Tag Archive for: regulation

Here’s the Obama Administration’s Response to the Shale Boom: More Regulations

In the last few years, we’ve seen innovative companies combine old and new technologies to tap into shale deposits that were once unreachable. The resulting shale energy boom has made the United States the world’s top oil and natural gas producer while creating jobs and improving the nation’s energy security.

Now that we’ve moved from an age of energy scarcity to one of abundance, the Obama administration wants to add another layer of bureaucracy on energy producers.

The Interior Department released its long-awaited proposed regulations on hydraulic fracturing on federal lands, and on page 12 is this nugget:

Operators with leases on Federal lands must comply with both the BLM’s regulations and with state operating requirements, including state permitting and notice requirements to the extent they do not conflict with BLM regulations.

Federal regulators aren’t known for being speedy, as Katie Tubb and Nicolas Loris of the Heritage Foundation explain:

The [Bureau of Land Management] estimates that it took an average of 227 days simply to complete a drill application—just one step in the approval process to harvest oil and gas resources on federal lands. This is compared to 154 days in 2005 and the average 30 days it takes state governments to do the same.

As a result, the number of acres of federal lands leased for energy development has been declining.

BLM data of onshore acres of federal land leased.

Acres leased on all federal onshore land. Data source: Bureau of Land Management.

Now, don’t think states are failing to regulate hydraulic fracturing. If Pennsylvania is any indication, it’s far from the truth. Check out my favorite scene from the documentary Fracknation:

“There are numerous permits you have to get before doing anything” on the Marcellus Shale, Range Resources’ Tony Gaudlip said.

The only thing these duplicative, redundant federal regulations will do is ensure less of our energy abundance is available for our energy-hungry economy.

EDITORS NOTE: The featured image is of a pumpjack in Los Angeles, Calif. Photo credit: Patrick T. Fallon/Bloomberg.

Can the IRS Rewrite Obamacare?

The latest challenge to the Affordable Care Act might let them by EVAN BERNICK.

Does the law mean what it says, or whatever government officials want it to mean? That is the fundamental question confronting the Supreme Court in King v. Burwell, the latest challenge to the Affordable Care Act. While the answer would be uncontroversial in an ordinary case, nothing involving Obamacare is uncontroversial. It will take a Court committed to the principle of judicial engagement to say what the law is, rather than what the executive branch thinks it ought to be.

King concerns the IRS’s interpretation of a section of the ACA concerning tax credits for buying health insurance from government-operated insurance exchanges. Wishing states to set up their own exchanges but lacking constitutional authority to force them to do so, Congress used a carrot-and-stick approach, authorizing tax credits to help qualifying individuals purchase health insurance “through an Exchange established by the State.”

As a failsafe, the ACA required the Secretary of Health and Human Services to create federally operated exchanges in states that declined to set up their own. When 34 states declined to establish their own exchanges, the IRS decided that it would issue tax credits through federal exchanges, despite a lack of explicit authorization in the ACA’s text. It has been doing so since January 1st, 2014. The question is whether the ACA actually permits it to do so.

Why did the IRS think that it had such authority? In finalizing its rule, the IRS stated that its interpretation of the ACA was “consistent with the language, purpose, and structure of section 36B [of the ACA] and the Affordable Care Act as a whole.” The IRS invoked “statutory language” and “legislative history” as supporting its position without specifying what statutory language or legislative history supported its position. Thus, the IRS did not provide a reasoned explanation for its actions–it acted arbitrarily.

Despite the government’s efforts to paint the relevant text of the ACA as ambiguous, the meaning of the text is in fact clear. The law says the tax credits go only to people to purchase insurance on an “Exchange established by the State.” The ACA expressly provides that “‘State’ means each of the 50 States and the District of Columbia.” Congress knew how to provide that non-state entities be treated as states–in fact, it did so elsewhere in the ACA, providing that a federal territory that establishes an exchange “shall be treated as a state.” It did not do so in this context. As Justice Alito put it at oral argument on Wednesday, “If Congress did not want the phrase ‘established by the State’ to mean what that would normally be taken to mean, why did they use that language?” Seeking to defend the IRS’s rule, Solicitor General Donald Verrilli bobbed and weaved but could not give a satisfactory answer, leading Justice Kennedy to observe that his arguments “seem(ed)… to go in the wrong direction.”

The Supreme Court has consistently held that agencies cannot rewrite congressionally enacted statutes under the pretense of implementing them. Last year, in Michigan v. Bay Mills Indian Community, the Court refused to engage in a “holistic” interpretation of the Indian Gaming Regulations Act to allow the state of Michigan to enjoin illegal gambling that did not take place on Indian lands. As Justice Kagan put it, writing for the Court, “This Court has no roving license, in even ordinary cases of statutory interpretation, to disregard clear language.” The language at issue in King, considered in context, is clear, and that meaning should prevail.

Why does it matter that the ACA be taken to mean what it says? What is at stake? Nothing less than the rule of law–the existence of a legal order characterized by a clear, non-contradictory, and stable rules that are general in scope and bind government officials no less than ordinary citizens.

If written laws can be revised after the fact by unelected bureaucrats who do not treat them as imposing any genuine constraints, we do not have the rule of law; instead, government officials can simply employ whatever reasoning they like (or none at all, as the IRS appears to have done here) in order to further whatever ends they think desirable. To allow the current administration to transform “X” into “not X” is to move us closer to that precipice. The “victors” today will be victims of unchecked government power tomorrow.

In order to defend the rule of law, the Supreme Court must engage with the law as written. It must seek the truth concerning the political choices and tradeoffs manifested in the ACA itself. As Thomas Paine once put it, “In America, the law is king.” In King, the Court must make plain where the authority lies.

ABOUT EVAN BERNICK

Evan is the Assistant Director of the Center for Judicial Engagement at the Institute for Justice, a libertarian public interest law firm.

