Coyote Blog

Yes, its stupid, but perhaps for a different reason than has been mentioned.  The tax is on producers, and is meant to fund a promotion and marketing campaign.  Really.  Because Christian families in the US might forget to buy a tree this year if the government did not remind them.  Seriously, do any of these folks have kids.  "Dad, can we get the tree today, can we, can we, please?"

By the way, this kind of taxation authority that bypasses Congress is actually fairly often used by the Department of Agriculture.   If you see random TV ads for avocados or almonds, you probably are seeing one of these government marketing forced-cooperatives.

Paul Krugman had this sideswipe comment the other day:

This isn't the only case where news organizations consistently report as truth something that didn't happen, while failing to report what did. Another one that comes to mind is the California electricity crisis of 2001-2002. As some readers may recall, that crisis was caused by market manipulation -- and that's not a hypothesis, Enron traders were caught on tape telling plants to shut down to create artificial shortages. Yet "news analyses" published after the whole thing was revealed would often tell readers that excessive environmental regulation and Nimbyism caused the crisis, with nary a mention of the deliberate creation of shortages.

And as you'll notice, in both cases the imaginary history just happened to be one more comfortable to status quo interests.

I find it hilarious that Krugman is talking about imaginary history, since he plays the same game so often.  In fact, the disconnect between many of Krugman's current political writings and his historical economic work are often jaw-dropping.  Even the differences in Krugman's opinion on the same topic when a Republican vs. a Democrat is in the White House can be amazing.

But I wanted to address the California utility issue.  Certainly Krugman is right, as far as he goes, in that Enron made a lot of money in the California electricity crisis creating some short-term artificial shortages.  But what he leaves out of his brief comment were the structural rules the government had put in place that made Enron's actions possible.  Enron's profits in the California electricity crisis could never have been made in a free market.

I am not an expert on the whole regulatory environment in which these events occurred, but there were three key regulatory facts that need to be understood:

1.  California, due to the NIMBY and environmental concerns Krugman mentions in passing, want lots of electricity but do not want the electricity production near them.  So they have exported the production to other states, and, more importantly, California utilities did not control the production of the electricity they needed.  Thus a lot of California power, and all of its marginal demand, is satisfied by local utilities buying out of state power.  As we will see next, Krugman is really putting up a straw man here, as this is simply background, the least important of the three government factors that drove the problem.

2.  California deregulated wholesale utility prices, but not retail prices.  The point of price deregulation is that suppliers and consumers can make better decisions because the information they get via prices is not distorted by government mandates.   But price deregulation only makes sense if the ultimate consumers have prices that float with the market.  But California consumers still had fixed prices.  There were no changes to pricing signals to consumers that might cause them to conserve more when electricity was particularly short.

So, only wholesale customers saw their prices paid increase when electricity supplies ran short.  This mainly applied to large California utilities that bought power they needed from out of state.   Theoretically, when prices spiked, they could cut back their demand.  This is more awkward for them than consumers, but could be done either with pre-determined shut down priorities or rolling brown-outs.  At some point, one would assume the cost of power would be higher than the cost of service disruptions, but...

3.  California utilities were effectively required by regulation to try to serve all demand.  Right or wrong, they felt they were in a position that if power were available, they had to buy it no matter what the cost.

So step in Enron.  Seeing this mess, they found they could corner the market at a few peak demand times and sell Calfornia power for a gazillion dollars a Kw.   I would not personally have been proud to make money that way, but Enron jumped right in.

I have no problem giving Enron grief for the way they make money, but one has to ask themselves, why the hell were California utilities buying power no matter what the price, and why was it that when electricity was so dear, it was illegal to communicate this to end users via prices (as we do with any other product or commodity).  The story here is a lot more complicated than Enron.

Update: Finem Respice took a more sophisticated look at this same issue a while back in a broader post about trying to close an open system.

On the retail side, just as California was patting itself on the back for "deregulating" in 1996 (via a bill that Pete Wilson created with complexities and exceptions for e.g., San Diego that make the special interest game in Washington look tame by comparison), it froze, just after reducing, retail electricity rates for five years. Add to this the fact that California had long depended on supplies from, e.g., the Northwest, which, for years, enjoyed a hydroelectric power generation surplus. As the surplus vanished with droughts and increased demand in the Pacific Northwest, so did the supply buffer California was so used to, and that it leaned on most heavily over the years to avoid building new generating capacity (new capacity being the bane of the progressively green environmental utopian-paradise that was (is) California energy politics). All this conspired to spike rates. Who is surprised?

