stickyfuneralpricesand rigidregulationsin thecovid-19crisis · summer 2020 / regulation / 3 help,...

2 / Regulation / SUMMER 2020

B R I E F LY N O T E D

medical examiner posted online that anybodies left unclaimed for two weeks wouldbe buried on Hart Island, New York City’spotter’s field.

Early on, Brooklynites were calling AmyCunningham, owner of Fitting TributeFuneral Services, to ask about prices.Soon, they were only asking whether shewould handle their case. Desperate tofind help, some Brooklynites called JohnQuevedo, a funeral director in Yonkers, inthe city’s northern suburbs. As he talkedto them, he often wondered how many

funeral homes had turned them down,forcing them to look outside the city.Given that there are 256 funeral homesin New York City, there must have been alot of fruitless phone calls.

The shortage of funeral directors wasn’tsurprising. The number of deaths in NewYork City during the COVID-19 spike wassix times higher than normal. What’s more,the spike increased the cost of providingdirect cremations. Funeral directors tellharrowing stories of retrieving COVID-19victims’ bodies from cluttered apartmentsand disorganized hospital trailers. Soon,funeral directors were turning to outside

Sticky Funeral Prices andRigid Regulations inthe COVID-19 Crisis✒ BY DAVID E. HARRINGTON

Thousands of Brooklynites have lost their lives to COVID-19. Lastspring, at the height of the tragedy in New York City, relativesof the deceased were frantically scrambling to find a funeral

director to handle arrangements for their loved one. Time was tick-ing. Hospitals wanted bodies collected as soon as possible. The city’s

DAVID E. HARR INGTON is the Himmelright Professorin Economics at Kenyon College.

A funeral home worker backs up a hearse to a makeshift morgue trailer outside of WyckoffHeights Medical Center in Brooklyn.

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For the Record

Getting Around theTrump Guidance EOs

In their Spring 2020 article “RegulatoryAgencies Get Guidance on ‘Guidance,’”JohnCohrssenandHenryMillerdiscuss

two Trump administration executive orders(EOs) intended to prevent the impositionof new requirements by agency “guidance”documents. The authors rightly mentionreasons for skepticism that the EOs willsolve the problem.

I would add another reason: So longas courts defer to merely “reasonable”agency interpretations under Chevron (asto statutes) and Auer (as to regulations),the EOs will not solve the problem. Theirchief effect will be to drive interpretationsunderground. Instead of jumping throughthe EOs’ hoops, agencies will bring prose-cutions based on interpretations that firstappear in court briefs. And because EOsare not enforceable in court, judges willcontinue to defer under Chevron and Auer.

The EOs also lack teeth. For example,one bars agencies from treating a violationof a standard of conduct “announced solelyin a guidance document as itself a violationof applicable statutes or regulations.” Butno agency will ever think that its guidancedocument violates that prohibition. All willindulge themselves in the thought that theannounced standard of conduct was alwaysto be found somewhere in the statute orregulationbeinginterpreted.That is,afterall,whatagencieshavebeendoing all along.Thesource of the problem is judicial deference.

The Trump administration lost anopportunity to fix the problem at its sourceduring the recent Kisor litigation in whichthe Supreme Court considered and by onevote rejected an argument that Auer shouldbe overruled. The solicitor general shouldinstead have been instructed to acquiescein the argument that Auer (and implicitlyChevron) should be overruled. That mighthave turned the tide.

Arthur G. SapperOgletree DeakinsWashington, DC

SUMMER 2020 / Regulation / 3

help, paying twice the normal rate to have“trade guys” pick up bodies. Everyone wasdealing with dwindling supplies of PPEs.And once they had the bodies, they still hadto figure out how to get them cremated.Queues at local crematories forced themto either travel to available retorts far awayor store corpses in refrigerators (or air-con-ditioned chapels) for longer than normal.

A new price equilibrium? / As an econo-mist, I asked Cunningham whether shehad increased her prices to respond tothe surge. She said she hadn’t and knewof no one who had. Nor had she heardof anyone “upselling” grieving familiesinto buying more expensive options thatprovide larger margins. I asked her whyshe hadn’t raised prices and she said shewasn’t sure she could do so legally. Shequickly added that she hadn’t given theissue much thought because she was toobusy waiting in line at the medical exam-iner’s offices, retrieving bodies, driving tocrematories, and answering phone calls.

