Free Markets, Free People

regulation

How clueless? This clueless

Rep. Keith Ellison, a Democrat member of the House from MN, explained why he thought creating more and more regulations was a good idea.  You see, the more you pass, the more people businesses have to hire to comply with them, per Ellison:

"I think the answer is no," Ellison said when asked if he believes regulations kill jobs. "And here is why: When we talked about increasing fuel efficiency standards, the industry responded, and they need engineers and designers and manufacturers, and they need actually more people to help respond to the new requirement."

"I believe if the government says, look, we have got to reduce our carbon footprint, you will kick into gear a whole number of people that know how to do that or have ideas about that, and that will be a job engine. I understand what you mean, because if anything adds a cost to a business, you could assume that that will diminish that business’s ability to hire. But I don’t think that’s actually right. I think what businesses want is customers and what — if they are selling product, if they have a product to sell they will do well even if they have some new regulations to meet," the Congressman said.

The economic ignorance in that statement is dumbfounding.  The man obviously has no idea of what productive vs. non-productive work entails.  Bureaucrats don’t “produce” anything but cost.  They impose a cost burden that the producer must pass on or eat.

Most producers choose to pass on the cost burden in the price of what they produce (it obviously depends on the competitiveness of the market, profit margins, etc.).   So in essence, every new regulation that imposes a compliance cost on a producer means those who consume the product end up paying the compliance cost in the price of the product at some point or another.  And the man hours that could have been used in a productive job are wasted in seeking compliance with bureaucratic regulation.

These are the guys in Washington DC making decisions about your future.   They’re deciding what portion of what you earn you should be allowed to keep.  And they have no idea of what makes an economy run.

Here’s a representative that figures a job is a job.  And he actually thinks he’s creating jobs what will benefit the economy by increasing regulation and bureaucracy.

Unfortunately his type are more prevalent that you might imagine.  And our present situation is beyond their understanding.  How does one go on a national television network and make statements like that and think they’re being profound when in fact what they say is profoundly ignorant?   He obviously doesn’t know that.  That’s just scary.

When all is said and done about our current situation, when the hindsight evaluations are made and the scope of the disaster is understood, it will be clear that people like Rep. Keith Ellison were as responsible as anyone for our economy’s inability to recover.

And he won’t even know it.

~McQ

Twitter: @McQandO

Its official–a supermajority think we’re over-regulated

And frankly, I think they’re right:

– There is little appetite among American voters for additional regulations coming out of Washington.  Three quarters (74%) of voters throughout the country believe that businesses and consumers are over-regulated.  Further, another two thirds (67%) believe that regulations have increased over the past few years.   These percentages include majorities of all partisan affiliations, with 91% of Republicans, 75% of Independents and 58% of Democrats saying businesses/consumers are over-regulated.

Now you may argue that “over-regulation” may mean different things to different groups.  However in each case the term “over” has specific meaning – it means there’s too much regulation.  While they may argue about the degree of over-regulation, it appears that each and every group sees over-regulation in the same and proper light.

– A key fear among voters is that regulations will hinder job creation, as most believe the result of new regulation will be either job losses (47%) or increased prices for American made goods and services (22%).

Or both.  You see, businesses will absorb only so much (job losses) before passing along the cost of regulatory compliance in the cost of their goods and services.  We’re well past the first part in this recession.  Businesses are about as lean and mean as they can stand to be and still function well.  Additional regulatory cost, then, is likely to be passed on to consumers – another among many reasons consumer confidence is down.

– More than two thirds (70%) believe increasing the number of regulations on American businesses will result in more jobs moving overseas.  Also, majorities agree that the increasing number of regulations have created uncertainty for large and small businesses (66%), and that agencies who enforce regulations fail to consider how their decisions lead to increased prices for consumers and job losses (69%).

All three of these beliefs among those polled is on the money.   The amount of regulation is a key consideration for businesses when they assess a business climate.  Their cost is calculated in the cost of doing business there.  And when that cost is deemed to be too much or too unreasonable, businesses look around for a less costly place to establish themselves.  We’ve seen this right here in the US as states with more regulation and higher taxes lose businesses to states that impose a less costly regime of taxes and regulations.  They don’t call the Midwest the “Rust Belt” for nothing.

And those polled are right when they say they believe those who impose regulations “fail to consider how their decisions lead to increased prices for consumers and job losses”.  But while regulators may not consider it, voters apparently do:

– One of the highest points of agreement in the survey is the fact that 73% concur that “every time the federal government mandates a new regulation on America’s large and small business, the prices of American made good and services like gasoline and food go up.”  Only 22% supported the view that “while many federal regulations might be just another burden to operations of America’s large and small businesses, customers do not see major cost increases for American made goods and services like gasoline and food.”

In a study, The Small Business Association found that the regulatory burden on small business in this country was quite high:

The research finds that the cost of federal regulations totals $1.1 trillion; the cost per employee for firms with fewer than 20 employees is $7,647.

Under 20 employees is indeed a “small business” yet most would agree, $7,647 in compliance costs per employee is a lot of money.  It is over $140,000 for the 20 employee firm.  That money has to be made up somewhere, just to break even, much less turn a profit.   And it is clear that depending on the type of firm and needs of the employer, any number of employees could be hired for that amount.  And don’t forget, small businesses account for about 80% of the jobs in the US.

So it is clear that there’s a tremendous regulatory burden that has been placed on the businesses of America that most feel over-regulate them and cost jobs and increase prices. 

There’s a move afoot within the Obama administration to cut regulation.  That’s a good thing.  But we have to remember, it’s the Obama administration where they usually talk the talk and never walk the walk.   One way to get the economy moving is to lift some of the burdensome regulation and its related costs.

