Economics

Ad Astra Per Aspera – “To the Stars Through Difficulties”

November 1, 2020
Economics, Space Law

Carlton Hemphill, MJLST Staffer

With upcoming elections and the ongoing pandemic on the minds of many, it’s easy to get lost in the negatives of 2020. However, one shining star of a historic event took place on May 30, 2020, NASA astronauts once again launched from U.S. soil, and for the first time on commercially produced and maintained spacecraft. The mission to the International Space Station (ISS) went as well as anyone could have hoped for: uneventful. It sounds ironic to describe such a monumental moment as being “uneventful,” but in the context of strapping humans to the tip of a rocket and blasting them into space, “uneventful” is good. It is also a testament to how far the privatization of space exploration has come. SpaceX, the company responsible for the successful launch of NASA astronauts to the ISS, did not start out with success. Many of their early launch attempts of the Falcon 1 ended in disaster, nearly putting the company out of business. However, with the help of government contracts SpaceX was able to continue researching and developing their rockets to the point of being an industry leader.

What about the economy? Good news for the U.S. economy and taxpayers alike.

Besides allowing for this milestone of American science and engineering to occur, government contracts for commercial space exploration prove to be economically beneficial. Prior to the May 30^th mission, NASA was paying a premium to launch astronauts on Russian spacecraft, and virtually all commercial satellite launches had been outsourced to Russia and China. It appeared as if the United States was out of the space game. With the then existing technology, domestic aerospace companies were unable to match the prices offered by foreign competitors. The economic incentives provided by government contracts to domestic companies such as SpaceX, have reversed this trend. They have allowed companies to invest in research that has led to tremendous cost savings, such as a reusable first stage rocket engine, and increased reliability and safety. Domestic companies are now able to offer safe and reliable space travel cheaper than foreign competitors. This has once again shifted power back to the United States, with SpaceX controlling the market for commercial satellites, as well as the future launches of NASA astronaut missions. NASA plans to continue using commercial spacecraft for its next mission to the ISS. The mission, named SpaceX Crew–1, is slotted for November 14, 2020, and will bring three NASA astronauts and one Japanese mission specialist to the ISS. So, stay tuned, and stay excited!

Is there more to commercial space exploration than satellites and astronauts? Sure there is.

The idea of sending paying customers into space is nothing new and has been talked about since space travel first became a reality. The recent success of commercializing space has reignited talk about profiting from those curious to venture out of this world (especially with the way 2020 has gone). NASA has even gotten on board with economizing space and is planning on allowing “private astronauts” to spend up to 30 days on the ISS for the low cost of $35,000 per night, plus shipping and handling (i.e. launch costs for commercial spacecraft). It seems that the end goal of both the government and private companies is to stimulate a space economy. While this concept might initially seem hard to imagine, one need only look to the evolution of the aviation industry for a reality check.

Of course, when a space economy becomes reality, there will be a pressing need for increased laws and regulations. While space travel has been around for over half a century, and a good body of laws pertaining to space already exist, the concept of commercialized space travel is still relatively new and uncharted territory. Lawmakers will most likely turn to the aviation industry for guidance on how to regulate this growing field. As technology advances and propels people further into previously uncharted territory, the law must follow hand in hand and evolve to the changing circumstances.

It’s a Small World, and Getting Smaller: The Need for Global Health Security

October 10, 2020
COVID-19, Economics, Health, Healthcare, Public Health

Madeline Vavricek, MJLST Staffer

The word “unprecedented” has been used repeatedly by every news organization and government official throughout the last several months. Though the times that we live in may be unprecedented, they are far from being statistically impossible—or even statistically unlikely. Based on the most recent implementation of the International Health Regulations released by the World Health Organization (WHO) in 2005, more than 70% of the world is deemed unprepared to prevent, detect, and respond to a public health emergency. The reality of this statistic was evidenced by the widespread crisis of COVID-19. As of September 29, 2020, the global COVID-19 death toll passed one million lives, with many regions still reporting surging numbers of new infections. Experts caution that the actual figure could be up to 10 times higher.

The impact of COVID-19 has made pandemic preparedness paramount in a way modern times have yet to experience. While individual countries look inward towards their own national response to the coronavirus, it is apparent now more than ever that global issues demand global solutions. The ongoing COVID-19 pandemic indicates a need for increased resiliency in public health systems to manage infectious diseases, a factor known as global health security.

