Government regulations and the effect on the economy

[Fern]

We see many claims here that govt regulation is burdening our businesses/economy, many argue it isn't so.

We see claims that companies are hoarding money and just being greedy, others have said they are holding off because of uncertainty.

Below is an example of burdensome and expensive new regulation that is contributing to the uncertainty. This new regulatory provision, not expected to be finalized until later this year, was stuck into the Dodd Frank bill which ostensibly about domestic banking reform. Why/how does stuff about the Congo and rebel groups belong in there?

For some reason it's hard to find this stuff in the mainstream media, it's been pretty mush ignored (except a few reports here and there about the unintended humanitarian problems this is causing - some will just stop doing business with them.)

It's a fairly long article, so I've only quoted part below.

As a compliance manager at TriQuint Semiconductor, John Sharp has spent much of the past year focused on one little-known compliance rule before it goes into effect. To satisfy it, he must query hundreds of suppliers to figure out the origin of some 450 materials used in his company's products. It's an unusual burden, he says, because "we've never had to go back through our supply chain to determine the source of something."

Until now. A provision in the Dodd-Frank financial reform law requires publicly traded companies to scour their supply chains for so-called conflict minerals mined in the Democratic Republic of Congo (DRC) and surrounding countries. If a company finds that minerals used in its products or components come from the area, it will need to dig even deeper to determine whether its purchases indirectly help fund ongoing violence in the region. The final version of this rule will likely require that companies publish their findings every year and explain their due-diligence process.

These conflict minerals are used in the manufacture of a variety of everyday products, such as smart phones, laptops, hearing aids, and jewelry. If the Securities and Exchange Commission regulation passes as currently written, public companies that make products containing tin, tantalum, tungsten, and gold will be subject to the rule, no matter how much, or how little, of these metals they use. The estimated 5,550 companies that need to comply include electronics manufacturers, original equipment manufacturers, jewelers, and some retailers that sell private brands.

The new disclosure requirement will be a costly, time-consuming project for firms that deal with thousands of suppliers around the globe. The National Association of Manufacturers estimates that public companies and their suppliers will incur a total of $9 billion to $16 billion in compliance costs.

http://www.cfo.com/article.cfm/14586443?f=search


So, we're running expensive foreign policy initiatives off the backs of our companies and we wonder why none want to come here, and those that are here keep leaving.

But never mind this stuff, let's keep painting schools and filing potholes' that'll fix our economy.

And nah, companies don't need to keep funds in reserve for complying with this new stuff, they can just blow their money now and borrow more if needed next year like the fed govt.

Fern

 

[PottedMeat]

http://www.triquint.com/company/mfg/index.cfm

heh could one solution be -> move oregon, tx, fl facilities to asia, split into fabless and foundry companies with the foundry having one client?

Dodd-Frank requires companies that source from the DRC region to provide a separate, audited report to the SEC and, if applicable, certify that their products are "DRC conflict-free."

i'd gladly pay an extra $0 for that certification.

 

[woolfe9999]

Seems like you might have a point on this one Fern. Might be worth someone finding the actual relevant text in Dodd-Frank.

I will say one thing here. I do not trust estimates of regulatory cost from the National Association of Manufacturers, a lobby group whose sole purpose is to oppose any and all regulations. They are known to provide estimates which are 2 to 10 fold what CBO and other independent groups have estimated. Just recently there was a 10 to 1 discrepancy between their estimates of the cost of new emission regulations and the administration's estimate. While I wouldn't trust the administration's estimate outright either, I'm certainly not going to take the word of a lobbyist group, especially not one with that purpose and history.

Just thought I'd point that out since you evidently considered it authoritative enough to bold and underline it.

 

[BoberFett]

Seems like you might have a point on this one Fern. Might be worth someone finding the actual relevant text in Dodd-Frank.

I will say one thing here. I do not trust estimates of regulatory cost from the National Association of Manufacturers, a lobby group whose sole purpose is to oppose any and all regulations. They are known to provide estimates which are 2 to 10 fold what CBO and other independent groups have estimated. Just recently there was a 10 to 1 discrepancy between their estimates of the cost of new emission regulations and the administration's estimate. While I wouldn't trust the administration's estimate outright either, I'm certainly not going to take the word of a lobbyist group, especially not one with that purpose and history.

Just thought I'd point that out since you evidently considered it authoritative enough to bold and underline it.