I looked into whether funeral directorscould legally raise their prices. A lawyerwho represents companies in the industrytold me they could do so if they updatedtheir “General Price List” (GPL), requiredby the Federal Trade Commission. Theywould have to honor the earlier prices foranyone who mentioned seeing or hearingthem, but for new customers they couldcharge higher prices.

Though the FTC wouldn’t pose aproblem for funeral directors, New YorkCity’s Department of Consumer andWorker Protection might. On March 16,the agency made “price gouging illegal forany personal or household good or anyservice that is needed to prevent or limitthe spread of or treat the new coronavirus(COVID-19).” It takes some parsing, butthis stricture seems to apply to funeral ser-vices because the licensing laws are oftenjustified as protecting the public healthby ensuring that only trained individu-als handle bodies containing infectiousdisease. I emailed the department’s presssecretary to ask how many price-gougingcomplaints had been filed against funeral

homes during the crisis. She replied thatseven had been received and her agencywas investigating.

If New York’s anti-price-gouging lawdoes apply to funeral homes, it would givethem some leeway: it does permit increasesof 10%. The typical Brooklyn funeral homecharges $1,878 for a direct cremation,according to Funeralocity.com. An extra$187.80 would barely cover the increasedcost of retrieving bodies and would fall farshort of what some funeral homes havebeen paying for refrigeration and travel tofaraway crematories.

It might seem sensible to impose a priceceiling in the Brooklyn cremation market.Supply is highly inelastic (as is demand,usually), so without an intervention priceswould soar without doing much to alle-viate the shortage. Even with sky-highprices, would-be funeral directors can’tquickly enter the stringently regulatedfuneral trade. And few families will choosean option other than cremation even asprices rise. Thus, it seems natural to sup-pose that higher prices wouldn’t changethe supply of cremations but would onlyaffect how much families pay and funeraldirectors receive.

But elasticities are not written in stone.With the stroke of his pen, New York Gov.Andrew Cuomo increased the elasticityof supply by signing an executive orderallowing out-of-state funeral directors toassist New York funeral directors. He couldhave done more: notice the use of the word“assist” instead of “replace.” The limitedeffort likely was necessary to win the sup-port of the New York Funeral DirectorsAssociation—and that’s why I’m skepticalthe order would have done much to allevi-ate the shortage at the height of the surge.

Barriers to entry / New York’s funeral reg-ulations—and those of many other U.S.states—create barriers to entry that areworsening shortages in the COVID-19crisis. For instance, only funeral direc-tors licensed by the State of New Yorkcan legally remove bodies from hospitalmorgues and medical examiners’ offices.Thus, Brooklynites can get help from a

funeral director like Quevedo in Yonkers,but not from a funeral director rightacross the bay in New Jersey.

Across the country, funeral regulationscan be reformed in ways that make thesupply of cremation services more elas-tic without eroding public safety. A goodstart would be to eliminate laws thatreflect the needs of bygone eras. In recentyears, most bodies have been cremated:for example, in 2012 in Florida, 63% ofbodies were cremated, 33% were buried,3% were entombed, and roughly 0.7% weredonated to medical schools. The rate ofembalming has fallen along with the burialrate; COVID-19 will accelerate the descent.Despite this market shift, funeral directorsin New York and many other states arerequired to know how to embalm a bodyand funeral homes must have an embalm-ing preparation room. These laws haveensured the funeral industry has excesscapacity—but of the wrong type to handlethe current pandemic.

Brooklynites can also thank regulationsfor the long queues at local crematories.New York requires that crematories be innonprofit cemeteries. Similar-sized stateswithout this restriction have far more cre-matories: compare New York’s 49 to Flor-ida’s 206 and Texas’ 186, based on 2019data from the Cremation Association ofNorth American.

