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Wise old farmers have long had a saying: Don’t eat your seed corn. In simple terms, it means that every seed that comes through your hands has the potential to either be eaten or planted for next year’s harvest. You need to make sure that your farm always has enough seed corn to replant the fields on your land so you enjoy another harvest next year. If you eat your seed corn, you won’t have anything to put in the ground and you lose the farm.
Never forget this rule: Don’t sacrifice what you want for what you want right now. Never Spend Your Principal If You Want To Be Rich by Joshua Kennon at The Balance
One of the enjoyable parts of grandparenting is watching your grandkids grow up, watching them explore, learn about life and eventually (hopefully) learn what it means to be an adult. One of my grandsons at around 2 or 3 used to delight in throwing a box of his toys all over the floor. “Look at my mess!” he would exclaim and laugh. Then he would move on to another box or another activity leaving the mess for grandpa to clean-up.
Part of growing up is learning to share, learning that life is not all about you, that with freedom comes responsibility, and that “goods” are often accompanied by “bads”. The “bads” cannot be ignored if we really care about quality of life.
In other words, we need to be aware of our messes. If someone doesn’t clean them up as we go along, they could become insurmountable, even explode out of control. Consider a manufacturing plant that spews toxic chemicals into a river in the process of its operations. Someone must pay to clean this up or others will pay in terms of reduced water quality and possibly increased health risks.
The Republicans have majorities in both houses of Congress and control (to an extent) the Presidency. They have a number of goals they want to accomplish and the President, desperate to log political wins during his term, is inclined to sign any legislation the Republican Congress sends to him.
What are these goals? Tax reform to specifically benefit the rich and corporations. Massive deregulation allowing corporations to throw their boxes of toys all over America while leaving the mess for others to clean up if they are cleaned up at all. Erecting walls to keep out immigrants. Turning our back on the rest of the world. And, appointing a platoon of judges to validate and consolidate these goals as they are achieved. I wrote about some of this in Trompudo’s Revolution.
This post focuses on deregulation. I expressed my views on the tax bill in a number of previous posts.
The “goods” show up in the GNP and many traditional measures of the economy. The “bads”—pollution, riskier workplaces, investor fraud, resource depletion, environmental degradation and so on—will not show up unless they are measured. And, no one is likely to clean up the “mess” modern capitalism makes while producing the goods and services we demand unless we ask them to.
One way to “ask them to” is through government regulations. The business community generally hates regulations. They raise the cost of doing business.
The printed version of the Federal Register, which records government regulations, hit 97,110 pages under Obama’s watch, surpassing the previous record of 81,405, and the conservative think tank American Action Forum estimated that Obama-era regulations imposed a “cumulative burden” of $890 billion on businesses.
It is incorrect to characterize the cost of government regulations as a “cumulative burden”. In many cases it is the cost of cleaning up the mess made by business, cost that would be born by the environment and the public if not by business.
The Treasury Department, headed by former Goldman Sachs executive Steven Mnuchin, has already targeted nearly 90 banking and financial regulations for reassessment or repeal. The changes would lift the gross profit of the six largest U.S. banks by $27 billion. Many of the targeted rules were passed in the wake of the 2008 financial crisis to rein in the kind of risky banking activities that led to the meltdown.
It seems like $27 billion annually is a small price to pay to prevent a $22 trillion crisis. These numbers are estimates and may be far off but even still, the beneficiaries of deregulation are the stockholders of the banks, the losers will be the public when (not if) the next banking crisis occurs.
While some regulations may be unwise or unnecessary, the kind of massive rollback that is occurring under Republican control has a definite downside that even business recognizes.
Many constituents in states where oil and gas drilling are being freed from environmental rules are also happy, believing that deregulation will lead to more jobs and higher wages. But Politico recently reported that many oil and gas industry officials worry about the aggressive pace and reach of Trump’s regulatory rollback. If there’s an environmental catastrophe, like a major oil spill or water-supply poisoning, said Brian Youngberg, an energy analyst at the investment firm Edward Jones, it would create a powerful backlash against deregulation and the energy industry. “You don’t need to roll things back so far that it opens an opportunity for outsiders to criticize, or something bad happens,” Youngberg said.
I learned my economics (okay, it was fifty years ago) from a text by Nobel economist Paul Samuelson. Several editions later economist William Nordhaus took on the responsibility of keeping the text alive. He did so through 19 editions, the last edition in 2009. The last I purchased was the 12th edition. Along the way Samuelson and Nordhaus introduced a concept, Net Economic Welfare (NEW), that attempted to take into account the “bads” along with the “goods”. NEW was offered as a replacement for the conventional Net National Product used in measuring economic growth. The authors had this to say at that time.
Critics of economics have come forward to deplore materialistic concentration on the quantity of this or that. In the striking words of a young radical: “Don’t speak to me of all your numbers and dollars, your gross national product. To me, GNP stands for gross national pollution.”
