I wrote last month that new regulations and taxes in California’s legalized marijuana regime are likely to result in a situation in which
a few people are going to get rich in the California marijuana industry, and fewer small growers are going to earn a modest but comfortable income. Just one of the many ways that regulation contributes to inequality.
Now the East Bay Express in Oakland offers a further look at the problem:
Ask the people who grow, manufacture, and sell cannabis about the end of prohibition and you’ll hear two stories. One is that legalization is ushering a multibillion‐dollar industry into the light. Opportunities are boundless and green‐friendly cities like Oakland are going to benefit enormously. There will be thousands of new jobs, millions in new tax revenue, and a drop in crime and incarceration.
But increasingly you’ll hear another story. The state of California and the city of Oakland blew it. The new state and city cannabis regulations are too complicated, permits are too difficult and time consuming to obtain, taxes are too high, and commercial real estate is scarce and expensive. As a result, many longtime cannabis entrepreneurs are either giving up or they’re burrowing back into the underground economy, out of the taxman’s reach, and unfortunately, further away from the social benefits legal pot was supposed to deliver.…
Some longtime farmers, daunted by the regulated market’s heavy expenses, taxes, and low‐profit predictions, have shrugged and gone back to the black market where they can continue to grow as they always have: illegally but free of hassle from the state’s new pot bureaucrats armed with pocket protectors and clipboards.
Not all the complaints in the two‐part investigation are about taxes and overregulation. Some, especially in part 1, are about “loopholes” in the regulations that allow large corporations to get into the marijuana business and about “dramatic changes to Humboldt County’s cannabis culture, which had an almost pagan worship of a plant that created an alternative lifestyle in the misty hills north of the ‘Redwood Curtain.’ ”
But there’s plenty of evidence that regulations are more burdensome on newer and smaller companies than on large, established companies. Indeed, regulatory processes are often “captured” by the affected interest groups. The Wall Street Journal confirmed this just yesterday, reporting that “some of the restrictions [in Europe’s GDPR online privacy regulations] are having an unintended consequence: reinforcing the duopoly of Facebook Inc. and Alphabet Inc.‘s Google.”
Two weeks ago I wrote about the efforts of big business to defeat libertarian‐leaning legislators in states across the country. To confirm my point, on the same day the article appeared the Michigan Chamber of Commerce endorsed the opponent of Rep. Justin Amash, the one of whom I had written, “Most members of Congress vote for unconstitutional bills. Few of them make it an explicit campaign promise.”
Now a battle is brewing in Congress that pits libertarians and Tea Party supporters against the country’s biggest businesses. The Wall Street Journal headlines, “GOP’s Attack on Export‐Import Bank Alarms Business Allies.” The “rise of tea‐party‐aligned lawmakers” is threatening this most visible example of corporate welfare, and David Brat’s attacks on “crony capitalism” in his surprise defeat of Eric Cantor have made some Republicans nervous. Amash told the Journal, “There are some large corporations that would like corporate welfare to continue.”
The biggest beneficiaries of Ex‐Im’s billions are companies such as Boeing, General Electric and Caterpillar, according to Veronique de Rugy, a senior research fellow at the Mercatus Center. Cato scholars have made the same point, including Aaron Lukas and Ian Vasquez in 2002 and Sallie James in 2011.
Matthew Yglesias of Vox notes, “The Export‐Import Bank is a great example of the kind of thing a libertarian populist might oppose. That’s because the bank is a pretty textbook example of the government stepping in to arbitrarily help certain business owners.” And he points out that supporters of the Bank include the U.S. Chamber of Commerce, the National Association of Manufacturers, the AFL-CIO, Haley Barbour, and Dick Gephardt. He could have added Tom Donnelly of the American Enterprise Institute.
Rep. Adam Kinzinger (R‑IL) said he worried about “a libertarian theology that’s really starting to creep in.” I hope he’s right.
In a Wall Street Journal column titled “Silicon Valley’s ‘Suicide Impulse’ ” (Google the title if you can’t access it), Gordon Crovitz cites Milton Friedman’s speech to a Cato Institute conference in Silicon Valley in 1999:
In 1999, economist Milton Friedman issued a warning to technology executives at a Cato Institute conference: “Is it really in the self‐interest of Silicon Valley to set the government on Microsoft? Your industry, the computer industry, moves so much more rapidly than the legal process that by the time this suit is over, who knows what the shape of the industry will be? Never mind the fact that the human energy and the money that will be spent in hiring my fellow economists, as well as in other ways, would be much more productively employed in improving your products. It’s a waste!”
He predicted: “You will rue the day when you called in the government. From now on, the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust very quickly becomes regulation. Here again is a case that seems to me to illustrate the suicide impulse of the business community.”
You can find the full text of Friedman’s talk here.
For more on business’s suicidal impulses, see “Why Silicon Valley Should Not Normalize Relations With Washington, D.C.” by entrepreneur T. J. Rodgers; “The Sad State of Cyber‐Politics” by Adam Thierer; and my own “Apple: Too Big Not to Nail.”
Perhaps the most significant difference between my own views and those of my progressive friends is on the relationship between business and government, especially “big business”. I’ve on more than one occasion heard that government needs to be there to off‐set the power of big business. That without government, corporations would just continue to grow. Well to me that sounds like an empirical question.
