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Last Chance for the 115th: Options for Regulatory Reform

Note: this is my contribution to a series at CEI’s blog. Links to other posts by my colleagues below.

This June here at OpenMarket we’ll be looking at what the 115th Congress, which began January 3, 2017 and runs through January 3, 2019, has accomplished so far and what might still be achieved for limited government and free markets before it’s over. Read more about the Competitive Enterprise Institute’s recommendations for legislative reform here

With a possible party change in play this November in one or both chambers of Congress, the time might be now or never to pass substantive regulatory reform. President Trump is amenable to reform legislation, and both chambers of Congress have GOP majorities. A number of bills are already in play, and some have even passed the House.

While Trump’s early executive orders have helped to slow the growth of new regulations, the next president can undo them as easily as Trump enacted them, with the stroke of a pen. Permanent reform requires Congress to act, and the current favorable political winds might be changing direction as we speak.

I recently compiled a short list of active regulatory reform legislation; nothing has changed since then. I reprint the list below, and encourage Congress to act on them while they still can. And if the GOP retains congressional control past November, there is much more they can do then. For now, this may have to do:

  • REINS Act: This bill, which has passed the House four times now, would require Congress to vote on all new regulations costing more than $100 million per year. The goal is to increase elected officials’ oversight over unelected agency officials’ rulemaking. See also my paper on REINS here.
  • Regulatory Accountability Act: This bill, which has passed the House, packages six reform bills in one. Reforms include stricter disclosure requirements for agencies regarding new rules; making judicial review of regulations easier; stricter disclosure for rules affecting small businesses and nonprofits; require benefit-cost analysis for more regulations; monthly agency reports on upcoming regulations and other activities; and require a plain-language 100-word summary for proposed new regulations.
  • Regulatory Improvement Act: This bill would establish an independent commission to comb through select parts of the 178,000-page Code of Federal Regulations. The Commission would send Congress an omnibus package of redundant, obsolete, or harmful rules to eliminate. The RIA’s lead sponsor is a Democrat, which might make Republicans squeamish about giving the other team a victory. But they should pass the bill anyway. Not only would this be a positive political gesture, it’s a needed housekeeping chore that deserves to be expanded upon in future sessions of Congress.
  • GOOD Act: Neither chamber has passed this bill yet. It would alleviate the problem of regulatory “dark matter” by improving access to guidance documents that agencies issue. Agencies sometimes circumvent the legally required notice-and-comment rulemaking process by simply inserting regulations into these guidance documents.

With the Senate staying in session for most of its usual summer recess, it has no excuse for not at least putting these bills to a vote. They will boost the economy in the short and long run, which sits well with voters. And with a willing executive happy to sign them, they are easy political victories.

Read previous posts in the “Last Chance for the 115th” series:

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Minimum Wage Proposal Divides D.C. Workers, Voters

Washington, D.C. has a $12.50 per hour minimum wage, increasing to $13.25 on July 1. But for tip-earning workers, such as servers and bartenders, the minimum is $3.33 per hour ($3.89 as of July 1)—tips are supposed to make up the difference. And if they don’t, then employers make up the shortfall. Ballot initiative 77, due for a vote on Tuesday, would raise tipped workers’ minimum wage to match non-tipped workers’ minimum wage in steps through 2026. It would also index D.C.’s minimum wage to the Consumer Price Index so it would automatically annually increase after it reaches $15.00 in 2020. The proposal has divided the restaurant community.

Both sides have good points. Some restaurant owners favor a set wage because it gives them more stability in planning their costs. Some workers prefer that arrangement, too. They know, coming into work, roughly how much they’ll make on a given shift.

But some restaurant owners would rather pay the low wage, even if they sometimes have to randomly supplement it if business is slow or customers are stingy tippers. It lets them print lower prices on their menus, and there can be tax advantages in reporting lower wages. And some servers also prefer lower wages with higher tips because they walk out of work every night with cash in their pocket. They don’t have to wait two weeks for a paycheck. And if they go the extra mile for a good customer, tips can be very lucrative.

So who’s right? They all are. And that’s why ballot initiative 77 is a bad idea. It’s anti-choice.

Restaurateurs and their employees should be allowed to agree on any working arrangement they both see fit. Nothing is stopping restaurants from having a policy of paying its servers a higher wage and discouraging tipping. If that’s what some people prefer, they should be free to choose it, and are. And if some restaurants and workers prefer the low wage/high tip model, they should be free to pursue that, too. The choice should be made by people, not by legislation.

Customers are just as divided. Some prefer walking into a restaurant knowing that what’s printed on the menu is what they’ll pay. Others prefer being able to reward good service with a high tip, or repay bad service with a small tip. Everyone’s different. And they shouldn’t all be shoehorned into one model.

