INSIGHTS: THE WORSE REGULATION EVER PROPOSED
GUEST COLUMNIST: Adam Thierer, research fellow at the American Institute for Economic Research and a Senior research fellow at the Mercatus Institute. Permission to reprint.
Imagine a competition to design the most onerous and destructive economic regulation ever conceived. A mandate that would make all other mandates blush with embarrassment for not being burdensome or costly enough. What would that Worst Regulation Ever look like?
Unfortunately, Bill de Blasio has just floated a few proposals that could take first and second place prize in that hypothetical contest. In a new Wired essay, the New York City mayor and 2020 Democratic presidential candidate explains, “Why American Workers Need to Be Protected From Automation,” and aims to accomplish that through a new agency with vast enforcement powers, and a new tax.
Taken together, these ideas represent one of the most radical regulatory plans any America politician has yet concocted.
Politicians, academics, and many others have been panicking over automation at least since the days when the Luddites were smashing machines in protest over growing factory mechanization. With the growth of more sophisticated forms of robotics, artificial intelligence, and workplace automation today, there has been a resurgence of these fears and a renewed push for sweeping regulations to throw a wrench in the gears of progress. Mayor de Blasio is looking to outflank his fellow Democratic candidates for president with an anti-automation plan that may be the most extreme proposal of its kind.
First, de Blasio proposes a new federal agency, the Federal Automation and Worker Protection Agency (FAWPA), to “oversee automation and safeguard jobs and communities.” He continues:
“FAWPA would create a permitting process for any company seeking to increase automation that would displace workers. Approval of those plans would be conditioned on protecting workers; if their jobs are eliminated through automation, the company would be required to offer their workers new jobs with equal pay, or a severance package in line with their tenure at the company.”
Second, de Blasio proposed a “robot tax” that would be imposed on large companies “that eliminate jobs through increased automation and fail to provide adequate replacement jobs.” Those firms would “be required to pay five years of payroll taxes up front for each employee eliminated” and that revenue would be used to fund new infrastructure projects or jobs in new areas, including health care and green energy. “Displaced workers would be guaranteed new jobs created in these fields at comparable salaries,” he says.
Mayor de Blasio’s first idea would be one of the most far-reaching and destructive regulations in American history. A federal agency with “a permitting process for any company seeking to increase automation that would displace workers,” is essentially a political veto over workplace innovations at nearly every business in America. The result would be a de facto ban on productivity improvements across all professions.
After all, there aren’t too many sectors in the modern economy where automation isn’t playing at least a limited role. Even the oldest agricultural and industrial sectors and professions have undergone a certain amount of automation over time, and continue to do so today. These automation improvements have been essential to growing businesses and the economy more generally.
These automation advancements also create new and better jobs. It isn’t always clear initially how automation will affect workers, but the evolution of markets and innovations always provides interesting, and usually beneficial, surprises.
For example, in the early 1980s, many feared ATMs would make all bank tellers irrelevant. Instead, we got more bank workers, but they are now doing different jobs. How would de Blasio’s plan have worked back then? Would his regulatory permitting process have vetoed banking innovations such as ATMs or online banking in the name of protecting workers from automation and potential job losses, which never even materialized?
Now magnify this challenge across the entire American economy and ask how these decisions will be made for every business that is considering some form of workplace automation that could theoretically affect workers, but in ways that are difficult to foresee.
This is one reason why de Blasio’s proposal would quality for the Worst Regulation prize. It would let bureaucrats at the new Federal Automation and Worker Protection Agency sit in judgment of what constitutes beneficial forms of innovation and ask them to predict or plan our technological future.
This is a recipe for economic stagnation because these new FAWPA regulators would, like most other regulators, be incentivized to play it safe and disallow more automations than they approve. The precautionary principle would triumph over permissionless innovation; innovators would be treated as guilty until proven innocent in the resulting political circus.
Mayor de Blasio’s proposed robot tax is equally misguided. Robert D. Atkinson, president of the Information Technology and Innovation Foundation, and Robert Seamans, associate professor at NYU’s Stern School of Business, have both written about the dangers of the idea.
“The last thing policymakers should do is reduce the incentive for companies to invest in new machinery and equipment, as that would slow down needed productivity growth,” argues Atkinson in his study on, “The Case against Taxing Robots.” Likewise, Seamans notes that, in many cases, “robots are complements to labor, not substitutes for labor.” Therefore, “a robot tax would make it harder to achieve productivity growth,” and, he says, “may perversely lead to fewer rather than more jobs.”
Both scholars also point out the definitional difficulty associated with efforts to define what constitutes a “robot,” or “automation.” That problem will only be compounded once regulatory proceedings begin and various special interests begin lobbying lawmakers and regulators for favorable classifications and exemptions to avoid new rules and taxes—or get them imposed on potential competitors. Rather than helping consumers and workers, this will limit choices and drive up prices.
Importantly, regulating robots also means regulating their underlying software algorithms, which means Washington will need to send in teams of code cops to control programmers. At some point that could raise serious free speech issues since computer code can be a form of protected speech under the First Amendment. Practically speaking, however, we may not have to worry about that result because de Blasio’s command-and-control scheme would discourage many people from becoming programmers or roboticists in the first place. All those jobs and businesses would move offshore pretty quickly and America’s competitive standing would suffer globally.
