Freedom Line Blog

Mercury News opinion writers David Houston and Jot Condie give a sense of the near impossibility of doing business in California.  Andy Puzder is the CEO of CKE Restaurant, the parent company of Carl’s Jr., a popular hamburger eatery in California.

Even after businesses have gotten off the ground, California’s regulations continue to pigeonhole business owners in how they operate. For example, California’s strict work rules classify general managers as employees, requiring that they take breaks at specified times, harming their ability to manage the business effectively. Puzder said he has had to fire managers who insisted on working more hours than the state allows.

The reason managers would have to be fired for working hard is that it makes businesses vulnerable to litigation. With more than 1 million lawsuits filed every year, California is one of the most litigious states in the country, and its countless regulations make business owners a magnet for abusive lawsuits. No matter what type of business you are in, it seems like there is a lawsuit waiting for you.

If you own a restaurant and your bartender chooses to forgo a break to collect extra tips, you can be sued for wage-and-hour violations. If your trash can is moved by someone else in your store, you can be sued under the Americans with Disabilities Act. If you try to bring renewable energy to the desert, you can be sued by environmentalists and unions. Is it any wonder that many owners are deciding doing business in California is not worth it?

Firing managers who want to work more hours for more money because the law makes litigation almost mandatory?  Now that’s Progressivism!

Believe it or not, they occur once in a blue moon. The AP reports:

Oil spill prevention requirements will no longer apply to spilled milk. Gasoline pumps wouldn’t need devices for trapping vapor pollutants, and there would be fewer bureaucratic hurdles for doctors who want to dispense medical advice to a distant patient.

These were among hundreds of existing regulations that the Obama administration said Thursday it wants to revamp or eliminate in a government-wide effort to ease burdens on business. Overall, the drive would save hundreds of millions of dollars annually for companies, governments and individuals and eliminate millions of hours of paperwork while maintaining health and safety protections for Americans, White House officials said.

No jokes. No irony. Just a thanks to the folks at the White House behind this initiative. And a question: can we have some more please?

John Fund gives an excellent distillation for the reasons California businesses are relocating en masse to Texas:

Andy Puzder, the CEO of Hardee’s Restaurants, was one of many witnesses to bemoan California’s hostile regulatory climate. He said it takes six months to two years to secure permits to build a new Carl’s Jr. restaurant in the Golden State, versus the six weeks it takes in Texas. California is also one of only three states that demands overtime pay after an eight-hour day, rather than after a 40-hour week. Such rules wreak havoc on flexible work schedules based on actual need. If there’s a line out the door at a Carl’s Jr. while employees are seen resting, it’s because they aren’t allowed to help: Break time is mandatory.

Indeed, California policymakers are enjoying an extended break from economic reality by focusing on everything else but job creation.

If the trend of 4.7 businesses a week abandoning California continues, pretty soon the great weather will be the only reason to visit the once Golden State.

Republicans in Congress are currently split on whether to accept incremental budget cuts in the name of political pragmatism or to hold a hard line — and face the possibility of a government shutdown or a freeze in the debt ceiling — in the name of principle. Freshman Florida Senator Marco Rubio takes to the editorial pages of the Wednesday edition of the Wall Street Journal with a message that leaves no doubt where he stands:

“Raising America’s debt limit is a sign of leadership failure.” So said then-Sen. Obama in 2006, when he voted against raising the debt ceiling by less than $800 billion to a new limit of $8.965 trillion. As America’s debt now approaches its current $14.29 trillion limit, we are witnessing leadership failure of epic proportions.

I will vote to defeat an increase in the debt limit unless it is the last one we ever authorize and is accompanied by a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.

For months now, we’ve heard “sober” politicians tell us that it’s time to have “an adult conversation” about the size and cost of government in which “everything is on the table”. It looks like Marco Rubio is calling their bluff.