As for the other part of ballot initiative 77, indexing the minimum wage to inflation so it automatically goes up every year—voters should tread carefully. Some workers will benefit, but at a cost to others. Hour cuts, firings, workers never hired at all, non-wage benefit cuts, cuts to on-the-job perks like free parking and meals, and more are all unintended consequences that follow minimum wage hikes. Iain Murray and I have written about those tradeoffs here and here.

An Honest Politician

From page 427 of Douglas Irwin’s Clashing Over Commerce: A History of U.S. Trade Policy:

When asked why he had supported President Hoover’s bid for a flexible tariff provision but now opposed Roosevelt’s similar request, Harold Knutson (R-MN) replied: “Frankly, I know the purpose of this legislation is to lower rates. If I thought for a minute that it was proposed to raise rates to meet the present conditions, I would vote for this legislation and be glad of the opportunity to do so.”

Both sides have good points in the strategic debate over achieving short-term results vs. the long-term sanctity of process and procedure. I personally lean towards preserving process, even when it leads to defeats on policy issues. Never give yourself powers you wouldn’t want the other side to have, and all that. Kudos to Knutson for being the rare man in Washington who made plain where he stood, even if it’s opposite me.

Last Chance for the 115th: Stop the President from Unilaterally Raising Tariffs

Note: this is my contribution to a series at CEI’s blog. Links to other posts by my colleagues below.

This June here at Open Market we’ll be looking at what the 115th Congress, which began January 3, 2017 and runs through January 3, 2019, has accomplished so far and what might still be achieved for limited government and free markets before it’s over. Read more about the Competitive Enterprise Institute’s recommendations for legislative reform here

Article I, section 8 of the U.S. Constitution gives Congress the exclusive power of the purse. Under no circumstances may the president unilaterally raise taxes. And yet, President Trump has done just that with new tariffs. So far, Trump has enacted 25 percent levies on steel and 10 percent levies on aluminum. He is also threatening to raise tariffs on foreign cars, among other measures. How is he getting away with it?

Our existing trade laws have loopholes. These are mostly related to national  security. Section 232 of the Trade Expansion Act of 1962 contains one such loophole; Sections 201 and 301 of the Trade Act of 1974 contain similar loopholes. The White House is exploiting them as best it can, causing both economic and diplomatic harm to the United States.

Even with an active imagination, it is difficult to imagine a German-made BMW 5 Series as a threat to national security. And even if the rest of the world were to completely cut us off from importing steel, the U.S. military uses less than a twentieth of existing domestic output. Every trade action Trump has taken or is considering is security-unrelated.

When Canadian Prime Minister Justin Trudeau confronted Trump about just what national security threat Canada posed that would justify the steel and aluminum tariffs, Trump was reduced to mumbling something about the War of 1812.

Congress’ job, then, is to prevent such abuses of executive power and reclaim the power of the purse. Two bills in the Senate would work in that direction; at least one of them deserves to pass.

Sen. Mike Lee (R-UT)’s Global Trade Accountability Act of 2017 would require congressional review of any attempted unilateral tariff increases. The president would still be able to lower tariffs unilaterally, which is both good economics and good foreign policy.

Sen. Bob Corker (R-TN), along with a slew of cosponsors in both parties including Sen. Lee, also introduced a bill to require congressional review of any unilateral tariff increase from the president invoking Section 232.

Right now, the Corker bill seems to have more momentum behind it, though the administration has already announced its opposition to the bill. We don’t know yet if the President would veto the bill or not, but the Senate should force his hand and make him explain himself if he does. The time to act is now, before President Trump commits another unforced economic and diplomatic error.

Read previous posts in the “Last Chance for the 115th” series:

Here We Go Again: Steel and Aluminum Tariffs and Peter Navarro

A new 25 percent steel tariff and a 10 percent aluminum tariff have come into effect. The levies are aimed at our allies, such as Canada, Mexico, and the European Union. They are a bad idea for three reasons:

Tariffs hurt more than they help. While the levies could save as many as 33,000 jobs in the steel and aluminum industries, this comes at a great cost. Downstream industries that use steel and aluminum, such as automobiles, construction, and food and beverage production, will face higher costs. These will be passed on to consumers with higher prices, and could cost those other industries an estimated 179,000 jobs. In other words, the Trump administration is willing to shed five jobs to save one job.

