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CPSIA – The Futility of Protesting the CPSIA
August 1, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, CPSIA Updates, Featured Articles
With Congress about to sign-off on a CPSIA Amendment which seals the fate of the regulated community, for better or worse depending on who you are, the question of what remains is quite relevant. With rights allocated and responsibilities delegated to a Dem-controlled CPSC Commission, what kind of justice can we expect in the future??? As if to answer this question, last week CPSC Chairman Inez Tenenbaum published a troubling Op-Ed dated July 28th (” CPSC Chief to Detractors: ‘Safety Delayed is Safety Denied’ “). In her article, Ms. Tenenbaum asserted that Democrats on the CPSC Commission are responsible for many “major victories” over the resistance of the minority party Republicans: ” We have made great progress at CPSC, and at times, our achievements have come with support from the two Commissioners in the minority party. Though, consumers should know that vigorous resistance is the rule, rather than the exception, with these two Commissioners. Through a coordinated campaign, these Commissioners have sought to delay and distort our actions in an attempt to circumvent the will of American families and Congress. Their tactics have been unsuccessful, as demonstrated by the strength of the new safety measures we have established. ” Democrats good, Republicans evil. . . . She continues, openly accusing minority Commissioners of almost venally favoring pocketbook issues over safety: ” We faced another example of this obstructionism in our effort to make sure cribs are safe. From November 2007 to April 2010, there were 36 deaths associated with crib structural defects. To address this critical issue, the Commission voted unanimously last December to establish new crib safety rules. Sadly, two of my colleagues in the minority party then attempted to delay the rules from going into effect last month. They were for it, and then they were against it, all in an effort to put the interests of a few retailers over the interests of hundreds of thousands of parents and very young children. ” Perhaps granting me an honorable mention as an irritant, Ms. T. goes on to lay claim the higher moral ground. As you know, this is all about the tug of war between good-and-evil . . . . ” It is ironic that the minority party Commissioners and certain cynical special interests continue to gesture wildly, alleging a failure to take the concerns of businesses into account, while many safety-conscious companies have been manufacturing, testing, and selling children’s products for nearly three years that meet and exceed the requirements set by Congress. The minority party’s approach does not solve problems and does not serve the public interest. The Consumer Product Safety Commission under my stewardship will not succumb to efforts to undermine this law. Like justice, safety delayed is safety denied. ” [Emphasis added] [I can't let Ms. T get away with the "safety delayed is safety denied" baloney. To accept her rationale, one must conclude that safety was at stake in the cited decisions. Among her claims of "major victories" is the determination that 100 ppm is technologically feasible. Her own staff indicated that this decision will have "minimal" impact on safety. And the safety achieved by the decision? No reply. She also points to the new phthalates standard. Her own agency has TWICE considered these same chemicals for safety risks and TWICE given them a clean bill of health. Isn't it a stretch to call her new standards a "major victory" for consumers or to contend that safety was ever at stake? Not if data is irrelevant to you. As is to ensure her own blissful ignorance (and to avoid learning anything inconsistent with her political agenda), Ms. Tenenbaum has never asked for injury statistics to evaluate evidence of the utility of the new rules she KNOWS will choke business. Why not? Who wants to spoil a good thing? Safety delayed is safety denied . . . . "Safety" perhaps defined in terms of job security.] Commissioners Nord and Northup replied to Tenenbaum’s Op-Ed snarkiness, and you should read their replies. However, I think the real issue is how this Commission will handle its responsibilities once Congress bows out. Congress is about to let the Commission take it from here. Now what? The Tenenbaum article raises a question in my mind. Does Commission voting records give any insight into the Dems’ willingness to listen or their interest in listening to contrary viewpoints? Is it all so open-and-shut? Do we even have a fighting chance with these people, given their moral self-justifications? Commission voting statistics have never been analyzed publicly to my knowledge, so I put them together this afternoon. Please feel free to check my work – here are the Tenenbaum era CPSIA votes . My tabulation excludes procedural votes and votes related to cribs and infant care, the phthalates CHAP and Pool safety. In other words, it is only those votes which relate to my advocacy on the core issues under the CPSIA. Notably, I am unable to access confidential votes – the spreadsheet only applies to votes cast in open sessions of the Commission. There have been 46 votes since her confirmation, and 37 since she began to chair the meetings. Each and every decision of the Commission has been controlled by the Democrats. Each and every vote won by Democrats had all Dem Commissions in tow with two exceptions – the two stays objected to by Adler, an avowed stay-hater. Every 3-2 vote was three Dems to two Republicans. No doubt each vote was configured for Ms. Tenenbaum’s consent – she has never voted against a proposed rule or ruling. Think about that – all the Dems voted together on everything, except two dissents by one Commissioner on the same issue, the extension of a stay, and in those cases he wanted to be even less forgiving of reasonable business interests. For perspective on this, consider that