CPSIA – What Exactly Happened at the July 20th CPSC Commission Meeting?

What happened on July 20th at the CPSC Commission hearing?  I wish I knew. We must rely on a BNA article and gossip from those who were present or happened to be wasting their morning watching the spectacle live online.  Apparently Inez Tenenbaum made some blanket statements rejecting the President’s Executive Order of July 11 relating to cost-benefit analysis of provisions of the CPSIA.  Of course, how would I know what she said?  The video at the Sunshine State of the CPSC is not available to me.  Two days later . . . .  Hmmm.  Do you think they are waiting for me to forget about it??? While I cannot tell you exactly what Ms. Tenenbaum said during the meeting (yet), I do know a couple things.  First, BNA in an article entitled “CPSIA: Discord Between CPSC Commissioners Comes to Head but Fails to Halt Productivity” dated July 20 quoted Ms. T as follows:  “And in a July 20 public meeting on the agency’s priorities for 2013, Tenenbaum felt the need to say to Northup and other critics of the commission that the rules under the CPSIA are exempt from cost/benefit analyses, and therefore the agency is not required do them. ‘ To have this fiction that we are required to do cost/benefit analysis under CPSIA cannot go unaddressed. ‘  She said CPSC has committed to conducting a retrospective review of its regulations, per Obama’s Executive Order, and ‘we will begin our retrospective review and we will solicit comment.’”  [Emphasis added] Fiction, eh?  Ms. T also made the same point in her statement on the newly adopted 100 ppm lead standard : “Despite our clear and strict statutory instructions on this issue, some of my colleagues have raised a concern that the Commission’s actions run contrary to an Executive Order issued by President Barack Obama on July 11, 2011. Their position is not correct. In that Order, the President has asked independent agencies, to the extent permitted by law, to make decisions only after taking into account several considerations, but also to remain true to their statutory mandates. I am confident that the Commission has met and exceeded its mandate under the CPSIA. As such, the decision reached by the Commission today is consistent with the President’s Executive Order, because we have followed the law as mandated in the CPSIA, and as clearly intended by its Congressional authors .”  [Emphasis added] Ms. T seems to be saying that the agency was not permitted to follow the Executive Order because this setting of standards is not a “regulation” but is instead a “statutory mandate”.  There is no such thing as a “mandate” in this context from a legal point of view.  See the definition of ” mandate “.  Essentially, what the regulators are referring to as a “mandate” is the directive by Congress to take certain steps and exercise judgment coupled with a public inquiry process, meaning that it must be a well-informed process taking into account the feedback of interested stakeholders.  [It's okay, let it out.  I just doubled over in laughter myself.] What DID Congress tell the CPSC to do about 100 ppm in the CPSIA?  The law instructs the CPSC as follows: Section 101(a)(2)(C):  “100 PARTS PER MILLION.—Except as provided in subparagraphs (D) and (E), beginning on the date that is 3 years after the date of enactment of this Act, subparagraph (B) shall be applied by substituting ‘100 parts per million’ for ‘300 parts per million’ unless the Commission determines that a limit of 100 parts per million is not technologically feasible for a product or product category. The Commission may make such a determination only after notice and a hearing and after analyzing the public health protections associated with substantially reducing lead in children’s products .” Section 101(a)(2)(D):  “ALTERNATE REDUCTION OF LIMIT.