Regulation

Regulation for the sake of business

by Bob Weeks on April 25, 2012

There are many examples of how the conventional wisdom regarding regulation is wrong, That wisdom being Republicans and conservatives are in bed with government, seeking to unshackle business from the burden of government regulation. Democrats and liberals, on the other hand, are busily crafting regulations to protect the middle class from the evils of big business. As it turns out, both Democrats and Republicans love creating regulations, and big business loves these regulations. Business often uses government regulation as way to harm its competitors or gain advantage for itself, which is contrary to the principles of free markets and capitalism.

Holman W. Jenkins., Jr. explains how regulation works in the real world: “When some hear the word “regulation,” they imagine government rushing to the defense of consumers. In the real world, government serves up regulation to those who ask for it, which usually means organized interests seeking to block a competitive threat. This insight, by the way, originated with the left, with historians who went back and reconstructed how railroads in the U.S. concocted federal regulation to protect themselves from price competition. We should also notice that an astonishingly large part of the world has experienced an astonishing degree of stagnation for an astonishingly long time for exactly such reasons.” (Let’s Restart the Green Revolution, Wall Street Journal.)

Another example of a big business using regulation as a competitive weapon comes from 2005 when Walmart came out in favor of raising the national minimum wage. Providing an example of how regulation is pitched as needed for the common good, Walmart’s CEO said that he was concerned for the plight of working families, and that he thought the minimum wage level of $5.15 per hour was too low. If Walmart — a company the political left loves to hate as much as any other — can be in favor of increased regulation of the workplace, can regulation be a good thing? Had Walmart discovered the joys of big government?

The answer is yes. Walmart discovered a way of using government regulation as a competitive weapon. This is often the motivation for business support of regulation. In the case of Walmart, it was already paying its employees well over the current minimum wage. At the time, some sources thought that the minimum wage could be raised as much as 50 percent and not cause Walmart any additional cost — its employees already made that much.

But its competitors didn’t pay wages that high. If the minimum wage rose very much, these competitors to Walmart would be forced to increase their wages. Their costs would rise. Their ability to compete with Walmart would be harmed.

Many, particularly liberals and progresives, make no distinction between business and capitalism. But we need to learn to recognize the difference if we are to have a thriving economy based on free-wheeling, competitive markets that foster innovation, or continue our decline into unproductive crony capitalism.

In the following excerpt from his book The Big Ripoff: How Big Business and Big Government Steal Your Money, author Timothy P. Carney explains that big business is able to use regulation as a blunt and powerful tool against competitors, and also as a way to improve its image, just like Walmart asking for a higher minimum wage.

How does regulation help big business?

Excerpt from The Big Ripoff: How Big Business and Big Government Steal Your Money, by Timothy P. Carney

If regulation is costly, why would big business favor it? Precisely because it is costly.

Regulation adds to the basic cost of doing business, thus heightening barriers to entry and reducing the number of competitors. Thinning out the competition allows surviving firms to charge higher prices to customers and demand lower prices from suppliers. Overall regulation adds to overhead and is a net boon to those who can afford it — big business.

Put another way, regulation can stultify the market. If you’re already at the top, stultification is better than the robust dynamism of the free market. And according to Nobel Laureate economist Milton Friedman:

The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.

There is an additional systemic reason why regulation will help big business. Congress passes the laws that order new regulations, and executive branch agencies actually construct the regulations. The politicians and government lawyers who write these rules rarely do so without input. Often the rule makers ask for advice and information from labor unions, consumer groups, environmental groups, and industry itself. Among industry the stakeholders (beltway parlance to describe affected parties) who have the most input are those who can hire the most effective and most connective lobbyists. You can guess this isn’t Mom and Pop.

As a result, the details of the regulation are often carefully crafted to benefit, or at least not hurt, big business. If something does not hurt you, or hurts you a little while seriously hindering your competition, it is a boon, on balance.

Another reason big business often cries “regulate me!” is the goodwill factor. If a politician or bureaucrat wants to play a role in some industry, and some executive says, “get lost,” he runs the risk of offending this powerful person. That’s bad diplomacy. Bureaucrats, by their nature, do not like to be told to mind their own business. Supporting the idea of regulation but lobbying for particular details is usually better politics.