this is the Commissioner who claims to “agonize” over every vote but always votes against even the mildest form of relief for business. He is also the one who stated that he wouldn’t allow cost-benefit analysis to be performed ” over my dead body “. He only veered away from his fellow Dems on two votes on stays. What does that tell you? After three years of advocacy and the considerable expenditure of cash, time and other resources by so many people affected by this law, it seems apparent from the voting data that nothing we ever said or any data we ever presented were in any way persuasive to the Dems. They were gracious in their expressions of gratitude for our participation in their processes, but given the outcomes, one must conclude that we simply enabled them to give the appearance of justice. After all, we got our day in court, or so they would have you believe. However, if anyone who comes before a particular judge is sentenced to death, one begins to wonder about justice after awhile. The Dems have used slogans to justify their actions: – “There’s no safe level of lead.” – “Safety delayed is safety denied.” – “Over my dead body . . . .” Is there a pattern in these slogans? They are sanctimonious. They wreak of moral superiority, while at the same time pinning their work on other people. Ms. T. tells us that they were just carrying out the will of Congress. Nevertheless, she would have you believe that their work is necessary and a triumph for you. They are self-righteous. There’s something smug about their contentions. They will block cost-benefit analysis with their dead bodies. They portray themselves as courageous heroes, opposing devious foes. Taking a page out of the estimable Jan Schakowsky’s playbook, Tenenbaum labels those who oppose her as ” certain cynical special interests “. Conspiracy theories bulk up her slender reed of self-justification. The slogans play to emotions and ignore legal precedent and data. Bob Adler’s ” How do you measure the life of a little baby? ” is a great example. Bob Adler is a lawyer and knows full well that the law provides a solid and respected answer to this question. As one practitioner told me, this kind of assessment is done every day in our courts and by other agencies. Adler knows that brains short out when he mentions “little babies” and who can argue that anything is worth more than the life of a “little baby”. By invoking images of “little babies”, Adler and Co. divert attention from incoherent rationales underlying their decisions. [To save a "little baby", is it okay to eliminate one job? Ten jobs? 100 jobs? 1,000 jobs? 10,000 jobs? 100,000 jobs? 1,000,000 jobs? Where do we draw the line? The implication, if you listen to Mr. Adler (not that he ever listens to me), is that the value of a baby's life is infinite so no economic sacrifice is too great. He won't allow a cost-benefit analysis to be done, despite the fact that it is mandated by an Executive Order and is good law to boot, so the question will never answered. But isn't it clear - the line must be drawn somewhere. We can't function as a society if it isn't. Don't expect this kind of thinking as kong as Adler and Tenenbaum hold down the fort at the CPSC, however.] The slogans are cynical, too. Tenenbaum’s repeated request (four times by my count) in the hearing on 100 ppm that businesses are welcome, even encouraged, to file for exemptions from the technological feasibility decision is despicable and cynical. Cynical in a sincere voice and with a smile on your face is cynical all the same. The CPSC staff wrote up a 59-page analysis stating that EVERYTHING is technologically feasible. She knows this. Her encouragement can’t and won’t lead to exceptions – The CPSC staff have already “tied her hands”. Still, she persists. Consider Ms. Tenenbaum’s advice in her statement on the 100 ppm standard : ” Although the Commission already has voted on this issue today, if a manufacturer were to discover that it is not technologically feasible to manufacture a children’s product or category of children’s products, the agency always will consider a request for a technological feasibility determination through our normal petitioning process. During my tenure, the Commission has docketed and either has resolved or is considering several petitions requesting action on various issues. The criteria for any petition on the technological feasibility of achieving the .01 percent lead limit are laid out clearly by the statute and further explained in the staff briefing package. The process for writing a petition also is clearly set forth in the agency’s regulations. I encourage any business that discovers it manufactures a children’s product or category of children’s products for which it is not technologically feasible to meet the .01 percent limit to come to us with enough specific data to enable our staff to recommend that the Commission make a finding concerning technological feasibility under section 101(d) of the CPSIA. Our door always will be open to considering future requests. As always, for small businesses that may require additional guidance, our small business ombudsman stands ready to work to work with you on any of your concerns. I realize that this process has presented a challenge for manufacturers, and I commend those in industry who have worked so diligently to bring the lead levels in their products below .01 percent. ” [Emphasis added] Makes me want to vomit. This is your government talking. Or perhaps lying? So as Congress closes the door on helping us, doling out relief to favored groups like ATVs and books, they left the rest of us to fend for ourselves. The issue of how any of this related to safety was never considered in the pending amendments. Congress also chose not to address the abuses of the panel of hanging judges at the helm of the CPSC. The result is painful and a reminder that fighting City Hall is pointless. In this case, the Dems in charge have proven they are beyond reach and will not listen. Further resistance seems futile.
