-depth mathematical approach to all manner of gaming probabilities, strategies and odds, personally tested the software after a reader complained that he had won only 25 percent of 3,200 "pass" or "don't pass" bets made.

In craps, the bettor wins a pass bet by rolling a 7 or 11 on the initial, or "come-out," roll. He loses immediately on a 2, 3 or 12. Rolling a 4, 5, 6, 8, 9 or 10 establishes a "point." After this, in order to win, the player must roll the point before rolling another 7. A "don't pass" bet works exactly the opposite.

In a Nov. 2 blog post, Shackleford said he first dismissed the complaint. Then, after reviewing videos the reader posted on YouTube, Shackleford decided to conduct his own series of trials, which confirmed the anomaly.

For example, the probability of rolling a 7 or 11 on a come-out roll is 22.2 percent. In the 328 bets Shackleford made, his expectation was about 73 come-out wins. His actual result with the BLR software was 33. Wins by successfully rolling an established point were not just below expectation, but statistical outliers. By Shackleford's calculations, the odds of his overall result--a 24.7 percent win rate against an expectation of 49.29 percent--was 1 in 6 billion. Putting this in layman's perspective, he said, "it would be 184 times easier to win the Powerball [lottery] 2 out of 2 times than to be as unlucky as I was in this craps game."

Shackleford's test was repeated by mathematician and gaming software consultant Eliot Jacobson, who also experienced the same extreme improbabilities. While Shackleford simply cautioned players against sites using the BLR software, Jacobson went as far to call the software "rigged."

As the House panel gathers this week to evaluate the pros and cons of online gambling, members should be aware that most online gamblers are smart, responsible and sensible when it comes to playing. They are also very good at sniffing out suspicious sites, verifying whether real problems exist, and exposing them when they do. The online gambling ban, effectively managed through intrusive regulation of international financial transactions, was a mistake to begin with and deprives law-abiding Americans from using the Internet to engage in a recreational activity legal, in some form or another, in a majority of states. The busting of BLR is simply another reason to end the nannying over online wagering.

Boulder, Colorado Weighing Banning or Taxing Disposable Bags

Posted on October 10, 2011, 11:00pm | Harris Kenny

On the front page of today’s Daily Camera is a story about how the Boulder, Colorado City Council is weighing banning or taxing plastic and paper bags. (The full article is available online here.) Erica Meltzer reports:

A group of students from the Net Zero Club at Fairview High School and Summit Middle School have lobbied the City Council to consider a ban. The idea, along with alternative proposals for a 10- or 20-cent fee on bags, has been included in an update to the city’s Zero Waste Master Plan, which will be presented to the City Council.

One student described the Net Zero Club’s aspiration to forcibly prevent individuals and businesses from using disposable bags as an effort to “change habits.” Another student said the group targeted disposable bags because they’re a “highly visible form of waste.” Visibility aside, Meltzer cites a recent report that found in reality “plastic bags don’t make up a large percentage of waste in the city.”

The City Council isn’t expected to make a final decision, instead they would give direction to the city staff and they are weighing:

• Banning both plastic and paper bags;
• Banning plastic bags, and taxing paper bags;
• Taxing both plastic and paper bags; or,
• Leaving both plastic and paper bags alone to focus on other priorities.

Ironically, like most newspapers, today’s Daily Camera was delivered in a plastic bag to protect the newspaper; but bags used to protect newspapers such as the Daily Camera would be spared under the current proposal. Most disposable bag bans also exclude retail stores and essentially function to take money from consumers through grocers without impacting revenue generated by retailers. In Boulder’s case, the ban or tax would overwhelmingly impact supermarkets, convenience stores and restaurants, which consume approximately 81% of plastic bags, according to an independent study by Eco-Cycle.

Moves like this appeal to policymakers during economic downturns because it’s easier to kick the can down the road than make difficult budget decisions. Officials are able to raise revenue under the guise of a “fee” that is more appropriately described as a tax. Meltzer reports that disposable bag taxes could extract as much as $1.1 million from Boulder consumers each year. Fortunately, political convenience does not always win out, for example voters recently overwhelmingly rejected a similar 15-cent plastic bag tax in Alaska.

For more of Reason Foundation’s work on disposable bag bans, see here and here.

Latest California Insanity: Regulating Babysitters

Posted on September 3, 2011, 3:35pm | Adam Summers

In case you needed further evidence for why California is a backward state with chronic multi-billion-dollar budget deficits, the second-highest unemployment rate in the nation, the worst business climate in the nation, and enormous unfunded pension liabilities that will burden generations to come—or in case you are a California resident and are simply a glutton for punishment—consider one of the latest offerings from our esteemed elected officials in Sacramento.

Assembly Bill 889 would require workers' compensation benefits, rest and meal breaks, and vacation time for all "domestic employees," including housekeepers, nannies, caregivers, and, yes, even babysitters.

As state Senator Doug LaMalfa (R-Richvale) explains in a column for The Union (Western Nevada County, CA),

Under AB 889, household “employers” (aka “parents”) who hire a babysitter on a Friday night will be legally obligated to pay at least minimum wage to any sitter over the age of 18 (unless it is a family member), provide a substitute caregiver every two hours to cover rest and meal breaks, in addition to workers' compensation coverage, overtime pay, and a meticulously calculated timecard/paycheck.

Failure to abide by any of these provisions may result in a legal cause of action against the employer including cumulative penalties, attorneys' fees, legal costs and expenses associated with hiring expert witnesses, an unprecedented measure of legal recourse provided no other class of workers – from agricultural laborers to garment manufacturers. (On the bright side, language requiring an hour of paid vacation time for every 30 hours worked was amended out of the bill in the Senate.)

As Sen. LaMalfa notes, these additional and unnecessary regulations will only further burden taxpayers and cause people to forego such services altogether or force children and the elderly to be cared for in institutionalized care facilities instead of their own homes.