Tagged as: Capitalism, Economics, Free markets, Minimum wage, Politics, Regulation

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The role of speculators

by Bob Weeks on March 21, 2012

As gasoline prices rise, we hear the call for regulation of speculators, with Fox News populist Bill O’Reilly a leading voice. Part of the complaint is true: Speculators are selfish people, acting only to make as much profit as possible for themselves. But by doing so, they provide a valuable public service.

That’s not what we hear when oil and gasoline prices — to take a recent example — go up. News commentators from across the political spectrum condemn speculators, blaming them for rising gasoline prices.

The mechanism of the speculator is to buy something like oil when prices are low, then to sell it when prices are high. By doing so he earns a profit. (An alternative is to sell things he does not yet own when prices are high, and then buy to fulfill his obligation when prices are low.)

The speculator, in this definition, does not hope to profit by processing and distributing the commodity he is buying and selling, as does an oil refiner or flour miller. He simply hopes to make a profit based on the changing prices — up or down — of oil or wheat.

It is said that speculators are buying oil now and therefore driving up the price. That’s probably true, and it illustrates one of the beneficial services that speculators provide: they reduce volatility in prices. If speculators are correct and the price of oil spikes sometime soon, the present buying by speculators makes the spike less steep. It also induces consumers to conserve.

Writing about speculation in food markets, Walter Block explains the beneficial effects:

First, the speculator lessens the effects of famine by storing food in times of plenty, through a motive of personal profit. He buys and stores food against the day when it might be scarce, enabling him to sell at a higher price. The consequences of his activity are far-reaching. They act as a signal to other people in the society, who are encouraged by the speculator’s activity to do likewise. Consumers are encouraged to eat less and save more, importers to import more, farmers to improve their crop yields, builders to erect more storage facilities, and merchants to store more food. Thus, fulfilling the doctrine of the “invisible hand,” the speculator, by his profit-seeking activity, causes more food to be stored during years of plenty than otherwise would have been the case, thereby lessening the effects of the lean years to come.

If the spike in prices does occur, what will speculators do? They will sell their oil, and that action will drive down prices, making the spike less steep. Here the speculator makes a profit by providing the service of making the oil shortage less severe. His hoarding of oil, bought when prices were low, makes it available in times of need, and less expensive, too. The speculator is rarely given credit for that in public, although this is how the speculator earns a profit.

More evidence of how speculators reduce price volatility is found in Oil Speculators Are Your Friends, by Jerry Taylor and Peter Van Doren of the Cato Institute:

Questions of cause and effect aside, economists Robert Kolb and James Overdahl reviewed the literature to ascertain whether physical prices exhibited more or less volatility after futures markets were introduced. They found 26 published studies examining various agricultural, energy, and financial markets but noted that only two of those studies (pertaining to cattle and mortgages) found that prices were more volatile after futures markets were established. Fourteen studies, on the other hand, found that cash market volatility decreased after futures markets were introduced (the remainder found no effect).

The upshot is that futures markets — and the speculation that occurs therein — provide a public service. Regulating, restricting, or eliminating those markets would not bring prices down or make them more predictable. All it would do is prevent these agents for social good from doing their job, which is to tell us the truth — as best they see — about the future cost of crude and to offer a means by which we can insure ourselves against the impact of increasing or declining crude oil prices.

It is possible for speculators to do harm, however. If the speculator buys, he drives up prices. Then suppose the price of oil falls, and the speculator is forced to sell. His actions have increased the volatility of oil prices and have sent false price signals to the market. Citing again Block’s food example: “What if he is wrong? What if he predicts years of plenty — and by selling, encourages others to do likewise — and lean years follow? In this case, wouldn’t he be responsible for increasing the severity of the famine? Yes. If the speculator is wrong, he would be responsible for a great deal of harm.”

In these cases, the speculator has suffered financial losses. These loses are a powerful market force that drives “bad” speculators — meaning those who guess wrong about future prices — out of the market.

The real danger we face is when government attempts to speculate. That’s a possibility at the current moment, as many are recommending that the U.S. government sell oil from the strategic petroleum reserve in an effort to lower the cost of oil. That’s speculation — the oil was bought at a time when the price was lower, and is now contemplated being sold at a higher price.

The problem with government speculation is that government does not face the market discipline that private-sector speculators face. When private-sector speculators are wrong, they lose their capital. They go out of business. But government faces no such discipline. When government is wrong, it goes on. Taxpayers and consumers, however, have to pay for the mistakes of politicians and bureaucrats.

