December 14, 2022
The power and influence America enjoys today were delivered by an economic miracle driven by capitalism. For the first 150 years of the republic, the government had the good sense not to interfere with this miracle. Government was a steward of the people’s liberty, making Americans free to pursue business and other enterprises.
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This has changed. Today, the government meddles with the economy, placing the economic miracle in jeopardy.
Profit is the primary motivator for most businesses. If left unchecked, businesses may take advantage of competitors, customers, investors, and employees. Government has established its authority to monitor and restrain businesses that profit from unfair business practices. Unfortunately, the government has shown that it is incapable of restraining itself from overzealous legislation and regulation.
While some government regulations are needed, overzealous regulation damages markets, businesses, stockholders, and consumers. Investor’s Business Daily estimates that the “cost of regulations to the U.S. economy is huge — roughly $2 trillion a year. The cost of U.S. regulation each year is greater than the GDP of all but nine countries.”
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Minority leader Kevin McCarthy and 159 congressmen recently asked President Biden to “address the global supply chain and ports crisis.” In biological terms, the supply chain is the blood, bones, neurons, and organs that work in unison to supply an organism’s demands. If the demand goes unfulfilled, the organism withers and dies. Leader McCarthy would better serve the American people by assuring them that the government will keep its hands off the supply chain, lest markets wither.
In September, President Biden determined that he would address the supply chain by negotiating a labor agreement. On September 15, Biden declared, “This is a win for tens of thousands of rail workers and for their dignity.” Biden was wrong. The indignant rail workers rejected the agreement and called for a strike. Biden then determined that Congress should pass a law dictating terms of the agreement to labor and management.
Union activists have long enlisted support from Democrat politicians to support their pursuits. To earn this support, unions convince their members to vote for Democrat politicians. Unions also donate huge sums of money to Democrat candidates. From 2010 to 2016, unions gave more than $1 billion to Democrats and other liberal groups. Democrat politicians support union activists in return for cash and votes.
By the 1990s, labor costs in the United States were no longer competitive with lower wages paid in Asian and Latin American countries. The North American Free Trade Agreement (NAFTA) made it easy for U.S. businesses to close American factories and move them to Mexico to benefit from lower labor costs and fewer regulations. NAFTA caused the loss of 700,000 American jobs and gave businesses greater leverage in labor negotiations. President Clinton signed NAFTA in 1994.
One of the goals of NAFTA was to reduce illegal immigration from Mexico. Millions of Mexicans now have good-paying jobs in maquiladoras, but millions have continued to cross the U.S.-Mexican border illegally, with millions more on the way.
Biden refuses to enforce immigration law, allowing anyone from anywhere to cross the border anytime. Senate majority leader Charles Schumer said on November 16, “Our ultimate goal is to help DREAMers, but get a path to citizenship for all 11 million or however many undocumented there are here.” Schumer is convinced that more illegal immigration will “strengthen our economy.”
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In summary, unions and the Democrat party are simpatico, having worked together for generations to increase wages of union workers. Republicans and Democrats work with corporate managers to close factories in the U.S. to move them to Mexico because American wages are too high. Politicians are re-elected, their campaigns financed by business profits and union dues. The only losers are hundreds of thousands of American blue-collar workers, whose union dues funded the politicians who supported movement of their jobs to foreign countries and opened the border so illegal immigration will undermine their current jobs and wages. With friends like Democrat politicians, who needs enemies?
Labor is not the only victim of government interference and regulation. During the G.W. Bush administration, a bipartisan Congress passed the Energy Independence and Security Act of 2007 (EISA). To support energy security, the government forced refiners to add ethanol to gasoline. If refiners don’t consume as much ethanol as the EPA demands, they must pay for it anyway. To add insult to injury, ethanol in gasoline does not reduce CO2 emitted from cars.
In 2000, the U.S. produced 1.6 billion gallons of ethanol. In response to the EISA, ethanol production increased to 16 billion gallons in 2019. The primary feedstock for ethanol is corn. The demand by the government that ethanol be mixed in gasoline increased the cost of corn. In 2009, the Congressional Budget Office (CBO) estimated that 10 to 15 percent “of the rise in food prices between April of 2007 and April 2008” was a result of the increased production of ethanol. The CBO reported that spending for federal government nutrition programs would increase $600–900 million in 2009 as a result.
In 1977, Congress passed the Community Reinvestment Act (CRA), requiring federal regulators to encourage loans to low-income home-buyers. In 1995, the Clinton administration “set target goals for Fannie and Freddie to raise home ownership rates among low-income groups.” The Clinton Justice Department harassed bank officers who weren’t issuing enough loans to low-income borrowers. In 2003, Congress passed the American Dream Down Payment Act, which provided money for repairs and down payments for first-time, low-income buyers. These and other policies encouraged millions of home-buyers to take out loans, which overextend them financially.
Large banks purchased these loans and packaged them into bonds, which they sold as investments to their customers. As the borrowers defaulted on their loans, banks teetered on the brink of collapse. A collapse of these banks may have resulted in an economic depression. The government injected billions of dollars to prop up the banks. It is estimated that the cost of the 2008 financial crisis was $498 billion.
What lessons did the government learn? “In 2010 Obama eliminated the federal guaranteed loan program, which let private lenders offer student loans at low interest rates. Now, the Department of Education is the only place to go for such loans.” To add insult to injury, President Biden wants to forgive many of these student loans.
Earlier this year, Congress passed the bipartisan CHIPS Act, paying billions of dollars to electronic parts–manufacturers to manufacture electronic parts. Part of their obligation includes “opportunities for small businesses and disadvantaged communities, ensuring … equitable economic growth and development. … It will also support good-paying, union construction jobs by requiring Davis-Bacon prevailing wage rates.” When the government involves itself in business practices, it delivers obligatory favors to constituents, creating inefficiencies for the business.
Problems will arise in markets. These problems are best resolved in the markets in which they occur. Markets and their supply chains are complicated. Political factions that meddle with markets don’t understand their complexity and invariably cause more problems than they cure.
Ronald Reagan said in 1981, “In this present crisis, government is not the solution to our problem; government is the problem.” Those words ring truer every day.
Image via Max Pixel.
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