If wages, benefits, or working conditions are so unacceptable to nannies, housekeepers, or anyone else, they are free to seek other employers or other occupations. Liberals can scream, "Exploitation!" or "Living wages!" all they want, but the fact that people agree to take such positions with such employment terms indicates that they feel those jobs and those terms are better than any other alternatives. By mutually agreeing upon such a contract, the employee is better off because the terms are presumably better than other opportunities, and the employer is better off because the price and terms he or she has agreed to are presumably better than those that could be reached with another potential employee. The wages received are worth more to the employee than the other things he or she could be doing with his or her time, and the service performed is worth more to the employer than the money he or she has to give up to receive it.  It is a value-for-value exchange and both parties are made better off than they were previously. This is how trade works in a free society.

What next, will we have to offer workers' compensation to have a guy down the street do a couple odd jobs around the house or the yard? Mandatory breaks and vacation time for the neighborhood kid to mow your lawn? (Local governments across the nation are already cracking down on the scourge of kids' lemonade stands.) Then again, knowing California politicians, I shouldn't give them any ideas.

The Virtue of Not Compromising (on Liberty)

Posted on August 31, 2011, 10:16pm | Adam Summers

Pepperdine University economics professor Gary Galles had an excellent column in the Orange County Register about the "moderates" vs. "extremists" debate in politics, and what the incessant calls for "compromise" really mean.

Writes Galles:

In California, whenever there is a state budget impasse, pundits blame the replacing of moderate members of the Legislature with extremists. What is really involved is that long-dominant Democrats have found it harder to buy off enough Republican votes to impose their budget priorities, which invariably involve increasing the burden on some to give more to others. When Republicans only moderately attached to the principle of self-ownership (moderates) are replaced with those more firmly attached to it (extremists), the rising price of necessary swing votes can rise dramatically, resulting in gridlock.

The treatment of the Tea Party during the debt-ceiling impasse was parallel. In the wake of an historic explosion of federal power and spending, pundits called for moderates, because they would compromise toward President Barack Obama’s demand for higher taxes, rather than extremists, who wanted to undo some of that profligacy.

In such cases, the moderation called for is always moderation in defense of some aspect of liberty, so that further inroads on liberty can be imposed, with those firmest in the defense of self-ownership tarred as unreasonable extremists.

He then offers some relevant quotes from 19th-century French classical liberal (not to be confused with today's "liberal" philosophy) political economist and statesman Frederic Bastiat. Here are a couple of my favorites:

• “[A]re those who want to prevent the return of such excesses extremists? I mean those who want to inject a dose of moderation into spending; those who want to moderate the action of the people in power … those who do not want the nation to be exploited by one party rather than another.”

• “[W]here can there be liberty when the government, in order to sustain enormous expenditures … [must] invade the sphere of private industry, to narrow incessantly the circle of individual activity, to make itself merchant, manufacturer, postman and teacher … Are we free if the government … subjects all its activities to the goal of enlarging its cohort of employees, hampers all businesses, constrains all faculties, interferes with all commercial exchanges in order to restrain some people, hinder others and hold almost all of them to ransom?”

[* As a side note, for anyone with an interest in liberty and the morality (or lack thereof) of the state, Bastiat's The Law (available for free online here and here) is a must read. First published in 1850, it has, unfortunately, proven to be remarkably prescient and is just as applicable today as it was when it was written.]

Ayn Rand also had some insight on the supposed virtue of compromise. As she stated bluntly through her iconic hero John Galt in Galt's dramatic radio speech to the nation in Atlas Shrugged (and reproduced in For the New Intellectual), "In any compromise between good and evil, it is only evil that can profit." In addition, she reasoned in The Virtue of Selfishness: "There can be no compromise between a property owner and a burglar; offering the burglar a single teaspoon of one’s silverware would not be a compromise, but a total surrender—the recognition of his right to one’s property."

It seems to me that we have been "compromising" in the direction of bigger and more intrusive government for generations, to our great detriment. Perhaps it is time we started defending liberty in earnest and compromising in the other direction, for a change.

Happy Cost of Government Day, California!

Posted on August 22, 2011, 2:32am | Adam Summers

My fellow Californians will be happy to know that they are now finally working for themselves this year, and not the government. According to a new report from Americans for Tax Reform, California's "Cost of Government Day," the day the average worker has earned enough to pay off the spending and regulatory burden of government at the federal, state, and local levels, fell on August 18.

That's 230 days Californians had to work this year just to pay the cost of government. Moreover, state taxpayers had to endure cumulative tax increases of about $34.4 billion over the last ten years, or $924 for every man, woman, and child in the state. This accounting of both spending and regulatory burdens gives an even more complete picture of the true cost of government than the Tax Foundation's Tax Freedom Day report, which is also excellent but focuses solely on governmental tax burdens. (See my previous post  on California's Tax Freedom Day—April 16 this year—here.)

California's Cost of Government Day falls six days later than the national average (August 12), making it the 43rd-worst of the 50 states and the District of Columbia. Nationally, the average American worker had to work 103 days to pay for federal government spending, accounting for 28.2% of net national product, 50 days to pay for federal regulations (13.6% of net national product), 44 days to pay for state and local spending (12.1% of net national product), and 27 days to pay for state and local regulations (7.6% of net national product).

The combined regulatory burden has increased nearly one-third (31.6%) in just the last decade. Government regulation is strangling economic activity, which is always a bad thing, but especially so during a time of economic recession or stagnation. As the ATR report noted, an April 2011 Phoenix Center study estimated that shrinking regulatory agency budgets by 5% would increase GDP by $376 billion and increase employment by 6.2 million over a five-year period. That study also concluded,

On average, eliminating the job of a single regulator grows the American economy by $6.2 million and nearly 100 private sector jobs annually. Conversely, each million dollar increase in the regulatory budget costs the economy 420 private sector jobs.

But why stop at a measly 5%? Why not throw off the shackles of regulation in a real significant way—say, a cut of 40% or 50% (or 100%—I can dream, can't I?)—and really allow the engine of free-market capitalism to start humming once again?

On his fantastic TV show "Freedom Watch" on the Fox Business channel, Judge Andrew Napolitano is fond of posing the rhetorical question, "Does the government work for us, or do we work for the government?" As the ATR report demonstrates, the sad truth is that we work for the government—to the tune of more than 60% of our labor and productivity. Thus we are more slaves to our government than free from it. No wonder our economic and fiscal/debt situations are so dire. It will only be when we take an axe to the size and scope of government and regain control of our private and commercial freedoms that we will be able to blaze a trail to a more stable and prosperous future.