— If the Commission determines under subparagraph (C) that the 100 parts per million limit is not technologically feasible for a product or product category, the Commission shall, by regulation, establish an amount that is the lowest amount of lead, lower than 300 parts per million, the Commission determines to be technologically feasible to achieve for that product or product category. The amount of lead established by the Commission under the preceding sentence shall be substituted for the 300 parts per million limit under subparagraph (B) beginning on the date that is 3 years after the date of enactment of this Act.” Section 101(e):  “PENDING RULEMAKING PROCEEDINGS TO HAVE NO EFFECT— The pendency of a rulemaking proceeding to consider— (1) a delay in the effective date of a limit or an alternate limit under this section related to technological feasibility . . . shall not delay the effect of any provision or limit under this section nor shall it stay general enforcement of the requirements of this section .” [Emphasis added]  Section 101(e) refers to the process that just concluded as a “rulemaking proceeding”.  I don’t know how you feel about this, but this section of the CPSIA sure sounds like an instruction to administer a rulemaking proceeding to me.  This is not a direction to reach a particular conclusion – if it is a “mandate” at all, it is a “mandate” to go through a classic regulatory process.  Read the instructions yourself, it’s right there. President Obama’s Executive Order reads as follows (in relevant part): ” By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to improve regulation and regulatory review, it is hereby ordered as follows :  Executive Order 13563 of January 18, 2011, ‘Improving Regulation and Regulatory Review,’ directed to executive agencies, was meant to produce a regulatory system that protects ‘public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation.’ Independent regulatory agencies, no less than executive agencies, should promote that goal. . . . Executive Order 13563 set out general requirements directed to executive agencies concerning public participation, integration and innovation, flexible approaches, and science. To the extent permitted by law , independent regulatory agencies should comply with these provisions as well .”  [Emphasis added] Ms. T interpreted the words “to the extent permitted by law” as “to remain true to their statutory mandates”.  Ms. T, a lawyer , is blatantly wrong, laughably so.  Unfortunately, it’s not funny. Ms. Tenenbaum has taken the position that cost-benefit analysis is not relevant to the CPSIA.  Of course, you know I think that’s a bunch of bunk.  The President’s Executive Order is plainly applicable to this rulemaking process and Tenenbaum may be daring you or me to sue her.  I would like to point out, however, that when rules of legislative interpretation are applied to the CPSIA, her shoddy legal conclusions look even worse.  Does the CPSIA mention “cost-benefit” anywhere?  I am glad you asked . . . .  The CPSIA uses the term “cost-benefit” only once (outside of the Table of Contents): “SEC. 233. COST-BENEFIT ANALYSIS UNDER THE POISON PREVENTION PACKAGING ACT OF 1970.  Section 3 of the Poison Prevention Packaging Act of 1970 (15 U.S.C. 1472) is amended by adding at the end thereof the following: ‘(e) Nothing in this Act shall be construed to require the Consumer Product Safety Commission, in establishing a standard under this section, to prepare a comparison of the costs that would be incurred in complying with such standard with the benefits of such standard.’” If Congress was so concerned that cost-benefit should never apply to these provisions, why didn’t they say it?  They weren’t silent on cost-benefit – Congress thought enough of the issue to mention it in context of the Poison Prevention Packaging Act of 1970.  But as it relates to lead and phthalates, Congress was silent on cost-benefit.  Why might they have been silent?  Perhaps the authors of the law believed it was an illegal provision as applied to these rules.  Perhaps the Dems behind the law felt the CPSIA wouldn’t pass if such an obnoxious term were included in this critical part of the law.  Perhaps those people figured no one would call their bluff, and that later, politically-aligned appointees would simply make up the law the authors couldn’t write themselves.  As this week’s WSJ Editorial implies, we are powerless to stop Tenenbaum, Adler and Moore.  They can run rampant over our laws, our companies, our markets, our jobs, our lives.  They are the law, they are the judges, they are the jury.  They know what’s best for us, and no public hearings are going to change their minds.  Oops, make that no Presidential Executive Order will change their minds . . . .