So who should be leading this charge?  The executive branch.  And, as the poll indicates, most voters don’t understand that it is at that branch the buck stops.  But they are clear in what they want – much more consideration and an amended approval process before new regulations are imposed:

– Voters are simply unaware that Congress is not in a lead position with regard to regulation, as a majority say that Congress (52%) creates regulations. However, there is a strong desire for checks and balances in creating regulations, as two thirds (65%) favor requiring regulations be approved by Congress and the President before they are enforced.  Voters do not want a regulatory process that takes away legislative duties reserved for Congress – just as they do not want judges legislating from the bench.  This strong support for Congressional involvement is consistent across partisan groups, including among Democrats (67%), Republicans (65%) and Independents (64%).

Of course that would mean that most oppose the unilateral imposition of new regulation by the executive branch as we’ve seen during this administration. 

All that is not to say that at some level, most Americans see some necessity for regulation:

– There are some positive connections to regulations, with solid majorities saying they are positively impacted by those that require certain safety levels for drinking water (72%) or require controls to ensure better safety at schools and in the workplace (66%).

But, not like this:

– When presented with a lengthy explanation of the Boeing case — where the federal government has filed a lawsuit over the their motivations for locating a new facility in the non-union state of South Carolina — fully 78% of voters side with Boeing in agreeing that a business should be able to open a facility in any state, and that the government should not be involve in the decision about where Boeing or any company locates new plants.

A very interesting poll, and one that needs to be in front of every politician and department executive in government.  Back off, unchain the engine of prosperity and listen to the people.   They’re pretty clear here in what they want.  A less costly and intrusive regulatory regime and government out of places it doesn’t belong – like in the Boeing example.

~McQ

Twitter: @McQandO

The growth of the regulatory state

While President Obama vacations on Martha’s Vineyard, he is supposedly committing to paper a plan to boost employment.  During the recession unemployment has remained high, near 10%, and with the economy slowing again, that number is likely to go higher.

One area that hasn’t suffered jobs losses during Obama’s time in office is the government regulatory regime.  In fact, it has managed to add a significant number of jobs, all, unfortunately, at the expense of business.  While most Americans feel some level of regulation is necessary by the Federal government, over-regulation is always a danger.  When that danger is realized, it is businesses who bear the brunt of the cost of compliance.  And, of course, businesses pass their costs on to consumers in the price of their goods.   So regulation compliance costs drive the price of goods up.

In the past three years of the Obama administration we’ve seen an explosion of regulations.  Investors Business Daily brings you the gory details:

Regulatory agencies have seen their combined budgets grow a healthy 16% since 2008, topping $54 billion, according to the annual "Regulator’s Budget," compiled by George Washington University and Washington University in St. Louis.

That’s at a time when the overall economy grew a paltry 5%.

Meanwhile, employment at these agencies has climbed 13% since Obama took office to more than 281,000, while private-sector jobs shrank by 5.6%.

Michael Mandel, chief economic strategist at the Progressive Policy Institute, found that between March 2010 and March 2011 federal regulatory jobs climbed faster than either private jobs or overall government jobs.

Those agencies have churned out new regulations and rules at an amazing rate:

The Obama administration imposed 75 new major rules in its first 26 months, costing the private sector more than $40 billion, according to a Heritage Foundation study. "No other president has imposed as high a number or cost in a comparable time period," noted the study’s author, James Gattuso.

The number of pages in the Federal Register — where all new rules must be published and which serves as proxy of regulatory activity — jumped 18% in 2010.

This July, regulators imposed a total of 379 new rules that will cost more than $9.5 billion, according to an analysis by Sen. John Barrasso, R-Wyo.

And much more is on the way. The Federal Register notes that more than 4,200 regulations are in the pipeline. That doesn’t count impending clean air rules from the EPA, new derivative rules, or the FCC’s net neutrality rule. Nor does that include recently announced fuel economy mandates or eventual ObamaCare and Dodd-Frank regulations.

As mentioned above, regulations and rules impose a significant cost on businesses which must comply with them.  In a time when the economy is staggering, these increases in costs delivers another body blow to any recovery.  And most of them have been imposed via the Executive Branch through its various Departments and not Congress.  The agenda brought to the White House by Barack Obama is being serviced by regulators and the legislators are being left out

"Our economy is continuing to sink," Sen. Barrasso said, "and it’s being weighed down by regulations coming out of this administration."

By 2008, the cost of complying with federal rules and regulations already exceeded $1.75 trillion a year, according to a 2010 study issued by the Small Business Administration.

Worse, the SBA found that small companies — which account for most of America’s new jobs — spend 36% more per employee to comply with these rules than larger firms.

Of course the administration flatly denies what the reports above tell us is happening:

Cass Sunstein, who runs the White House Office of Information and Regulatory Affairs, denies the regulatory upsurge, writing recently that "there has been no increase in rule making in this administration." He also notes Obama ordered a comprehensive regulatory review in January that uncovered $1 billion worth of needless red tape.

As is always the case, never believe what the administration tells you, always look behind the curtain at the facts.   And the facts are that 379 new rules have been imposed under this administration and it has 4,200 new regulations “in the pipeline” not counting the exceptions to that count noted in the IBD article.  So, as usual, the numbers tell a different story.

If President Obama is serious about creating job opportunities, this is an area in which he obviously exercises direct control via the federal government and the executive branch.  Rolling back the regulator regime, suspending all new rules until a comprehensive study can be made of their economic impact and generally getting regulators out of the way of businesses would be a very good start.

Somehow I doubt any of that will find its way into the jobs plan Mr. Obama presents after his vacation.