Fiat Money Turns 40: It's Time to Return to a Gold Standard

Posted on August 15, 2011, 8:18pm | Adam Summers

August 15 marks the 40th anniversary of the United States' abandonment of the last vestiges of the gold standard (actually a gold-exchange standard under the Bretton Woods system ratified by Congress in 1945 or, as Gary North describes it in a LewRockwell.com column on the subject, a "government promise standard.").

In President Richard Nixon's address to the nation on that fateful day in 1971, where he compounded his economic error by imposing wage and price controls and a 10% tariff on imported goods, he announced:

I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary [John] Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interests of monetary stability and in the best interests of the United States.

(See a video clip of Tricky Dick's address on the Monday edition of CNBC's "The Kudlow Report" here.)

Note that the "speculators" were blamed for the nation's economic ills—just as they were during the financial and housing crisis of 2008 and the European debt crisis now—rather than unsustainable central bank credit expansions and government spending. Note also that this government directive was purportedly a temporary measure. Now where have we heard that before?

The Bretton Woods system was not a classical gold standard, so it ultimately proved to be unsustainable (see this Mises.org article by Robert P. Murphy for a concise description of the Bretton Woods system and its shortcomings), but the fiat (paper) money system that replaced it was destined to be even worse. Freed of any constraints on printing ever more money out of thin air, the United States, through the Federal Reserve, has run the printing presses with impunity (as has the rest of the world), resulting in higher inflation and an even more rapid devaluation of the currency.

As Lewis E. Lehrman notes in his Wall Street Journal article today, the dollar has lost 82% of its purchasing power since the government abandoned the Bretton Woods system (see the chart from the article below).

The economy has also suffered in terms of inflation, economic growth, and unemployment since going to a pure fiat money system.

Macroeconomic Data, Annual Averages During and After the Bretton Woods System

Source: "The Kudlow Report," CNBC, August 15, 2011.

This is exactly the opposite of what the Keynesian economists predicted, but precisely what those of the Austrian School of economics expected. As the famed Austrian economist Murray Rothbard related in his book What Has Government Done to Our Money?,

Before the dollar was cut loose from gold, Keynesians and Friedmanites, each in their own way devoted to fiat paper money, confidently predicted that when fiat money was established, the market price of gold would fall promptly [from $35 an ounce] to its non-monetary level, then estimated at about $8 an ounce. In their scorn of gold, both groups maintained that it was the mighty dollar that was propping up the price of gold, and not vice versa.

The reality? Gold climbed to about $800 an ounce within a decade. Oops. Oh well, the Keynesians and Friedmanites were only off by a factor of 100!

Rothbard explains why this was the case:

When a currency changes its character from gold-receipt to fiat paper, confidence in its stability and quality is shaken, and demand for it declines. Furthermore, now that it is cut off from gold, its far greater quantity relative to its former gold backing now becomes evident. With a supply greater than gold and a lower demand, its purchasing-power, and hence its exchange rate, quickly depreciate in relation to gold. And since government is inherently inflationary, it will keep depreciating as time goes on.

Politicians hate the gold standard because it prevents them from supporting unsustainable spending habits by printing money to pay off ever-expanding debts and passing off the costs to unsuspecting taxpayers through the hidden tax of inflation. A true free market in money would also negate the need for a central bank monopoly and all the machinations it uses to expand credit and create volatile asset bubbles and excessively painful corrections. This is why the gold standard is said to be critical to preserving freedom, and why the Fed's expansion of its balance sheet by trillions of dollars in recent years is so alarming. The surest way to put an end to government manipulations of the monetary system and get the economy on a healthy growth path once again is to return to a classical gold standard because the only money "as good as gold" is gold.

See also this post on the 40th anniversary of the end of the Bretton Woods gold-exchange standard by my Reason colleague, Ronald Bailey.

Local Government Meets the New Media

Posted on June 24, 2011, 1:27pm | Steven Titch

If you’ve been following Reason.com or Reason.tv for the past 48 hours you will know that Jim Epstein, a Reason TV reporter, was one of two journalists arrested Wednesday for videotaping a meeting of the Washington D.C. Taxi Commission.

Epstein and Pete Tucker, who blogs for TheFightBack.org, a site that spotlights local D.C. issues that affect minorities and low-income residents, were reporting from what was expected to be contentious meeting as the Taxi Commission was set to address a plan to introduce a medallion system for the District. The proposal had generated considerable opposition from the city’s large base of cab drivers, many of whom attended the meeting to voice their opposition. They essentially believe a medallion system will concentrate cab ownership among a handful of large fleet operators and likely result in the loss of their livelihood.

The arrests were regrettable all around. Epstein’s video, which shows Tucker, dressed neatly in a white shirt and tie, being handcuffed and led away, captures a deeply uncomfortable “it-can’t-happen-here” moment. Epstein was arrested next. Epstein’s video and statement can be found here.

Aside from the fact Epstein and Tucker were released a few hours later, the best thing that can be said is that the arrests were ordered by someone who can charitably be described as a low-level local government functionary, namely Dena Reed, interim chairman of the Taxi Commission. But that doesn’t excuse it. Reed emerges from this affair looking like a third-grade hall monitor who's allowed that modicum of authority to go to her head. 

What triggered Reed to have Epstein and Tucker arrested was Tucker’s request to place a microphone near her chair. It was clear from the beginning that Reed did not want the meeting videotaped, although any journalist—make that any individual—had every right to under open meeting laws. Furthermore, in this day and age of Internet-based news and blogging, video is a legitimate means of documentation. Reed may as well have had the reporters arrested for taking notes.

Reed cited a policy that allows Commission officials to ban taping at their discretion. Policies like this need to change. When daily newspapers are giving their reporters camcorders with an eye toward Web media, there is no line between print and electronic media. A policy that bars video recording amounts to direct interference with modern newsgathering. If local officials insist on banning video, more reporters are going to push the issue. Good for them, because these acts of civil disobedience end up embarrassing the government far more than the reporter.

And let’s not forget the Streisand Effect. Reed’s power play to shut out news coverage resulted in D.C. medallion issue receiving much more attention than it would have if she had allowed Epstein and Tucker to do their jobs unmolested. Instead, now on a national stage, she validated critics’ claims that the commission is arbitrary, unfair and incompetent.