In this week’s Freedom Minute, CFIF’s Renee Giachino explains how President Obama’s energy policy – namely, his opposition to opening up America’s vast domestic resources – amounts to a massive energy tax at a time when prices at the pump are soaring ever higher.

There are two kinds of licensed professionals you don’t want to see the word “creative” describe: accountants and lawyers.  Unfortunately, the top lawyer at the Obama Labor Department just released a to-do list that could double as a well-conceived strategy memo for business-hating bureaucrats concerned they may not have enough power.

In Wall Street Journal columnist John Fund’s recent article the solicitor at Labor proposes the following actions to increase the regulatory burden on private enterprise:

• Identify a public affairs liaison in each Regional Office to send stronger, clearer messages to the regulated community about DOL’s emphasis on litigation.
• Engage in enterprise-wide enforcement. (A euphemism where multiple sites of a business are visited by surprise on the same day by more than one enforcement agent.)
• Engage in greater use of injunctive relief (i.e. litigation and court orders), while also identifying and pursuing test cases to “stretch the meaning of the law.”

With the workforce experiencing 9.8% unemployment, this kind of strategy – and heaven forbid, enforcement – will only make matters far worse.

Alex Pollock’s contribution in The American, a publication for the American Enterprise Institute (AEI), is much needed medicine for the regulatory fever about to be unleashed when the Dodd-Frank “financial reform” bill is implemented.

The key to understanding boom-and-bust cycles, according to Pollock, is realizing the limits of a mathematical model’s ability to predict the future.  To quote Pollock quoting a colleague, “The model works until it doesn’t.”  That is, until someone falsifies the model by acting in a way contrary to the model’s assumptions.  Then everybody who uses the model is out a lot of money.

So, if profit-hungry businesses can’t figure out a way to avoid losing money, what in the world makes the denizens on Capitol Hill think they can create a federal agency with such powers?

Hubris and stupidity.  Political cultivation of those qualities is a science unto itself.

Weekend Bonus Link: For another theory of the business cycle, click here.

A group calling itself the “Progressive Change Campaign Committee,” which sounds so 2008 and even employs the same font and shade of blue as Obama’s “Organizing for America” page, is attempting to portray a false consensus in favor of new federal Internet regulation.

The group trumpets its success in getting 95 Democratic House and Senate candidates to sign a pledge favoring Internet regulation via so-called “Net Neutrality.”  But notice an interesting thing about those 95 candidates.  Namely, not a single one is in a race labeled “Solid Democrat,” “Likely Democrat” or even “Lean Democrat” by the Cook Political Report.  Not one.  Of the 95, 79 are in races labeled “Solid Republican,” with 11 in either “Likely Republican” or “Lean Republican,” and only five in races even labeled “Toss Up” by Cook.

In other words, this pledge is a “Hail Mary” by desperate candidates and Internet regulation advocates.  It also reflects the fact that significant majorities of Americans surveyed oppose new Internet regulation by the federal government.  The last thing the Internet needs right now is for the federal government to turn it into the tech version of ObamaCare, and voters shouldn’t be deceived by this sort of silly season antic.

In an op-ed published today on The Hill’s Congress Blog, CFIF Vice President Timothy Lee warns that “regardless of what occurs on November 2,”  the EPA’s regulatory agenda moving forward threatens to hit consumers and business hard and right where it hurts: their pocketbooks.

Lee writes:

When we ring in the New Year in just two short months, next week’s elections will be in our collective rear view mirror. However — regardless of what occurs on Nov. 2 — the U.S. Environmental Protection Agency’s (EPA’s) campaign to impose its new round of economy-wide environmental regulations will continue in 2011. That should worry every American, because EPA’s wish list will hit consumers and business where it hurts: their pocketbooks.

Supported by an administration that has suffered defeat after defeat on Capitol Hill in its attempt to pass wholesale climate change legislation, EPA instead seeks to impose its costly and burdensome regulatory agenda through the back door. From overly complex new greenhouse gas rules to more stringent ozone standards to new mandates for recycled coal ash, unelected EPA bureaucrats hope to decree through regulatory fiat what they can’t enact through the democratic or legislative processes.