You’ve got to do something with deadbodies. Today, the only important substi-tute to cremation is burial. When Cun-ningham couldn’t handle any more cre-mation cases, she started advising callers tothink about simple burials. They’re moreexpensive, but they can be done quickly.Together with the option of Hart Island,simple burials are what give the demandfor cremations its elasticity.

Reform / Some funeral directors say theywant to charge lower prices to familiesthat would struggle to pay the list price orhave lost multiple members to COVID-19.But offering such discounts would violatethe FTC’s one-price-fits-all Funeral Rule.The FTC should relax this prohibitionduring the pandemic.



The Politicization ofDisaster ReliefBY STEVEN HORWITZ AND E. FRANK STEPHENSON

A s the COVID-19 crisis was exploding in late March 2020, Michi-gan Gov.GretchenWhitmerclaimedthatmedicalsupply“vendorsare being told [by the federal government] not to send stuff here

to Michigan.” She asserted that her state had “been uniquely singled out”because of her criticizing President Trump’s response to the pandemic.

he points to the high variability of Dem-ocratic voting in western states as a keyfactor in the generous level of aid directedto those states. The implication is that theRoosevelt administration steered aid tostates where it would be of most use ingetting the president reelected. By contrast,the South had a strong tendency to voteDemocratic so there was less need to steeraid to those states.

Wright was not the only one to makethis observation. Robert Fleck revisited thecross-state allocation of aid and concludedthat “electoral variables do matter [in theallocation of New Deal spending] andtheir influence is substantial.” Disaster aidcan be understood as a way to buy votesin states where the marginal voter mattersfor electoral success. Politicians are smartenough not to waste the opportunity touse disaster aid this way.

Gary Anderson and Robert Tollison alsoanalyzed New Deal–era spending with aneye on congressional influences such asbudget allocations and oversight. Theyestimated several models that includedboth measures of economic hardship andpolitical influence in each state. They foundthat “spending went partly to the needyand partly to those with political clout.” Inparticular, their results showed that stateswith lawmakers on congressional appropri-ations committees received larger amountsof spending.

Jim Couch, Keith Atkinson, and WilliamWells tookamoregranular lookatNewDealaid, focusing on the allocation of agricul-turalaid inAlabama.Theydocumentedthataveragespendingper farmeracrossAlabama

STEVEN HORWITZ is Distinguished Professor of FreeEnterprise at Ball State University. E. Frank Stephensonis the Henry Gund Professor of Economics at BerryCollege and a visiting scholar in the Center for the Studyof Free Enterprise at Western Carolina University.

We don’t know if her allegation is cor-rect. However, a recent study does suggestthat states that supported Donald Trumpin the 2016 election appear to have receivedsmall-business loans as a percentage of eli-gible payroll that were much larger than thecoastal states that he lost. Rural Midwest-ern states like the Dakotas and Nebraskagot funds that covered 70% or more of theireligible payroll. The comparable numbersfor New York and California were 40% and38% respectively, or about half of what theTrump-supporting states got.

For many, such favoritism is seen asa unique feature of the Trump admin-istration. However, the politicization ofresource allocation in a crisis is nothingnew. Here we provide a brief overview ofresearch finding that political consid-erations influence the allocation of aidduring crises.

The New Deal / Economic historian GavinWright examined the disparate distribu-tion of loans and relief during the NewDeal era with an eye to explaining the gen-erous aid directed to western states andthe paucity of aid flowing to the South.Wright used simple cross-state regressionmodels to compare the influence of eco-nomic variables (e.g., unemployment) andpolitical variables on both the allocation ofspending and work relief jobs across states.His results suggest that political factorscontributed to the pattern of relief and

The Funeral Rule is currently up forreview and the FTC is accepting comments.Here’s my recommendation: First, the lawshould be defanged a bit, so that funeraldirectors are comfortable raising prices inresponse to unanticipated shocks. Thatsaid, the FTC should continue to requiredeath-care firms to provide price informa-tion. I would mandate that General PriceLists be posted on funeral home websitesand extend that requirement to cemeteries.Without the Funeral Rule, consumers couldnot be assured of easy access to prices overthe phone or on consumer websites likeFuneralocity.com and Parting.com. Withouttransparency, funeral homes might have lesspressure to keep prices competitive.

