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Attacking Red Tape

The U.S. Department of Commerce  is moving to undue the extraordinary burden placed on the American economy during President Obama’s tenure.

The prior Administration introduced record-breaking over-regulation, as noted in numerous studies, most notably that performed by the Competitive Enterprise Institute (CEI). That addiction to regulation was more than just a nuisance. The CATO institute asserts that “It is widely recognized that excessive regulation is unnecessarily killing jobs.”

The Daily Signal found that “job-creating entrepreneurs in the United States have been dispirited by the scope and cost of escalating red tape…Since 2009, the expansion of Uncle Sam’s regulatory control has been one of the prime culprits in America’s startling decline in economic freedom and overall competitiveness. Each new edict has meant a new government bureaucracy that entrepreneurs and producers must navigate. Worse, the trend of overregulating our economy has also bred cronyism and tarnished our free-market system. As reported in the 2015 Index of Economic Freedom, an annual study that benchmarks the quality and attractiveness of the entrepreneurial framework across countries, the United States remains stuck in the second tier economic freedom rank of the “mostly free,” with its business freedom score plunging to the lowest level since 2006. This increased regulatory burden, aggravated by favoritism toward entrenched interests, has notably undercut America’s historically dynamic entrepreneurial growth. A 2014 Brookings Institution analysis shows that with business exits now exceeding new business formations, entrepreneurial dynamism in the United States has been steadily dwindling. In light of the excessive and costly regulatory environment, it is not surprising that America’s ongoing economic recovery has been far from dynamic. Fewer Americans can prosper in this overregulated economy.”

The cost of compliance with the tidal wave of regulatory mandates was overwhelming. CEI estimated that in 2015, regulatory-related expenses were approximately $1.88 trillion, 10% of the entire American GDP and over 5 times the cost of federal corporate income taxes that year.

It’s not only private sector projects that are daunted by over-regulation.  Improtant infrastructure projects suffer greatly, as well.

According to the Department of Commerce, “the cost of permitting delays can more than double direct project construction costs when all delay factors are considered….the types of costs associated with delays are subtle and insidious – and we too often accept them as  status quo without realizing the massive drag they have created on our economy. For example, many proposed new projects offer environmental benefits compared to the status quo, so by delaying the new ‘greener’ solution, we may often prolong higher emissions and congestion associated with the status quo. Furthermore, delays may mask a greater threat – important infrastructure projects may not even be considered or initiated because of investment uncertainty and risk created by permitting delays. The risk of delay and associated lower returns can be a powerful disincentive for any private capital participation.”

In response, the Commerce Department issued, earlier this year, a Request for Information (RFI) on how to cut the burden, particularly for the hard-hit manufacturing sector, and has now published a study based on the results in a report entitled “Streamlining Permitting, and Reducing Regulatory Bburdens for Domestic Manufacturing.”   

The Report notes that:

“Federal regulations impose enormous costs on America’s businesses and working families. These costs burden virtually every sector of our economy, although the manufacturing sector is disproportionately hard hit. The direct costs on manufacturing companies were estimated by the National Association of Manufacturers (NAM) to be $138.6 billion as of 2014,1 though this estimate does not include indirect negative effects on the U.S. economy such as reduced innovation and global competitiveness, lost investment, and significant job losses.  Small businesses are also disproportionately burdened by excessive federal regulation.

“on January 24, 2017, President Trump signed a Presidential Memorandum on Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing. The Memorandum, which is one part of an Administration-wide regulatory reform agenda, required the Secretary of Commerce, in coordination with other executive departments and agencies, to conduct outreach to stakeholders on the impact of federal regulations and permitting requirements on domestic manufacturing and to submit a report to the President setting forth a plan to streamline federal permitting processes and to reduce the regulatory burdens affecting domestic manufacturing industry expressed clear support for the need to protect the environment, human health, and worker safety, but shared concrete, detailed concerns about how the federal government tries to achieve those objectives. Respondents identified numerous regulatory and permitting problems, including:

  • onerous and lengthy permitting processes that increase cost, add uncertainty, and inhibit investment in new and existing manufacturing facilities;
  • inadequately designed rules that are impractical, unrealistic, inflexible, ambiguous, or that show a lack of understanding of how industry operates;
  • unnecessary aspects of rules, or unnecessary stringency, that are not required to achieve environmental or other regulatory objectives;
  • overlap and duplication between permitting processes and agencies; and
  • overly strict or punitive interpretations of guidance, policies or regulations that are often counter to a pro-growth interpretation.

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“Despite numerous regulatory reform initiatives over the years, businesses continue to express concerns about increasing regulatory burdens. The fact that manufacturers continue to raise the same concerns, even after decades of regulatory reform efforts by the federal government, indicates a failure on the federal government’s part to fully engage with regulated industries and fully understand the real-world impact of its regulations. There is a vital need for better dialogue and understanding between regulators and industry. In the meantime, the urgency for reform continues to grow. A 2017 NAM study states that most manufacturers perceive their regulatory burden to have increased significantly, such that reducing their current burden is at least as important as reducing the cost of new regulations.

SUMMARY OF RECOMMENDATIONS

“The Department makes three major recommendations.

