Deregulation for Growth

How about some deregulation to help the economy? Sure, makes sense. But when it comes to economic policy these days, common sense is in short supply.

However, there are some lawmakers in Florida that seem to get it. They’re talking about getting the government out of the way through deregulation in order to help the economy.

A February 16 TampaBay.com article tells the story. Unfortunately, the article starts off with a decidedly biased, anti-deregulation tone, but much of the rest of the piece provides some interesting information.

For example, it is noted in the article:

Associated Industries president Barney Bishop has been passing out a booklet headlined "Economic Stimulus Package 2.0." It prioritizes something called "Regulatory Relief," which says, "Policymakers must look at reductions in regulatory red tape as a way to stimulate business activity.''

Bishop pointed to impact fees that local governments charge developers to help pay for roads, schools, sewer lines and other public facilities for new residents. He suggested a temporary suspension of those fees, as well as easing the challenge to such fees in the future.

Senate Bill 630, sponsored by Sen. Mike Bennett, R-Bradenton, would block local governments from collecting impact fees on new development through 2012. Another Bennett bill, Senate Bill 360, calls for eliminating most state growth-management review of big, new developments proposed for Hillsborough County and a host of other cities and counties around Florida.

The home builders, meanwhile, want to reduce the number of agencies that have a say on development permits. Matthews called it "less overlap, less duplication."

The answer to our current economic woes – state by state and nationally – is, in part, about getting government out of the way, so entrepreneurs and investors can take risks, create and build. That requires substantive and permanent tax and regulatory relief. These lawmakers in Florida are pointed in the right direction.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

More on Impact of Ethanol

A study from economist Yonas Hamda at South Dakota State University served up some additional findings on the impact of corn-based ethanol.

According to the university’s research report, Hamda found:

• “Ethanol production used less than 5 percent of the nation’s corn in 1990-91, or 333 million bushels, but used as much as 24 percent — 3.1 billion bushels — by 2007-08.”

• “The increasing rate of corn for ethanol use has affected the availability of corn for feed and exports.”

• “About 60 percent of South Dakota’s corn went into ethanol production by 2007-08, the highest proportion of any state. In Iowa the figure was 50 percent; in Nebraska, 40 percent; and in Minnesota and Illinois, 30 percent.”

• The level of South Dakota’s corn production linked to ethanol “implies a heightened level of dependency and vulnerability of South Dakota’s agriculture economy to the industry.”

There are three negatives at work here. First, the unmentioned, but extensive, taxpayer subsidies received by ethanol producers, with no benefit for the environment or the economy. Second, the higher food costs resulting from corn production being diverted to or expanded for ethanol. Third, greater reliance of farms, businesses and regional economies on an industry that cannot be sustained in the open market, and must be supported by government.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Less Spending in Kansas

Kansas was in a political standoff due the state’s budget.

Tax refunds and pay for state workers were in jeopardy this week. But Governor Kathleen Sebelius, a Democrat, and Republican state lawmakers came to an agreement.

Sebelius signed a bill that will reduce spending in the current fiscal year, though she vetoed some spending cuts.

The February 17 Kansas City Star noted:

The bill Sebelius signed erases the state’s $200 million current-year budget deficit and gives lawmakers a head start toward eliminating $1 billion worth of red ink in next year’s budget.

Because of a cash-flow problem, the state had only $10 million in its checking account Monday morning — not enough to cover payroll, tax refunds and other state bills.

Sebelius had proposed borrowing the money from other state funds, but Republican leaders balked. They called on her to sign their budget reduction bill to ensure the state would have money available to repay the internal loans…

The budget reduction bill trims most state agencies by 4.25 percent. For public universities and colleges, the cuts amount to $34 million. Social services for the poor and vulnerable saw relatively few reductions.

What a novel idea? That is, fiscal responsibility. Reducing government spending in response to budget shortfalls, and apparently, no tax hikes.

Other states – and for that matter, the federal government – should take note of what just happened in Kansas.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

U.S. Economy Not So Bad … Compared to Others

The story on U.S. economic growth in the fourth quarter of 2008 was not pretty. After all, real GDP growth registered -3.8 percent.

But the U.S. actually seems to be faring a bit better than some of our key partners in the global economy.

For example, the February 17 Washington Times reported the following:

• “Japan’s economic output shrank at a stunning annual rate of 12.7 percent in the fourth quarter, the steepest decline in 35 years…”

• “The [weekend’s] G-7 meeting commenced shortly after the European Union reported that the gross domestic product of the 15-nation eurozone plummeted at an annual rate of 5.9 percent during the October-December period. It was the steepest decline since the eurozone started compiling GDP records in 1995.”

• “The German economy, by far the eurozone's largest, plunged at an 8.1 percent rate. It was Germany's sharpest downturn since 1990.”

• “Earlier, Britain reported that its economy declined at a 5.9 percent rate during the last quarter of 2008, its biggest contraction since 1980.”

Of course, this is in no way good news for the U.S. After all, these are our trading partners. If they suffer, we suffer, for example, due to falling U.S. exports.

Where is the next Ronald Reagan to lead an international push for pro-growth tax and regulatory policy changes?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council