David Brooks’ article today in The New York Times belittles the cost of regulation to American businesses and the U.S. economy and praises the Obama administration for its “rigorous cost-benefit analyses” of proposed regulations. While he does note that “the Obama administration has significantly increased the regulatory costs imposed on the economy,” Brooks also says that it’s not clear that those regulations “have had a huge effect on the economy” or indeed on small businesses.

So more and more onerous regulations at higher and higher costs and greater economic uncertainty among businesses don’t have a dampening effect on hiring more workers or on capital investment? As CEI’s Clyde Wayne Crews and Ryan Young noted in a recent article:

There are more than 4,200 new rules at various stages of the federal regulatory pipeline right now. Companies, especially the ones too small to afford a Washington office, don’t know what’s coming next. No wonder they are skittish about making long-term investments, whether in employees or capital.

And small businesses have a harder time complying with the plethora of regulations. Crews and Young point out that the Small Business Administration has estimated that

. . . small businesses pay more than $10,000 per employee per year just to comply with the 165,000-page Code of Federal Regulations. State and local rules cost about $970 billion extra. That’s a lot of money – and a lot of regulation.

They conclude:

Regulations make hiring costlier and thus make jobs scarcer. And regulatory uncertainty makes companies reluctant to hire employees they might not be able to afford down the road. Case closed.

Brooks may want to peruse 10,000 Commandments 2011 by Crews, which calls for Congressional accountability for significant new regulations and better estimates and disclosures of costs instead of relying on agencies’ own projections, which vastly understate the off-budget costs of regulation.

As that study notes:

• Regulatory costs of $1.752 trillion absorb 11.9 percent of the U.S. gross domestic product (GDP), estimated at $14.649 trillion in 2010.
• Combining regulatory costs with federal FY 2010 outlays of $3.456 trillion reveals a federal government whose share of the entire economy now reaches 35.5 percent.

At long last both the House and the Senate are scheduled to vote on the three free trade agreements (FTAs) that have languished for more than four years. Votes on the trade pacts are scheduled for  next Wednesday and will be linked to votes on Trade Adjustment Assistance — a condition that President Obama and Democratic leaders had demanded.

Although there appears to be bipartisan support, the AFL-CIO is still opposed to all of the pending FTAs and brought hundreds of union members to Capitol Hill to tell their congressional cohorts to vote against all three pacts. Their particular focus is on the U.S.-Colombia FTA, even though they demanded — and got — an Action Plan for Colombia to take specific and onerous steps to ostensibly protect union workers in that country.

As CEI has written, trade unions have been largely responsible for holding up the trade pacts, even though the agreements are expected to create many thousands of new jobs. Obviously, appeasing unions by giving in to their demands hasn’t worked.

One can only hope that they won’t have the clout to influence enough Democrats to vote against the pacts.

Now that reauthorization of Trade Adjustment Assistance (TAA) is all but a done deal — a quid pro quo from Republican leadership to President Obama and his union allies to get him to submit three pending trade agreements — it’s useful to look at who the recipients were over the past year to get an idea about how the new monies, to the tune of $1.17 billion per year, will be spent. Remember that TAA provides unemployment payments, retraining, relocation expenses, and other payments to workers who ostensibly lost their jobs because of foreign competition.

First the workers’ group has to be certified by the U.S. Department of Labor that they meet three criteria for eligibility to apply for TAA assistance. DOL has a searchable website with their determinations, and the following random examples are taken from their listings from January 1, 2010, through December 30, 2010.

Here’s one example of a certification for payment eligibility by the U.S. Department of Labor to workers at All American Sports Group Corporation. These workers refurbished football helmets and claimed that they were harmed by the company shifting “the supply of like or directly competitive services to a foreign country.”

Not only were all regular workers  certified but also temporary workers from Manpower Staffing Services and Kelly Services.  Plus, if one reads closely, even workers “threatened with total or partial separation from employment” are eligible to apply for assistance. And that’s not an uncommon example.  Take Solo Cup Operating Corporation, which makes single service cups.  Pretty much the same determination was made that regular and leased workers were eligible for TAA.  It must be a failing on my part — I thought that temporary workers were, well, temporary.

