In the grand circus of politics, where elephants and donkeys alike perform under the big top, there’s one act that never fails to draw a crowd: the venerable “job creation” routine. Putting people back to work, especially those without college degrees and in the manufacturing world, is in the center ring. Unfortunately, when you look behind the smoke, mirrors, and rabbits hidden in hats, you’ll see that promises to rebuild America through industrial policy are just plain old corporate welfare.

Industrial policy has made an amazing comeback. In its name, President Joe Biden’s administration and Congress have authorized between $1.2 and $2.1 trillion in domestic subsidies for preferred manufacturing industries in sectors such as clean energy, advanced manufacturing, construction, transportation, and broadband. The ringmaster and his assistants assure the crowd that they’ll deliver tens of thousands of new, high-paying jobs for workers with no more than high school diplomas. Meanwhile, on the right, industrial policy is being discussed as a way to boost manufacturing employment for men left behind in the Rust Belt.

The job creation argument for showering businesses with billions more in subsidies might surprise those of you are aware of America’s remarkably low unemployment rate. Indeed, given that handful of people will always be between jobs, a 3.9 percent rate signals that very few who want employment can’t find it.

Instead, what’s animating these politicians is the exodus from the labor force of mostly poorly educated males. The reasons for this workforce withdrawal are complex and beyond the usual scapegoats like trade and market forces. But this topic I will save for another column.

Instead, let’s focus on the reality that industrial policy subsidies and tax breaks will flow to companies, often big and rich, for projects they would likely have taken on anyway. That means they probably won’t create net new jobs. Even if these subsidies were to create a manufacturing boom, it probably wouldn’t lead to an employment boom because most manufacturing output today is produced by robots.

And even if the subsidies benefit workers indirectly, the beneficiaries will be largely college educated and in higher-income groups rather than those working assembly lines. The golden era of widespread, good manufacturing jobs that so many politicians are nostalgic about is over. It’s been going away for 70 years.

So, industrial policy won’t create jobs for poorly educated workers, but it will supercharge cronyism. The Cato Institute’s Chris Edwards notes that Biden’s industrial policy is better described as a corporate welfare bonanza. The Inflation Reduction Act, he writes, “handed out $868 billion in energy subsidies, most of it to big corporations, including automakers, utilities, manufacturers, and hydrogen producers. Adam Michel finds that Biden’s energy tax subsidies could top $1.8 trillion.”

The CHIPs and Science Act of 2022 gave $54 billion in subsidies to a who’s who of corporate and Silicon Valley elite. Ditto with the Infrastructure Investment and Jobs Act of 2021, which subsidized railroads, electric utilities, broadband companies, the electric vehicle industry, and others to the tune of $548 billion.

Unfortunately, when the government is in the business of distributing favors, corporations devote less effort to producing and more to seeking those favors. The result is “unproductive entrepreneurship,” where innovators use their skills to extract government privileges instead of putting new, better, and cheaper goods and services on the market.

Finally, contrary to the anti–big business rhetoric blaring from the Biden administration, it has granted a large amount of narrow corporate tax breaks to big companies. In fact, Edwards finds that since being in power, “President Biden has increased annual average corporate tax expenditures 92 percent from $109 billion to $209 billion.” He notes that tax code expenditures “have increased from $0.3 billion a year projected under Trump to $29 billion a year under Biden.”

Despite the grand promises of revitalizing the American workforce and bringing prosperity to forgotten corners of the country, the reality is that industrial policy is typically a conduit carrying corporate welfare, benefiting the already powerful and wealthy as it discourages genuine innovation and market-driven economic opportunities.

As we peer behind the scenes of this circus act, it becomes clearer that sustainable employment and economic prosperity will be generated not by subsidies but by unleashing market forces, which will promote entrepreneurship and innovation. Only by moving away from the spectacle can we hope to address the challenges underlying the American workforce and pave the way for a more prosperous and inclusive future.

COPYRIGHT 2024 CREATORS.COM.

The post Politicians Are Showering Manufacturing Companies With Crony Subsidies for 'Job Creation.' It Won't Work. appeared first on Reason.com.

The box-office hit Wonka is a wild flight of imagination, but within the glamor and fantasy lies a hard truth: The mighty often manipulate government power to shut out competitors, stifling innovation and individual rights. The regulatory barriers manipulated by Willy Wonka’s powerful rivals to stymie entrepreneurs are all too real.