It is somewhat unfortunate that Enron's shrewd manipulation of California's badly flawed and outright schizophrenic market scheme was so flagrant, and that unrelated accounting scandals at the company permitted the story to become one of deregulation evils and free market greed rather than the core issue: the political spinelessness exhibited by California officials and their ongoing attempt to insulate voters from anything resembling market prices for electricity

Via Carpe Diem and a whole string of other sites:

"How will California parents react when they find out they will be expected to provide workers' compensation benefits, rest and meal breaks, and paid vacation time for…babysitters? Dinner and a movie night may soon become much more complicated.

California Assembly Bill 889 will require these protections for all “domestic employees,” including nannies, housekeepers and caregivers. The bill has already passed the Assembly and is quickly moving through the Senate with blanket support from the Democrat members that control both houses of the Legislature – and without the support of a single Republican member. Assuming the bill will easily clear its last couple of legislative hurdles, AB 889 will soon be on its way to the Governor's desk.

Under AB 889, household “employers” (aka “parents”) who hire a babysitter on a Friday night will be legally obligated to pay at least minimum wage to any sitter over the age of 18 (unless it is a family member), provide a substitute caregiver every two hours to cover rest and meal breaks, in addition to workers' compensation coverage, overtime pay, and a meticulously calculated timecard/paycheck.

Failure to abide by any of these provisions may result in a legal cause of action against the employer ("parents") including cumulative penalties, attorneys' fees, legal costs and expenses associated with hiring expert witnesses, an unprecedented measure of legal recourse provided no other class of workers – from agricultural laborers to garment manufacturers."

I know this is exactly the kind of thing you would expect me to oppose, but I have decided this is exactly the kind of thing California needs.  I am tired of average citizens passing crazy requirements on business without any concept of the costs and injustices they are proposing, and then scratch their head later wonder why job creation is stagnant.
I want to propose that California do MORE in this same vein.  Here are some suggestions:

• Every household will have to register for a license to conduct any type of commerce, a license to occupy their house, and a license to hire any employees.  Homeowner will as a minimum have to register to withhold income taxes, pay social security taxes, pay unemployment insurance, pay disability insurance, and pay workers comp insurance.
• Households should have to file a 1099 for every payment they make to contractors
• All requirements of Obamacare must be followed for any household labor, including payment of penalties for even part-time labor for which the homeowner does not provide medical insurance
• No alcohol may be purchased by any individual without first applying for and receiving a state liquor license
• No cigarettes may be purchased by any individual without first applying for and receiving a state cigarette license
• No over the counter drugs may be purchased by any individual without first applying for and receiving a state over the counter drug license
• No eggs may be purchased by any individual without first applying for and receiving a state egg license
• Any injuries of any type in the household must be reported to OSHA
• Form EEO-1 must be filed once a year to catalog the race and gender of anyone who did any work in the home
• Any time one has a dispute in court with another citizen or an employee, they will now be treated the same as businesses in California, which means that the presumption, irregardless of facts, will be strongly in favor of any employee and against the homeowner, and in favor of any other party in any dispute whose net worth is perceived by the jury as less than the homeowner's.
• At least once a year the home's kitchen must be inspected and certified by both the fire marshal and the health department.  Any deficiencies must be immediately repaired before the kitchen can be used.  All code requirements for commercial kitchens will apply to household kitchens, including requirements for a three-basin washup sink, separate mop sink, and fire extinguishers
• All homes will be inspected once per year for ADA compliance.  All parts of the home must be wheelchair accessible, even if there are currently no handicapped residents in residence.  Homes more than one-story tall will require an elevator.  All counters must be of the proper height, and all bathrooms must have ADA fixtures.
• Each home will be required to prominently display all its required licenses as well as state and federal information posters for workers.
• All homes will be audited at least once every three years to ensure that use taxes have been filed and paid on all out of state Internet purchases
• Material Safety Data Sheets must be on file for all household cleaning products and other chemicals and available for inspection by the fire marshal
• All gas tanks (car, lawnmower, portable 5-gallon) will be treated just like commercial gasoline storage tanks, and require monthly leak / loss reporting.  Annually, a complete spill prevention plan must be filed with the state.
• A stormwater discharge plan must be filed annually with the state
• Any dropped thermometer or CFL bulb will require homeholder to call out (and pay disposal costs) of a state hazmat team
• Lifeguards are required at all home pools during daylight hours
• Households should file property tax returns in the same way that businesses must, listing individually every single piece of personal property they own, from their car to their lawnmower to the pink flamingo in the front yard.
• Homeowner must track the number of days any guests stay in their house so they can file and pay lodging taxes on a monthly basis
• Any homeowner who hauls a boat or trailer on US highways must register with the Department of Transportation and receive a DOT number.  They must keep full driver logs and maintenance records available for DOT audit and inspection, and every driver must be drug-tested at least once per year.
• All food on pantry shelves must meet all state labeling laws
• At each entrance to the house, a sign warming those entering must be posted warning that certain cancer causing chemicals may be present