The Centers for Disease Control and Prevention (CDC) defines global health security as “the existence of strong and resilient public health systems that can prevent, detect, and respond to infectious disease threats, wherever they occur in the world.” Through global health security initiatives, organizations such as the Global Health Security Agenda focus on assisting individual countries in planning and resource utilization to address gaps in health security in order to benefit not only the health and welfare of the individual countries, but the health and welfare of the world’s population as a whole. The Coronavirus has been reported in 214 countries, illustrating that one country’s health security can impact the health security of dozens of others. With the ever-increasing spread of globalization, it is easier for infectious diseases to spread more than ever before, making global health security even more essential than in the past.

Global health security effects more than just health and pandemic preparedness worldwide. Johnson & Johnson Chief Executive Officer Alex Gorsky recently stated that “[g]oing forward, we’re going to understand much better that if we don’t have global public health security, we don’t have national security, we don’t have economic security and we will not have security of society.” As demonstrated by COVID-19, failure to adequately prevent, detect, and respond to infectious diseases has economic, financial, and societal impacts. Due to the Coronavirus, the Dow Jones Industrial Average and the Financial Times Stock Exchange Group saw their biggest quarterly drops in the first three months of the year since 1987; industries such as travel, oil, retail, and others have all taken a substantial hit in the wake of the pandemic. Unemployment rates have increased dramatically as employers are forced to lay off employees across the majority of industries, amounting in an estimated loss of 30 million positions in the United States alone. Furthermore, Coronavirus unemployment has been shown to disproportionally affect women workers and people of color. The social and societal effects of COVID-19 continue to emerge, including, but not limited to, the interruption of education for an estimated 87% of students worldwide and an increase in domestic violence rates during shelter in place procedures. The ripple effect caused by the spread of infectious disease permeates nearly every aspect of a nation’s operation and its people’s lives, well beyond that of health and physical well-being.

With a myriad of lessons to glean from the global experience of COVID-19, one lesson countries and their leaders must focus on is the future of global health security. The shared responsibility of global health security requires global participation to strengthen health both at home and abroad so that future infectious diseases do not have the devastating health, economic, and social consequences that the coronavirus continues to cause.

Boeing Bailout: 737 Max Crashes and the Coronavirus

March 25, 2020
Economics, Public Health, Transportation

Bernard Cryan, MJLST Staffer

Boeing Overview

Boeing plays a major role in the aerospace industry—both domestically and internationally. Boeing employs over 160,000 people worldwide and had a revenue of $76 billion in 2019. According to Forbes’ 2019 Fortune Global List, Boeing is ranked as Fortune 100 company. In fact, Boeing is America’s largest manufacturing exporter. Boeing’s business operations are organized into three units: Commercial Airplanes; Defense, Space & Security; and Boeing Global Services. Boeing’s Commercial Airplanes division is responsible for producing “almost half the world fleet” with more than 10,000 Boeing-built jetliners in service worldwide and “about 90% of the world’s cargo is carried onboard Boeing planes.”

737 Max Crashes

Boeing’s popular commercial airplane—the 737 Max—was recently involved in two deadly crashes. In October 2018, 189 passengers were killed on a Lion Air flight taking off from Indonesia. Again, in March 2019, 157 passengers were killed on an Ethiopian Airlines flight just minutes after takeoff. In response, Boeing grounded all 737 Max airplanes around the world and created a $100 million relief fund “to meet the family and community needs of those affected by the accidents.” Nevertheless, Boeing has received harsh criticism and scrutiny over deficiencies in its product and training. The 737 Max airplanes are still not cleared to fly causing Boeing customers to revise or even cancel orders. Certain airlines have also demanded compensation from Boeing for flight cancellations that resulted from the grounding of 737 Max airplanes. Boeing’s stock price fell after the crashes and Boeing’s revenue fell from $101 billion in 2018 to $76 billion in 2019. Boeing even replaced its CEO after he was unable to stabilize the company following the crashes. In sum, the 737 Max crashes have forced Boeing into a vulnerable financial position.

Coronavirus

The recent COVID-19 outbreak has posed additional challenges for Boeing and the entire aerospace industry. Boeing has publicly acknowledged the struggles of the entire industry caused by the coronavirus. For example, coronavirus’ impact on travel has forced American Airlines to fly its first cargo-only flight in 36 years. Boeing is directly impacted by the coronavirus because struggling airlines are not currently in the position to place orders for new airplanes.