What are we to think? Isn’t it true that GNP includes missiles and sulfur-emitting smokestacks along with bread and education? Must modern economics make a fetish of quantity at the expense of quality of life? Or can we correct the defects of the official gross national product numbers so that they better reflect the true satisfaction-producing products of our economy?
Yes, we can focus on quality as well as on quantity. In order to include the new realities with the old, we can correct the traditional GNP numbers. We can subtract the costs of the unpleasant features of modern urban living, such as dirty air and congestion. We can add the enhanced leisure enjoyed by our citizens, along with household services produced by wives and husbands. These losses and gains are ignored by government statisticians, but they need not be overlooked by economists!
And just such corrections have been attempted by economists. In order to correct for the excessive emphasis the GNP places on raw production, a different measure of economic life called net economic welfare (or NEW) has been proposed. The red curve in Figure 1-1 shows the average NEW per person in the United States. NEW has grown since 1929, suggesting that, even after correcting for pollution and congestion, true economic living standards have risen. But NEW has grown more slowly than GNP, which confirms our intuition that the dollars-and-cents of markets miss many important aspects of economic life … pp 4-5
We see that NEW grows more slowly than GNP. This difference may be inevitable in a world that is becoming more congested and relies ever more heavily on large-scale power plants or sophisticated organic chemicals. By relying on more comprehensive measure of national output like NEW, society can keep its priorities more clearly in mind. Society does not need to be chained to mere material growth unless it wants to. The economy can serve broader goals—such as an appropriate balance between work and leisure, or a better use of resources to protect our environment—if these are what the people hold most important … p 119
From: ECONOMICS by Paul Samuelson and William Nordhauis, 12th edition
Much of the money businesses save from tax relief and deregulation is unlikely to be invested. Instead it will accrue to the bottom line and be reflected in stock price increases and higher pay for management. This was the awkward conclusion of a recent meeting between Gary Cohn, White House Economic Adviser, and the Wall Street Journal’s CEO Council.
According to a recent article in the Washington Post, the Trump administration is in the process of cancelling hundreds of Obama-era regulations. While they may not be successful in every case because of lawsuits and other setbacks, it is clear that the pace of deregulation has picked up significantly under President Trump. Businesses love it. The stock market has been soaring in anticipation of higher profits. There are high hopes that deregulation will lead to more jobs and higher wages. But, CEOs may not be on board with those hopes if CEOs react as they say they will under the new tax bill.
Whatever the case, there is no free lunch as economists like to say. A drastic rollback of regulations is likely to lead eventually to more mess and less clean-up. It’s like telling my grandson to keep on dumping out those boxes and having fun and not to worry about picking things up after.
Environmental rules are being particularly hard hit. The New York Times recently reported on 60 Environmental Rules on the Way Out Under Trump and that was before offshore drilling was approved last week including along the California coast.
The upshot here is that economic growth is back on center stage while the Samuelson-Nordhaus idea of Net Economic Welfare has been set aside. It remains to be seen what the ultimate effects will be. It will probably take years to find out. By then the political winds may have changed. There is little doubt that the impact on lives outside of the crude economic measures is going to be negative. Yes, we can raise economic growth in the short run by ignoring the “bads” that come with it. We can sacrifice what we want in the long run for what we want right now. It’s the way most children think. But, we are adults, aren’t we?
Consider that Earth Overshoot Day (the day by which the human race has used up more natural resources than can be replenished in a year) occurred on August 2 last year, the earliest ever.
As of August 2, human beings have used up its allowance of resources such as water, clean air, and soil for 2017, according to environmental groups the Global Footprint Network and the World Wildlife Foundation (WWF). And there’s still five months to go in the year. Great job guys.
The United States makes an oversized contribution to the depletion of the world’s resources.
It is well known that Americans consume far more natural resources and live much less sustainably than people from any other large country of the world. “A child born in the United States will create thirteen times as much ecological damage over the course of his or her lifetime than a child born in Brazil,” reports the Sierra Club’s Dave Tilford, adding that the average American will drain as many resources as 35 natives of India and consume 53 times more goods and services than someone from China.
Tilford cites a litany of sobering statistics showing just how profligate Americans have been in using and abusing natural resources. For example, between 1900 and 1989 U.S. population tripled while its use of raw materials grew by a factor of 17. “With less than 5 percent of world population, the U.S. uses one-third of the world’s paper, a quarter of the world’s oil, 23 percent of the coal, 27 percent of the aluminum, and 19 percent of the copper,” he reports. “Our per capita use of energy, metals, minerals, forest products, fish, grains, meat, and even fresh water dwarfs that of people living in the developing world.”
I’d like to write more on these interesting if depressing topics but I have to go and clean up my grandkid’s mess. Damn, I miss those regulations we imposed on our kids. They’re having a lot more fun. True. But the house, the house is always a MESS.