If successful, EPA’s agenda could cost American families $3,000 per year, according to Heritage Foundation estimates. …

Read the entire piece here.

Last month, we profiled how federalism is alive and well in economic policy — as exemplified most explicitly in the sharp contrast between California and Texas (a topic we’ve been exploring for nearly a year).

As John Steele Gordon points out in the Contentions blog over at Commentary’s website:

It is often pointed out that the states make great laboratories for political-science experiments. And an experiment has been underway for quite a while testing the liberal model — high taxes, extensive regulation, many government-provided social services, union-friendly laws — against the conservative model — low taxes, limited regulation and social services, right-to-work laws. The results are increasingly in. As Rich Lowry reports in National Review Online, the differences between California and Texas are striking. Between August 2009 and August 2010, the nation created a net of 214,000 jobs. Texas created more than half of them, 119,000. California lost 112,000 jobs in that period.

California has always prided itself on being a leading indicator for the rest of the nation. We’ll see how well they like that designation when it turns out to mean being the canary in the coal mine.

Check out this Fox Business interview with Eric Singer, the founder of Congressional Effect Management, an investment firm that only gets into the stock market when Congress is out of session.  The key to Singer’s strategy is avoiding ‘political risk’ – the damage to wealth creation that Congress causes through taxes and regulation (real or threatened).

Read this CFIF profile of Congressional Effect Management for a more in-depth discussion on Singer’s time-tested, data-driven approach.

According to a report entitled “The Impact of Regulatory Costs on Small Firms” just produced by Nicole V. Crain and W. Mark Crain for the Small Business Administration, the annual cost of federal regulations alone has reached $1.75 trillion.  That excludes the annual cost of taxes.  And that was as of 2008.

Combined, taxes and regulatory costs consumed a staggering 35% of America’s income in 2008, or $37,962 per household .  Alarmingly, that was the number before such new fiascoes as ObamaCare, “stimuli” and bailouts increased the burden.  Small businesses create most new jobs in America, but the authors highlight that regulatory costs hit them disproportionately hard relative to larger businesses (due primarily to economies of scale in dealing with regulatory compliance costs).  The authors found that businesses with fewer than 20 employees incur regulatory costs 42% greater than firms of between 20 and 499 employees, and 36% greater than firms with over 500 employees.  Per employee, small businesses face $10,585 in compliance costs versus $7,454 per employee for medium-sized firms, and $7,755 for larger firms.

As government gets bigger and bigger, the regulatory compliance costs only get more and more oppressive.  We needn’t search far to understand why the economy isn’t recovering and businesses aren’t hiring.

For political observers looking for a glimpse into former e-Bay CEO and current gubernatorial candidate Meg Whitman’s (R-CA) job creation plan, a 34 page glossy magazine is available for free download (pdf) or delivery.  As both a PR document and a policy manual, the plan is impressive.  After listing the parade of economic horrible facing the Golden State, Whitman moves into prescription mode promising to promote tax cuts and streamline regulations that impede business.

Implementing any of these measures would help California.  Enacting all of them might actually save the state from financial collapse.  However, there is one addition I’d like to see that’s currently missing.

Tell the voters that governments can only create one type of job directly: a government job.  Whether it is a formal state position, a job that is made necessary to comply with a regulation or one to get a government contract, all of these jobs redirect talent and resources towards expanding the tax burden by increasing government spending.

A more sustainable model is implementing the kinds of policies Whitman is pushing; policies that create a tax and regulatory environment favorable to private sector job creation.  The more private sector jobs created means more people have more money, allowing government to lower tax rates while providing the same level of services.

In reality, Whitman as governor can’t create directly a single private sector job without picking winners and losers.  Instead, the most (and the best) she can do is create the conditions for success that allow private business to flourish and add workers.  Who better to educate the public on that point than a person with top-level business executive experience?