Or look at CertainTeed Corporation in Pennsylvania, which makes a wide variety of building materials.  Their workers in Mountain Top, PA, were certified as eligible for losing employment because of foreign competition. That’s surprising, because according to its website, CertainTeed is “a subsidiary of Saint-Gobain, one of the top 100 industrial companies in the world. Saint-Gobain employs approximately 22,000 people in North America and more than 109,000 people in 64 countries world-wide.”

That leads to a question: Have their Pennsylvania workers been helped or harmed by globalization? Would those and the 22,000 jobs in North America exist without globalization?

Here’s another one that’s puzzling – Georgia Pacific Wood Products. It seems that the workers at Georgia Pacific in West Virginia who helped produce oriented strand board (similar to plywood) are eligible because some lost their jobs because some oriented strand board came from Canada. But the certification says that all workers of Georgia Pacific Wood Products, LLC are eligible.

In looking at the company’s web site – its headquarters are in Atlanta, GA — the company is also a multi-national firm — “employs more than 40,000 people at approximately 300 locations in North America, South America and Europe.”

And it seems that there are a fair number of job openings at their facilities in Prosperity, South Carolina. Could it be that some of those jobs in WV moved to SC? Only speculation, and I’ll accept correction if needed.

Senate Republican Leader Mitch McConnell (R-Ky.) made a gutsy statement on the Senate floor today, saying that he was introducing an amendment to give the president Trade Promotion Authority (TPA). This was said while the Senate was considering a bill to extend trade preferences to less developed countries and about to deal with Trade Adjustment Assistance legislation, which the administration has said is essential before three pending trade agreements are sent to the Senate.

McConnell noted that TPA, also known as “fast track” authority, gives the president the ability to negotiate trade agreements and have them considered by Congress without amendments. He said that TPA, however, expired in 2007, and the administration has made no efforts to revive it. He called out trade unions for obstructing that process:

“TPA has long had bipartisan support, and led to numerous trade agreements with 17 new countries during the Bush administration, including the three we hope to consider shortly. Unfortunately, Democrats and their union allies allowed TPA to expire in 2007.  And this President has made no effort to revive it. But without TPA, the U.S. will likely never agree to another deal again.  The unions will make sure of it. And we’ve seen what happens then.

After the North American Free Trade Agreement passed in 1993, TPA expired.  In the eight years that followed, the U.S. did nothing while other countries moved ahead, integrating themselves in the global economy. We can’t let that happen again. We can’t miss more opportunities to compete in foreign markets with U.S.-made products just because unions don’t want to.”

The three pending trade agreements, with Colombia, Panama, and South Korea, were signed before TPA expired and thus come under that authority. However, without TPA, new trade agreements would be open to debate and amendments, which would undermine the whole negotiation process, that is, during negotiations, countries would not know whether the final U.S. text would follow agreements reached. Although trade unions have insisted on including ever more restrictive worker protections in the pending trade pacts, particularly for Colombia, the TPA included environmental and labor provisions as negotiating objectives.

McConnell, in his statement, noted that the administration may not want to push for TPA because then they would “own” new trade agreements and might be open to their allies’ criticism (read unions’) that they were moving too aggressively on trade:

“So, in my view, if the White House won’t show leadership on this issue, if they’re too worried about owning other free trade agreements or as being seen by some of their allies as promoting them too aggressively, it is my view that we ought to help them get there.

“And that’s why I’m offering this amendment today: to show the world that some in Congress are ready to move forward and lower the barriers that keep American goods out of foreign countries and which deny American consumers all the benefits that come from our integration into the world economy.

“With 14 million Americans out of work and thousands of Americans looking for opportunities to sell American-made goods around the world, we can’t afford to wait like we did on these three FTAs while the administration makes up its mind that American jobs are more important than appeasing their union allies.”

Amen.

The Summer of 2011 will likely be remembered as a season that overregulation came to a boiling point — at all levels of the U.S. government.

At the federal level, businesses big and small were spending countless hours and resources dealing with the first mandates from from Dodd-Frank and Obamacare and planning for the next ones to be issued.