Government’s Response

Although there is fierce competition amongst airlines, there is little competition in the manufacture of commercial airplanes. Boeing and Airbus, a European company, are the two main global suppliers of large commercial aircraft and have almost complete market power. President Trump has recognized Boeing’s indispensable role in keeping America competitive in the global industry and has recently stated, “Yes, I think we have to protect Boeing. We have to absolutely help Boeing.” Boeing has publicly expressed support for the government’s plan to bailout the aerospace industry.

Boeing is requesting a bailout of the aerospace industry in the amount of $60 billion. Boeing has suspended paying dividends and CEO Dave Calhoun has given up his pay temporarily. Additionally, United Airlines has threatened to cut jobs if the bailout relief is not passed by Congress. The aerospace industry wants help from the government. Some, however, caution against using the term ‘bailout’ for this type of situation because the airlines did not cause the hardship resulting from the coronavirus. Although Boeing and the airlines are not responsible for the coronavirus, they are at least partly responsible for their current inability to survive through these challenging times—Boeing and the airlines have spent billions of dollars in recent years buying back their own stock. For example, airlines have spent $42.5 billion on buy backs between 2014 and 2019 which is almost identical to the amount the industry is now requesting from the government.

The Bailout and The Takeaway

A government bailout can be in the form of legislation providing money or resources to a company or even an industry to help that company or industry avoid bankruptcy. For example, Congress approved a $15 billion bailout to the airlines in response to the 9/11 terrorist attacks. Another example is the Emergency Economic Stabilization Act of 2008 where the government provided bailout relief to banks after the mortgage crisis. AIG initially received an $85 billion loan (later receiving more money totaling $150 billion) from the Treasury in exchange for 79.9% equity in AIG. The loan was to be repaid with interest; the U.S. government and taxpayers eventually made $22.7 billion from interest payments.

A government bailout of the aerospace industry appears imminent. Boeing is likely to be considered “too big to fail.” The main questions are how much money will go to Boeing and the aerospace industry, in what form, e.g., debt or equity, and what strings will be attached to that money. Will the government acquire some ownership of Boeing as they did with AIG? Boeing CEO has said Boeing may reject any relief from the government if the government demands stake in the company. Will Boeing be required to change any of its Commercial Airplane division business practices? Will there be more government oversight of Boeing’s operations? Will Boeing be required to cut emissions from its planes to help protect the environment? The aerospace industry bailout will be interesting to monitor as things should come together quickly in the next few weeks, or even days.

The International Whaling Commission Sans Japan: What It Means for the Whales

February 10, 2019
Animal Law, Economics, International Law

Allie Jo Mitchell, MJLST Staffer

On December 25, 2018 Japan announced that it would withdraw from the International Convention for the Regulation of Whaling (“ICRW”) and leave the international whaling commission (“IWC”) in order to resume commercial whaling. A statement by Japan’s Chief Cabinet Secretary explained that the decision to withdraw was based on the failure of the IWC to take into account all stated objectives of the ICRW, including the “orderly development of the whaling industry” and the creation of sustainable commercial whaling. Citing the cultural and economic significance commercial fishing has played in Japan, the country rested its decision on its determination that commercial whaling could resume without negatively impacting cetacean resources.

International condemnation over Japan’s decision was swift, with Greenpeace Japan questioning the health of Japan’s whaling stock and calling the decision “out of step with the international community, let alone the protection needed to safeguard the future of our oceans and these majestic creatures.” The UK’s environment secretary tweeted that “[t]he UK is strongly opposed to commercial whaling and will continue to fight for the protection and welfare of these majestic mammals” and a diplomat of Norway called the decision to break away from the global agreement “dangerous.” On January 14, 2019 the IWC issued a statement that it had received notification from Japan that it would withdraw from the ICRW in 2019. Recognizing the role Japan had played, the chair of the IWC specifically mentioned the controversy surrounding commercial whaling within its member group, offering hope that the IWC would continue to work on a variety of issues in which there was common ground.