The Obama Administration’s answer is to impose a blizzard of new regulations on industries like higher education, health care and now private business that make the federal government a national repository of TMI – too much information.

With news today that the White House is “backing legislation that includes regulations requiring U.S. businesses to provide to the government data about employee pay as it relates to sex, race and national origin of employees” another Democrat strategy is becoming clear.

Goal:

• Enforce liberal social engineering through complex litigation and class action lawsuits against for-profit and non-profit institutions that fail to promote the “uniform diversity” mandated by liberal elites.

Means:

• Pass laws that require the targeted institutions to self-report every possible way they interact with favored liberal interest groups.
• Data mine those reports for evidence of unsatisfactory compliance with political correctness standards.  Then label it “discrimination”.
• Pass more laws prohibiting the newly discovered discrimination.
• Allow liberal law firms like the ACLU – or the Holder Justice Department – to sue on behalf of the groups discriminated against.

This is not a joke.  Each time the Democrats in Congress pass a new “comprehensive reform” one of the components requires detailed self-reporting.  Right now, we’re told it’s just for information purposes.  In a year or two…

Never underestimate the power of positive thinking.  With a level of spin only a well-heeled campaign operative could rival the IRS is trying to allay small business owners’ fears of an “avalanche” of new1099 reporting requirements that life under the new rules won’t be so bad.

With an assist from CNN, here’s IRS Commissioner Douglas Shulman’s attempt to slather lipstick on a pig:

The IRS will have broad leeway to interpret the rules — and it’s already showing signs that it will look for ways to staunch the paperwork flood.

In a late May speech before the two payroll industry trade group, IRS Commissioner Douglas Shulman announced a major exception to the new rules: The IRS plans to exempt transactions made through credit and debit cards. A separate reporting requirement kicks in next year that will cover card transactions and help the IRS spot unreported payments made through those channels, “so there is no need for businesses to report them as well,” Shulman said. “Whenever a business uses a credit or debit card, there will be no new burden under the new law.”

Geez, Doug, I can’t tell you how much better I feel knowing that no matter when and where I swipe my business card I don’t have to report it because you already know about it.  What a relief!  Now that you can spot every single transaction I make, I’m sure the helpful agents at the IRS won’t hold it against me if I forget to include one of those payments on my tax return; right?

I mean, you’re trying to help small business owners by relentlessly monitoring all of our electronic transactions; aren’t you?  After all, you’ve got “broad leeway” in interpreting your new powers…

Near the end of Deroy Murdock’s column discussing the insanity of the federal government’s upcoming incandescent light bulb ban in favor of a mercury-laden replacement comes the iconic gem above.

It’s a detailed “how-to” label design provided ever so helpfully by the Federal Trade Commission to guide bulb packagers.  I don’t know whether to be relieved that the bureaucracy is trying to be this helpful in its mandates or crestfallen that taxpayer money is going to finance this kind of project.

Today, a White House report brought more news from the Government War on the American Diet.  The First Lady, who has made fighting childhood obesity a signature project, discussed the findings of the report.  Despite administration protestations that they would rely on “bully pulpit” pressure when working with the food industry, suggestions for new federal regulations are being discussed.

The Task Force on Childhood Obesity, which released the report, is the muscle behind Mrs. Obama’s otherwise toothless awareness campaign.  The working group, comprised of the Secretaries of Health and Human Services, Agriculture, Interior and Education, as well as senior White House staff, has several regulatory designs in mind.  Just like the Santa Clara Co., California ban on “Happy Meal” toys, the task force recommends that popular media characters only be used to market healthy food.  Coming to a McDonald’s near you, The Ironman Veggie Platter! As CBS News reports:

“If voluntary efforts fail to limit marketing of less healthy products to young viewers, the task force suggests the FCC should consider new rules on commercials in children’s programming. It also challenges food retailers to stop using in-store displays to sell unhealthy food items to children.”

