On Friday, an average American spent the entire day with the federal government without ever leaving his home. No, there was no knock on his door by some plain-clothes Gestapo. Neither was he treated to one of those infamous “no-knock raids” where a small army of thugs with various acronyms spelled out on their backs burst into the homes of the innocent and terrorize whomever happens to cross their paths. Nothing so dramatic happened that day. However, the long arm of the federal government made itself equally palpable nonetheless.
The first thing that he tried to do that day seemed innocuous enough. Being a native of Western New York and now living in Florida, he attempted to schedule a pick-up to ship some freshly-picked Florida oranges to a friend back home. He had purchased the oranges from a local orchard a day earlier, putting aside about two dozen for his friend in the wintry north. Anyone who has eaten oranges fresh from the tree here in Florida can tell you what a difference there is in freshness and taste from those purchased in grocery stores in the north when they are several days or weeks older. There is also a significant difference in price, especially this time of year. Oranges in Florida cost about $.40 per orange, while those same oranges cost about $1.50 each when purchased in Western New York.
For all of these reasons, our average American decided to do something nice and send a couple of dozen freshly picked oranges up north. That’s when he had his first encounter with the federal government. It turns out that what he was attempting to do was extremely dangerous and therefore prohibited by USDA regulations. According to the USDA website,
Under current federal regulations, all shipments of fresh citrus are prohibited from leaving Florida unless they meet certain requirements, including:
• Inspection of the grove within 30 days of harvest;
• Treatment of the fresh fruit with a special decontaminant;
• Issuance of a federal limited permit that must accompany the fruit. The limited permit confirms that the inspection and treatment have been carried out; and
• Clear marking on the packages to indicate the fruit is prohibited from being delivered to other citrus-producing states.
The reason given for these regulations is that they are “designed to prevent the spread of citrus canker to other citrus-producing states while preserving Florida’s fresh fruit citrus market.” Surely the reader is familiar with citrus canker - that pandemic scourge that rivals swine flu in its danger to all of humanity if not for the federal government and its regulations.
There are a few consequences of this legislation that the government would have us believe are purely coincidental. The first is that the federal government is now authorized to collect a tax, which is all the fee for the “limited license” really is. The second is that citrus growers are effectively insulated by law from any out-of-state competition. Ironically, the federal government supposedly derives its authority to impose such a regulation from the commerce clause of the Constitution – which was written to prevent protectionism by the states!
The effect of these regulations is that consumers everywhere – in citrus producing and non-citrus producing states – pay higher prices for oranges. For those states without citrus growers, the licensing costs and higher costs due to limited shipping options are passed on to consumers. This is what explains Western New Yorkers paying $1.50 per orange. Even in citrus producing states, consumers pay a higher price than they otherwise would if their in-state growers had to compete with out-of-state growers freely shipping their products into the market. Of course, the government and its “progressive” supporters would have us believe that these are merely necessary costs of public safety. It couldn’t be that large, corporate citrus producers had anything to do with lobbying for and perhaps even writing these regulations, could it? Surely, the additional profits and insulation from competition are purely coincidental, aren’t they?
Having resigned himself that he could not ship the oranges himself without the federal license, which was not cost-effective for two dozen oranges, our subject acquiesced to send the oranges directly from an orchard licensed to ship out of state (at a premium price) and moved on to his next order of business. He needed a furnace for one of his rental properties. Being a small businessman who owned or managed approximately 100 properties, it was his responsibility to repair or replace any home appliances that ceased functioning. As a furnace is a significant cost for a small business, he consulted a well-known internet resource to see if he could get a deal on purchase and installation. He found several vendors advertising low-cost installations for home furnaces.
The cost of the home furnace that he selected was about $800. The cost to have a licensed HVAC contractor install the appliance was approximately $1,700 (remember this is New York), for a grand total of $2,500. The vendor on the internet worked for one of the established HVAC contractors that sell and install these appliances. He was offering to sell the furnace at the advertised price of $800 and install it for $300. This represented a savings of $1,400 – significant for a small property management company. When the small businessman offered to accept the offer and pay by credit card, the internet vendor educated him on what was going on. The transaction would have to be executed in cash, because it would be in violation of federal regulations. Not wishing to run afoul of the law, the small businessman declined and acquiesced to pay the $2,500.