Like ventilators, markets might under-provide mortuary refrigerators and cre-mation retorts during pandemics. WhatBrooklyn funeral home would want toinvest in refrigeration capacity just incase the pandemic drags on? What Mid-dle-America crematory would want toinvest in retorts in case its city becomesthe next epicenter of the disease? But manyconsumers would benefit from such invest-ment if faced with the loss of a relativeduring this pandemic. Instead of encour-aging the acquisition of refrigerationcapacity or the creation of crematories,public policies are discouraging them bymaking funeral providers reluctant to passon their costs to consumers.

Conclusion / During the spring wave ofCOVID-19 deaths, Brooklynites facedshortages of funeral directors, mortuaryrefrigerators, and cremation retorts. But ifCunningham’s experience is broadly cor-rect that funeral directors did not increasetheir prices, how was the disequilibriumin supply and demand handled?

Another funeral director was quotedas saying that he no longer accepted cre-mation cases unless they were requestsfrom families he had served before. I don’tknow about you, but I’m thinking aboutbuying an expensive cremation urn atwhat looks like a well-equipped funeralhome—but I’d rather leave my fate to aless regulated market. R


counties ranged from $16 to $90 and foundthat aid per farmer was positively correlatedwith Roosevelt’s vote share, the vote share ofpro–New Deal Gov. Bibb Graves, and beingrepresented on the agriculture committee inthe Alabama legislature.

Disaster declarations / In recent decades,the federal government has assumed a big-ger role in responding to natural disas-ters, largely through the Federal Emer-gency Management Agency. As explainedby Thomas Garrett and Russell Sobel,political influence can affect FEMA aidthrough both presidential disaster dec-larations and relief spending authorizedby Congress. To analyze those potentialinfluences, Garrett and Sobel examinedFEMA disaster spending across all 50

states for the period 1991–1999. Whileacknowledging that some disaster spend-ing in the 1990s was clearly tied to eventssuch as 1992’s Hurricane Andrew, 1993’sMississippi River flooding, and 1994’sNorthridge, CA earthquake, Garrett andSobel found that disaster declarationsincreased in election years (with a largerincrease in 1996 than 1992), that disas-ter declarations were more frequent inelectorally important (swing) states, andthat states with greater representation onsubcommittees overseeing FEMA receivedhigher disaster relief allotments. Takingthe increases in disaster declarations andFEMA spending together, they concludedthat “nearly half of all FEMA disasterrelief is explained by political influencerather than actual need.”

Andrew Reeves also looked at presiden-tial disaster declarations. Examining theperiod 1981–2004, he found that declara-tions increased in election years and thatelectorally competitive states received more

disaster declarations than uncompetitivestates. Reeves also looked into the effectof declarations on voter behavior and con-cluded that each additional declarationled to a one percentage point bump invote share.

The federal government also makes agri-cultural disaster payments to areas experi-encing crop failures because of droughts,floods, or other conditions. Garrett,Thomas Marsh, and Maria Marshall ana-lyzed agricultural disaster payments madewithin the 48 contiguous states between1992 and 1999. After controlling for factorssuch as precipitation changes that mightlead to floods or droughts, they found thatstates represented on relevant subcommit-tees of the House and Senate Agriculturecommittees as well as the House subcom-

mittee overseeing agri-cultural appropriationsreceived higher levelsof agricultural disasterrelief. The authors thenused their estimationresults to calculate thatas much as 30% of agri-cultural disaster relief

payments were allocated based on politicalinfluence rather than crop losses.

The analysis most pertinent to the cur-rent COVID disaster is Matt Ryan’s studyof H1N1 vaccine allocations. The H1N1(swine flu) virus spread across the UnitedStates in early 2009, but fortunately a vac-cine for it was developed by late summer.The first doses were available in October2009, but initially were in limited supply.Vaccines were distributed by the Depart-ment of Health and Human Services, andthe House Committee on Energy andCommerce has oversight authority overHHS. Ryan’s results indicate that statesreceived an additional 60,000 doses ofvaccine for each additional Democraticmember (the majority party in 2009)the state had on the House Energy andCommerce Committee. No such influ-ence was found for states represented onthe Senate Committee on Health, Educa-tion, Labor, and Pensions, which also hasoversight over HHS.