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CPSIA – What Exactly Happened at the July 20th CPSC Commission Meeting?

CPSIA – NAM Ad In The Hill Supporting Passage of ECADA

From The Hill Newspaper, dated July 21, 2011: The time left to Congress to act on amending the CPSIA before the 100 ppm lead standard boom crushes more businesses and jobs is only 24 days .  [ Html version of the ad ]  This includes the time to get through the Senate, then conference, then to the President for signature.  Not a lot of time . . . and par for the course for this government, I suppose.  Will they act in time?  I certainly hope so but with Henry Waxman doing his evil best to prevent any progress on this issue, I don’t have high expectations.  Let’s hope some Democrats still have a conscience.

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CPSIA – NAM Ad In The Hill Supporting Passage of ECADA

CPSIA – Trip Down Memory Lane (WSJ Editorials on CPSIA)

There have been nine editorials by The Wall Street Journal against the CPSIA.  I thought you might enjoy seeing them all in one place.  Below you will find links to all nine editorials, with a short highlight from each one. The more things change, the more they stay the same . . . . First Editorial (January 14, 2009):  Pelosi’s Toy Story “The damage comes from new rules governing lead in children’s products. After last year’s scare over contaminated toys made in China, Congress leapt in to require all products aimed at children under 12 years old to be certified as safe and virtually lead-free by independent testing. The burden may be manageable for big manufacturers and retailers that can absorb the costs of discarded inventory and afford to hire more lawyers. Less likely to survive are hundreds of small businesses and craftspeople getting hit with new costs in a down economy.” Second Editorial (February 6, 2009) Toys for Congress New lead rules hit next Tuesday. Whammo. “CPSC Chairman Nancy Nord has noted that the law has created ‘chaos and confusion,’ and as if to prove her point, yesterday New York federal Judge Paul G. Gardephe ruled that the law’s limits on a plasticizer known as “phthalates” should apply to existing inventory just as lead standards do — overturning a CPSC ruling to the contrary. That makes it even clearer that Congress needs to fix its own mess.  Trouble is, House Speaker Nancy Pelosi is heavily invested in the fiasco. On passing the misguided law in August, she proclaimed that ‘with this legislation . . . we will be removing these products from the shelves.’ Taking store owners and toy entrepreneurs with her.” Third Editorial (March 30, 2009) Pelosi’s Library Quarantine The CPSC is left cleaning up the House Speaker’s messy child-safety law. “Democrats in Congress have leapt to criticize acting CPSC Chairman Nancy Nord, in hopes President Obama will replace her. But the real culprit here isn’t the CPSC, which is overwhelmed with requests from manufacturers trying to make sense of the chaos that Congress created. House Energy and Commerce Chairman Henry Waxman has dismissed efforts to improve the law, claiming the real problem is that “misinformation has spread” about the impact on businesses.” Fourth Editorial (April 3, 2009)   Toys R Congress Ruining the kids motorcycle business   “The multibillion-dollar children’s motorcycle and all-terrain vehicle industry has been clobbered. Kids motorcross racing has boomed in recent years in rural and Western states. And the regulators at the Consumer Product Safety Commission (CPSC) have decided that virtually all of these youth vehicles violate the new standards because of lead in the brakes, tire valves and gears. They’ve ordered motorcycle dealers to stop selling them, putting hundreds of dealers and the entire motorcross industry in a depression. With one stroke of the regulatory pen, an estimated $100 million of inventory can’t be sold, and the industry loss may reach $1 billion.”   Fifth Editorial (August 11, 2009)   Consumer Product Destruction Congress’s lead in toys panic is set to ruin more businesses.   “Jewelry makers now join the legions of other businesses on the hook for millions of dollars in lost sales, inventory or testing costs despite products that pose little to no risk of lead poisoning to children. In the spring, thrift-store operators like Goodwill and the Salvation Army predicted that without regulatory relief they would have to destroy more than $100 million of inventory. Toy stores expected some $600 million in playthings that would have to be trashed and another $2 billion in losses across the industry. Motorcycle and ATV makers predicted total losses and business disruptions around $1 billion. Children’s clothing stores have suffered huge losses, with Gymboree losing 40% of its market value overnight after reporting losses related to the House’s lead-paint panic.”   Sixth Editorial (November 7, 2009)   Congress’s Brass Knuckles Another casualty of the lead toy ‘safety’ law.   “CPSC Commissioner Anne Northrop noted that the decision not to grant a brass exemption shows that ‘the Commission does not believe there is any [flexibility] written into the law.’ Without action from Congress to address the chaos it created, Ms. Northrop said, ‘More small businesses will be forced to shut down.’ CPSC Chairman Inez Tenenbaum has insisted that changing the law would be ‘premature.’ Yet it has already been more than a year of bedlam for manufacturers and retailers negotiating these rules.”   Seventh Editorial (April 6, 2010)   Waxman’s Lead Poison A fix of a bad law that is no fix at all. “Mr. Waxman is insisting that any product applying for an exemption would still be subject to a three-pronged test to determine whether stripping lead from the product is ‘practicable or technologically feasible,’ whether a product might end up in a child’s mouth and whether its exemption would affect public safety. In a response, CPSC Commissioner Nancy Nord explained that since all three tests have to be met for a product to qualify, ‘the exception is as empty as the exception for no absorption of any lead. Such a provision does not really help anyone.’ . . . If Mr. Waxman wants to enhance Congress’s original creation, he should start by letting product safety regulators consider whether products are safe.” Eighth Editorial   (March 11, 2011) Get the Lead Out, Sir Nutty test standards give Obama a real chance to help business. “The law also requires the CPSC to propose the parameters of a third-party lead testing regime, but the issue is so mired in complexity that the commission has yet to set those standards. Under the proposed version of this so-called ’15 Month Rule,’ Learning Resources Chairman Rick Woldenberg has estimated that supplying multiple testing samples on each of his company’s toys and products will cost his company some $15 million per year. . . . At a hearing in the House Energy and Commerce Committee in February, California Democrat Henry Waxman defended the law as ‘necessary to protect kids and families across the country.’ We wonder how he figures that, since the incidence of lead poisoning from toys made by domestic manufacturers is nil.” Ninth Editorial (July 20, 2011) Toying With Deregulation Another agency ignores Mr. Obama’s executive order. “Here’s a question for White House regulatory czar Cass Sunstein: Do Presidential executive orders mean anything? Only last week President Obama asked independent agencies to examine existing rules and get rid of the duds, but nobody is listening. . . . Mr. Obama’s recent executive order is voluntary, but the President told agency heads that getting rid of red tape was an opportunity to ‘forge a 21st-century regulatory system that makes our economy stronger and more competitive.’ Perhaps Mr. Sunstein will tell toy makers it’s the thought that counts.”

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CPSIA – Trip Down Memory Lane (WSJ Editorials on CPSIA)

CPSIA – Hey Republicans, You Aren’t Allowed to Think!