~McQ

Twitter: @McQandO

Green jobs? There’s just no market

If you don’t believe me, look at the California experience to this point.   If there’s any state in the union more amenable to and focused on providing green jobs, it has to be the Golden State.   Governor Jerry Brown pledged to create 500,000 of them by the end of the decade.

But as often the case when the central planners make their pledges, they are woefully ignorant of what the market wants.  And so rarely does what they envision ever come to fruition.  Green jobs in CA is a good example.

Remember Van Jones?  Well, when Jones left the Obama cabinet as his “Green Jobs Czar” he landed in California and has been what the NY Times calls an “Oakland activist” apparently pushing for the creation of green jobs.   And it’s not like California hasn’t tried.   It has simply failed.

For example:

A study released in July by the non-partisan Brookings Institution found clean-technology jobs accounted for just 2 percent of employment nationwide and only slightly more — 2.2 percent — in Silicon Valley. Rather than adding jobs, the study found, the sector actually lost 492 positions from 2003 to 2010 in the South Bay, where the unemployment rate in June was 10.5 percent.

Federal and state efforts to stimulate creation of green jobs have largely failed, government records show. Two years after it was awarded $186 million in federal stimulus money to weatherize drafty homes, California has spent only a little over half that sum and has so far created the equivalent of just 538 full-time jobs in the last quarter, according to the State Department of Community Services and Development.

So a “stimulus” program that spent over $93 million dollars to create 538 jobs.  Why so little in terms of takers?  Well it seems the market wasn’t interested.

The weatherization program was initially delayed for seven months while the federal Department of Labor determined prevailing wage standards for the industry. Even after that issue was resolved, the program never really caught on as homeowners balked at the upfront costs.

“Companies and public policy officials really overestimated how much consumers care about energy efficiency,” said Sheeraz Haji, chief executive of the Cleantech Group, a market research firm. “People care about their wallet and the comfort of their home, but it’s not a sexy thing.”

You don’t say … the government didn’t have a clue at what the market potential of their boondoggle actually had, so they ended up spending $172,862 for each job.  And you wonder where the money goes?

Example two:

Job training programs intended for the clean economy have also failed to generate big numbers. The Economic Development Department in California reports that $59 million in state, federal and private money dedicated to green jobs training and apprenticeship has led to only 719 job placements — the equivalent of an $82,000 subsidy for each one.

“The demand’s just not there to take this to scale,” said Fred Lucero, project manager atRichmond BUILD, which teaches students the basics of carpentry and electrical work in addition to specifically “green” trades like solar installation.

Richmond BUILD has found jobs for 159 of the 221 students who have entered its clean-energy program — but only 35 graduates are employed with solar and energy efficiency companies, with the balance doing more traditional building trades work. Mr. Lucero said he considered each placement a success because his primary mission was to steer residents of the city’s most violent neighborhoods  away from a life of crime.

You see you can fund all the job training centers in the world and run umpthy-thousands through it.  But if there is no market for the jobs, you end up spending a whole lot of money for nothing.   Again, ignorance of the market and its demands means expensive mistakes.  Of course Mr. Lucero thinks the program is a success – he got to spend free money, was employed and it didn’t cost him squat.  It cost you.

Example three:

At Asian Neighborhood Design, a 38-year old nonprofit in the South of Market neighborhood of San Francisco, training programs for green construction jobs have remained small because the number of available jobs is small. The group accepted just 16 of 200 applicants for the most recent 14-week cycle, making it harder to get into than the University of California. The group’s training director, Jamie Brewster, said he was able to find jobs for 10 trainees within two weeks of their completing the program.

Mr. Brewster said huge job losses in construction had made it nearly impossible to place large numbers of young people in the trades. Because green construction is a large component of the green economy, the moribund housing market and associated weakness in all types of building are clearly important factors in explaining the weak creation of green jobs.

Market timing is pretty important too, isn’t it?  If you introduce a product into a market in the middle of a market downturn, chances are slim you are going to be successful.  While it may all look good on paper and sound good in the conference room, the “buy” decision is still made in the market place, and in this case it is obvious that the market has no room for these workers.  Something which should have been, well, obvious.  In fact, there is precious little market for traditional construction jobs in a “moribund housing market”.   Yet there they are spending money we don’t have on job skills that are simply not in demand.

Finally there’s this bit of word salad to feast upon:

Advocates and entrepreneurs also blame Washington for the slow growth. Mr. Jones cited the failure of so-called cap and trade legislation, which would have cut carbon pollution and increased the cost of using fossil fuel, making alternative energy more competitive. Congressional Republicans have staunchly opposed cap-and-trade.

Mr. Haji of the Cleantech Group agrees. “Having a market mechanism that helps drive these new technologies would have made a significant difference,” he said. “Without that, the industry muddles along.”

You have to admire someone who tries to cloak central planning jargon in “market speak”.  Imposing a tax on thin air to drive, from above, a behavior government wants is not a “market mechanism”.  And beside, California passed it’s own version of this “market mechanism” with AB 32 in 2006.  How’s that working out?

This is how:

A SolFocus spokeswoman, Nancy Hartsoch, said the company was willing to pay a premium for the highly-skilled physicists, chemists and mechanical engineers who will work at the campus on Zanker Road, although the solar panels themselves will continue being made in China. Mayor Reed said he continued to hope that San Jose would attract manufacturing and assembly jobs, but Ms. Hartsoch said that was unlikely because “taxes and labor rates” were too high to merit investment in a factory in Northern California.

Irony … central planning fails in CA while jobs end up in increasingly capitalistic China.  Again, ignorance of the market causes disappointing results.  Somehow I feel this came as a surprise to Mayor Reed … after he’d spent whatever of your money he’d committed to this project.