Finally, after spending the entire day complying with these rules, the homeowner must read at least 3 posts each day from progressive blogs explaining why anyone who complains about such rules as unreasonable is just a reactionary who doesn't really know how to run his business very well, and they could certainly do better.

Postscript:  Every single item on this list is something my company has been required to do.  I am sure I left a bunch out.

Yet more crap to keep up with as an employer

Today the NLRB released its final rule mandating all private sector employers subject to the National Labor Relations Act to post notices informing employees of their rights under the Act. The final rule is scheduled to be published in the Federal Register on August 30, 2011. Posting of the Employee Rights Notice becomes effective November 14, 2011. Failure to post will be an unfair labor practice....

Failure to post the Notice will constitute an unfair labor practice which may be filed with the NLRB by any person. Further, the failure to post the Notice will be deemed evidence of anti-union animus or motivation where employers are alleged to have interfered, restrained, or coerced or otherwise discriminated against employees to encourage or discourage union membership or activity.

We already spend a thousand bucks a year or so with printing companies that keep us supplied with updated signs for all of our locations.  At some point we are going to have to buy billboards to fit all the stuff we are required to post -- minimum wage notices, NLRB notices, civil rights policies, occupancy permits, sales tax licenses, liquor licenses, egg licenses, cigarette licences, fire inspections, health inspections. Soon I am sure we will have a couple of square feet of Obamacare notices.

Via Protein Wisdom:

A legislative proposal in San Francisco seeks to make ex-cons and felons a protected class, along with existing categories of residents like African-Americans, people with disabilities and pregnant women. If passed by city supervisors, landlords and employers would be prohibited from asking applicants about their criminal past. [...]According to The City’s Human Rights Commission, San Francisco has the highest recidivism rate of any big city in California, almost 80 percent. With an influx of new prisoners set to be released because of the state’s budget crisis, supporters argue felons need legal protections before they’re disqualified simply because of their record, which could be decades old and for crimes that have nothing to do with the job they’re hoping to get.

Do you really want to open your customer contact business in a location where you cannot background check employees, or are not legally allowed to fire them if you find some horrible criminal history?  Can you imagine the lawsuits flying?  And don't tell me that the company would be safe in a courtroom arguing that it was illegal to check.  I could easily see a California jury holding a company liable for not background checking an employee for an incident even when it was illegal to do so.

This article on the FDA's propose to regulate medical-related iPhone apps got me thinking.   These bureaucrats are really like marketers in a company.  They are constantly coming up with growth ideas, though in the case of regulators it is ideas to growth the size and scope of their power, rather than sales, but the thought process is probably about the same.

Most new product ideas that come out of these brainstorming sessions in the private industry are a failure - they die in the conference room, or later in funding, or maybe later in the marketplace.  A few survive.  But at the end of the day, what matters is not how much the person who came up with the idea wants it to happen, it is whether the idea proves to be of value to the public.

Unfortunately, there is no such check on the regulatory sphere.  They come up with an idea to expand power, and they just run with it and make it happen.  In fact, general public opposition is generally interpreted by these folks as proof of concept - ie if people are against the new regulations, they must REALLY be necessary.

We would be better off if regulatory ideas were adopted at roughly the same rate that new products ideas are successful.

I want bother to except this, you really need to see the post in its entirety.  Popehat looks at 98 pages of Colorado state regulations on day care centers.  The breadth and depth of the regulations, down to exactly how many of what type blocks kids should have to play with, is just amazing.

This is job security for life for a bunch of bureaucrats.  If we require all this stuff, we need regular reporting don't we, on compliance.  And inspections. And a detailed licensing and application process.  And ten years from now, when all the day care centers are closed or cost too much, we will need extensive government programs to provide subsidized day care.

After over three years of effort, and many, many checks written to numerous departments, Ventura County has granted us the right to operate a fuel tank at a particular location near Lake Piru, CA.  This is actually a huge improvement, and will be much safer and less liable to create a spill than the current methods of schlepping around zillions of 5-gallon cans in a pickup truck.

