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Sean Hackbarth Emeril Lagasse

In the PR blitz for this new reality television show On the Menu, celebrity chef Emeril Lagasse went BAM! on the struggles restaurateurs face in this economy, The Week reported. “I have nowhere to really go other than broke,” he said and continued:

It's becoming a very challenging industry to become a very successful average restaurateur. I can't charge $300 a person in my restaurant or I would not be in business. Am I using any different ingredients? Not really. Am I using any caliber of service staff? I don't think so. I think our service is as good or better than most places.

And then you add all the Obama nonsense to what it's become in the last several years. I don't have anything against Mr. Obama. I'm just saying the way that, you know... the government should stay out of things.

A Wall Street Journal story quoted him as saying:

The margins are becoming very difficult, where there are a lot of months that I don’t have margin.

It’s not that I’m a bad operator. It’s just the economics of the way that things are happening—the way that it’s been stacked up.

While Lagasse didn’t mention any specifics, here are four policy areas where federal officials have made it harder for restaurateurs—and other small business owners--to succeed.

1. Obamacare

Obamacare’s employer mandate reduced full-time employment from its traditional 40-hours-per-week definition down to 30-hours-per-week. This forces “employers [like restaurants] to restructure their workforce by reducing their employees’ hours to alleviate the burden of compliance.” For Boise, ID restaurant owner Kevin Settles, this meant he had to “put raises and expansion plans on hold as he figured out the cost and logistics of making the changes.”

2. Overregulation

Entrepreneurs told John Dearie, executive vice president at the Financial Services Forum and co-author of Where the Jobs Are: Entrepreneurship and the Soul of the American Economy, that one of their biggest frustrations is overregulation: “One recurring message is that regulatory burden, complexity, and uncertainty is undermining entrepreneurs’ ability to successfully launch new businesses, expand, and create jobs.” A recent Gallup poll found that nearly half of Americans (49%) agree that there is too much regulation. “[R]egulation is not free, or without consequence. Regulation imposes costs—costs borne principally by businesses,” Dearie writes.

3. Minimum Wage Increase

President Obama and Members of Congress have argued that the minimum wage should be increased—bad idea. That would add additional burdens on restaurant owners and other small business. My colleague Sheryll Poe wrote about how that would hurt one Alexandria, VA cupcake baker:

Jody Manor, owner of Bittersweet Café and the new Waterfront Market and Café in Alexandria, Virginia was on FoxBusiness News to talk about President Obama’s State of the Union.

Manor, who notes that he started his restaurant career as a dishwasher when he was 14 years old, said the president’s plan to increase the minimum wage to $10.10 an hour would mean he’d have to “raise prices to pay those wages.”

4. Energy

Restaurant owners want to make sure the lights stay on, but proposed federal regulations that eliminate coal-fired power plants will raise electricity prices and reduce reliability.

Opening a restaurant is risky enough (as is any business). Government policy shouldn’t worsen those odds. 

Sean Hackbarth Neverland Dream oil tanker in Singapore.Photographer: Munshi Ahmed/Bloomberg.

Because of entrepreneurship and innovation, the United States is in the midst of a spectacular oil boom, as you can see in the chart below.

 January 1920 - August 2014U.S. Crude Oil Production: January 1920 - August 2014Source: Mark Perry.


Jobs are being created, cities and towns are experiencing tremendous economic growth, its effects reach all corners of the country, and oil imports are rapidly declining.

To maintain this momentum, it’s time to end the 40-year old ban on oil exports. If companies can sell on the global market, they will have a greater incentive to develop more American energy.

The Washington Post’s Robert Samuelson makes the case for lifting the ban:

If you want companies to search for oil, you have to provide them with a viable market where they might profitably sell it. As output has increased, this has become a bigger issue. Here’s why.

The new oil consists mostly of “sweet, light” crudes, meaning they have a low sulfur content and are less dense than “sour, heavy” crudes. The trouble is that many U.S. refineries have been designed to process heavy, sour crudes and, therefore, aren’t suitable for the new oil. At the end of 2013, the United States had 115 oil refineries capable of processing about 18 mbd, according to a report from the Congressional Research Service. About half were fitted for sour and heavy crudes. That’s especially true along the Gulf of Mexico coast, where more than half of U.S. refining capacity is located.

The result is that more and more new oil is chasing less and less usable refining capacity. Refineries’ bargaining power rises. Producers have to accept price discounts to sell their oil.

He goes on to point out that by maintaining the export ban, “producers will be discouraged by an oil market that seems rigged against them. They will react by slowing — or possibly stopping — new exploration. The oil boom will ebb or end.” And with it will go the jobs and economic growth.