Now that Japan has left the IWC, it will begin the commercial hunting of whales in July of 2019 within its territorial seas and exclusive economic zone that exists within 200 miles of Japan’s coasts. Japan will also remain an observer of the IWC and “continue to contribute to the science-based sustainable management of resources.” Importantly, without it’s permit to kill whales for research under the ICW, Japan will now cease the taking of whales in the high sea, including the Antarctic Ocean and the Southern Hemisphere, as required by international law. Japan had previously killed whales in the Antarctic Ocean under the auspicious guise of research. In fact, in 2014 the International Court of Justice found that Japan’s whale research program was violating the IWC’s moratorium on commercial whaling because Japan was using lethal methods where none were required. Despite this holding, in 2016 a Japanese “research” expedition in the Antarctic killed 333 whales (207 of which were pregnant) with the meat from the whales sold on the commercial market.

But what does all this really mean for the whales of the world? There are some positives that may come from Japan withdrawing from the IWC, but these could easily be outweighed by the negatives. Because Japan will have to limit its commercial whaling to 200 miles within Japanese coasts, whales outside of this region, particularly whales in the Antarctic and southern hemisphere, will be in luck. However, whales within Japan’s territorial sea and economic zone, where studies suggest stock levels are low, won’t fare so well.

Furthermore, Japan may not only shift its catch to Japanese waters but could actually increase the number of whales it kills each year with little to no oversight from the international community. This could severely impact whale species, both endangered and non-threatened, and deplete whale stocks within Japan’s territorial sea. As Astrid Fuchs, program lead of the Whale and Dolphin Conservation explained, “[t]he oversight that the IWC was having over Japan’s whaling will now be lost. We won’t know how many whales they are catching, we won’t know how they will report it. It might spell doom for some populations.”

Perhaps the greater danger lies in what Japan’s withdrawal from the IWC may signal to other countries. As Japan stated in its public announcement, “Japan hopes that more countries will share the same position to promote sustainable use of aquatic living resources based on scientific evidence, which will thereby be handed down to future generations.” Fuchs is worried about the precedent this might set, particularly in countries with an interest in commercial whaling and whale meat including South Korea and other Pacific and Caribbean island nation states.

On the bright side, decreasing interest and consumption of whale meat may play a bigger role in protecting whales from commercial hunting than Japan’s involvement with the IWC. Demand for whale meat is the lowest in Japan since WWII, with the average consumption of whale just one ounce per person a year. A recent poll also showed that only 11% of Japanese people strongly support the whaling industry. If the economics of commercial whaling are not as strong as imagined, commercial whaling my peter out on its own in Japan.

The world will likely have to wait and see what the real effect of Japan’s withdrawal from the IWC is on the health and vitality of whale species and whale stocks. In the meantime, there are a myriad of other human caused dangers to whales from bycatch, plastic pollution, noise pollution, oil & chemical pollution, marine traffic, and climate change. Humans have a history of driving whale species to extinction, wreaking havoc on whaling stocks, and threatening the very survival of whales for their personal use and consumption. Despite Japan’s withdrawal from the IWC, it will be necessary for all nations to look beyond commercial whaling and address the continual threats humans pose to whales and other marine life.

The Music Modernization Act May Limit Big Name Recording Artists’ Leverage in Negotiations With Music Streaming Companies

October 28, 2018
Business Law, Competition, Copyrights, Economics, Intellectual Property, Property Law

By: Julia Lisi, MJLST Staffer

Encircled by several supportive recording artists, President Trump signed the Music Modernization Act (“MMA”) into law on October 11, 2018. Supporters laud the MMA as a long overdue update for U.S. copyright law. Federal law governs roughly 75% of recording artists’ compensation, according to some estimates. The federal regulatory scheme for music license fees dates back to 1909, before the advent of music streaming. Though the scheme has been tweaked since 1909, the MMA marks a major regulatory shift to accommodate the large market for music streaming services like Spotify and Apple Music.

Prior to the MMA, streaming services virtually had two options for acquiring music catalogs: (1) either acquire licenses for each individual song or, (2) provide music without licenses and prepare for infringement suits. Apple Music adopted the first strategy and as a result initially suffered from a much leaner music catalog. Spotify went with the second strategy, setting aside funds to weather litigation.

The MMA offers a preexisting mechanism, the mechanical license, on a broader scale. Once the MMA takes full effect, streaming services can receive blanket licenses to entire catalogs of music, all in one transaction. The MMA establishes the Mechanical Licensing Collective (the “Collective”), a board of industry participants, which will set license prices. The MMA is, in part, meant to ensure that more participants in the music industry will be paid for their work. For example, music producers and engineers can expect to receive more compensation under the MMA.