Government attempts at regulating speculators are certain to fail, too. Almost any such regulation will seek to reduce the profit potential of speculation. But the potential of profits is what motivates speculators and makes the system work. Without the potential for profits, speculators will not take the risk of losses, and they will not perform their beneficial function.

Tagged as: Free markets, Interventionism, Regulation

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Congress should reserve the right to protect our wireless future

by Guest Author on January 24, 2012

From Erik Telford
Wireless technology is great. Only a few years ago, most Kansans were using their phones to call, and perhaps even text, now mobile devices are essentially small computers in the palms of our hands — capable of almost anything.

According to Nielsen research, about 44 percent of U.S. mobile subscribers now own smartphones.[i] In Kansas, there are more than 2.4 million wireless subscribers[ii] and nearly 450,000 of those subscribers have data plans with full Internet access for more than 1 million high-speed mobile devices as of December 2009.[iii]

With mobile devices capable of almost anything, Kansans are finding more ways to use them — from uploading pictures during a concert at the Sprint Center to updating their Facebook status about K-State’s football team to checking into their favorite Wichita restaurant on Foursquare.

However, in what is becoming an all too familiar occurrence, some of these efforts are unsuccessful because we just can’t seem to connect online in a stadium or arena full of people. This is just one localized example of how the looming spectrum crisis could become a widespread reality — crippling innovation and investment in one of our country’s most vibrant sectors.

Thankfully, Congress is currently considering legislation that would help avoid the looming crisis by freeing up more spectrum through an auction process. Spectrum auctions are widely supported by both Republicans and Democrats; however, as with most things — the devil is in the details.

As the agency in charge of spectrum auctions, the FCC is pressuring Congress to give the FCC complete control over the auction design process. While the FCC’s request seems somewhat innocuous, if allowed, it could have dangerous consequences.

Recent actions by the FCC suggest it would use its power to limit which companies will get to participate in the auction, effectively determining the winners and losers.

Some members of Congress, support the FCC’s request and argue that proposals that would restrict the FCC from imposing eligibility conditions on auction participants “could have a deterring effect on fostering competition and maximizing auction proceeds to pay for a public safety network and deficit reduction.”[iv] The argument that fewer auction participants would result in more competition and more revenue, however, just doesn’t make sense.

The FCC’s desire to impose conditions to increase competition and encourage innovation is not only counterintuitive; it is unnecessary. As the FCC’s own data demonstrates, the wireless market is already fiercely competitive. Nearly 90 percent of Americans have a choice of five or more wireless providers.[v]

In, Kansas, consumers in communities both large and small have a number of options for wireless services. Consumers in Salina and in Wichita can choose from six or more wireless providers.[vi] In Garden City, subscribers can choose from seven or more wireless companies.[vii]

Furthermore, eligibility restrictions could prevent companies like Sprint, Verizon and AT&T from acquiring more spectrum, which could prevent them from deploying 4G service to other communities outside the Kansas City market due to spectrum constraints.

As the expert agency, the FCC is right to ask for some flexibility with the auction design process. Congress, however, should reserve its right to protect our wireless future by preventing FCC overreach and ensure that all companies can participate in the auction process. It’s only the fair choice to make.

Notes:
[i] Nielsen Wire, “Android and iPhones Dominating App Downloads in the U.S.” November 29, 2011
[ii] Federal Communications Commission, 15th Annual Mobile Wireless Competition Report, Table C-2: FCC’s Semi-Annual Local Telephone Competition Data Collection: Mobile Telephone Subscribership, in Thousands,” p. 248, June 27, 2011
[iii] Federal Communications Commission, 15th Annual Mobile Wireless Competition Report, Table C-5: Mobile Wireless Devices Capable of Sending or Receiving Data at Speeds Above 200 kbps and Subscribers with Data Plans for Full Internet Access as of December 31, 2009, in Thousands,” p. 260, June 27, 2011
[iv] Sen. John Kerry, Press Release, “Democratic and Republican Senators Urge Smart, Inclusive Spectrum Reform,” January 9, 2012
[v] Federal Communications Commission, 15th Annual Mobile Wireless Competition Report, “Estimated Mobile Wireless Voice Coverage by Census Block, 2010,” p. 6, June 27, 2011
[vi] Cell phone provider coverage as found by zip code on http://www.wirelessadvisor.com/
[vii] Cell phone provider coverage as found by zip code on http://www.wirelessadvisor.com/

Tagged as: Computing, Regulation, United States Congress

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Sustainable planning: The agenda and details

by Bob Weeks on December 16, 2011

Sedgwick County Commissioner Richard Ranzau has produced a document that explains the dangers contained with the “sustainable development” movement that is spreading across the country. Recently both the City of Wichita and Sedgwick County voted to participate in a planning grant devoted to starting the implementation of this ideology that government can plan better than markets can.