It’s also worth noting that the incident comes just two weeks after the Federal Communications Commission, in its "Future of Media" report, said that local news media does not need a government lifeline. The matter has been raised in Congress and in some state legislatures who see local newspapers and TV stations facing declining readers, viewers and advertisers as more people turn to the Web for news. The FCC itself, in its National Broadband Plan, raised the idea of subsidizing local media via the Universal Service Fund. Yet, after examining the issue, noted the potential of the Web to pick up the slack. Others have noted that more specialized sites, like TheFightBack.org, would improve local news coverage by tailoring coverage to narrower interest groups broadcasters overlook. Case in point here. No local TV stations were at the Taxi Commission meeting, but TheFightBack.org and ReasonTV were. Moreover, Tucker and his site are not outliers. The cab drivers were aware of his coverage of the mediallian issue and showed their outrage by walking out the meeting after the arrest.

But the primary lesson here is for all those petty bureaucrats and officials who still think they have a say in who covers their little part of the political mechanism and how they do it: Video is a part of everyday news reporting. Deal with it.

Louisiana HB 63 Goes Up In Smoke

Posted on May 16, 2011, 7:00pm | Harris Kenny

Earlier today Louisiana HB 63 went up in smoke after it failed to pass out of the state’s House Ways and Means Committee. The wide-ranging tax increase bill essentially sought to increase taxes on all tobacco products by at least 50% by:

• Repealing the sunset on a portion of the tax on cigarettes thereby making that portion of the tax on cigarettes permanent;
• Increasing the tax on cigars invoiced by the manufacturer at $120 per thousand or less from 8% up to 12% of the invoice price, and increase the tax for cigars invoiced by the manufacturer at more than $120 per thousand from 20% up to 30% of the invoice price;
• Increasing the tax on smoking tobacco (cigarettes) from 33% up to 49.5% of the invoice price; and
• Increasing the tax on smokeless tobacco from 20% up to 30% of the invoice price.

According to The Times-Picayune, HB 63 received strong criticism from a coalition of tea party groups, businesses and Governor Jindal himself. Rina Thomas, a Jindal aide, told the Committee earlier today that cigarette tax increases “would be contrary to the work (policymakers have) done over the last three years (to cut taxes.)” The bill’s sponsor (Rep. Ritchie) voluntarily deferred the bill after realizing he had “nowhere near” the seventy requisite votes to override Gov. Jindal’s veto.

Separately Rep. Ritchie sponsored HB 591, which would exclusively repeal the sunset clause for the temporary four-cent levy on cigarettes set to expire January 30, 2012, and passed out of the House Ways and Means Committee on a 10-5 vote. Gov. Jindal also opposes HB 591, arguing intervention by the legislature to repeal the sunset clause constitutes a tax increase.

Tobacco taxes are a convenient target. In fact they are often considered “low hanging fruit” because politicians increase taxes under the false pretense of good intentions. However increasing tobacco taxes won’t solve Louisiana’s budget deficit.

Gov. Jindal has the right idea here, and is pursuing effective governance over political convenience in addressing Louisiana’s $1.6 billion budget deficit. Gov. Jindal was recognized in Reason Foundation’s Annual Privatization Report 2010: State Government Privatization for being a national leader on innovative policy solutions. Below are some government reform highlights from Louisiana (including several proposed by the state’s Commission on Streamlining Government):

• In March 2010, the Louisiana Department Of Administration (LDOA) announced the privatization of property and casualty claims management and loss prevention services, a move expected to result in estimated savings of at least $20 million over five years;
• LDOA is engaged in a three-year program to reduce the state vehicle fleet by 10% per year over the next three years, expanding existing rental car contracts and divesting portions of its vehicle fleet; and
• The Louisiana Department of Health and Hospitals (DHH) is implementing privatization initiatives in developmental disabilities, mental health and substance abuse treatment projected to cut costs by over $50 million in 2010.

The Pelican State’s government downsizing efforts have prompted all three major credit rating agencies to upgrade Louisiana’s bond rating since 2009—at a time when other states have seen downgrades given their shaky fiscal health—and the agencies specifically cited the state’s focus on spending control and streamlining as influencing factors. A higher credit rating alone will save Louisiana taxpayers millions in avoided interest costs over time.

Rather than raise taxes, Louisiana policymakers should continue to focus on implementing recommendations from the state’s Commission on Streamlining Government. For more ideas, see the American Legislative Exchange Council’s State Budget Reform Toolkit, which contains a broad range of creative policy solutions.

Citing "Wrong Door" Cases, Judge Blocks Use of IP Addresses to Identify Individuals

Posted on May 3, 2011, 12:05pm | Steven Titch

A federal judge in Illinois has refused to allow a plaintiff to match IP addresses to individual names in a piracy case, indicating that use of IP addresses without any other evidence is too unreliable in identifying actual perpetrators, and as such, violates the rights of those caught in what he termed a "fishing expedition."

In his decision, Judge Harold Baker pointed to one of several recent cases where paramilitary-type police raids on the residences of persons suspected of downloading child pornography that turned up nothing. What had happened was that real culprit had used that household’s unsecured wireless Internet connection.

The circumstances of the case here were somewhat different, but the same principle applied. The attorney of VPR Internationale, an owner of a adult web site, sought the court’s permission to match names to ISP addresses suspected of illegal file sharing of the site’s content. Judge Baker concluded that an IP address, by itself, did not constitute reasonable grounds to subpeona records for use in targeting suspects, noting in particular how easy it is for unsecure wireless networks to by hijacked.

According to Ars Technica’s Nate Anderson, Baker already had rejected the request on two occasions. When the plaintiff sought leave to take the matter to an appeals court; Baker last week rebuffed him once more, saying it was totally improper to do expedited discovery against anonymous individuals with no representation of their own before the court.

"Could expedited discovery be used to wrest quick settlement, even from people who have done nothing wrong?" asked Baker. "The embarrassment of public exposure might be too great, the legal system too daunting and expensive, for some to ask whether [plaintiff porn company] VPR has competent evidence to prove its case."