~McQ

Twitter: @McQandO

Obama administration drilling rules scrapped by federal judge

A federal judge has scrapped the Obama Administration’s rules for drilling. The new rule required oil and gas producers to do additional environmental studies for each new site (or if increased drilling was to be done at an existing site) even though such studies had been completed on the entire tract previously.  Under the Bush-era ‘categorical exclusion’ rule, the existing studies and approval for the entire tract were sufficient and subsequent studies for new drilling on that tract were waived.  

The Energy Policy Act of 2005 allows the BLM and Forest Service to invoke categorical exclusions and skip new environmental review for drilling permits under certain circumstances.

The circumstances include instances where companies plan to disturb relatively little ground and environmental review already has been done for that area. A categorical exclusion also can be invoked when additional drilling is planned at a well pad where drilling has occurred within the previous five years.

The Obama administration had issued new rules which revoked categorical exclusions (used extensively in the Western US until last year) and required new environmental studies for each new planned drilling or expansion of drilling, slowing the process to a crawl.

The plaintiff, Denver-based Western Energy Alliance, argued that the new rule had created delays that thereby added cost and materially hurt (and thereby created “recognizable injury”).  The administration rejected the argument saying it was “speculative.  However, the federal judge, U.S. District Judge Nancy Freudenthal , did not:

"Western Energy has demonstrated through its members recognizable injury," she said. "Those injuries are supported by the administrative record."

This, of course, is good news for the oil and gas industry, good news for job hungry Americans and, ironically, a ruling the “focused on jobs like a laser” administration is sure to appeal.

~McQ

Twitter: @McQandO

The regulatory (and legal) attacks on private property

Witness the story about the DOT proposing a new rule that would require all operators of farm equipment to hold a Commercial Driver’s License (CDL). That would also require all the paperwork and cost that goes with it (while small family farms try to comply with rules, costs and regulations designed for semi-truck drivers). Here’s a video to help explain the story:

 

 

Of course, saying that the idea is "absurd" has simply lost its impact in this sea of absurdity. Absurd, it seems, is the new normal.  Along with the environmental movement’s success in limiting land use, to include land owned privately, as well as the Kelo decision giving much broader eminent domain powers to governments, property rights have never been more in peril.   And property rights, whether you want to believe it or not, are fundamental to our other rights.

Now we have another attack on property rights – you’ll no longer have the right to decide who can drive what on your private property.   The tradition of family farms – which relies on everyone in the family to succeed – is now about to irrevocably regulated away.

Some more details about what this means:

The proposed change also means ANYONE driving a tractor or operating any piece of motorized farming equipment would be forced to pass the same rigorous tests and fill out the same detailed forms and diaries required of semi-tractor trailer drivers. This reclassification would bury small farms and family farms in regulation and paperwork.

Some of the additional paperwork and regulation required:

-Detailed logs would need to be kept by all drivers – hours worked, miles traveled, etc.

-Vehicles would have to display DOT numbers

-Drivers would need to pass a physical as well as a drug test – every two years.

The Wisconsin Farm Bureau Federation (WFBF) is one of many farm organizations not happy about the idea and has sent the DOT a letter expressing this opinion:

“WFBF opposes any change in statue or regulatory authority that would reclassify implements of husbandry or other farm equipment as Commercial Motor Vehicles (CMVs)”

WFBF Director of Governmental Relations Karen Gefvert continues, explaining the excessive cost to farmers if this allowed to move forward:

“The proposed guidance by the FMCSA would result in an initial increased cost to each Wisconsin farmer and employee of $124 just for the CDL license, permit and test; not to mention the time and cost for the behind-the-wheel training that is several thousand dollars.”

Additionally, Illinois farmers believe this regulation will also force new restrictions on trucks used in crop-share hauling. (One estimate claims more than 30% of Illinois farmers utilize shared land.) These crop-share trucks are typically limited-use vehicles that often travel fewer than 3000 miles each year, mainly hauling crops from the fields to nearby grain elevators. To require them to follow the same rules as semis would also mean a farmer would be forced to purchase substantial insurance.

If you want to find a way to drive individually owned farmers out of business, adding absolutely unnecessary requirements and costs is a great way to start.

I’m not a conspiracy theorist, but I do want to point to something that I’ve known about an watched over the years.   It’s called “Agenda 21” and it is a UN program first signed on too by George H.W. Bush in 1992.  Here’s some of the disturbing verbiage driving that agenda:

Land… cannot be treated as an ordinary asset, controlled by individuals and subject to the pressures and inefficiencies of the market. Private land ownership is also a principal instrument of accumulation and concentration of wealth and therefore contributes to social injustice; if unchecked, it may become a major obstacle in the planning and implementation of development schemes. The provision of decent dwellings and healthy conditions for the people can only be achieved if land is used in the interest of society as a whole. -  Source: United Nations Conference on Human Settlements (Habitat I),Vancouver, BC, May 31 – June 11, 1976. Preamble to Agenda Item 10 of the Conference Report.

That has pretty much been a guiding principle in the UN’s agenda for decades, obviously, and now in it’s Agenda 21.  We, apparently, along with 177 other world leaders, signed on to this anti-American (and I mean that in the truest sense of the word) agenda.  George Soros is a huge backer of the initiative, and I’ve found, over the years, if Soros is for something, freedom is surely going to take a beating.  I’m not saying that there’s an active, agenda driven group that is purposely trying to implement this agenda.  I am saying though that this agenda can and may be used as a self-justification for various officials at differing levels of government to implement its principles because they believe in them.

You can read a bit about it here.   Bottom line, of course, is it is against private ownership and as we saw in Kelo private ownership was indeed “a major obstacle in the planning and implementation of development schemes.”  So instead of upholding individual property rights, the court opted to give governments at all levels broader power to take private property.