During the July 7th House Energy and Commerce Committee’s Oversight Subcommittee hearing on regulatory reform among independent agencies (a hearing which presumably prompted Obama’s Executive Order two business days later), Ranking Member Diana DeGette (D-CO) trotted out one of the most common arguments against change: “I want to talk . . . about the recent proposals on the other side of the aisle that would undermine the Consumer Product Safety Commission and some of the other good work that they’ve done.  Three years ago, this Committee and this Congress worked hard in a significantly bipartisan manner to put meaningful reforms for consumers into the [CPSIA].  This has yielded unbelievable benefits. . . . So I think it’s important to know this, that these reforms were worked out by this Committee in one of the last great efforts that was completely bipartisan.  We should embrace that.” This is a familiar argument by Dems.  The law passed almost unanimously, guys, so it’s wrong to try to change the law now.  What logical point is DeGette making here?  How is this argument supposed to persuade us? At first, I thought the Dems were simply arguing the infallibility of Congress.  Congress never errs, so how can we doubt something every Congressman voted for?  Congress is all-knowing and cannot pass a bill without doing the right thing.  [And as Obamacare indicates, Congress apparently doesn't even need to read the bills to get them right.] To argue that this law is a product of infallible judgment is quite a leap.  Even the unanimity of the law hardly explains the mental state of Congress at the time.  Congress was ANGRY.  Have you ever said or done anything in anger you later regretted?  ‘Nuf said. No, an infallible Congress cannot be what Ms. DeGette is pushing.  Actually, I think it’s far simpler.  She is saying that the Dems were right and are still right and have no need or interest in changing their position.  She points out that the two parties agreed on the law’s text in 2008 and passed it almost unanimously.  Now the Republicans want to make serious changes.  She says the Republicans should return to their bipartisan brothers, the Dems, and support the work they did three years ago.  She essentially calls into question the motivation of the Republicans in opposing the Dems now, suggesting that this is a by-product of a broken Washington, where partisan posturing is all we can expect from these people. At the heart of her reasoning is the fact that the Dems are holding their course behind the law, and the Republicans have moved, and now she wants the Republicans to be more “bipartisan” by returning dutifully to agreement with the unwavering Dems.  Or is it the intransigent Dems?  A matter of perspective, I suppose.  Come back to the fold with the Dems!  DeGette’s argument relieves the Dems of any obligation to reconsider ANYTHING.  How convenient.  How Waxman-like. Here’s something the Dems won’t tell you – the law was jammed down the throats of the Republicans in both Houses of Congress.  Congress was controlled by Nancy Pelosi at the time (she of San Francisco, of course).  The CPSIA was purpose-built for getting Democrats elected and was not negotiated with the Republicans in any sense you would recognize.  On the national stage, the Obama wave was cresting at that time, too, so what do you think the political calculation was in the Bush White House and in the Minority ranks in either House on the CPSIA?  The Republicans knew that any opposition to any aspect of this law, regardless of how awful, would mean attack TV commercials on support for children’s safety at a time of great electoral vulnerability. Bush agreed to sign the bill to protect his party, not to protect kids.  At least it neutralized a possibly existential political threat.  Each Republican Congressman or Senator had to make a similar political calculation.  Only four people (Ron Paul and three Senators) were politically courageous enough to stand up against this excessive bill.  It is certain that far more than four members of Congress found fault with the CPSIA at the time.  The 2008 “great bipartisan effort” that DeGette romanticizes is an urban legend, a fiction, a fairy tale, a story.  She wants to cow the Republicans into losing their political nerve at this critical juncture when some kind of momentum behind our position may actually be growing.  She wants them to think ballot box. And for those of you who pepper me with defense of Dems or reminders of past Republican “sins”, all I can say is this:  the Republicans have nothing to gain politically from their three-year effort to right this wrong.  They are taking electoral risks to help us, and have been unwavering in their support of our mission. I can only believe that this is because they actually are trying to do the right thing.  This has never been about policy or safety. The Republicans know that this issue has been played for political gain by the Dems with no remorse over the devastation they have wrought to your businesses, your markets or job creation.  For them, it’s just too juicy an opportunity to get reelected.  And if that’s so, it must be the reverse for the Republicans. The Republicans are taking this risk on your behalf, for your benefit. I hope there’s a nice occasion to say “thank you”.  In the meantime, the likes of Diana DeGette must be vanquished.

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CPSIA – Hey Republicans, You Aren’t Allowed to Think!

CPSIA – Fait Accompli

Tomorrow the stage is set for the ultimate triumph of the Waxmanis:  the predicted approval of the 100 ppm lead standard by 3-2 party line vote.  The three Democrats will express regret, saying that Congress forced them to do it, and calling on Congress to let them make this standard prospective only.  They will no doubt also assert that this is good for all of us, given that “there is no safe level of lead”, that old chestnut unsupported by any injury data. No doubt the 100 ppm lead limit will fix all of these imaginary problems.  The Republicans will note the pointlessness of it all, and remind us of the cost of the provision.  Jobs will be lost.  The Republicans will be right, but the Dems have a political agenda to implement, and you will be sacrificed.  Mr. Obama’s Executive Order will not give the Dems pause. After three years, I am numb to this behavior.  The Dem Commissioners are and have always been beyond reach, unimpressed by reason or data.  That comes from a strong conviction of the correctness of their position with no need to reconsider.  As Bob Adler’s testimony at the Oversight hearing on July 7th indicates, the Dems are ever ready to defend the CPSIA faith.  [Check out the testimony given in questioning by the estimable Jan Schakowsky.]  Data, schmata. For those of you who have expended energy, or committed resources, to providing information to the CPSC after three years on this provision (comment letters, testimony, etc.), please note that it was all a set-up.  The decision facing the Commission is whether the 100 ppm lead level is “technologically feasible”. The legislative definition of this term of art does NOT take into consideration cost, perhaps because every life is precious and of infinite value.  It does not matter what it costs to comply, only whether it is somehow possible.  CPSC Staff confirms that everything can be made without lead using this definition however absurd.  So the Dems have no reason to vote against the new standard.   No reason . . . .   Consider the views of the American Apparel and Footwear Association in a letter dated July 11, 2011 on this topic: “We strongly urge the Commission to declare that it is not technologically feasible to meet the 100ppm standard for the simple reasons that:  (a) it is impossible to meet a standard retroactively; (b) compliance cannot be assured because of continued issues with material variability, especially with metals; (c) compliance is complicated by the regulatory uncertainty generated by the technological unfeasibility issue as well as the ongoing delay in the so-called “15-month rule”; (d) the new standard will impose significant costs on manufacturers, costs which disproportionately affect smaller companies; and (e) inter-lab variability, especially at the lower limits, make consistent compliance impossible.” Details, details – the Dems DON’T CARE.  Tomorrow the Commission will enact an egregiously out-of-whack rule from a cost-benefit standpoint a mere two days after Obama ordered the CSPC by name to review all rules for being overly burdensome.  Yawn.  After three years of this, what else would you expect?