Baker then went on to cite a recent mistaken child porn raid, where an IP address was turned into a name—but the named person hadn't committed the crime. "The list of IP addresses attached to VPR's complaint suggests, in at least some instances, a similar disconnect between IP subscriber and copyright infringer… The infringer might be the subscriber, someone in the subscriber's household, a visitor with her laptop, a neighbor, or someone parked on the street at any given moment."

This sets a good precedent and I hope that it will soon be used to deny a warrant for another predawn SWAT raid on an unsuspecting homeowner whose only mistake was failing to lock down a router. Given the potential these “wrong door” raids have for violence and death, we need the sort of discretion Judge Baker showed here when it comes to policing Internet crime.

White House Takes Wrong Side on Police GPS Tracking

Posted on April 25, 2011, 12:24pm | Steven Titch

It is disappointing that the Obama administration, which campaigned against George W. Bush’s poor record on civil liberties protection, is pursuing a course that aims to limit Fourth Amendment rights when it comes to the use of location tracking technology.

The Washington Post reported yesterday that the Obama administration has petitioned the U.S. Supreme Court to overturn a ruling last year by the U.S. Court of Appeals for the D.C. Circuit that forces police to obtain a warrant before tracking the movements of a suspect using a global positioning device.

The motion is significant because various state laws conflict over procedure and the Supreme Court, if it takes the case, could establish long-term procedure going forward. In the case at hand, United States vs. Antoine Jones, the D.C. court sided with the defendant, overturning the conviction against Jones, who was accused of being a major cocaine dealer, ruling that D.C. police violated due process by using a GPS device to track Jones’ movements for one month without a warrant. Appellate courts in New York and California, on the other hand, have ruled in favor of police in similar cases.

The case also comes as location-tracking technology becomes more common. This itself is fueling an ongoing debate about the balance between utility and privacy. Witness last week's revelation that Apple iPhones and Google Android smartphones by default track their users’ locations, which are then transmitted back to the respective companies and stored.

A valid concern in all this is the question of how aggressively law enforcement will seek this access to this data now that it exists. The D.C., New York and California cases all involved direct use of tracking technology by law enforcement agencies—police affixed the GPS transmitters to suspect vehicles. These instances, as we see, already raise questions of due process. The next step will likely see police deputizing commercial companies to do the tracking work for them. This has happened post-9/11, with U.S. government agencies demanding that phone companies turn over calling records without a warrant. Moreover, as the law stands now, there's enough wiggle room for police and prosecutors to claim they don’t need them. Much of this search-and-seizure abuse can be corrected by specific legislation, such as extending safeguards of the Electronic Communications Privacy Act to include personal data stored by third-parties.

The other element in U.S v. Jones is “reasonable expectation of privacy.” True, one does not have such expectation on the public streets, but, as Justice Douglas Ginsberg, in a reasoned application of the concept, wrote in his decision (as per the Post), “the whole of a person’s movements over the course of a month is not actually exposed to the public because the likelihood a stranger would observe all those movements...is essentially nil.”

This provides a real-world response to Chief Judge David Sentelle’s dissenting argument. “A person’s reasonable expectation of privacy while traveling on public highways is zero,” Sentelle wrote, and “the sum of an infinite number of zero-value parts is also zero.”

But there’s a whiff of sophistry here, recalling for me Zeno’s Paradox of the Achilles and the Tortoise. The ancient Greek philosopher, perhaps wryly, asserted that because, mathematically speaking, an infinite number of points lay between points A and B (i.e., wherever you are, you’ll always have halfway to go), a traveler setting out from point A, in theory at least, would never reach Point B.  Because we live in a finite world, we know Zeno’s Paradox does not hold.

Likewise, while we may not expect privacy when we drive down to the local grocery store--at any point along the way we may seen by a neighbor out walking the dog--we have a reasonable expectation of protection from round-the-clock observation. Sentelle’s point is undone by the fact that if observation is constant, aggressive and/or obnoxious enough, courts consider it to be harassment. That’s why we have restraining orders.

Politics being what they are, the Obama administration picked as unsavory a defendant it could find to set up as a test case—no one wants to go out on a limb to speak for the rights of a drug kingpin. But it would do us good remember the principle, not the man. With personal information being recorded, stored and processed as much as it is, the correct policy is to strengthen Fourth Amendment protections, not petition for their dilution.

Taxes Inducing Black Market Trade for Cigarettes

Posted on April 19, 2011, 2:10pm | Harris Kenny

Reason Foundation has long argued that “sin” taxes on cigarettes are ineffective and regressive; however the latest data shows they are dangerous too. Tax increases at the state level are inducing sharp increases in black market trade for cigarettes, USA Today reports:

A recent wave of state tobacco tax increases, designed to pump revenue into cash-strapped local governments, is inspiring an increasingly dangerous cigarette smuggling industry where big profits lure violent criminal gangs and drug traffickers into the booming illegal market, according to law enforcement officials and court records.

Larrey Penninger, acting director of the tobacco diversion unit of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) tells USA Today:

Everyone out there (involved in trafficking operations) is tapping into tobacco…

• Last year, ATF reported 357 open cases involving tobacco smuggling, compared with a handful a decade earlier.
• During FY 2010, the Justice Department reported 71 new prosecutions referred by (ATF), a 39 percent increase from the year before, according to records compiled by the Transactional Records Access Clearinghouse at Syracuse University in New York.
• Seizures of cash and property also have been rising, from $11 million in FY 2007 to $31.5 million in FY 2009.

ATF’s federal data is noteworthy, however state-level data published in Cigarette Taxes and Smuggling 2010 is even more revealing. Mackinac Center research shows that cigarette smuggling is becoming increasinly common:

The five smuggling destination states with the highest cigarette smuggling rates were Arizona (51.8 percent of the state’s total consumption); New York (47.5 percent); Rhode Island (40.5 percent); New Mexico (37.2 percent); and California (36.3 percent).

With smuggling rates on the rise, the logical question to ask is, “who are the smugglers?” Besides drug dealers, gangs and thrifty (albeit law breaking) individuals, Mackinac Center research finds that higher cigarette taxes induced operatives of the terrorist organization “Party of God”—commonly known as Hezbollah—into black market trade for cigarettes. Hezbollah operatives made hundreds of thousands of dollars purchasing vanloads of cigarettes in North Carolina and smuggling them into Michigan where the difference in price was 75 cents per pack higher. According to the Federal Bureau of Investigation (FBI), profits from black market trade for cigarettes were sent to Hezbollah in Lebanon in the form of cash and equipment ranging from night-vision goggles to laser range finders. This demonstrates how black market trade rewards individuals with dubious motivations who are willing to flagrantly break the law to make money.

