NLRB Still Needs Reining In

The National Labor Relations Board (NLRB) has worked hard to make itself a political lightning rod by taking a pro-labor union, anti-business agenda to previously unimagined levels.

While the NLRB tends to shift between leaning more pro-labor union with Democratic majorities and more pro-business with Republican majorities, this NLRB has been captured completely by a militant big labor agenda.

Consider the now-infamous Boeing example. In an April complaint, the NLRB's acting general counsel sought an order requiring Boeing to shift its second line of 787 Dreamliner aircraft assembly production away from a new plant in South Carolina to the state of Washington. What's the beef? The NLRB complaint effectively said that building planes in South Carolina means that Boeing "has engaged in unfair labor practices" against the firm's unionized workers in Washington. In reality, no union jobs were being cut by Boeing in Washington. The driving force behind this complaint was that labor union leaders and their political sympathizers despise and fear right-to-work states. In 22 right-to-work states, of which South Carolina is one, workers cannot be forced to join a union, nor compelled to pay dues to labor unions, while the other 28 states have compulsory union membership if a union has a contract with the employer.

At the end of November, however, a deal between Boeing and the International Association of Machinists was struck, and it should bring the South Carolina issue with the NLRB to an end, as it was the machinist union that brought the complaint in the first place.

However, that would still leave a great and dangerous uncertainty in the marketplace as to whether or not the NLRB has the authority to dictate where firms can do business. U.S. Senator Jim DeMint (R-SC) was absolutely correct in saying the following in a statement: "Real and serious damage to America's competitiveness has already been done. Those on the NLRB board who acted like union thugs and led this attack on workers' rights should resign immediately." ...

Read the rest of this SBE Council Cybercolumn by chief economist Ray Keating here.

The Attack on Internet Investment and Innovation Continues

Members of Congress and the chairman of the FCC, buttressed by a variety of hard-core left-wing groups, seem intent on undermining investment and innovation when it comes to broadband access and the Internet.

When teaching graduate students, I hammer home the point that foundational to economics are incentives. In a Public-Sector Economics class a key question is: How are the incentives to take risks, invest, start up and expand a business, innovate, invent, and create jobs affected by public policies, such as regulation, taxes, and government spending?

The forces pushing for net neutrality regulation fail to consider – or choose to ignore – the impact that government regulation of broadband pricing and operational decisions will have on incentives for investment and innovation on the broadband front.

On April 14, for example, ComputerWorld.com reported:

The powerful chairman of a U.S. Senate committee will push for additional authority for the U.S. Federal Communications Commission to enforce Net neutrality rules and implement its new national broadband plan, if it's needed following a court ruling against the agency this month. The decision by the U.S. Court of Appeals for the District of Columbia Circuit to throw out the FCC's attempt to enforce Net neutrality rules against Comcast puts the entire broadband plan, released last month, at risk, said Senator Jay Rockefeller, a West Virginia Democrat and chairman of the Senate Commerce, Science and Transportation Committee. But Rockefeller urged FCC Chairman Julius Genachowski to move ahead with the broadband plan and Net neutrality rules anyway. "In the near term, I want the agency to use all of its existing authority," he said.

Senator Rockefeller not only is telling the FCC to ignore a U.S. Court of Appeals decision, but to ignore Economics 101 as well. After all, if the government decides to dictate pricing, business model, and operational decisions for an entire industry – and in this case, an industry among the most dynamic on the planet – that obviously will send up a red signal regarding investment and innovation in that industry. The incentives to invest will be diminished.

Some of the consequences of this economic reality were estimated in a new study from Coleman Bazelon of The Brattle Group, Inc., titled “The Employment and Economic Impacts of Network Neutrality Regulation: An Empirical Analysis.” What this study effectively does is to attach real-world estimates to the reality of altered economic incentives. The Brattle Group report projected that if net neutrality regulations under consideration by the FCC were implemented revenue growth in the broadband sector would slow by one-sixth over the coming decade; job losses in broadband would top 14,000 in 2011, building to more than 340,000 by 2020; and economy wide job losses would exceed 65,000 in 2011, reaching 1.45 million by 2020.

It also is noted in the study: “Mobile broadband is expected to be the source of most of the broadband growth over the next decade. Consequently, it would bear the largest share of the economic burden of network neutrality regulation.”

Fortunately, some in Congress seem to grasp the ills that promise to accompany net neutrality regulation, as well as the state of current law.