It should be remembered that the vendor was not offering to sell stolen goods. He was selling the actual furnace at the same price that the HVAC contractor was selling it at. The internet vendor was merely offering to do the installation labor at what amounted to a real market cost of about $300. Why can the HVAC contractor charge $1,700 to send the exact same technician to install the exact same furnace? Only because it belongs to a cartel that is created by federal regulation and licensing requirements. Again, the reason given is public safety. We can’t have just anyone installing HVAC equipment or we would all be blown up within a week. It couldn't be that large, corporate manufacturers and HVAC contractors associations lobby the government to pass these competition-stifling regulations, could it?
What did our average American businessman do next to garner the attention of the federal government? Nothing. Frustrated and having spent an inordinate amount of time on two seemingly simple activities, he decided to call it a day. However, the fact that he was sitting in his home doing nothing does not necessarily mean that he was free from federal intrusion. While reading some personal e-mails, one popped into his inbox from his financial advisor. It concerned his IRA.
A few years earlier, he had decided to take a portion of his retirement savings out of his traditional 401K and put it into an IRA with a company that specialized in foreign stocks. His strategy was to protect his savings from the ongoing depreciation of the U.S. dollar and the structural weakness of the U.S. economy in general, which was and is based almost purely on consumption and borrowing. The firm with which he opened his account invested his retirement money in foreign companies with strong balance sheets that were paying dividends. Overall, the investment strategy was sound and relatively conservative. In any case, it was his money to do with as he saw fit. Or so he thought.
It seems that since “the crisis,” the federal government had taken an interest in him in this respect as well – as always for his “protection.” His broker informed him that a “Client Profile” that he had been required by federal law to fill out upon opening his account had to be filled out again. However, since the company that he opened the IRA with specialized in foreign stocks, he now had to mark “Speculation” on his risk profile. The company had to have this signed affidavit on file in order to legally continue to manage his account. This was all designed to protect him from unscrupulous fund managers who might buy foreign stocks with his retirement money without telling him how risky said foreign investments might be.
Absurdity abounds in this regulation. The stocks in our subject’s portfolio all had strong balance sheets (modest debt-to-equity ratios) and were paying dividends. To invest in these, according to our government, is “speculation.” However, to invest in U.S. Treasury bonds – the bonds of an enterprise that is currently losing $1.6 trillion per year, has over $12 trillion in debt, and over $60 trillion in unfunded liabilities – would qualify as “low risk.” However, there is more to this story than pure government incompetence.
Consider the effects of a regulation such as this. There is some percentage of people who wisely got out of U.S. stocks and U.S. dollar-denominated assets in general over the past several years. However, after the misinformed propaganda campaign by our government against speculators as the cause of the recent financial and economic crises, there are a number of reasons that those people might not want to be labeled as “speculators” themselves. They might erroneously perceive speculation as unpatriotic or even evil, given what they have heard. The less gullible might fear more onerous federal actions against them once they are officially identified as speculators. In any case, this regulation is going to cause some people to close their accounts with companies that deal in foreign stocks or at least shift their assets back to U.S. stocks.
This is going to have the effect of raising the price of those U.S. stocks that these “speculators” decide to buy. That price increase does not represent real market forces at work, because without the regulation, the investors would have left their money in the foreign companies. Again, this is supposedly the unintended consequence of a regulation that is nevertheless necessary to protect the public. Who just happens to benefit? As usual, it is the large corporations whose stock prices will appreciate and who also just happen to fund the campaigns of the people who passed the regulation in the first place. Doesn’t anyone see a pattern here?
None of these regulations actually benefit the public. The citrus and furnace consumers pay exorbitantly higher prices and are certainly no safer from danger because the corporate cartel member filled out a government form and paid a licensing fee. How many people have to die from FDA-approved drugs (or from the unavailability of unapproved drugs) before this is sufficiently clear to average Americans? In the case of the foreign stock investor, he is actually harmed by the regulation if as a result of it he takes his money out of safe, foreign investments in viable companies and puts it into shaky U.S. corporations or soon-to-be-downgraded U.S. Treasury debt.
Progressives supposedly support these regulations in order to protect average Americans from the large corporations that they vilify at every opportunity. As we have seen ever since their hero, FDR, instituted this fascist regulatory structure in the 1930’s, they achieve exactly the opposite result. With each new set of regulations, large corporations grow richer, more influential, and more insulated from competition – all at the expense of the “little guy” that the regulations supposedly protect. To quote another progressive hero from the 1960’s, “When will they ever learn?”
Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!
© Thomas Mullen 2010