In the document Ranzau writes: “Proponents of these grants often speak in general terms that make it difficult to disagree. But as they say, the devil is in the details. It is very important for you to know what they are not telling you. We all need to look beyond the fancy talk and find out what the agenda is really about. … The intent of this paper is to share information and insight about ‘sustainable development’ so that citizens and elected officials can have a more complete understanding of what the planning grants will entail and what possible consequences our communities may face if these policies are implemented.”

One of the concerns Ranzau identifies is the attack on the automobile-based suburban lifestyle that many in Wichita and the surrounding area prefer, based on their revealed choices: “One of the most important reasons to be concerned about the agenda behind these grants is the effect it could have on housing costs and property rights. Smart Growth supporters decry suburban development (single family home with a yard) as unsustainable and work to push people into high density housing (and government transportation).”

This attitude is creeping into Wichita. At a January 2010 presentation by Goody Clancy, the planning firm that developed the plan for downtown Wichita, I reported on the attitudes expressed by planners and how they believe they know what people should want, if only the people were as smart as the planners:

At a presentation in January, some speakers from Goody Clancy revealed condescending attitudes towards those who hold values different from this group of planners. One presenter said “Outside of Manhattan and Chicago, the traditional family household generally looks for a single family detached house with yard, where they think their kids might play, and they never do.”

David Dixon, who leads Goody Clancy’s Planning and Urban Design division and was the principal for this project, revealed his elitist world view when he told how that in the future, Wichitans will be able to “enjoy the kind of social and cultural richness” that is only found at the core.

The document holds many links to valuable resources, a timeline of sustainable planning activities, and contact information for local officials.

Sustainable Planning Grants and UN Agenda 21

Tagged as: Environment, Free markets, Government planning, Liberty, Property rights, Regulation, Richard Ranzau, Sedgwick county government, Wichita city government

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Pompeo: Obama, EPA not to be trusted on regulation

by Guest Author on December 8, 2011

U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, wrote this op-ed to warn us of the many ways in which President Barack Obama seeks to implement his radical agenda through regulation, this time through the Environmental Protection Agency (EPA). The remedy in this case is in the form of legislation, H.R. 1633, the Farm Dust Regulation Prevention Act. The bill was voted on today in the House of Representatives and passed 268 to 150.

While Pompeo focuses primarily on the direct impact of this regulation on farmers and ranchers, anything that makes these activities more difficult and expensive will drive up food costs for everyone, and many complain that these costs have been rising rapidly. Part of that rise, we might note, is due to regulations that require the use of ethanol in fuel, which diverts corn production away from food.

A version of this appeared in the Washington Examiner.

EPA must stop playing in the dust

By U.S. Representative Mike Pompeo

The Environmental Protection Agency (EPA) would like to regulate farm dust all across the nation. I know it sounds ridiculous, but given the Obama Administration’s demonstrated hostility toward rural America, it should not come as a huge surprise. Although EPA has verbally reversed course in recent weeks and said it has “no intention” of regulating farm dust, my 11 months in Washington have taught me quickly that we must pay attention to what politicians do and not what they say. EPA’s actions continue to show that radical environmentalists desire to regulate dust. To stop the EPA in its tracks, I have worked to advance H.R. 1633, the Farm Dust Regulation Prevention Act, through the House Committee on Energy and Commerce. I look forward to final passage on the House Floor later this week.

In Kansas and across the country, businesses are struggling to stay afloat. At best, EPA is oblivious to this fact. At worst, it deliberately presses forward in spite of the damaging consequences of new regulations. Rather than helping farmers, ranchers, business owners and other entrepreneurs, EPA continually bombards these job creators with undue and costly new regulations. The agriculture sector is now holding its collective breath as EPA considers new air quality standards, which it revises every five years. Under the Clean Air Act, the Agency asserts the authority to regulate farm dust as “coarse particulate matter.” This dust is known very well to rural Kansans. It is merely the dust created from driving down unpaved roads, moving livestock, and working the fields.

