Government: May 2011 Archives

As I read this Professor Stephen L. Carter piece about the uncertainties of government regulation and its effects on businesses and hiring, the more I nodded my head in agreement. Everything I read reflects what I've heard from a number of business owners here in the Lakes Region of New Hampshire: Without knowing exactly what government is going to throw at us in the way of ever more overreaching (and expensive) regulations, there's no way we're going to hire anyone new. Period.

A lot of middling and small businesses have seen their margins shrink, leaving them very little in the way of wiggle room when new government regulations and requirements hit them. How is any business going to plan for the future when government "regulation" is now such a big unknown? With most of the new regulations having absolutely nothing to do with safety, environmental issues, or pay, but more often financial matters, all they do is add unneeded costs to businesses. Sometimes those new rules and regulations turn an otherwise profitable business into an unprofitable one, and when that happens far too many of them close.

All of these regulations do nothing but provide more employment for government workers, not workers actually producing goods and services our economy depends upon. How is this supposed to help our economic recovery?

(H/T Instapundit)
On Wednesday an important vote takes place in the New Hampshire House, one that may well change the course the Granite State been following the previous 4 years.

Some time tomorrow the House is supposed to vote on overriding Governor John Lynch's veto of House Bill 474, the Right To Work bill. The bill originally passed in both the House and the Senate with overwhelming majorities, though the original House vote was just 14 votes shy of a veto-proof majority.

However, House Majority leader William O'Brien may delay Wednesday's vote long enough to lock in the last votes he'll need to override the veto.

HB 474 supporters say the state will see a burst of job growth if the bill becomes law, and point to other right-to-work states as proof. Critics say right-to-work brings lower-paying jobs with fewer benefits, and that it sticks the nose of government into contract talks between labor and management.

If HB 474 becomes law, New Hampshire would be the 23rd state, and the first in the Northeast, to adopt the principle.

A lot of pro-union folks point to the "lower-paying jobs with fewer benefits" canard as if that explains everything and no further discussion is required. However, most of the 22 Right To Work states have a lower cost of living, so unless that factor is taken into account, which union supporters choose to ignore, the comparison is meaningless. As I've mentioned before, a perfect example of this factor can be seen in the battle between the NLRB and the state of South Carolina and Boeing.

The unions in Washington State claim Boeing's new plant is denying the working men and women a living wage. While the pay for those employees in South Carolina is less than the pay of the union workers in Washington, the cost of living in South Carolina is also lower (as is the cost of doing business), which implies that taken as a whole, the workers in South Carolina are receiving comparable pay to those in Washington State.

And so it might be here in New Hampshire as well. If it helps lower the cost of doing business, then Right To Work will help lure more businesses from high cost states like Massachusetts, New York, Connecticut, and Rhode Island, just to name a few. (It doesn't hurt that New Hampshire also has no sales or income tax.)

The days of forced financial support of unions by those not wishing to do so must come to an end. As the reasons for the existence of unions no longer exist, maybe it's time for them to fade away into history.
In a post by Matt Patterson, he tries to make the case for jobs that have been lost during this deep recession never returning. While it may be true that some types jobs may be gone forever, it is not inevitable that the total number of jobs will decline from here on out. Through the process of "creative destruction", one kind of job was replaced by a different one. But as Patterson writes, at least one economist thinks this pattern will no longer be true.

In his penetrating new book The Great Stagnation, economist Tyler Cowen warns that this may have been a temporary and anomalous phenomenon. Cowen calls the period from roughly the early 19th to the mid-20th centuries the era of "low hanging fruit." According to Cowen, technological advances in this period were relatively easy to produce and exploit, resulting in a staggering explosion of living standards.

But by around 1970, most of this low hanging fruit had been plucked and growth rates began to slow. Indeed, growth rates are "lower today than before 1973, no matter what exact numbers you settle on for the absolute living standard." Cowen sees this fact directly tied to the innovation plateau that was reached around the same time: "The United States produced more patents in 1966 (54,600) than in 1993 (53,200)," he notes. "Meaningful innovation has become harder, and so we must spend more money to accomplish real innovations, which means a lower and declining rate of return on technology."