Regardless of the estimates of the cost of this one regulation, this is JUST ONE REGULATION. With how many hundreds or thousands of regulations must any given company comply? The cost of doing business in this country keeps going up and up, and there doesn't appear to be any movement to bring it down. Any talk of streamlining or removing onerous regulations results in Democrats screaming "Corporations want to dump toxic waste in my childs mouth!!!!!"

There must be a middle ground, but we have no intention of finding it. Democrats will keep implementing bad regulation, Republicans will keep repealing good regulation and in the end we will end up a shitty has-been country.

Carry on, good soldiers.

 

[bfdd]

BoberFett, it's not even big business who it hurts. It's medium/small business who get destroyed by these regulations. Morons wanting to do "good" never think things through. The cost of being nice is great, to many forget that.

 

[dmcowen674]

We see many claims here that govt regulation is burdening our businesses/economy

Tell you what, let's go back to the days of Love Canal and you be the first to drink the water.

http://en.wikipedia.org/wiki/Love_Canal

 

[Fern]

Seems like you might have a point on this one Fern. Might be worth someone finding the actual relevant text in Dodd-Frank.

I will say one thing here. I do not trust estimates of regulatory cost from the National Association of Manufacturers, a lobby group whose sole purpose is to oppose any and all regulations. They are known to provide estimates which are 2 to 10 fold what CBO and other independent groups have estimated. Just recently there was a 10 to 1 discrepancy between their estimates of the cost of new emission regulations and the administration's estimate. While I wouldn't trust the administration's estimate outright either, I'm certainly not going to take the word of a lobbyist group, especially not one with that purpose and history.

Just thought I'd point that out since you evidently considered it authoritative enough to bold and underline it.

Yeah, OK, I'm not familiar with that group. But the magazine is a professional one that has nothing to do with politics. And unlike writers for the MSM they do actually know about these subjects. As to that group's estimate, it can only be just that. The regulations have not been finalized and companies are just starting to deal with it. But I think there's enough actual info there, interviews with business people working on compliance, that we can readily this is very burdensome and expensive.

I find the surveys they do of business CFO's to be of particular interest. It's a good way to gauge the feelings and sentiments of those making the decisions in these large companies. You get a much more accurate picture IMO.

Previously we had an article in there on the cost of compliance of Obamacare. People just don't realize how expensive That stuff is. When companies say their HC is getting more expensive, it isn't necessarily just the policy rates. One day maybe I'll dig that one up and post it.

Fern

 

[woolfe9999]

Regardless of the estimates of the cost of this one regulation, this is JUST ONE REGULATION. With how many hundreds or thousands of regulations must any given company comply? The cost of doing business in this country keeps going up and up, and there doesn't appear to be any movement to bring it down. Any talk of streamlining or removing onerous regulations results in Democrats screaming "Corporations want to dump toxic waste in my childs mouth!!!!!"

There must be a middle ground, but we have no intention of finding it. Democrats will keep implementing bad regulation, Republicans will keep repealing good regulation and in the end we will end up a shitty has-been country.

Carry on, good soldiers.

You're probably correct in much of what you say. However, if you want to parse good regulation from bad, it does us no good to rely on inaccurate estimates of regulatory cost, be the estimates too high or too low. The test of any regulation, or any human action for that matter, is one of cost versus benefit. You cannot make a proper cost-benefit assessment without accurate cost figures.

After finding the actual text of this regulation, my doubt about the estimate given is even more grave:

http://www.sec.gov/rules/proposed/2010/34-63547.pdf

Note that the lobbyist group is pinning these cost estimates to the complexity of the inquiry that has to be made to determine the origin of the materials. So natually I wanted to find out what inquiry process is specified in the regulation. The problem is, in effect, there isn't one. It says a "reasonable country of origin inquiry" must be made then expressly leaves it to the business to determine what that means. The only thing offsetting this is that they must disclose publicly the extent of their diligence in tracking the materials, which can be buried somewhere on their website. So if a company wants to blow it off by making only a superficial inquiry, it is free to do so with the only consequence being possible negative PR because they have to say somewhere on their website that they looked but they didn't look very hard. There is no process specified, burdensome or otherwise, and no other penalties.

- wolf

 

[Fern]

Tell you what, let's go back to the days of Love Canal and you be the first to drink the water.

http://en.wikipedia.org/wiki/Love_Canal

Tell you what, I'll pay attention to you in this thread if you can demonstrate how this regulation has any-damn-thing to do with the environment in the USA.