A visible moment of regulatory overkill was the armed raid on August 24 of the Gibson Guitar factory in Memphis, because of an alleged technical violation in importing non-endangered Indian wood. As September opened, the Obama administration relented on a costly new rule further restricting emissions of ground-level ozone — just four years after a previous limit had been issued — but promised the regulation would be back in 2013.

The laboratories of democracy at the state and local level didn’t fare much better in their treatment of entrepreneurs, especially of those who are literally the smallest business people. All over the country, overzealous authorities shut down children who had the temerity to practice the time-honored tradition of setting up a lemonade stand.

CEI has long recognized that no level of government is a citadel of wisdom when it comes to weighing the costs and risks of regulation. So our president and founder Fred Smith and our chairman Michael Greve have called for a “competitive federalism” that breeds “competitive regulation.”

As Greve, who is also the John G. Searle Scholar at the American Enterprise Institute, has written in his book Real Federalism, “The federalism I have in mind — real federalism — aims to provide citizens with choices among different sovereigns [and] regulatory regimes.” Competitive federalism, he wrote, “serves not so much to empower the states but to discipline them,” as well as to discipline an overweening federal government.

Under competitive regulation, entrepreneurs, consumers and investors can choose the regime they believe best balances the need for innovation with the need to manage risk.

In state chartering of corporations, for example, an entrepreneur might choose to incorporate in Nevada because for what he would believe would be the greatest flexibility. But a large investor might choose to only buy shares in Delaware, because she believes that state offers greater protection of shareholders in takeovers and proxy fights. (This is not necessarily an opinion on the adequacy of the incorporation process in either state.)

In the process, a balance is struck that results in the improvement of the overall regulatory regime for everyone. As CEI President Smith wrote in his essay “Cowboys and Cattle Thieves,” competitive regulation “encourages prudence … by allowing the parties to better attain that level of risk they prefer, and by remaining open to further refinements over time.”

As part of furthering competitive regulation, CEI has long advocated in areas of legitimate interstate commerce that states and the federal government compete with each other. That is, having firms choose whether to be regulated by the states or the feds.

An example of this working well is the National Bank Act, which as interpreted by the Supreme Court in the 1978 case Marquette National Bank of Minneapolis v. First of Omaha Service Corp, allows federally chartered banks to charge credit card interest rates according to the laws of the states in which they are incorporated.

Because this decision allowed risk-based pricing to a national market, the result was increased competition among credit card issuers that eliminated annual fees and boosted services such as reward programs for most American card holders. (Although unfortunately, annual fees and reduced rewards are on the upswing now due to the limits on interest rate hikes in the CARD Act of 2009 and the price controls on interchange fees for debit card transactions enacted last year in Dodd-Frank.)

CEI has urged this approach to optional federal chartering in other areas of financial services as an alternative to burdensome overlapping state and federal regulation. In the insurance area, for instance, we have called for two mutually exclusive state and federal regimes that insurers and their customers can choose from.

As a CEI Web Memo by Jennifer Smith-Bozek put it in 2008, “Optional federal chartering can offer two clear benefits. First, participating insurers may operate in any state without having to file separate state applications. Second, having the federal and state governments compete for licensing revenues should encourage both to create more efficient regulations.”

Recently, a bipartisan bill was introduced that introduces the competitive forces of optional federal chartering to one of the most important areas of financial services: the small loan market. H.R. 1909, the FFSCC Charter Act of 2011, would create an optional charter from the Comptroller of the Currency for nonbank lenders who choose to be designated as “Federal Financial Services and Credit Companies.” It is sponsored by Joe Baca (D-Calif.), with cosponsors Jean Schmidt (R-Ohio), Gregory Meeks (D-N.Y.), and Albio Sires (D-N.J.).

The bill addresses a vital need for access to credit for both lower and middle-income Americans. “Microfinance” is a hot topic in the academic and policy world. Muhammad Yunus of Bangladesh won a well-deserved Nobel Prize a few years back with his innovative approach to non-bank neighborhood lending in Bangladesh.