EDITORS NOTE: This article originally appeared on The Huffington PostThe featured image is courtesy of FEE and Shutterstock.

Why Socialism Causes Pollution by THOMAS J. DILORENZO

Corporations are often accused of despoiling the environment in their quest for profit. Free enterprise is supposedly incompatible with environmental preservation, so that government regulation is required.

Such thinking is the basis for current proposals to expand environmental regulation greatly. So many new controls have been proposed and enacted that the late economic journalist Warren Brookes once forecast that the U.S. Environmental Protection Agency (EPA) could well become “the most powerful government agency on earth, involved in massive levels of economic, social, scientific, and political spending and interference.

But if the profit motive is the primary cause of pollution, one would not expect to find much pollution in socialist countries, such as the former Soviet Union, China, and in the former Communist countries of Eastern and Central Europe. That is, in theory. In reality exactly the opposite is true: The socialist world suffers from the worst pollution on earth. Could it be that free enterprise is not so incompatible with environmental protection after all?

I. Socialist Pollution

The Soviet Union

In the Soviet Union there was a vast body of environmental law and regulation that purportedly protected the public interest, but these constraints have had no perceivable benefit. The Soviet Union, like all socialist countries, suffered from a massive “tragedy of the commons,” to borrow the term used by biologist Garrett Hardin in his classic 1968 article. Where property is communally or governmentally owned and treated as a free resource, resources will inevitably be overused with little regard for future consequences.

The Soviet government’s imperatives for economic growth, combined with communal ownership of virtually all property and resources, caused tremendous environmental damage. According to economist Marshall Goldman, who studied and traveled extensively in the Soviet Union, “The attitude that nature is there to be exploited by man is the very essence of the Soviet production ethic.”

A typical example of the environmental damage caused by the Soviet economic system is the exploitation of the Black Sea. To comply with five-year plans for housing and building construction, gravel, sand, and trees around the beaches were used for decades as construction materials. Because there is no private property, “no value is attached to the gravel along the seashore. Since, in effect, it is free, the contractors haul it away. This practice caused massive beach erosion which reduced the Black Sea coast by 50 percent between 1920 and 1960. Eventually, hotels, hospitals, and of all things, a military sanitarium collapsed into the sea as the shoreline gave way. Frequent landslides–as many as 300 per year–have been reported.

Water pollution is catastrophic. Effluent from a chemical plant killed almost all the fish in the Oka River in 1965, and similar fish kills have occurred in the Volga, Ob, Yenesei, Ural, and Northern Dvina rivers. Most Russian factories discharge their waste without cleaning it at all. Mines, oil wells, and ships freely dump waste and ballast into any available body of water, since it is all one big (and tragic) “commons.”

Only six of the 20 main cities in Moldavia had a sewer system by the late 1960s, and only two of those cities made any effort to treat the sewage. Conditions are far more primitive in the countryside.

The Aral and Caspian seas have been gradually disappearing as large quantities of their water have been diverted for irrigation. And since untreated sewage flows into feeder rivers, they are also heavily polluted.

Some Soviet authorities expressed fears that by the turn of the century the Aral Sea will be nothing but a salt marsh. One paper reported that because of the rising salt content of the Aral the remaining fish will rapidly disappear. It was recently revealed that the Aral Sea has shrunk by about a third. Its shore line “is arid desert and the wind blows dry deposits of salt thousands of miles away. The infant mortality rate [in that region] is four to five times the national average.”

The declining water level in the Caspian Sea has been catastrophic for its fish population as spawning areas have turned into dry land. The sturgeon population has been so decimated that the Soviets have experimented with producing artificial caviar. Hundreds of factories and refineries along the Caspian Sea dump untreated waste into the sea, and major cities routinely dump raw sewage. It has been estimated that one-half of all the discharged effluent is carried in the Volga River, which flows into the Caspian Sea. The concentration of oil in the Volga is so great that steamboats are equipped with signs forbidding passengers to toss cigarettes overboard. As might be expected, fish kills along the Volga are a “common calamity.”

Lake Baikal, which is believed to be the oldest freshwater lake in the world, is also one of the largest and deepest. It is five times as deep as Lake Superior and contains twice the volume of water. According to Marshall Goldman, it was also “the best known example of the misuse of water resources in the USSR.”

Factories and pulp mills have been dumping hundreds of millions of gallons of effluent into Lake Baikal each year for decades. As a result, animal life in the lake has been cut by more than 50 percent over the past half century. Untreated sewage is dumped into virtually all tributaries to the lake.

Islands of alkaline sewage have been observed floating on the lake, including one that was 18 miles long and three miles wide. These “islands” have polluted the air around the lake as well as the water in it. Thousands of acres of forest surrounding the lake have been denuded, causing such erosion that dust storms have been reported. So much forest land in the Lake Baikal region has been destroyed that some observers reported shifting sands that link up with the Gobi Desert; there are fears that the desert may sweep into Siberia and destroy the lake.

In other regions the fact that no compensation has to be paid for land that is flooded by water projects has made it easy for government engineers to submerge large areas of land. “As much land has been lost through flooding and salination as has been added through irrigation and drainage in the Soviet Union.”

These examples of environment degradation in the Soviet Union are not meant to be exhaustive but to illustrate the phenomenon of Communist pollution. As Goldman has observed, the great pollution problems in Russia stem from the fact that the government determined that economic growth was to be pursued at any cost. “Government officials in the USSR generally have a greater willingness to sacrifice their environment than government officials in a society with private enterprise where there is a degree of public accountability. There is virtually a political as well as an economic imperative to devour idle resources in the USSR.”

China

In China, as in Russia, putting the government in charge of resource allocation has not had desirable environmental consequences. Information on the state of China’s environment is not encouraging.