Tariffs invite retaliation. Mexico has already announced it will introduce retaliatory tariffs. Affected goods range from pork bellies to cheese and steel. Europe is placing levies on iconic products such as Kentucky bourbon (Senate Majority Leader Mitch McConnell’s home state), blue jeans (Levi’s is from San Francisco, House Minority Leader Nancy Pelosi’s hometown), and motorcycles (Harley-Davidson is from Wisconsin, Speaker Paul Ryan’s home state). Canada announced intentions to impose $12.8 billion in retaliatory tariffs against U.S. goods.

The Trump administration’s unpredictability is creating economic uncertainty. And uncertainty has a chilling effect on investment. While the economy is doing well right now, this uncertainty could hurt down the road. After all, there’s no sense making a long-term investment if there is a very real possibility the administration might pass some policy out of the blue that kills your market. It is hardly surprising that the Dow Jones Industrial Average fell 200 points when the new tariffs were announced, despite steel stocks going up.

Economists are virtually united as a profession against the new tariffs. A March 2018 University of Chicago Booth School survey of professional economists found not a single respondent agreeing with the statement “Imposing new US tariffs on steel and aluminum will improve Americans’ welfare.” When the National Taxpayers Union circulated a letter opposing the Trump administration’s protectionist turn, more than 1,100 economists signed on (I am one of them).

One of the Trump tariffs’ few defenders is Peter Navarro, one of the president’s economic advisers. Even in the White House, Navarro cuts a lonely figure, with other presidential advisors such as Larry Kudlow openly preferring more open trade policies. Still, if Navarro has only one ally, he has the one who counts: President Trump.

Navarro defended the new steel and aluminum tariffs in a May 31 USA Today piece. Both what he said and what he didn’t say are revealing.

By way of background, Henry Hazlitt’s famous Economics in One Lesson is a simple one, and very relevant to this discussion: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” (p. 17)

If you want the even shorter version: look at how a policy affects all people, not just some; and look at both short-term and long-term effects. Not one or the other; both. Hazlitt’s Lesson is a must-read for any aspiring economist. It is regularly assigned in college courses, and has remained continuously in print since 1946. The paperback edition published in 1988 boasts of having sold a million copies—and that was thirty years ago. Despite Hazlitt’s ubiquity, Navarro, who was a college economics professor before taking his current job, makes it clear he has either never read, or never understood Hazlitt’s basic lesson.

Navarro opens by praising his boss, then segues to a story about a new aluminum mill opening up in Ashland, Kentucky. He also gives examples of several other plants that will be opening in the near future.

In fact, the groundbreaking ceremony at the Ashland mill will be held today. While this is great timing for an op-ed newshook or a press conference, if the groundbreaking is only happening now, that means that the planning process for opening this mill began long before the new aluminum tariff was proposed, and likely before the Trump administration itself. Infrastructure and environmental impact reviews, among other regulatory hurdles, often take years to complete. So Navarro’s lead anecdote does not actually help his case.

The larger problem is that this anecdote and the others Navarro shares look only at how the tariffs affect some people, and not all people; he forgets his Hazlitt. There is a reason Navarro argues by anecdote, and not with data: the data say that tariffs are bad policy. This particular round of tariffs will cost roughly five jobs for each one saved or created. To benefit 33,000 steel and aluminum jobs, Navarro must be willing to destroy 179,000 jobs elsewhere in the economy, and charge higher prices to more than 300 million consumers, and reduce by billions of dollars the amount of capital available to other economic sectors. This is all because he forgets to look beyond those immediate short-run benefits to a favored few. The wider costs to the rest of the economy in the long run are less visible than the freshly cut ribbon in Ashland, Kentucky, but they are no less real.

Navarro also ignores consumers. And remember, the whole point of economic production is to create things consumers want. Producers exist for consumers’ sake, not vice versa. He does mention consumers once in his piece: “Critics at the time warned the move would hurt consumers, but the tariffs have been a boon to the U.S. worker.” By the time Navarro is done with the economy, it may well have just one worker left with a job, who then literally would be “the U.S. worker.”

Grammatical gripes aside, notice that Navarro deliberately chooses the word “worker” and not “consumer” when he says who gets the boon. He then goes on to not describe how tariffs help consumers. He can’t, because they don’t. So he changes the subject. But Navarro’s elision doesn’t change the fact that higher steel prices mean cars will be more expensive, construction costs will be higher, and so will rents for stores and apartments.

Higher aluminum prices will likely add about a penny to the cost of a twelve-ounce aluminum can. Paying an extra quarter or so for a 24-pack of Diet Coke doesn’t sound like a lot, but it adds up on a family’s grocery bill, especially in the long run that Navarro ignores.

The craft beer industry is scared that its comparatively expensive products will become still more expensive compared to its larger competitors, costing the industry jobs, and depriving consumers of choices they might otherwise enjoy. For smaller producers who operate on thin margins, Trump’s tariffs are an existential threat. Producers are already looking at alternative packaging materials such as plastic and glass bottles, which would hurt the very aluminum industry the administration intends to help. Navarro does not mention these downstream industries harmed by the tariffs.