Taken from:
CPSIA – The Futility of Protesting the CPSIA
CPSIA – Do Accidents Happen?
June 29, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, CPSIA Updates, Featured Articles
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 – What’s Missing from the CPSIA Amendment?
April 5, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
I have summarized my comments on the pending CPSIA amendment in my two prior blogposts.
CPSIA – Analysis of Pending House CPSIA Amendment (Sections 1 and 2)
April 4, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
[This is a long essay - I apologize.
CPSIA – Analysis of Pending House CPSIA Amendment (Sections 1 and 2)
April 4, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
[This is a long essay - I apologize.
CPSIA – The Senate Wants to Save ATVs . . . What about the Rest of Us???
March 31, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
Yesterday Senators Klobuchar and Tester offered an amendment to S. 493, a moving bill to reauthorize the small business administration (“SBIR/STTR Reauthorization Act of 2011″).
CPSIA – Answers to Supplemental House Questions (Hearing of Feb. 17th)
March 21, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
This is my Response for the Record to questions posed by Rep. Mike Pompeo after the February 17th hearing held by the Subcommittee on Commerce, Manufacturing and Trade:
February 17, 2011
Commerce, Manufacturing, and Trade Subcommittee:
“A Review of CPSIA and CPSC Resources”
Congressman Mike Pompeo
1. Did your company have to buy a copy of the F-963 standard? Why? How much did that cost?
Our company has purchased several copies of ASTM F963 over the years. According to the ASTM International website (http://www.astm.org/Standards/F963.htm), the current cost of F963 is $62, or $74 (redline version). [This means that the ASTM literally charges companies EXTRA to figure out what changed in this legally-mandated standard.] To my knowledge, this standard is only available from the ASTM. Ironically, even the CPSC is unable to provide access to this document (as acknowledged in this CPSC Powerpoint presentation http://www.cpsc.gov/BUSINFO/intl/toyweb2_en.pdf) which casts doubt on its ability to guide companies attempting to comply with the law. The lack of access and cost of access to this standard certainly makes compliance burdensome for small businesses.
The F963 standard has been updated regularly over the years, and we need to have access to the current version of the standard at all times. Until the CPSIA was enacted, the F963 standard was the tacit equivalent of a mandatory standard because the toy industry adopted it as a “voluntary” standard with the encouragement of the CPSC. At one time, voluntary standards were the preferred way the agency regulated many industries, including our industry. We have always used the F963 standard as a reference in product development and safety administration and frequently tested for compliance with the standard.
2. You’ve been dealing with all of the agency’s rules for the last few years. By my reckoning, an entrepreneur with, say, a good idea for a board game would have to pay to buy a copy of F-963 from ASTM (not a small price to pay for some small or start-up toymakers). Then, because the standard is literally dozens of pages long of densely spaced text, he’d have to hire a lawyer to tell which parts of the standard apply to his product. Then, he’d have to find a third-party test lab to test and certify a random sample of his actual production line for compliance with all of the F-963 requirements. And, if any product fails, you are basically back to the drawing board. And, of course, he’d have to do all this before ever selling a single toy. Do you think the next board game entrepreneur (e.g., Trivial Pursuit) might have a hard time getting off the ground under this regime? Has this agency effectively killed entrepreneurship in the toy market? Does a start-up company stand any chance of being able to navigate the CPSC’s new rules and regulations on its own?