Conclusion / To reiterate, we don’t knowfor certain whether Michigan or any otherstate has been shortchanged in the cur-rent crisis because of political favoritism.However, past findings about electorallyimportant states suggest that, if anything,Michigan is likely to be treated well; it isexpected to be an important swing statein the 2020 presidential election. However,unlike his predecessors, Trump may bemore likely to let his feelings of personaloffense override his political self-interest,so Michigan may indeed get shortchangedas a result of Whitmer’s criticisms of theTrump administration.

Existing research repeatedly shows thatpolitical factors influence resource allo-cation in disasters, so it should come asno surprise if it is ultimately determinedthat politics affected the response to theCOVID-19 crisis. These outcomes are notthe product of particular personalities orpartisan affiliations, but of the incentivescreated by the institutional structure ofpolitics. Politicized disaster relief is noth-ing more than politics as usual.

READINGS

Ù “Allocating Infection: The Political Economy of theSwine Flu (H1N1) Vaccine,” by Matt E. Ryan. EconomicInquiry 52(1): 138–154 (2014).

Ù “Congressional Influence and Patterns of NewDeal Spending, 1933–1939,” by Gary M. Andersonand Robert D. Tollison. Journal of Law and Economics34(1): 161–175 (1991).

Ù “Inter-Party Competition, Intra-Party Competition,and Distributive Policy: A Model and Test Using NewDeal Data,” by Robert K. Fleck. Public Choice 108(1–2):77–100 (2001).

Ù “New Deal Agricultural Appropriations: A PoliticalInfluence,” by Jim F. Couch, Keith E. Atkinson, andWilliam H. Wells. Eastern Economic Journal 24(2):137–148 (1998).

Ù “Political Allocation of U.S. Agriculture DisasterPayments in the 1990s,” by Thomas A. Garrett,Thomas L. Marsh, and Maria I. Marshall. InternationalReview of Law and Economics 26(2): 143–161 (2006).

Ù “Political Disaster: Unilateral Powers, Electoral Incen-tives, and Presidential Disaster Declarations,” by AndrewReeves. Journal of Politics 73(4): 1142–1151 (2011).

Ù “The Political Economy of FEMA Disaster Pay-ments,” by Thomas A. Garrett and Russell S. Sobel.Economic Inquiry 41(3): 496–509 (2003).

Ù “The Political Economy of New Deal Spending:An Econometric Analysis,” by Gavin Wright. Review ofEconomics and Statistics 56(1): 30–38 (1974).

Unlike his predecessors, Trump may bemore likely to let his feelings of personaloffense override his political self interest,so Michigan may get short-changed.

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How A Badly DraftedSunshine Act Hobblesa Federal Agency✒ BY ARTHUR G. SAPPER

Sunshine acts require meetings of multimember government agen-cies to beopentothepublic.ThesestatutesaresaidtoembodyJus-tice Louis Brandeis’s declaration that “sunlight … is the best dis-

infectant.” But as Iowa law professor Arthur Bonfield has noted, “Toomuch sunshine causes sunburn.” An example of this is the hobblingeffect that the federal Sunshine Act hashad on the Occupational Safety andHealth Review Commission (OSHRC).

The OSHRC was established in 1971as an adjudicative agency to resolve dis-putes over citations issued by the Occupa-tional Safety and Health Administration.The commission is not part of the LaborDepartment and is wholly independent ofit. The OSHRC has three members, eachappointed to staggered six-years terms bythe president and subject to confirmationby the Senate. It assigns administrativelaw judges to hear cases and, much likethe certiorari procedure used by the U.S.Supreme Court, reviews their decisions ona discretionary basis.

Like any multimember adjudicativebody, indeed like any appellate court, theOSHRC’s core functions have a meet-ing stage and an opinion-writing stage.During the latter stage, drafts of opinionsare circulated and discussed, issues thatpreviously did not loom large are morefully ventilated, and ways of writing theopinion so as to gather a majority or avoiddissents are explored. Broad holdings maybe narrowed, statements may be qualified,reservations may be noted, and rationalesmay be sharpened or removed and oth-ers substituted. Even votes may change;dissents may become lead opinions andvice versa.