It's foreign policy, not environmental policy.

Fern

 

[BoberFett]

BoberFett, it's not even big business who it hurts. It's medium/small business who get destroyed by these regulations. Morons wanting to do "good" never think things through. The cost of being nice is great, to many forget that.

Quite correct, in fact big companies love these kind of regulations, they have the size to handle them easily while keeping any pesky up-and-comers out of the market. In a misguided attempt to reign in massive corporations, the battle cry "There oughta be a law!" simply strengthens their position while destroying entrepreneurs and small businesses.

 

[Fern]

BoberFett, it's not even big business who it hurts. It's medium/small business who get destroyed by these regulations. Morons wanting to do "good" never think things through. The cost of being nice is great, to many forget that.

Yeah, the bigger businesses up the ladder are going to be leaning on their suppliers lower in the chain to step up. They may not have the resources to dig down deep enough to get the required info/audits. OTOH, they don't want to lose their business with the purchaser and so are in a bind.

Fern

 

[BoberFett]

You're probably correct in much of what you say. However, if you want to parse good regulation frombad, it does us no good to rely on inaccurate estimates of regulatory cost, be the estimates too high or too low. The test of any regulation, or any human action for that matter, is one of cost versus benefit. You cannot make a proper cost-benefit assessment without accurate cost figures.

After finding the actual text of this regulation, my doubt about the estimate given is even more grave:

http://www.sec.gov/rules/proposed/2010/34-63547.pdf

Note that the lobbyist group is pinning these cost estimates to the complexity of the inquiry that has to be made to determine the origin of the materials. So natually I wanted to find out what inquiry process is specified in the regulation. The problem is, in effect, there isn't one. It says a "reasonable country of origin inquiry" must be made then expressly leaves it to the business to determine what that means. The only thing offsetting this is that they must disclose publicly the extent of their diligence in tracking the materials, which can be buried somewhere on their website. So if a company wants to blow it off by making only a superficial inquiry, it is free to do so with the only consequence being possible negative PR because they have to say somewhere on their website that they looked but they didn't look very hard. There is no process specified, burdensome or otherwise, and no other penalties.

- wolf

There's no problem, until of course a company becomes what appears to be a target of a political witch hunt, at which point their business is damaged severely. See: DOJ v Gibson that's been brought up here recently.

While I agree that gross mis-estimates and hyperbole do nothing but damage their position, it's no worse than politicians enacting feel-good laws about which they have no concept of cost. Politicians in the US seem to have mastered the art of ignoring unintended consequences.

 

[woolfe9999]

There's no problem, until of course a company becomes what appears to be a target of a political witch hunt, at which point their business is damaged severely. See: DOJ v Gibson that's been brought up here recently.

At the moment I am talking about the particular regulation that was brought up by Fern in this thread. I am doubting the cost estimate is accurate even to an order of magnitude. I'd rather at least run that point to its natural conclusion before changing the subject.

 

[First]

All sorts of parallel or even unrelated legislation is written into bills, this is a practice dating back to the 1820's. Ever heard of porn for corn? Happens all the time, and it makes perfect sense since you sometimes can't get things passed in a timely manner so you need riders in a bill. It's not "ideal", but we're not supposed to live in a libertarian utopia, this is the practical real world where there are consequences for your actions.

But frankly, I don't really see how the added costs of complying with this, which thwarts the ability of murderers in the Congo from continuing to murder millions (with an m) while forcing thousands of them to emigrate to U.S., is somehow bad. We have regulations against doing business with Iran too. There are legit added costs to doing business, and without a reliable cost estimate (which the OP sadly decided to side with a lobby group on), it's a rather pointless discussion.

 

[frostedflakes]

All sorts of parallel or even unrelated legislation is written into bills, this is a practice dating back to the 1820's. Ever heard of porn for corn? Happens all the time, and it makes perfect sense since you sometimes can't get things passed in a timely manner so you need riders in a bill. It's not "ideal", but we're not supposed to live in a libertarian utopia, this is the practical real world where there are consequences for your actions.

But frankly, I don't really see how the added costs of complying with this, which thwarts the ability of murderers in the Congo from continuing to murder millions (with an m) while forcing thousands of them to emigrate to U.S., is somehow bad. We have regulations against doing business with Iran too. There are legit added costs to doing business, and without a reliable cost estimate (which the OP sadly decided to side with a lobby group on), it's a rather pointless discussion.