The ComputerWorld.com report, for example, noted:

But while Rockefeller and several other Democrats on the commerce committee urged the FCC to move forward with the broadband plan and its attempt to formalize Net neutrality rules prohibiting broadband providers from selectively blocking Internet content, several committee Republicans suggested the FCC has little authority to move forward in either area…

A light regulatory approach to the Internet by the FCC in the past has promoted innovation, said Senator Kay Bailey Hutchison of Texas, the senior committee Republican. The FCC should resist calls to reclassify broadband as a common carrier-type regulated service, she said…

Genachowski declined to say if the FCC was considering reclassifying broadband as a common carrier service. The agency's lawyers are looking at the options for moving forward with Net neutrality rules, he said. After the recent Comcast decision, the FCC does not have the authority to reclassify broadband as a common carrier service, even though the commission deregulated broadband in series of decisions in the past decade, said Senator Mike Johanns, a Nebraska Republican.

And what about small businesses? They obviously benefit enormously from broadband investment and innovation, for example, by empowering them to access information; reach customers nationally and globally; boost competitiveness; enhance efficiency, productivity and mobility; and expand communications.

A leading left-wing group pushing for net neutrality regulation is the Free Press, and it has a very different notion about net neutrality and small business. On an April 28 blog posting, the group actually asserted that small businesses “will be the most vulnerable if strong Net Neutrality rules aren’t enacted,” and that “Net Neutrality will spur investment and job growth for small businesses.”

Really?

To make such claims, of course, one has to turn economics on its head. The assumption must be that the added costs and uncertainties that come with government interference and control over business decisions actually would spur business investment. It is simply absurd.

But absurd is actually what should be expected from a group like the Free Press. As reported in an extensive analysis by Americans for Prosperity Foundation, the Free Press is nothing less than an ardent foe of free enterprise. The group has called for “a revolutionary program to overthrow the capitalist system”; declared support to “limit” and “perhaps even eliminate” advertising; and noted their “broader struggle for democracy, social justice, and, dare we say it, socialism.”

On net neutrality regulation, Robert McChesney, co-founder of Free Press, declared last year: “But the ultimate goal is to get rid of the media capitalists in the phone and cable companies and to divest them from control.”

So, a pro-socialist, anti-free enterprise group somehow knows what’s best for small business and the economy? I don’t think so.

Groups like the Free Press are all about giving government more control over the economy, and obviously that includes broadband networks and the Internet. That would be extremely bad news for small businesses and the rest of the economy.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Public Doubts Politicians on the Economy

As an economist, I often am bewildered and frustrated by many actions taken and views expressed relating to policymaking and the economy. Sometimes it’s the public in general that generate such feelings. But usually, it’s our elected officials and their appointees.

Therefore, I take great heart in the following findings from a new survey by Rasmussen Reports:

A new Rasmussen Reports national telephone survey finds that only 32% of adults are at least somewhat confident that those policymakers know what they’re doing when addressing the current economic problems on Wall Street. That includes nine percent (9%) who are very confident.

However, 64% lack that confidence, with 40% who are not very confident in the policymakers and 24% who are not at all confident.

Investors are even more dubious. Sixty-seven percent (67%) of investors are not confident that policymakers know what they’re doing with regards to Wall Street.

These majorities are absolutely correct. Many policymakers do not have a clue as to what they are doing when regulating the financial industry – or pretty much any other industry – nor do they grasp all of the consequences and costs of their actions.

There’s your happy thought heading into the weekend.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Competition in High Capacity Telecom

Choices for consumers – including small businesses – in the telecommunications arena have expanded rapidly in recent years. Contrary to claims and concerns from various politicians and/or regulators, the market is vibrant, innovative and competitive.

However, on July 7, The Wall Street Journal reported that the U.S. Department of Justice was taking a look at telecommunications firms: “The review is expected to cover all areas from land-line voice and broadband service to wireless,” including exclusivity deals between wireless carriers and cell phone/handheld device makers.

On the previous day, U.S. Senator Herb Kohl, chairman of the Subcommittee on Antitrust, Competition Policy, and Consumer Rights, sent a lengthy letter to Christine Varney of the DoJ’s Antitrust Division and Julius Genachowski, chairman of the Federal Communications Commission. Kohl declared: “I am concerned that the concentrated nature of the cell phone marketplace could lead to future price increases for [text messages] and other cell phone services relied upon by millions of Americans.” While saying he supported more choice and competition, he got much his market information wrong (such as the actual prices of texting) and went on to support or call for rules and regulations that would restrain investment in wireless and other broadband infrastructure; have spectrum allocated according to political preferences rather than sound economics; and reduce investment and innovation in phones/handsets (such as iPhone, BlackBerry, et al). That’s anti-competition, and anti-consumer.