In the film’s opening scene, Wonka arrives in the big city, scrappy but determined to fulfill his dreams of building a thriving candy business. In song, Wonka echoes the feelings of many who come to our own country in search of opportunity: “In this city, anyone can be successful if they’ve talent and work hard—or so they say.”

But Wonka is soon confronted by the mighty chocolate cartel. When Wonka begins selling his magical chocolates in an open plaza right outside the cartel storefronts, the cartel boss calls the police, who order Wonka to stop selling in the plaza because he’s “disrupting the trade of other businesses.”

Wonka faces a Catch-22: He can’t legally sell chocolate without a shop to sell it from, but he can’t mount the capital to lease property unless he can sell chocolate. His friend laments, “You can’t get a shop without selling chocolate, and you can’t sell chocolate without a shop.” He resorts to selling chocolate from a cart and fleeing whenever the cartel calls the police. Wonka wins in the end by exposing the cartel’s corruption.

The bubbly spectacle of Wonka can overshadow its more sober message: that regulatory barriers to economic opportunity crush dreams. The corrupt cartel is an old trope, but we often forget that governments enable such cartels through protectionist regulations. Illegal bribes and sabotage—both of which occur in Wonka—are bad enough. But a more insidious evil arises when corrupt businesses can shut down their competitors and amass power with the government’s aid. The cartel in Wonka does just that—manipulating laws, such as the requirement that chocolatiers operate out of a store, to ruin Wonka’s dream.

Sadly, there are plenty of real-world Willy Wonkas who don’t get a Hollywood ending. Ursula Newell-Davis, for instance, is a New Orleans social worker who dreamed of opening a business that would serve special-needs kids who are home alone while their parents work. Louisiana regulates such “respite services,” requiring that new businesses prove that another respite provider in a certain area is necessary. This requirement has nothing to do with Newell-Davis’ qualifications; it’s just a judgment call made by bureaucrats. Those bureaucrats almost always deny new applications. Newell-Davis, represented by Pacific Legal Foundation, recently petitioned the Supreme Court to vindicate her right to earn a living. The Court turned her down.

And laws just like those in Wonka often waylay unsuspecting entrepreneurs. Just as the chocolate cartel shut down Wonka for “disrupting the trade of other businesses,” laws sometimes allow incumbent businesses to protest a business’ entry into the market. These protest procedures impose unbearable legal costs on entrepreneurs, putting them in the same Catch-22 as Wonka: They need to earn enough money to open their business, but they can’t earn the money because they can’t open their business. This happened to Parker Noland, who had to withdraw his application to start a garbage-hauling business in Montana because large garbage companies protested his application and he couldn’t afford the legal fees to fight them. (Pacific Legal Foundation, where I work, is representing him.)

The food industry that Wonka operated in is also rife with anti-competitive laws. Like Wonka, who couldn’t operate near competitor storefronts, entrepreneur Mark Shirley couldn’t park his Ole Time Smokehouse food truck anywhere within 100 feet of a restaurant’s property line in Farmville, North Carolina, effectively forcing him out of town. The law existed to protect established restaurants, not the public. Thankfully, Farmville repealed its ordinance after Pacific Legal Foundation sued on Mark’s behalf. And Wonka himself couldn’t sell his hover chocolates made from his magical suitcase in Wisconsin, which prohibits the sale of candy not made in a commercial-grade kitchen. For non magical chocolatiers, this law bars thousands of entrepreneurs from earning a living from their home kitchens. 

Such laws have little to do with safety and everything to do with protecting powerful special interests. And since this institutionalized corruption is legal, real-world Willy Wonkas often can’t bring down the bad guys. Thankfully, public interest law firms fight in the courts to strike down laws that burden their clients’ right to earn a living. But that’s an uphill battle, as courts often see the right to earn a living as a second-class right, one that governments can trample if they have a so-called “rational” reason for doing so.

State legislatures have also made strides toward greater economic freedom. A few years ago, Utah passed a “food truck freedom” bill that swept aside protectionist barriers for entrepreneurs like Mark Shirley. Likewise, a number of states have reformed or repealed bans on “home kitchen” businesses. Such reforms, however, often face powerful resistance from industry lobbyists.