According to the Worldwatch Institute, more than 90 percent of the trees in the pine forests in China’s Sichuan province have died because of air pollution. In Chungking, the biggest city in southwest China, a 4, 500-acre forest has been reduced by half. Acid rain has reportedly caused massive crop losses.

There also have been reports of waterworks and landfill projects severely hampering fish migration. Fish breeding was so seriously neglected that fish has largely vanished from the national diet. Depletion of government-owned forests has turned them into deserts, and millions of acres of grazing and farm land in the northern Chinese plains were made alkaline and unproductive during the “Great Leap Forward.”

Central and Eastern Europe

With Communism’s collapse, word has begun to seep out about Eastern Europe’s environmental disasters. According to the United Nations Global Environment Monitoring Program, “pollution in that region is among the worst on the Earth’s surface.” Jeffrey Leonard of the World Wildlife Fund concluded that “pollution was part and parcel of the system that molested the people [of Eastern Europe] in their daily lives.” Evidence is mounting of “an environmental nightmare,” the legacy of “decades of industrial development with little or no environmental control.”

Poland

According to the Polish Academy of Sciences, “a third of the nation’s 38 million people live in areas of ecological disaster.” In the heavily industrialized Katowice region of Poland, the people suffer 15 percent more circulatory disease, 30 percent more tumors, and 47 percent more respiratory disease than other Poles. Physicians and scientists believe pollution is a major contributor to these health problems.

Acid rain has so corroded railroad tracks that trains are not allowed to exceed 24 miles an hour. The air is so polluted in Katowice that there are underground “clinics” in uranium mines where the chronically ill can go to breathe clean air.

Continuous pumping of water from coal mines has caused so much land to subside that over 300,000 apartments were destroyed as buildings collapsed. The mine sludge has been pumped into rivers and streams along with untreated sewage which has made 95 percent of the water unfit for human consumption. More than 65 percent of the nation’s water is even unfit for industrial use because it is so toxic that it would destroy heavy metals used by industry. In Cracow, Poland’s ancient capital, acid rain “dissolved so much of the gold roof of the 16th century Sigismund Chapel that it recently hd to be replaced.”

Industrial dust rains down on towns, depositing cadmium, lead, zinc, and iron. The dust is so heavy that huge trucks drive through city streets daily spraying water to reduce it. By some accounts eight tons of dust fall on each square mile in and around Cracow each year. The mayor of Cracow recently stated that the Vistula River — the largest river in Poland — is “nothing but a sewage canal.” The river has mercury levels that are three times what researchers say is safe, while lead levels are 25 times higher than deemed safe.

Half of Poland’s cities, including Warsaw, don’t even treat their wastes, and 41 animal species have reportedly become extinct in Poland in recent years. While health statistics are spotty — they were not a priority of the Communist government–available data are alarming. A recent study of the Katowice region found that 21 percent of the children up to 4 years old are sick almost constantly, while 41 percent of the children under 6 have serious health problems.

Life expectancy for men is lower than it was 20 years ago. In Upper Silesia, which is considered one of the most heavily industrialized regions in the world, circulatory disease levels are 15 percent higher, respiratory disease is 47 percent higher, and there has been “an appalling increase in the number of retarded children,” according to the Polish Academy of Sciences. Although pollution cannot be blamed for all these health problems, physicians and scientists attach much of the blame to this source.

Czechoslovakia

In a speech given on New Year’s Day of 1990, Czechoslovakian President Vaclav Havel said, “We have laid waste to our soil and the rivers and the forests…and we have the worst environment in the whole of Europe today.” He was not exaggerating, although the competition for the title of “worst environment” is clearly fierce. Sulfur dioxide concentrations in Czechoslovakia are eight times higher than in the United Sates, and “half the forests are dead or dying.”

Because of the overuse of fertilizers, farmland in some areas of Czechoslovakia is toxic to more than one foot in depth. In Bohemia, in northwestern Czechoslovakia, hills stand bare because their vegetation has died in air so foul it can be tasted. One report describes the Czech countryside as a place where “barren plateaus stretch for miles, studded with the stumps and skeletons of pine trees. Under the snow lie thousands of acres of poisoned ground, where for centuries thick forests had grown.” There is a stretch of over 350 miles where more than 300,000 acres of forest have disappeared and the remaining trees are dying. A thick, brown haze hangs over much of northern Czechoslovakia for about eight months of the year. Sometimes it takes on the sting of tear gas, according to local officials. There are environmental laws, but they aren’t enforced. Sulfur in the air has been reported at 20 times the permissible level. Soil in some regions is so acidic that aluminum trapped in the clay is released. Scientists discovered that the aluminum has poisoned groundwater, killing tree and plant roots and filtering into the drinking water.

Severe erosion in the decimated forests has caused spring floods in which all the melted snow cascades down mountainsides in a few weeks, causing further erosion and leading to water shortages in the summer.

In its search for coal, the Communist government has used bulldozers on such a massive scale that they have “turned towns, farms and woodlands into coarse brown deserts and gaping hollows. Because open-pit mining is cheaper than underground mining, and has been practiced extensively, in some areas of Czechoslovakia “you have total devastation of the land.”

East Germany

The new German government has claimed that nearly 40 percent of the East German populace suffers ill effects from pollutants in the air. In Leipzig, half the children are treated each year for illnesses believed to be associated with air pollution. Eighty percent of eastern Germany’s surface waters are classified as unsuitable for fishing, sports, or drinking, and one out of three lakes has been declared biologically dead because of decades of untreated dumping of chemical waste.

Much of the East German landscape has been devastated. Fifteen to 20 percent of its forests are dead, and another 40 percent are said to be dying. Between 1960 and 1980 at least 70 villages were destroyed and their inhabitants uprooted by the government, which wanted to mine high-sulfur brown coal. The countryside is now “pitted with moon-like craters” and “laced with the remains of what were once spruce and pine trees, nestled amid clouds of rancid smog.” The air in some cities is so polluted that residents use their car headlights during the day, and visitors have been known to vomit from breathing the air.