Just a glance at the industry makes clear that phone and cable companies are fighting hard for customers – both residential and business – in terms of land-lines, while the wireless market has exploded from 100 million customers eight years ago to in excess of 270 million today. There are nine independent firms each serving at least 4 million customers, and about 95 percent of Americans can choose among at least three competitors and more than half of the population picking among at least five. And while other industries are experiencing a dramatic falloff in investment during the current recession, telecom firms, unlike other industries in the current economy, continue to make large investments.

Senator Kohl, the DoJ and FCC should take note of a report from USTelecom released on July 16 titled “High-Capacity Services: Abundant, Affordable and Evolving.” Among the key points in an accompanying summary were:

• Newer competitive entrants, including cable and fixed wireless, are being drawn to the growth opportunity in high-capacity services. In addition to growing fiber-based competing carriers, the top five cable operators have announced plans to invest several billion dollars to expand high-capacity services for business customers. They already report annual revenues from these services of approximately $3 billion, with at least 15-20% annual growth. There also are more than a dozen fixed wireless companies providing high-capacity services throughout the country.

• There is an average of more than 9 fiber competitors in the top 10 metropolitan areas and an average of six fiber competitors in the top 50 metropolitan areas.

• Wireless backhaul is fast emerging as a competitive growth opportunity. With increased wireless data usage, analysts estimate the wireless backhaul market will triple in the next two to four years. Substantial new investment will be required to deploy the technology necessary to meet this demand. Dozens of competitive fiber suppliers, cable operators and fixed wireless providers either already serve this market or are actively targeting this opportunity. Wireless companies also have expanding self-supply options.

• Special access prices have continued to fall since pricing flexibility was granted in competitive markets. Previous independent studies (GAO, 2006 and NRRI, 2009) confirm that prices for special access declined from 2001 to 2007. More recent data supplied by participants in this study show that special access channel termination prices for major ILECs declined by 11% to 23% in inflation-adjusted terms from 2005 to 2008.

• High-capacity deployment and innovative offerings continue to proliferate. More offerings continue to come online from diverse competitors even as prices decline. Suppliers are deploying innovative solutions, such as carrier Ethernet and wireless broadband, to efficiently transport exploding volumes of traffic. Intense competition in retail areas that use high-capacity services—from corporate enterprise communications to consumer wireless services—further illustrate the competitiveness of high-capacity services.

These are big positives for consumers – most certainly including entrepreneurs and small businesses – and the economy. Elected officials and regulators must avoid imposing rules and regulations that will dampen investment, constrain competition, and thereby, reduce the innovations, improvements, choices and services enjoyed by individuals and businesses. The message to the government is simple: Don’t mess with what is so clearly working.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

A More Powerful Fed?

So, is the Obama administration’s idea of making the Federal Reserve a super-regulator of our financial system a good idea or not?

The July 10 New York Times ran an important story (“Two Authorities on Fed Advise Congress Against Expanding Its Power”) focused on two critics of the proposal. The entire piece warrants reading. But three points are worth highlighting here:

• The Obama administration is proposing to make the Fed responsible for identifying and reining in “systemic risks,” like the explosion of reckless mortgages that nearly destroyed the financial system and started a recession that has yet to hit bottom. The Fed would also be in charge of regulating giant financial institutions that are considered too big to fail, perhaps by imposing higher capital requirements on them.

• “I do not know of any single clear example in which the Federal Reserve acted in advance to head off a crisis or a series of banking or financial failures,” said Allan H. Meltzer, professor of political economy at Carnegie Mellon University and the author of a history of the Fed.

• A broader warning came from John B. Taylor, a top Treasury official under President George W. Bush who was considered a potential candidate to succeed Alan Greenspan as Fed chairman. Mr. Taylor said that expanding the Fed’s power would dilute its main mission of steering the economy, create conflicts of interest, reduce its credibility and jeopardize its independence. “The administration proposal would grant to the Fed significant new powers, more powers than it has ever had before,” he told lawmakers. “My experience in government and elsewhere is that institutions work best when they focus on a limited set of understandable goals.”

Taylor is a wise economist.

Again, read the full article.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Telecommunications Price Controls?

When have price controls ever worked? Quite simply, they do not. When the government steps into to set prices, it in effect limits returns. That translates into reduced service, less investment and stifled innovation.

Why would anyone support such measures in the area of telecommunications? Nonetheless, a new coalition reportedly will be announced on Monday addressing special access issues, seeking more government intervention.

Special access lines are high capacity lines provided by telecommunications firms to businesses and other telecommunications companies. These lines meet both voice and data needs of businesses of all types and sizes.