Research supports the argument that allowing American oil to be exported will mean more jobs and investment. As I wrote in May:

A study by IHS concludes that opening markets for U.S. crude would spur domestic investments oil production. From 2016-2030 an additional $746 billion would be invested and an additional 1.2 million barrels per day of oil would be produced per year. This would translate into an additional 394,000 jobs per year with a peak of 964,000 in 2018.

We’ve gone from worrying about energy scarcity and rising oil imports to supporting America’s energy abundance. Times have changed, and policies must follow.

Sean Hackbarth Broken windowImage credit: Elvert Barnes. Licensed under a Creative Commons Attribution 2.0 Generic license.


EPA’s Gina McCarthy gave a speech to Resources for the Future defending EPA’s proposed carbon regulations on economic grounds. However, the crux of her argument is based on a logical fallacy that will be costly to jobs and the economy.

Here are two passages from her speech:

Climate action is not just a defensive play, it advances the ball. We can turn our challenge into an opportunity to modernize our power sector, and build a low-carbon economy that’ll fuel growth for decades to come.

Not only is global climate action affordable, but it could actually speed up economic growth.

In her mind, new mandates and regulations that end coal (and eventually natural gas) use in electricity generation will result in jobs and economic growth. McCarthy mentions that smart economists helped develop EPA’s carbon plan. However like her, they succumb to the “broken window” fallacy. This is the logical misconception that generating jobs and economic activity by breaking things is good for society.

In his essay, “That Which is Seen, and That Which is Not Seen,” the French economist Frédéric Bastiat tells the parable of the broken window:

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade - that it encourages that trade to the amount of six francs - I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

One unseen cost of EPA’s attempt to restructure the power grid, will be the shutdown of reliable coal-fired power plants. For instance, Duane Highley, CEO of Arkansas Electric Cooperative Corp. and Arkansas Electric Cooperatives Inc., told Arkansas Business he “would prefer to invest in scrubbers” for the 1,480-megawatt plant near Redfield, “and let it run for another 20 or 30 years” rather than shut it down.

What’s more, enormous investments that have already been made to many of these plants to make them meet other EPA standards. Take the Ferry Power Station in Hatfield, PA. The plant’s owner installed $650 million of scrubber technology in 2009, but closed it four years later because of more EPA regulations.

During a July 23 hearing of the Environment and Public Works Committee, Senator Deb Fischer (R-NE) summed it up when she said that EPA’s regulations will

force the premature retirement of efficient, low-cost coal-fueled generation; lead to the potential loss of billions of dollars in investments made over the last decade to make coal plants cleaner; require construction of higher-cost replacement generation; and increase natural gas prices.

Let’s not forget some of the significant costs that we will see. EPA estimates that its regulations will mean electricity price increases of six to seven percent nationally in 2020, and as much as 12% in certain places. There are also the job losses. The United Mine Workers expects over 152,000 jobs lost in the coal sector by 2035.

(We could have a clearer understanding of the proposed carbon rule’s job effects but EPA has failed to do the analysis.)

All these seen and unseen costs, and for what? Minimal global impact, as the Institute for 21st Century Energy’s Matt Letourneau notes:

The reduction in emissions from EPA’s rule would actually only decrease global emissions by 1.3%.  Based on projections from the U.S. Department of Energy, the amount of carbon dioxide emissions that will be reduced from EPA’s power plant rule is equivalent to just 13.5 days of Chinese emissions in 2030!

McCarthy can puff up the economic benefits of EPA’s carbon regulations all she wants. By using a little bit of logic and looking at the facts, we can see her agency’s plan will be a millstone on the economy. Just as a concerted effort to break windows doesn’t benefit the economy, forcing the restructuring of the power grid is not a path to sustained economic growth.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

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Sean Hackbarth  Ty Wright/Bloomberg.Drilling pipes stacked at a hydraulic fracturing site atop the Marcellus shale rock formation in Pennsylvania. Photographer: Ty Wright/Bloomberg.


Over 50 years ago, Leonard Read wrote a short story, "I, Pencil," that explains how no one person on earth has the capability of making a pencil all by himself. The late Nobel Prize-winning economist, Milton Friedman, popularized the story in his PBS television series, Free to Choose.

Just as no one person can make something as basic as a pencil, no one person or company can get oil or natural gas out of shale rock. It takes hosts of people and companies working together to make the materials and equipment and provide the services needed for shale development.

How many people exactly?

A report produced by IHS for the Energy Equipment and Infrastructure Alliance finds that in 2012, 524,000 people worked in the supply chain industries that support shale energy development, and they earned over $41 billion in earnings. IHS expects the number of jobs in these industries to grow to 757,000 with earnings reaching almost $60 billion by 2025.