While the MMA may broaden the pool of industry participants who get compensation from streaming, the MMA could weaken big name artists’ bargaining positions with streaming services. Recording artists like Taylor Swift and Adele have struggled to keep their albums off streaming services like Spotify. Swift resisted music streaming based on her conviction that streaming services did not fairly compensate artists, writers, and producers. While Swift may have come to an agreement with Spotify and allowed her albums to be streamed, there are still holdouts. More than two years after its release, Beyoncé’s Lemonade still is not on Spotify.

With the Collective controlling royalty rates, big name artists might not have the holdout power that they wield now. If Swift’s music had been lumped into a collective mechanical license, she may not have had the authority to withdraw or withhold her albums from streaming services. The MMA’s mechanical licenses are compulsory, indicating the lower level of control copyright owners may have. Despite this potential loss of leverage, the MMA is widely supported by artists and industry executives alike. Only time will tell whether the Collective’s set prices will make compensation within the music industry fairer, as proponents suggest.

Sulfur-Ore Mining in Minnesota: Are Near-Term Economic Gains Worth Long-Term Losses?

October 15, 2018
Economics, Environmental Law

Sam Duggan, MJLST Staffer

Mining copper and nickel from sulfur-ore in Northern Minnesota is different than mining iron from taconite, and the environmental consequences are orders of magnitude greater. Unfortunately, the public discourse around developing copper and nickel reserves largely fails to consider this. As a result, the public is not armed with information needed to rationally debate whether sulfur-ore mining is a good choice for Minnesota.

Taconite is a relatively unreactive iron-containing mineral. Although miners exposed to asbestos-like compounds from taconite dust are likely at increased risk of mesothelioma, proper dust mitigation practices and sound environmental planning/reclamation can limit long-term consequences to a scarred landscape. However, as with other types of mining, there are consequences associated with boom-or-bust economics.

In stark contrast to taconite, sulfur-ore is highly reactive and has a particularly insidious property. A decommissioned mine slowly fills with rain, snowmelt and ground water. Sulfur reacts with water and oxygen to produce sulfuric acid, which dissolves metals contained in the sulfur-ore. Like a liquid miner, this acid liberates geologically sequestered metals into a dissolved, bioavailable and toxic form. As metals dissolve from the mine walls, more sulfur is exposed to oxygen and water. This produces more sulfuric acid which dissolves more metals. Through this chain reaction, the mine “mines” itself for centuries or more after its decommission. Importantly, mining target metals (i.e., copper, nickel) never occur alone. They co-occur with non-targets (i.e., lead, cadmium, manganese, arsenic, sulfate) that also dissolve from mine walls. Over time, concentrations of toxic compounds grow higher. Once the mine fills, acidic and metal-rich water (acid mine drainage) leach down-gradient and poison the watershed. Similar processes also occur in tailings piles stored outside the mine.

Sulfur-ore mines are responsible for numerous Superfund sites, including the infamous Berkley Pit copper mine. In 2016, thousands of snow geese landed in Berkley Pit’s toxic water and died en masse. Consider also the 2015 Gold King mine spill. At Gold King, a mine entrance cap was accidentally ruptured during routine monitoring and 3 million gallons of acidic, metal-rich water poured into the Animas River in Southwest Colorado. Related lawsuits seek many millions in damages. The history of mining in the Western U.S. is replete with other examples of sulfur-ore mines contaminating watersheds.

Methods exist for mitigating sulfur-ore mine pollution including capping, chemical neutralization, and constructing water treatment facilities specifically dedicated to the mine. However, these options cost millions and must be perpetually maintained, as it is nearly impossible to prevent water and oxygen from entering a mine. The chain reaction can linger for millennia, continually dissolving metals from rock and leaching toxins into the watershed.

Notably, the mining corporations who reap the lion’s share of a mine’s economic benefit escape long-term environmental liability because bankruptcy law and parent-subsidiary corporate structure often shield parent corporations from their mining subsidiaries’ environmental liabilities. For precisely this reason, the mine permitting process often requires corporations to offer financial assurances for potential environmental damages. However, financial assurances underestimate damages, and taxpayers are left with the bulk of sulfur-ore mine cleanup costs for generations.