Pretty unfair to put the burden on businesses IMO, though. Also as the article mentioned it may do more harm than good, instead of performing expensive audits of their supply chain businesses may just stop buying from the Congo, which hurts legitimate suppliers from that region.

 

[woolfe9999]

Pretty unfair to put the burden on businesses IMO, though. Also as the article mentioned it may do more harm than good, instead of performing expensive audits of their supply chain businesses may just stop buying from the Congo, which hurts legitimate suppliers from that region.

That it would do more harm than good is a related point which probably deserves some analysis.

For now I will point out that the regulation does nothing to prevent any business from purchasing conflict minerals other than to require public disclosure. Very analogous to putting nutrition info on a food package. Consumers can then make their own decisions. The contra to this is that consumers have no idea who is or isn't using conflict minerals and those who consider it important can't make informed choices. Seems like a decent idea in principle, but the cost issue is very important. If it's anywhere near the estimate given in the OP's article then obviously it isn't worth it.

- wolf

 

[DaveSimmons]

Is anything stopping manufacturers from pooling money to run these inquiries just once to produce a "safe list" of suppliers? The shared cost would probably be low.

But in this case, I'd agree that it might make more sense to have the feds create a list of banned suppliers if they care this much about it.

 

[Bowfinger]

At the moment I am talking about the particular regulation that was brought up by Fern in this thread. I am doubting the cost estimate is accurate even to an order of magnitude. I'd rather at least run that point to its natural conclusion before changing the subject.

Likewise, I suspect the cost estimate has been grossly inflated. In general, the National Association of (insert industry affected by proposed regulations here) always squeals like a stuck pig at every proposed new regulation. In many cases they may be right, but the fact they always cry "Wolf!" makes them pretty useless for informed discussion.

In this case, for example, I would expect compliance costs to be relatively modest since it is being applied at the national level. The compliance pressure will begin at the top of the supply chain and quickly propagate down to those companies sourcing the raw materials. It will then be reasonably straightforward to pass a compliance statement back upwards, at each step of the processing and manufacturing process, as part of the normal sale documentation.

The ultimate goal of this regulation, of course, is to make compliance really easy by ensuring nobody selling into American manufacturing obtains their raw materials from proscribed sources. American manufacturers will prefer "100% Blood Congo-free" suppliers to keep their own record keeping easy. This will in turn have the side effect of making non-Congo materials a bit more expensive, and Blood Congo materials a bit less so ... giving American competitors a small cost advantage.

Of course a lot on foreign suppliers of raw materials and components will simply lie and claim theirs are non-Blood Congo, thus undermining the regulation will still allowing them to collect a premium price. That's good old-fashioned American capitalism at its finest!

In summary, my points are the sky is not falling, no matter what the American Association of Manufacturers cries, the regulation will drive up costs somewhat anyway, and like so many well-intentioned laws, it will have unintended consequences and won't work nearly as well as its drafters expect.

 

[werepossum]

Likewise, I suspect the cost estimate has been grossly inflated. In general, the National Association of (insert industry affected by proposed regulations here) always squeals like a stuck pig at every proposed new regulation. In many cases they may be right, but the fact they always cry "Wolf!" makes them pretty useless for informed discussion.

In this case, for example, I would expect compliance costs to be relatively modest since it is being applied at the national level. The compliance pressure will begin at the top of the supply chain and quickly propagate down to those companies sourcing the raw materials. It will then be reasonably straightforward to pass a compliance statement back upwards, at each step of the processing and manufacturing process, as part of the normal sale documentation.

The ultimate goal of this regulation, of course, is to make compliance really easy by ensuring nobody selling into American manufacturing obtains their raw materials from proscribed sources. American manufacturers will prefer "100% Blood Congo-free" suppliers to keep their own record keeping easy. This will in turn have the side effect of making non-Congo materials a bit more expensive, and Blood Congo materials a bit less so ... giving American competitors a small cost advantage.

Of course a lot on foreign suppliers of raw materials and components will simply lie and claim theirs are non-Blood Congo, thus undermining the regulation will still allowing them to collect a premium price. That's good old-fashioned American capitalism at its finest!

