Cyber

Experts have biases, too.

How Regulations Contributed to the CrowdStrike Fiasco

CrowdStrike filled a regulatory need. To write the regulations, experts within the agencies and, often experts outside the agencies, work together to lay down the rules. Experts have biases. These biases spill over into the rules they write. A key bias is to favor market leaders.

Live by the sword, die by the sword, CrowdStrike.

‘Connor Harris’s insight doesn’t stop there, though. Harris points out that regulators may have a preference for industry leaders on cybersecurity rather than new, upstart companies. In his words, “even organizations willing to build custom cybersecurity platforms may find auditors uncooperative: the path of least resistance is to use what they expect to see.”

‘Harris builds on an insight made by senior software engineer Mark Atwood on Twitter who argues this may be a case of regulatory capture. But what is regulatory capture?’

Report of the Commission on the National Defense Strategy

Bureaucracy is a threat to national security.

‘The Commission agrees strongly with the admonition from Secretary Austin in his introduction to the NDS that “business as usual at the Department is not acceptable,” but we see continuing evidence that the “barnacles of bureaucracy” are slowing change and innovation. In one estimation, the largest challenge to achieving the goals laid out in the NDS is the business practices of DoD itself. The Commission saw several examples of DoD implementing new concepts and experimenting with different ways to do business, but these tend to be at the margins, as end runs around the typical processes, and at small scale rather than overhauling central personnel, research and development (R&D), and procurement mechanisms or acting at the scale required. As expected, smaller units can change faster than large ones: U.S. Special Operations Command’s (SOCOM’s) acquisition model outpaces that of the services; the Space Force has a more agile personnel system than the Air Force; and the Marine Corps has shifted its entire vision faster than the Navy. Too often at DoD, significant change only takes place with the sustained, direct involvement of the Secretary or Deputy Secretary. Such leadership is vital to the effectiveness of the department, but personalized efforts cannot possibly scale to all the change needed.’

Why Chevron Is Fleeing California

Chevron bails out of California after 140 years because the state is regulating it out of existence. This has led to higher prices for gasoline because producers are shutting down capacity. So to fix this inflation caused by regulation, the state of California is considering … nationalizing refineries by purchasing capacity at what we can all be assured will be fair prices. Given their antipathy to fossil fuels, one can only speculate as to the Rube Goldberg objective function they will seek to optimize should they pursue this scheme.

‘The list of anti-Chevron state policies include a low-carbon fuel standard, cap-and-trade fees, drilling restrictions and a penalty on “excessive” refinery margins. To add injury to insult, the Richmond City Council has put on the November ballot a $1 a barrel tax on Chevron’s refinery, one of the largest in the state.

‘The war on the industry has caused production to fall by more than half in the last decade and several refineries have shut down. Gasoline prices have surged $1.16 a gallon above the national average. Whenever a refinery has problems, prices rise even more owing to lack of supply—sometimes above $6 a gallon.’

Chevron to move headquarters from Bay Area to Texas after warning about regulation

People respond to incentives. Regulation is a negative incentive. But it’s still an incentive.

‘Chevron Corp. is relocating headquarters to Houston from California after repeatedly warning that the Golden State’s regulatory regime was making it a tough place to do business.’

Why Medicaid Keeps Growing, and Growing and . . .

Government wants hospitals to forgive medical debt in exchange for increased Medicaid payments. This works wonders in period 1. What happens in subsequent periods?

‘Enter Mr. Cooper, who is dangling more Medicaid money for hospitals that waive debt accrued over the last decade by patients earning less than 350% of the poverty line—$109,200 for a family of four—or whose unpaid bills exceed 5% of their annual income. Hospitals will also have to provide large discounts for patients earning less than 300% of the poverty line.

‘Larger federal Medicaid payments would exceed the amount of potential debt relief. But this may still be a Faustian bargain for hospitals since debt relief could cause patients to skip out on future bills. Reducing patient payments for emergency visits could also spur more to go without insurance, resulting in more uncompensated care.’

Neil Gorsuch and the Laffer Curve of Law

What is the optimal level of regulation? Too much is absurd, too little is chaotic.

‘Whatever the cause, he worries that the U.S., with its accumulated statutory commands and regulatory crimes, is on the far side of what one might call the legal Laffer curve. “Too little law poses problems,” he says. “I love my libertarian friends, but I am not with them on anarchy, OK? Law is essential.” And yet: “Too much law actually winds up making people fear law rather than respect law, fear their institutions rather than love their institutions.”’

Are Non-Competes Really Ending?

The legal battles will continue, but the most successful regulation is self-regulation spurred by changes in culture. The cat is out of the bag on non-competes. Companies will have to find other ways to protect themselves such as signing contracts in which training requires a fixed amount of recompensation should an employee leave before an agreed period of time. Should employees steal intellectual property, then that will have to be dealt with in the context of separate confidential intellectual property and assignment agreements. Non-competes, as we know them today, are going away.

‘But even if the ban is struck down, it only means ending non-competes will take a little more time. States are going to continue to act, so will Congress, and judges are going to be much more skeptical on the enforceability of these provisions. Employees won’t just pro forma sign their agreements, some employers will realize these agreements don’t make sense, and others will be embarrassed as stories come out on their abusive use of these provisions.

‘That’s why corporations are removing these provisions from their contracts. They have to find new strategies to retain talent, which means treating their employees as if they are free to ply their trade anywhere, instead of as soft indentured servants operating at their beck and call.’