In 1991, the Federal Communications Commission (FCC) imposed price caps on these services, but as technology advanced, it became obvious that competition could flourish. So, a 1999 order allowed for price deregulation in metropolitan statistical areas (MSAs) given that the incumbents could point to competitive triggers being met.

Competition clearly has expanded throughout the telecommunications arena, and the last thing needed is government intervention that would stifle further investment and innovation. That’s exactly what price controls and other new forms of regulation would do.

It is critical to keep in mind that entrepreneurs and small businesses gain most from investment and innovation in telecommunications services. After all, telecommunications advancements empower small firms to reach new customers, and to expand the pool of potential employees and partners. So, the FCC clearly should stand firm its policy of giving telecommunications firms flexibility in a competitive environment.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Google, Small Business and the Internet

It’s National Small Business Week, and Google wants small business owners to get active on an Internet issue. Unfortunately, the company with enormous Internet presence wants small businesses to weigh in on the wrong side of the issue.

Google is getting active on how the federal government should spend taxpayer dollars on broadband. Part of the so-called economic stimulus package was $7.2 billion in broadband-related grants.

As banks and car companies quickly discovered, when government starts doling out taxpayer dollars to subsidize or bailout companies, government controls inevitably come as well.

However, Google actually is in favor of government strings being attached, and wants small businesses to weigh in for those government controls.

Google is urging its “Small Business Network” to sign a letter to Congress in support of “open Internet standards to ensure the growth of small businesses in the United States.”

Sounds nice. Well, that is, until one understands that an “open” Internet, in this case, means a regulated Internet.

Google declares: “Without safeguards that preserve an open Internet, the Internet could be shaped in ways that only serve the interests of broadband carriers, rather than U.S. consumers and Web entrepreneurs.” But why would broadband carriers work against their own customers? Does not seem like a very sound business strategy – especially as innovation and technological advancements are expanding competition and consumers options.

In reality, the question comes down to a question of trust. Whom do you trust to innovate, invest and serve consumers best – private businesses seeking market share and profits, or politicians and their appointees listening to special interests?

Broadband providers have every incentive to serve their two markets – both Web entrepreneurs and Internet consumers – well. If broadband providers actually raised costs or erected obstacles to either side of this market, they would lose business, lose credibility with the public, and no doubt feel the wrath of government regulators.

Small business owners have firsthand knowledge of the costs imposed by government, and how regulation discourages investment and risk taking. It’s no different in the Internet/broadband industry. If government decides to dictate that certain business models and options are off limits, then there will be less innovation, investment, and competition.

What’s the best broadband policy? Forget about the handouts and regulations, and let the market work. That is, keep the Internet open for robust investment, free from government meddling.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

A Mark-to-Market Boost

Mark-to-market regulation under the Financial Accounting Standards Board Rule 157 implemented in 2007 played a big role in sparking the credit-economic mess we’re in right now.

Mark-to-market accounting regulations mandate the revaluation of assets when value either is not known or reflects short-term fluctuations for assets that can be held long term, while also failing to account for the income being produced by assets. The regulations mandating mark-to-market accounting meant that depressed housing values generated lower asset values on paper than in reality. The required “write downs” pushed firms towards or into insolvency.

By the way, many saw the problems that would come with FASB 157. For example, Stephen Taub, writing for CFO.com on November 7, 2007, reported the following:

If you think banks are writing off large amounts of assets now, wait until new accounting rules take effect this month.

The Royal Bank of Scotland Group estimates that U.S. banks and brokers, already under massive losses caused by the collapse in the subprime credit market, potentially face hundreds of billions of dollars in write-offs because of what are called Level 3 accounting rules, according to Bloomberg.

The U.S. Financial Accounting Standards Board Rule 157, which is effective for fiscal years that begin after November 15, 2007, will make it harder for companies to avoid putting market prices on securities considered hardest to value, known as Level 3 assets, the wire service reported.

''The heat is on and it is inevitable that more players will have to revalue at least a decent portion'' of assets they currently value using ''mark-to-make believe,'' Bob Janjuah, Royal Bank's chief credit strategist, reportedly wrote in a note published Wednesday.

On Thursday, the Financial Accounting Standards Board announced revisions to mark-to-market regulations. The Wall Street Journal reported:

Accounting rule makers approved a plan Thursday to ease their controversial guidelines on "mark-to-market" accounting, allowing companies more leeway in valuing their investments. The Financial Accounting Standards Board revised the rules to allow companies to use their judgment to a greater extent in determining the "fair value" of their assets. The board also made it easier for companies to avoid having to take impairment charges against earnings when they suffer losses on their investments.