  • Each agency’s Regulatory Reform Taskforce (RRTF) should deliver to the President an ‘Action Plan’ in response to all permitting and regulatory issues highlighted by industry.
  • Annual Regulatory Reduction Forum. There is no regular process for consultations with industry to identify specific actions the federal government can take to eliminate unduly burdensome regulations and accelerate permitting decisions. Thus, the Department recommends creating an annual, open forum for regulators and industry stakeholders to evaluate progress in reducing regulatory burdens.
  • Expanding the Model Process in FAST-41. [Title 41 of the FAST Act (FAST-41) (42 U.S.C. § 4370m) was designed to improve the timeliness, predictability, and transparency of the Federal environmental review and authorization process for covered infrastructure projects.] The FAST Act  contains various provisions aimed at streamlining the environmental review process, with improved agency coordination through the creation of a Coordinated Project Plan and a Permitting Dashboard. Covered projects will typically enjoy better coordination, transparency of approvals, and expedited permitting. The Department recommends that the Administration use existing authority to extend the use of streamlined permitting procedures in the FAST Act to any project that will result in a significant, immediate economic benefit to the United States. For example, consideration could be extended to funded, qualifying projects in a new “economically significant” category. Consideration should be extended to complex, funded manufacturing projects that are in late stages of development and that can demonstrate significant net direct and indirect benefits to the domestic economy. To be eligible for the current streamlining process, projects in this sector or category would still need to meet the definition of a “covered project” under FAST-41. FAST-41 provides a model process that could be incorporated into other Federal legislation that governs Federal programs and requirements that apply to manufacturing facilities. To expand further the universe of manufacturing projects that benefit from streamlined regulatory approval processes, the Administration could work with members of Congress to both expand the definition of “covered project” under FAST-41 and to incorporate procedures similar to those found in FAST-41 in other legislation applicable to manufacturing projects. The Department believes that these three recommendations, if executed promptly and with constant, aggressive leadership, will yield significant results. Set forth below is (i) a summary of issues raised in response to the RFI; (ii) an analysis relating to potential reforms; and (iii) specific recommendations and priority areas for reform.”

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U.S. Balance of Trade Worsens

In what has become a trend for the Obama Administration, a serious problem has been given a deceptively positive spin.

Despite disturbing news that the U.S. Balance of Trade has again worsened, Commerce Secretary Penny Pritzker ignored the overall deficit, overlooked the rise in imports, and focused on the smaller increase in exports, stating:

“The increase in February exports show that despite facing global headwinds, U.S. exporters remain committed to delivering their world-class products and services to consumers around the world…”

The Commerce Department revealed that the goods and services deficit—the U.S. Balance of Trade  has worsened yet again, to a degree even more than experts had anticipated.

The latest figures show that the trade deficit in February was the largest in six months at $47.1 billion, up $1.2 billion from $45.9 billion in January. Imports were $225.1 billion, $3.0 billion more than January, while exports were $178.1 billion, $1.8 billion more than January.

The February increase in the goods and services deficit reflected an increase in the goods deficit of $0.9 billion to $64.7 billion and a decrease in the services surplus of $0.3 billion to $17.7 billion.

Year-to-date, the goods and services deficit increased $10.8 billion, or 13.1 percent, from the same period in 2015. Exports decreased $20.5 billion or 5.5 percent. Imports decreased $9.7 billion or 2.1 percent.

The Reuters news agency had polled economists, who had incorrectly forecast the trade deficit rising to “only” $46.2 billion in February. “But when adjusted for inflation, the deficit rose to $63.3 billion, the largest since March last year, from $61.8 billion in January. The report joined data on consumer and business spending in suggesting that economic growth moderated further in the first quarter after slowing to a 1.4 percent annualized rate in the final three months of 2015. Growth estimates for the first quarter are currently below a 1 percent pace…exports of industrial supplies and materials were the lowest since March 2010. Capital goods exports hit their lowest level since November 2011. Petroleum exports fell to their lowest level since September 2010.”
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Trading Economics  reports that “In recent years, the biggest trade deficits were recorded with China, Japan, Germany and Mexico.” Investopedia  notes that “The US’s trade deficit is not only larger than Germany’s surplus, it’s larger by an amount greater than the next largest trade deficit in the world, that of the UK.”

The problem has been growing for some time. In 2007, the St. Louis Federal Reserve has noted   that “For every dollar Americans spend on Chinese goods, Chinese spend 30 or fewer cents on American goods. China currently holds a total of $3.7 trillion in foreign reserves, mostly in U.S. dollars or U.S. government bonds. “

A Forbes analysis of why key government and financial figures haven’t moved to effectively address the crisis notes:

“Normally trade deficits are self-correcting because as the deficit grows the country’s currency usually begins to decline in price in the world market. … In the case of America this balance is not happening because many of our trading partners have figured out how to manipulate their currencies to keep the dollar value high so that they can continue to increase our imports. China and Japan are the biggest manipulators but Hong Kong, South Korea, Taiwan, Switzerland, Singapore and Malaysia are also currency manipulators…Why is the trade deficit largely ignored while everyone is more concerned about the federal deficit? Wall Street, the Multi-national corporations and the Obama Administration have adopted a policy of appeasement where foreign mercantilism seems to be irrelevant and attempts at balancing trade are ignored. It is as if the trade deficit is an open ended charge account that is simply an accounting summary that will never have to be paid back.”

In 2005, economist Paul Krugman warned: “We can run huge deficits for the time being, because foreigners— in particular, foreign governments— are willing to lend us huge sums. But one of these days the easy credit will come to an end, and the United States will have to start paying its way in the world economy.”

The bad news doesn’t end with trade numbers, or unemployment numbers.  The Federal Reserve Bank of Atlanta  reports that “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.4 percent on April 5, down from 0.7 percent on April 1.”

Despite the trinity of bad news, including trade, unemployment, and GDP, combined with the astronomical increase in the federal debt during his tenure, there is no indication that President Obama is changing his fiscal policies.