In summary, my points are the sky is not falling, no matter what the American Association of Manufacturers cries, the regulation will drive up costs somewhat anyway, and like so many well-intentioned laws, it will have unintended consequences and won't work nearly as well as its drafters expect.

This is true, but the administration, like every administration, is also a lobbying group, and with the bully pulpit. As to CBO estimates:
We estimate that taking your lunch money every day as you pass this corner will raise $2,500 a year. This is a static evaluation, so naturally we assume that you will never stop carrying cash or take a different route, because like everything and everyone you are here solely for our benefit.

Nuff said?

 

[Bowfinger]

This is true, but the administration, like every administration, is also a lobbying group, and with the bully pulpit. As to CBO estimates:
We estimate that taking your lunch money every day as you pass this corner will raise $2,500 a year. This is a static evaluation, so naturally we assume that you will never stop carrying cash or take a different route, because like everything and everyone you are here solely for our benefit.

Nuff said?

That seems to be almost totally unrelated to the OP or what I said. It is not clear to me at all that the CBO acts solely as a lobbyist for federal policies, or even does so routinely.

I agree they do at times, producing some projections that seem totally unrealistic. In my experience, however, a lot of their stuff is quite well-considered and non-partisan, and does a good job of accounting for such behavior variables. Please note this is all relative to the general field of economics, however, which seems to fall somewhere between meteorology and astrology in terms of scientific rigor.

 

[bfdd]

Bowfinger, the people you need to listen to complain are the medium/small business. Big business makes noise, but ultimately doesn't give a fuck because they probably had a hand in it anyways. In fact odds are such regulation has come about due to larger companies and this will cost tons for smaller companies or make the option of purchasing goods from Congo cease to exist. it's silly to try and regulate an industry from the top down.

 

[werepossum]

That seems to be almost totally unrelated to the OP or what I said. It is not clear to me at all that the CBO acts solely as a lobbyist for federal policies, or even does so routinely.

I agree they do at times, producing some projections that seem totally unrealistic. In my experience, however, a lot of their stuff is quite well-considered and non-partisan, and does a good job of accounting for such behavior variables. Please note this is all relative to the general field of economics, however, which seems to fall somewhere between meteorology and astrology in terms of scientific rigor.

The first goal of a business is to ensure its profitability. The first goal of a politician is to ensure his own re-election. The first goal of government is to justify its own existence. Agencies and bureaucrats who produce studies showing that the shiny new legislation is so much yak caca will not long linger.

EDIT: As far as being relevant to your point: You indicated your distrust in the numbers generated by the people who have to bear the cost. I pointed out that the CBO is not a disinterested party, nor a party whose existence is based on its accuracy. The CBO's existence is predicated on its usefulness to whomever is on power. A long career is not crafted by telling the public that your bosses' new plan is stupid. (With one slight caveat; the bureaucrats do have some incentive to favor the Dems, since the Pubbies at least pretend to want to downsize government. It's entirely possible that some bureaucrats in the CBO actually still believe them.)

 

[1prophet]

Wait, we force companies to prove that the components sourced for their product must be proven by the company to meet a regulation for humanitarian reasons but,


if the product is made in China or other country under some of the worst humanitarian or environmental conditions that's ok,

because, if we ask them for similar compliance, especially China they would probably tell us to fuck off.

http://www.npr.org/templates/story/story.php?storyId=11428653

Congo and China Forge Economic Partnership


Don't worry if the USA doesn't want trade with Congo, China will be more than happy to pick up the slack.

 

[bfdd]

1prophet, people don't get that. they don't fucking understand that all of these nice things we want to do to "help" the world are fucking US OVER. The only way we're going to help these regions, is by showing them how good things can be. The only way we can do that is if we trade with them.

 

[Genx87]

Seems like you might have a point on this one Fern. Might be worth someone finding the actual relevant text in Dodd-Frank.

I will say one thing here. I do not trust estimates of regulatory cost from the National Association of Manufacturers, a lobby group whose sole purpose is to oppose any and all regulations. They are known to provide estimates which are 2 to 10 fold what CBO and other independent groups have estimated. Just recently there was a 10 to 1 discrepancy between their estimates of the cost of new emission regulations and the administration's estimate. While I wouldn't trust the administration's estimate outright either, I'm certainly not going to take the word of a lobbyist group, especially not one with that purpose and history.

Just thought I'd point that out since you evidently considered it authoritative enough to bold and underline it.

I wouldnt trust compliance cost estimates period.