The long-term consequences of sulfur-ore mines were recognized by the Obama Administration, particularly regarding mining in Minnesota’s Boundary Waters watershed. In 2016, the Obama Administration instituted a 2-year moratorium on mining permits near the Boundary Waters to study effects of sulfur-ore mining. That study could have led to a 20-year permitting moratorium. However, in 2018, after only 15 months, the Trump Administration decided that the study did not reveal new information and lifted the moratorium. Now, parent companies such as Chile’s Antofagasta can apply for mining permits within the Boundary Waters watershed via their subsidiary company Twin Metals. The permitting process is already underway for Polymet — an open pit, sulfur-ore copper mine just outside the Boundary Waters watershed. Importantly, Minnesota’s sulfur-ore resources could support dozens of mines.

Given that sulfur-ore mines are economically viable for a few decades and an environmental scourge for centuries or more, decision makers should consider whether near-term economic gains are worth long-term losses.

And Then AI Came for the Lawyers…?

April 3, 2018
Artificial Intelligence, Economics, New Technology

Matt McCord, MJLST Staffer

Artificial intelligence’s possibility to make many roles redundant has generated no small amount of policy and legal discussion and analysis. Any number of commentators have speculated on AI’s capacity to transform the economy far more substantially than the automation boom of the last half-century; one discussion on ABC’s Q&A described the difference in today’s technology development trends as being “alinear” as opposed to predictable, like the car, a carriage with an engine, supplanting a carriage drawn by a horse.

Technological development has largely helped to streamline law practice and drive new sources of business and avenues for marketing. Yet, AI may be coming for lawyers’ jobs next. A New Zealand firm is working to develop AI augmentation for legal services. The firm, MinterEllisonRuddWatts, looks to be in the early stages of developing this system, having entered into a joint venture agreement to work on development pathways.

The firm claims that the AI would work to reduce the more mundane analytic tasks from lawyers’ workloads, such as contract analysis and document review, but would only result in the labor force having to “reduce,” not be “eliminated.” Yet, the development of law-competent AI may result in massive levels of workforce reduction and transformation: Mills & Reeve’s Paul Knight believes that the adoption will shutter many firms and vastly shrink the need for, in particular, junior lawyers.

Knight couches this prediction in sweetening language, stating that the tasks remaining for lawyers would be “more interesting,” leading to a more efficient, more fulfilled profession engaging in new specialties and roles. Adopting AI on the firm level has clear benefits for firms looking to maximize profit per employee: current-form AI, according to one study, AI is more accurate than many human attorneys in spotting contract issues, and vastly more efficient, completing a 90-minute task in 30 seconds.

Knight, like many AI promoters, claims that the profession, and society at large, should embrace AI’s role in transforming professions by transfiguring labor force requirements, believing AI’s benefits of increasing efficiency and work fulfillment by reducing human interaction with more mundane tasks. These words will likely do little to assuage the nerves of younger, prospective market entrants and attorney specializing in these “more mundane” areas, who may be wondering if AI’s development may eliminate their role from the labor force.

While AI’s mass deployment in the law is currently limited, due in part to high costs, experimental technology, and limited current applications, machine learning, especially recursive learning and adaptation, may bring this development firmly into the forefront of the field unpredictably, quickly, and possibly in the very near future.

The Next Chapter for Mining and Energy Law: The Cryptocurrency Miners

March 26, 2018
Cryptocurrency, Economics

Zach Sibley, MJLST Staffer

Traditionally, miners enjoyed a position on the supply side of energy production, providing energy inputs like coal that power the grid. The cryptocurrency boom during the last decade, however, has given rise to a new type of “miner” that turns this relationship on its head. Mining for cryptocurrencies like Bitcoin and Ethereum is not providing energy inputs but rather adding a new, massive load to the power grid. Bitcoin globally consumes an estimated 54.88 terawatt hours (TWh) of electricity annual, while Ethereum comes in at 15.74 TWh per year. For comparison, mid-sized countries like Denmark—home to over 5.7 million people—consume approximately 31.5 TWh per year.

And like the miners of old, these new miners are flocking to rural American cities and towns. Rather than gold or coal deposits, though, these cryptominers are searching for something more valuable: low energy bills. And rural areas in Washington state and New York running primarily on hydroelectric power are the new goldmines. The influx of new technology—and its high energy demand—now inevitably clashes with the simpler, energy-cheap lifestyle these rural Americans once enjoyed. Now locals are pushing back, leaning on local governments, energy utilities, and public utility commissions to respond.