It is tempting to dismiss Mayor de Blasio’s extreme proposals as a desperate move to appeal to the far-left wing of the Democratic Party base and win some more possible votes for the nomination. He likely won’t get the nomination, but his call for radical regulation of robotics in the name of protecting workers may move the party further toward the fringe by encouraging other candidates to concoct similar plans. Of course, it would be nearly impossible for any other candidate to outdo de Blasio’s plan without essentially just calling for an outright ban on robotics and all forms of automation altogether. Let’s hope that’s not next up in the competition for Worst Regulation Ever.
ON THE ECONOMY: OIL IN MY LAMP
John Dunham, Managing Partner, John Dunham & Associates
Give me oil in my lamp, keep me burning. Give me oil in my lamp I pray. Give me oil in my lamp, keep me burning. Keep me burning till the break of day. These are pretty much the lyrics from the Byrds version of an old Christian hymn, released in November of 1969 on the band’s album Ballad of Easy Rider. The album featured the theme song from film, Easy Rider, although most of the music on the it was not related to the movie. The song Oil in My Lamp was arranged by Gene Parsons and Clarence White.
Oil, or to be exact petroleum, has been important for human society since as early as 4,000 BC when an oil seep on the banks of the Euphrates river was quarried for asphalt that was used in construction and as a form of waterproofing. Oil was discussed in the Bible both as a coating for Moses’ basket and as a waterproofing agent for Noah’s Ark.
Historically petroleum has been used for medicinal benefits, as a bonding agent and even (in a hardened form) as knife blades.
It has also been used as a form of fuel, at least since about 400 BC when the Chinese were using both oil and natural gas for heating. But it was not until a British chemist named James Young developed a way to distill petroleum into an oil suitable for use as lamp oil – kerosene, that demand for petroleum really took off. Since then, the use of petroleum to heat and fuel society has blossomed and petroleum is now one of the world’s largest and most important industrial sectors.
The importance of petroleum is evident given the many wars fought over its control. Both World War I and II were in many cases about the control of usable petroleum reserves. The more recent Gulf Wars, were obviously about the defense of important oil reserves and production facilities in the Middle East. Literally hundreds of thousands of lives and trillions of dollars in treasure have been devoted to controlling and defending the world’s oil fields.
This is why the recent attack on two of the world’s largest production and processing facilities is so important. On September 14, drones were used to attack oil processing facilities at Abqaiq and Khurais in eastern Saudi Arabia. While Yemeni rebels claimed responsibility for the attacks, most Western countries have laid the blame squarely on the government of Iran. The resulting damage reduced Saudi Arabia’s oil production by about half, or about 5 percent of global oil production. Even though Saudi Arabia’s energy ministry said the country would tap into its oil reserves to maintain export levels in the short term, prices spiked briefly but soon came back to rates just above where they were before the attack.
While this is good news for the economy, it does not make a whole lot of sense from either a financial or an economic perspective. Saudi Arabia produces roughly 12 percent of the world’s oil, and is the 2nd largest producer after the United States. One would have thought the large-scale attacks would highlight the vulnerability of this production and increase the level of risk associated with supply and therefore the price of oil.
In addition, world production and consumption have been growing at a very similar rate for some time now, meaning that the markets are in equilibrium. Any dramatic loss of supply should result in much higher prices.
Neither of these two things appear to have happened. Why might this be the case?
One reason why the market was so blasé over the loss of 5 percent of world production is that there are ample inventories available to dampen short term shocks. According to the US Department of Energy, the OECD countries currently have about 65 days of inventories on hand, and this does not even include the stocks maintained by OPEC countries.
In addition, dramatic changes in the ability of the United States to ramp up production quickly using existing wells provides an additional buffer. This may be the most important reason why markets did not react more dramatically to the attack. Over the past three years, production in the United States has increased by 38.6 percent. This is a far cry from the 20 percent increase in production between 1990 and 2016. There are several contributing factors including new technology that has made it less expensive to develop smaller and more difficult to access shale oil deposits, low interest rates, and the extensive deregulation by the Trump Administration that has made it less expensive to produce. While Saudi Arabia lost 5.7 million barrels of production a day following the attacks, US production is already up by 200,000 barrels per day just this year.
Finally, many oil watchers are worried about world economic growth. Weakening economies particularly in Europe and China, and the threat of a trade war or a hard Brexit are all keeping growth forecasts low. Low growth tends to mean less demand for oil and traders are betting on falling demand and a lack of cohesion among the OPEC countries to keep supplies flowing.
While it is a good bet that the world economy will be moving toward recession, this does not mean that demand will fall as much as in past slowdowns. More of the world economy is service based than in the past, so slowdowns are not as damaging to oil markets. Paradoxically, recession could also pull assets out of savings which would lead to higher interest rates and with those less production in US shale fields. Finally, while inventories have been rising, in terms of days of demand they have been flat.
Low oil prices are a blessing in the short term, but they also discourage production in the long term. We will always need oil in our lamps to keep us burning till the break of day. If the assumptions in markets are incorrect about the future, we just may have to dim our lamps.