Laissez Faire — The Uncompromised Case for CapitalismLaissez Faire

In Atlas Shrugged, Ayn Rand said that to force a man “to act against his own judgment, is like forcing him to act against his own sight.” This often happens with government regulations, especially when they force businessmen to take actions that are obviously destructive to their business and harmful to their customers.

The Renewable Fuel Standard mandate is a prime example of such a regulation. This mandate requires that an increasing amount of ethanol be blended into gasoline as part of the government’s broader campaign against fossil fuel usage.

Ethanol is corrosive, and so high concentrations of ethanol are bad for engines. Rich Herder—a shop owner who annually repairs thousands of lawnmowers, chain saws, and other machines—estimates that 75 percent of the damage he sees results from the use of ethanol. “It’s the biggest disaster to hit gasoline in my lifetime,” says Herder.

Gasoline today typically contains up to 10 percent ethanol. But, to continue to comply with the mandate’s increasing requirements, refiners must likely start blending a lot more E15—gasoline with 10 to 15 percent ethanol.

EPA stickers insist it is safe to use E15 in vehicles that were produced after 2001, but many automobile and oil industry representatives disagree. Chrysler, Toyota, General Motors and other automakers have written to Congress warning that E15 may damage fuel systems on newer vehicles. Urging the immediate suspension of selling E15, the American Automobile Association (AAA) has issued a similar warning. Urging the immediate repeal of the RFS mandate, the American Fuel and Petrochemical Manufacturers have also warned against forcing more ethanol into gasoline.

The danger of corrosion from ethanol is so acute that the EPA itself prohibits using E15 in the hundreds of millions of other products that need gasoline, such as lawnmowers, boats, motorcycles, snow blowers, and other outdoor equipment. All of these products must instead be fueled by E10.

By forcing refiners to use more ethanol than they think is safe for the majority of intended uses, the government is forcing refiners to choose between creating a product that they fear will harm consumers or facing the legal consequences of not following the mandate. Paraphrasing Rand’s point, it’s as if refiners are being forced to act against their own sight.

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In his “first big public appearance” since being named Barack Obama’s chief antitrust enforcer, Assistant Attorney General William Baer addressed a gathering of antitrust lawyers at the American Bar Association. Baer stated that during the last five years, U.S. antitrust prosecutors collected 10 times as much money in criminal fines as they spent on criminal prosecutions.

“That’s a return on investment a lot of people in the private sector would envy,” he said.

There is so much wrong here that it’s hard to know where to start. First of all, was he joking? Perhaps–actually, I’d say he was half-joking. So let’s take the serious half seriously and ask what his little quip accomplishes.

In my mind, what stands out is how he blurs the line between economic power and political power. Economic power is productive ability–essentially, it’s Apple’s ability to offer an iPhone that millions of people want to buy. Political power is coercion–essentially, it’s the government’s ability to separate citizens from their property by threatening punishment, or by direct seizure.

The term “return on investment” offers a measure by which one can compare the profitability of placing money in various productive enterprises. If ROI is 2% in grocery retailing but 5% in petroleum refining, then that’s one factor in making an investment decision. But the government does not produce economic goods, nor does it generate profits. All it can do is seize the profits of productive enterprises.

Government officials who want to augment their power have every incentive to blur this distinction. Baer would like some of the aura of profitability to rub off on him. We shouldn’t let him get away with it.

If a common criminal “invests” $250 in a pistol and makes off with $10,000 in cash from a bank, has he achieved a 4,000% “return on investment”? Of course not. Clearly the robber produces nothing, he only takes. It would be a corruption to apply the term “return on investment” to his activities.

Taking money at the point of a gun–whether the gun belongs to a robber or a federal prosecutor–is not and can never be productive, and it’s a moral offense to equate the two. I’ve written elsewhere about why I question the propriety of the antitrust regime, as well as the penchant of federal antitrust enforcers to brag about their criminal prosecutions of businessmen. Baer’s little half-joke deserves to be completely condemned.

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I have a new piece on Forbes.com on General Motors, the United Auto Workers, and the nature of labor laws. It contains a blend of history and analysis.

Long before General Motors neared collapse, it was a proud and flourishing symbol of American manufacturing. In the 1950s, GM was the first company to ever make $1 billion in a single year, and it had 50% of the domestic automobile market. GM executives used to proudly quip, “we’re still losing 5 out of every 10 sales!” What happened to this great company?

Many factors are acknowledged as contributing to GM’s decline: it juggled too many brands, over-extended its dealer network, failed to respond rapidly to market cues, and struggled to work with its union, the United Auto Workers.

But the extent of its problems with the UAW is astonishing—and the problems themselves warrant explanation. Consider some of the onerous arrangements that GM’s management agreed to. . . .

Read the whole thing.

(This is cross-posted from Voices for Reason.)

One nice thing about living in Orange County, California is that food trucks are seemingly everywhere that is convenient. A waffle food truck pulls into my apartment complex, offering a late Saturday breakfast. Different trucks rotate in on Thursday evening, offering a quick dinner. Food trucks visit the corporate park where I work, offering lunch. Food trucks also have a strong presence at local parks and events. And the variety is wide: I have seen food trucks serving lobster, sushi, pizza, Thai, vegetarian, Mexican, monster burgers, etc. If you can think of the food, it is probably served out of a truck in Orange County.

Orange County, California, is surely no free market when it comes to the mobile food industry. But contrast the industry’s presence in O.C. to the dearth of food trucks in New York City, as described in this recent New York Times column:

As I was walking through Prospect Park recently, I wanted to find a healthful snack for my son and something for me. The only options, though, were the same sort of carts that my dad took me to in the ’70s: Good Humor ice cream, overpriced cans of soda and overboiled hot dogs sitting in cloudy water. This seemed ridiculous. In the past few decades, food in New York City has gone through a complete transformation, but the street-vendor market, which should be more nimble, barely budges. Shouldn’t there be four Wafels & Dinges trucks for every hot-dog cart?

Why are food trucks not easy to find in New York City? He blames regulations:

There are numerous (and sometimes conflicting) regulations required by the departments of Health, Sanitation, Transportation and Consumer Affairs. These rules are enforced, with varying consistency, by the New York Police Department. As a result, according to City Councilman Dan Garodnick, it’s nearly impossible (even if you fill out the right paperwork) to operate a truck without breaking some law. Trucks can’t sell food if they’re parked in a metered space . . . or if they’re within 200 feet of a school . . . or within 500 feet of a public market . . . and so on.

Things can get so bad that one food-truck employee spent eight hours in jail for vending falafels without the proper license!

The author concludes by comparing New York City regulations with the Third World:

In Ecuador, for example, it takes about 56 days and 13 separate procedures to get all the legal paperwork done to start a new business. In the United States, it’s an average of six days and six procedures. But if you want to open a mobile-food business in New York, it’s essentially like starting a business in Ecuador — and that’s if you can somehow arrange a permit.

I do not agree with everything the author says, but this whole article is worth reading because it illustrates how regulations can mire and discourage business activity.

(This is cross-posted from Voices for Reason.)

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