The move comes on the heels of a sharp push by banks and their supporters in Congress to soften the mark-to-market rules, which require companies to peg the value of their investments to the ups and downs of the market. The banks have contend that during the current financial crisis, when many markets are frozen or not functioning smoothly, the rules have unfairly pushed those valuations lower and forced them to take big losses on the basis of market fluctuations that are temporary.

This is a small break – a glimmer of light – in the policy storm that has been battering markets, investors and businesses. Perhaps it’s no coincidence that the Dow Jones Industrials closed up 216.48 points today.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Obama’s Energy Agenda

No matter how you come at it – from an environmental or energy cost/supply point of view – President Obama’s energy agenda just doesn’t add up.

That was made crystal clear in an excellent piece in the March 2 D.C. Examiner by Iain Murray, who is the Director of Projects and Analysis and Senior Fellow in Energy, Science and Technology at the Competitive Enterprise Institute.

Consider the following key points from Murray:

• “One of wind power’s biggest shortcomings is the simple fact that the wind does not blow all the time, especially on hot days when electricity is needed for air conditioning. The wind industry unspoken secret is that to make up for this inbuilt shortfall, it needs backup power generation facilities, which use fossil fuels, mostly natural gas. So the supposed benefit of wind – carbon-free electricity – is an illusion. Solar has the same problem, as the sun doesn’t shine all day.”

• “Now what about the cap-and-trade scheme? According to the Congressional Budget Office, the President’s budget includes revenues from the auctioning of carbon permits by 2012, probably reaching $300 billion by 2020. Of this, only $15 billion would be invested in alternative energy in the form of spending and tax incentives. The rest would be rebated back to consumers who have been forced to pay more for energy as a result of the program. In other words, the government will put us all on energy welfare. And as rebate schemes involve overhead costs such as employing bureaucrats to administer the schemes, the rebates will never cover the full amount of our increased costs.”

Read the entire piece, as Murray makes additional points that must be kept in mind as we wade further into the energy policy debate.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Proposed Power Plant Regulations

An October 27 Wall Street Journal article points to a possible moment of clarity on the regulatory front.

The piece, titled “EPA to Loosen Controls on Power-Plant Pollution,” reports that the Bush Administration will propose to judge power plant by “their hourly rate of emissions rather than their total annual output.”

The Journal noted: “Under current policy, power plants that make upgrades to operate longer and increase emissions must install pollution-control equipment. The proposed rules, which seek to make it easier for older power plants to extend their life span and upgrade without installing costly new equipment, are tied to an hourly rate of emissions. As long as a power plant's hourly emissions stay at or below the plant's historical maximum, the plant would be treated as if it were running more cleanly, even if its total annual emissions increased as plant operators stepped up operations.”

The Bush Administration is pushing to get the rules finalized by November 1, as it would make it harder for them to be undone after more than two months, according to the Journal’s report. Unfortunately, various congressional leaders are opposed, and threatening to launch an investigation.

Why some in Congress would want to stop this change in power-plant regulation is a mystery, especially if one expects government policies to be based on both sound economics and sound environmental policies. After all, this measure would reduce electricity costs, while still providing reasonable environmental protections. Sounds like a good combination.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

More on Mark-to-Market Fallout

Accounting is supposed to make business and our economy work better. It should be used as a tool for providing a clear, accurate picture of how well or poorly a business is doing. It’s not supposed to be a weapon that unreasonably destroys businesses that do not deserve destruction.

But that’s what’s happened with mark-to-market accounting regulations.

Following are links to some recent sober assessments of the mark-to-market mess. Each one is worth reading to get a full picture of the negative fallout from mark-to-market.

First, Wall Street Journal columnist Holman W. Jenkins, Jr. wrote a piece titled “Mark to Mayhem?” in the October 1 Journal. He lays out much of the problem, and writes:

Accounting straddles the real and unreal, so it's hard to guess how much difference getting rid of mark-to-market might really make. The only way to find out is to try.

A mere accounting rule change won't reduce foreclosures or raise home prices -- then again, if spared drastic writedowns, banks might be more willing to lend, raising home prices and reducing foreclosures.

A mere accounting rule can't alter the underlying economics of a lending business -- then again, no longer worried about insolvency-by-accountant, investors might discover new confidence to inject capital and improve the underlying economics of a lending business.

No accounting rule is worth $700 billion. Then again, the essence of the Paulson plan was to raise the value of bank assets to help banks escape the regulatory equity trap. Does that mean we can change an accounting rule and save Congress from having to appropriate $700 billion?

