 Hi, I'm Aaron Powell, and today we've got a special bonus episode of Free Thoughts. I thought I'd invite fan favorite Peter Van Dorn on to talk about some of his favorite articles from the latest issue of Regulation Magazine, for which he's the editor-in-chief. If you like what you hear, you can check out regulation online by heading to kato.org slash regulation. Peter Van Dorn Their articles in regulation often talk about things that are off the radar screen. Things that are important, but nobody knows about them. This is one of those articles. Tom Lennard and Lauren Swight, two economists that have previously written in regulation for a variety of topics over the years, have written an interesting article on what to do about copyright reform for streaming services. So it turns out Spotify and things like that, business models like that, are being sued constantly by owners of songs saying that Spotify hasn't paid correctly for copyright services. And the authors write an article saying, yeah, this is interesting, and it's so complicated. It's very hard to summarize. So basically the copyright was created when we used to have pianos and sheet music, and it's been difficult to modernize, to deal with digital downloads and streaming services, just to give you a sense of the data. Streaming services now account for 60% of the music revenues, and digital downloads 20%. So 80% of the revenues in the music industry are for forms of transmission that basically didn't exist 20 years ago. Congress created a law in 1995 to actually try to deal with the first wave of digitization of music. The problem is it set up a monopoly, but it didn't recognize the economics of what was a monopoly and what wasn't. The authors in this article sort of argue that there probably is a monopoly for the digital register of all copyright owners. That is, you know, when we sell our houses or sell land, you go to the registrar of deeds at the county registrar's office. And that was very important innovation in the American political economy was a central registry of who owned land and what they owned. And then when you sold the land, you could tell what it was, and then you transferred ownership. The registrar of deeds was extremely important. So we need the same thing basically for copyright owners in a digital age. And that probably is a monopoly. But the negotiation services about between rights owners and streaming services like Spotify probably is competitive. The current law confuses the two. It sets up the Library of Congress as a non-profit governed by the Library of Congress, as the monopoly provider of both the registry services and the negotiation services. And the authors of this article argue that that's a mistake. There's a bill in Congress to modify that 1995 law, but it continues this monopoly power of the registration and confuses the negotiation services between rights owners and Spotify-like services and the registry services. And the authors conclude that the revision of this law should have public registrar of deeds in effect for the ownership of music rights, but everything else should be allowed to be competitive. The second article I'd like to talk about is completely different and very non-traditional for regulation, where a publication that basically summarizes what academics have to say about lots of different policy areas, including the minimum wage. And I published a summary of the minimum wage literature, which is back and forth and back and forth, in the fall 2015 issue. And the current issue, we have an article by an entrepreneur who runs a business that depends on minimum wage labor, and he sort of speaks from the trenches about what it's like to run a minimum wage business in California, which he says is in effect the land of regulatory hell from his point of view, to the point where he has stopped accepting business in California and now only does business in other states. There's a horror show of things, not the minimum wage is one thing, but basically it's work rules and lunch breaks and minimum, and then leave policies and things like that. And then as I'll give you a quote, he says, the business risk of running a minimum wage business is that any employee can be a ticking time bomb, i.e., he relays an anecdote in which he says one of his employees had very strong beliefs about the problem of Muslim invaders in the United States, and then thought he was well within his rights to refuse service to a Muslim church group that wanted to rent a facility owned by this entrepreneur. When he was told that that wasn't a good idea, employee had to be terminated, he said to this day that worker still doesn't understand why we had to terminate that employee. The conclusion at the article is that these ticking time bomb problems along with all the fixed costs of dealing with regulation basically have induced him to hire college graduates to do ordinary work, and the reason is that he said in politically correct universities they're socialized not to refuse service to Muslim guests, and he said whereas in a sort of more less regulated world with freedom of association and things like that, the rights of businesses to do what they want would be preserved, and certainly even if you disagree with that, if we think that public accommodation laws should serve everyone, and most of us probably would