However, we still have not, after 3 years of trying, obtained a permit from self-same Ventura County to install said tank.  So it is currently legal for us to own, posses, and operate a fuel tank at the permitted location but still illegal for us to install one there.

The tank we purchased 3-years ago in the naive hope all this permitting could be done in a month or two will probably be rusted out by the time we can actually install it.

Kevin Drum seems upset that the US Government does not mandate paid time off for all US workers

The map below shows this starkly: the United States is virtually alone in not mandating any annual time off for employees, right along with such economic luminaries as Burma, Guyana, and Nepal. More charts on American overwork here.

I could take the same map and make this statement: "unlike such freedom-loving luminaries as Iran, Russia, Mali, and Chad, the United States government does not interfere in private decisions about vacation pay policies."

By the way, why is it for statists that the lack of a government mandate for something desirable is considered equivalent to the desirable policy being non-existent?  In fact, Kevin Drum himself says his employer has a good paid leave policy.  Wow, how could such a thing have happened without a government mandate?

Often, the dominance of markets by bland and uninteresting mass-market products is blamed on capitalism.  This makes no sense to most business people, since if there really was a pent up demand for variety and smaller-batch products, someone would try to make money doing so.  One only has to look at the explosion of craft beers over the last 30 years to see this effect, and its one that is only being reinforced by modern technologies that allow lower costs for smaller batch production.

If one wants to put the blame anywhere, one might look at the government, where there is an interesting clash brewing on the Left between those who like local, small-batch products and the regulatory state the Left built.  For example, via Overlawyered

Homa Dashtaki [a producer of small-batch yogurt] was eager to demonstrate that her yogurt was safe and healthful, but complying with California regulations turned out to be not so easy. In fact, authorities told her that she would face possible prosecution unless she established a “Grade A dairy facility” employing processes more commonly found in factories. A highlight: she’d have to install a pasteurizer even though she made her yogurt from milk that was already pasteurized. What’s more, California law makes it illegal to pasteurize milk twice, so there went any hope of continuing her straightforward way of obtaining milk, namely bringing it home from a fancy grocery store.

Ms Dashtaki is pondering whether to move to another state, one whose rules allow for artisanal products. She would not be the first entrepreneur to flee the Golden State.

This is sort of like the old Mad magazine Spy v. Spy, but relabeled Left vs. Left.  Exactly the same dynamics are at work in organic farming as well as hand-crafted artisan toys (which are affected substantially by the recent toy regulations passed after the Chinese lead panic).

There are certain regulatory agencies where it is clear from the outset that most of the agency's activity is merely aimed at protecting their own jobs and power.

The one such agency I run up against are Alcoholic Beverage Commissions in various states, from whom one must obtain a liquor license.  In the type of small store we run, there are really only two things the state should care about, and even the second is a bit weak

• That we don't sell alcohol to underage kids
• That we don't allow alcohol consumption on the premises

But the liquor licensing process can be interminable.  In Arizona, for example, I have had my applications kicked back to me, which resulted in 2-month delays in the process, because I wrote an address as 1313 48th Pl.  rather than 1313 48th Place.  They spend incredible man-hours looking for nit-picky mistakes like this, and then kick it back so that the whole review process must begin again.  Many states and counties have a second layer of review, to make sure that your new competition is "needed" - after all, we wouldn't want to upset the position of incumbent businesses who are entitled to their market share and who make nice campaign contributions.

Each application has to have a drawing of the store layout and where one plans to put the beer.  If you want to move the beer at a later date, you have to get the state's approval.  (Bizarrely, the drawing in most states has to be by hand -- they will kick back an application with a CAD drawing or architect's drawing).  And don't get me started on the fact I have to be finger-printed by the FBI (so they can be sure I am not Al Capone) before a store I own can sell beer.

All this being said -- and I didn't mean to run on so long but liquor licensing just drives me nuts -- it is nothing to I won't repeat it all, but take this example:

a drug manufacturer must get approval for how much of a drug it plans to produce, as well as the timeframe. If a shortage develops (because, say, the FDA shuts down a competitor’s plant), a drug manufacturer cannot increase its output of that drug without another round of approvals. Nor can it alter its timetable production (producing a shortage drug earlier than planned) without FDA approval.

They have to get their production schedules approved?  What possible justification can there be for this?  But even more outlandish is the apparent drive to regulate drugs that have been on the market for over 70 years and have to date been relatively unregulated because they were on the market before the FDA got its current powers.   Why should a bureaucrat lose her job when there are still unregulated items out there?  Besides, some uneducated American might use these examples of safe, unregulated drugs to question the who regulatory mission!

