December 1, 2010
This Way to Unproductive Rhetoric
The U.S. Chamber of Commerce provides as new "game" at http://www.thiswaytojobs.com/. The game puts you on a path as a business person and then demonstrates all sorts of hurdles in the way of the success of your business. (Not surprisingly, it's nearly impossible to move forward in the game because of all the regulatory and other government hurdles.)
According to the web site:
A dramatic increase in burdensome regulation by the Congress and administration is causing tremendous uncertainty for business owners around the country. The path to recovery lies in bringing certainty to the regulatory environment and putting in place smart policies that allow American businesses and the economy to grow.
Hurdles, they say, run the gamut, and include energy and environmental, labor, financial, and health care hurdles that businesses need to overcome to succeed.
One of the hurdles noted in the game is the increased cost of hedging in the energy sector. This claim has been made by others (beyond the Chamber), such as Morgan Stanley (see here). Many companies use hedging to lock in prices for fuel and natural gas to add some predictability to their businesses. Dodd-Frank does have new requirements that may very well add some cost to certain energy hedging practices. Then again, it may be that the new requirements will provide some added stability that will yield a net gain. That remains to be seen, but I concede it is a fair criticism to question the potential impact of the rules.
It's not as though companies were always smart enough to use hedging for energy purchases when there weren't new rules, though. Remember when most of the airlines decided to add that $15-$25 bag fee? It was because they failed to hedge their fuel costs. (Southwest, which still doesn't charge for bags, hedged 70% of their fuel costs during the fuel price spikes in 2008.) See my July 2008 take on this issue here.
It's certainly the right of the Chamber to rail against regulations in any circumstances they see fit, but I find it ridiculous when people act as though businesses hate regulations in all circumstances. They don't. Take, for example, the airlines, a major business who will have to deal with the new hedging regulations. Since 2008, the airlines have actually been arguing for more regulation in some parts of the fuel markets. According to an airline industry group seeking to "Stop Oil Speculation":
Lobbyists and special interests used their influence in Washington, D.C. to weaken regulations on oil trading. For example, in 2000, Enron convinced Congress to overhaul 60-year-old commodities rules that formerly provided checks and balances on oil speculation. This loophole allowed speculators to manipulate and potentially corner the market.
I guess when it comes down to it, I hate the black and white rhetoric on regulation and taxation as though all such actions are anti-business and anti-economy. Some regulation can be good for the economy, and some regulation can be helpful in facilitating market operations. And when we over regulate (or over tax), we almost certainly impede both businesses and the economy. But to imply that every SEC, CFTC, EPA, OSHA or other agency action is inherently anti-economy and anti-business is simply wrong. And it's even less productive.