agree with that, the employer would no longer be subject to lawsuits when an employee was a ticking time bomb and did things that were different from the norms of the people that he was serving. Regulation has lots of book reviews and working paper reviews, and I think that they have as much if not more information sometimes in the articles. There is a very important book by Glenn Weill, who's a chief economist for Microsoft, and Eric Posner, who's a professor of law and economics at the University of Chicago, and the title of the book is Radical Markets. The insight they have is that the Coase theorem doesn't always work, i.e. the notion that if as long as rights are clearly defined in transaction costs are low, things in markets go to their highest use, regardless of who initially owns them. They see stickiness in lots of places, and this insight came from the FCC spectrum auctions in which traditional television stations were sort of hanging on to spectrum that was underutilized that desperately needed to be transferred to cell phone use because of obvious changes, television viewership declining, everyone's on cable, you don't need over-the-air spectrum for TV stations anyway. Can't we get this spectrum to go to cell phones? Well, lots of stickiness and what many have perceived as hoarding. And there was a economist sort of fussed on this and came up with a solution, which is instead of owning spectrum and perpetuity, you ought to state a reservation price at which you would be willing to sell the spectrum as if anyone gave you that offer and you couldn't just hang on to the spectrum you had to state a price and you had to sell the spectrum if anyone offered that price. And you had to pay payments to the insight was, well, wouldn't people just set an infinite price every year and then the sale wouldn't take place? Then the conclusion was you ought to have an annual sort of revenue tax based on your reservation price to induce you not to say infinity. The authors in this book run with this idea and say it ought to apply to all property in the United States and the federal government ought to have a wealth tax on all property based on these reservation prices. David Henderson, who's a longtime reviewer of books for regulation, writes a not very supportive critique of this book that I think everyone should read because this book is very important. It is getting lots of attention. The authors actually came to Cato recently and gave a talk on the book. And for people who don't live near Washington, couldn't get to the Cato version of this, they can read the review in regulation. Finally, I'll end with my working paper reviews. Economics is very paper based, not book based. So seven, eight years ago, I started a column where I reviewed papers rather than books and I call it working papers. If for those listeners who've been paying attention to this policy concern, there's something called the fiduciary rule that the Department of Labor issued under the Obama administration, which would have governed the advice that brokers give to retirement investors in IRA accounts. The current law says that brokers can, in effect, sell things for which they gain commission. And many consumer and investor advocates, self-styled advocates, have alleged that that conflict of interest created mischief. So that people who didn't understand much about financial markets, who trusted a broker to give them financial advice for retirement, were in fact sold mutual funds that had high fees, which in turn paid commissions to the broker. The Department of Labor under Obama issued a rule saying, you can't do that anymore. That was suspended under Trump. But also there was a lawsuit saying that the Department of Labor didn't even have the statutory authority to issue such a rule. The Court of Appeals actually issued a ruling saying the Department of Labor didn't have any authority to do that. And just this week, that was not appealed to the Supreme Court. So the appeals court ruling holds. The paper I review in this, in this, in my working papers column is highly ironic because it says, the alleged conflict of interest by brokers doesn't actually exist. And here's the data. The data come from, the researcher had access to all the accounts of clients that brokers advised. And it had access to the broker's own personal accounts. So if the conflict of interest story was true, the brokers would have highly diversified accounts in index funds that are low fees and the clients would have high cost funds that had commissions. What this paper found is exactly the opposite, that the brokers gave their clients actually rather good advice and the clients had diversified investments that were rather low cost. The broker's own funds showed hubris, which is they believe they could beat the market with their own advice. And they were invested their own funds in higher cost funds that actually underperformed the market. And so the brokers would have been better off if they had invested the way they had advised their own clients. And so the irony of this paper was that the whole fuss over the fiduciary rule and the alleged conflict of interest has no factual basis because it never really existed. Thank you, Peter. Free thoughts, listeners. If you'd like to read any of these or other articles in regulation, visit kato.org slash regulation.