Several drug shortages (e.g., concentrated morphine sulfate solution, levothyroxine injection) have been precipitated by actual or anticipated action by the FDA as part of the Unapproved Drugs Initiative, which is designed to increase enforcement against drugs that lack FDA approval to be marketed in the United States. (These drugs are commonly called pre-1938 drugs, referring to their availability prior to passage of the Food, Drug, and Cosmetic Act of that year.) Some participants noted that the cost and complexity of completing a New Drug Application (NDA) for those unapproved drugs is a disincentive for entering or maintaining a market presence.

I have heard several medical people joke that it would be tough to get aspirin through the FDA today if it were a new drug and not grandfathered.  Don't know if that is true, but it feels believable.

I am happy that my neighbors here in Phoenix are not allowed a hecklers veto to prevent grocery store chains, or any other business, from serving me at convenient locations.  I live walking distance from an intersection with three grocery stores (Whole Foods, Fry's, Albertsons) and I love it.

Megan McArdle responds to yet another call for government-enforced unbundling (or a la carte pricing) for cable TV.  I think she does a pretty good job in response, but I wanted to go in depth on a couple of issues.

First, it is interesting to me that the exact same people, typically on the Left, who want to unbundle cable TV are the same ones who angle for net neutrality, which in effect is government rules to enforce bundling of Internet services.  Which leads me to think this has less to do with consumer protection and more to do with the raw exercise of power to overturn free market solutions to problems.

Second, I think that unbundling would be a terrible solution for customers, particularly for those whose interests are focused and esoteric (e.g, they like the GLBT channel or whatever).  These folks think unblundling will get them cheaper rates for the one channel they want.  What it more likely will get them is fewer of those niche, esoteric channels.  I will simply repeat an earlier article I wrote four years ago on this topic:

I see that the drive to force cable companies to offer their basic cable package a la carte rather than as a bundle is gaining steam again.  This is the dumbest regulatory step imaginable, and will reduce the number of interesting niche choices on cable.

For some reason, it is terribly hard to convince people of this.  In fact, supporters of this regulation argue just the opposite.  They argue that this is a better plan for folks who only are passionate about, say, the kite-flying channel, because they only have to pay for the channel they want rather than all of basic cable to get this one station.   This is a fine theory, but it only works if the kite-flying channel still exists in the new regulatory regime.  Let me explain.

Clearly the kite-flying channel serves a niche market.  Not that many people are going to be interested enough in kite flying alone to pay $5 a month for it.  But despite this niche status, it may well make sense for the cable companies to add it to their basic package.  Remember that the basic package already attracts the heart of the market.  Between CNN and ESPN and the Discovery Channel and the History Channel, etc., the majority of the market already sees enough value in the package to sign on.

Let’s say the cable company wants to add a channel to their basic package, and they have two choices.  They have a sports channel they could add (let’s say there are already 5 other sports channels in the package) or they can add the Kite-flying channel.  Far more people are likely to watch the sports channel than the kite flying channel.  But in the current pricing regime, this is not necessarily what matters to the cable company.  Their concern is to get more people to sign up for the cable TV.  And it may be that everyone who could possibly be attracted to sports is already a subscriber, and a sixth sports channel would not attract any new subscribers.  It is entirely possible that a niche channel like the kite-flying channel will actually bring more incremental subscribers to the basic package than another sports channel, and thus be a more attractive addition to the basic package for the cable company.

But now let’s look at the situation if a la carte pricing was required.  In this situation, individual channels don’t support the package, but must stand on their own and earn revenue.  The cable company’s decision-making on adding an extra channel is going to be very different in this world.  In this scenario, they are going to compare the new sports channel with the Kite-flying channel based on how many people will sign up and pay for that standalone channel.  And in this case, a sixth (and probably seventh and eighth and ninth) sports channel is going to look better to them than the Kite-flying channel.   Niche channels that were added to bring greater reach to their basic cable package are going to be dropped in favor of more of what appeals to the majority.

I think about this all the time when I scan the dial on Sirius radio, which sells its services as one package rather than a la carte.  There are several stations that I always wonder, "does anyone listen to that?"  But Sirius doesn’t need another channel for the majority out at #300 — they need channels that will bring new niche audiences to the package.  So an Egyptian reggae channel may be more valuable as the 301st offering than a 20th sports channel.  This is what we may very likely be giving up if we continue down this road of regulating away cable package pricing.  Yeah, in a la carte pricing people who want just the kite-flying channel will pay less for it, but will it still be available?