One of the strongest arguments at Navarro’s disposal is the national security argument. For example, the Defense Department requires an enormous amount of steel for its aircraft carriers, fighter jets, military bases, and more. That’s why the U.S. steel industry needs to be healthy and vibrant—if, during a war, steel imports get cut off, domestic production could mean the difference between victory and defeat. Fortunately, some simple math defuses this bomb, assuming it wasn’t a dud in the first place.

Imports currently account for roughly 30 percent of steel used in the United States. That means domestic production is roughly 70 percent. The military needs roughly 3 percent, or less than a twentieth of domestic production alone. In fact, without the new tariffs, domestic steel production is already above its 40-year average, and U.S. manufacturing output as a whole is near a record high. So the national security implications of the new tariffs are approximately zero. They can safely be called security-unrelated tariffs.

It is possible that Navarro knows better. In a May 31 conference call about the decision to enact the tariffs, one caller asked Navarro if he was open to retrospective review of the tariffs. In other words, once the tariff has been in place for a few years and there is real-world data on how it is working, would Navarro be open to analyzing what the effects have been, and whether they were good or bad on net? He refused to answer.

If Navarro was truly confident that steel and aluminum tariffs would benefit the economy, he’d be eager to put them to the test. Since his own profession is almost unanimously against him, surely he would welcome the chance to rub it in his opponents’ faces. But he isn’t, and that says a lot.

I’m not sure which possibility says worse of Navarro: if he genuinely believes what he says, or if he doesn’t. Either way, while a small constituency will benefit in the short term from the new tariffs, the larger American economy will suffer, as will our allies. And as Hazlitt reminds us, this will be true in both the short run and the long run. Someone really should send Navarro a copy of Hazlitt. The White House’s address is 1600 Pennsylvania Avenue NW, Washington, DC, 20500, c/o Peter Navarro.

For more in-depth looks into Navarro’s mistaken trade ideology, see here by me and here by Adam Smith. An Investor’s Business Daily editorial quotes me on the new tariffs here. And CEI’s press release on the new tariffs is here.

This Week in Ridiculous Regulations

Despite a four-day workweek, federal agencies still exceeded the previous week’s Federal Register page count by nearly a hundred pages, pushing the yearly total past the 25,000 mark. While tariffs and automobile bans dominated the news last week, under-the-radar new regulations also passed, ranging from spinach proteins to newspaper registration.

On to the data:

  • Last week, 58 new final regulations were published in the Federal Register, after 68 the previous week.
  • That’s the equivalent of a new regulation every two hours and 54 minutes.
  • Federal agencies have issued 1,357 final regulations in 2018. At that pace, there will be 3,201 new final regulations. Last year’s total was 3,281 regulations.
  • Last week, 1,144 new pages were added to the Federal Register, after 1,046 pages the previous week.
  • The 2018 Federal Register totals 25,829 pages. It is on pace for 60,918 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. Two such rules have been published this year, none in the last week.
  • The running compliance cost tally for 2016’s economically significant regulations is $215 million.
  • Agencies have published 46 final rules meeting the broader definition of “significant” so far this year.
  • In 2018, 224 new rules affect small businesses; 11 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see “Ten Thousand Commandments” and follow @10KC and @RegoftheDay on Twitter.

This Week in Ridiculous Regulations

Agencies took it comparatively easy in the leadup to the long Memorial Day weekend, though the Federal Aviation Administration and Coast Guard were busy with rules for travelers and revelers, mostly in the form of airworthiness requirements and safety zones near fireworks shows and other events. Other new regulations hitting the books ranged from trans fats to wireless microphones.

On to the data:

  • Last week, 68 new final regulations were published in the Federal Register, after 62 the previous week.
  • That’s the equivalent of a new regulation every two hours and 28 minutes.
  • Federal agencies have issued 1,299 final regulations in 2018. At that pace, there will be 3,184 new final regulations. Last year’s total was 3,281 regulations.
  • Last week, 1,046 new pages were added to the Federal Register, after 1,169 pages the previous week.
  • The 2018 Federal Register totals 24,385 pages. It is on pace for 59,768 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. Two such rules have been published this year, none in the last week.
  • The running compliance cost tally for 2016’s economically significant regulations is $215 million.
  • Agencies have published 45 final rules meeting the broader definition of “significant” so far this year.
  • In 2018, 217 new rules affect small businesses; 11 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see the study “Ten Thousand Commandments” and follow @10KCand @RegoftheDay on Twitter.