Trends in federal and state smuggling data show that it’s time to revisit state taxes on cigarettes. Taxes are inducing black market trade for cigarettes, which creates a more dangerous environment for consumers, diminishes the ability of legitimate businesses to operate and undermines the rule of law. If nothing else, state policymakers should think twice before raising taxes on cigarettes (again) to solve their budget woes.

For more on cigarette sin taxes, see my colleague David Godow’s work here, here and here.

Casinos Can’t Beat Online Poker, So They Join It

Posted on April 1, 2011, 1:12pm | Steven Titch

Station Casinos Inc. has become the second resort and casino company in two weeks to team up with an online poker venture. According to the Wall Street Journal, Fertitta Interactive, an entity set up by Station Casino owners and execs, has entered into a partnership with Full Tilt Poker, a popular online poker site.

Last week, Wynn Resorts announced a partnership with PokerStars, which the Journal reports is pushing a bill in the Nevada legislature that would enable it to be licensed to run poker Web sites for Nevada residents and, eventually, customers outside the state as well.

While online poker per se is not banned in the U.S., the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) makes it illegal for U.S. banks and credit card companies to transfer funds to offshore online gambling sites or their financial partners, making Internet poker much more cumbersome for would-be players stateside.

Groups such as the Poker Players Alliance have been putting steady pressure on legislators to repeal the act, getting a sympathetic ear, but not much more, from some members of Congress, including Rep. Barney Frank (D-Mass.).

The budget crises in many states, however, has upped the ante, so to speak. States are beginning to see online poker as a potential tax source that might go down with constituents easier than alternatives like “fat” taxes on soft drinks and snack foods. Earlier in March, the New Jersey State Assembly voted to allow casinos to create online poker portals in their casinos, but Gov. Chris Christie, who had not taken a previous position on the bill, vetoed it. Christie cited the bill’s language as the reason behind his veto, not outright ideological opposition to gambling, and supporters say they have hope for a second chance.

Meanwhile, California lawmakers are trying to build consensus among various parties, including the California Nations Indian Gaming Association (CNIGA) and the California Tribal Business Alliance, on a bill to allow but regulate online poker in the Golden State.

What is particularly new is cheerleading such as this coming from brick and mortar casinos, which were more antagonistic toward online gambling when these sites began emerging more than ten years ago.

But online poker boosted interest in the game with among a new generation of players, enthusiasm which spread to casinos and card rooms. Trouble is, once Congressional nannies took away American players' right to do business with legitimate foreign financial institutions, those poker rooms, often expanded and remodeled at the height of the boom, emptied out. Walk into any poker room, in Vegas or elsewhere, and you’ll see a lot of empty tables taking up space.

Statistics bear witness. In 2008, poker revenues declined for the first time in Atlantic City since 2002, according to a 2009 report from the American Gaming Association. While the recession contributed to the decline, data from Las Vegas indicates that it began before the September 2008 meltdown.

A 2008 Gaming Today study, based on Nevada Gaming Control Board revenue reports, found that Nevada poker revenues based on a percentage or "rake" of all poker pots began dramatic increases in 2003, but began a plateau in 2006, the year UIGEA was passed.

Beginning in late 2007, poker revenues have actually begun to decrease, based on month-over-month reports.

For the first four months of 2008, revenues from poker tables have declined by an average of about 7 percent per month about double the rate of overall casinos revenues decline.

If the trend continues, tables in 2008 will rake about the same amount, per table, as they did in 2003. Whether the decline is based on waning interest in poker, or like other segments of commercial gambling  it is feeling the effects of a slowing economy, it is difficult to pinpoint.

Nonetheless, poker rooms in Nevada especially the major operators in Las Vegas will most likely begin to remove tables from the floor as the number of players decreases.

"We’ve seen a steady decline in the number of players over the past few months," said the poker room manager at a Las Vegas Strip casino. "As a result, we don’t open as many tables as we did, say, a year ago."

It should be noted, however, that none of the state bills so far would immediately make it easier to play poker from your home laptop, tablet or smartphone. Most of the bills would create franchise set-ups that would be offered to licensed casinos operating in the state (just read through the California debate). The legislative push and pull is between two of the more odious tendencies of big government—covetousness for revenue streams it can’t tax and morality-based intrusiveness into the recreational choices of its citizens. The outcome may simply be greater regulatory capture and a state-sanctioned monopoly. Still, we can hope that by opening the door to limited online play will spur a gradual end to this hypocritical restriction.

Fortune-Tellers in Salem, Mass. Didn't Foresee Greater Competition from Lifting Licensing Restrictions

Posted on March 30, 2011, 6:46pm | Adam Summers

In a town known for witchcraft and the paranormal, a conflict is now ensuing over psychics in Salem, Massachusetts. Long-time practitioners are upset that the lifting of a strict limit on the number of licensed psychics in the town a few years ago has led to a flood of competitors—and diminished profits.

The city started regulating fortune-tellers in 1930. During the 1970s, a perception that there were too many fortune-tellers led the city to restrict the number of psychic readers to five, plus about 11 existing fortune-tellers who were grandfathered in. The cap was lifted in 2007, and the number of licensed fortune-teller shops grew from four in 2006 to 24 in 2010 (including roughly 90 individual licensed psychics).

But many of the fortune-tellers who practiced before the ban was lifted are not happy about the new competition. The licensing cap "blocked a lot of people from coming in from all over the country during Halloween and looking to make a quick buck," Diana McKanas, owner of the Salem Psychic Center, told the Salem News. "In my observation, these people . . . are not real psychics." Never mind that, in many people's estimations, no one is a real psychic.

A Boston Globe editorial had a more humorous take on the situation: "Some of the biggest supporters of reinstating the cap come from an unlikely source: members of the clairvoyant community themselves, who say the proliferation of new psychics is threatening their businesses. (As an aside: shouldn't they have seen this coming? Just asking.)"