Kevin Drum doesn't buy the regime uncertainty argument as a partial explanation of the slow recovery.

Here's what's remarkable: Carter, a law professor at Yale, apparently never once bothered to ask this guy just what regulations he's talking about. Is he concerned with general stuff like the healthcare law? Or something highly specific to his industry? Or what?

Regardless, I've heard this kind of blowhard conversation too often to take it seriously. Sure, it's possible this guy manufactures canisters for nuclear waste or something, and there's a big regulatory change for nuclear waste storage that's been in the works for years and has been causing everyone in the industry heartburn for as long as they can remember. But the simple fact is that regulatory uncertainty is no greater today than it's ever been. Financialuncertainty is high, but the Obama adminstration just hasn't been overhauling regs that affect the cost of new workers any more than usual. The only substantial exception is the new healthcare law, and if you oppose it that's fine. But it was passed over a year ago and its effects are pretty easy to project.

First, the costs of the health care law are NOT easy to project, and are made even harder when your company might or might not get waivers from certain provisions.    Second, he seems to forget cap and trade, first by law and then by executive fiat; the NLRB's new veto power over corporate relocations it exercised with Boeing; the absurdly turbulent tax/regulatory/permitting regime in the energy field, and particularly oil and gas.  How about trillion dollar stimulus projects, that until very recently Obama was still talking about replicating (and Krugman begs for to this day).  I could go on and on.  This is spoke just like a person who never had to run a business.

Further, I wrote this in the comments section:

I think you are both right and wrong.  I am sure the discussion about this is to some extent overblown.  But you are thinking about business and hiring much too narrowly.

You seem to have a mental model of business showing up at the door, and someone turning that business down because they don't want to hire an employee to serve it (or out of sheer petulance because Fox News told them to sit on their hands, lol).  You find it unlikely anyone would refuse the business, and so do I.

But I run a small to medium size business, and a lot of hiring decisions don't work that way.    I do have some situations that fit your model - I have a campground that is really busy this year, so we hired more people to serve the volume.   No problem.

But most of my hiring decisions are effectively investments.  I am going to create a new position, pay money to train that person, and pay their wage for a while in advance of demand.  Or I am going to open a new site or department or location and make a lot of investment, and the return on investment may be very sensitive to small changes in labor or regulatory costs.

For our business, with labor costs over 50% of costs, the issue is definitely labor costs.  Our pre-tax margins are in the 6-7% range.  So if labor costs are 60% of revenues, then a 10% change in labor costs might wipe out the margin entirely, and a much smaller change in costs might flip the investment from making sense to not making sense.

We run a seasonal business with part-time workers who are older and on Medicare.  Regulations about exactly how much we will have to pay under Obamacare have not been written, so we have no idea how much our employment costs will go up in 2014, so we sit and wait.  I have cancelled two planned campground construction projects in the last 6 months because we have no freaking idea if they will make money.

If I am having trouble with just this one law figuring out whether to make investments, what are, say, oil companies doing in evaluating investments when they have absolutely no idea what their taxes will be, whether they will be permitted or not to drill, or whether they will be subject to cap and trade?

One other thought, it strikes me that there is a lot of good scholarship that suggests that the Great Depression was extended by just this kind of regime uncertainty.  Now, of course, the proposed structural changes to the economy being proposed at the time were more radical than anything on the table today.  The National Industrial Recovery Act was essentially an experiment in Mussolini-style economic corporatism, until most of it was struck down by the Supreme Court.   Nothing so radical is being proposed (unless you work in health care).

Look, I know the Left has convinced itself that only consumer demand matters in an economy, but business investment has simply got to matter in a recovery.   If the returns on future investments are harder to predict, and therefore riskier, businesses are going to apply a higher hurdle rate to new investments, meaning they don't stop entirely, but do invest less.

One interesting may to confirm this some day would be to look back and see if larger corporations with political access invested more than smaller ones or ones with less access.  Did GE, who clearly can get whatever it wants right now from the government, invest more than a small company or even than Exxon, which is on the political outs?  If so, this in my mind would confirm the regime uncertainty hypothesis, because it means that the companies doing most of the investing were the ones confident that they could shape the mandates coming out of the government in their favor.