Let's find out.

Second, former Dallas Federal Reserve Governor Robert McTeer penned an excellent piece for Forbes magazine. “Why Mark to Market?” appears on his blog, and opens: “I was afraid of accounting in school; I still am. Back then, I feared it would wreck my grade point average; today, I fear it will wreck our financial system.”

Third, also in the October 1 Wall Street Journal, economist Brian Wesbury does an excellent job at walking through the damage wrought by mark-to-market accounting, and taking on the arguments opposed to relaxing these rules. In “How to Start the Healing Now,” Wesbury explains:

Mark-to-market accounting causes so much mayhem because it forces financial firms to treat all potential losses as if they were cash losses. Even if the firm does not sell at the excessively low price, and even if the net present value of current cash flows of these assets is above the market price, the firm must run the loss through its capital account. If the loss is large enough, then the firm can find itself in violation of capital requirements. This, in turn, makes it vulnerable to closure, nationalization or forced sale.

If government is serious about fixing the current mess, then booting unreasonable mark-to-market accounting regulations is vital.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Business, China, and Climate Change at the Olympics

If you need a break from watching European handball, archery or Michael Phelps, the fastest man in water, at the Olympic Games, check out an interesting and well-written article by economist Irwin Stelzer about the business of the Olympics.

In “Taking Home the Gold” on The Weekly Standard’s website, Stelzer puts the Olympic Games broadcast rights, advertising dollars and sponsorships in perspective.

In closing, though, Stelzer also makes an interesting point about the realities of global warming policies:

The final lesson of the Olympics is an unexpected one--all the fuss about stopping global warming is itself a game. Using totalitarian muscle, the Chinese regime has made the air quality of Beijing a bit less threatening to the health of the participating athletes. But democratic countries cannot order people out of the city and into the country, close down roads and factories, and take other steps to clean the air, even if only temporarily.

When the games end, it will be business as usual in China. That includes constructing 500 coal-fired generating stations to fuel the growth the regime needs if it is to provide the millions of jobs it must create in order to avoid massive social unrest. That will offset most of the steps being taken in the West to reduce CO2 emissions.

Ah yes, economic reality wins out over political games.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Cost of Government Day

Want some depressing news from Americans for Tax Reform?

Last week, the group released its “Cost of Government Day 2008” report. The analysis serves up a date each year by which the average American worker “has earned enough gross income to pay off his or her share of spending and regulatory burdens imposed by government on the federal, state and local levels.”

The date for 2008? July 16. That’s four days later than last year, and 17 days later than 2000.

Only four times since 1977 has the date fallen later than July 16 – 1982, 1983, 1992, and 1993. Why so late? The author, Peter Ferrara, wrote: “The driving factor for this development is the fact that all components of the cost of government – federal spending, state and local spending, and regulation – are now increasing faster than national income.”

How do the components breakdown in terms of days?

• 21 days worked for state and local regulation

• 42 days worked for federal regulation

• 50 days worked for state and local government spending

• 84 days worked for federal government spending

Federal Regulatory Costs

As is the case with government spending, federal regulatory costs just keep mounting ever higher. That’s clear in the latest edition of the Competitive Enterprise Institute’s “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State” written by Clyde Wayne Crews.

Among the findings:

• Given that 2007 government spending reached $2.73 trillion, the hidden tax of regulation now approaches half the level of federal spending itself.

• Regulation costs more than seven times the $163 billion budget deficit.

• Regulations cost about as much as U.S. corporations earn in pre-tax profits ($1.16 trillion versus $1.3 trillion, respectively).

• Regulations cost about as much as individual income tax collections ($1.16 trillion versus 1.17 trillion, respectively).

• “Economically significant” regulations – new rules that cost at least $100 million -- increased by 14 percent between 2006 and 2007, from 139 to 159.

The need for deregulation and general regulatory reform are clear. Unfortunately, we hear little about such issues from Congress or on the campaign trail. But make no mistake, these mounting regulatory costs take a very real toll on entrepreneurship, investment, job creation, and the economy in general.

Hooray for the Filibuster and the U.S. Senate

A big thumbs up to Republicans and four Democrats in the U.S. Senate today. They worked together to block a bill meant to reduce carbon-dioxide emissions, but would have inflicted massive costs of U.S. consumers, entrepreneurs, investors, businesses and economy.

The Democratic leadership in the Senate fell a dozen votes shy of overcoming a Republican filibuster.