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CPSIA – Fait Accompli

CPSIA – American Job Creators (Remember When We Did That?)

The House Majority Leader wants to know how the CPSC and the CPSIA are affecting your business.  They have a website set up for you to download everything you know about the misconceived CPSIA and resulting three year nightmare.  The first agency listed on the web page is the CPSC. Have some fun with this!  Feel free to post your insights here, too.

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CPSIA – American Job Creators (Remember When We Did That?)

CPSIA – Hypocrisy on Display

CPSC Chairman Inez Tenenbaum was home in South Carolina last week and made an appearance to commemorate a new State ATV safety law known as ” Chandler’s Law “.  This law is supported, even encouraged, by the ATV industry.  Notes Paul Vitrano of the SVIA, “Chandler’s Law is a major step in the right direction. It’s something to be celebrated and we extend sincere thanks to everyone involved in its enactment. But there’s much more work to be done in South Carolina and all over America. ATVs are safe when used properly, but they are not toys. No responsible parent would hand the keys to the family car over to their child and send them on their way.” [Emphasis added] ATVs are not toys.  But ATVs are regulated by the CPSIA as though they are toys.  Notably, as a consequence of the CPSIA, access to youth-model ATVs has been all but eliminated .  Incredibly, there is still NOT ONE test lab certified by the CPSC to test ATVs for compliance either.  Testimony to this effect was given at the February 16th CPSC hearing at which I appeared.  Jay Howell of the CPSC acknowledged that the expense of testing ATVs cannot apparently be recovered by labs because there are so few youth model ATVs left on the market.  No lab wants to invest for testing at a loss.  The market speaks?  The absence of youth model ATVs from the market also means that they are not being rented out.  Rental and sales are the same thing under the CPSIA.  They’re gone. Interestingly, Chandler’s Law prohibits children under 16 from riding adult-sized ATVs.   If you can connect even two dots, you will realize that this is a tacit ban on children riding ATVs.  Period.  This is the secret agenda of the consumer group zealots like the former AAP majordomo Cindy Pelligrini as she admitted at a meeting of stakeholders with the House Energy and Commerce Committee staff on January 6, 2011.   So in other words, the consumer groups have a political agenda that they cannot accomplish via direct legislation – taking away ATVs from your kids, even using youth model ATVs developed at the request of the CPSC.  ATV riding is too popular regionally for a ban to ever pass Congress - so the consumer groups obtained their objective under the cover of darkness with the CPSIA and sympathetic Dem plants on the CPSC Commission.  And here’s the hypocrisy of Ms. Tenenbaum on public display.   Appearing to herald the restrictions on youth access to adult-sized ATVs, Ms. Tenenbaum does not mention that she is ALSO responsible for the removal of youth-model ATVs from the market and that Chandler’s Law essentially implements a ban on ATV use by children under 16 years of age in South Carolina.  Had she admitted it, the publicity storm would have been bad for South Carolina legislators and Dems all over the country.  She’ll never breathe a word. Not unlike the rest of the CPSIA mess, the reality is kept beneath a cloak, out of sight.  You will only notice, if you ever do, when you go to the store and try to buy something wonderful that you have used safely in the past . . . and it’s gone.  Where did it go?  The self-appointed ” fun suckers ” have been there first.  Youth model ATVs – they’re against them.  Trampolines, backyard pools, fireworks, rhinestones, brass instruments  - all too “dangerous” for you to be allowed to use.  They know what’s best, and you should be thankful. It’s our country but they’re running it.  When are you going to do something about it?  After three years, you don’t have much time left to figure it out.

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CPSIA – Hypocrisy on Display

CPSIA – Oversight Hearing Set for July 6th

The House Energy and Commerce Committee is holding an oversight hearing on July 6th entitled ” The Views of the Independent Agencies on Regulatory Reform ” featuring CPSC Commissioners Bob Adler and Anne Northup.  Other agencies will also be questioned (FCC, FERC and FTC).  Break out the popcorn!

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CPSIA – Oversight Hearing Set for July 6th

CPSIA – Do Accidents Happen?