Beyond regime uncertainty, if you want to talk about Obama and the recovery, you have to mention that a trillion dollars was diverted from private hands to public hands.  Does anyone believe that taking a trillion dollars out of whatever investments private actors would have used the money for and diverting most of it to help maintain government payrolls is really the way to increase the strength and productivity of the economy?

My column this week in Forbes is about the declining rate of entrepreneurship and startups in the US.

A recent study by the Beauru of Labor Statistics confirmed a potentially disturbing trend — that the number of new startup businesses in the United States has declined since 2006, and the number of jobs created by those startups has been in decline for over a decade.

This is not just a result of the recent recession.  These declines pre-date the current recession, and besides, startup activity has always held up well in past recessions as unemployed workers try entrepreneurship as a path back to prosperity.

There are likely a myriad of economic and demographic reasons for this decline, but certainly the growth of government power in the economy must be seen as a major contributor.  Government intervention in commerce nearly always favors large companies over small, even if that was not its specific intent, for a couple of reasons:

1. Increasingly complex and pervasive regulations on everything from labor practices to salt content tend to add a compliance cost burden that is more easily born by larger companies
2. Large, entrenched competitors are becoming more facile at manipulating government to create barriers to competition from upstart companies with different business models.

The role of government in throttling entrepreneurship has been evident for years, in the enormous differentials between US and European business startup rates.  Historically, the US has had entrepeneurship rates 3-4 times higher than in the large European industrial countries, due in large part to the barriers these latter countries place in the way of business creation.  But the US, with its current bi-partisan drive towards a corporate state, may soon be engaged in a race to the bottom with these other countries.

I go on to discuss each of these two points in more depth.

Yeah, I know, this is volume one hundred and something in a series, but it is such a crystal clear example of government licensing working primarily to protect incumbent competitors in an industry I have to share it.

Suppose you’re the owner of a taxicab company in a largish metropolitan area. One day you notice some taxis tooling around town—and they’re not yours. They belong to an upstart competitor. His cars are newer, his drivers are nicer, and his fares are lower. Pretty soon your profits start shrinking. What are you going to do about it?

You have a couple of choices. Option A: Invest a lot of money in new vehicles, customer-service training for your drivers, GPS systems to map faster routes and so on. A lot of expense. A lot of effort.

So you go for Option B: Invest a little money in a few politicians, who adopt a medallion law: Only licensed operators with city-issued taxi medallions may operate cabs. The oldest cab companies get first dibs on the medallions, at the lowest rates. Only a few medallions are left over for the new guy, and he can’t afford them anyway. Bingo—your competition problem is solved. The customers might not like it, but what are they going to do—walk?

Apparently this is exactly what is happening in DC

Now it’s the District of Columbia’s turn. Four members of the D.C. City Council have introduced a bill that would create a medallion system for the nation’s capital. Medallion prices would start at $250 for the most established taxi companies and, for the newer entrants, run as high as $10,000. At least initially. As time wore on, it’s likely that the price of a medallion would go up for everyone. That’s what has happened in places such as New York, where a government permission slip to drive a cab costs about $600,000. In Boston, which initially capped medallions at 1,525 in the 1930s—and more than a half-century later had added only 250 more—a medallion will cost you $400,000.

At present the District has more than 10,000 licensed taxi drivers; the proposed legislation would establish only 4,000 medallions. Needless to say, such artificially imposed scarcity also drives up prices. A study by Natwar Gandhi, the District’s chief financial officer, found that fares in cities with medallion systems are 25 percent higher than in cities with open taxi markets.

By the way, for extra points, here is a lawsuit right out of Atlas Shrugged

That story has played out in many cities across the United States, with sometimes amusing variations. A decade or so ago, Minneapolis (population 300,000-plus) allowed a grand total of 343 taxis to operate until Luis Paucar, an immigrant, filed suit. The city council decided to allow another 45 cabs. Then the existing cab companies sued, using the creative legal theory that they had a constitutional right not to face competition. (They lost.)

Stephen Carter via Glenn Reynolds

The man in the aisle seat is trying to tell me why he refuses to hire anybody. His business is successful, he says, as the 737 cruises smoothly eastward. Demand for his product is up. But he still won’t hire.

“Why not?”

“Because I don’t know how much it will cost,” he explains. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?”

He’s referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can’t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he’s hiring nobody until he has some certainty about cost.

Operating in multiple states is generally a pain in the ass.  But one advantage it offers is that from time to time a bank or telephone company asks for some really intrusive bits of information, claiming that it is required by Federal law.  This allows me to say, "gee, I work with 20 companies like yours across the country and not one of them have asked me for this.  How can it be Federal law?"  It's kind of frightening to observe how much this excuse is used.