Although the quirky nature of the industry gives the story an entertaining twist, it is instructive about the true nature of occupational licensing: licensing is not so much about trying to protect consumers as it is trying to protect a group of existing practitioners from competition. Numerous economic studies analyzing a wide variety of industries have shown that licensing does not tend to improve product quality, and, in many cases, even reduces product quality because less competition means less incentive for practitioners to provide higher-quality services, passing licensing exams and other requirements do not necessarily mean licensees are highly-qualified, consumers seek out black markets to try to save money, or licenses give people have a false sense of security about with whom they do business, making them less careful than they otherwise would be about ensuring a practitioner's competence. On the other hand, occupational licensing regulations do make it more difficult for new businesses entering the field, which allows the existing practitioners (who are typically grandfathered in and don't have to meet the higher standards) to charge higher prices because of the reduced competition.

Some of the fortune-tellers in Salem understand how the system works, though. Christian Day is owner of the Hex and Omen occult-based stores, a board member of the Destination Salem tourist marketing organization for the city, and is described in the Globe editorial as a "local warlock." Said Day in the Globe column, "I believe that the free market should decide whether or not there are too many psychics. If we have too many, they won't make money and they leave. It's just like anything else." In addition, if "you cap the number of licenses and keep those people with licenses protected you essentially guarantee that people with lesser talent are protected." I wouldn't want to speculate on Day's skills as a warlock, but he sure seems to understand economics.

Alas, the elimination of the fortune-teller license cap was not a total victory for free markets. When the cap was repealed in 2007 the city installed a new licensing scheme. According to the Salem News article, "The new licensing process includes a criminal background check, a check into consumer complaints, whether the business is in good standing with the secretary of state and often some light testimony in front of the Licensing Board." [Emphasis added] Testimony in front of the licensing board? Really? What do they have them do, read the board members' palms?

Asked about how Salem came up with the new regulations, city solicitor Elizabeth Rennard told the Salem News, "We found very few places (with psychic ordinances) when we were looking for a model to use here." Maybe that should have been an indication that licensing fortune-tellers is unnecessary and wasteful, but the city was not to be deterred. Not to worry, it ended up modeling its law after San Francisco's. (That figures.)

Say what you will about psychics, it seems the real scam is the onerous and pointless regulations foisted on businesses by the City of Salem.

» For a more in-depth discussion of occupational licensing issues and reform ideas, along with a ranking of the 50 states based on how many occupations for which they require licenses, see my study, Occpuational Licensing: Ranking the States and Exploring Alternatives.

Hypocritical Bureaucrats Stifle Entrepreneurship in Colorado

Posted on March 24, 2011, 9:07pm | Harris Kenny

Seven months ago the Colorado Public Utilities Commission (PUC) denied start-up firm Mile High Cab Company the right to compete in metro Denver’s taxicab market. According to David Migoya of The Denver Post:

Mile High (Cab Company) was started in 2008 by a number of immigrants from western and Southern Africa disgruntled with the city’s largest cab companies claiming they could make more money if they had their own firm. As the process wore on, Mile High Grew from 40 co-owners to 150.

A PUC administrative law judge issued an 85-page ruling (that was later sustained by the commission at-large), which denied Mile High’s request to operate 150 cabs in the metro Denver area, as reported by Vincent Carroll of The Denver Post. The judge ruled that if Mile High opened and added an additional 150 cabs to the taxicab market, the consequence “could very well result in impaired services, higher rates, and ultimately the type of destructive competition this commission is charged with protecting against.” Mile High has appealed the ruling, and a hearing is set with a Denver District Court for June.

Last week the same PUC judge approved requests by incumbent firms to operate 300 additional cabs in metro Denver. PUC’s hypocritical decision demonstrates what critics have long argued: the PUC is a state-created bureaucracy that limits consumer choice, criminalizes competition and in the end only serves to protect the interests of incumbent firms. In fact, marketing professional Edward Harvey testified in a PUC hearing that Denver has .46 cabs per 1,000 population, which is dramatically lower than comparable cities such as Boston, Philadelphia and Detroit that have as many as 3.75 per 1,000 population.

Over the years, Colorado has taken enforcing taxicab regulation to unbelievable lengths. (Special thanks to the Aspen Daily News for tracking this story.) 75-year-old Aspen-resident Phil Sullivan operates a free taxicab service, and while he does not collect fares he does accept tips. In 2008, undercover state employees conducted a sting operation where they successfully lured Sullivan into accepting a tip from them. Investigators from Colorado’s PUC pursued legal action shortly thereafter, levying a $12,100 fine against him that he refused to pay. Sullivan was unfazed by the state’s legal action and continued to offer free rides to Aspen residents. Earlier this month (nearly three years later) Sullivan was tried and convicted to a 15-day jail sentence for violating the state’s taxicab regulation. After being sentenced and led out of the courthouse, Sullivan told the Aspen Daily News that he plans on resuming his service after his release from prison.

Colorado's PUC is a bureaucracy that has gone off the deep end enforcing taxicab regulations that need to be reformed by the legislature. (The Colorado legislature has attempted—and failed—to act on this for years, for more see my recent Reason.org commentary here). The legislature’s most recent attempt, SB 11-065, passed out of the Senate Business, Labor and Technology Committee, but failed in the Senate Appropriations Committee. (For more on SB 65, see here and here.)

Its high time Colorado policymakers legalize competition in the taxicab market, because the ambiguous status quo harms both entrepreneurs and residents alike. For more on anti-entrepreneur taxicab regulation, see my colleague Sam Staley’s recent work here, here and here.

Google Deconstructed

Posted on March 11, 2011, 12:44pm | Steven Titch

I am eagerly awaiting my copy of Siva Vaidhyanathan’s new book, The Googlization of Everything (And Why Should Worry), from Amazon.com this weekend.

Vaidhyanathan, professor of media studies at the University of Virginia, brings a level of policy thinking I only wish was the mean in regulatory circles. From the first chapter of his book, and his conversation with Jerry Brito in the latest Surprisingly Free podcast (available free at the iTunes store), it’s clear that Vaidhyanathan is no libertarian. Although he says the government would be negligent if it did not at least consider creating some restraints on Google, his observations derive from a much greater understanding of the company that few in Congress, the FTC or the FCC seem to have. That doesn't make his conclusions any less debatable, but at least they elevate the discussion.