Pushing out commissioners / The SunshineAct requires that each meeting of a quorumof members of a multimember agency beannounced to the public in advance andthat the public be permitted to attend.Agencies may vote to close meetings atwhich adjudication is to be performed,however, and the OSHRC does so as amatter of course. The problem is that theterm “meeting” is so defined that eachcase-related visit, telephone call, and emailbetween two commissioners triggers thoserequirements. As a 2013 study commis-sioned by the Administrative Conference ofthe United States (ACUS) found:

Should [agency members] wish todiscuss the wording of … an opinion, aswould an appellate court, the membershave to notice, and vote to close, another“meeting.” … Obviously, this ineffi-ciency is heightened in the case of … theOSHRC[,] where no two members canever discuss agency business in privatebecause they would constitute a quorum.

I was a staff attorney and the deputygeneral counsel of the OSHRC. As such,I often assisted in its deliberations, bothbefore and after the Sunshine Act waspassed in 1976. The result of the legisla-tion on post-meeting deliberations was topush commissioners to the periphery. Nolonger could a commissioner visit or callanother to discuss a case or draft opinion.Instead, staff counsels would be sent to doso. A former commissioner told me thatthe Sunshine Act thus erects an “obstacle”

to deliberations and a current OSHRCemployee believes that it “hamstrings alot of agency operations and makes thingsdifficult.” ACUS as far back as 1984 foundthat, because of the Sunshine Act, “thedegree of collegiality in the multi-memberagencies has diminished.”

But the effect is worse than that. Theact undermines the very reason for havingcommissioners. To quote the OccupationalSafety and Health Act, it is “the training,education, or experience” of the commis-sioners—not their staff—that justifies theirnomination by the president and confir-mation by the Senate. It is their namesthat appear on OSHRC decisions. It is theywho must answer to the president for theconduct of their office. It is therefore they—not staff—who should be most directlyinvolved in the post-meeting deliberativeprocess, not pushed to the margins.

Journalist pushback / There is an easy fixfor this problem. The 2013 ACUS-commis-sioned report recommended that the Sun-shine Act be amended “to make clear thatwhen an agency properly closes a meeting[as adjudicative], any subsequent meeting todiscuss the same matter need not be subjectto the notice and closure procedures underthe Act.” But no such amendment has beenmade. It seems that pressure from one inter-est group is responsible for this: journalists.ACUS in 1997 noted that “representativesof several major press-related organiza-tions” did not dispute that “agency mem-bers are generally reluctant to have substan-tive discussions in public meetings.” Therepresentatives argued, however, that “suchpublic officials should change their behav-ior and admonished them to do so.”

Arguing that human nature shouldchange is an argument for paralysis, andso it has proved. Appellate judges deal withcomplex legal issues and with sensitive fac-tual questions. They decide who should bepublicly announced to have violated thelaw and penalized. Their decisions can setprecedents for the entire nation. To ensurecare is taken, they naturally feel a need forprivacy so that they can speak freely. And sothe law allows them to do so during agency

ARTHUR G. SAPPER practices regulatory law atOgletree Deakins in Washington, DC. He is the formerdeputy general counsel of the Occupational Safetyand Health Review Commission and a former adjunctprofessor of occupational safety law at GeorgetownUniversity Law Center.


increase of more than 50% (or more than64¢ on a basic N-95 mask selling for $1.27in early February) is deemed “uncon-sciously excessive” under the law and order.The penalty for “each instance in which anitem is sold or offered for sale” with a priceincrease above 10% constitutes a “viola-tion” subject to a fine of up to $10,000 and/or a year in jail, which suggests that thepenalty can multiply with multiple sales.(There is no specified additional penalty for“unconsciously excessive” price gouging.)

Newsom seeks “fair” pricing by pre-venting sellers from “profiteering” on thesudden COVID-19-related jump in market

demand for protective equipment. But,although his order can prevent profiteer-ing, its rigid enforcement will limit theavailability and distributionof critical supplies, therebyincreasing the spread of thevirus and causing more deaths.