--snip--

This digital depressant trickles all the way down to old fashioned companies. McDonald's recently announced it will do away with cashiers in many of its European restaurants, replacing them with touch-screen ordering systems. This innovation may (or may not) make ordering your Big Mac a faster experience, but it will definitely eliminate countless opportunities for young and low-skilled workers.

On his last point, couldn't it be the cost of labor in Europe is artificially high due to government mandates and labor laws that replacing expensive humans with less expensive technology makes economic sense? When government and labor laws make it more expensive to hire people for what would otherwise be minimum wage jobs, then how can it be a surprise to anyone that businesses like McDonald's won't hire them? (It's not all that different than what we see happening here every time the Leftists in Congress beholden to the labor unions raise the minimum wage. Each time that happens, joblessness among those seeking entry level jobs goes up because small businesses have a tougher time justifying the added expense, particularly during times of economic hardship.)

One commenter hit the nail on the head, detailing why Cowen's claim about the decline of the American economy is inevitable is absurd.

We are inventing more things, faster than ever before. The past innovations "destroyed jobs" -- and made society wealthier and created new jobs, different jobs, to replace those that had gone before. This is nothing but the song of the Luddites.

HOWEVER...

For that process of creative destruction to work, it is necessary to ALLOW the new jobs and new industries to be created. And THAT, not some illusory "low hanging fruit", is what has been changing over the last generation or two. The regulatory burden on new industries has climbed ever higher.

Right now, in laboratories around the U.S. people are working on fusion power, cheap space travel, synthetic fuel from algae, sensors for automated medical diagnosis, and so on, and on, and on.

And if we lived in a free country, sooner than you think, some of those would be part of our everyday lives. The decision to decline is a CHOICE -- not a fate.

Unfortunately our fate is in the hands of people within government who really don't like America all that much and are working as hard as they can to cripple its innovative and robust economy in an effort to make it more egalitarian (at least by their definition). Unfortunately we've seen the results of such socio-economic experiments before, and they've always turned out poorly for everyone involved...except the ruling class, of course. (And even then, some have seen their fiefdoms crumble away and leave them as destitute as the rest of their fellow countrymen.)

Unless we can break the government imposed malaise on our economy, we will indeed see those jobs lost over the past few years gone for good, with no new jobs to replace them, and we will indeed decline as a nation.
A couple of weeks ago I linked to this WSJ opinion piece about the NLRB's suit to block Boeing from opening their new 787 Dreamliner plant, written by South Carolina governor Nikki Haley. I've read all 1081 comments made by the readers of that opinion piece since I posted about Governor Haley's righteous indignation.

Some praised Governor Haley calling out President Obama for remaining silent about the actions of one of his un-confirmed recess appointees. Others blasted Governor Haley for being anti-union/anti-working man/anti-Democrat and a pro-business Republican, accusing her of collusion with big bad Boeing. Most of the latter were vehemently pro-union and couldn't even think of not toeing the union line as they've been so indoctrinated into thinking today's unions are working to "better the working man and saving the middle class" when the facts show otherwise.

In all of the 1081 comments I never saw even one mention of two of the most salient facts that should have changed at least part of the discussion.

The first: Boeing came to South Carolina over two years ago. Over two years ago. Not yesterday. Not last month. Not last year. Construction on the plant started quite some time ago and is almost complete. Both the unions and the NLRB knew that. It wasn't like it was sprung on them at the last minute.

The second: How could Governor Haley have had anything to do with the Boeing/NLRB debacle? She's only been governor since January 12th. (She did serve in the South Carolina legislature for 6 years before running for governor.) Reading many of the pro-union comments, you'd think she singlehandedly induced Boeing to stiff the unions in Washington State, burdened her fellow South Carolinians with new barely-above-minimum-wage-with-no-benefits jobs, caused Boeing to only hire 2600 new employees in their Washington Dreamliner plant, and had Boeing build their new plant during the time she's been governor.