The way Vaidhyanathan lays out Google’s business may be the best aspect of his book—and certainly makes it worthwhile reading for anyone with an interest in Internet policymaking. Google’s goal, Vaidhyanathan explains, is nothing short of organizing and cataloguing the information available on the Internet, a task at which it has done phenomenally well.

Vaidhyanathan regards Google as “sui generis,” that is, in a class by itself. Despite the existence of would-be competitors such as Bing (a joint venture of Microsoft and Yahoo) and other lesser known search engines, and Google’s assertion that “competition is just a click away,” none of these competitors can duplicate the infrastructure (servers, bandwidth) advantages that Google has, infrastructure that allows it process and deliver search results as fast and accurately as it does. At the same time, though it is somewhat intangible, Google’s mindshare among users is a bankable, asset. The more people who use Google, the better it becomes at search. Switching to a competitor means a downgrade in quality and performance.

But for all of Google’s strength as a search engine, Vaidhyanathan, from the first paragraphs of his book, notes that Google’s primary business is not search, but advertising.

The primary reason anyone uses Google is to manage the torrent of information available on the World Wide Web. But as the most successful supplier of Web-based advertising, Google is now an advertising company first and foremost. Its search function is why we visit Google. Advertising is what keeps it going. However, there were search-engine companies before Google, and several competitors still do just as good a job linking people to information as Google does. And there were Web advertising companies before Google, just as there are now other firms, such as Facebook, that try to link a user's expressed interest in subjects to potential vendors of goods and services that reflect those tastes. But there has never been a company with explicit ambitions to connect individual minds with information on a global-in fact universal-scale. The scope of Google’s mission sets it apart from any company that has ever existed in any medium. This fact alone means we must take it seriously.

On the whole, Vaidhyanathan is correct. In the paragraphs that follow, he does a superb job of showing readers where Google fits in the Internet ecosystem—no easy task—and where its strengths and vulnerabilities lie.

Another thing I like is that he is as flummoxed as I am about the way Google, in large part, as succeeded in creating for itself a “good guy” image—an image that, at least until recently, has carried over into the political sphere--while other companies, just as big, especially the telephone and cable companies, are painted as “bad,” or at least more self-interested.

Vaidhyanathan cautions—again correctly—that Google, like any other publically-traded company, is accountable only to its shareowners.  But as one progresses through the first chapter of The Googlization of Everything, Vaidhyanathan strays closer and closer to arguing that Google needs to be regulated simply because it is too good at what it does. He freely admits that Google succeeded where many others failed--—Alta Vista, Lycos, Cuil, to name three. Further, he admits that Google’s success derived from its own organic ideas, strategies and approaches, not bare-knuckled abuse of power.

How has that worked out? As Vaidhyanathan himself writes:

"Through its power to determine which sites get noticed, and thus trafficked, Google has molded certain standards into the Web. Google has always tended to degrade the status of pornography sites in response to generic or confusing search terms, thus making it less likely that one will stumble on explicit images while rarely blocking access to such sites entirely. Google has ensured that the Web is a calmer, friendlier, less controversial and frightening medium-as long as one uses Google to navigate it

"Through its advertising auction program, Google favors and rewards firms that create sites that meet explicit quality standards set by Google, such as simple pages that load quickly, lack of flashy animation, and coherence in search terms that helps ensure users are not tricked into clicking on a pornography site when seeking travel advice. Google has limited access to sites that place malicious programs on users' computers. This fight against "malware" is one of the keys to keeping the Web worthy of users' trust and time. If too many sites infected users' computers with harmful software, people would gravitate away from the relatively free and open Web into restricted and protected domains, known as "walled gardens" or "gated communities," that seem less vulnerable to electronic pandemics. Google also, extremely rarely, directly censors search results when they are troublesome or politically controversial, or when the company determines that a firm or group is trying to rig the system to favor its site. When that happens, Google usually places some sort of explanation in the search results to explain and justify the policy."

To me, this sounds like the type of on-line environment that has been the goal of policymakers for the past decade. It has been the motivation behind network neutrality, COPA, COPPA, mandated content filtering and other such government initiatives that were far more intrusive and damaging to online freedom of speech and commerce. Google's a textbook example of how the market, using the principle of rational self-interest, can deliver a social good. Google’s business hinges on greater Internet use. Internet use will only increase if people are comfortable enough with the experience. So, because of Google, a search on “breast cancer” will yield a list of legitimate health and medical web sites (well beyond the first page, too), not porn links. Not perfect, perhaps, but it addresses the problem that both sides have with filtering: one, that good information would be blocked with the bad; the other, that kids would be unwittingly exposed to adult web sites.

Trouble is, in the very next paragraph, Vaidhyanathan dismisses this all as “a brilliant trick.” And here is where his arguments start to get troublesome. The very fact that Google is a commercial entity means that it can never be trusted to serve the public interest, says Vaidhyanathan. That its business activities currently track with a perceived public good can at best be seen as temporary. To Vaidhyanathan, Google is Anakin Skywalker, the powerful but conflicted Jedi Knight from the Star Wars prequels, for whom it took but a whisper from the evil emperor to fall to the dark side. 

Ultimately Vaidhyanathan begins to display the same thinking that drove network neutrality and still drives other calls for pre-emptive regulation of aggressively innovative companies like Google—that at some undetermined time--given an alignment of certain undetermined circumstances—Google could possibly end up in too powerful a position. As such, he falls behind the most disturbing shift in tech policy thinking in recent years—one that justifies sweeping regulation on a foggy scenario of potential harm rather than on the basis of actual, demonstrable harm.

To give the author some credit, he urges policymakers to go slow and calls the idea of search neutrality “absurd” (which hasn’t stopped yet another Congressional inquiry into Google’s search mechanisms). In the Surprisingly Free podcast, he talks about the idea of a “commission” that would investigate complaints about search engine policies, but only in general terms.

This is why I am looking forward to reading the rest of his book. I want to see exactly how far he goes in justifying his calls for search engine regulation and what those proposals might be. That the first chapter of The Googlization of Everything has yielded this lengthy a post speaks to the meat it offers. I hope to be back to blog more.