Yet providers of microcredit in America — payday lenders, pawn shops, etc. — are looked on by many policy elites with scorn. And even when these lenders are subject to legitimate criticism, frequently no one details how to remove barriers to creating an alternative in the lending market.

And the need for quick access to small amounts of credit couldn’t be more pressing in an economy with 9 percent unemployment. Unexpected circumstances can like a car breaking down or the need for emergency travel can hit responsible individuals who could pay back the loan in a few months, or even a few weeks.

If they find themselves in these circumstances, however, their options are limited. A bank typically won’t process a consumer loan of a few hundred dollars. Sometimes folks in a pinch can borrow money from relatives, but even when they can, for many this is a blow to their pride.

These individuals can also be late in paying their bills and credit card debt, bounce a check, or overdraw on their debit card. But these options not only result in lowering their credit scores, which affect their ability to better their lives through a new job or starting a business, they are often more costly than a payday loan would be.

This is where the typical charge that payday lenders charge 400 percent annual percentage rate, which has served as the basis for several state interest caps enacted in the past few years, is so misleading. If common “fees” for overdrafts, bounced checks and late payments were counted as interest, they would well exceed the APR for payday loans.

Kelly Edmonston, senior economist at the Federal Reserve Bank of Kansas City, points out in his study published in that Fed branch’s Economic Review , that the “median interest rate” for bounced check fees — if they were measured as interest payments — would be  “well in excess of 4,000 percent, or up to 20 times that of payday loans”

In short, annual percentage rate is an inappropriate measure for loans that have a duration of weeks and months. This is something that H.R. 1909 recognizes in directing the federal regulator to measure “the true cost of the loan in terms of actual finance charge per dollar of credit extended to such person instead of the annual percentage rate.”

Under competitive regulation, alternatives to payday lending could also flourish. A somewhat legitimate criticism of a payday loan is that it must be folded into another loan if it can’t be paid in the two-week duration, rather than modified.

But much of the reason for the way this works is that many states severely restrict nonbank lenders from making installment loans. However, installment loans would be explicitly allowed under H.R. 1909′s federal charter.

One clue as to an innovative product in a competitive market that would better serve borrowers comes from the book License to Pawn by Rick Harrison, star of the History Channel’s highly rated reality series “Pawn Stars.” What comes through on the show is the fair dealing Harrison and his relatives at Las Vegas’ Gold & Silver Pawn Shop are known for when they buy unique collector’s item such as a horseshoe worn by champion Secretariat. They typically don’t agree with the customer’s asking price, but they are transparent in their explanations on how the price they offer reflects the storage costs and the risk that the product won’t sell.

Harrison describes his brief venture into the alternative loan business: “I would loan you a hundred bucks with a $25 service fee, and put you on a four-month payment plan. … I would actually work with people and enable them to get out from under the debt load.” He admits, however, that interest rates were “roughly 60 percent, but that’s just because it’s an incredibly high-risk business.” Harrison says he got out of the business because of lawsuits from competitors.

The product Harrison created might be more affordable and stable than many payday loans. Yet it would still be illegal under the interest rate caps of many state, including the 28 percent APR limit of Ohio, which was championed by Richard Cordray, who is now President Obama’s nominee to head the Consumer Financial Protection Bureau created by Dodd-Frank

H.R. 1909 should be amended to not only shield innovative nonbank lenders from overzealous state regulators but from the unbridled power of the federal CFPB. It should also be stripped of some vague criminal penalties for nonbank lenders that have caused the bill to be flagged by the Heritage Foundation’s Overcriminalization Project.

The bill is not atypical in this regard, as criminal penalties for regulatory violations of environmental, financial and health care laws are almost routine in statutes these days. But that should not serve as an excuse for putting these flawed provisions in an otherwise sound bill.

For the most part, however, H.R. 1909 is a welcome step toward competitive federalism and competitive regulation that will benefit entrepreneurs and consumers by stimulating much-needed innovation in the market for small loans.

It is perhaps a little ironic that the most vocal opponents of online poker will soon be the only people in the USA who can legally play online poker. The District of Columbia is moving forward with its plans to run the pilot program, which will allow 20 to 30 places around D.C. to offer online poker within the next week or so, despite the claims of corruption during the initial phases when the plans were pushed through the legislative process. If all goes well, the virtual poker rooms will open their doors to anyone (of age) in the District by the end of the year.