This new requirement from DOT is somewhat different.   It actually takes power from states and localities and centralizes it.   By making farm machinery something which must be regulated by the federal government, it usurps that local and state power in favor of broader federal regulation.  Of course the loser here is the farmer who must now face the cost, lost productivity and bureaucratic record keeping and other compliance costs of something which has never been and shouldn’t now be any concern of the Federal government.

This isn’t the only example of these sorts of attacks.  You have the EPA attempting to expand beyond its mandate.   And other bureaucracies are as well.   And it isn’t just limited to the federal level.   At every level there’s some government bureaucrat trying to find ways to control your property or tell you how you must live on it.  In one of the silliest, but obviously serious attempts (the property owner was threatened with 93 days in jail for non-compliance with some vague city ordnance), we see a city manager going way beyond what most reasonable people would find, well, reasonable:

 

Thankfully, public pressure made the boob back off, but I have little doubt in my mind he’d have jailed the woman if left to his own devices.  “Agenda 21” stuff – eh, probably not.   Tin-pot dictator’s syndrome?  Probably.  But regardless, a threat to property rights.

Our property rights are dying the death of a thousand cuts.   We need to push back and push back hard against infringements on a local level (the garden) as well as the national level (DOT and EPA regulatory power grabs).

Otherwise, when they decide they can control the temperature in your house automatically (as they’ve tried in CA), you won’t have a legal leg to stand on.  Right now they’re both wooden and government termites are busily at work.

[HT: @Longhawl]

~McQ

Twitter: @McQandO

Is Atlas shrugging?

Of course what I’m about to cite is an anecdote.  It is hard to claim there’s a trend.   And we don’t even know if the threat was carried out.  On the other hand, we also don’t know how many times the thought process and decision voiced here have been silently made by people who have the ability to hire and expand, but just don’t see the hassle being worth it.   And, of course, it doesn’t help that what they’re trying to do is demonized at every step.

The story told below takes place in Birmingham, AL.  I love B’ham – spent years and years doing business there.  It’s like a second home.  Birmingham was once the “Pittsburg” of the South, with a huge and flourishing steel business.   Of course that’s gone now, at least most of it.   One of the reasons Birmingham was the Pittsburg of the South was because the state had both iron ore and coal deposits.   And one of the major coal mining regions is a county just north of Birmingham named Walker County.

Here, from the David McElroy blog (via The Conservatory) is Ronnie Bryant:

He operates coal mines in Alabama. I’d never heard of him until this morning, but after what I saw and heard from him, I’d say he’s a bit like a southern version of Ellis Wyatt from Ayn Rand’s novel. What I saw made an impression on me.

I was at a public hearing in an inner-city Birmingham neighborhood for various government officials to get public input on some local environmental issues. There are several hot topics, but one of the highest-profile disputes is over a proposal for a coal mine near a river that serves as a source of drinking water for parts of the Birmingham metro area. Mine operators and state environmental officials say the mine can be operated without threatening the water supply. Environmentalists claim it will be a threat.

I’m not going to take sides on that environmental issue, because I don’t know enough to stake out an informed opinion. (With most of the people I listened to today, facts didn’t seem to matter as much as emotional implications.) But Ronnie Bryant wasn’t there to talk about that particular mine. As a mine operator in a nearby area, he was attending the meeting to listen to what residents and government officials were saying. He listened to close to two hours of people trashing companies of all types and blaming pollution for random cases of cancer in their families. Several speakers clearly believe that all of the cancer and other deaths they see in their families and communities must be caused by pollution. Why? Who knows? Maybe just because it makes for an emotional story to blame big bad business. It’s hard to say.

After Bryant listened to all of the business-bashing, he finally stood to speak. He sounded a little bit shellshocked, a little bit angry — and a lot frustrated.

My name’s Ronnie Bryant, and I’m a mine operator…. I’ve been issued a [state] permit in the recent past for [waste water] discharge, and after standing in this room today listening to the comments being made by the people…. [pause] Nearly every day without fail — I have a different perspective — men stream to these [mining] operations looking for work in Walker County. They can’t pay their mortgage. They can’t pay their car note. They can’t feed their families. They don’t have health insurance. And as I stand here today, I just … you know … what’s the use?

I got a permit to open up an underground coal mine that would employ probably 125 people. They’d be paid wages from $50,000 to $150,000 a year. We would consume probably $50 million to $60 million in consumables a year, putting more men to work. And my only idea today is to go home. What’s the use? I don’t know. I mean, I see these guys — I see them with tears in their eyes — looking for work. And if there’s so much opposition to these guys making a living, I feel like there’s no need in me putting out the effort to provide work for them. So as I stood against the wall here today, basically what I’ve decided is not to open the mine. I’m just quitting.Thank you.

Whether Ronnie Bryant actually did what he said isn’t known – but his frustration is clear and his decision as stated, warranted.

The question is how many Ronnie Bryant’s are out there right now?   How many are tired of the demonization, the taxes, the hassles, the bars government and environmental groups erect that make business difficult if not impossible to conduct?  How many have faced men and women with tears in their eyes because they can’t pay the mortgage or feed their family, but know that hiring them would actually be more difficult and costly than just continuing as they are now, or, as Bryant claims, just decide not to open a business because of the intrusion, over-regulation, demonization and the increasing level of obstacles put in the way of business?

That story, at least to me, is a stunning and telling example of the anti-business culture that has been created and nurtured within this country.   This isn’t some apocryphal or fictional example to demonstrate a point.   This is a man listening and deciding that it just isn’t worth it to open a business that would bring in 125 jobs, consume 50 to 60 million in consumables a year (downstream jobs) and, of course, mean tax revenue to both the city, county and state. 