More than one pro-union commenter tried to compare apples to oranges in regards to wages, totally ignoring the differences in the cost of living between Washington and South Carolina. Washington State ranks 35th in cost of living versus 24th for South Carolina (lower numbers are better). The rankings are based on composite 2010 data. So lower wages in a lower cost-of-living state may actually mean workers there might have more disposable income than higher wage earners in high cost-of-living states.

OK, I've gotten a little off topic, but I was trying to make a point. All the pro-union commenters kept trying to play the same old union talking points that have been played since the 1930's, and no one was buying it. More than a few of the anti-union commenters were former union members and understood the downsides of unions and union membership and how they more often than not killed jobs and the businesses providing them and wanted nothing more to do with them. As a former union member myself, I have to agree with those now anti-union brethren.
I am about to write one of the terms most hated by businesses in America these days:

SarbOx.

This refers to the Sarbanes-Oxley bill that came in the aftermath of the Enron debacle. While the intent of SarbOx was to help prevent another Enron and the economic damage that went with it, it has in itself created all kinds of harm to businesses because of its draconian requirements.

Accounting and reporting requirements have added to business costs with nothing to show for it. SarbOx fixed nothing. Even if it had been in force before the Enron debacle, it wouldn't have prevented it.

Some of the side effects of SarbOx:
A decline in IPOs (Initial Public Offerings). This is how private companies go public, offering stock to the public as a means to raise capital for expansion. Without this mechanism, many businesses can't expand as they might have planned, which means fewer jobs are created and less money can be made.

An increase in mergers and acquisitions because IPOs have fallen out of favor due to the requirements of SarbOx.

An increase in number of public companies going private. Some of this may be driven by the burden placed upon public companies by SarbOx. Going private removed much of this burden, but also made it more difficult to raise capital. Apparently they saw this as less encumbering than having to deal with SarbOx.

It slows down speedy financial disclosure, something the SEC requires. With the convoluted requirements of SarbOx, such disclosure is darn near impossible.

Costs of compliance are quite high. The SEC had estimated it would cost companies required to report under SarbOx only $91,000 per year to do so. The actual costs are closer to $7.8 million per year (this is a 2008 figure). Accounting costs have doubled due to the reporting requirements. Other than accountants and attorneys, how has this benefited anyone?

So it all boils down to this: SarbOx costs businesses billions in compliance costs, delays up-to-date financial reporting, has squeezed out investment capital, and cost jobs (except those of accountants). Yet with all it was supposed to do it hasn't prevented much of anything that existing SEC rules and regulations already covered. It wasn't that there weren't sufficient laws on the books to deal with things like the Enron scam. It was that what laws that were already on the books weren't being properly enforced. How does piling on even more laws, rules, and regulations fix that?

Unfortunately we're all paying the price for that lack of oversight and enforcement.
OK, so I misspoke about what Part 2 would be about. Originally I was going to cover energy, but thoughts and righteous indignation about the EPA overrode that plan.

********************

One of the government agencies that has most recently caused FUD (Fear, Uncertainty, and Doubt) among business, and indirectly the people, is the EPA.

While it is the EPA's purview to help safeguard the environment, lately it has been going outside its mandate and trying to regulate economic activities it sees as affecting the environment. This is particularly vexing considering both Congress and the courts have told the EPA they do not have power to do so.

One of the EPA's latest 'crusades' involves energy. In this case making sure it is less available and far more costly. In particular they're trying to impose stricter regulations on the electric utilities and oil companies, bypassing the usual means of doing so and imposing them without the consent of Congress.

Jeff Holmstead, who directed the EPA's air and radiation office from 2001 to 2005 during the Republican President George W. Bush's administration, told the commission the new rules will quickly change policies that have been stable for 40 years. He called the new regulations an "unprecedented" amount of change for power companies.

Part of the problem is that some of the EPA's new rules overlap and contradict many existing rules, both its own and those of other governmental agencies and departments overseeing the energy industry. This leaves the power companies and oil exploration and drilling firms in a bind, making it impossible for them to be in compliance with all the rules and regulations imposed upon them. The EPA also ignores state rules and regulators rather than working with them, which only adds to the confusion.