Members of the governor’sand President Trump’s virustask forces have argued vocif-erously that personal protec-tive equipment is essential tomitigating the virus’s spread,especially among frontlinehealth care workers. Gover-nors across the country haveboosted demand by encourag-ing or ordering people to wearmasks, with dire warnings of

How California’s Price-Gouging Order CanCause More Deaths✒ BY RICHARD B. MCKENZIE

In response to the COVID-19 emergency, California Gov. GavinNewsom issued orders employing the state’s anti-price-gouging lawto prohibit businesses from raising prices on medical and personal

protective equipment—face masks, for example—by more than 10%(plus documented cost increases) above their February 4 prices. A price

greater deaths if they do not.Economists have long argued that

price controls during normal times, to saynothing of emergencies, can be expected toincite hoarding by individuals, businesses,and governments, leaving store shelvesbare. We are already seeing this in the cur-rent emergency and it is hardly a “fair”distributional outcome. Millions of masks(and bottles of hand sanitizer) are goingunused in people’s stockpiles, unavailableto health care workers and others who mayneed them.

Economists also have argued that sud-den market scarcities can be alleviated withprice increases that induce buyers to curbpurchases and—maybe more importantly—induce suppliers (new and old) to increaseproduction.

Under normal market conditions,lowest-cost producers can be expected todominate sales, leaving many higher-costproducers on the market sidelines becausethey can’t compete on price and cover costs.With price increases capped at no morethan 10%, any increase in mask productionwill be limited to entrants with just slightlyhigher costs. However, with higher prices,production would be expected to expandmore because the higher production costsof more entrants would be covered.

The only unknown issue is exactly howmuch equipment output would expand atever-higher prices. In the immediate term,the increase might be slight to none. Timeis required for existing firms to expand

R ICHARD B. MCKENZIE is an economics professoremeritus in the Merage School of Business at theUniversity of California, Irvine. His latest book is ABrain-Focused Foundation for Economic Science (PalgraveMacmillan, 2018).

meetings, with little if any complaint fromthe press. Admonishing them to feel differ-ently about their need for privacy duringpost-meeting discussions is as vain asdemanding that they hold back the wind.

But in the arena of public policy, jour-nalists speak with a megaphone. Inasmuchas they apparently fear any re-opening ofthe statute, the Sunshine Act has neverbeen substantively amended, not evento adopt the 2013 recommendation toexempt post-meeting adjudicative dis-cussions. That a single interest group canblock such a sensible and narrow amend-ment for such a weak reason shows yetagain the wisdom of Congress in inserting

sunset provisions into laws. Our govern-ment is now too complex for Congress totrust that it has drafted a law that wouldapply well in every detail. As the OSHRC’sexperience under the Sunshine Act shows,errors in foresight—in drafting—are inevi-table. If a statute were given an expirationdate, the dynamic opposing change wouldbe reversed and, when the statute comes upfor extension, refining amendments couldnot be blocked easily. Interest groups whofavor extension would have an incentive tocompromise and settle on a refined statutethat all could support. They would not beso bold as to demand that human naturebe bent to their wishes.

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Will Free Markets Rise toMeet the EnvironmentalRegulation Challenge?BY BRUCE YANDLE

A t a time when climate change is still seen by many as the mostserious long-term threat facing humanity (even as the COVID-19 pandemic is foremost on our minds), leaders of the corpo-

rate and financial worlds are looking for ways to make their activitiesmore “green.” Automakers are scrambling to shift production to

BRUCE YANDLE is senior fellow emeritus with theProperty and Environment Research Center, a dis-tinguished adjunct fellow with the Mercatus Center,and professor emeritus at Clemson University. He wasexecutive director of the Federal Trade Commission.

all-electric vehicles and industrialists arelooking for ways to reduce their corpo-rate carbon footprints. So it’s no wonderthat managers of mutual funds and bondportfolios are offering more sustainableequity and “green” bond funds. Sustain-ability-linked loans in the developingworld are increasing rapidly.

