Six Ways the Government Criminalizes Economic Activity
This article originally appeared in MarketWatch.
Although many politicians say they support economic growth, the federal government goes out of its way to criminalize broad ranges of economic activity. It’s as simple as this: A person or a company wants to provide a good or a service, and Uncle Sam says no.
Here are six examples, and there are many others. As well as tax and entitlement reform, and passing an immigration bill, the 114th Congress could simply let people work.
Federal law criminalizes exports of oil and natural gas
North America’s oil and natural gas production is surging, but it is still unlawful to export it. On Tuesday, Rep. Joe Barton, a Republican from Texas, introduced a bill to allow exports of oil, and the bill will be considered at a House Energy and Commerce Committee hearing on Thursday. In addition, the United States could benefit from exporting some of its natural gas production. Companies in North Dakota waste about 33% of total gas production by flaring, or burning, it.
Exports stimulate the economy and result in more jobs because foreign customers buy U.S. products. Exports also lead to more innovation. With increased oil and natural gas exports, more people would be employed in its production and transportation. Over 1.1 million people are already directly employed and about 9 million are indirectly employed in the oil and gas sector, the vast majority from small and mid-size companies.
The export bans were set up in the 1970s, at a time when America was highly dependent on OPEC for energy. Now we have overtaken Saudi Arabia in oil production, and Congress should update our laws to reflect the new reality.
Financial Stability Oversight Council criminalizes any institution
The Financial Stability Oversight Council, set up under Dodd-Frank, has the power to designate any firm, either financial or nonfinancial, as having significant systemic risk to the economy. Then that firm comes under its oversight. FSOC is chaired by the Treasury secretary and includes the heads of nine federal financial regulatory agencies. If the FSOC says a firm poses a risk to the economy, the government can treat the firm’s shareholders and creditors as they choose, trumping existing law.
Institutions related to the financial sector live in fear of FSOC. Currently, FSOC is considering whether money market funds pose a systemically significant risk to the economy, and what regulations it should place on these funds. FSOC has the power to criminalize just about any firm. Proceedings are held behind closed doors, and there is practically no appeals process.
Minimum-wage laws criminalize low-skill work
Imagine being forbidden to work. That is the case for people with skills under $8.25 an hour. The federal hourly minimum wage is $7.25, and additional costs, such as Social Security, unemployment insurance, and workers compensation bring the cost of employment closer to $8.25. The minimum wage is one reason why the teen unemployment rate is 18%, the youth (20 to 24) unemployment rate is 11%, and the African-American teen unemployment rate is 28%. Those groups have markedly lower skills than average.
University of California (Irvine) economist David Neumark, and University of California (San Diego) economists Jeffrey Clemens and Michael Wither have shown in separate studies that young workers with low skills are harmed the most by the minimum wage. That is not surprising, given that half of minimum-wage earners are between the ages of 16 and 24. When the minimum wage is set above someone’s skill level, that person is left on the sidelines. If people cannot get their first job, how can they get their second or third? People who take minimum-wage jobs gain entry to the professional world. Once they are in, they can keep rising.
CAFE standards force carmakers to make unwanted small vehicles
People like to buy large vehicles, such as SUVs and trucks. But the government’s Corporate Average Fuel Economy standards, first implemented in 1975, require auto makers to calculate average fuel economy — miles per gallon — across their respective fleets. To balance out larger vehicles, car dealers have to make small ones that sit on the lots and are eventually sold at a loss to rental companies. This raises the price of larger vehicles for everyone else.
In 2012, the standards were raised to 54 miles to the gallon by 2025. In comparison, according to the University of Michigan’s Transportation Research Institute, the average fuel economy of new vehicles sold in November was 25 miles per gallon. The administration is also working on new standards for trucks, to be released next March. New standards combine a number of administration goals in one package: lower oil consumption and reduced imports, reduced exhaust-pipe emissions, and the use of electric cars.
Affordable Care Act criminalizes sales of certain health-insurance plans
Under the Affordable Care Act, approved plans must include services that many people do not need, such as maternity care, pediatric dental care, mental-health coverage and substance-abuse treatment. It is forbidden to offer other plans, even though people want to buy them. Naturally, many people complained when their lower-cost plans were canceled due to Affordable Care Act regulations, but it would have been against the law for insurance companies to offer the old plans.
Never mind that it is unlikely that Department of Health and Human Services bureaucrats will know what is best for individuals. The point of insurance is for people to choose the plan that works best for them, not for other people to tell them what they can, and cannot, buy.
EPA ozone rules will criminalize energy-intensive manufacturing
The Environmental Protection Agency’s new ozone regulations, as I wrote last week, would dramatically reduce the amount of ozone allowed in the air from the current standard of 75 parts per billion (ppb) to a range of 65 ppb to 70 ppb. Currently, 40% of the U.S. population lives in areas that do not meet the standard of 75 ppb. At 65 ppb, more than half of the United States would be out of compliance.
States would have to craft implementation plans, approved by the EPA, for keeping down levels of ozone within their borders. The only way for states to meet the standards is for them to reduce energy-intensive manufacturing, or some forms of energy production. Those activities would all become criminalized.
Gross domestic product is a measure of the economic activity of ordinary Americans. Our economy grows when people are allowed to engage in more economic activity. Unfortunately, Washington has criminalized a wide range of beneficial economic activity. No one wins except the bureaucrats.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute. You can follow her on Twitter here.
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