But coal is unpopular.  It is demon coal.   So an industry that powers the nation and generates the electricity that the complainers in the audience and the government bureaucrats there will use when they go home is trashed in a meeting along with business in general.  And a man who could offer something critically needed – jobs – makes the decision that in the climate he observed, it’s just not worth it to open a business up.

How many times in how many local meetings like the one described in Birmingham is there a Ronnie Bryant who just says, after listening to all the trash talk, ‘screw it, I’m not going to bother to open a business’?

Atlas Shrugging – something our lefty friends said was fiction.  

Given today’s business climate, it seems more like a self-fulfilling prophesy, doesn’t it?

~McQ

Twitter: @McQandO

The economy–between a rock and a hard place

The latest reports on the economy is due out this week and it doesn’t appear they will contain much good news:

Economists have been insisting for months that the economy is poised to lift off into a self-sustaining orbit, only to be forced to scrub the launch date several times.

Thus the repeated “unexpected”. 

The way the economy works is that it takes growth higher than a 3% rate before good things, like a sustained decline in unemployment, even start to happen. Anything in the 2.5%-to-3% range is just treading water.

Growth has averaged 2.8% over the past seven quarters. And at this point, economists would welcome a 2.5% growth rate.

Economists polled by MarketWatch now expect growth to actually decelerate to a 1.6% annual rate in the second quarter from a tepid 1.9% rate in the first quarter.

Those are some pretty shocking numbers when you consider all the political hype that’s been flying around lately about the “vastly improved” economy.   I’ve put in bold type the numbers you need to know to be able to analyze the numbers thrown around as these reports come out.   As you can tell, we’ve been in the treading water stage for quite some time.

We’ve covered many of the reasons.   One is the administration’s war on carbon-based fuels – an sector that could be creating hundreds of thousands of jobs, revenue and growth if not essentially shut down by bureaucratic foot-dragging and stifling regulation.  ObamaCare is another reason we see blamed because it has thrown thousands of new regulations about health care at businesses.

Those and other factors have led to extraordinary caution on the part of business about expansion and hiring.  So where are the profits these companies are enjoying coming from? 

The sluggish pace of hiring may be hobbling the US economy, but it’s not been holding back big US companies’ profits thanks to growth overseas and cost controls at home. And that’s bad news for the more than 14 million Americans without jobs.

Big businesses would normally be desperate for surging job growth as it would feed into domestic demand but these aren’t normal times. Massive growth opportunities overseas, especially in China and other buoyant Asian economies, have some of the largest American companies on track for record profits, even if they’re businesses are mostly treading water in the US.

The message last week from the chief financial officer of one of the nation’s industrial giants couldn’t be clearer.

"We’ve driven all this cost out. Sales have come back, but people have not," said Greg Haynes, chief financial officer at United Technologies Corp. "It’s the structural cost reductions that we have done over the past few years that have allowed us to see strong bottom-line results."

The company, the world’s largest maker of air conditioners and elevators, said second-quarter profit rose 19 percent, and it is doing most of its hiring in emerging markets where demand for its products is growing fastest. It isn’t alone in seeing profits climb in the current earnings reporting season.

They’ve learned to do more with less, thus their cost cutting measures in the really bad times are now beginning to pay off.  The easiest and quickest way to cut costs, of course, is reduced headcount.  They’ve also identified new markets that aren’t as onerous or unsettled to do business in – so their hiring – what hiring they’re doing – is overseas.  And given all that, it’s unlikely to change anytime soon:

Employers added fewer jobs in June than at any time in the past nine months, and the jobless rate rose to 9.2 percent, higher than when the recession ended in early 2009.

"We’ve never seen the kind of shedding of jobs that we saw in this recession. America’s corporations have never been running so efficiently," said Ellen Zentner, senior US economist at Nomura Securities in New York.

An example of that is the car industry:

With the economy still struggling to regain momentum after the financial crisis of 2007-09 and 14 million Americans out of work, the planners at GM and a host of corporations across America are in no rush to make big new investments to ramp up output and hiring.

The world’s second-biggest carmaker has not re-opened its idled plants or built new ones as Americans rein in spending.

Like many US manufacturers, it is squeezing more from existing factories and using time-honoured efficiency boosts such as adding to overtime and eliminating plant bottlenecks.

‘Our manufacturing folks have been tremendous at squeaking out extra units through improving line rates, adding on extra shifts,’ GM’s US sales chief Don Johnson said.

That, of course, means a long recovery period for employment.   Here’s a rather startling “did you know” fact for you:

Has anyone in Washington noticed that 20% of American men are not working? That’s right. One out of five men in this country are collecting unemployment, in prison, on disability, operating in the underground economy, or getting by on the paychecks of wives or girlfriends or parents. The equivalent number in 1970, according to the McKinsey Global Institute, was 7%.

That’s neither a good cultural or economic trend and certainly not a trend that we want to see continued into the future.  It has a tendency to have a negative effect that can be profound.  It also tends to see incidents of criminal activity rise. 

So what is government to do?   Follow policies that will encourage businesses to expand and hire.   Exploit those sectors that have low hanging fruit like the carbon-based energy sector.

Instead, what do we get?  Thousands of pages of new regulations and laws.   More and more government intrusion.   A further and artificial stifling of the economy.

Result?

Well read those bold numbers again and ask yourself if that’s what you’re willing to live with – because as it is going now, despite its rhetoric to the contrary, it is that with which this administration seems to be content to live.

And that is unacceptable – or should be.  