The CPSIA has had the effective of creating new barriers of entry in the children’s product market, once one of America’s most entrepreneurial industries. The burdens are heavy in the toy industry but even worse in related industries like juvenile products. Large companies with steady cash flow enjoy considerable and valuable advantages over entrepreneurs who must put large sums of money at risk in their initial investment in compliance costs before receiving their first dollar of revenue. The effect of the CPSIA is one of picking winners and losers in affected markets. I question whether this is the appropriate role of the federal government in our markets.
We believe that these heavy costs will discourage investment in new products, by new entrants, by existing players and especially by small businesses. Recently, at the CPSC’s hearing on the looming 100 ppm lead standard, representatives of the bicycle industry noted that in the wake of the 300 ppm lead standard, many small bicycle manufacturers have already left the market and large companies cut their product lines considerably. I have long predicted a reduction in product diversity as a necessary consequence of the CPSIA. Other evidence of market contraction exists, as well. At this year’s ICPHSO, CPSC Acting Director of the Office of Compliance and Field Operations Robert (“Jay”) Howell noted the CPSC’s challenge in identifying a test lab that has or will agree to equip itself as a certified test lab for ATVs. Why? So many ATV manufacturers have stopped producing youth model ATVs under the effective ban by the CPSIA’s lead standards that testing labs can’t justify the capital investment to provide CPSIA compliance testing. Product diversity is declining all over the children’s product market.
Toymakers will experience the same depressing effect and yes, that means that the next Trivial Pursuit inventor may be washed out. We may never know because the absence of a new toy or novel game will be hard to detect in the ad-driven, promotional toy market. It is clear, however, that entrepreneurs are free to deploy their capital wherever they want – they are seeking returns on their capital – so the combination of high CPSIA compliance costs, high regulatory risk, high legal costs and a generally hostile regulatory environment seems unlikely to attract new entrants to the toy market. War stories will also discourage new entrants – the well-known experience of toymakers who have suffered under this regulatory regime.
As a practical matter, the rules and regulations put out by the CPSC to implement the CPSIA for toys are incomprehensible, not to mention incomplete. We are now 31 months into the CPSIA era, yet the CPSC has yet to promulgate a final phthalate standard or certify even one phthalates testing lab. EACH and EVERY toy must be “phthalate-free” but the CPSC has yet to tell us how to know it has achieved this goal. This means we are subject to the risk that they will invalidate all the work we have done since 2008. While this regulatory delay is simply outrageous, it is more likely proof of the defects in the CPSIA than a sign of failure by the CPSC. Even the largest companies have complained to the CPSC about the blizzard of rules and interpretations. One of great frustrations in attempting to comply with the new rules is that many CPSC legal interpretations have been given in private letters, orally in speeches or even in the form of voicemails. Access to such information may be critical but is obviously inaccessible to anyone not obsessively watching every minute of every video, reading every letter, attending every meeting or hearing and talking to every stakeholder in an attempt to master the breadth of this ever-morphing regulatory scheme.
3. Does the existence of a small business ombudsman at the agency solve the compliance problem?
The office of the Small Business Ombudsman serves a useful purpose as a friendly point of contact and possible advocate for small business within the agency. That said, there is no evidence that the office has power to make decisions, change policy or offer its own definitive interpretation of rules. For small businesses totally at a loss, the ombudsman is a good place to turn to for plain English answers to basic questions about rules. Notably, the office is not permitted to make decisions on behalf of the agency. The Ombudsman does not have the authority to make problems “go away”. For this reason, the ombudsman function appears to be the regulatory equivalent of a shoulder to cry on. The current ombudsman, Neil Cohen, has been a good friend to the small business community, but unfortunately, he doesn’t write the rules.