Nearly identical problems exist in Bulgaria, Hungary, Romania, and Yugoslavia.

Visiting scientists have concluded that pollution in Central and Eastern Europe “is more dangerous and widespread than anything they have seen in the Western industrial nations.”

II. United States: Public Sector Pollution

The last refuge of those who advocate socialistic solutions to environmental pollution is the claim that it is the lack of democratic processes that prevents the Communist nations from truly serving the public interest. If this theory is correct, then the public sector of an established democracy such as the United States should be one of the best examples of environmental responsibility. But U.S. government agencies are among the most cavalier when it comes to environmental stewardship.

There is much evidence to dispute the theory that only private businesses pollute. In the United States, we need look no further than our own government agencies. These public sector institutions, such as the Department of Defense (DOD), are among the worst offenders. DOD now generates more than 400,000 tons of hazardous waste a year — more than is produced by the five largest chemical companies combined. To make matters worse, the Environmental Protection Agency lacks the enforcement power over the public sector that it possesses over the private sector.

The lax situation uncovered by the General Accounting Office (GAO) at Tinker Air Force Base in Oklahoma is typical of the way in which many Federal agencies respond to the EPA’s directives. “Although DOD policy calls for the military services to … implement EPA’s hazardous waste management regulations, we found that Tinker has been selling…waste oil, fuels, and solvents rather than recycling,” reported the GAO.

One of the world’s most poisonous spots lies about 10 miles northeast of Denver in the Army’s Rocky Mountain Arsenal. Nerve gas, mustard shells, the anti-crop spray TX, and incendiary devices have been dumped into pits there over the past 40 years. Dealing with only one “basin” of this dump cost $40 million. Six hundred thousand cubic yards of contaminated soil and sludge had to be scraped and entombed in a 16-acre, double-lined waste pile.

There are plenty of other examples of Defense Department facilities that need major cleanup. In fact, total costs of along-term Pentagon cleanup are hard to get a handle on. Some officials have conceded that the price tag could eventually exceed $20 billion.

Government-owned power plants are another example of public-sector pollution. These plants are a large source of sulfur dioxide emissions. The federal government’s Tennessee Valley Authority operates 59 coal-fired power plants in the Southeast, where it has had major legal confrontations with state governments who want the Federal agency to comply with state governments who want the Federal agency to comply with state environmental regulations. The TVA has fought the state governments for years over compliance with their clean air standards. It won a major Supreme Court victory when the Court ruled that, as a federal government enterprise, it could be exempt from environmental regulations with which private sector and local government power plants must comply.

Federal agricultural policy also has been a large source of pollution, in the past encouraging over utilization of land subject to erosion. Powerful farm lobbies have protected “non-point” sources of pollution from the heavy hand of regulation places on other private industries.

III. Policy Implications

These examples of environmental degradation throughout the world suggest some valuable lessons. First, it is not free enterprise per se that causes environmental harm; if so, the socialist world would be environmentally pristine.

The heart of the problem lies with the failure of our legal institutions, not the free enterprise system. Specifically, American laws were weakened more than a century ago by Progressive Era courts that believed economic progress was in the public interest and should therefore supersede individual rights.

The English common law tradition of the protection of private property rights — including the right to be free from pollution — was slowly overturned. In other words, many environmental problems are not caused by “market failure” but by government’s failure to enforce property rights. It is a travesty of justice when downstream residents, for example, cannot hold an upstream polluter responsible for damaging their properties. The common law tradition must be revived if we are to enjoy a healthy market economy and a cleaner environment. Potential polluters must know in advance that they will be held responsible for their actions.

The second lesson is that the plundering of the environment in the socialist world is a grand example of the tragedy of the commons. Under communal property ownership, where no one owns or is responsible for a natural resource, the inclination is for each individual to abuse or deplete the resource before someone else does. Common examples of this “tragedy” are how people litter public streets and parks much more than their own yards; private housing is much better maintained than public lands but maintain lush pastures on their own property; the national forests are carelessly over-logged, but private forests are carefully managed and reforested by lumber companies with “super trees”; and game fish are habitually overfished in public waterways but thrive in private lakes and streams. The tragedy of the commons is a lesson for those who believe that further nationalization and governmental control of natural resources is a solution to our environmental problems.

These two pillars of free enterprise — sound liability laws that hold people responsible for actions and the enforcement of private property rights — are important stepping stones to environmental protection.

ABOUT THOMAS J. DILORENZO

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Senator Rubio: FCC over-Regulation threatens the Internet with ‘speed limits’ and ‘speed traps’

Rubio: “Unlike the roads we drive on, the Internet is not a place where we need to start posting new speed limits and setting up new speed traps, but that’s essentially what this federal action threatens to do to the Internet.”

U.S. Senator Marco Rubio (R-FL) issued the following statement regarding today’s vote by the Federal Communications Commission (FCC) to increase government regulation of the Internet by reclassifying broadband as a telecommunications utility under Title II of the Communications Act:

“Over the past two decades, access to high speed Internet and the freedom to use it have transformed our economy and created infinite new ways for people to achieve the American Dream. Millions of people have thrived in the Internet era in no small part because overreaching government regulations and devious international schemes to seize control of it away from the U.S. have been rejected – until now.

“A federal government board in Washington today took action that threatens to overregulate the Internet to the point of making it more expensive for consumers, less innovative and less competitive. The Internet has thrived on innovation, speed and healthy competition to become faster and faster. Unlike the roads we drive on, the Internet is not a place where we need to start posting new speed limits and setting up new speed traps, but that’s essentially what this federal action threatens to do to the Internet.

“The Internet doesn’t need more rules and mandates that take power away from consumers and hand it to a federal government board that every lobbyist, lawyer and crony capitalist with a vested interest in the Internet will now seek to manipulate to their advantage. The Internet has worked so well so far precisely because it’s been as level a playing field as we have in any industry today, but now this decision threatens to give government regulators the power to pick winners and losers.