~McQ

Twitter: @McQandO

The Obama Administration’s war on carbon-based energy

A little reminder:

 

We are currently in the middle of a war against carbon based energy being waged by the current administration to do precisely what Obama promised as a candidate.  Raise energy prices. The method is irrelevant to him.  No “cap and trade”?   Fine.  He’ll find other ways.   And that’s exactly what is happening as we speak. 

For instance, via the EPA.  Background – apparently the EPA released its new proposed “Cross-state Rule” on July 7th – a couple of weeks ago – after previously sending it around for comment.  The rule is scheduled to go into effect on January 1st of 2012.  It is 1,323 pages long.   It seems they threw a new requirement into the mix that was not in the original proposed rule and that none of the energy generating owners knew was coming. It would require many to shut down.  The Electric Reliability Coalition of Texas picks it up from there:

ERCOT’s May11 report to the Public Utility Commission on the impact of the proposed environmental regulations did not address the impact of SO2 restrictions on coal plants in ERCOT because these restrictions on Texas were not included as part of the EPA’s earlier rule proposal.  We have not had time to fully analyze the entire 1,323-page Cross-State Rule released July 7 or to communicate with the generation owners regarding what their intentions will be.  However, initial implications are that the SO2 requirements for Texas added at the last stage of the rule development will have a significant impact on coal generation, which provided 40 percent of the electricity consumed in ERCOT in 2010.

Our concern is that the timing of the new requirements – effective Jan. 1, 2012 – is unreasonable because it does not allow enough time to implement operational responses to ensure reliability.  We fear that many of the coal plants in ERCOT will be forced to limit or shut down operations in order to maintain compliance with the new rule, possibly leading to inadequate operating reserve margins with insufficient time to reliably retrofit existing generation or build new, replacement generation.

So the EPA pushes out a new reg with drastic limits on SO2 that were not in the original draft of the regulation.   If left unchanged it will, per ERCOT, cause many coal-fired plants to shut down or limit their generation.  And with 40% of electricity generated by coal in Texas, that will be a significant loss of generating power.  Texas will then have to buy what it can’t generate itself and consumer prices will do precisely what candidate Obama hoped – and planned- for them to do.  Now think of this and its effect across the country.

Right in the middle of a recession (he’s not the only one trying his best to shut down coal). 

Brilliant.

Of course that isn’t the only facet of the war on carbon based energy being waged by this administration.  Oil and gas also have seen what has now become to be called a “permatorium” on offshore drilling enforced by the administration.    Using the Deepwater Horizon blowout as its excuse, the administration has slowed permitting to a crawl and is dragging its feet as slowly as possible to, one suspects, fulfill Obama’s desire.

Study after study have shown that opening the process back up to at least the speed in which it was previous to the accident could create hundreds of thousands of jobs and billions in revenue.  A real step toward jumpstarting the economy.  Just yesterday another study made that very point:

Faster permitting of offshore oil and gas projects could create nearly 230,000 new jobs in 2012 and boost the economy by $44 billion, including a surge in tax revenue, according to an industry-funded study released Thursday.

The report by IHS CERA said job growth would extend beyond the Gulf Coast states, boosting employment indirectly as far away as California, New York, Florida, Illinois and Georgia.

The study, funded by the Gulf Economic Survival Team, a group of largely Louisiana-based energy and business interests, looks at data on the pace of permitting by the Bureau of Ocean Energy Management Regulation and Enforcement through April 30.

That’s six months after the end of a federal moratorium on offshore drilling, which the government imposed after last year’s Deepwater Horizon accident killed 11 workers and triggered a 5 million-barrel oil spill.

Permit approvals take 95 percent longer now than before the spill, the study says.

You can read the study for yourself here [pdf].  But that last number is telling.   There’s no reason for it.  The industry has stepped up and raised the bar significantly on safety.  The numbers quoted in the study projecting jobs and revenue are for 2012.  What administration concerned with jobs wouldn’t leap at such low hanging fruit?  This one.  Compared to historical trends, pending exploration plans are up by nearly 90%, approvals are down by 85% ,and the approval process has slowed from an average of 36 to 131 days.

And there’s no reason for it.

Meanwhile, what we have is tough to get to market.   Take West Texas Intermediate (WTI) oil

As for WTI, inadequate pipeline infrastructure makes it difficult to get the stuff out of North America — and that depresses its price, especially when demand is also weak. Its problems could also get worse before they get better. Output from North America is growing faster than expected. Canadian producers, for example, recently said output will grow from 2.7 million barrels a day to 3.4 million by 2014 and North Dakota production is surging. Meanwhile efforts to build new pipelines are mired in political controversy.

And they’ll remain mired in political controversy as long as this administration is in power.  Slowly, but surely, a nation with huge energy resources is being strangled by a government and President who want to intentionally raise energy prices.  Inadequate pipeline infrastructure means less product makes it to market.  Less product in the market place means higher prices for what does make it there.   Who pays?   Consumers.

However, proposals and applications to build pipelines, submitted in 2008, still await action:

In September 2008 TransCanada applied to build a new pipeline — the Keystone XL — to bring diluted bitumen from the oil-rich tar sands of Alberta to thirsty American refineries on the Gulf Coast. It is hardly a radical proposal. Canadian crude has been flowing to the U.S. for decades. Another Canadian company — Enbridge — operates the Clipper pipeline across the Canadian border to Chicago. In July 2010 TransCanada began operating its Keystone pipeline from Alberta to Cushing, Oklahoma, which is a major storage and pricing depot…TransCanada estimates that building the pipeline will mean more than $20 billion — $13 billion from TransCanada itself — in investment and 13,000 new American jobs in construction and related manufacturing. The company also expects more than 118,000 "spin-off" jobs during the two years of construction. TransCanada says it has signed building contracts with four major U.S. unions. It projects that construction will generate $600 million in new state and local tax revenue and that over its life the pipeline will generate another $5.2 billion in property taxes. The Energy Policy Research Foundation in Washington estimates that by linking to the XL, oil producers in North Dakota’s Bakken region will enjoy efficiency gains of between $36.5 million and $146 million annually. Lower transport costs will mean savings for Gulf Coast refiners of $473 million annually if the pipeline meets conservative expectations of shipping 400,000 barrels per day.