Accidents happen . It’s an old saying. Once upon a time acts of fate were no one’s fault and we each bore the risk individually. Today, things seem different – when bad things happen, the search begins for someone to blame. The media and politicians feed this trend in hysterical tones (they profit by doing so). Individual responsibility is passé. In the case of children’s products today, blame is often laid at the feet of the product or its manufacturer by the CPSC. In some cases, the fault is clear (the hazard is “substantial”); in other cases, it’s not nearly as clear. In this article, I am only interested in those more ambiguous cases where there is an element of fate or other factors outside the control of the manufacturer. Should we be satisfied with how the CPSC draws the line? CPSC as Allocator The CPSC’s assignment of responsibility for injuries (in the form of recalls) is an inherently “legal” process. Our laws allocate risk and responsibility in society in the form of rights. About 75 years ago, legal theorists developed a field of inquiry known as “ law and economics ” which held that legal systems incorporate economic principles which ensure efficient allocation of resources and promote economic activity. “Rights” are essentially factors of production in economic terms. Ronald Coase of the University of Chicago Law School won the Nobel Prize in Economics in 1991 for his seminal work on law and economics over the preceding 50+ years. Notably, Obama regulations “czar” Cass Sunstein is an ex-University of Chicago Law School law professor, as is President Obama himself.  Sunstein is closely associated with the study of law and economics . The issues confronting the CPSC over injuries to children are not emotional in nature at all. They are actually purely economic issues because the CPSC is a market regulator. It is an objective fact that injuries to children or other consumers are a cost we bear in exchange for the benefits of economic activity (availability of innovative manufactured products, the provision of jobs, etc.). Naturally, as a community we want to bear as few such costs as is efficient, again to promote growth, hence a societal interest in reducing injuries. The interest in reducing injuries is economic, however; we are not indifferent to cost and judge them in light of corresponding benefits. For instance, this explains why you do not wear a crash helmet on the way to work despite your awareness that fatal auto accidents happen every day. The costs outweigh the benefits. As a regulator, the agency brokers costs among a large group of parties. Consumer costs related to injury (including emotional loss and lost income, among other things) are weighed against manufacturer and market costs (recall costs, damage to brands, decreased growth, lost jobs, etc.). Whether the CPSC does the math properly or not, their decisions allocate resources by directing that one party incur costs to protect other parties from incurring costs. These decisions are purely economic even if stated in emotional terms. It is therefore clear that CPSC regulators have the capacity to promote economic growth or stifle it. Is the Goal “No Injuries” Ever? The CPSC has a legal responsibility to differentiate between a product hazard that causes accidents and accidents caused by the hand of fate. Congress limited the authority of the agency to regulate only those product hazards deemed “substantial” (a term of art under the CPSA and FHSA). As stated here many times previously, I believe the CPSC under current leadership regularly exceeds its legislative authority in this regard. The CPSC acts as though its role is to move society toward a Utopian ideal in which children are never injured or die prematurely. While I certainly don’t endorse injuries to children, the Utopian ideal of injury-free childhoods is illusory. In fact, an injury-free childhood could only be achieved at a very high cost. If the CPSC attaches an almost infinite value to preventing injuries, their allocation decisions will always constitute a transfer (a tax) and cause economic inefficiency (depress economic activity). This over-appraisal of the cost and consequence of childhood injury is illustrated by recent remarks of Chairman Inez Tenenbaum about a recall of one million pool drain covers. Ms. Tenenbaum appears to justify the recall on the possibility of injury despite media reports confirming that no deaths had occurred since 2009: “I want to make it clear that this recall announcement does not mean that one million drain covers will need to be replaced or repaired. The recalled covers were marked with the wrong flow rating . . . . Now for those public pools and spas that need their covers replaced or fixed, I have an obligation to advise that those facilities be closed at this time. They should reopen as soon as the work is completed that addresses the recall and brings the facility into compliance with the law. I know this is a very difficult message for many communities to hear so close to Memorial Day weekend, but we cannot risk a child becoming entrapped in a recalled drain cover .” [Emphasis added] This unstated policy attaching infinite value to childhood injury is much more than a strict liability standard because the CPSC only acts after an assessment of fault (rather than simply assigning responsibility). Isn’t the agency saying that the actions or inactions of manufacturers cause accidents? Recent Recalls Allocate Uncontrollable Costs to Manufacturers Consider some recent recalls for perspective: a. Big Lots recalls bunk beds recalled after a three-year-old child died when caught under a futon. b. Maclaren recalls one million strollers sold over 11 years because of more than a dozen fingertip amputations caused by a hinge. c. Mattel recalls more than 7,000,000 children’s trikes sold over 14 years because of genital injuries to ten young girls jumping on the trike. While it may be hard to look past these sometimes grisly childhood injuries, each of these cases calls into question whether the injuries were really the fault of the manufacturer. It’s not worth defending the product designs – let’s concede that in retrospect the products could have been better designed. Parental supervision appears to be an issue in each case. Manufacturers are typically unwilling to resist CPSC recalls by blaming consumers for injuries incurred using its products. That route is very risky and may in fact be more costly than going along with the CPSC’s dictates. As a result, the record in these cases is usually very one-sided – the CPSC has the first and last word on the subject, often on TV. Why would anyone stand up for these companies in public? There’s no incentive to do so; after all, the costs are paid by only one party, and that party isn’t talking. There is a fundamental error in routinely blaming manufacturers for accidents or fate. It is widely accepted that laws operate efficiently when they allocate responsibility for risk to the party in the best position to address the risk. Manufacturers can efficiently bear many such costs – but not all. For instance, product safety is best assigned to manufacturers rather than consumers. This is fairly obvious – manufacturers know their own products better than consumers do and are best able to take steps to keep products safe at the lowest possible cost (most efficient). This is the reason why the common law tort system assigns product liability costs to manufacturers. So who is in the best position to control costs associated with accidents or fate? Risks associated with acts of fate are difficult to control.  