4. What problems do you anticipate occurring as a result of the public database?
We know that the public database will be administered on a post-it-and-forget-it basis. Based on our dealings with the agency, I believe that the agency will post all incidents unless a mistaken identity can be proven. As a consequence, we anticipate that the database will be allowed to be filled up with “incidents” that are conjectural, misleading or even proven WRONG. In the first and only filing against our company, an anonymous complaint accused one of our products of posing a small parts hazard. That accusation was based on an image viewed on a website – there is no indication that the filer had ever handled our product. Consequently, the filer had no reasonable basis for the small parts claim. As a matter of fact, we routinely test for small parts and have done so for years, and when we presented a valid CPSIA test report under F963 (and EN71, the European standard), we were told by the General Counsel of the CPSC that the claim would nevertheless be eligible to be published under current rules. Thus, we KNOW that the false and misleading filings will KNOWINGLY be published by the CPSC even if PROVEN false. We believe this flagrantly violates our basic right to due process and creates the potential for damaging “feeding frenzies” that can consume our products and brands.
Other claims may relate to “hazards” which affect a wide swath of products already well-known by regulators and industry. This presents many risks to industry and to brands. What will a consumer make of a “report of harm” relating to a general hazard and only one particular product? Is this a minor incident or a harbinger of a real risk? Should they stop using the product? Should they stop using the particular model or brand which is subject of the complaint? Given that many products may present the same hazard (for instance, that an electrical cord could pose a strangulation hazard), how does this information help consumers? Will consumers actually understand the issue and be able to put it into some sort of perspective? And when incidents accumulate, as they are likely to do, presumably the brands and models with the largest numbers in distribution will have more incidents even though, ironically, they may be better constructed and “safer” than the alternatives. Will consumers falsely conclude that the models with more incidents are less safe and turn to something that really is?
Responding to this type of complaint obviously creates a new and terrible dilemma for manufacturers. Should they expend resources to respond? Do they need to lay out “a brief” about the nature of the failure and why their product is named? Will people just view whatever they say as unreliable, self-serving information or will they really be able to internalize the data? As noted above, most people will not be able to put these incidents in any kind of perspective. The only thing we know for certain is that brands and companies will be the losers.
The public portrayal of the database belies the unverified nature of the filings. Notwithstanding the disclaimers made by the agency, even esteemed media outlets like The New York Times refer to the database as a “database of unsafe products”. Unsafe? That label presumes some kind of judgment or filter prior to filing, which even The New York Times must assume is being provided by the CPSC. Ironically, the CPSC is doing everything possible to avoid providing that service. The result may be disastrous for American manufacturers, importers, private labelers and retailers of children’s products. It will be yet another self-inflicted economic injury.
5. What can Congress do to return the agency to one that regulates on the basis of risk?
Congress should mandate that the CPSC use principles of risk assessment to make all decisions relating to regulation of children’s products. The legislatively-mandated use of judgment and proportionality will likely lead to better rulemaking and more regulatory common sense. It is the legislative banishing of the exercise of judgment that led to the devastation of the bicycle industry, the elimination of youth model ATVs from the market (even though those products owe their very existence to a concerted effort by the CPSC to protect children from injury on adult-sized ATVs), the banning of all products made of brass, the senseless and almost neurotic banning of rhinestones as embellishments on children’s clothing, shoes and jewelry, and so on. NONE of these changes in rules have been tied to even ONE avoided injury.
Congress should also mandate the use of principles of cost-benefit analysis by the agency in its rulemaking processes. Under the CPSIA, all considerations of economics have flown out the window with predictably disastrous results. We can operate our government better according to basic common sense notions of cost-benefit analysis.
Read more here:
CPSIA – Answers to Supplemental House Questions (Hearing of Feb. 17th)
CPSIA – House Hearings Testimony of Richard Woldenberg 2-17-11
February 27, 2011 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
I have created some clips from the hearing on CPSIA and CPSC Resources held before the House Subcommittee on Commerce, Manufacturing and Trade on February 17, 2011 in Washington, D.C. I have not prepared every single clip from the hearing. If you want to see the entire thing, click here and enjoy! Otherwise, I am going to post numerous clips and you can pick and choose as you see fit.
My testimony at the House hearing:
Read more here:
CPSIA – House Hearings Testimony of Richard Woldenberg 2-17-11
CPSIA – Do We Need More Government? [No!]
October 19, 2010 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
796 days have passed since ANY Democrat in Congress did ANYTHING to help us on the CPSIA. There are only 14 days left until Election Day.