The energy consumers who resided in these areas prior to the cryptocurrency boom fear that all these new loads will require new grid infrastructure investments, incurring capital costs that would be spread across all ratepayers. These concerns have been mitigated to a degree by large hook-up fees charged to new cryptomining operations, but such efforts likely do not fully insulate the prior residents and businesses from upgrade expenses. The concerns stem from constant fluctuation in cryptocurrency pricing, which can lead to two detrimental effects on non-mining residents’ energy bills.

First, when the value of cryptocurrencies are high, in increase in transactions creates a high demand for mining. Miners may push the limits of current infrastructure capacity or spike demand peaks faster than the local energy utilities plan for or more rapid than they can get generation assets online to handle. Unanticipated spikes require distribution utilities to purchase power from “spot markets,” which is often a double or triple digit multiplier compared to their normal generation expenses. These measures also fail to protect residents from footing the bill if the cryptocurrency boom becomes a bust. If prices dip low enough for long enough, bankruptcies and sudden departures of cryptomining operations leave remaining residents and business to pay the costs of stranded assets.

Concerned over the local effects of a volatile commercial cryptomining industry, the mayor of Plattsburgh, New York introduced an 18-month local moratorium on commercial cryptomining operations in the city’s common council. If passed, the moratorium will test constitutional challenges based on the Fifth Amendment’s substantive due process jurisprudence or its regulatory takings jurisprudence. It is likely that substantive due process claims will fail because the moratorium is substantively justified, i.e. reasonably related to the mayor’s police power to protect the health, safety, and wellbeing of the residents from economic shock and high utility costs. This reasoning would follow a 2006 Western District of New York decision upholding a town’s development moratorium on a wind energy project. The temporary duration of the moratorium and that substantive police powers underpinning would likely also defeat categorical and non-categorical regulatory takings claims, respectively.

The legitimacy of cryptomining moratoria will allow local governments to engage in meaningful debate with commercial cryptocurrency miners, energy utilities, and the local ratepayers. Establishing sufficient connection prices, demand charges, and contingency pricing to compensate for the risk of stranded assets takes time. These tariffs must be carefully crafted to comply with state retail electricity rate standards, such as just and reasonable and non-discriminatory. Allowing any cryptomining boom to continue uncoordinated only increases the exposure of innocent, permanent residents.

The tension between the commercial cryptomining market and the rural residents of low-cost electricity towns begins a new chapter for energy justice advocates and miners. The new miners, however, find themselves on the opposite side of the scales, potentially harming residents and businesses in rural America. Local governments require regulatory tools like land use moratoria to better coordinate energy loads and protect its citizens from financial uncertainty unique to cryptocurrency rapid boom-and-bust cycles. Residents do not enjoy the same locational flexibility as these cryptomining operations nor are these cryptominers bringing significant business or jobs to the area—a large cryptomining facility can be monitored by a single employee. The division between cryptomining’s small local benefits and its high local cost will likely lead to interesting litigation as rural localities and sophisticated cryptominers attempt to navigate the crossroads of energy law, land use regulation, and emerging technologies.

An Automated Armageddon

March 2, 2018
Artificial Intelligence, Economics

Jacob Barnard, MJLST Staffer

In the 1970’s, hundreds of millions of people starved to death – 65 million of them Americans. In the 1980’s, world oil production peaked and it was soon followed by the depletion of all available sources of lead, zinc, tin gold, and silver in 1990. To make matters worse, all computers stopped working on January 1, 2000. Fortunately, we were all put out of our misery when the world ended on December 21, 2012.

But now, after all of that, we must face a new threat. This one comes in the form of (killer)robots. That is correct; now, in addition to immigrants and other countries, robots are stealing our jobs.

Of course, this is not an entirely new threat. The industrial revolution threatened farmers through advancements in agricultural productivity, as well as increasing worker productivity in general. Yet, as economist Walter Williams explains, this was never actually a problem. In the United States, farmers were 90% of the labor force in 1790, but this decreased to 41% in 1900 (and is down to under 3% currently). All this means, however, is that increases in productivity allowed individuals who would have otherwise been farmers to seek employment in other fields (no pun intended).

Say’s law, commonly misunderstood as “supply creates its own demand,” can be more correctly understood through the insight of W.H. Hutt: “All power to demand is derived from production and supply. . . . The process of supplying—i.e., the production and appropriate pricing of services or assets for replacement or growth—keeps the flow of demands flowing steadily or expanding.” As each person becomes more productive, therefore, they are able to demand more in return for their increased production, which allows others to maintain their employment as well.