The planned system in D.C. has a lot of problems from a free market standpoint. For one, a monopoly system of government run poker room eliminates competition and the benefits that come from that. In the pre-UIGEA, pre-Black Friday era of online poker, players would quickly realize if a poker website had unfair odds, shady practices, or something as simple as bad customer service and they could and did move on to other poker rooms on the Internet. There would not be such an option for D.C. online gamblers.

Even with its problems, the D.C. online poker system would set the District on a path toward legalized online gambling. Unfortunately for poker players in the rest of the United States, they are left with a choice of either driving to the brick-and-mortar casino or moving to another country.

Most recently, world-famous poker champ Daniel Negreanu posted an article on CardPlayer.com detailing the process of relocating back to his native land of Canada so that he can continue to play online poker. Negreanu is not alone: many other players have been reportedly leaving the U.S. for Mexico and Costa Rica as well as Canada. Most of those immigrants are likely players in their 20’s or early 30s without families or anything holding them to a state or nation. Unfortunately for many online poker professionals, leaving the U.S. is not an option.

For those who are stuck in the U.S., a country that is increasingly invading private life and stripping its residents of their right to property and privacy, they still have some hope that the Federal government will make a move on legalizing online poker. In the current debate about debt-ceilings, government spending, and revenue, some observers believe online poker has a good chance of getting a bill through congress. Some have noted that the Joint Select Committee on Deficit Reduction could look to legal online gambling as a way to increase revenue and because of the unprecedented power the Committee wields and limited membership, it might be the best opportunity legalized online poker has had in the last 6 years.

The Hello Kitty Federal Budget Calculator is here to ease tension created by hostile political climate in the wake of the debt-ceiling-increase debates.

Yesterday, U.S. Senate Democrats selected Patty Murray, John Kerry and Max Baucus for the debt Super Committee charged with coming up with cuts this fall.

Today, House Republicans selected Dave Camp, Fred Upton and Jeb Henserling, while Senate Republicans chose Jon Kyl, Rob Portman and Sen. Pat Toomey (R-Pa.)

The CBO figures the Budget Control Act passed August 1 will save $2.3 trillion between 2012 and 2021 once the committee does its thing.

Markets, to say the least, are unimpressed, so more cuts must be made. The Super Committee now has a fresh way of going about it. The Hello Kitty Budget Calculator is particularly adept at recalculating baselines and future entitlements–always the sticking points–all with a friendly face. It’s a welcome solution.

In yesterday’s New York Times, trade economist Jagdish Bhagwati takes the Obama administration and Congress to task for letting the World Trade Organization’s Doha Round languish. Bhagwati points out that with all the attention focused on bilateral agreements, special interests can have a hey-day and exercise their clout. Witness what trade unions have increasingly demanded with the pending Free Trade Agreements, cloaking their protectionist demands with talk of worker rights.

When the United States negotiates bilateral deals with other countries, the unbalanced nature of the one-on-one negotiations also opens the way for all manner of lobbies to ram their self-serving demands into the agreements.

Bhagwati noted that in a multilateral trading system, special interest lobbies are often stymied by emerging developing nations that clearly see the anti-competitive protectionist slant.

American labor unions have learned these same tricks, urging Democratic legislators and administrations to block bilateral trade deals unless their demands for labor protections are met, as they did with the three long-delayed agreements now pending.

But larger countries with more clout, like India and Brazil, will allow no such provisions. They correctly see these labor provisions as a form of anticompetitive protectionism. And they point out that it takes chutzpah for the United States to argue for labor rights abroad that often exceed those at home.

Bhagwati calls for President Obama to bring Democrats and Republicans together to add the Doha round to the packages of pending trade deals:

The president should ask Democrats and Republicans to immediately add the Doha round, as it has been negotiated over 10 years, into the same all-or-nothing package as the three bilateral deals. Such a bold gesture has a precedent. After sitting on the fence his first year in office, President Bill Clinton embraced the cause of trade, despite the political costs, and fought fiercely, and against great odds, for the Uruguay round. Mr. Obama should do no less.