SBE Council strongly opposed the bill, as noted in the latest letter on the issue sent to the U.S. Senate on June 4. SBE President & CEO Karen Kerrigan wrote: “S.3036 has the potential to be the single largest, most intrusive regulatory legislation in our nation's history. The size, scope and costs of S.3036 are vast, and we know there will be unintended consequences from a bill of this magnitude and complexity.”

An Associated Press story noted: “The 48-36 vote fell short of a majority, but Democrats produced letters from six senators — including both presidential candidates Barack Obama and John McCain — saying they would have voted for the measure had they been there.”

But obviously this is just one battle in a much longer war, especially given the support for a regulatory cap-and-trade scheme from both major party presidential candidates. AP went on to report:

"It's just the beginning for us," proclaimed Sen. Barbara Boxer, D-Calif., a chief sponsor of the bill, noting that 54 senators had expressed support of the legislation, although that's still short of what would be needed to overcome concerted GOP opposition.

"It's clear a majority of Congress wants to act," Boxer said at a news conference.
She and other Democrats said this now lays the groundwork for action on climate change next year with a new Congress and a new president that will be more hospitable to mandatory greenhouse gas reductions.

Both Obama and McCain have called for capping carbon dioxide and other emissions linked to climate change. President Bush has opposed such measures and said he would have vetoed the Senate bill if he had received it.

The bill would have capped carbon dioxide coming from power plants, refineries and factories, with a target of cutting greenhouse gas emissions by 71 percent by mid-century.

"It's a huge tax increase," argued Republican Senate leader Mitch McConnell of Kentucky, a prominent coal-producing state. He maintained that the proposed system of allowing widespread trading of carbon emissions allowances would produce "the largest restructuring of the American economy since the New Deal."

McConnell is absolutely correct.

As energy costs skyrocket, Congress and the two presumptive presidential nominees are pushing regulation that will push energy costs even higher. Let’s hope enough U.S. senators stick around in the next Congress to fight off this grossly misguided and destructive effort.

A Victory for Small Business and Liberty

In a recent entry on SBE Council’s BusinessTrends Blog, I noted that “The Drew Carey Project” on Reason.tv reported on a local government harassing a family restaurant in Arizona.

I was exceedingly pleased to see a May 1 press release from the Institute for Justice, which said, in part, the following:

Yesterday, the Institute for Justice Arizona Chapter defeated a ridiculous government demand that forced Arizona entrepreneur Dale Bell to ban dancing outside his Country & Western steakhouse, San Tan Flat, or else face fines of almost $200,000 a year.

“This business is our American Dream,” said Dale, who runs San Tan Flat with his 17-year-old son and business partner, Spencer. “I'm very pleased that freedom and common sense have prevailed. It is hard enough to run a business these days without having to jump through completely arbitrary hoops bureaucrats can put in your way.”

San Tan Flat is a popular steakhouse in Pinal County—located between Phoenix and Tucson—that provides live country music in its outdoor courtyard. Customers often dance to the family-friendly entertainment under the desert stars. County officials, however, dusted off an obscure 60-year-old zoning ordinance to argue that every time one of Dale’s customers swayed to the music the steakhouse instantly morphed into a “dance hall.” According to the old law, dancing outdoors in a “dance hall” is strictly forbidden.

During a hearing yesterday, Superior Court Judge William O’Neil strongly disagreed, stating, “When a local government restricts freedoms it’s a dangerous thing.” Judge O’Neil struck down the Pinal County ruling, finding and stating, “San Tan Flat is not an enterprise for dance.”

Jennifer Perkins, an attorney with the Institute for Justice, the public interest law firm representing Dale, said, “Pinal County’s obsession with dancing was a ruse they used to harass these small businessmen, but we’re hoping that harassment has now been put to rest once and for all. We’re literally ready to kick up our heels and do a victory dance to celebrate Dale and
Spencer’s restored economic liberty.” …

Shortly after San Tan Flat opened in 2005, Pinal County officials began harassing Dale. They forced him to reduce the number of entrances San Tan Flat had off the highway from four to one, restricted him from advertising with more than one sign and a government agent even made a special trip to scrutinize the restaurant’s firewood. Government agents then started showing up three times a night to see if Dale violated the county’s very restrictive noise ordinance—adopted after the steakhouse’s opening. Despite months of constant monitoring, San Tan Flat never once violated the noise regulation. So the bureaucrats dusted off the dance ban.

Score a victory for small business and freedom!

CAFE Mandates and Costs

On Earth Day, April 22, the Bush Administration announced stricter CAFE standards for cars and trucks.