This is a government agency that has gone rogue and believes it doesn't have to answer to anybody. It ignores the law, ignores the courts, ignores Congress, and ignores the Constitution. It believes it is above the law. It hands down edicts and expects everyone to follow them without question or dissent regardless of the effects on the economy or the environment.

Don't believe me? Then how about the EPA's efforts to 'clean up' the upper Hudson River in an attempt to remove polychlorinated biphenyls (PCBs) embedded in the silt at the bottom of the river? Their clean up has done far more harm than if they'd left things alone.

By ordering a dredging operation along 40 miles of the Hudson, the EPA has created a disaster of governmental proportions in this quiet upstate community. For six months in 2009, floating clamshell diggers shoveled day and night, pulling sludge from the river bottom around Fort Edward and depositing it onto barges. Six days a week, 24 hours a day, these barges, containing a total of 286,000 cubic yards of sediment mixed with old PCBs, were offloaded into that massive dewatering facility. There the soggy material was treated and squeezed in giant presses. The cakes of compacted sludge were then moved by truck onto 81-car trains, parked on a new spur of the Canadian Pacific Railway extending into the site. Five of these trains were in constant rotation, circulating the 4,400-mile round trip between the facility and the final dump site in Texas.

It was a Herculean attempt at remediation but one that actually increased PCB levels in the Hudson for a time; it also wreaked havoc on locals' lives and imposed huge costs on General Electric. And all this work was only "Phase I" of the EPA's plans. The government is now compelling GE to spend billions of dollars on Phase II, an even larger and longer operation. Dredging will recommence this spring.

And once they start dredging again the PCB levels will rise dramatically and stay that way as long as they continue removing all that silt on the river bottom. That doesn't even take into account the huge amounts of energy expended or pollution generated to clean up the river. They would have been better off to leave it where it was. It wasn't going to go anywhere. Instead, they've made things worse all in the name of "Saving The Environment." It's yet another example of the Law of Unintended Consequences coming into play. Government agencies are pretty good at invoking it.

Maybe it's time to rein in the EPA, to remind them that they work for us and not the other way around. Better yet, to ensure they get the message it might be worthwhile to slash their funding to zero for year. Then refund it the following year after an exhaustive review of the EPA's overreach and implementation of proper controls upon the agency.
A few weeks ago my post quoting one of the unfortunate truisms we live under - how regulated portions of the economy tend to have the biggest problems - struck a chord with one of my commenters.

Apparently she believes we don't have enough regulation, citing the problems caused by shady banking practices that helped bring down the economy as the only justification for even more regulation. I came back at her with the problems within the telecommunications industry because of heavy-handed regulation, much of it at the behest of "rent-seekers". Such 'regulation' is crony capitalism at its worst and in the end benefits no one except the rent-seekers. And even they feel the negative effects eventually, making far less money than they might have otherwise and costing the consumers plenty.

There are plenty of other examples of regulation having exactly the opposite effect from the one most would expect. The question is, where to start?

How about one of my favorite targets, gasoline? Or should I say ethanol in gasoline?

Ethanol

The EPA, in it's push to clean up the tailpipe emissions of anything that burns gasoline, decided that pump gas needed something that would help gas burn cleaner, thereby reducing pollution. At first that something was MTBE. MTBE certainly helped engines with carburetors burn cleaner, but it had little effect on fuel injected engines. Unfortunately MTBE had a serious side effect.

While it helped gas burn cleaner, it also polluted water supplies as it was a hydrophilic substance, meaning it was chemically attracted to water. Unfortunately the water it was attracted to far too often was that in out municipal water supplies and private wells. MTBE started showing up in places it didn't belong. It didn't help things that it's also considered a carcinogen.

So in its wisdom, the EPA banned the use of MTBE and decided ethanol would make a great substitute. Like MTBE ethanol also helped gasoline burn cleaner with the added benefit of boosting the octane rating of gasoline. While the water pollution problem was solved, other problems raised their ugly heads, some of them quite costly to deal with.

Like MTBE, ethanol is hydrophilic. It absorbs water. The problem with it is that if it absorbs enough water it separates from the gasoline, turns into a yellowish sludge, and settles to the bottom of the tank. This has two effects. First, it lowers the octane rating of the gasoline. Second, the sludge will clog the fuel systems of the vehicles it's used in.