“I’m also concerned that this needless government intrusion into the Internet distracts from what we should be doing to reach the next frontier in the Internet’s history: to bring it within reach of the almost 100 million Americans who remain offline. Closing the digital divide is a goal we can achieve in the coming years, but only if we pursue policies like the Wi-Fi Innovation Act and the Wireless Innovation Act that I’ve introduced to increase the availability of spectrum in order to connect more people and increase capacity for growing amounts of data being exchanged via broadband.

“Instead of allowing a Washington bureaucratic board to have the final say, an action of this magnitude should be debated openly in Congress, where I’m confident it would be defeated. Consequential decisions like this about the Internet’s future should be made by Congress, not a federal board of unelected commissioners who are not accountable to a single American citizen. Congress should act immediately to begin updating outdated telecommunications laws.”

The Garage That Couldn’t Be Boarded Up Uber and the jitney … everything old is new again by SARAH SKWIRE

August Wilson. Jitney. 1979.

Last December, I used Uber for the first time. I downloaded the app onto my phone, entered my name, location, and credit card number, and told them where my daughters and I needed to go. The driver picked us up at my home five minutes later. I was able to access reviews that other riders had written for the same driver, to see a photograph of him and of the car that he would be using to pick me up, and to pay and tip him without juggling cash and credit cards and my two kids. Like nearly everyone else I know, I instantly became a fan of this fantastic new invention.

In January, I read Thomas Sowell’s Knowledge and Decisions for the first time. In chapter 8, Sowell discusses the early 20th-century rise of “owner operated bus or taxi services costing five cents and therefore called ‘jitneys,’ the current slang for nickels.” Sowell takes his fuller description of jitneys from transportation economist George W. Hilton’s “American Transportation Planning.”

The jitneys … essentially provided a competitive market in urban transportation with the usual characteristics of rapid entry and exit, quick adaptation to changes in demand, and, in particular,  excellent adaptation to peak load demands. Some 60 percent of the jitneymen were part-time operators, many of whom simply carried passengers for a nickel on trips between home and work.

It sounded strangely familiar.

In February, I read August Wilson’s play, Jitney, written in 1979, about a jitney car service operating in Pittsburgh in the 1970s. As we watch the individual drivers deal with their often tumultuous personal relationships, we also hear about their passengers. The jitney drivers take people to work, to the grocery store, to the pawnshop, to the bus station, and on a host of other unspecified errands. They are an integral part of the community. Like the drivers in Sean Malone’s documentary No Van’s Land, they provide targeted transportation services to a neighborhood under served by public transportation. We see the drivers in Jitney take pride in the way they fit into and take care of their community.

If we gonna be running jitneys out of here we gonna do it right.… I want all the cars inspected. The people got a right if you hauling them around in your car to expect the brakes to work. Clean out your trunk. Clean out the interior of your car. Keep your car clean. The people want to ride in a clean car. We providing a service to the community. We ain’t just giving rides to people. We providing a service.

That service is threatened when the urban planners and improvers at the Pittsburgh Renewal Council decide to board up the garage out of which the jitney service operates and much of the surrounding neighborhood. The drivers are skeptical that the improvements will ever really happen.

Turnbo: They supposed to build a new hospital down there on Logan Street. They been talking about that for the longest while. They supposed to build another part of the Irene Kaufman Settlement House to replace the part they tore down. They supposed to build some houses down on Dinwidee.

Becker: Turnbo’s right. They supposed to build some houses but you ain’t gonna see that. You ain’t gonna see nothing but the tear-down. That’s all I ever seen.

The drivers resolve, in the end, to call a lawyer and refuse to be boarded up. “We gonna run jitneys out of here till the day before the bulldozer come. Ain’t gonna be no boarding up around here! We gonna fight them on that.” They know that continuing to operate will allow other neighborhood businesses to stay open as well. They know that the choice they are offered is not between an improved neighborhood and an unimproved one, but between an unimproved neighborhood and no neighborhood at all. They know that their jitney service keeps their neighborhood running and that it improves the lives of their friends and neighbors in a way that boarded up buildings and perpetually incomplete urban planning projects never will.

Reading Sowell’s book and Wilson’s play in such close proximity got me thinking. Uber isn’t a fantastic new idea. It’s a fantastic old idea that has returned because the omnipresence of smartphones has made running a jitney service easier and more effective. Uber drivers and other ride-sharing services, as we have all read and as No Van’s Land demonstrates so effectively, are subject to protests and interference by competitors, to punitive regulation from local governments, and to a host of other challenges to their enterprise. This push back is nothing new. Sowell notes, “The jitneys were put down in every American city to protect the street railways and, in particular, to perpetuate the cross-subsidization of the street railways’ city-wide fare structures.”

Despite these common problems, Uber and other 21st-century jitney drivers do not face the major challenge that the drivers in Jitney do. They do not need to operate from a centralized location with a phone. Now that we all have phones in our pockets, the Uber “garage” is everywhere. It can’t be boarded up.

ABOUT SARAH SKWIRE

 Sarah Skwire is a fellow at Liberty Fund, Inc. She is a poet and author of the writing textbook Writing with a Thesis.

Buffaloed by Obamacare’s Hidden Taxes

Obamacare’s costs are starting to show by D.W. MACKENZIE:

Someone at Buffalo Wild Wings decided to make the costs of the so-called Affordable Care Act (ACA) explicit in the restaurant’s register receipts. An estimated ACA cost of 2 percent was charged to each paying customer.

BW3’s customers complained. Apparently, they’d rather keep these costs hidden. But hiding costs won’t make Obamacare’s higher prices go away.