Hey, have any of you noticed that since I began a daily reminder of our abandonment by this Democrat-led government (reminders began on August 22nd when 738 days had passed without help), no Democrat has done a single thing to help us? Have you also noticed that as they weren’t rising up to help us, the Dems were actually engaged in making things WORSE? Definition of Children’s Products, the so-called “15 Month Rule”, making carpets subject to testing, further implementation of a database certain to make our business environment FAR more hostile.
Do we need a lot more of this?
Mr. Obama says we do: “The basic idea is that if we put our blind faith in the market and we let corporations do whatever they want and we leave everybody else to fend for themselves, then America somehow automatically is going to grow and prosper.” The implication is clear – more government is the solution, we can’t trust markets. Corporations need overseers, heavy regulation.
This quote is from a remarkable WSJ article that appeared last week by Daniel Henninger entitled “Capitalism Saved the Miners“. Beleaguered victims of the awful CPSIA should read this article. Let me sum it up with his concluding remarks:
“The U.S. has a government led by a mindset obsessed with 250K-a-year ‘millionaires’ and given to mocking ‘our blind faith in the market.’ In a fast-moving world filled with nations intent on catching up with or passing us, this policy path is a waste of time. The miners’ rescue is a thrilling moment for Chile, an imprimatur on its rising status. But I’m thinking of that 74-person outfit in Berlin, Pa., whose high-tech drill bit opened the earth to free them. You know there are tens of thousands of stories like this in the U.S., as big as Google and small as Center Rock. I’m glad one of them helped save the Chileans. What’s needed now is a new American economic model that lets our innovators rescue the rest of us.” [Emphasis added]
I don’t know about you, but I think we operated our company very well before Mother Government invited herself into our affairs. We knew the difference between right and wrong, and were pretty good at allocating our capital to its highest and best use. Now we must play “Mother May I” with the self-appointed experts who arrived to protect against “dangers” they can’t accurately describe or measure. The vacuuming up of our money, our resources, our mind share, our energy, destroys our ability and will to compete.
Fine, ignore the reality. Wait for the bodies. Assert your superiority and your authority. But the facts are the facts. The case against the CPSIA is crystal clear and the only ones who don’t “get it” are the Democrats. After two years of banging my head against the wall, I can only conclude that they don’t WANT to get it.
It’s no mystery – I know why the Dems refuse to listen. They are rather transparent about it. When I spoke to Rep. Jan Schakowsky (D-IL9) at a candidate forum eight days ago, I asked her why she called me a “cynical special interest” to the WSJ. She asked me who I was, and then told me she didn’t know me. That fact didn’t stop her from trashing me, a private citizen, to a nationally-prominent newspaper. Pointing the finger at me serves her interest in getting reelected – she’s saving the populace . . . again. Who is in a position to argue with her? When I protested that our products had been safe for 26 years, she replied that she “didn’t understand what the problem is” and turned to a voter standing nearby to assert that she just wants to protect children against lead. The higher moral ground . . . for people who don’t know what they’re talking about. Unfortunately, scare tactics sell very well.
I believe the Mob also sells protection. Do you want to buy some protection from them?
The Chilean miners were saved by companies that invested their money to make the world a better place incentivized by the opportunity to make a profit. Our industry, the one that serves children as our reason-to-be, is being depleted by a heavy tax – the intrusion of a heavy-handed government that treats us as “guilty-until-proven-innocent”. The government REFUSES to listen to us.
Those of you with children will pay the consequences.
Thank you, Mother Government. The market saved the miners, but you will happliy kill us.
Vote on November 2nd for a fresh start.
Read more here:
CPSIA – Do We Need More Government? [No!]
CPSIA – What Are We Trying Achieve?
October 10, 2010 by Rick Woldenberg, Chairman, Learning Resources, Inc.
Filed under BLOG, Featured Articles
787 days have passed since ANY Democrat in Congress did ANYTHING to help us on the CPSIA. There are only 23 days left until Election Day.
Sean Oberle published a lengthy contemplation of the issue raised in my last post on the relationship between compliance and safety as objectives for regulators and for industry. Mr. Oberle’s essay speaks for itself, so I will not attempt to summarize it. He concludes with the following message: “Therein lies the frustrating and frightening aspect of product safety. Those of you tasked with ensuring product safety – industry rep, consumerist, and regulator alike – are trying to quantify ambiguity amid a chaos of demands … all of them in flux … I don’t envy you.”