Early in the film, Wonka stands in front of an empty storefront dreaming of his future business. A police officer shakes him from his reverie and points to a sign: “No Daydreaming—Penalty $3.” While governments in the real world may not be so direct, they often stifle the dreams of fledgling innovators and entrepreneurs across the country. Willy Wonka’s magical chocolates are just a fantasy. But the right to earn a living shouldn’t be. 

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George McGovern, the Democratic Party’s 1972 presidential nominee, was a liberal icon. During many years in political office, including as a U.S. senator from South Dakota, McGovern successfully championed loads of regulations, taxes, and mandates in the name of the public good. But as a businessman, he was held back to the point of failure by the same sorts of burdens he had once earnestly promoted to achieve lofty goals.

For today’s most overzealous politicians, McGovern’s story is worth retelling.

In 1988, seven years after leaving the Senate, McGovern took over the lease of the Stratford Inn in Connecticut. For the first time, this former politician experienced what it meant to operate a business while obeying government dictates and shouldering business taxes designed by people with little firsthand experience in the marketplace. In the end, the inn failed, leaving McGovern with many observations about the disconnect between politicians’ dreams and business owners’ realities.

In a 1992 Wall Street Journal op-ed titled “A Politician’s Dream Is a Businessman’s Nightmare,” McGovern recounted how, as a senator, he didn’t realize just how costly regulatory compliance is. He was unaware of how well-intentioned regulations often produce bad outcomes, how taxes dampen investment, and how mandates make it harder to innovate or survive, especially during recessions.

As McGovern wrote, “the concept that most often eludes legislators is: ‘Can we make consumers pay the higher prices for the increased operating costs that accompany public regulation and government reporting requirements with reams of red tape.'” He added: “In short, ‘one-size-fits-all’ rules for business ignore the reality of the marketplace.”

Indeed. A well-functioning marketplace requires rules—institutions such as property rights, an unhindered system of profit and loss, and a fair and stable law of contract. It also requires an abundant level of freedom within the confines of these institutions. Fundamentally, most government interventions into the market tinker with these institutions and hamper that freedom.

One example is requiring that companies provide their employees with child care benefits. Sounds great, but this requirement interferes with the contractual negotiation between employees and employers about what the right mix of wages and benefits should be. Because employers cannot dispense benefits for free, and because every firm and individual is different, mandating higher benefits means mandating lower wages. It’s that simple.

Mandating that companies always use U.S.-made materials in their infrastructure projects is another example. It subjects factories to burdensome permitting processes that raise costs and increase the time required to complete construction plans. At some points, even when companies have the necessary financial and physical capital, the extra costs dissuade them from pursuing their original goals. Other businesses—as McGovern learned the hard way—are brought to their knees by the costs.

Excessive government interferences in the market also get in the way of politicians’ dreams financed through spending. The higher cost of building infrastructure, for example, means that each dollar spent on a new school or clean energy project doesn’t go as far as it otherwise would. Sometimes promised projects don’t even get built.

This government-created inefficiency, unsurprisingly, affects things like the Inflation Reduction Act, a $400 billion statute meant to build green energy. Now, some people are worrying that this plethora of regulations could get in the way of building anything. This worry is justified.

As the Journal reported, government spending is flowing at a time when “new wind installations plunged 77.5% in the third quarter of 2022 versus the same period the year before, according to S&P Global Market Intelligence. New utility-scale solar installations likely fell 40% in 2022 compared with 2021.” The culprits? Overregulation, tariffs meant to ban sourcing from China, and opposition by NIMBYs to building.

The same will be true of any industrial policy objectives that politicians pursue, such as the CHIPS Act with its $52 billion in subsidies to build microchips. Factories will have to be built in an already overregulated environment, and President Joe Biden’s administration just added mandates that subsidy beneficiaries provide child care, buy American, cease stock buybacks, and more.

The administration claims it’s doing this for workers, but it’s not considering ramifications like, for example, how subsidizing companies’ child care centers could exacerbate provider shortages in nearby centers, which, due to state regulations, cannot hire capable workers without college degrees.

Politicians today could learn from McGovern’s epiphany and honesty. An excessive amount of government will only stifle entrepreneurs and prevent long-term policy goals from ever playing out. It will also get in the way of the government itself.

COPYRIGHT 2023 CREATORS.COM.

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Food carts in Portland, Oregon, are under the gun due to new state wastewater disposal rules, Portland Monthly reported this week. The new rules, which debut next week, have forced some of the city’s world-renowned carts to close—temporarily, they hope—while they try to figure out whether and how to comply.