Adding the cost of a specific government program to a receipt is unusual. Normally, the only tax itemized on register tapes is sales tax — but these are a fraction of the true costs of governmental activity. There are, in fact, too many different government programs to list on each register receipt. Because the price of regulation is usually built into the prices of goods and services, we tend to pay for regulatory costs unwittingly.

Obama’s “Affordable” Care Act imposes regulations, taxes, and subsidies as a means of income redistribution. As usual, the goal is to tax and regulate higher-income people to subsidize those with lower incomes — but that’s never the way things work out.

Real people do not simply pay taxes and regulatory costs as required by written laws. Everyone tries to avoid taxes by whatever means are available. Tax avoidance usually stems from bargaining over prices in markets. Sellers push for higher prices, and buyers push for lower prices.

Sellers have costs to cover: labor, capital, and taxes. It is a simple fact of economics that when an entrepreneur’s taxes rise, he or she will pass part of that additional cost on to customers.

Regulations are de-facto taxes. There is no economic difference between taxing money from someone to fund some activity and a regulatory requirement to achieve the same goal. The ACA is a complex set of taxes.

How do entrepreneurs respond to ACA taxes? The same way they respond to all taxes, explicit or regulatory: by raising the price of whatever they sell.

There is an inescapable fact of taxation: tax burdens are always shared. Taxes charged to upper-income earners for redistribution are in some measure always redistributed to those with lower incomes through price increases.

While ACA benefits have been touted as “free” to lower-income recipients, this proposition is false — and impossible. Somebody always pays for insurance, or any other good. Goods that seem to be paid for by government only appear to be free because their costs are hidden or obscured. Costs of government programs, like the ACA, are just added into the total costs of taxation, and the costs of taxation are partly factored into the prices of all goods.

Taxpayers cannot buy the same amount of goods when final tax-adjusted prices go up. Economists call the effect of taxes on consumer purchases the tax wedge, because taxes drive a wedge between what consumers pay and what entrepreneurs receive. Taxes make goods more expensive for consumers and less profitable for entrepreneurs.

The explicit 2 percent ACA surcharge at Buffalo Wild Wings may or may not have been intended as permanent. The restaurant chain’s executives have already cancelled the policy after customers reacted negatively. But there is a lesson to be learned from the surcharge. Government programs have the superficial appearance of being free, but they never are.

Government’s lack of financial transparency often leads to an ironic outcome: things that appear to be government gifts end up costing more. Why? Because the public sector’s hidden costs mean less cost control in the public sector.

Private enterprises make costs clear with prices. Prices don’t itemize each cost, but because costs are more easily perceived in the private sector, people make greater efforts to control costs. Some find the explicit nature of costs in the private sector unpleasant. Conversely, the fantasy of a free lunch from the state does have a certain emotional appeal. But the inability of most people to perceive the costs of government makes it almost certain that these costs will be higher, compared to the efficiency the private sector can achieve.

As Buffalo Wild Wings made clear, the ACA is just another example of a government program that makes a false promise of free benefits. Rational economic analysis tells us that there ain’t no such thing as a free lunch, yet politicians continue to use that fantasy for political gain.

Let’s abandon the myth of gifts from government. Every action has an economic cost, public or private.

ABOUT D.W. MACKENZIE

D. W. MacKenzie is an assistant professor of economics at Carroll College in Helena, Montana.

Broken Windows: The Flawed Economic Logic of EPA’s Carbon Regulations

EPA’s Gina McCarthy gave a speech to Resources for the Future defending EPA’s proposed carbon regulations on economic grounds. However, the crux of her argument is based on a logical fallacy that will be costly to jobs and the economy.Here are two passages from her speech:

Climate action is not just a defensive play, it advances the ball. We can turn our challenge into an opportunity to modernize our power sector, and build a low-carbon economy that’ll fuel growth for decades to come.

Not only is global climate action affordable, but it could actually speed up economic growth.

In her mind, new mandates and regulations that end coal (and eventually natural gas) use in electricity generation will result in jobs and economic growth. McCarthy mentions that smart economists helped develop EPA’s carbon plan. However like her, they succumb to the “broken window” fallacy. This is the logical misconception that generating jobs and economic activity by breaking things is good for society.

In his essay, “That Which is Seen, and That Which is Not Seen,” the French economist Frédéric Bastiat tells the parable of the broken window:

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation – “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

One unseen cost of EPA’s attempt to restructure the power grid, will be the shutdown of reliable coal-fired power plants. For instance, Duane Highley, CEO of Arkansas Electric Cooperative Corp. and Arkansas Electric Cooperatives Inc., told Arkansas Business he “would prefer to invest in scrubbers” for the 1,480-megawatt plant near Redfield, “and let it run for another 20 or 30 years” rather than shut it down.

What’s more, enormous investments that have already been made to many of these plants to make them meet other EPA standards. Take the Ferry Power Station in Hatfield, PA. The plant’s owner installed $650 million of scrubber technology in 2009, but closed it four years later because of more EPA regulations.

During a July 23 hearing of the Environment and Public Works Committee, Senator Deb Fischer (R-NE) summed it up when she said that EPA’s regulations will

force the premature retirement of efficient, low-cost coal-fueled generation; lead to the potential loss of billions of dollars in investments made over the last decade to make coal plants cleaner; require construction of higher-cost replacement generation; and increase natural gas prices.

Let’s not forget some of the significant costs that we will see. EPA estimates that its regulations will mean electricity price increases of six to seven percent nationally in 2020, and as much as 12% in certain places. There are also the job losses. The United Mine Workers expects over 152,000 jobs lost in the coal sector by 2035.

(We could have a clearer understanding of the proposed carbon rule’s job effects but EPA has failed to do the analysis.)

All these seen and unseen costs, and for what? Minimal global impact, as the Institute for 21st Century Energy’s Matt Letourneau notes:

The reduction in emissions from EPA’s rule would actually only decrease global emissions by 1.3%.  Based on projections from the U.S. Department of Energy, the amount of carbon dioxide emissions that will be reduced from EPA’s power plant rule is equivalent to just 13.5 days of Chinese emissions in 2030!