Jobs and revenue (in addition to those previously cited in the study), there for the taking, and this administration sits and waits.

And of course, the newest controversy to hit the energy community as to be used as an excuse not to act has to do with hydraulic fracturing, or “fracking”.   This is a 64 year old technology that has been used in the US on over a million wells.  Suddenly, after news of massive new findings of natural gas in shale formations, it is a problem.  And, of course, once it can be officially designated as a problem area, it must be investigated and regulated by the federal government.   Complaints of ground water contamination have derailed the exploitation of these energy assets while the politicians argue, dither and delay.  With those delays, again, go thousands upon thousands of potential jobs for Americans.

Name a reason for the sorry shape our economy is in and the government’s apparent refusal to aggressively move to help the energy industry create hundreds of thousands of jobs?  Review that video again.  It’s not long, but it plainly gives you the reason.

Is that what your government is there to do?

~McQ

Twitter: @McQandO

Blunt talk from Bernie Marcus about Obama and economy

This has been a week for CEOs speaking out against the Obama administration.   This time it’s someone I actually admire.  Bernie Marcus, co-founder and CEO of Home Depot, has given an interview to Investors Business Daily and it is a pretty frank denunciation of the policies this administration has followed since coming into power.  It’s one of the things I admire about Marcus – he pulls no punches:

IBD: What’s the single biggest impediment to job growth today?

Marcus: The U.S. government. Having built a small business into a big one, I can tell you that today the impediments that the government imposes are impossible to deal with. Home Depot would never have succeeded if we’d tried to start it today. Every day you see rules and regulations from a group of Washington bureaucrats who know nothing about running a business. And I mean every day. It’s become stifling.

If you’re a small businessman, the only way to deal with it is to work harder, put in more hours, and let people go. When you consider that something like 70% of the American people work for small businesses, you are talking about a big economic impact.

Remember that Home Depot was launched during the then worst recession in 40 years and Marcus took it public 3 years later.   He’s built a business from the ground up and created thousands of jobs.   He actually understands what it takes.  He also clearly understands what will kill it. 

Here is one of the key points one has to understand about this administration and Marcus is on it:

IBD: President Obama has promised to streamline and eliminate regulations. What’s your take?

Marcus: His speeches are wonderful. His output is absolutely, incredibly bad. As he speaks about cutting out regulations, they are now producing thousands of pages of new ones. With just ObamaCare by itself, you have a 2,000 page bill that’s probably going end up being 150,000 pages of regulations.

We’ve been warning you from the beginning  to pay no attention to the man’s words and instead scrutinize his deeds.  Often they are the opposite of what he has said he’d do.  For example:

In January, however, he issued an executive order requiring federal agencies to review their regulations, looking for rules that are inefficient or outdated. His aim, he explained on The Wall Street Journal‘s op-ed page, was to "root out regulations that conflict, that are not worth the cost, or that are just plain dumb."

But there’s a catch: All those new regulations Obama put in place will not be subject to review. Just days after the president issued his order, an anonymous administration official conceded to the Journal that "new regulations will not be priorities for the look back." Meanwhile, more than a dozen federal bureaucracies—including the Securities and Exchange Commission, the Federal Communications Commission, and the National Labor Relations Board—are exempt from the review because they are independent agencies.

That’s another in a long list of many examples of him saying one thing and doing something else.  His speeches are politically driven and designed to give him political cover while his actions are ideologically driven and part of an agenda.

Marcus is then asked about the debt talks:

IBD: Washington has been consumed with debt talks. Is this the right focus now?

Marcus: They are all tied together. If we don’t lower spending and if we don’t deal with paying down the debt, we are going to have to raise taxes. Even brain-dead economists understand that when you raise taxes, you cost jobs.

With all the talk about tax increases it means we have a lot of zombie politicians who haven’t a clue, unfortunately.  I mean how difficult is this?   When you raise taxes in a recession, many businesses are going to have to make a decision aren’t they?  Use the money to pay the tax or hire.   Any guess which will win out?  You can’t go to jail for not hiring.

Finally, and this one is devastating in its forthrightness, Marcus is asked what he’d tell Obama if he could sit down with him and talk about job creation.   His answer is a classic:

IBD: If you could sit down with Obama and talk to him about job creation, what would you say?

Marcus: I’m not sure Obama would understand anything that I’d say, because he’s never really worked a day outside the political or legal area. He doesn’t know how to make a payroll, he doesn’t understand the problems businesses face. I would try to explain that the plight of the businessman is very reactive to Washington. As Washington piles on regulations and mandates, the impact is tremendous. I don’t think he’s a bad guy. I just think he has no knowledge of this.

One can only wish Contessa Brewer was around to ask about economic degrees.  Marcus is right about Obama’s lack of knowledge.  He’s surrounded by a lack of knowledge in this area if his policies are any indication.  As has been pointed out repeatedly, a president who was really concerned about jobs would be green lighting oil and gas exploration as fast as he could make it happen.  And he’s certainly made speeches about doing just that, but as usual, his actions betray his words.

Marcus has got a bead on this administration and this president.  As long as they are in power and continue with the course of their regulatory policies,  the economic malaise that has settled over this country will continue.  

~McQ

Twitter: @McQandO