Sean, boy are you right!
I think it’s worth discussing a few issues on compliance versus safety since Mr. Oberle devoted so much ink (or electrons) to the topic.
1. The law defines what the CPSC can and cannot do. It’s a shame no one told them . . . .
First and foremost, the CPSC exists because of the CPSA and its activities are governed by the CPSA. Recall authority is governed by Section 15 which limits the agency’s recall authority to “substantial product hazards”, namely a product that “. . . creates a substantial risk of injury to the public”. [Section 12 gives the agency additional powers to seek a court order for "imminent hazards".] In other words, the CPSC does not have the legislative authority to tilt at windmills – it cannot demand recalls for anything unless it presents a “substantial risk of injury to the public”.
Consider recalling 12 million glasses that the CPSC acknowledges in writing are SAFE. Substantial risk of injury?
Consider recalling more than seven million trikes sold over 14 years that caused six children to cut themselves. Children who were under three years of age and should have been under the care of attentive adults. Substantial risk of injury?
Consider recalling more than 400,000 Sarge cars because the little yellow dot on the wheel hubcap violated the lead-in-paint ban, and those dots were produced from two cans of paint. Substantial risk of injury?
One must distinguish between legerdemain and reality, between policy and what the law intended. It is a little focused-upon responsibility of the agency to exercise this judgment. Is it even possible for everything that happens to be a “substantial” risk? We know of cases where a single broken toy without an injury provoked an official investigation at the agency. Fair? Is this an activity that the CPSA authorizes? It is . . . if you are running the agency and you say it is. Arguably, the recall of the 480,000 Mattel Wheelies on September 30 was just such a case. Consumers apparently reported two broken cars with wheels that fell off, and no injuries were reported or implied. Substantial risk of injury? I question that.
2. The notion that we need all this supervision flies in the face of injury statistics. But it sure makes the CPSC look irreplaceable, doesn’t it?
I have already published and discussed ad nauseum the historical injury statistics from lead based on CPSC recall notices – ONE DEATH and THREE UNVERIFIED INJURIES over 11 years (1999-2010). If we were facing such a dire public health crisis, why weren’t kids dropping like flies from lead poisoning over such a long time period of “lax regulation”? If the harm was so widespread and so devastating, why aren’t any of these actual victims known? Names, addresses, photos, case histories?
A friend replied to me recently reasoning that there is no safe level of lead. Okay, I concede that lead can be dangerous but it is absolutely true that lead in present throughout our environment and in the air, food and water that we consume every minute of every day. So since we take in lead from several sources all the time, we know we are building up lead and this leads to several questions. If lead is so harmful at all levels, why aren’t we ALL showing the effect of our cumulative build-up of lead? How can you demonstrate that children’s products contribute meaningfully to the asserted “problem”? How can you prove that “fixing” children’s products will meaningfully change lead blood levels? And if you could prove those things (which cannot be done), how can you measure the return on investment of our multi-billion dollar annual investment? Remember, we can only spend those dollars one time – so is flushing them down the toilet on test reports REALLY our best use of scarce and irreplaceable dollars? How would you measure that?
But the more that the CPSC enforces the law against “bad” corporations, the more they scam the public into thinking they needed the help all along. They talk about recall statistics but never put them in the context of injury statistics. The proponents never compare lead injury statistics to other injury statistics like swimming pools.
[Is a child injured by lead "worse" that a child killed in a pool? It better be - because we are spending billions to prophylactically eliminate the possibility of purported lead injuries while leaving swimming pools open to continue a continuing skein of killings of more than one child each day. That's okay according to our Democrat-run Congress. Tell that to the family of drowning victim - they can take comfort in knowing that their child didn't have lead poisoning thanks to the relentless and remorseless enforcement of the CPSIA . . . .]
So as the regulators abuse and confuse the definition of hazard, they create an atmosphere of dependence. Oh thank you Mother Government for saving me! What would I do without you?!
3. Mr. Oberle reminds us that “Lack of incidents may not mean a product is safe.” And just because you’re paranoid doesn’t mean they AREN’T out to get you.