Amen to that.

As summer heats up, so does Congress as it looks at legislation that should be considered before the August recess. The three pending Free Trade Agreements (FTAs) — with South Korea, Panama, and Colombia — are a case in point. Each of those agreements has to have implementing legislation submitted to and then voted on by Congress. But there are still some thorny issues that divide the Republicans and the Democrats, especially in the House.

The Obama administration, after coming around to reluctant support of the FTAs that have been languishing for almost five years, just last month said that the trade pacts couldn’t be considered unless Congress also passed Trade Adjustment Assistance (TAA) — legislation that would give hefty monetary and other benefits to workers ostensibly losing their jobs because of foreign competition. Some Republicans couldn’t believe the about-face — “you mean that these three trade agreements will create hundreds of thousands of jobs, and at the same time we have to bail out people losing their jobs because of trade agreements?” paraphrases their reaction.

But just today, the chairman of the Senate Finance Committee, Sen. Max Baucus (D-Mont.), a supporter of TAA, announced that the committee will hold a “mock mark-up” on June 30 of draft implementing legislation that includes reauthorization of TAA. (The three trade pacts were originally negotiated under fast-track authority, which means that no amendments are allowed on the final bills.  In such cases, the “mock mark-ups” on drafts allow changes that are then submitted to the President who accepts or rejects them and submits final implementing bills to Congress.) Sen. Baucus also said he had reached agreement with House Ways and Means Chairman Dave Camp (R-Mich.) and the White House.

In the House, there’s no word yet on possible Ways and Means action, though union-lovin’ Levin — ranking member Cong. Sandy Levin (D-MI) — said in a statement that he’ll support the revised Korea and Panama FTAs, but he’s still opposed to the trade pact with Colombia. Why? Because he wants Colombia’s worker rights Action Plan to be explicitly referred to in the trade agreement. As I noted earlier,

Colombia dutifully incorporated that far-reaching plan that will require it to change its Criminal Code, hire and fund 480 new ‘labor inspectors,’ some of which will focus on specific industry sectors, and a host of other mandates with timetables, purportedly to protect union workers.

So the congressman wants to put in our legislation reference to another country’s laws and domestic affairs? Some had called the Action Plan an intrusion into the sovereignty of another nation. That indeed is the case. Putting that plan into our own laws would be the height of arrogance and would force onto a trade pact detailed diktats for another country, which would undoubtedly lead to disputes down the road. But perhaps that is what Cong. Levin wants — it would provide the unions with another way in the future to put more roadblocks in the way of the free exchange of goods and services.

In noticing the upcoming debate tonight featuring Republican contenders, I wondered to myself under which candidate would the federal government actually be smaller after four years, should any of them win?

Maybe Ron Paul, in working with some imaginary 114th Congress; but of course Trump told the CPAC crowd that Paul could never win. But he’s fun to watch.

Tonight’s candidates will make the general case to to cut spending and debt. But sometimes it seems that “Big Government Conservative,” which detractors called Trump, is a redundancy. The largest spending and regulatory programs have and do enjoy their support. There’s more Tea Partly than Tea Party in my view.

Thus even slashing record spending and debt is no longer enough — even if the budget were balanced at, say, half its current level. The regulatory state has surged such that the U.S. is an increasingly hostile environment for anyone inclined to create a business (and employ others).

To change that, Congress’ modern focus should exclusively be to liberalize all economic sectors and wall off the future from today’s suicidal regulatory policies in energy, transportation, manufacturing, health care, financial services and insurance, retirement planning, Internet policy, environment, and frontier areas like biotechnology, nanotechnology, and near-term space policy, and so forth.

Are there any candidates occupying any spot on the campaign spectrum able to articulate the message that we don’t have to do to the future what we’ve done to the present? The politician’s role today is to take Washington’s rocks off today’s creators, and to systematically wall off the future from the policies in existence now. Whether or not they can is one of the great unknowns of today, yet our economic future depends upon liberalization.

Most politicians come to Washington to get things done. I’m still awaiting those who come to Washington to get things undone, and actually follow through.