As it is, the current standard already imposes costs and restrictions on farmers, ranchers, agribusiness entities, and small businesses, particularly in arid parts of the West where dust is easily kicked up. Earlier this year, EPA staff suggested tightening standards to levels that would push most of the West — including Kansas — out of compliance.

In a recent House Committee on Energy and Commerce hearing, we heard from individuals who live in these areas, including Arizona farmer Kevin Rogers, who is already threatened by strict dust regulations. Because parts of Arizona already struggle to meet the current dust standards, he and other farmers may be required to halt tillage, drive at a snail’s pace on unpaved roads, stop work entirely on windy days, or take other expensive measures to reduce dust. If the dust standards are actually tightened to the levels suggested by EPA staff, other parts of the country would have to implement similar policies that will destroy the efficiency and productivity our farmers and ranchers are known for.

Opponents of our efforts call the desire to regulate farm dust a ‘myth’ and liken these concerns to worrying about regulation of fairy dust. While these theatrics garnered some snickers, I was not amused — and neither were the 500 plus Kansas Farm Bureau members I met with just before Thanksgiving who agree that this is a real problem. We need the bipartisan Farm Dust Regulation Prevention Act. The American Farm Bureau Federation, National Cattlemen’s Beef Association, and over 180 other organizations also agree that this valid concern with what EPA might do is more than fairy dust, and they know that this bill is vitally important to the survival of their industry.

EPA Administrator Lisa Jackson has announced that the agency has “no intention” of further regulating dust. But that announcement sounds more like political rhetoric designed to appease opponents as the 2012 election cycle nears, rather than a genuine promise rural Americans can count on. Given what I know, I would be letting farmers and ranchers down if I simply trusted the Obama Administration on their stated farm dust intentions. Besides, there is also a threat that an environmental group could sue and persuade a pliant EPA to regulate farm dust as a settlement condition. We need smart and clear laws set by Congress — not unelected bureaucrats. The Farm Dust Regulation Prevention Act is one. We must ensure that the federal government creates a positive atmosphere for businesses to prosper — including farming and livestock operations. It’s time to forget about regulating farm dust and give rural America some breathing room from the crushing regulations of which this Administration is so fond.

Tagged as: Barack Obama, Environment, Kansas fourth district, Mike Pompeo, Regulation

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Regulatory Accountability Act of 2011

by Bob Weeks on December 7, 2011

Last week the U.S. House of Representatives passed H.R. 3010: Regulatory Accountability Act of 2011. This law would, if passed by the Senate and signed by the president, would require regulatory agencies to “base all preliminary and final determinations on evidence,” among other reforms. It might surprise citizens to realize that regulations may be made for other reasons.

The act would also requires agencies to address “specific nature and significance of the problem,” the “significance of the problem the agency may address with a rule,” and also to recognize “the legal authority under which the rule may be proposed.”

In commentary on this legislation, James L. Gattuso of the Heritage Foundation wrote: “On the whole, the Regulatory Accountability Act represents a positive step toward regulatory reform, imposing clear obligations on agencies with review by the courts. It should, however, be considered by Congress as a supplement — not an alternative — to other needed reforms.”

All Kansas representatives voted for the bill, which passed 253 to 167. Votes were split primarily along party lines, although 19 Democrats voted in favor. Two Kansas members provided comments on the bill, and shared Gattuso’s opinion that this bill is just the start of controlling harmful and unneeded regulation.

Representative Tim Huelskamp of the Kansas first district commented on the bill and the potential of it passing the Senate: “HR 3010 — like several other bills that would require economic impact to be taken into account when regulation is being written — has the potential to control the costs of federal regulations. But, it’s just potential. I am about as optimistic as the Senate taking up this bill as I am about the Senate taking up any one of the nearly two dozen other ‘jobs’ bills or passing a budget. Majority Leader Reid is doing America a great disservice by allowing these jobs bills to go untouched in the Senate; the American people don’t send their Senators to Washington to loiter for six years.”