McCarthy can puff up the economic benefits of EPA’s carbon regulations all she wants. By using a little bit of logic and looking at the facts, we can see her agency’s plan will be a millstone on the economy. Just as a concerted effort to break windows doesn’t benefit the economy, forcing the restructuring of the power grid is not a path to sustained economic growth.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

EDITORS NOTE: Image credit: Elvert Barnes. Licensed under a Creative Commons Attribution 2.0 Generic license.

CLICHES OF PROGRESSIVISM #19 – “Big Government Is a Check on Big Business”

A myth runs through most of America today, and it goes like this: Big business hates government and yearns for an unregulated market. But the reality is the opposite: Big government can be highly profitable for big business.

Many regulations restrict competition that would otherwise challenge existing firms. At the same time, government institutions—many created during the New Deal—funnel money to the largest corporations.

When government regulates X industry, it imposes high costs that hurt smaller firms and reduce competition. Imagine that the Department of Energy imposes a new rule that dishwashers must be more energy efficient. Coming up with designs, retrofitting factories to produce these energy-efficient models, and navigating the forms and licenses around this rule might cost a dishwasher-producing firm thousands of dollars. An industry giant, with more revenue and sizeable profit margins, can absorb this cost. A small dishwasher factory that’s only a year or two old, with little revenue and less profit, cannot. The latter would have to shut down. That means less competition for the industry giant, enabling it to grow even bigger and seize even more market share.

Barriers to entry, such as expensive licenses, also cripple start-ups and reduce competition. The Progressive New Republic speaks favorably of how Dwolla, an Iowa-based start-up that processes payments and competes with credit card agencies, had to pay $200,000 for a license to operate. Rather than hire employees or build a better product to compete with its entrenched competition, Dwolla was forced to spend its first $200,000 on a permission slip. Dwolla could afford it; but how many less-well-funded competitors were forced from the market? How many were deterred from even starting a payment-processing business by this six-figure barrier to entry?

For big businesses, which often sacrifice agility for size, smaller competitors are a major threat. By limiting smaller competition, government helps the industry giants at the expense of everyone else. Barriers to entry can kill the next innovative firm before it can become a threat to its giant competition. When this happens, we don’t even know it: The killed-before-it-can-live company is a classic example of the “unseen” costs of regulation.

While regulations minimize competition, government entities subsidize big business. The Export-Import Bank, established in 1934 as part of the New Deal, exists to subsidize exports by U.S.-based firms. The primary beneficiaries? Large corporations. From 2009 to 2014, for instance, the Ex-Im Bank financed over one-quarter of Boeing’s planes. Farm bills, a key element of the New Deal that still exists today, subsidize huge farms at the expense of smaller ones. The program uses a variety of methods, from crop insurance to direct payments, to subsidize farmers. The program is ostensibly designed to protect small farmers. But 75 percent of total subsidies—$126 billion from 2004 to 2013—go to the biggest 10 percent of farming companies. The program taxes consumers to funnel money to large farms.

Nor are these programs unique. National Journalism Center graduate Tim Carney argues, “The history of big business is one of cooperation with big government.” In the time of Teddy Roosevelt, big meat packers lobbied for federal meat inspection, knowing that the costs around compliance would crush their smaller competitors. New Deal legislation was only passed with help from the national Chamber of Commerce and the American Bankers Association. The Marshall Plan, which subsidized the sale of billions of dollars of goods to Europe, was implemented by a committee of businessmen. President Johnson created the Transportation Department in 1966, overcoming resistance from shipping interests by agreeing to exempt them from the new rules. Costly regulations for thee, but not for me.

If Progressives want to see what free enterprise looks like, they need only look at the Internet. For the past 20 years, it’s been largely unregulated. The result? Start-ups erupt and die every year. New competitors like Facebook bring down existing giants like MySpace and are in turn challenged by a wealth of social media competitors. Yahoo was the Internet search king until two college kids founded Google. Google has been recently accused of monopoly status, but competitors like DuckDuckGo spring up every day.

Let’s imagine if the Internet—a playground of creative destruction—had been as subject to big government as brick and mortar businesses have been. Yahoo would have been subsidized. Facebook would have had to pay six figures to get a licensing fee, crushing college-kid Zuckerberg before he got started and preserving MySpace’s market dominance. Businesses that learned to play the lobbying game would have been allowed to write regulations to crush their competitors.

For those who doubt, the proof of business’s collusion with big government is in the pudding. In 2014, a surprising number of libertarian-leaning men and women are in Congress. How has big business responded? K Street has spent millions of dollars working to replace laissez-faire advocates with those who are establishment-friendly. Sadly, cronyist businesses are fighting to keep free market advocates out of power.

A final note: I have criticized Progressives here, but the institution of big government, which enables businesses to hire lobbyists to write regulations or give themselves a subsidy, is the primary problem. The bigger government grows, the more powerful a tool it becomes for businesses prone to use it for private advantage. That’s not capitalism; it’s what one economist properly labeled “crapitalism.”

Julian Adorney
Economic Historian, Entrepreneur, Fiction Writer

Summary

  • Big Government and Big Business often play well together, at the expense of start-ups, little guys, and consumers.
  • Artificial, politically instigated barriers to entry make markets less competitive and dynamic, and make established firms more monopolistic.
  • A free market (true capitalism, not its adulterated “crapitalism” version) maximizes competition and, therefore, service to the consumer.