If these trends continue and the fundmanagers are successful, we may somedaylook back at how free-market forces deliv-ered improved worldwide environmentalquality while multi-country environmentalregulation seemed impossible to imple-ment. We’ve gotten pretty good at doingthings at the national, state, and local lev-els, but so far we haven’t found any viablesolutions to the combined global effectsof individual nations’ environmental use.

Consider BlackRock, the world’s larg-

est fund manager, with some $7 trillionin various holdings. BlackRock recentlyannounced that it will impose much stricterenvironmental and social standards on cor-porations whose shares it might considerowning. It’s also vacating investments infirms that produce coal or have large carbonfootprints and expanding holdings in firmscommitted to fighting climate change andincreasing diversity.

Along somewhat similar lines, the WallStreet Journal reports that sales of “greenbonds,” which are sold to investors tofund renewable energy facilities and masstransit, rose by more than 20% last year.They are in such demand that investorsare scrambling to buy them. In an effort toexpand this market, the trading platformMarketAxess promised to plant five treesfor every $1 million in these bonds traded.Based on last year’s $57 billion, that wouldyield more than 250,000 new trees.

As this unfolds, there is growing con-cern regarding the soft regulatory power

being exerted by the nonprofit Sustain-ability Accounting Standards Board, whichseeks to influence how corporations reportsocial goal progress. Also, the Securitiesand Exchange Commission is raising ques-tions about what qualifies an investmentfund to be called “environmentally supe-rior.” Then there is the perennial criticismof corporate social responsibility: thatcorporations should simply stick to theirknitting and maximize shareholder value.Presumably, each day a firm’s managementspends worrying about planting trees isone fewer day focused on improving prod-ucts and cutting costs.

These are valid concerns. However, eachone underestimates the ability of marketforces to deliver what buyers will pay forand rush to bankruptcy those producerswho do not. Historically, these sorts of con-cerns have been sorted out through a com-bination of give-and-take in markets andthe evolution of rating services that informinvestors. Committing to what consumersand investors care about doesn’t necessar-ily yield lower returns than does a narrowfocus on products, service, and costs.

After all, if investors are truly willing topay more for greener investments, the costof capital will fall for the firms they favor,causing an expansion of, say, a populartree-planting program or investment inthe developing world. If buyers will paymore for green bonds, the cost of debt willfall for cities and states seeking to replaceolder infrastructure with cleaner technol-ogies. And if these things begin to occursystematically, then we may one day seethis market-driven environmental move-ment bear significant fruit.

This isn’t the time for more SEC reg-ulation of green investments. Rather, it’sa time for independent rating organiza-tions such as Moody, Fitch, and Standard& Poor to rise to the challenge and helpverify promised outcomes, environmentaland otherwise.

What we may be observing, finally, is anew day when free markets deliver cherishedenvironmental outcomes that are provingto be exceedingly difficult for governmentsto achieve alone.

production and new (domestic and for-eign) firms to enter the market, whichmeans that production can be expectedto increase with the timeframe.

The important takeaway: With unfet-tered market prices, more protective equip-ment will be available than otherwise,resulting in fewer infections and deaths.This means that the stringency of lockdownand social-distancing rules can be relaxed,which can lead to lower job and income

losses. Conversely, using price-gouging con-trols to achieve so-called “fair” prices willgive rise to more infections and more deathsthan would otherwise be experienced, tem-pering the effectiveness of the governor’smitigation policies.

READINGS

Ù “The Problem with Price Gouging Laws,” by MichaelGiberson. Regulation 34(1): 48–53 (Spring 2011).

Ù “The Two Moralities of Outlawing Price Gouging,”by Dwight R. Lee. Regulation 37(1): 28–31 (Spring 2014).

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www.IJ.org Institute for JusticeNational Law Firm for Liberty

Tyson TimbsMarion, IN

I pleaded guilty to a nonviolent drug offense and served my sentence, including house arrest and $1,200 in fees.

But Indiana police teamed up with private lawyers to take my truck as well—a fine many timesharsher than my actual sentence.

I went to the Supreme Court to make sure the Constitution protects allAmericans from excessive fines and forfeitures.

And I won.

I am IJ.

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