Representative Mike Pompeo of the Kansas fourth district was also cautious about relying on this bill to provide needed regulatory reform: “The Regulatory Accountability Act of 2011 (HR 3010) is a great piece of legislation, but it is not the silver bullet for reining in the Obama Administration’s rampant regulatory overreach, which is severely hindering job creation across the country and here in Wichita. While the Administration is ‘strongly opposed’ to the bill, they have not issued a veto threat, yet. Even still, I doubt this bill will pass the Senate. Tomorrow the House will consider a stronger piece of legislation — The REINS Act (HR 10), of which I am a co-sponsor. HR 10 would require Congressional approval of every major new regulation proposed by this Administration. Ultimately, if passed into law, it will radically slow the expansion of government which is something that I have been working to do in every way since I got here in January.”

The House is expected to vote on the REINS Act today.

Tagged as: Kansas first district, Kansas fourth district, Mike Pompeo, Regulation, Tim Huelskamp

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Kansas gas storage regulation might not improve safety

by Bob Weeks on December 2, 2011

Due to a jurisdictional issue, underground natural gas storage facilities in Kansas have not been inspected for 19 months — at least not inspected by government regulators. Senators Pat Roberts and Jerry Moran have introduced legislation that would allow Kansas to resume inspections.

The safety of underground natural gas storage is important, especially in Kansas, where in 2001 gas leaked under Hutchinson and caused fires and explosions that killed two people and caused much property damage. So should Kansans be relieved that government regulation and inspection may be resumed soon?

Reading news stories from after the January 2001 Hutchinson disaster should teach us to be wary of relying on government regulation and inspection for ensuring safety. For example, a February 2001 in the Wichita Eagle contained this: “State officials in Kansas knew that the 20-year-old regulations governing underground gas storage were inadequate, years before a gas leak in Hutchinson claimed two lives. Officials with the Kansas Department of Health and Environment met with industry representatives in 1996 and told them new regulations were needed to ensure safe operation of 630 gas storage wells in the state. The new regulations were never written. The update was delayed because the KDHE was short staffed, said Don Carlson, chief of the industrial programs section. The department has two people assigned to permit, inspect, oversee and write regulations for the 6,000 underground injection wells in Kansas that are used to store natural gas and propane, dispose of hazardous waste or mine salt, he said.” (emphasis added)

So for 20 years Kansas operated with inadequate regulations. Was this know by the general public? It doesn’t appear that it was. Instead, people assumed that government was watching out for their safety.

The Hutchinson News concluded in 2004: “True, some of the company’s reports misled the regulator. But the state official also did little, if anything, to check the company’s information or to inspect the site. A local diner serving two dozen cheeseburgers a day received more attention than an underground facility storing billions of cubic feet of natural gas and other volatile hydrocarbons.”

So how well were Kansans served by its regulators? Not well at all, we must conclude.

Eventually the operators of the gas storage facility were held accountable for their errors. But it wasn’t direct government action that did that, although the operators were fined $180,000. But government operates courts where the victims received compensation for their losses — if it is possible to compensate for loss of life with mere money.

What about the other party to this disaster — the State of Kansas: Was it held accountable? Not at all. Examples of regulatory failure rarely result in punishment of government or those who work for it.

A recent example is the Washington Post story Eight SEC employees disciplined over failures in Madoff fraud case; none are fired. Bernie Madoff stole tens of billions from clients over a long period of time in a highly-regulated industry. The Securities and Exchange Commission chief was advised to fire one person, but declined to do even that. Instead, eight employees received punishments such as “suspensions, pay cuts and demotions.”

Not only did the state not perform adequate inspections, and not only did the SEC fail to detect Madoff’s ongoing theft, the presence of government regulation makes people think things are safe.

Sadly, it is only after disasters like Hutchinson or sensational cases like Madoff’s that we become aware of the weak protections that government regulation provides.

Tagged as: Jerry Moran, Kansas state government, Pat Roberts, Regulation

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The use of regulation by business, contrary to markets

by Bob Weeks on November 2, 2011

There are many examples of how the conventional wisdom regarding regulation is wrong: Republicans and conservatives are in bed with government, seeking to unshackle business from the burden of government regulation. Democrats and liberals, on the other hand, are busy crafting regulations to protect the common man from the evils of big business. As it turns out, both Democrats and Republicans love creating regulations, and big business loves these regulations.