In fact, many foreseeable risks leading to childhood injuries are completely outside the control of manufacturers: 1. Fate 2. Failures of adult supervision 3. Product abuse or misuse 4. Mental deficiencies or mental illness (e.g., pica) 5. Risks well-known to the user (e.g., knives are sharp). I would advance that good adult supervision is the lowest cost way to prevent accidents with children’s products. There are significant limitations to what a manufacturer can achieve on behalf of consumers who don’t adequately supervise their children. Of course, drawing the line is a big issue here. But can’t an argument be made that adult supervision of the toddlers using the Mattel trike could have prevented foreseeable injuries from jumping on the trike? That a parent must carefully supervise the location of a child’s hands before closing a stroller? This is a simple point – manufacturers cannot control these factors from their offices or warehouses. The cost for a manufacturer to do so would be excessive. Some people might argue that assigning blame for matters of fate to manufacturers of consumer products is a neat way to efficiently spread cost among the community. Why not make the manufacturer pay the uncontrollable cost of fate relating to their products, and let them pass the costs along to consumers in the form of higher prices? Manufacturers can be converted into involuntary insurers by public policy, risk intermediaries for events of misfortune. The appeal is irresistible; after all, it doesn’t cost tax dollars to pay for these losses if we force responsibility on manufacturers. Of course, if you are a careful consumer, you might resent paying more to subsidize free-riding consumers who don’t take appropriate precautions.  But money aside, doesn’t it reflect a hardening of our society if if we ignore heart tugs when kids are injured? Is this heartless . . . or sensible? Is the CPSC doing the American public a favor by increasingly pushing responsibility for uncontrollable risks to manufacturers? The Important Role of Economic Efficiency in Laws Governing Children’s Products I believe bad things do sometimes happen to good people. What is the economic effect of assigning these costs to manufacturers by default? Unfortunately, this invariable result is not economically efficient and will have the effect of a tax on the children’s market. In other words, the economic incentive to participate in markets will shrivel as manufacturer returns on investment decline because of legal risks (costs) they cannot control. This is basic stuff, folks – the reduced economic incentive causes market participants to withdraw, just as high taxes cause people to stop taking risks (trading). Ronald Coase addressed this subject in two articles that led to his Nobel Prize. In a 1937 paper on the nature of the firm , Coase articulated what became known as the Coase Theorem which holds that if trade in an externality is possible (in this case, childhood injuries) and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. Translated into English and applied to the facts here, Coase theorized that it would not matter which party was responsible to pay the costs of an injury (victim or tortfeasor) if there was no cost to bargaining between the parties. This of course is not the case in the real world. Coase returned to the subject in a 1960 article entitled “ The Problem of Social Cost ” and explored the role of regulations in achieving economic efficiency when economic activity creates social costs. This eminently readable article is a foundation stone of modern legal theory. Considering the social costs of human activity (such as pollution or injuries from the use of children’s products), Coase concluded that efficient allocation of resources would be achieved regardless of allocation of rights relating to social costs (responsibility to pay those costs) provided that trading can be conducted without transaction costs. In other words, in an efficient market, economic factors (resources) will always be put to their highest and best use through allocation of resources and bargaining. Through bargaining in an efficient market, the party with the most productive use of economic factors will ultimately possess the resources, thus ensuring compensation for social costs regardless of who has been assigned legal rights. Coase cites numerous examples (including torts) in making this point. Coase notes the symmetry of these disputes in his analysis. When cattle overrun crops causing economic losses, there would be no damage without the cattle, and likewise no damage without the crops! Causation is not black-and-white to an economist interested in efficient outcomes. As he notes, a smoothly operating pricing system ensures that “the fall in the value of production due to the harmful effects would be a cost for both parties.” Nevertheless, Coase recognized that there ARE transaction costs in the real world (e.g., legal expenses, bargaining holdouts, etc.). These costs of altering and recombining rights allocated by the legal system can interfere with the ability to bargain and thus prevent the efficient allocation of resources in the market. He argued therefore that regulations are justified to the extent they allocate rights to the most efficient risk-bearer. Regulations can supersede market transactions by imposing the most efficient outcome. This is presumably the underpinning of President Obama’s call for more federal regulation. According to him, this will be good for us.  Coase might demur, noting that it all depends on the facts as we shall see below. Coase was realistic in his assessment of the inherent dangers of regulation: “But the governmental machine is not itself costless. It can, in fact, on occasion be extremely costly. Furthermore, there is no reason to suppose that the restrictive and zoning regulations, made by a fallible administration subject to political pressures and operating without any competitive check, will necessarily always be those which increase the efficiency with which the economic system operates. Furthermore, such general regulations which must apply to a wide variety of cases will be enforced in some cases in which they are clearly inappropriate. . . . It is my belief that economists, and policy-makers generally, have tended to over-estimate the advantages that come from government regulation.” Coase’s solution: perform a cost-benefit analysis to make sure that regulations increase economic output (the all-in costs must be less than the all-in benefits when reduced to dollars). We encounter situations regularly in which the party causing a legal nuisance does not bear the consequential costs. For instance, a home remodeler does not have to pay compensation to neighbors for noise and debris that may adversely affect them. He may feel a social obligation to give them freshly-baked cookies but is under no legal obligation to do so. This is one of many legalized nuisances. Why is this the legal rule? The