Empirical studies on the current effects of automation support this view of the situation as well. A 2017 study by Greggory, Salomons, and Zierahn with the Mannheim Centre for European Economic Research found that routine-replacing technological change accounted for a net increase in labor demand of about 11.6 million jobs across 27 EU countries from 1999-2010 (in comparison to a total growth of 23 million jobs over the same period). In 2015, Graetz and Michaels, working with the Centre for Economic Performance, found “the increased use of robots raised countries’ average growth rates by about 0.37 percentage points. We also find that robots increased both wages and total factor productivity. While robots had no significant effect on total hours worked, there is some evidence that they reduced the hours of both low-skilled and middle-skilled workers.”

This last point is what may create an actual problem. Automation is unlikely to eliminate employment as we know it, but it will likely require a shift away from low-skilled labor. Like the farmers of the 18th and 19th centuries, many low-skilled workers may find their specific jobs being eliminated in favor of more technical employment. If people are given incentive to avoid this shift, it may result in unnecessary hardship for low-skilled workers.

Predictably, this has led some to advocate exactly that. A universal basic income, as suggested by Elon Musk and others fearing a robot takeover, would only give low-skilled workers greater incentive to avoid investing in their educations, slowing the increase in human capital that would maintain high levels of employment as automation becomes more prevalent.

A more reasonable policy recommendation would be to amend the tax code to reduce the disincentive to enter new fields of employment. Currently, education expenses for entering a new trade or business are not deductible. In addition, expenses incurred seeking employment in fields other than an employee’s current trade or business are not deductible because they are not “carrying on” the trade or business when they incur the expense. Simply allowing these two deductions would make it easier for workers to adapt to the changing demands of an evolving economy.

Even if these changes are not enough and the Luddites are correct about robots stealing all of our jobs, there still would not be a problem because there will be plenty of lucrative work available as robot-smashers.

Airbnb Regulations Spark Controversy, but Have Limited Effect on Super Bowl Market

January 29, 2018
Economics, Internet, Regulatory

MJLST Staffer, Sam Louwagie

As Super Bowl LII descends upon Minneapolis, many Twin Cities residents are hoping to receive a windfall by renting out their homes to visiting Eagles and Patriots fans. City regulations placed last fall on online short-term rental platforms such as AirBnB, which prompted an outcry from those platforms, do not appear to be having much of an effect on the dramatic surge in supply.

The short-term rental market in Minneapolis has been a renter’s market in the opening days since the Super Bowl matchup was set. There are 5,000 placements in the Twin Cities on AirBnB this week, as compared to 1,000 at this time last year, according to the Star Tribune. The flood of posted housing options has limited prices, as the average listing has cost $240 per night—more than usual, but much less than the thousands of dollars some would-be renters had hoped for. One homeowner told the Star Tribune that she had gotten no interest in her 4,000-square-foot, six-bedroom house just five blocks from U.S. Bank Stadium, and had “cut the price drastically.”

The surge in AirBnB listings comes despite ordinances that went into effect in December in both Minneapolis and St. Paul. The cities joined a growing list of major U.S. cities that are passing regulations aimed at ensuring guest safety and making a small cut of tax revenue from the rentals. Minneapolis’ ordinance requires a short-term renter to apply for a license with the city, which costs $46 annually. St. Paul’s license costs $40 per year. As of mid-December, according to MinnPost, only 18 applications had been submitted in Minneapolis and only 32 in St. Paul. That would suggest that many of the thousands of listings during Super Bowl week are likely unlicensed. The cities both say they will notify renters they are not in compliance before taking any enforcement action, but a violation will cost $500 in Minneapolis and $300 in St. Paul.

The online rental platforms themselves had strongly objected to the passage of the ordinances, which would require Airbnb to apply for a short-term rental platform license. This would bring a $10,000 annual fee in St. Paul and a $5,000 large platform fee in Minneapolis. According to MinnPost, as of mid-December, no platforms had submitted an application and it was “unclear whether they [would] comply.” Airbnb said in a statement that it believes the regulations violate the 1996 federal Communications Decency Act, and that “the ordinance violates the legal rights of Airbnb and its community.”

While the city ordinances created controversy in the legal world, they do not seem to be having a similar effect on the ground in Minneapolis, as Super Bowl guests still have a dramatic surplus of renting options.

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