For example, in 2005 Walmart came out in favor of raising the national minimum wage. The company’s CEO said that he was concerned for the plight of working families, and that he thought the minimum wage level of $5.15 per hour was too low. If Walmart — a company the political left loves to hate as much as any other — can be in favor of increased regulation of the workplace, can regulation be a good thing? Had Walmart discovered the joys of big government?

In short, Walmart supported government regulation as a way to impose higher costs on its competitors. It found a way to compete outside the marketplace. It abandoned principles of free markets and capitalism, and provided a lesson as to the difference between capitalism and business. Many, particularly liberals, make no distinction between business and capitalism. But we need to learn to recognize the difference if we are to have a thriving economy based on free-wheeling, competitive markets that foster innovation, or continue our decline into unproductive crony capitalism.

How does regulation help big business?

Excerpt from The Big Ripoff: How Big Business and Big Government Steal Your Money, by Timothy P. Carney

If regulation is costly, why would big business favor it? Precisely because it is costly.

The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.

Tagged as: Capitalism, Free markets, Minimum wage, Regulation

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‘Sustainable planning’ not so sustainable

by Guest Author on October 31, 2011

By Randal O’Toole, Senior Fellow at the Cato Institute. A version of this appeared in the Wichita Eagle.

The vast majority of Americans, surveys say, aspire to live in a single-family home with a yard. The vast majority of American travel — around 85 percent — is by automobile. Yet the Obama administration thinks more Americans should live in apartments and travel on foot, bicycle, or mass transit.

To promote this idea, the administration wants to give the south central Regional Economic Area Partnership (REAP) the opportunity to apply for a $1.5 million grant to participate in “sustainable communities.” Also sometimes called “smart growth,” the ideas promoted by these programs are anything but sustainable or smart. (As members of REAP, the governing bodies for both Wichita and Sedgwick County endorsed this grant.)

The urban plans that come out of these kinds of programs typically call for:

Redesigning streets to increase traffic congestion in order to discourage people from driving;
Increasing subsidies to transit, bike paths, and other “alternative” forms of travel even though these alternatives are used by few people;
Denying owners of land on the urban fringes the right to develop their property in order to make single-family housing more expensive;
Subsidizing high-density, developments that combine housing with retail shops in the hope that people will walk to shopping rather than drive;
Rezoning neighborhoods of single-family homes for apartments with zoning so strict that, if someone’s house burns down, they will have to replace it with an apartment.

My former hometown of Portland, Oregon has followed these policies for two decades, and the results have been a disaster. In their zeal to subsidize transit and high-density developments, the region’s officials have taken money from schools, libraries, fire, and police, leaving those programs starved and in disarray.

Since 1980, Portland has spent more than $3 billion building light-rail lines. Far from improving transit, the share of commuters taking transit to work has fallen from 9.8 percent in 1980 to 7.5 percent today, mainly because the region cut bus service to pay for the trains. Traffic congestion quadrupled between 1984 and 2004, which planners say was necessary to get people to ride transit.

The region’s housing policies made single-family homes so expensive that most families with children moved to distant suburbs where they can afford a house with a yard. Residents of subsidized high-density housing projects drive just about as much as anyone else in the Portland area, and developers have learned to their sorrow that if they follow planners’ guidelines in providing less parking for these projects, they will end up with high vacancy rates.

Despite these problems, Portland has received lots of positive publicity. The reason for this is simple: by forcing out families with children, inner Portland is left mainly with young singles and childless couples who eat out a lot, making Portland a Mecca for tourists who like exciting new restaurants. This makes Portland a great place to visit, but you wouldn’t want to live there unless you like noisy, congested streets.

The idea of “sustainable communities” is that planners can socially engineer people into changing their travel behavior by redesigning cities to favor pedestrians and transit over automobiles. Beyond the fact that this is an outrageous intrusion of government into people’s lives, it simply doesn’t work. Such experts as University of California economist David Brownstone and University of Southern California planning professor Genevieve Giuliano have shown that the link between urban design and driving is too weak to make a difference.

To protect livability and avoid unsustainable subsidies to transit and high-density development, Wichita, Sedgwick County, and other REAP members of south central Kansas should reject the $1.5 million grant offered by the federal government.

Randal O’Toole (rot@cato.org) is a senior fellow with the Cato Institute and author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future.

For more about the local grant, see Sedgwick County considers a planning grant.

Tagged as: Economic development, Economics, Environment, Free markets, Government planning, Regulation, Sedgwick county government, Wichita city council, Wichita city government

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