The Wall Street Journal noted the following on April 23:

• “U.S. auto makers must increase the average fuel efficiency of their cars and trucks to 31.6 miles per gallon from today's 25 by 2015 under new rules issued by the Bush administration. The pace of the increase is somewhat faster than was mandated in last year's big energy bill. The rules are the first step toward meeting a congressional mandate that U.S. cars and trucks average 35 mpg by 2020.”

• “The big question for the auto industry is whether the proposal will bring any closure to the issue. Amid a continuing debate over how to curb oil consumption, gas prices and greenhouse-gas emissions, California and more than a dozen other states are pushing to adopt regulations that would essentially require fuel-economy improvements faster than legislation Congress approved last year.”

It is important to be clear about what government CAFE mandates actually mean. As history shows, they do not lead to less oil consumption. And they will make no difference if one is trying to battle global warming.

But higher CAFE mandates do accomplish three things. First, vehicles will be made less safe, as size and weight retreat due to government demands. Second, autos become more costly, as government regulation always comes with a price tag. Third, they take away freedom of choice from consumers.

In the end, government should not be dictating what types of vehicles individuals and businesses buy.

New Jersey’s Paid Leave and Higher Costs

Well, they did it. New Jersey state legislators officially passed a paid leave bill for workers. And the Garden State’s governor, Jon Corzine (D), has declared that he will sign the measure.

According to the Associated Press, the measure allows the following:

Under the plan, which is backed heavily by organized labor and opposed by Republicans and business groups, parents could take paid leave anytime in the first year after a child's birth or adoption.

Workers would be allowed to take paid leave to care for a sick relative receiving inpatient care in a medical care facility or under continuing supervision from a health care provider. A health provider could also certify a sick relative needs help at home.

The program would be paid for through a payroll deduction that legislative officials estimate would cost workers $33 per year. Workers who take leave would get two-thirds of their salary, up to $524 per week, with an estimated average weekly benefit of $415.

The AP report went on to note what those opposed had to say:

Opponents liken the payroll deduction to a tax, and they fear it will increase if the program doesn't earn enough money to meet its needs.

"Legislators and the governor seem to think our residents and employers have deep pockets and unlimited resources to fund their bloated bureaucracy, when that is far from the case," said Jim Leonard of the New Jersey Chamber of Commerce.

Businesses face added labor costs as well, as they must hire additional or temporary workers, or suffer due to lost productivity.

The story noted that New Jersey now joins two other states in offering paid leave – California and Washington. The state of Washington’s program is scheduled to start in October 2009, though lawmakers have not figured out how to pay for it yet.

New Jersey already has the worst public policy climate for entrepreneurship and small business among the 50 states, according to the “Small Business Survival Index 2007.” This, of course, will only make matters worse.

Drew Carey, Footloose and Small Business

TV star and free market friend Drew Carey illustrated a case of local government abusing small business in a recent video entry for “The Drew Carey Project” at Reason.tv.

In “Dance Ban: Footloose in Arizona,” Carey tells the story of a family-owned restaurant in Arizona called the San Tan Flat. It looks like a fun, family-friendly place. And the owners appear to be good neighbors. But county government has stepped in to harass and hassle the business in wide number of ways, including invoking a 60-year-old ordinance against outdoor dancing.

Governmental tyranny does not just occur at the national level. As this video shows, local government can be just as abusive.

The New McGovern Liberal

At one time, the most damaging label a conservative or Republican could hurl was to call an opponent a “McGovern liberal.”

That’s because George McGovern, former U.S. senator from South Dakota and the Democratic Party’s 1972 nominee for U.S. president, was as liberal as they came. Indeed, he might just have been the most left-wing presidential candidate in our nation’s history.

But George McGovern has changed, and we sure could use some more of this new kind of McGovern liberalism.

Just check out an op-ed written by McGovern that ran in the March 7 Wall Street Journal titled “Freedom Means Responsibility.”

McGovern made a well-reasoned, pro-free market case against both the left and right moving to impose increased regulation on subprime mortgages. Similarly, he noted that politicians that want to ban payday lending would generate all kinds of negative “unintended consequences.”

And finally, McGovern addresses a critical issue when it comes making health care more affordable. The former senator wrote:

Health-care paternalism creates another problem that's rarely mentioned: Many people can't afford the gold-plated health plans that are the only options available in their states. Buying health insurance on the Internet and across state lines, where less expensive plans may be available, is prohibited by many state insurance commissions. Despite being able to buy car or home insurance with a mouse click, some state governments require their approved plans for purchase or none at all. It's as if states dictated that you had to buy a Mercedes or no car at all.

Hooray for the McGovern liberal!