The chart below gives you a sense of how extensive the supply chain network is that supports shale energy from when it comes out of the ground (upstream) to when it's delivered to a consumer (downstream).

Shale energy development supply chain chart made by IHS.Shale energy development supply chain chart made by IHS. Materials

A lot of materials go into building an oil or natural gas well where horizontal drilling and hydraulic fracturing are performed (pipe, cement, sand). In addition, constructing pipelines and infrastructure needed to transport and store the energy require steel, cement, and other materials.

Capital Goods

Equipment like cranes, trucks, drilling rigs, pumps, and welding equipment are used to construct wells, pipelines, and other infrastructure.

Here’s one example:

[T]hroughout the upstream and midstream sectors, earth-moving construction machinery is necessary to excavate impoundment ponds, prepare access roads, dig pipeline trenches, and prepare the site of a natural gas processing plant. Thus while the original equipment manufacturers benefit from unconventional  development, so do the steel plate producers, metal fabricators, and machine tool shops that create the inputs for finished machinery that end up on upstream and midstream worksites.

Construction and Well Services

For oil and natural gas wells, workers prepare well pads, drill deep into the ground, and construct the wells. For infrastructure, workers build pipelines, pump stations (for oil), and compressor stations (for natural gas), refining and export facilities, as well as roads and other public infrastructure.

Professional Services

A host of professional services are needed: Civil and environmental engineering; waste disposal; land and right-of-way services; accounting; insurance; etc.

Logistics

Until someone invents a Star Trek-like transporter that makes materials magically appear someplace, shale energy development depends on trucks and rail to move pipe, equipment, sand, and water.

An American Petroleum Institute survey lists more than 30,000 companies in every state and the District of Columbia that support oil and natural gas development. As the shale energy boom continues, job creation will also.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

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Sean Hackbarth Electric meter from Nashville Electric Service.Photographer: Casey Fleser. Licensed under a Creative Commons Attribution 2.0 Generic license.


Peter Roff, a senior fellow at Frontiers of Freedom, writes in the Washington Examiner about EPA’s proposed carbon regulations and the effects of driving coal use into oblivion:

The proposed EPA regulations behind all this will change the system of power generation in fundamental ways; by the agency’s own estimates, nationwide electricity prices will increase 6 or 7 percent, in some cases as much as 12 percent.

Closing down coal-fired utility plants will drive up consumer costs because there isn’t a way to replace the base power load these plants generate. Consequently, ratepayers can expect sharp increases in their monthly bills and must prepare for the eventual reality that there may not be enough energy available on the grid to permit Americans to heat and cool their homes, power their businesses, or drive the manufacturing renaissance many business economists expect over the next five years.

Higher energy costs will mean added financial stress and increased energy insecurity for many Americans, concludes two Senators on the Energy and Natural Resources Committee. Senators Lisa Murkowski (R-AK) and Tim Scott (R-SC ) write:

Even in the land of energy plenty, however, too many Americans suffer from energy insecurity; they cannot afford the energy required to heat or cool their homes or secure other basic needs such as refrigeration.

The report finds, “Almost three million households or 7 million people will enter energy insecurity across the country if household energy costs increase by 10 percent.” And if home energy costs increase by 10%, “more than 300,000 additional households with over 840,000 Americans would be pushed below the poverty line.”

As a result, higher energy prices “often crowd-out or eliminate other household essentials including food, clothing, medical care, and education.” In addition, those enduring energy insecurity are more likely to pay to increase their personal debt and more likely to be late on bill payments.

Earlier this year, the Energy Department predicted that retail power prices will rise by 4% in 2014 and rise by 13% by 2020. Some of this is due to federal regulations. Imagine if EPA's proposed carbon regulations go into effect and push coal out of America's energy mix? Reduced energy diversity will mean higher electricity costs.

To mitigate the impacts of energy cost increases on Americans’ energy security, Murkowski and Scott recommend “encouraging—or at least not actively disadvantaging—the supply of low-cost sources of electricity and heating fuels, and taking steps to minimize cost increases arising from emerging energy resources.”

A good start would be for EPA to abandon its costly and ineffective proposed carbon regulations. Dan Byers, senior director for policy at the U.S. Chamber of Commerce's Institute for 21st Century Energy, told the Platts’ Coal Marketing Days conference in Pittsburgh, “The rest of the world wants electricity, and coal is going to deliver it. Global emissions are going to go up no matter what we do," he said.

We can't afford to push coal--an abundant, affordable fuel--out of the energy mix.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

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