On more than one occasion I've written about the problems with ethanol in marine gas and how it costs boat owners millions in repairs. The same holds true in other areas, such as small gas-powered equipment. Lawnmowers, chain saws, weed-trimmers, snowblowers, generators, lawn tractors, and a whole host of other equipment don't get along with 90/10 gasoline/ethanol mix presently being sold in the US. Corrosion, detonation, and deterioration of plastic/rubber parts in the fuel systems plague otherwise trouble-free gas powered equipment.

But that's not the whole story of ethanol. There are other unintended consequences created by the use of ethanol as a fuel component.

One of the biggest is the effects on food prices, followed only by the greater pollution generated by its production.

When land previous used to grow food is now used to grow the feedstock for ethanol (corn), the supply of food goes down and prices go up. More pollution is created when those feedstock crops are grown because the farmers will use even more fossil fuels and petroleum-based fertilizers to grow them. The amount of energy derived from the ethanol created from those crops barely equals the amount of energy used to grow and process those crops in the first place.

But do you know what the biggest irony of this story is? Gasoline/ethanol fuels don't help fuel-injected engines burn any cleaner than straight gasoline does. These days, how many engines in cars and trucks sold over the past decade and a half or so aren't fuel injected? None of them.

Oh, and one other thing we must remember about ethanol: it contains less energy per gallon than gasoline, meaning you need to burn more of it to get an equivalent amount of power out of the engine using it. What that means is you get fewer miles per gallon with ethanol-blended gasoline than you do with straight gasoline. And this is good how?

Air Pollution Other Than Tailpipe Emissions

Here's another area where the EPA has gotten it wrong, and it's all going to cost us plenty with little return seen for what we spend.

First, I have to ask you out there how many times you've heard this refrain: "It's just awful! Air pollution is getting worse all the time!"

I've heard it far too often over the past 10 years or so. There's only one problem...it's a lie.

I can't speak for you, but I can honestly say I remember the days when the smog was so bad in some cities that it cast a dark brown pall over them. Automobiles, trucks, power plants, and factories spewed all kinds of noxious fumes from their tailpipes and smoke stacks. The air stank of all kinds of chemicals and partially burned hydrocarbons, even in many of the smaller cities.

Can we honestly say that is the case today? Not by a long shot.

But what effluvia still spews into the atmosphere isn't necessarily the fault of those generating it so much as it's the rather rigid rules created by the EPA that makes it far more expensive to clean up the emissions from the smokestacks than it needs to be. What do I mean by this? Call it the All-Or-Nothing rule.

Let's use coal-fired power plants in the mid-West as an example of the shortsightedness of this rule.

At one point during the Bush Administration, the president wanted to relax rules that would make it easier for the aforementioned coal plants to upgrade their systems to make them more efficient. The upgrades would also have the side effect of making the plants run cleaner than they would without the upgrades. But those upgrades also meant they had to go well beyond those changes and install scrubbers and other air pollution controls as if the plants were brand new. New plants had to meet far stricter emissions requirements than the older plants. The cost to make the older plants meet the new requirements exceeded that of building a new plant. Under EPA rules the utilities had two choices - spend far too much money to upgrade the old plants to meet new plant requirements, or don't do the upgrades at all. There was no in-between solution as far as the EPA was concerned.

So what happened?

President Bush was lambasted by Congressional Democrats and enviro-socialists for "allowing his buddies in the energy industry" to pollute the air all in the name of obscene profits. Congress killed any chance the utilities would get a waiver to reduce their emissions less than the EPA wanted them to. The end effect: the coal plants were not upgraded, their efficiencies were not increased, and their emissions did not decrease. Yet somehow the EPA and the left saw this as a victory for the environment. They wanted the whole thing but they ended up with nothing at all and everyone downstream of those plants are still paying the price.

This is yet another case where government regulation had the opposite effect from that intended.

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This is the first in a series of posts dealing with the problems of government regulation overstepping its bounds and causing far more harm than good.

Part 2 will cover energy and how the government regulations are making sure we'll have less of it at a much higher costs.

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