California legislation to make it a crime to use flat rather than fitted sheets on hotel room beds. Via Overlawyered.

My new column is up at Forbes, and discusses the absurdity of blaming sustained higher oil and gas prices on speculators.

Is there a crime in the current oil prices?  Yes, but it’s not one of speculation.  Prices are a form of communication.  Higher prices tell consumers to use less oil, and producers to go find more.  The real crime today is that while the signal is flashing today to oil companies to go find more crude, the Obama administration has bent over backwards to make such efforts all but impossible.  In fact, the Obama Administration desperately tried and failed to increase oil and gas prices via cap and trade last year.  President Obama is not really against higher oil prices, he just wants them driven higher by the state, not by the markets.

Via Carpe Diem, yet another group of market incumbents using licensing and regulation to limit competition and, in particular, ban business models different than those of the incumbents.

From the Institute for Justice: "Until 2010, sedan and independent limo services were an affordable alternative to taxicabs in the Music City. A trip to the airport only cost $25. But in June 2010, the Metropolitan County Council passed a series of anti-competitive regulations requested by the Tennessee Livery Association - a trade group formed by expensive limousine companies. These regulations force sedan and independent limo companies to increase their fares to $45 minimum.

The regulations also prohibit limo and sedan companies from using leased vehicles, require them to dispatch only from their place of business, require them to wait a minimum of 15 minutes before picking up a customer and forbid them from parking or waiting for customers at hotels or bars. And, in January 2012, companies will have to take all vehicles off the road if they are more than 7 years old for a sedan or SUV or more than 10 years old for a limousine.

Via Reason from the pathetic hulk that was once the great state of New York

Dodgeball, Red Rover, Wiffle Ball – those time-honored kids' games, along with activities like Steal the Bacon and Capture the Flag – have been deemed dangerous by the state as part of an effort to tighten regulations for summer camps in the area.

Any indoor or outdoor recreational program that offers two or more organized activities, including one that falls on the "risky list" determined by state officials, will be considered a summer camp under the new rules and subject to the associated regulations.

The rules aim to curtail a loophole in previously passed regulations by the state Health Department that count activities like horseback riding and archery among the "risky list," but do not include many activities like Freeze Tag and kickball featured in indoor programs.

Update: They backed off.   Kids will still be at risk from unregulated red rover.

From the folks who exempt themselves from minimum wage, OSHA, and much of environmental law, comes the news that while shutting down online poker for most Americans, the District of Columbia is starting up its own online poker site for federal officials and other DC residents.

Hey, why make expensive investments when the government will just give you access to your competitor's infrastructure?

Federal Communications Commission has decided to mandate data roaming by a 3-2 vote. Simply put, major carriers like AT&T and Verizon will be required to let you check your email and perform VoIP calls over their federally-licensed airwaves even if you're actually paying a regional carrier for your cellular coverage instead -- just as they've been required to do for voice and messaging since 2007. As you can imagine, Big Red and Ma Bell aren't exactly jumping for joy at the news, with both threatening to slow expansion into niche markets if they'll be forced to share their infrastructure. The victorious members of the FCC claim that this doesn't constitute common carriage because the big boys still get to negotiate "commercially reasonable" rates. Considering that two dissenting commissioners say that it is, indeed, common carriage, though, and thus beyond the powers granted to the FCC, we imagine we haven't heard the last of this debate.

By the way,  the commercially reasonable rate piece is so much BS.  I can say from experience that there is no such thing as a true price negotiation when one party is forced to make a deal.  In one of my great moments in not reading the fine print, I signed a commercial lease with the National Park Service in which the fine print demanded that I buy the personal property used in that operation from the former tenant.

Well, you can imagine what happened.  The contract said I had to buy it at a reasonable market price, but at the end of the day, if they guy insisted on selling me a pile of useless junk for $100,000, my negotiation options were limited because I could not just walk away.  Just to really hammer the lesson home to me about being careful in such deals in the future, the former tenant really went the extra mile in taking advantage of the provision.  He stripped out every good asset from the operation and shipped in every non-working piece of junk equipment he could find in his other operations -- after all, I seem to have given him an open-ended "put".  Only his, shall we say, excessive creativity in the latter eventually saved me, as trying to sell property from other operations (there was even some old couches from someone's house sitting in the boat repair shed) was considered by the NPS to be a violation of the rules and they eventually released me from the requirement.

It looks like the simply awful 1099 provision from Obamacare will be repealed.