This type of persuasion is akin to a robber pointing his gun at you through his coat pocket.   The robber says, “Give me your money,” but implicit is, “or else I’ll shoot!”  When it comes to government, the “give me your money” option is always on the table.  The report also calls for an analysis of sales taxes on unhealthy food.

This is just another example of the European-style paternalistic state the Obamas have in mind.  Never mind freedom of choice, they’ll choose for us because Father-Government knows best.  Cass Sunstein, Obama’s Regulatory Czar, believes government can nudge the people to make the right decisions for themselves.  But those who wield the power of government know full well if the people don’t budge, they can be coerced.

In an op-ed publish today by The Daily Caller, CFIF’s Jeffrey Mazzella and Timothy Lee warn that proposed “Net Neutrality” rules being considered by President Obama’s Federal Communications Commission threaten to stifle Internet innovation and cut off tens of billions of dollars in private investment  in the deployment of high-speed broadband networks. 

Thanks to private investments of $60 billion or more annually by Internet service providers, the World Wide Web has blossomed over the past decade into a tool that most Americans use daily to access news, information and entertainment. We also use it to communicate with family and friends, to share photos with loved ones, and for education and civic participation purposes. The Internet drives increased commerce and promises efficiencies in the healthcare and energy sectors. It motivates new innovation and jobs on a pace that continues to surpass our collective imagination.

All this has been made possible primarily because the Internet has remained largely unregulated. Its growth and development have been gated not by federal bureaucrats, but rather by users’ individual wants, needs and dreams.

But all of that could change if net neutrality regulations are put in place. …

Read the full piece here.

Join the fight to stop the government takeover of the Internet here.

The Labor Department this morning reported that nonfarm payrolls fell by a seasonally adjusted 85,000 in December, bringing the total number of jobs lost in 2009 to a whopping 4.2 million.

As Center for Individual Freedom (CFIF) Vice President of Legal and Public Affairs Timothy Lee wrote this week in a commentary posted on CFIF’s website, “the latest economic data continue to suggest that our recovery is weaker than it otherwise should be, due to malignant federal policies.”

Lee points to a recently released survey  by the National Federation of Independent Businesses (NFIB), which makes his point:

According to the National Federation of Independent Businesses (NFIB), a tiny 7% of small businesses (which account for approximately 2/3 of new jobs) expect near-term expansion and the type of risk-taking necessary for sustained prosperity.  Further, only 8% of NFIB respondents expect near-term employment opportunities.  The same NFIB report also states that capital investment and expenditures have dropped to a 35-year low.”

The reason?  Lee writes:

According to the NFIB survey, businesses report that the current political climate stands high among the reasons for tepid recovery, even ahead of the ability to secure loans.  The survey goes on to cite ‘the level of uncertainty being created by government, the usual source of uncertainty for the economy.  The ‘turbulence’ created when Congress is in session is often debilitating, this year being one of the worst.’ …

“…The continuing onslaught of more government spending, borrowing and regulation will not bring the type of recovery that we should expect, but rather perpetuate an inhospitable economic climate.  When we return to time-tested policies that encourage private investment, risk-taking and hiring – less confiscation of wealth, greater protection of property rights and fewer oxygen-depleting regulations – is when sustainable, long-term growth will return.”

In other words, when it comes to job losses and the slow economic recovery, It’s Washington, Stupid!

Read Lee’s full commentary piece here.

In the never ending succession of bad legislation coming out of Congress, the Democrats added another one to the list today.

By a 223-202 vote, the House passed the “Wall Street Reform and Consumer Protection Act of 2009.”  Twenty-seven Democrats joined every single Republican to oppose the legislation.

The bill is a hodgepodge of more regulations, higher taxes and new government.  After Sarbanes-Oxley, Congress thought it had effectively ended the debate over financial regulations.  For Congress, it’s never too late to re-regulate.

You can read the Congressional Research Service summary of the legislation here.

Here is the CBO’s cost estimate of the bill.