Portland’s beloved food carts are largely stationary vending operations that sell food out of spaces they share with other carts. These spaces, known in Portland as “pods,” often feature a dizzying array of foods that put most any food court to shame regarding the variety and quality of foods they offer. Visitors to a pod might find a schnitzel cart parked next to other cart vendors selling steamed bao buns, pizzas, empanadas, meats on sticks, and crepes.

“Part of the reason why carts are so popular [in Portland]: there’s a low barrier to entry to starting one, with lower upfront costs and less regulation involved than with brick-and-mortar restaurants,” the Monthly details in its excellent piece. “But with new regulations regarding food carts and food cart pods taking effect on January 1, 2023, some cart owners are worried about their ability to keep their businesses open, and some have already made the decision to temporarily close, including Meliora Pasta and Papi Sal’s.”

The new rules made news this fall.

“Starting in January they must be connected to a sewage line or have their wastewater pumped on a regular basis,” KGW8 reported in October. “In 2019, the Oregon Health Authority implemented a new rule that food [] carts and pods can no longer store wastewater. This is an effort to cut down on spills which create health and safety risks.”

When it comes to commercial food wastewater disposal, the general approach—from the EPA to state and local regulations—prohibits businesses from dumping untreated wastewater into municipal sewage drains or other waters. As a result, many food businesses—food carts included—hire companies to dispose of such waste.

Today, the Monthly explains, Portland carts may dispose of wastewater “by connecting directly to the sewer with a grease interceptor, by collecting water in the cart’s small onboard wastewater tank and frequently emptying that tank, or by collecting water in a large wastewater cube adjacent to the tank.” The new rules largely eliminate the latter option and make the second option prohibitively expensive—which is also an inherent and ongoing problem with the first option.

Owners of many food carts, which Portland Monthly rightly calls “the heart” of the city’s food culture, are struggling to figure out how to pay for the new disposal expenses. Existing disposal charges for carts have been around $80 per week, according to KGW8, and often involve carts emptying waste regularly into an on-site wastewater “cube” that can hold hundreds of gallons of wastewater and is emptied weekly. But the new rules, Portland Monthly explains, effectively ban such cubes and only allow carts to store small amounts of wastewater in onboard tanks.

Daily wastewater disposal can cost $70—several times the existing cost KGW8 reported—and that’s if a wastewater hauler that works with food carts can be found and booked. The Monthly reports there are only two very overbooked haulers in the Portland area. Alternately, hooking up a pod to a municipal wastewater line can cost a property owner tens of thousands of dollars—charges the pod owners pass along to their tenant food carts.

“I’ve got a bid for a contractor that’s $30,000, and we’re not gonna do that,” Tess Kies, who owns a food cart pod, tells the Monthly. “I know we won’t keep [the pod] if the cost is outrageous. I’m concerned that [a lot of the carts around the city] are going to be put out of business.”

The new wastewater regulations come at a particularly unwelcome time for Portland’s food carts, which (along with other city eateries) have experienced declining revenues during this year’s holiday season. Many well-liked carts in Portland already closed for good this year—even before the new rules take effect. Another issue with the new rules is that while they’ve been in the works for years, some food cart owners say they only found out about them in August. That’s one reason some owners, the Monthly reports, are asking the city to delay enforcement.

I support keeping city sewers free of untreated commercial cooking grease and other food waste that can overwhelm them. Recall that in 2014, a “fatberg“—a disgusting blob the length of a Boeing 747 made up of used cooking oil (along with other gag-inducing waste)—was removed, over a period of several days, from a London sewer it was clogging.

Surely, though, there must be some other ways to prevent sewer fatbergs and the introduction of untreated wastewater into rivers and streams than forcing food cart owners to pay thousands of dollars in new fees to dispose of their wastewater. Delaying implementation of the new rules, as some are requesting, seems the least the state, county, and city can and should do. But what about, say, increasing penalties for wastewater spills and dumping? And, given Portland’s health department claims wastewater cubes located at pods are sometimes hit by cars—leading to spills—why not require those cubes to be placed in areas no vehicle may access (e.g., by requiring them to be surrounded by inexpensive bollards)? Because the alternative—putting vital small food businesses in Portland’s crisis-ridden downtown out of business—is no solution at all.

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