Mr. Oberle does not take an offensive stance on this topic, btw. He is right, you can sometimes catch something dangerous before it creates harm. Presumably a quicker recognition of the hazard in Magnetix might have prevented injuries. Responsible companies need to always keep a lookout for insights that reveal latent hazards.
On the other hand, injury statistics are a useful tool. If, as is the case for lead, the assertion is that the hazard is widespread and present over a lengthy period of time, injury statistics become QUITE relevant. So, if lead was such a terrible problem in children’s products (putting lead-in-paint aside, long ago banned), injury statistics over many years would reveal a latent problem. Think of the breadth of the definition of “Children’s Products” and think of the years of recall data available for study. We are looking at TRILLIONS of interactions with children every year in the United States alone. Where are all the lead victims? We cannot say that we don’t know the scale of this problem. We have apparently been running an “experiment” on the U.S. public for decades in the period the zealots label as “lax regulations” or “lax enforcement”. If lead-in-substrate were so dangerous, wouldn’t you expect to see SOME evidence of it?
If we must imagine the scale of the danger, can we spend imaginary dollars to deal with it?
4. The compliance hawks want to frame this as a financial question – how much is your safety worth? I think that’s the wrong question – I think the question is “how long do you want to have a job?”
I have already reported that our compliance group is currently up to six people from a historical one or two, and of course, our products are no safer today than in the past. They were always safe and still are, but it costs us a lot more to operate. That’s not good for you or for me.
So how do we pay for all this new bureaucracy? We have not raised prices, that’s impossible these days. We are lucky to have customers and cannot spit in their faces with a price increase. Think of your business – it won’t fly.
We also need to hit profitability targets because we need to remain financable. We do not get money from “money fairies” – we have to deal with a bank, just like you. Our bank prefers to see that we make money. I know that doesn’t seem very civic-minded but I can’t fault them for their POV. In any event, I think it’s elementary that a business needs to make a profit to have the model sustain itself. Therefore, we cannot commit ourselves to ever-eroding profitability. When our costs rise, we cut elsewhere . . . just like you do.
Needless to say, we have skinnied up a lot since 2007. We have a much-reduced headcount and operate far more efficiently. This is how everyone behaved during the financial crisis and the jobs have not returned, in part because the economy remains sluggish. With our rising overhead relating to pointless regulations, what can we do? We must recover the money from activities that are focused on raising revenues. In effect, we are discontinuing activities that create growth to fund activities that are pure costs.
What’s the math behind this? Consider how we recover a dollar of bureaucratic cost from productive activities. If you are already operating efficiently and cannot wring out big productivity gains (as may be the case post-financial crisis cost reductions), then how do you pay for an additional dollar of overhead cost? When you eliminate a “productive” dollar of cost to pay for an unproductive dollar of cost (e.g., you trade a dollar of marketing promotion for a dollar of test costs), it’s not an even trade. No, because your dollar of productive cost creates gross margin whereas your overhead produces no profit whatsoever. Your productive dollar of cost produces gross profit which defrays your operating costs and produces marginal net profit on top of that. Wiping out the dollar of productive cost also wipes out the contribution to operating costs, so effectively, only the associated marginal net profit can defray the unproductive cost. Since profit percentages are generally low for most of us, the ratio of productive cost dollars needed to be sacrificed to cover unproductive costs is probably on the order of 2:1 or 3:1. Hire another QC person and fire the equivalent of two people elsewhere. In our case, we do it by attrition. We just shrink away.
As if this weren’t bad enough, it’s also a recipe for disaster or business death in a worst case. The continued erosion of productive spending to finance unproductive spending has a dramatic impact on growth. Revenue flattens out or stays in a downward trend. It’s no surprise – you are starving your company of investment dollars as you spend at constant levels. You have simply shifted your spending from productive uses favoring growth to unproductive uses that will not create growth. Presumably, those of you with children have discussed the merits of eating fruits and vegetables versus eating potato chips. It’s no different for a business and how it consumes dollars. We will never grow up to be big and strong if Mother Government restricts our financial diet this way.
Sean’s right. I don’t envy you . . . or me. This makes me very pessimistic about the future.
I hope you are mad as hell and won’t take it anymore. In 23 days, you will get to vote. DO IT!
Read more here:
CPSIA – What Are We Trying Achieve?