allocation of rights takes into account that as a society, we want to encourage investment and capital improvements. The small cost of dealing with these inconveniences is considered a cost we all should bear in exchange for the benefits received from the economic activity. This rule does not apply to exceptional cases of nuisance where the costs outweigh the benefits. Not every instance of damage is remediable under our legal system for good reason. Coase cites a fascinating real world example of this rule carried to a surprising extreme: under traditional English law, railroads are protected from liability for fires caused by sparks from their engines. Coase devotes considerable ink to prove that this legal rule creates an efficient allocation of resources (a positive effect for society) notwithstanding that there are “winners” and “losers”. This result would be very difficult to achieve through bargaining. Clearly a railroad would have a very difficult time working out a deal with every landowner along its lines as a precondition to laying down track. Importantly, Coase points out that the opposite rule (where the railroad must pay for the fires its engines cause) does much more than just transfer liability. It also shifts incentives to everyone’s detriment. A farmer along the track now can gamble with the railroad’s money – he can get a market price from market buyers if he can harvest his crops or from the railroad if there is a fire. The farmer’s return is thus guaranteed, the incentive to take care is removed, and he will be rewarded for planting crops likely to be burned. This alternative rule’s transfer of costs to the railroad will simultaneously reduce tje potential reward for constructing tracks and likely result in fewer train lines, reducing the broadly-distributed economic benefits that come with the expansion of the rail system. In other words, shifting liability in this case makes everyone along the train line poorer. Coase notes that “nuisances” are not always against our interest: “[Pigou] is wrong when he describes these actions as ‘anti-social’. They may or may not be. It is necessary to weigh the harm against the good that will result. NOTHING COULD BE MORE ‘ANTI-SOCIAL’ THAN TO OPPOSE ANY ACTION WHICH CAUSES ANY HARM TO ANYONE.” [Emphasis added] CPSC, are you listening? Placing the cost for nuisances on the producers’ shoulders may be well-intentioned but it is not necessarily the right result because it does not provide any incentive to consumers to take steps to prevent injury. “A tax system which was confined to a tax on the producer for damage caused would tend to lead to unduly high costs being incurred for the prevention of damage.”  The CPSC’s tendency to blame products via recalls and bans is the equivalent of a tax in this case. The “unduly high costs” leads to a reduction or suspension of economic activity. We can observe this in the children’s market over the past three years – the agency and Congress have both received considerable testimony on this topic (and seemingly ignored it). Coase won the Nobel Prize for pointing out that regulators often neglect to look at the full economic picture and thus fail to achieve optimal social results. It goes without saying that the regulators may nevertheless achieve optimal newspaper headlines. Conclusion Why is it inefficient to invariably push costs to manufacturers for injuries associated with children’s products? As Prof. Coase notes, in a raucous marketplace, transaction costs can distort the allocation of resources. In this case, the prospect of liability and uncontrollable losses are a high transaction cost that affects the efficient allocation of resources by trade. Coase posits that a cost-benefit analysis must be performed to make sure that efficiency is achieved. The rule for such analyses is quite clear – the all-in cost of the regulation must be less than the all-in economic benefits achieved. The best way to understand the formula in this case is to look at all marginal children’s recalls as a class. Let’s agree that there actually are some “substantial” product hazards out there and exclude them from our analysis.  [Manufacturers are in the best position to evaluate and prevent "substantial" hazards on behalf of consumers.]  We must also assess all the money spent as a result of CPSC action as a group. It does not matter who spends the money – we want to tote up all the costs and lay them off against all the benefits. The benefits are easy to calculate – there is an economic value to a life and also to injuries. This type of analysis is not only common, it is a requirement of federal law (as a result of Coase’s work outlined above). The government has tables of these values . Likewise, the costs are pretty easy to tote up: out of pocket costs for the recall, replacement of inventory, damage to reputation and brand, legal and regulatory costs, lost jobs, reduced investment, etc. In the case of accidents or other uncontrollable factors leading to injury, the CPSC’s calculus is defective. It is quite telling that the regulators are not interested in my point that no victims have been identified. Lead-in-substrate victims – NONE. Phthalates victims – NONE. The ledger on the benefits side is undocumented, vague and untested, but the regulators’ indifference suggests that they place an almost infinite value on injury or even the possibility of injury. On the cost side, the regulator also seems to largely ignore the impact on markets. As noted by Coase, the regulators are not subject to competitive pressures so they can easily overlook these costs. The math does not add up, and as a result, their decisions inevitably will choke the market. The CPSC acts as though not subject to the laws of economics . The legislative fix for this misguided regulatory effort is clear – mandate economic analyses as a justification for any CPSC regulation. It is also necessary to restore (actually, to mandate the use of) risk assessment by the CPSC. Risk is all about cost allocation and cost management. By removing the ability to assess risk, Congress essentially removed the wiring necessary for the CPSC to make an intelligent assessment of the economics of their decisions. While the CPSIA was clearly written and passed into law in anger, enough time has passed to expect cooler heads to prevail. Congress, it’s time to act!

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CPSIA – Do Accidents Happen?

CPSIA – CPSC Announces that 100 PPM is Technologically Feasible

The CPSC put out its report today concluding that the 100 ppm lead-in-substrate standard may come into force on August 14, 2011 because it is technologically feasible.  To quote: “Based upon this analysis, the staff could not recommend that the Commission make a determination that it is not technologically feasible for a product or product category to meet the 100 ppm lead content limit for children’s products under section 101(d) of the CPSIA.” This applies to EVERY product and EVERY product category. You are now OFFICIALLY SCREWED and may begin throwing out inventory.  Don’t expect Congress to help you out.

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CPSIA – CPSC Announces that 100 PPM is Technologically Feasible

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