For further information, see:

“Of Meat and Myth” by Lawrence W. Reed
“Atlas Shrugged and the Corporate State” by Sheldon Richman
“Ending Corporate Welfare As We Know It” by Lawrence W. Reed
“The Rise of Big Business and the Growth of Government” by Robert Higgs
“Theodore Roosevelt: Big Government Man” by Jim Powell

ABOUT JULIAN ADORNEY

Julian Adorney is an economic historian, entrepreneur, and fiction writer. He writes for the Ludwig von Mises Institute and other websites. You can find his collected work at adorney.liberty.me.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

New York Federal Reserve: Higher Health Costs, More Part-Time Workers from Obamacare

Obamacare puts employers in a bind, two New York Federal Reserve surveys show. Employers’ health care costs continue to rise, and the health care law is driving them to hire more part-time labor, CNBC reports:

The median respondent to the N.Y. Fed surveys expects health coverage costs to jump by 10 percent next year, after seeing a similar percentage increase last year.

Not all firms surveyed said the Affordable Care Act (ACA) is to blame for those cost increases to date. But a majority did, and the percentage of businesses that predicted the ACA will hike such costs next year is even higher than those that said it did this year.

Obamacare’s higher costs will cascade down to consumers. The surveys found that “36 percent of manufacturers and 25 percent of service firms said they were hiking prices in response” to Obamacare’s effects.

The Empire State Manufacturing Survey polls New York State manufacturers, and the Business Leaders Survey polls service firms in the New York Federal Reserve District.

A June Gallup poll found that four in ten Americans are spending more on health care in 2014 than in 2013.

Let’s dig into the numbers.

When asked, “How would you say the ACA has affected the amount your firm is paying in health benefit costs per worker this year?” More than 73% of manufacturers and 58% of service firms said the health care law has increased costs this year.

Companies are also more pessimistic about Obamacare next year. Over 80% of manufacturers and 74% of service firms expect health plan costs to increase in 2015.

New York Federal Reserve Empire State Manufacturing and Business Leaders Surveys

Source: New York Federal Reserve. For a larger view click on the image.

Employers were also asked what effects Obamacare is having on their labor forces. Over 21% of manufacturers and nearly 17% of service firms say they reduced the number of employees because of the law, while only about 2% of each have hired more workers. What’s more, nearly 20% of both manufacturers and service firms say that Obamacare has pushed them to increase their proportion of part-time workers, but just under 5% of each type of firm said they have lowered them. Presumably this is due to the perverse incentives from Obamacare’s employer mandate.

This data fits with research from the Atlanta Federal Reserve that found that since the recession, 25% of firms have a greater share of part-time workers, while only 8% have a lower share. This data also fits with anecdotes from around the country of employers saying that they’re hiring more part-time workers because of Obamacare.

New York Federal Reserve Empire State Manufacturing and Business Leaders Surveys

Source: New York Federal Reserve. For a larger view click on the image.

The sad truth is the health care law is pushing higher health costs onto employers and incentivizing them to hire more part-time workers. Despite passing a law in 2010 loaded with rules, regulations, mandates, and taxes, health care reform is needed more than ever. For solutions that that will control health care costs, improve quality, and expand access, check out the U.S. Chamber’s Health Care Solutions Council report.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

Actor Ashton Kutcher speaks out on Free Markets and “Heavy-Handed” Regulations

Ashton Kutcher (L) greets 2nd Security Forces Squadron Airmen. The Airmen provided security support on the set of “The Guardian” while it filmed on base.

Ashton Kutcher is an entrepreneur and popular actor. He denounced heavy-handed regulation in a recent interview on Jimmy Kimmel Live.

[youtube]http://youtu.be/EoQo0HM9D3k[/youtube]

Scott Blakeman from The Foundry reports:

Kutcher is a managing partner of the investment fund A-Grade Investments. One company his fund has invested in is Uber, the app-based service that connects drivers with passengers. Uber is rapidly expanding to cities across the U.S. and is in over 24 countries worldwide. But Kutcher is experiencing firsthand some of the roadblocks many businesses have endured.

Kutcher noted that “old-school monopolies and incumbents and old-school governments” are interfering with the transportation market, picking the winners and losers, and barring innovation.

For instance, Kutcher mentioned that Uber isn’t allowed to operate in Miami “because of some dumb regulation that says it can’t exist there.”

Miami’s cab industry is heavily regulated, such that “local laws have protected taxi-medallion holders for so long that any attempt to tinker with the rules is met with stiff political resistance.”

Audrey Edmonson, a member on the Board of County Commissioners for Miami-Dade County, proposed legislation deregulating the county’s transportation market so Uber and other companies could compete with traditional transportation services. But Dennis Moss, a fellow board member who is also the chairman of Miami’s Transportation and Aviation Committee, helped craft the existing restrictive regulations and is opposed to letting Uber enter the Miami transportation market:

If you want to pay for a luxury ride, then you should basically have to pay for a luxury ride.… That way we make sure that cab companies can also continue to make a living.

Read more.

PODCAST: How Government Is Killing Businesses In FL

Allen Fugler, Executive Vice President Florida Pest Management Association in Orlando, FL and Tim Southerland from Southern Wood Producers Association and the American Loggers Council – Florida in Panama City, FL join Watchdog Wire Radio. Mr. Fugler and Mr. Southerland explain how government at every level is destroying small businesses in Florida and across America. Today it appears the business of government is to destroy small businesses according to Mr. Fugler and Mr. Southerland. Over regulation is keeping Florida small businesses from expanding and growing.

Listen to the podcast of this show and learn how government at every level is putting small businesses out of business from these two industry experts.

LISTEN TO THE PODCAST INTERVIEW BY CLICKING HERE

The next four years could bring a tidal wave of more than 4,100 regulations for the American economy. Regulations in the pipeline are estimated to cost the economy more than half a trillion dollars. To view a sampling of regulations, that will cost the economy $515 billion, click here.

Small Businesses for Sensible Regulations launched a nine-state campaign to raise awareness on the several thousand regulations that could go into effect if President Barack Obama is reelected. To learn more about the Small Businesses for Sensible Regulation coalition go to – http://stopthetidalwave.org.