Thanks to the Economic Freedom of the World report, we have some good indicators of just how free‐market oriented a country is. What we need are measures of concentration. Unfortunately, these are a little harder to come by. Fortunately, the Office of the Comptroller of the Currency (OCC) did a survey about a decade ago (1999), the data for which are reported in Barth, Caprio, and Levine’s Rethinking Bank Regulation. The measure of concentration is the percent of deposits accounted for by the five largest banks. One could argue for a better measure, but it’s all we have.
The results? It would appear that the freer an economy, the less concentrated its banking system. The chart below offers a scatter diagram, along with a regression line. The vertical Y axis measures concentration and the X axis economic freedom (the higher the number, the freer the economy). Admittedly, the relationship is not a strong one, with a correlation of only ‑0.11, but it is negative. If anyone knows of comparable measures for other industries, I would encourage them to either send me the data or reproduce this analysis for other industries.
That's the title of Ezra Klein's blogpost last night. Americans are increasingly distrustful of Big Government, it seems (64% in 2011, up from 35% in 1965), as opposed to Big Business (26% versus 29%) and Big Labor (8% versus 17%). Here's the graph:
Of course, given that Big Labor these days is mostly in the public sector, you can really add its total to that of Big Government. And given corporate subsidies, part of Big Business can be thrown in there too. In any event, sobering news for the Occupy Wall Street crowd, and surely an electorate for political candidates who want to shrink the size of government.
The union‐ and trial‐lawyer‐backed Paycheck Fairness Act, which would greatly expand the scope of lawsuits against private employers alleging gender pay inequality, has run into considerable resistance in Congress. The Bangor Daily News, for example, notes that middle‐of‐the‐road Maine Sens. Olympia Snowe and Susan Collins, known for their willingness to support some Democratic initiatives, have criticized the PFA as “broad,” “unprecedented,” and costly to employers (Snowe) and as likely to “impose excessive litigation on the small‐business community” (Collins).
Democratic Rep. Chellie Pingree (D‑Maine), on the other hand, is impatient with all such objections:
“If there is litigation in the future, that is minor compared to making sure that people get fair pay for the work that they do,” Pingree said. “It is also important to say that this only applies to big business, this does not apply to the sandwich shop around the corner.”
What do you think she means by “only applies to big business” and not “the sandwich shop around the corner”? Keith Smith at ShopFloor checked out the language of the bill, which by its own terms would affect employers subject to the federal Fair Labor Standards Act of 1938. Does the FLSA apply “only … to big business”? No; according to the U.S. Department of Labor, it covers “almost every employee working in the United States.” To begin with, the law covers all employers that have two or more employees and do at least $500,000 a year in business. But that’s just the start, as Smith explains:
Even if a business meets these thresholds, the only employees who would not be covered by the FLSA would be the ones who do not produce goods for interstate commerce, or closely‐related process or occupation directly essential to such production, who are not involved in domestic service and are not engaged in interstate commerce. So that means if an employee makes a phone call to another state, sends mail to another state, travels to other states or even processes credit card transaction [he or she] is engaged in “interstate commerce”.
It sounds as if Rep. Pingree has a distinctive, not to say eccentric, understanding of what constitutes “only … big business”.
Regular readers of this blog know that big corporations often are enemies of free markets and individual liberty. So it is hardly suprising to know that the Business Roundtable, a lobby representing CEOs of major companies, supported the wasteful and ineffective stimulus program in 2009 and the bloated new health care entitlement in 2010. Big companies, after all, are quite proficient at working the system to obtain unearned wealth and to rig the rules against smaller competitors.
What is surprising, however, is that representatives of that organization now have the chutzpah to complain about a “hostile environment for investment and job creation.” Equally galling, the group has published a document called “Policy Burdens Inhibiting Economic Growth.” We’ve all heard the joke about the guy who murders his parents and then asks the court for mercy because he’s an orphan. The Business Roundtable has adopted that strategy, except this time taxpayers are the butt of the joke. Here’s an excerpt from the Washington Post report:
The chairman of the Business Roundtable, an association of top corporate executives that has been President Obama’s closest ally in the business community, accused the president and Democratic lawmakers Tuesday of creating an “increasingly hostile environment for investment and job creation.” Ivan G. Seidenberg, chief executive of Verizon Communications, said that Democrats in Washington are pursuing tax increases, policy changes and regulatory actions that together threaten to dampen economic growth and “harm our ability … to grow private‐sector jobs in the U.S.” …The final straw, said Roundtable president John Castellani, was the introduction of two pieces of legislation, now pending in Congress, that the group views as particularly bad for business. One, a provision of the administration’s financial regulation overhaul, would make it easier for shareholders to nominate corporate board members. The other would raise taxes on multinational corporations. The rhetoric accompanying the tax proposals has been particularly harsh, Castellani said, with Democrats vowing to campaign in this fall’s midterm elections on a platform of punishing companies that move jobs overseas. …Seidenberg polled the members of the Business Roundtable and a sister organization, the Business Council. The result was a 54‐page document, delivered to Orszag on Monday, chock full of bullet points about actions taken or considered by a wide array of executive agencies, including the White House Middle Class Task Force and the Food and Drug Administration. We believe the cumulative effect of these proposals will help defeat the objectives we all share — reducing unemployment, improving the competitiveness of U.S. companies and creating an environment that fosters long‐term economic growth,” Seidenberg wrote in a cover letter for the document, titled “Policy Burdens Inhibiting Economic Growth.”